Kicking Away the Ladder, Part 1


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

Just to illustrate with one example—I’m sure you have read the many commentaries
on the death of Milton Friedman. A typical one was the front-page story
in the

Wall Street Journal

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

You may have seen a couple of front-page articles in the

New York Times

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

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


Also the Reagan administration openly pioneered illegal labor practices.
This was well recorded in

Business Week

, which pointed out that the Reagan
administration effectively instructed the business world that they were
not going to enforce the laws, which led to a sharp increase in illegal
company actions to prevent union organizing. That was continued by Clinton
who had another way of doing it called



One of the predicted effects
of NAFTA was that it would undermine union organizers by giving employers
a way to threaten workers who were trying to organize: if you keep trying
we’ll move to Mexico. That worked too. It’s is illegal, but when you have
a criminal state, and the business world knows that it enjoys the benefits
of a criminal state, it can carry these activities out. But unions not
only improve the lives of working people, they’re a powerful democratizing
force. So threatening them harms working people and also harms democracy. 

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

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

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

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

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

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


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

What are services? Well, services are anything that a human being could
be interested in—education, health, water, air, energy, and so on. “Trade
in services” now means putting all of these into the hands of unaccountable
totalitarian institutions. If that is achieved, you can have formal democracy
quite openly—clean elections, etc.—but it doesn’t matter much because there
is nothing for people to have any decisions about, nothing that matters,
at least. It’s somewhere else in the hands of unaccountable institutions
under the name of “General Agreement on Trade in Services.” That is the
leading theme of the current trade negotiations. 

Financial Liberalization 


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

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

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


Climbing the Ladder 


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

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

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

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

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

Britain’s Narco-Trafficking 


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

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

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

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

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

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

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



Part 2 covers democratic challenges to neo-liberalism, mainly coming from

Latin America

. A


of the complete talk is available from