Monday, August 22, 2005

Globalization (Economic Liberalism) and Global Order

Neoliberalism and Global Order
- Noam Chomsky, Massachusetts Institute of Technology, Professor, Department of Linguistics and Philosophy.

WHAT WE FILIPINOS SHOULD KNOW: The term "neoliberalism" sounds political. While "globalization" sounds benign and thus many of us, the so-called educated ones, love the word. It makes us sound cool and modern.

Unfortunately, in the real world, globalization has brought only more misery to our fellow countrymen left in the homeland. After its full embrace by our so-called leaders in government in 1995, we and the greatly ignorant majority, have felt and seen firsthand its disastrous effect on the people and society. And we, the so-called educated ones, still do nothing to educate, fight and protect our people and homeland. See[]. [] []


I would like to discuss each of the topics mentioned in the title: neoliberalism and global order. The issues are of great human significance and not very well understood. To deal with them sensibly, we have to begin by separating doctrine from reality. We often discover a considerable gap.

The term "neoliberalism" suggests a system of principles that is both new and based on classical liberal ideas: Adam Smith is revered as the patron saint. The doctrinal system is also known as the "Washington consensus," which suggests something about global order. A closer look shows that the suggestion about global order is fairly accurate, but not the rest. The doctrines are not new, and the basic assumptions are far from those that have animated the liberal tradition since the Enlightenment.

The Washington Consensus
The neoliberal Washington consensus is an array of market oriented principles designed by the government of the United States and the international financial institutions that it largely dominates, and implemented by them in various ways-for the more vulnerable societies, often as stringent structural adjustment programs. The basic rules, in brief, are: liberalize trade and finance, let markets set price ("get prices right"), end inflation ("macroeconomic stability"), privatize. The government should "get out of the way"-hence the population too, insofar as the government is democratic, though the conclusion remains implicit. The decisions of those who impose the "consensus" naturally have a major impact on global order. Some analysts take a much stronger position. The international business press has referred to these institutions as the core of a "de facto world government" of a "new imperial age."

Whether accurate or not, this description serves to remind us that the governing institutions are not independent agents but reflect the distribution of power in the larger society. That has been a truism at least since Adam Smith, who pointed out that the "principal architects" of policy in England were "merchants and manufacturers," who used state power to serve their own interests, however "grievous" the effect on others, including the people of England. Smith's concern was "the wealth of nations," but he understood that the "national interest" is largely a delusion: within the "nation" there are sharply conflicting interests, and to understand policy and its effects we have to ask where power lies and how it is exercised, what later came to be called class analysis.

The "principal architects" of the neoliberal "Washington consensus" are the masters of the private economy, mainly huge corporations that control much of the international economy and have the means to dominate policy formation as well as the structuring of thought and opinion. The United States has a special role in the system for obvious reasons. To borrow the words of diplomatic historian Gerald Haines, who is also senior historian of the CIA, "Following World War II the United States assumed, out of self-interest, responsibility for the welfare of the world capitalist system." Haines is concerned with what he calls "the Americanization of Brazil," but only as a special case. And his words are accurate enough.

The United States had been the world's major economy long before World War II, and during the war it prospered while its rivals were severely weakened. The state-coordinated wartime economy was at last able to overcome the Great Depression. By the war's end, the United States had half of the world's wealth and a position of power without historical precedent. Naturally, the principal architects of policy intended to use this power to design a global system in their interests.
High-level documents describe the primary threat to these interests, particularly in Latin America, as "radical" and "nationalistic regimes" that are responsive to popular pressures for "immediate improvement in the low living standards of the masses" and development for domestic needs. These tendencies conflict with the demand for "a political and economic climate conducive to private investment," with adequate repatriation of profits and "protection of our raw materials"-ours, even if located somewhere else. For such reasons, the influential planner George Kennan advised that we should "cease to talk about vague and unreal objectives such as human rights, the raising of the living standards, and democratization" and must "deal in straight power concepts," not "hampered by idealistic slogans" about "altruism and world-benefaction"- though such slogans are fine, in fact obligatory, in public discourse.

I am quoting the secret record, available now in principle, though largely unknown to the general public or the intellectual community.

"Radical nationalism" is intolerable in itself, but it also poses a broader "threat to stability," another phrase with a special meaning. As Washington prepared to overthrow Guatemala's first democratic government in 1954, a State Department official warned that Guatemala had "become an increasing threat to the stability of Honduras and El Salvador. Its agrarian reform is a powerful propaganda weapon; its broad social program of aiding the workers and peasants in a victorious struggle against the upper classes and large foreign enterprises has a strong appeal to the populations of Central American neighbors where similar conditions prevail."

"Stability" means security for "the upper classes and large foreign enterprises," whose welfare must be preserved. Such threats to the "welfare of the world capitalist system" justify terror and subversion to restore "stability." One of the first tasks of the CIA was to take part in the large-scale effort to undermine democracy in Italy in 1948, when it was feared that elections might come out the wrong way; direct military intervention was planned if the subversion failed. These are described as efforts "to stabilize Italy." It is even possible to "destabilize" to achieve "stability." Thus the editor of the quasi-official journal Foreign Affairs explains that Washington had to "destabilize a freely elected Marxist government in Chile" because "we were determined to seek stability." With a proper education, one can overcome the apparent contradiction.

Nationalist regimes that threaten "stability" are sometimes called "rotten apples" that might "spoil the barrel," or "viruses" that might "infect" others. Italy in 1948 is one example. Twenty-five years later, Henry Kissinger described Chile as a "virus" that might send the wrong messages about possibilities for social change, infecting others as far as Italy, still not "stable" even after years of major CIA programs to subvert Italian democracy. Viruses have to be destroyed and others protected from infection: for both tasks, violence is often the most efficient means, leaving a gruesome trail of slaughter, terror, torture, and devastation.

In secret postwar planning, each part of the world was assigned its specific role. Thus the "major function" of Southeast Asia was to provide raw materials for the industrial powers. Africa was to be "exploited" by Europe for its own recovery. And so on, through the world.

In Latin America, Washington expected to be able to implement the Monroe Doctrine, but again in a special sense. President Wilson, famous for his idealism and high moral principles, agreed in secret that "in its advocacy of the Monroe Doctrine the United States considers its own interests." The interests of Latin Americans are merely "incidental," not our concern. He recognized that "this may seem based on selfishness alone," but held that the doctrine "had no higher or more generous motive." The United States sought to displace its traditional rivals, England and France, and establish a regional alliance under its control that was to stand apart from the world system, in which such arrangements were not to be permitted.

The "functions" of Latin America were clarified at a hemispheric conference in February 1945, where Washington proposed an "Economic Charter of the Americas" that would eliminate economic nationalism "in all its forms." Washington planners understood that it would not be easy to impose this principle. State Department documents warned that Latin Americans prefer "policies designed to bring about a broader distribution of wealth and to raise the standard of living of the masses," and are "convinced that the first beneficiaries of the development of a country's resources should be the people of that country." These ideas are unacceptable: the "first beneficiaries" of a country's resources are U.S. investors, while Latin America fulfills its service function without unreasonable concerns about general welfare or "excessive industrial development" that might infringe on U.S. interests.

The position of the United States prevailed, though not without problems in the years that followed, addressed by means I need not review.

As Europe and Japan recovered from wartime devastation, world order shifted to a tripolar pattern. The United States has retained its dominant role, though new challenges are arising, including European and East Asian competition in South America. The most important changes took place twenty-five years ago, when the Nixon Administration dismantled the postwar global economic system, within which the United States was, in effect, the world's banker, a role it could no longer sustain. This unilateral act (to be sure, with the cooperation of other powers) led to a huge explosion of unregulated capital flows. Still more striking is the shift in the composition of the flow of capital. In 1971, 90 percent of international financial transactions were related to the real economy-trade or long-term investment-and 10 percent were speculative. By 1990 the percentages were reversed, and by 1995 about 95 percent of the vastly greater sums were speculative, with daily flows regularly exceeding the combined foreign exchange reserves of the seven biggest industrial powers, over $1 trillion a day, and very short-term: about 80 percent with round trips of a week or less.

Prominent economists warned over 20 years ago that the process would lead to a low-growth, low-wage economy, and suggested fairly simple measures that might prevent these consequences. But the principal architects of the Washington consensus preferred the predictable effects, including very high profits. These effects were augmented by the (short-term) sharp rise in oil prices and the telecommunications revolution, both related to the huge state sector of the U.S. economy, to which I will return.

The so-called "Communist" states were outside this global system. By the 1970s China was being reintegrated into it. The Soviet economy began to stagnate in the 1960s, and the whole rotten edifice collapsed twenty years later. The region is largely returning to its earlier status. Sectors that were part of the West are rejoining it, while most of the region is returning to its traditional service role, largely under the rule of former Communist bureaucrats and other local associates of foreign enterprises, along with criminal syndicates. The pattern is familiar in the third world, as are the outcomes.

In Russia alone, a UNICEF inquiry in 1993 estimated that a half-million extra deaths a year result from the neoliberal "reforms," which it generally supports. Russia's social policy chief recently estimated that 25 percent of the population has fallen below subsistence levels, while the new rulers have gained enormous wealth, again the familiar pattern of Western dependencies.
Also familiar are the effects of the large-scale violence undertaken to ensure the "welfare of the world capitalist system."

A recent Jesuit conference in San Salvador pointed out that over time, the "culture of terror domesticates the expectations of the majority." People may no longer even think about "alternatives different from those of the powerful," who describe the outcome as a grand victory for freedom and democracy. These are some of the contours of the global order within which the Washington consensus has been forged.

The Novelty of Neoliberalism
Let us look more closely at the novelty of neoliberalism. A good place to start is a recent publication of the Royal Institute of International Affairs in London, with survey articles on major issues and policies. One is devoted to the economics of development. The author, Paul Krugman, is a prominent figure in the field. He makes five central points, which bear directly on our question.

First, knowledge about economic development is very limited. For the United States, for example, two-thirds of the rise in per capita income is unexplained. Similarly, the Asian success stories have followed paths that surely do not conform to what "current orthodoxy says are the key to growth," Krugman points out. He recommends "humility" in policy formation, and caution about "sweeping generalizations."

His second point is that conclusions with little basis are constantly put forth and provide the doctrinal support for policy: the Washington consensus is a case in point.

His third point is that the "conventional wisdom" is unstable, regularly shifting to something else, perhaps the opposite of the latest phase-though its proponents are again full of confidence as they impose the new orthodoxy.

His fourth point is that in retrospect, it is commonly agreed that the economic development policies did not "serve their expressed goal" and were based on "bad ideas."

Lastly, Krugman remarks, it is usually "argued that bad ideas flourish because they are in the interest of powerful groups. Without doubt that happens."

That it happens has been a commonplace at least since Adam Smith. And it happens with impressive consistency, even in the rich countries, though it is the third world that provides the cruelest record.

That is the heart of the matter. The "bad ideas" may not serve the "expressed goals," but they typically turn out to be very good ideas for their principal architects. There have been many experiments in economic development in the modern era, with regularities that are hard to ignore. One is that the designers tend to do quite well, though the subjects of the experiment often take a beating.

The first major experiment was carried out two hundred years ago, when the British rulers in India instituted the "Permanent Settlement," which was going to do wondrous things. The results were reviewed by an official commission forty years later, which concluded that "the settlement fashioned with great care and deliberation has unfortunately subjected the lower classes to most grievous oppression," leaving misery that "hardly finds a parallel in the history of commerce," as "the bones of the cotton-weavers are bleaching the plains of India."

But the experiment can hardly be written off as a failure. The British governor-general observed that "the 'Permanent Settlement,' though a failure in many other respects and in most important essentials, has this great advantage, at least, of having created a vast body of rich landed proprietors deeply interested in the continuance of the British Dominion and having complete command over the mass of the people." Another advantage was that British investors gained enormous wealth. India also financed 40 percent of Britain's trade deficit while providing a protected market for its manufacturing exports; contract laborers for British possessions, replacing earlier slave populations; and the opium that was the staple of Britain's exports to China. The opium trade was imposed on China by force, not the operations of the "free market," just as the sacred principles of the market were overlooked when opium was barred from England.

In brief, the first great experiment was a "bad idea" for the subjects, but not for the designers and local elites associated with them. This pattern continues until the present: placing profit over people. The consistency of the record is no less impressive than the rhetoric hailing the latest showcase for democracy and capitalism as an "economic miracle"-and what the rhetoric regularly conceals. Brazil, for example. In the highly praised history of the Americanization of Brazil that I mentioned, Gerald Haines writes that from 1945 the United States used Brazil as a "testing area for modern scientific methods of industrial development based solidly on capitalism." The experiment was carried out with "the best of intentions." Foreign investors benefited, but planners "sincerely believed" that the people of Brazil would benefit as well. I need not describe how they benefited as Brazil became "the Latin American darling of the international business community" under military rule, in the words of the business press, while the World Bank reported that two-thirds of the population did not have enough food for normal physical activity.

Writing in 1989, Haines describes "America's Brazilian policies" as "enormously successful," "a recal American success story." 1989 was the "golden year" in the eyes of the business world, with profits tripling over 1988, while industrial wages, already among the lowest in the world, declined another 20 percent; the UN Report on Human Development ranked Brazil next to Albania. When the disaster began to hit the wealthy as well, the "modern scientific methods of development based solidly on capitalism" (Haines) suddenly became proofs of the evils of statism and socialism-another quick transition that takes place when needed.

To appreciate the achievement, one must remember that Brazil has long been recognized to be one of the richest countries of the world, with enormous advantages, including half a century of dominance and tutelage by the United States with benign intent, which once again just happens to serve the profit of the few while leaving the majority of people in misery.

The most recent example is Mexico. It was highly praised as a prize student of the rules of the Washington consensus and offered as a model for others-as wages collapsed, poverty increased almost as fast as the number of billionaires, foreign capital flowed in (mostly speculative, or for exploitation of cheap labor kept under control by the brutal "democracy"). Also familiar is the collapse of the house of cards in December 1994. Today half the population cannot obtain minimum food requirements, while the man who controls the corn market remains on the list of Mexico's billionaires, one category in which the country ranks high.

Changes in global order have also made it possible to apply a version of the Washington consensus at home. For most of the U.S. population, incomes have stagnated or declined for fifteen years along with working conditions and job security, continuing through economic recovery, an unprecedented phenomenon. Inequality has reached levels unknown for seventy years, far beyond other industrial countries. The United States has the highest level of child poverty of any industrial society, followed by the rest of the English-speaking world. So the record continues through the familiar list of third world maladies. Meanwhile the business press cannot find adjectives exuberant enough to describe the "dazzling" and "stupendous" profit growth, though admittedly the rich face problems too: a headline in Business Week announces "The Problem Now: What to Do with All That Cash," as "surging profits" are "overflowing the coffers of Corporate America," and dividends are booming.

Profits remain "spectacular" through the mid-1996 figures, with "remarkable" profit growth for the world's largest corporations, though there is "one area where global companies are not expanding much: payrolls," the leading business monthly adds quietly. That exception includes companies that "had a terrific year" with "booming profits" while they cut workforces, shifted to part-time workers with no benefits or security, and otherwise behaved exactly as one would expect with "capital's clear subjugation of labor for 15 years," to borrow another phrase from the business press.

How Countries Develop
The historical record offers further lessons. In the eighteenth century, the differences between the first and third worlds were far less sharp than they are today. Two obvious questions arise:
1 Which countries developed, and which not?
2 Can we identify some operative factors?

The answer to the first question is fairly clear. Outside of Western Europe, two major regions developed: the United States and Japan-that is, the two regions that escaped European colonization. Japan's colonies are another case; though Japan was a brutal colonial power, it did not rob its colonies but developed them, at about the same rate as Japan itself.

What about Eastern Europe? In the fifteenth century, Europe began to divide, the west developing and the east becoming its service area, the original third world. The divisions deepened into early in this century, when Russia extricated itself from the system. Despite Stalin's awesome atrocities and the terrible destruction of the wars, the Soviet system did undergo significant industrialization. It is the "second world," not part of the third world-or was, until 1989.

We know from the internal record that into the 1960s, Western leaders feared that Russia's economic growth would inspire "radical nationalism" elsewhere, and that others too might be stricken by the disease that infected Russia in 1917, when it became unwilling "to complement the industrial economies of the West," as a prestigious study group described the problem of Communism in 1955. The Western invasion of 1918 was therefore a defensive action to protect "the welfare of the world capitalist system," threatened by social changes within the service areas. And so it is described in respected scholarship.

The cold war logic recalls the case of Grenada or Guatemala, though the scale was so different that the conflict took on a life of its own. It is not surprising that with the victory of the more powerful antagonist, traditional patterns are being restored. It should also come as no surprise that the Pentagon budget remains at cold war levels and is now increasing, while Washington's international policies have barely changed, more facts that help us gain some insight into the realities of global order.

Returning to the question of which countries developed, at least one conclusion seems reasonably clear: development has been contingent on freedom from "experiments" based on the "bad ideas" that were very good ideas for the designers and their collaborators. That is no guarantee of success, but it does seem to have been a prerequisite for it.

Let's turn to the second question: How did Europe and those who escaped its control succeed in developing? Part of the answer again seems clear: by radically violating approved free market doctrine. That conclusion holds from England to the East Asian growth area today, surely including the United States, the leader in protectionism from its origins.

Standard economic history recognizes that state intervention has played a central role in economic growth. But its impact is underestimated because of too narrow a focus. To mention one major omission, the industrial revolution relied on cheap cotton, mainly from the United States. It was kept cheap and available not by market forces, but by elimination of the indigenous population and slavery. There were of course other cotton producers. Prominent among them was India. Its resources flowed to England, while its own advanced textile industry was destroyed by British protectionism and force.

Another case is Egypt, which took steps toward development at the same time as the United States but was blocked by British force, on the quite explicit grounds that Britain would not tolerate independent development in that region. New England, in contrast, was able to follow the path of the mother country, barring cheaper British textiles by very high tariffs as Britain had done to India. Without such measures, half of the emerging textile industry of New England would have been destroyed, economic historians estimate, with large-scale effects on industrial growth generally.

A contemporary analog is the energy on which advanced industrial economies rely. The "golden age" of postwar development relied on cheap and abundant oil, kept that way largely by threat or use of force. So matters continue. A large part of the Pentagon budget is devoted to keeping Middle East oil prices within a range that the United States and its energy companies consider appropriate. I know of only one technical study of the topic: it concludes that Pentagon expenditures amount to a subsidy of 30 percent of the market price of oil, demonstrating that "the current view that fossil fuels are inexpensive is a complete fiction," the author concludes. Estimates of alleged efficiencies of trade, and conclusions about economic health and growth, are of limited validity if we ignore many such hidden costs.

A group of prominent Japanese economists recently published a multivolume review of Japan's programs of economic development since World War II. They point out that Japan rejected the neoliberal doctrines of their U.S. advisers, choosing instead a form of industrial policy that assigned a predominant role to the state. Market mechanisms were gradually introduced by the state bureaucracy and industrial-financial conglomerates as prospects for commercial success increased.

The rejection of orthodox economic precepts was a condition for the "Japanese miracle," the economists conclude. The success is impressive. With virtually no resource base, Japan became the world's biggest manufacturing economy by the 1990s and the world's leading source of foreign investment, also accounting for half the world's net savings and financing U.S. deficits.

As for Japan's former colonies, the major scholarly study of the U.S. Aid mission in Taiwan found that U.S. advisers and Chinese planners disregarded the principles of "Anglo-American economics" and developed a "state-centered strategy," relying on "the active participation of the government in the economic activities of the island through deliberate plans and its supervision of their execution." Meanwhile U.S. officials were "advertising Taiwan as a private enterprise success story."

In South Korea the "entrepreneurial state" functions differently, but with no less of a guiding hand. Right now South Korea's entry into the Organization for Economic Cooperation and Development (OECD), the rich men's club, is being delayed because of its unwillingness to rely on market-oriented policies, such as allowing takeovers by foreign companies and free movement of capital, much like its Japanese mentor, which did not permit capital export until its economy was well established.

In a recent issue of the World Bank Research Observer (August 1996), the chair of Clinton's Council of Economic Advisors, Joseph Stiglitz, draws "lessons from the East Asian Miracle," among them that "government took major responsibility for the promotion of economic growth," abandoning the "religion" that markets know best and intervening to enhance technology transfer, relative equality, education, and health, along with industrial planning and coordination.

The UN Human Development Report 1996 stresses the vital importance of government policies in "spreading skills and meeting basic social needs" as a "springboard for sustained economic growth." Neoliberal doctrines, whatever one thinks of them, undermine education and health, increase inequality, and reduce labor's share in income; that much is not seriously in doubt.
A year later, after Asian economies were struck a severe blow by financial crises and market failures,

Stiglitz-now chief economist of the World Bank-reiterated his conclusions (Keynote Address, updated, Annual World Bank Conference on Development Economics 1997, World Bank 1998, Wider Annual Lectures 2, 1998). "The current crisis in East Asia is not a refutation of the East Asian miracle," he wrote. "The basic facts remain: no other region in the world has ever had income rise so dramatically and seen so many people move out of poverty in such a short time." The "amazing achievements" are highlighted by the tenfold growth of per capita income in South Korea in three decades, an unprecedented success, with "heavy doses of government involvement" in violation of the Washington consensus, but in accord with economic development in the U.S. and Europe, he correctly adds. "Far from a refutation of the East Asian miracle," he concluded, the "serious financial turmoil" in Asia "may, in part, be the result of departing from the strategies that have served these countries so well, including well-regulated financial markets"-an abandonment of successful strategies in response to Western pressures, in no small measure. Other specialists have expressed similar views, often more forcefully.

The comparison of East Asia and Latin America is striking. Latin America has the world's worst record for inequality, East Asia among the best. The same holds for education, health, and social welfare generally. Imports to Latin America are heavily skewed toward consumption for the rich; in East Asia, toward productive investment. Capital flight from Latin America has approached the scale of the crushing debt; in East Asia it had been tightly controlled until very recently. In Latin America, the wealthy are generally exempt from social obligations, including taxes. The problem of Latin America is not "populism," Brazilian economist Bresser Pereira points out, but "subjection of the state to the rich." East Asia differs sharply.

Latin American economies have also been more open to foreign investment. Since the 1950s, foreign multinationals have "controlled far larger shares of industrial production" in Latin America than in the East Asian success stories, the UN analysts of trade and development (UNCTAD) report. Even the World Bank concedes that the foreign investment and privatization it hails "has tended to substitute for other capital flows" in Latin America, transferring control and sending profits abroad.

The bank also recognizes that prices in Japan, Korea, and Taiwan deviated more from market prices than those of India, Brazil, Mexico, Venezuela, and other alleged interventionists, while the most interventionist and price-distorting government of all, China, is the Bank's favorite and fastest growing borrower. And studies of the World Bank on the lessons of Chile have avoided the fact that nationalized copper firms are a major source of Chile's export revenues, to mention only one of many examples.

It seems that openness to the international economy has carried a significant cost for Latin America, along with its failure to control capital and the rich, not just labor and the poor. Of course, sectors of the population benefit, as in the colonial era. The fact that they are as dedicated to the doctrines of the "religion" as foreign investors should come as no surprise.

The role of state management and initiative in the successful economies should be a familiar story. A related question is how the third world became what it is today. The issue is discussed by the eminent economic historian Paul Bairoch. In an important recent study he points out that "there is no doubt that the third world's compulsory economic liberalism in the nineteenth century is a major element in explaining the delay in its industrialization" and in the very revealing case of India, the "process of deindustrialization" that converted the industrial workshop and trading center of the world to a deeply impoverished agricultural society, suffering a sharp decline in real wages, food consumption, and availability of other simple commodities. "India was only the first major casualty in a very long list," Bairoch observes, including "even politically independent third world countries [that] were forced to open their markets to Western products." Meanwhile Western societies protected themselves from market discipline, and developed.

Varieties of Neoliberal Doctrine
That brings us to another important feature of modern history. Free market doctrine comes in two varieties. The first is the official doctrine imposed on the defenseless. The second is what we might call "really existing free market doctrine": market discipline is good for you, but not for me, except for temporary advantage. It is "really existing doctrine" that has reigned since the seventeenth century, when Britain emerged as Europe's most advanced developmental state, with radical increases in taxation and efficient public administration to organize the fiscal and military activities of the state, which became "the largest single actor in the economy" and its global expansion, according to British historian John Brewer.

Britain did finally turn to liberal internationalism-in 1846, after 150 years of protectionism, violence, and state power had placed it far ahead of any competitor. But the turn to the market had significant reservations. Forty percent of British textiles continued to go to colonized India, and much the same was true of British exports generally. British steel was kept from U.S. markets by very high tariffs that enabled the United States to develop its own steel industry. But India and other colonies were still available, and remained so when British steel was priced out of international markets.

India is an instructive case; it produced as much iron as all of Europe in the late eighteenth century, and British engineers were studying more advanced Indian steel manufacturing techniques in 1820 to try to close "the technological gap." Bombay was producing locomotives at competitive levels when the railway boom began. But really existing free market doctrine destroyed these sectors of Indian industry just as it had destroyed textiles, shipbuilding, and other industries that were advanced by the standards of the day. The United States and Japan, in contrast, had escaped European control, and could adopt Britain's model of market interference.

When Japanese competition proved to be too much to handle, England simply called off the game: the empire was effectively closed to Japanese exports, part of the background of World War II. Indian manufacturers asked for protection at the same time-but against England, not Japan. No such luck, under really existing free market doctrine.

With the abandonment of its restricted version of laissez-faire in the 1930s, the British government turned to more direct intervention into the domestic economy as well. Within a few years machine tool output increased five times, along with a boom in chemicals, steel, aerospace, and a host of new industries, "an unsung new wave of industrial revolution," economic analyst Will Hutton writes. State-controlled industry enabled Britain to outproduce Germany during the war, even to narrow the gap with the U.S., which was then undergoing its own dramatic economic expansion as corporate managers took over the state-coordinated wartime economy.

A century after England turned to a form of liberal internationalism, the United States followed the same course. After 150 years of protectionism and violence, the United States had become by far the richest and most powerful country in the world and, like England before it, came to perceive the merits of a "level playing field," on which it could expect to crush any competitor. But like England, the United States had crucial reservations.

One was that Washington used its power to bar independent development elsewhere, as England had done. In Latin America, Egypt, South Asia, and elsewhere, development was to be "complementary," not "competitive." There was also large-scale interference with trade. For example, Marshall Plan aid was tied to purchase of U.S. agricultural products, part of the reason why the U.S. share in world trade in grains increased from less than 10 percent before the war to more than half by 1950, while Argentine exports reduced by two-thirds. U.S. Food for Peace aid was also used both to subsidize U.S. agribusiness and shipping and to undercut foreign producers, among other measures to prevent independent development.

The virtual destruction of Colombia's wheat growing by such means is one of the factors in the growth of the drug industry, which has been further accelerated throughout the Andean region by the neoliberal policies of the past few years. Kenya's textile industry collapsed in 1994 when the Clinton Administration imposed a quota, barring the path to development that has been followed by every industrial country, while "African reformers" are warned that they must make more progress in improving the conditions for business operations and "sealing in free-market reforms" with trade and investment policies that meet the requirements of Western investors. These are only scattered illustrations.

The most important departures from free market doctrine, however, lie elsewhere. One fundamental component of free trade theory is that public subsidies are not allowed. But after World War II, U.S. business leaders expected that the economy would head right back to depression without state intervention. They also insisted that advanced industry-specifically aircraft, though the conclusion was more general-"cannot satisfactorily exist in a pure, competitive, unsubsidized, 'free enterprise' economy" and that "the government is their only possible savior." I am quoting the major business press, which also recognized that the Pentagon system would be the best way to transfer costs to the public. They understood that social spending could play the same stimulative role, but it is not a direct subsidy to the corporate sector, it has democratizing effects, and it is redistributive. Military spending has none of these defects.

It is also easy to sell. President Truman's Air Force Secretary put the matter simply: we should not use the word "subsidy," he said; the word we should use is "security." He made sure that the military budget would "meet the requirements of the aircraft industry," as he put it. One consequence is that civilian aircraft is now the country's leading export, and the huge travel and tourism industry, aircraft-based, is the source of major profits.

Thus it was quite appropriate for Clinton to choose Boeing as "a model for companies across America" as he preached his "new vision" of the free market future at the Asia-Pacific Summit in 1993, to much acclaim. A fine example of really existing markets, civilian aircraft production is now mostly in the hands of two firms, Boeing-McDonald and Airbus, each of which owes its existence and success to large-scale public subsidy. The same pattern prevails in computers and electronics generally, automation, biotechnology, communications, in fact just about every dynamic sector of the economy.

There was no need to explain the doctrines of "really existing free market capitalism" to the Reagan Administration. They were masters of the art, extolling the glories of the market to the poor while boasting proudly to the business world that Reagan had "granted more import relief to U.S. industry than any of his predecessors in more than half a century"-which is far too modest; they surpassed all predecessors combined, as they "presided over the greatest swing toward protectionism since the 1930s," Foreign Affairs commented in a review of the decade. Without these and other extreme measures of market interference, it is doubtful that the steel, automotive, machine tool, or semiconductor industries would have survived Japanese competition, or been able to forge ahead in emerging technologies, with broad effects through the economy.

That experience illustrates once again that "the conventional wisdom" is "full of holes," another review of the Reagan record in Foreign Affairs points out. But the conventional wisdom retains its virtues as an ideological weapon to discipline the defenseless.

The United States and Japan have both just announced major new programs for government funding of advanced technology (aircraft and semiconductors, respectively) to sustain the private industrial sector by public subsidy.

To illustrate "really existing free market theory" with a different measure, an extensive study of transnational corporations (TNCs) by Winfried Ruigrock and Rob van Tulder found that "virtually all of the world's largest core firms have experienced a decisive influence from government policies and/or trade barriers on their strategy and competitive position," and "at least twenty companies in the 1993 Fortune 100 would not have survived at all as independent companies, if they had not been saved by their respective governments," by socializing losses or by simple state takeover when they were in trouble.

One is the leading employer in Gingrich's deeply conservative district, Lockheed, saved from collapse by huge government loan guarantees. The same study points out that government intervention, which has "been the rule rather than the exception over the past two centuries... has played a key role in the development and diffusion of many product and process innovations-particularly in aerospace, electronics, modern agriculture, materials technologies, energy, and transportation technology," as well as telecommunications and information technologies generally (the Internet and World Wide Web are striking recent examples), and in earlier days, textiles and steel, and of course, energy.

Government policies "have been an overwhelming force in shaping the strategies and competitiveness of the world's largest firms." Other technical studies confirm these conclusions.

There is much more to say about these matters, but one conclusion seems fairly clear: the approved doctrines are crafted and employed for reasons of power and profit. Contemporary "experiments" follow a familiar pattern when they take the form of "socialism for the rich" within a system of global corporate mercantilism in which "trade" consists in substantial measure of centrally managed transactions within single firms, huge institutions linked to their competitors by strategic alliances, all of them tyrannical in internal structure, designed to undermine democratic decision making and to safeguard the masters from market discipline. It is the poor and defenseless who are to be instructed in these stern doctrines.

We might also ask just how "global" the economy really is, and how much it might be subject to popular democratic control. In terms of trade, financial flows, and other measures, the economy is not more global than early in this century. Furthermore, TNCs rely heavily on public subsidies and domestic markets, and their international transactions, including those mislabeled trade, are largely within Europe, Japan, and the United States, where political measures are available without fear of military coups and the like. There is a great deal that is new and significant, but the belief that things are "out of control" is not very credible, even if we keep to existing mechanisms.

Is it a law of nature that we must keep to these? Not if we take seriously the doctrines of classical liberalism. Adam Smith's praise of division of labor is well known, but not his denunciation of its inhuman effects, which will turn working people into objects "as stupid and ignorant as it is possible for a human creature to be," something that must be prevented "in every improved and civilized society" by government action to overcome the destructive force of the "invisible hand." Also not well advertised is Smith's belief that government "regulation in favour of the workmen is always just and equitable," though not "when in favour of the masters." Or his call for equality of outcome, which was at the heart of his argument for free markets.

Other leading contributors to the classical liberal canon go much further. Wilhelm von Humboldt condemned wage labor itself: when the laborer works under external control, he wrote, "we may admire what he does, but we despise what he is." "The art advances, the artisan recedes," Alexis de Tocqueville observed. Also a great figure of the liberal pantheon, Tocqueville agreed with Smith and Jefferson that equality of outcome is an important feature of a free and just society. One hundred and sixty years ago, he warned of the dangers of a "permanent inequality of conditions" and an end to democracy if "the manufacturing aristocracy which is growing up under our eyes" in the United States, "one of the harshest that has ever existed in the world," should escape its confines-as it later did, beyond his worst nightmares.

I am only barely touching on intricate and fascinating issues, which suggest, I think, that leading principles of classical liberalism receive their natural modern expression not in the neoliberal "religion" but in the independent movements of working people and the ideas and practices of the libertarian socialist movements, at times articulated also by such major figures of twentieth-century thought as Bertrand Russell and John Dewey.

One has to evaluate with caution the doctrines that dominate intellectual discourse, with careful attention to the argument, the facts, and the lessons of past and present history. It makes little sense to ask what is "right" for particular countries as if these are entities with common interests and values. And what may be right for people in the United States, with their unparalleled advantages, could well be wrong for others who have a much narrower scope of choices.

We can, however, reasonably anticipate that what is right for the people of the world will only by the remotest accident conform to the plans of the "principal architects" of policy. And there is no more reason now than there ever has been to permit them to shape the future in their own interests.

A version of this article was originally published in South America in Spanish and Portuguese translations, 1996.

"The selfish spirit of commerce knows no country, and feels no passion or principle but that of gain" - Thomas Jefferson, 1809

"You show me a capitalist, I'll show you a bloodsucker" - Malcolm X, 1965

"Capitalism and altruism are incompatible; they are philosophical opposites; they cannot coexist in the same man or in the same society" - Ayn Rand, 1961

"The chief business of America is business" - President Calvin Coolidge, 1925"The glory of the United States is business" - Wendell L. Willkie, 1936

"What else do bankers do -- walk-in and turn-off the lights in the country." - William Slee, 1978

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