All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe that we are away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him.
SUN TZU,
The Art of War (500 BC)
In accordance with the logic of Sun Tzu, Bill Clinton was actually a much more effective imperialist than George W. Bush. During the Clinton administration, the United States employed an indirect approach in imposing its will on other nations. The government of George W. Bush, by contrast, dropped all legitimating principles and adopted the view that might makes right. History tells us that an expansive nation must at least attempt to disguise what it is doing if it wants to consolidate its gains. It must pretend that its exploitation of the weak is in their own best interest, or their own fault, or the result of ineluctable processes beyond human control, or a consequence of the spread of civilization, or in accordance with scientific laws—anything but deliberate aggression by a hyperpower.
Clinton camouflaged his policies by carrying them out under the banner of “globalization.” This proved quite effective in maneuvering rich but gullible nations to do America’s bidding—for example, Argentina—or in destabilizing potential rivals—for example, South Korea and Indonesia in the 1997 economic crisis—or in protecting domestic economic interests—for example, in maintaining the exorbitant prices of American pharmaceutical companies under cover of defending “intellectual property rights.” During the 1990s, the rationales of free trade and capitalist economics were used to disguise America’s hegemonic power and make it seem benign or, at least, natural and unavoidable. The main agents of this imperialism were Clinton’s secretary of the Treasury, Robert Rubin, and his deputy (today, president of Harvard University), Lawrence Summers. The United States ruled the world but did so in a carefully masked way that produced high degrees of acquiescence among the dominated nations.
George W. Bush, by contrast, turned to a frontal assault based on the use of America’s unequaled military power. Even before 9/11, the Bush administration had unveiled its unilateral approach to the world. It withdrew from important international treaties, including those seeking to ban antiballistic missile weapons, control the emission of greenhouse gases, and create a court to try perpetrators of the most heinous war crimes. Bush also proclaimed openly his adherence to a doctrine of preventive war. The United States said it was a New Rome, beyond good and evil and unrestrained by the established conventions of the international community. In its spring 2003 attack on Iraq, it affirmed that it no longer needed (or cared about) international legitimacy, that it had become a power answerable only to itself, and that internal forces of militarism were dictating foreign policy. These policies produced international isolation and a global loss of confidence in the American foreign policy establishment. Two and a half years into the Bush administration, most of our allies had left us, our military was overstretched, and no nation on earth doubted our willingness to employ military power to solve any and all problems.
By the end of the Clinton administration, globalization was under sustained political attack by its victims and their allies. Many of its once prominent supporters, such as the international currency speculator George Soros or the former chief economist of the World Bank, Joseph E. Stiglitz, were intellectually undercutting its major tenets. Globalization, however, was not dead. The world—including the Bush administration—still pretended that the World Trade Organization mattered, that free trade would end poverty in the Third World, and that the International Monetary Fund and the World Bank were functioning as they were supposed to. Bankers, industrialists, and economists still went to their annual conclave in Davos, Switzerland, but protectionism by rich countries and poverty for most of the people of the world were ascendant.
The aftermath of September 11, 2001, more or less spelled the end of globalization. Whereas the Clinton administration strongly espoused economic imperialism, the second Bush government was unequivocally committed to military imperialism. The Bush administration’s adoption of unilateral preventative military action undercut the international rules and norms on which commerce depends. Increasingly, even people who believed in globalist solutions to international economic and environmental problems threw up their hands in despair. At the August 2002 world summit on sustainable development in Johannesburg, the delegates wore badges asking, “What do we do about the United States?”
“The central political idea of imperialism,” wrote the political philosopher Hannah Arendt, is “expansion as a permanent and supreme aim of politics.”1 This is true of all empires—witness the endless wars of ancient Rome, the subjugation of Asia by the Mongols and Ottoman Turks, Spain’s rape of the Western Hemisphere, Napoleon’s ambitions to unite Europe under the French flag, Britain’s search for new investment opportunities for its capitalists, the Third Reich’s attempts to seize lebensraum for its racially defined nation, and now an insatiable American appetite for ever more military bases. Imperialism cannot exist without a powerful military apparatus for subduing and policing the peoples who stand in its way and an economic system for financing an expensive and largely unproductive military establishment. Thus far in this book I have dealt primarily with the military side of American imperialism. Now I turn to America’s attempted economic hegemony over much of the world. My intent is to examine the elaborate ideology of “neoliberalism” that has obscured America’s international endeavors before the triumph of unilateral militarism and to reveal how militarism has displaced and discredited America’s economic leadership. Ironically, it is in this economic sphere that the overstretched American empire will probably first begin to unravel.
Following World War II, America’s military might and economic assets were so great that it met with very little resistance of any sort, except from the Soviet Union and its allies and satellites. From the onset of the Cold War until about 1980, those countries that chose to belong to neither the Communist nor the capitalist camps—the so-called Third World—had room to maneuver by playing one superpower against the other. The superpowers, even though they possessed weapons of mass destruction, were often hesitant to exert direct imperial control over these contested nations because they feared that any of them might then bolt to the other camp. The nonaligned countries also had some freedom to experiment with different paths and arrangements that might lead toward “economic development” in accordance with their own cultural traditions and whatever norms they chose of distributive justice. These nations were said to be “underdeveloped,” meaning that they had little industry or technology but instead supplied agricultural products and raw materials to the developed countries of the north. In theory, this was to be a mutually beneficial trade that would eventually lead to the industrialization of the Third World, bringing it wealth and true sovereignty.
This situation started to change in the early 1980s. The threat of a superpower war receded as the United States and the USSR became accustomed to their respective roles in the elaborate pas de deux of detente and arms control. Both countries also began to show signs of economic fatigue as the Cold War ground on. The USSR, much poorer than the United States, was by far the more seriously affected as the rigidities of its economic doctrine stood in the way of most forms of entrepreneurship and industrial innovation. Still a mighty military power, the USSR became increasingly bifurcated economically into an authorized and an informal, or “underground,” sector. Without the latter it would have collapsed much sooner than it did. From the mid-1980s on, Premier Mikhail Gorbachev sought to reform the ailing economy, but he was ultimately undercut by deeply entrenched vested interests. The United States knew about these problems but pretended in its intelligence estimates not to notice so that it could continue to pour money into its own military machine.
Even though the Soviet Union had lost its potency as an economic challenger, the United States and its allies had for some time been worried by other trends. The General Agreement on Tariffs and Trade (GATT), the rules governing the opening of trade drawn up by the United States and Britain late in World War II and subsequently signed by some twenty-one other nations, had ensured spectacular growth in international trade. (The purpose of GATT was to prevent a recurrence of the economic nationalism and the collapse of international trade that had caused the Great Depression and contributed directly to the emergence of totalitarian regimes in Europe and Asia.) Between 1948 and 1995, when GATT was replaced by the World Trade Organization, international trade expanded from about $124 billion to $10,772 billion.2 This pattern was fine with the United States so long as its trade balance remained favorable and it could dictate the terms on which others participated in the good times.
The 1970s, however, had already ushered in a period of questioning about where the capitalist world was heading. The American and British economies were plagued by “stagflation” (high rates of inflation combined with low economic growth), high rates of unemployment, large public-sector deficits, two major oil crises as producer nations sought to influence the policies of consuming nations, racial strife, and, for the United States, defeat in Vietnam. Equally ominous, by the mid-1980s, Japan had displaced the United States as the world’s leading creditor nation, while America’s fiscal deficits and its inability to cover the costs of products imported from foreign countries turned it into the world’s largest debtor.
These circumstances allowed for the rise of conservative political parties and leaders—Ronald Reagan and Margaret Thatcher—in the United States and Britain. To revive international trade and, more important, put the United States back in charge of it, the new governments committed themselves to a rebirth of nineteenth-century capitalist fundamentalist theory. This meant withdrawing the state as much as possible from participation in the economy, opening domestic markets at least in principle to international trade and foreign investment, privatizing investment in public utilities and natural resources, ending most protective labor laws, enacting powerful domestic and international safeguards for private property rights, including, above all, “intellectual property rights” (that is, patents of all sorts), and enforcing conservative fiscal policies even at the expense of the public’s health and welfare. This program, which soon became Anglo-American mainstream economic thought, was supposed to deliver “a widespread improvement in average incomes,” as Bruce R. Scott of the Harvard Business School puts it. “Firms will reap increased economies of scale in a larger market,” the thinking went, “and incomes will converge as poor countries grow more rapidly than rich ones. In this ‘win-win’ perspective, the importance of nation-states fades as the ‘global village’ grows and market integration and prosperity take hold.”3
Because the ideas of eighteenth- and nineteenth-century Scottish and English economists like Adam Smith and David Ricardo, from whom the new orthodoxy derived, were associated with the political movement in Britain called “liberalism,” the new economic dispensation was often called “neoliberalism.” In policy circles it became known as the “Washington consensus,” in academic life as “neoclassical economics,” and in public ideology as “globalism” or, more proactively, “globalization.” One of the leading academic specialists on globalization, Manfred Steger, says that it amounted to “a gigantic repackaging” of two centuries of classical liberalism, relabeled “the new economy.” Steger writes: “Globalization’s claims and political maneuvers remain conceptually tied to a ... nineteenth-century narrative of ‘modernization’ and ‘civilization’ that presents Western countries—particularly the United States and the United Kingdom—as the privileged vanguard of an evolutionary process that applies to all nations.”4
Perhaps the most deceptive aspect of globalization was its claim to embody fundamental and inevitable technological developments rather than the conscious policies of Anglo-American political elites trying to advance the interests of their own countries at the expense of others.5 In its spurious scientificity, globalism has proved similar to Marxism, whose roots lie in the same intellectual soil. As Steger points out, “While disagreeing with Marxists on the final goal of historical development, globalists nonetheless share with their ideological opponents a fondness for such terms as ‘irresistible,’ ‘inevitable,’ and ‘irreversible’ to describe the projected path of globalization.”6 In 1999, President Bill Clinton told an audience, “Today we must embrace the inexorable logic of globalization—that everything from the strength of our economy to the safety of our cities, to the health of our people, depends on events not only within our borders, but half a world away.” At other moments, he indeed emphasized that globalization was “irreversible.”7 His successor, George W. Bush, continued to promote these same nostrums to a reluctant Latin America under a scheme he called the “Free Trade Area of the Americas.”8
The upside-down Marxism of U.S.-sponsored globalism has been noted by the distinguished diplomat Oswaldo de Rivero, the Peruvian ambassador to the World Trade Organization. He has written, “The ideological war between capitalism and communism during the second half of the twentieth century was not a conflict between totally different ideologies. It was, rather, a civil war between two extreme viewpoints of the same Western ideology: the search for happiness through the material progress disseminated by the Industrial Revolution.”9 As a government official from a part of the world devastated by globalization, de Rivero concluded that “the cost of the Soviet version of development was shortages and lack of freedom; today, that of the neoliberal, capitalist variant is unemployment and social exclusion.”10
Proponents of globalism, particularly American academic economists and political scientists, cling to it with religious fervor. The theologian Harvey Cox has drawn attention to this devotion in an article entitled “The Market as God.”11 Many otherwise sober business and political leaders in the United States have been carried away by globalization’s messianic claims. This phenomenon, too, is not new. Classical liberalism blinded no small number of Englishmen to the racism, genocide, and ruthless exploitation that accompanied the growth of the British Empire. As Hannah Arendt remarked about that earlier period of market worship: “The fact that the ‘white man’s burden’ is either hypocrisy or racism has not prevented a few of the best Englishmen from shouldering the burden in earnest and making themselves the tragic and quixotic fools of imperialism.”12
It is critically important to understand that the doctrine of globalism is a kind of intellectual sedative that lulls and distracts its Third World victims while rich countries cripple them, ensuring that they will never be able to challenge the imperial powers. It is also designed to persuade the new imperialists that “underdeveloped” countries bring poverty on themselves thanks to “crony capitalism,” corruption, and a failure to take advantage of the splendid opportunities being offered. The claim that free markets lead to prosperity for anyone other than the transnational corporations that lobbied for them and have the clout and resources to manipulate them is simply not borne out by the historical record. As even the Nobel Prize-winning economist Joseph Stiglitz, a former director of research at the World Bank, has come to acknowledge, “It is now a commonplace that the international trade agreements about which the United States spoke so proudly only a few years ago were grossly unfair to countries in the Third World.... The problem [with globalists is] ... their fundamentalist market ideology, a faith in free, unfettered markets that is supported by neither modern theory nor historical experience.”13 It must be added that, until November 1999, when 50,000 protesters confronted the World Trade Organization in Seattle and began forcing a reluctant First World to acknowledge its exploitation and hypocrisy, statements like Stiglitz’s were not “commonplace,” nor had “modern” academic economic theory come to grips with the real nature of globalism.
There is no known case in which globalization has led to prosperity in any Third World country, and none of the world’s twenty-four reasonably developed capitalist nations, regardless of their ideological explanations, got where they are by following any of the prescriptions contained in globalization doctrine. What globalization has produced, in the words of de Rivero, is not NICs (newly industrialized countries) but about 130 NNEs (nonviable national economies) or, even worse, UCEs (ungovernable chaotic entities).14 There is occasional evidence that this result is precisely what the authors of globalization intended.
In 1841, the prominent German political economist Friedrich List (who had immigrated to America) wrote in his masterpiece, The National System of Political Economy, “It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him.”15 Much of modern Anglo-American economics and all of the theory of globalization are attempts to disguise this kicking away of the ladder.
Leaving aside the former Soviet Union, the main developed countries—Britain, the United States, Germany, France, Sweden, Belgium, the Netherlands, Switzerland, Japan, and the East Asian NICs (South Korea, Taiwan, and Singapore)—all got rich in more or less the same way. Regardless of how they justified their policies, in actual practice they protected their domestic markets using high tariff walls and myriad “nontariff barriers” to trade. Britain, for example, did not accept free trade until the 1840s, long after it had become the world’s leading industrial power. Between 1790 and 1940, the United States was probably the most highly protected economy on earth. In the 1970s and 1980s, the only country in the world without a single Japanese car in it was South Korea, because it was nurturing its own automobile industry. All these “developing” nations begged, bought, or stole advanced technology from the countries that first pioneered it and then, through reverse engineering and targeted investment, improved on it. They used state power to support and protect efficient capitalists within their own national boundaries who had the potential to become exporters. They poured subsidies into uncompetitive industries in order to substitute domestically produced goods for imports, often at almost any price. Some of them captured overseas markets through imperial conquest and colonialism and then defended these markets from other would-be conquerors, using powerful navies and armies. Even when defeated, like Japan after World War II and the USSR and the ex-Communist countries of Eastern Europe after the Cold War, they used every device and all the artifice in their power to subvert the economic reform programs that American economists applied to try to turn them into textbook capitalist economies.16 They understood, as the academicians did not, that a premature introduction of American economic norms was much more likely to produce mafia capitalism than development, as it did in Russia.
In short, the few successful economies on earth did exactly the opposite of what the gurus of globalization said they should have done. In places where economic managers had no choice but to follow the guidelines of globalization—“free” trade, sell-offs of public utilities, no controls over capital movements, the end of all national preferences—the results have been catastrophic. In de Rivero’s own Peru, in the twenty-four years preceding the great outburst of terrorist violence by the Shining Path and Tupac Amaru guerrillas, the average yearly per capita income growth rate was 0.1 percent, while the yearly population increase was more than 2.3 percent. In all of Latin America and the Caribbean between 1960 and 1980, gross domestic product grew by 75 percent per person, but over the next twenty years—the high tide of globalization—GDP rose only 6 percent.17
Starting in approximately 1981, the United States introduced, under the cover of globalization, a new strategy intended to accomplish two major goals: first, to discredit state-assisted capitalism like Japan’s and prevent its spread to any countries other than the East Asian NICs, which had already industrialized by following the Japanese model; and second, to weaken the sovereignty of Third World nations so that they would become even more dependent on the largesse of the advanced capitalist nations and unable to organize themselves as a power bloc to negotiate equitably with the rich countries.
The United States’s chosen instruments for putting this strategy into effect were the World Bank and the International Monetary Fund (IMF). Like the General Agreement on Tariffs and Trade, the World Bank and the IMF were created after World War II to manage the international economy and prevent a recurrence of the beggar-thy-neighbor policies of the 1930s. What has to be understood is that both the fund and the bank are actually surrogates for the U.S. Treasury. They are both located at 19th and H Streets, Northwest, in Washington, DC, and their voting rules ensure that they can do nothing without the approval of the secretary of the Treasury. The political scientist Thomas Ferguson compares the IMF to the famous dog in the old RCA advertisements listening to “his master’s voice”—the Treasury—on a Victrola.18
In addition to GATT, the IMF, and the World Bank, the postwar economic reformers created a truly innovative system of fixed exchange rates among the currencies of all the capitalist nations, so that, for example, from 1949 until 1971 one U.S. dollar could be exchanged for exactly 360 Japanese yen. This system was made credible by tying the value of each currency to the U.S. dollar and by an American guarantee that it would ultimately be willing, on request, to exchange all dollars for gold. Fixed exchange rates expanded international business by making trade stable and predictable, and they formed a major obstacle to the return of the ruinous speculation that had led to the Great Depression.
In this system, the IMF was charged with making loans to redress occasional imbalances between one nation’s currency and that of its trading partners (or, rarely, to help alter a fixed exchange rate in the direction of realism); and the World Bank was given responsibility for making developmental loans to countries that needed to invest in their infrastructures and infant industries in hopes of bringing them up to the level of the advanced nations. John Maynard Keynes, the English economic theorist and historian, first formulated the ideas behind these institutions, and at the end of World War II the leading Allies thrashed out compromises to bring them to life. The United States did not accept all of Keynes’s proposals, and its objections prevailed largely because of its immense wealth and power, but both the United States and Britain were agreed on a world economic order maintained by enlightened governments. The market was not “king.” It was only a widely accepted conventional means for individuals, households, and enterprises to exchange goods and services with one another at mutually acceptable prices. The system of fixed exchange rates, a currency adjustment agency, and a lender to the poor for economic development produced marvelous results during their first twenty years.
By 1971, however, the United States was no longer able to guarantee the fixed value of the dollar in gold. It had ruined its public finances by lavish spending on the Vietnam War, on nuclear weapons and their delivery systems, and on payments to countries that it feared might join the Communist camp or “go neutralist” if the United States stopped bankrolling them. In order to staunch the hemorrhaging of dollars, President Richard Nixon closed the American “gold window” by ending the system of fixed exchange rates. From then on, the currencies of the various nations were allowed to “float,” their values being set daily by supply and demand in international currency markets. With floating exchange rates, the market did indeed become king and governments took a backseat. The IMF and the World Bank were left with little to do for the rest of the decade.
The end of fixed exchange rates encouraged risky investments and speculation. Because profits could be huge and costs were low, American banks began to make large “overloans” (that is, loans well beyond the collateral on offer or their own reserves) to Third World countries. Banks like Citicorp and Bankers Trust were soon bringing in almost 80 percent of their revenue from risky overseas transactions.19 Many loans went to dictatorial or corrupt regimes, with little likelihood of ever being repaid. The banks nonetheless assumed that the governments of “developing countries” were not likely to go broke or, if they did, that some international institution would bail them out.
Thus was born the weird phenomenon of “moral hazard,” meaning American bankers could make outrageously irresponsible loans without any risk of having to absorb the loss or make good the money they had mismanaged. Before it was over, the 1970s loan bonanza produced a disaster of exactly the sort Keynes and the reformers at the end of World War II had sought to avoid. Virtually every country in Africa and Latin America was deeply in debt. In August 1982, Jésus Silva Herzog, the Mexican minister of finance, announced that his country was bankrupt and would no longer be able to pay interest on any of its loans. Just as the bankers had assumed, the U.S. government stepped in—not to save Mexico but to ensure that American banks did not collapse. At no time, then or later, did our government suggest that the people who made the bad loans bore some responsibility for the results.
In the early 1980s, following the international loan debacle, the United States put the IMF and the World Bank in charge of the Third World debt problem and essentially instructed them to do two things: keep the debtor countries paying something so that official defaults could be avoided and squeeze as much money out of them as possible. The two semimoribund institutions accepted their new role with alacrity, delighted to act as collection agencies for banks that had made bad loans. Thus were born the World Bank’s “structural adjustment loans” and the IMF’s “structural adjustment programs.”
Under structural adjustment, the World Bank lends funds to a debtor nation so that the nation can continue to “service” its debts in small, pro forma ways. As a condition for the loan, however, the IMF imposes a drastic socioeconomic overhaul of the country in accordance with the neoliberal agenda. If a debtor nation does not accept these terms, all access to international capital is denied it, thereby destabilizing its economy still further and perhaps setting it up for a CIA-abetted coup d’état. The overthrow of Salvador Allende in Chile in 1973 and the installation of the military dictatorship of General Augusto Pinochet were an early and classic example of this process, but there have been many others since. The entire Third World very quickly came under the supervision of the IMF’s economic ideologues, and by the late 1990s, close to ninety countries were being “structurally adjusted” by means of shock therapy ordered up in Washington.20
In a typical structural adjustment program, the IMF and World Bank require that a country “liberalize” trade—that is, give foreigners free access to its economy. The country is also forced to reduce spending on social programs such as health care and education in order to release public funds to repay debts to foreign banks and transnational corporations. Subsidies to local agriculture are eliminated, usually rendering it unprofitable, while subsidies to agrobusinesses growing export crops such as flowers and fruits are increased. The IMF insists that the country drop all controls over the movements of capital and allow foreign investors and businesses to buy state-owned enterprises, such as electric power, telephone, transportation, natural resources, and energy companies. Perhaps most important, a country receiving a World Bank loan has to agree to maintain the convertibility of its currency—that is, it cannot prohibit the exchange of its own money for that of another country’s, which would temporarily halt the outflow of capital. Instead, maintaining free convertibility regardless of the exchange rate makes speculation about a currency’s future value possible. What a country gets out of such a mélange of “reforms” is not economic recovery, long-term growth, or stability but a government so weakened that it usually declines into a kleptocracy, experiences periodic economic collapses precipitated by rampant speculation (Mexico, 1994-95; Thailand, South Korea, and Indonesia, 1997; Brazil and Russia, 1998; Argentina, 2000; Venezuela, 2002), and is forced to rely on U.S. corporations to provide virtually all consumer products, employment, and even public services.21
The United States was the architect of and main profiteer from these efforts. From 1991 to 1993, Lawrence Summers was the chief economist at the World Bank and the man who oversaw the tailoring of “austerity measures” to each country that needed a loan. He decided exactly what a country had that Washington wanted to open up. On December 12,1991, Summers became notorious for a leaked memo to senior officials of the bank encouraging polluting industries in the rich nations to relocate to the less developed countries. He wrote, “I think the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to that.” Brazil’s secretary of the environment, Jose Lutzenburger, replied, “The best thing that could happen would be for the Bank to disappear.”22
Meanwhile, across town in Washington, at the Department of Commerce, Jeffrey Garten, undersecretary of commerce in the Clinton administration and another author of these schemes, explained, “We had a mission: [Ron] Brown [secretary of commerce] called it ‘commercial diplomacy,’ the intersection of foreign policy, government power, and business deals. We used Washington’s official muscle to help firms crack overseas markets. The culture was electric: we set up an economic ‘war room’ and built a ‘trading floor’ that tracked the world’s largest commercial projects.” Garten acknowledged that many of the business deals, often involving insider trading by high-level government officials, were probably crooked, but he justified them on these grounds: “If you open a wild bazaar, as we did, you have to expect the occasional pickpocket.”23
What these pickpockets achieved can be illustrated by the plight of the Philippines. Between 1980 and 1999, the country received nine structural adjustment loans from the World Bank and six different balance-of-payments loans from the IMF. Between 1983 and 1993, it recorded exactly zero average growth in GNP.24 Two decades after the first structural adjustment program, the World Bank gave up on the loans for the straightforward reason that, in the words of Walden Bello of the University of the Philippines, “failure, spectacular failure, could no longer be denied at the pain of totally losing institutional credibility.”25
What began as a poorly conceived program of emergency measures for debtor countries early in the 1980s slowly matured into the hard orthodoxy of the “Washington Consensus” in the 1990s. The U.S. government became determined to impose neoliberal economics on every country on earth. To do so, it unveiled its master plan, the “Uruguay Round” of international trade negotiations (1986 to 1994), and its crown jewel, created on January 1,1995, the World Trade Organization (WTO). Acting in compliance with a seemingly innocent effort to create a common set of trade rules for all and to bring agriculture under such rules for the first time, “many developing countries discovered that in signing on to the WTO, they had,” as Bello put it, “signed away their right to development.”26
It should be understood that there was no need to create the WTO. There was no crisis in international commerce between 1986 and 1994 that required rectification. International trade was expanding nicely under the GATT formula. The WTO was created because the United States discovered that it could be created. Concretely, it had two objectives: to try to manage the growing trade rivalry among the leading industrial countries, particularly the United States, the European Union, and Japan, and to ensure that the Third World was prevented from using trade as a legitimate instrument for its industrialization, thereby threatening the neoliberal global economic structure. The United States achieved the latter objective through the Agreement on Agriculture and the Trade-Related Intellectual Property Rights Agreement, two of the pacts that the Uruguay Round delivered in 1995 to the WTO to enforce.
Prior to the World Trade Organization, agriculture had for all intents and purposes been outside the purview of GATT because the United States had long threatened to withdraw if it was not allowed to continue protecting domestic sugar, dairy products, and other agricultural commodities. To head off an explosion, GATT simply decided not to enforce any rules on agriculture. By the 1970s, however, Europe had become a net food exporter, and competition between the two agricultural superpowers, the European Union and the United States, was growing ever fiercer. Both wanted to force open the Third World as a new market for agricultural exports. To do this, they had to put the farmers of poor countries out of business and replace them with giant agrobusinesses. In the Uruguay Round of agricultural negotiations, the European Union and the United States excluded all representatives of the Third World and agreed between themselves on rules covering agriculture. In the Blair House Agreement of 1992-93, they prohibited the Third World from protecting its agriculture but exempted their own subsidies because these were already in place before the agreement was concluded. Unsurprisingly, a huge surge of agricultural imports then poured into developing countries without a commensurate increase in their exports. This intrusion produced a flight into Third World cities by displaced agricultural workers, an ever-greater concentration of land holdings, and a marked rise in rural violence as local farmers tried to protect their way of life.
In the late 1990s, under the European Union’s Common Agricultural Program, the fifteen EU countries spent $42 billion annually subsidizing their farmers, while they allocated to the Third World only $30 billion in developmental aid for all purposes. The level of overall subsidization of agriculture in Western countries rose from $182 billion in 1995, when the WTO was born, to $280 billion in 1997, and $362 billion in 1998. By 2002, European Union subsidies to agriculture were six times the total amount of foreign aid that all rich countries gave to the poor.27 The result in the First World was the overproduction of a vast range of agricultural products, including cereals, beef, pork, milk, butter, tomatoes, sunflower oil, and sugar. These commodities were then unceremoniously “dumped” (that is, sold below the costs of production) in developing countries. Joseph Stiglitz’s conclusion is unavoidable: “The well-to-do countries that officially praise free trade frequently use tariffs and subsidies to limit imports from poor countries, depriving them of the trade they need to relieve poverty and pursue their own economic growth.”28
Having deprived the Third World countries of access to agricultural subsidies and crippled their ability to build competitive industries, the WTO proceeded to prevent them from using the foreign technology employed by the industrialized nations and to lock in the monopoly profits of companies that owned patents on indispensable products such as medicines. The Trade-Related Intellectual Property Rights Agreement (TRIPS), which instituted these barriers, proved to be a gold mine for transnational corporations. Its purpose was to prevent developing countries from copying or stealing proprietary technology in the same manner the currently advanced countries had done in their processes of economic growth. The agreement provides transnational corporations with a minimum patent protection of twenty years and places the burden of proof in a dispute on the presumed violator. It is a clear example of the rich nations kicking away the ladder to keep poor nations from catching up.
The chief profiteers have been American and European pharmaceutical companies and agrobusiness conglomerates. On the drug front, Third World countries have demanded that they be allowed to import or manufacture cheap generic copies of patented medicines to deal with acute public health problems, something currently barred by the WTO. All members of the WTO except the United States have in fact favored relaxing a strict interpretation of TRIPS for medicines. The United States instead demands that exemptions be restricted to treatments for AIDS, malaria, tuberculosis, and a few tropical diseases, claiming that the pharmaceutical industry must continue to receive high prices in order to finance future research.29 With regard to agriculture, the TRIPS system has for the first time given corporations the right to patent life-forms, particularly seeds. Companies that produce genetically modified food (what the Europeans call “Frankenfood”) lobbied strenuously for this provision. Monsanto, for example, holds the patent on Roundup Ready soybean seeds, which, until recently, tolerated Monsanto’s weed-killing herbicide Roundup.30 Monsanto is a major player in the corn and soybean markets in North America, Latin America, and Asia and in the European wheat market; one of the ways it and other companies, such as Novartis and DuPont, use the TRIPS system is to develop and patent genetically modified plants that will not produce seeds for succeeding years’ crops and that must be fertilized with expensive products made by those same companies. These corporations are thus in a position to extract monopoly profits from poor countries by dominating their agricultural sectors and dictating what they will eat, if they eat at all.
Another abuse of the TRIPS system has come to be called “biopiracy.” In this practice, some firms and universities obtain patents on plants that Third World countries have known about and used, often for centuries, and then extract royalties if these countries want to continue growing them. A classic case was the 1997 attempt of RiceTec, Inc., of Alvin, Texas, to patent a hybrid of India’s basmati rice, which has been harvested for two centuries throughout the subcontinent; so far its patent is good only in the United States and has been universally denounced by the Third World.31 Given these abuses of medical and agricultural technology, even some supporters of the WTO now argue that it would have been better not to include agriculture in its purview and not to extend patent rights over life-forms.
In all, the WTO system that came into being in 1995 is a deceptive but extremely effective tool of economic imperialism wielded by rich nations against poor ones. Within a few years after it was launched, however, the system started to fall apart. Post-September 11, the overemphasis on militarism and unilateralism in the United States has radically weakened the effectiveness of international law, eroding the facade of legality that supports the WTO rules. At the same time, the interests of American militarists and economic globalists have begun to clash, particularly over the rise of an obvious future superpower—China. The economic globalists have invested more heavily in manufacturing in China than in any other place outside the Anglo-American world. The militarists, on the other hand, are already plotting to contain China, militarily if necessary, to decide future global supremacy.
Moreover, as the Bush administration declared “war on terrorism,” it discovered that globalization was as helpful to terrorists trying to launder their money and finance their militants as it was to capitalist speculators. So it began to tighten its grip on, restrict, or close down various channels of American economic interaction with the rest of the world, including access to our universities by students from the Third World. This trend suggests that globalization, at least as it was promoted in the 1990s, may enjoy a rather short life.
Perhaps the first clear sign that globalization and the WTO were in trouble was the Asian financial collapse of 1997. The Clinton administration had put the smaller economies of East Asia under tremendous pressure to accept neoliberalism, particularly to open up their financial sectors to foreign participation. None of the East Asian countries truly believed this was a good idea, and none of them realized what was necessary in the way of bank supervision and regulation of capital markets in order to operate an American-style economy and prevent a crash, but favorable credit ratings and access to markets required cooperation with Washington. Moreover, foreign investors did not care about the outcome; after the U.S. government’s bailout of Mexico in 1994-95, most investors concluded that the U.S.-IMF combination would not permit major defaults in emerging markets, and so capital poured in from all over the world.
Once these smaller nations were loaded up with debt and announced that they would have trouble meeting their repayment schedules, the foreign capital fled even faster than it had arrived. Starting with Thailand, then proceeding to Indonesia and South Korea, most of Asia’s economies suddenly were teetering on the edge of default and had to implore the IMF for help. The IMF imposed draconian reforms as a precondition for its loans, prompting a full-blown political crisis that led to the revolutionary overthrow of the government of Indonesia. A permanent and deep-seated hostility to the IMF, the World Bank, and the United States spread slowly and quietly across East Asia.32 American globalists did everything in their power to divert blame for the East Asian collapse away from its proxies, the IMF and World Bank, and to keep it from tarnishing globalization itself. They argued that the cause of the collapse was Asian corruption, which they termed crony capitalism—meaning insider dealing and a lack of transparency—a phrase originally invented by the Filipinos to describe their own Marcos regime.
One of the few East Asian countries to emerge from the crisis unscathed, indeed in better shape, was Malaysia, and its success in standing up to Washington’s neoliberal “remedies” helped discredit globalization still further. Mahathir Mohamad, the Malaysian prime minister, resisted the demands of the IMF and quickly restored capital controls over his economy. The fraternity of international economists declared that he was committing commercial suicide. He, in turn, accused Western powers and speculators like George Soros of manipulating markets and currencies in order to destroy healthy East Asian economies. This charge greatly irritated Thomas Friedman, a columnist for the New York Times and author of a best-selling paean to globalization, The Lexus and the Olive Tree. Friedman gibed, “Excuse me, Mahathir, but what planet are you living on? You talk about participating in globalization as if it were a choice you had. Globalization isn’t a choice. It’s a reality.... And the most basic truth about globalization is this: No one is in charge.... We all want to believe that someone is in charge and responsible. But the global marketplace today is an Electronic Herd of often anonymous stock, bond, and currency traders and multinational investors, connected by screens and networks.”33
Two years later in Seattle, to the apoplectic fury of Friedman and other neoliberal apologists, a coalition of nongovernmental organizations began to put names and faces on this electronic herd of politicians and IMF and World Bank officials who were responsible for globalization and who, they argued, ought to be held accountable for its consequences.
Even more disconcerting to Anglo-American globalists, Third World poverty grew faster after the creation of the WTO. Corruption was certainly one factor. For example, Raul Salinas, the brother of the former president of Mexico, siphoned $87 million out of his country through Citibank accounts in New York, Switzerland, and London. Sani Abacha, Nigeria’s former dictator, looted his nation of $110 million, also laundered for him by Citibank. One authority estimates that Carlos Menem, president of Argentina from 1989 to 1999, collected close to $1 billion in bribes during his two terms in office.34 The poor countries’ domestic and administrative structures were another factor; these nations lacked, according to Peru’s de Rivero, “both the middle class and the national market they needed in order to be governable and viable.”35
In 1999, at the WTO’s third ministerial conference in Seattle, a coalition of people with experience in Third World development programs—environmentalists, trade unionists, anarchists, and some Americans concerned about the role of the “sole remaining superpower”—advanced an alternative explanation for Third World poverty, finally unmasking the imperial, expansionist motives behind neoliberal theory. They emphasized the absence of democracy within the IMF, the World Bank, and the WTO: IMF voting rules, they pointed out, are rigged so that only the richest countries have any influence; the United States reserves the right to name the president of the World Bank; and the WTO takes decisions based on “consensus” whereby any rich nation that does not join the consensus has a de facto veto.36
The protesters’ demands for reform resonated strongly around the world, and the movement rapidly gained more adherents. By 2002, international meetings of the globalizing powers were drawing protests half a million strong. By and large the globalists, assisted by the big media corporations, chose to vilify the protesters. Prime Minister Tony Blair of Britain declared them to be “anti-democratic hooligans” and a “travelling circus of anarchists.”37 Robert Zoellick, U.S. trade representative in the second Bush administration, compared the protesters to the September 11 terrorists by archly suggesting, “It is inevitable that people will wonder if there are intellectual connections with others who have turned to violence to attack international finance, globalization, and the United States.”38 Writing in the New York Times, Thomas Friedman declared that the Seattle demonstrators were “a Noah’s ark of flat-earth advocates, protectionist trade unions, and yuppies looking for the 1960s fix.” After 9/11, Italian Prime Minister Silvio Berlusconi called them “Talibanized hordes.”39 At the same time, the WTO and the G8 nations took to holding their meetings in ever less accessible places, such as Doha, Qatar, or Kananaskis in the Canadian Rockies. In a cosmetic attempt to improve its image—and in tacit acknowledgment that the ragtag protesters were in fact unnerving the globalists—the IMF changed the name of its “structural adjustment facility” to the more protester-friendly “poverty reduction and growth facility.”
Prior to September 11,2001, three other major developments occurred to further discredit globalization. In March 2000, the Meltzer Report, mandated by the U.S. Congress, concluded that the IMF had “institutionalized economic stagnation” and that the World Bank was “irrelevant rather than central to the goal of eliminating global poverty.” Several years earlier, the U.S. Treasury had asked Congress to increase U.S. guarantees to the IMF by $18 billion. In light of the developmental disasters then occurring in East Asia, Brazil, and Russia, Congress set up an International Financial Institutions Advisory Commission to investigate the records of the IMF and the World Bank, under the chairmanship of neoconservative Alan Meltzer of Carnegie Mellon University and the American Enterprise Institute. The findings of the “Meltzer Report” were already common knowledge in the Third World, but this was the first time they were put forth by a reputable figure within the Washington consensus. Meltzer wrote, “Both institutions are driven to a great extent by the interests of key political and economic institutions in the Group of Seven (G7) countries—particularly, in the case of the IMF, the U.S. government, and U.S. financial interests.” When it came to addressing its avowed goal of eliminating global poverty, the World Bank’s performance, he concluded, was “miserable.”40
Soon after, Argentina’s economy collapsed disastrously, further evidence of IMF and World Bank incompetence. Argentina had faithfully followed the free-market ideas of neoliberalism and the prescriptions of the IMF, even selling off its banking sector to foreigners, who, by 1998, owned 80 percent of the country’s banks, and pegging the peso at parity to the value of the dollar, meaning that one peso was worth one dollar and both currencies circulated freely in the country. By 2002, Argentina held the unenviable record of having accumulated the largest amount of public debt by any single country in history—some $160 billion.41 Its national income shrank by nearly two-thirds in the space of a year; more than half of its largely middle-class population found itself living below the poverty line; and no politician of any orientation dared appear on the streets for fear of public lynching.
The IMF agreed to help the Argentine government meet its debt service payments and then made exactly the same mistake it had in 1997 in East Asia. As a condition for its loans, it demanded an austerity budget that involved firing large numbers of government workers, cutting pensions, reducing wages, and eliminating fringe benefits. Rioting and a fierce police reaction brought the country to a standstill. In December 2000, the IMF provided nearly $40 billion to Argentina on the condition that the government continue to pay foreign debts by intensifying its squeeze on the poorest elements of the society. No government could meet these terms and avoid revolution. Argentina went through five governments and six economic ministers in fourteen months, but the IMF decided that the country was still not being tough enough and was, in any case, of little strategic importance to the United States. It therefore pulled the plug and refused to supply any more loans. Double-digit monthly inflation resulted, the peso fell in value by 220 percent, and social order collapsed. Argentina, once the most prosperous country in Latin America, became a basket case—thanks to neoliberalism, globalization, and the IMF.
The third event that helped discredit globalization was the disclosure of major malfeasance at Enron and other multinational corporations based in the United States. When the agents of globalization, the corporations themselves, are revealed as criminal conspiracies to defraud both their customers and their own employees and their governments, not just the practice but the whole idea of globalization becomes farcical. Evidence that this might be the case was already accumulating in the months leading up to September 11. After the attacks, when the United States shifted decisively from economic to military imperialism, globalization stood revealed in all its predatory nakedness.
Following 9/11, munitions and war profiteering replaced the blatantly illegal or crony capitalism deals of the late 1990s as the best way for politically well-connected capitalists to make money. The military-industrial complex and its protector, the Pentagon, have always played powerful roles in the post-World War II economy, but after 9/11 they became the economy’s stars. Arms manufacturing, however, does not follow the rules of globalization. Normally it has only one customer and is not subject to market discipline. Risks of profit and loss are simply not taken into account by governments when national security is an issue. Munitions making is an example not of “free enterprise” but instead of state socialism.
The United States is officially and explicitly opposed to “industrial policy,” which is said to subvert the free market in order to produce a governmentally desired outcome. Anathema to orthodox Anglo-American economics, industrial policy is outlawed by the WTO under provisions addressing nontariff barriers to trade. There is, however, a glaring exception to this rule—the production and sales of weapons. The United States has long run one of the world’s most highly developed industrial policies through its defense sector. It is illegal, for example, for the United States openly to subsidize Boeing’s 747 jumbo jets for export (as the European Union does for Airbus’s airliners), but the government has found numerous ways around this restriction, for decades financing technological innovation in universities and enterprises under the cover of national defense needs. Foreign military sales are often financed by Pentagon loans and concessions, and the privatization of numerous activities formerly performed by the armed forces serves the interests of privately owned companies. Given recent trends toward militarism, the United States has become a de facto industrial-policy superpower.
The original GATT Treaty of 1947 treated military subsidies as different from all others under a “national security exception” that became part of every trade treaty negotiated since then. This exception allows states to underwrite production, promote sales, and impose trade embargoes if they do so in the name of national security. Moreover, all structural adjustment programs of the IMF and World Bank include a security exception. This means that although the IMF may impose an austerity budget on a country seeking an emergency loan, it permits the purchase of weapons from a foreign power, usually the United States, even as jobs and health benefits are being slashed. In 1997, when South Korea buckled under its burden of debt, the IMF suggested that it suspend buying military equipment until it had recovered, but the U.S. government overruled this directive. Similarly, Turkey has for years relied on IMF loans to keep its financial system functioning while it has sheltered some 14 percent of its gross domestic product from IMF-required reductions by putting the endangered expenditures into its military budget.
In 1993, the Clinton administration came up with a great new corporate welfare idea—giving defense contractors tax breaks if they would merge into bigger, more diversified agglomerations. For example, the Pentagon supplied the Lockheed Aircraft Corporation and Martin Marietta with $1.2 billion in tax relief when in 1995 they merged to form Lockheed Martin, the world’s largest weapons manufacturer. Similarly, after the Cold War ended, Boeing began to move away from arms production—until the tax breaks were announced. Then it reversed course, bought up McDonnell Douglas and parts of Rockwell International, and became one of the world’s largest arms exporters.
A further expansion of the military economy is made possible by interpreting the war on drugs as an element of national security. While the U.S. Export Import Bank is prohibited from financing military sales, an exception is made if the weapons are to be used in drug interdiction. The bank has therefore been a prime financier of Sikorsky’s sale of nineteen Black Hawk helicopters to Colombia, allegedly to be used in its drug war. In 1996, in order to get around the remaining restrictions on lending Ex-Im Bank funds for military purchases, the government went a step further and created a new agency called the Defense Export Loan Guarantee Fund. It disbursed nearly $8 billion to U.S. companies in its first year of operations.42
War profiteering is usually thought of as something done by greedy civilians. But this view understates the role of uniformed military officers in hawking weapons to foreigners. In countless cases, it is a Pentagon-led high-pressure campaign that closes a sale. In April 2002, for example, the United States played the hardest of hard ball with South Korea. It demanded that Seoul award its $4.46 billion contract for forty multirole fighter aircraft to Boeing for its F-15K rather than to France’s Dassault for its Rafaele. Leaks from the Korean Defense Ministry indicate that the state-of-the-art Rafaele outperformed the F-15K in every area and was $350 million cheaper. Nonetheless, Deputy Secretary of Defense Paul Wolfowitz told the Koreans that if they went ahead with the French purchase, the United States would refuse both to install cryptographic systems that allow aircraft to identify one another and to supply the Raytheon-built AIM 120B AMRAAM air-to-air missiles the plane uses.43 Dassault countered that it could easily outfit the Rafaele with an advanced electronic identification system and that missiles were available from several sources. South Korea nonetheless chose Boeing, claiming that it did so to ensure “interoperability” of its weapons with those of its ally. It is worth noting that the United States’s closest ally, Britain, does not have a single American combat aircraft in the Royal Air Force but routinely deploys its airplanes and helicopters alongside American-made ones.
U.S. pressure on Latin American countries to buy weapons is blatant. In October 2002, the Colombian Defense Ministry wanted to buy forty Super Tucano light attack aircraft from Embraer of Sao Paulo, Brazil’s largest exporter. The deal was worth $234 million. Instantly, General James T. Hill, head of the U.S. Southern Command, sent a letter to Bogotá warning that the purchase of Brazilian airplanes would have a “negative influence” on congressional support for future military aid to Colombia. Hill recommended that Colombia instead spend its money modernizing its fleet of C-130s, airplanes manufactured by Lockheed Martin in Georgia.44 The deal with Brazil fell through.
The first sign of resistance to these strong-arm tactics came in the wake of Luiz Lula da Silva’s election as president of Brazil, also in October 2002. The previous Brazilian government had been negotiating with both France and the United States to buy as many as twenty-four new fighter planes for the Brazilian air force. In June, the Pentagon tried to sweeten its offer by promising to sell air-to-air missiles with the aircraft, the first time it would have done so in Latin America. However, when Lula da Silva was sworn in on January 1, 2003, he canceled the deal and transferred $750 million from the defense budget to hunger-eradication projects.45
The new focus on military imperialism has been a boon to U.S. defense contractors. In the months following 9/11, Boeing went to two shifts of workers making its Joint Direct Attack Munitions, a “smart bomb” heavily used in Afghanistan and Iraq, and Raytheon operated three shifts to produce its Tomahawk cruise missiles.46 The problem was how to sustain these levels of activity. In November 2002, in a foreign policy decision dictated significantly by the promise of arms sales, the North Atlantic Treaty Organization brought seven Eastern European and Baltic nations into the alliance. The United States had worked for at least six years to achieve this enlargement. It immediately signed up Poland to buy forty-eight Lockheed F-16 fighter aircraft, manufactured in Texas, in order to bring the Polish air force up to NATO standards, and lent it $3.8 billion on concessionary terms to help pay for them. Pentagon planners hoped that the sales of arms and munitions to new NATO members might amount to $35 billion over ten years.47
Another way of keeping up armaments sales is through wars. They have the desirable features of depleting stocks and demonstrating to potential customers around the world the effectiveness of new generations of American weapons. The military-industrial complex warmly welcomed the wars against Yugoslavia, Afghanistan, and Iraq as good for business. Actions just short of war, such as bombings and missile strikes, are also, in the words of Karen Talbot, for twenty years the World Peace Council’s representative to the United Nations, “giant bazaars for selling the wares of the armaments manufacturers.”48 The military incessantly peddles the latest gadgetry to Taiwan, for instance, even though the Pentagon’s efforts to spark a war with China are of declining effectiveness as the mainland and Taiwan begin to integrate their economies. Israel, however, remains one of the Pentagon’s oldest and most faithful customers and seems likely to continue to be in the future.
As the United States devotes ever more of its manufacturing assets to the arms trade, it becomes ever more dependent on imports for the non-military products that its citizens no longer manufacture but need in order to maintain their customary lifestyles. With a record trade deficit for 2002 of $435.2 billion and a close-to-negligible savings rate, Americans may end up owing foreigners as much as $3.5 trillion in the next few years alone. As the economic analyst William Greider concludes, “Instead of facing this darkening prospect, [President George W.] Bush and team regularly dismiss the worldviews of these creditor nations and lecture them condescendingly on our superior qualities. Any profligate debtor who insults his banker is unwise, to put it mildly.... American leadership has ... become increasingly delusional—I mean that literally—and blind to the adverse balance of power accumulating against it.”49
Our government seems not to grasp the relationship between its military unilateralism and the collateral damage it is doing to international commerce, an activity that depends on mutually beneficial relationships among individuals, businesses, and countries to function well. If foreign creditors conclude that the United States is no longer a defender of international law, they may lose interest in investing in such a country. Our version of unilateralist military imperialism undercuts international institutions, causes trade to dry up, distorts the availability of finance, and is environmentally disastrous. While the globalization of the 1990s was premised on cheating the poor and defenseless and on destroying the only physical environment we will ever have, its replacement by American militarism and imperialism is likely to usher in something much worse for developed, developing, and underdeveloped nations alike.