On Capitalism, Europe, and the World Bank

OTT: In an interview you quoted Thorstein Veblen, who contrasted “substantial
people” and “underlying population.” At a shareholder’s meeting of Allianz
AG, major shareholder Hans-Martin Buhlmannn expressed the view that there
is only one limit to the increase of the dividend: “The inferiors must
not be bled so much that they can no longer consume. They must survive
as consumers.” Is this the guiding principle of our economic system? If
so, is there any substance to the notion of a “social market economy?” 

CHOMSKY: Those are traditional questions in economics. It’s part of Marx’s
reasoning about why there’s going to be a continuing crisis of capitalism:
that owners are going to try to squeeze the work force as much as possible,
but they can’t go too far or there will be nobody to purchase what they
produce. It’s been dealt with over and over again in one or another way
during the history of capitalism. 

So, for example, Henry Ford famously tried to pay his workers a higher
wage than the going wage on the grounds that if he didn’t pay his workers
enough and other people didn’t pay their workers enough, there would be
nobody around to buy his model-T Fords. 

Actually that issue came to court in the United States, around 1916 or
so, and led to a fundamental principle of Anglo-American corporate law,
which is part of the reason why the Anglo-American system is slightly different
from the European social market system. There was a famous case called

Dodge v. Ford

. Some of the stockholders of the Ford motor company, the
Dodge brothers, brought Henry Ford to court, claiming that by paying the
workers a higher wage and by making cars better than they had to be made,
he was depriving them, as stockholders, of their profits because dividends
would be lower. They went to court and they won. 

The courts decided that the management of a corporation has the legal responsibility
to maximize the yield of the profit to its stockholders; that’s its job.
Corporations had already been granted the right of persons, which basically
says they have to be a certain type of pathological person, a person that
does nothing except try to maximize his or her own gain. That’s the legal
requirement on a corporation and a core principle of Anglo-American corporate
law. So when, say, Milton Friedman points out that corporations have one
interest in life, maximizing profit and market share, he is legally correct.
The reason the Dodge brothers wanted it was because they wanted to start
their own car company—that ended up being Dodge, Chrysler, Daimler-Chrysler,
and so on. 

There were modifying traditional decisions, which said that a corporation
is permitted legally to carry out benevolent activities, like joining the
Millennium Fund or something, but only if it improves a corporation’s humanitarian
image and therefore increases profits. There’s an important decision by
a U.S. court that urges corporations to carry out benevolent activities.
It says—and I’m quoting it now—or else “an aroused public” may figure out
what corporations are up to and take away their privileges because, after
all, they’re just granted by the government, there’s nothing in the Constitution,
there’s no legal basis for them, it’s a violation of classical liberal
and “free market” principles. 

How does the social market system differ? There’s no principle of economics
that says corporations should exist. But granting that they do exist, then
they should be concerned only with the maximization of gain for their stockholders
instead of what’s sometimes called “stakeholders” (the community, the work
force, everything else). As far as economics is concerned, a social market
system is just another way of running things. The European system to an
extent has stakeholder interest. So, Germany has a theoretical form of
co-determination—mostly theoretical—but some degree of worker participation
in management, acceptance of unions, that’s been a partial move toward
stakeholder interest. And governmental social democratic programs are other
examples of it. 

The United States happens to be pretty much at the extreme of keeping to
the principle that the corporate system must be pathological and that the
government is allowed to and glad to intervene to uphold that principle.
The European system is somewhat different, the British system is in between. 

During the New Deal in the United States and in the 1960s, the United States
veered somewhat towards a social market system. That’s why the Bush administration,
which is extremely reactionary, is trying to dismantle the few elements
where the social market still exists. Why are they trying to destroy social
security, for example?  There’s no serious economic problem, it’s all fraud.
It’s in as good fiscal health as it’s ever been, but it is a system that
benefits the general population. It is of no use at all to the wealthy.
But a very large part of the population, maybe 60 percent or something
like that, actually survive on it. So it’s a system that contributes nothing
to profit. It has other bad features, like it’s based on the principle
that you should care about somebody else. And that’s hopelessly immoral
by the moral principles of power and privilege, so you’ve got to knock
that idea out of people’s heads and get rid of the social security system.
A lot of what’s called—ridiculously—“conservatism” is just pathological
fanaticism based on maximization of power and wealth in accord with principles
that do now have a legal basis. 

But to get back to your original question, these are just choices as to
whether corporations should even exist or why they’re even legitimate.
They’re tyrannies. Why should tyrannies exist? They are not supposed to
exist in the political realm, there’s no reason why they should exist in
the economic realm. But if they do, they could be imagined in all sorts
of different ways and there’s constant class struggle and pressures that
lead to one or another outcome. 

The European system developed out of its complex historical background.
I’m sure you know the original welfare state was basically Germany in the
Bismarckian period—not because Bismarck was a big radical. To an extent,
the European system grew out of a feudal system. A feudal system is non-capitalist.
In a feudal system everyone has a place—maybe a rotten place, but some
place. So serfs have some rights within their place in the system. 

In a capitalist system, you don’t have any rights. When modern capitalism
developed in the early 19th century—this is post-Adam Smith or anything
like that, but with Ricardo and Malthus and so on—their principle was pretty
simple: the only rights a person has are what they can gain in the labor
market. Beyond that, you’ve no right to live, you’ve no right to survive.
If you can’t make out on the labor market, go somewhere else. They could
go somewhere else, they could come to America, exterminate the population,
and settle here. But in Europe some remnants of the feudal system and conservative
structures did lead to some freedom. After all, Europe had huge labor movements;
the German social democratic party grew out of very powerful movements
and they forced the development of what became social market systems. 

World War II had a radicalizing effect and the anti-fascist resistance
had plenty of prestige. It was pretty radical; it was calling for radical
democracy—it’s sometimes called communism, but it often had nothing to
do with that. It’s just very radical democracy, workers’ control, and it
was widespread so some kind of settlement had to be made with it. 

If anyone were to write an honest history of the post-WWII period, the
first chapter would be devoted to how the British and U.S. forces, while
“liberating” Europe, one of the first things they did was destroy the resistance,
undermine the labor movement, and try to beat back the efforts to create
radical democratic programs. It varied in different countries, but happened
everywhere. In Italy it started happening in 1943. By the time the British
and U.S. forces reached Northern Italy, it had been pretty well liberated
by the resistance. They had driven out the Germans, mostly, and had established
their own institutions: workermanaged industrial systems and cooperatives.
The British and Americans were totally appalled. They had to dismantle
the whole thing and restore the rights of owners, meaning restore the traditional
fascist system. Italy was the main center of CIA subversion well into the
1970s, but it happened everywhere else, too. In Greece there was a war
to destroy the resistance; they killed about 150,000 people and ended up
restoring something like the traditional fascist structure. 

Not long after the United States strongly supported the first restoration
of actual fascism in Europe, and continued to support it, it was overthrown
by the Greeks. Elsewhere it took different forms. In England and the United
States there were similar things happening. The population was also radicalized
and there had to be some adaptation to them so you get the welfare state
periods. This is just the constant flux of struggle and conflict internal
to hierarchic societies. 

What is your view—from the U.S. perspective—on the emerging superpower

There’s no particular U.S. perspective. There is an American elite perspective,
which is not mine. The general idea of European unity is a good idea. I
think the world should be federalized in some sense and the erosion of
the nation-state system is a good thing. Nation-state systems basically
arose in Europe in their modern sense and they’re extremely unnatural social
organizations. They had to be imposed on the populations by extreme violence.
Just look at the history of modern Europe, it’s a history of savage wars
and destruction going back centuries. In the 17th century and the 30 Years
War, probably 40 percent of the population of Germany was wiped out. 

The only reason it stopped in 1945 is because of a common realization that
you can’t do it anymore. The next war is going to destroy everything; we
developed means of savagery that are too great to be used. 

And then you get steps towards integration. Some of it is healthy, some
of it is unhealthy; it’s a mixture. The role of the Central Bank in Europe
is very reactionary. Even American conservatives criticize it as granting
far too much authority to a wholly undemocratic institution that’s not
answerable to the public. That’s a form of autocracy that doesn’t exist
in the United States—there’s the Federal Reserve, but it has nothing like
the power of the European Central Bank. In principle at least, it’s under
some form of democratic control—limited, for all sorts of reasons, but
some form. It’s commonly argued by economists that part of the reason for
the partial sluggishness of the European economy is that Central Bank decisions
tend to discourage growth and they’re not under public control. 

A positive aspect is that there’s some erosion of the extremely dangerous
nation-state system. One of the consequences, which in my view at least
is a healthy one, is a degree of regionalization throughout much of Europe;
that is, a revival of a degree of local autonomy, regional cultures, and
regional languages. So in Spain there’s a fair amount of autonomy in the
Catalan and the Basque areas, there’s similarly in others a revival of
the languages. A lot of it is, I think, an extremely healthy development. 

I happened to visit Barcelona shortly after the Franco period and then
ten years later. The differences were remarkable. For one thing, you heard
Catalan in the streets, which you hadn’t heard before. For another thing,
there was a revival of cultural practices—people flocking to the main cathedral
on Sunday morning, with dancing and traditional singing. That’s all fine.
It revives or gives some significance to life. It has its negative aspects,
too. It means harsh discrimination against Spanish workers who happen to
be working in Catalonia. 

But all of these things are happening and some of them are healthy and
should be encouraged, others not. I think, say, the French vote on the
European constitution was basically a class vote. Working people and peasants
could see that the constitution was an instrument of class warfare, which
is going to harm them by imposing neo-liberal conditions and undermining
the social market from which they benefit. 

There were also other elements; there were racist elements. The opposition
in continental Europe to bringing in Turkey—you can hide it in all sorts
of nice terminology, but it’s fundamentally racist. Germans don’t want
to have Turks lurking around in the streets. Europe has quite a tradition
of racism, no need to talk about it. 

So it’s a complex web of concerns. In general I think that moves towards
European integration are a good idea—although extending the union to the
East is a complicated matter. U.S. elites are strongly in favor of it,
but that’s because they’ve always been concerned that Europe might move
off in the wrong direction, out of U.S. control. That’s been a big concern
since World War II. Europe’s economy is at least on a par with the United
States, it’s an educated population, a larger population. Except in the
military dimension, it’s a counterpart or even superior to the United States
and so it could move off on its own. Bringing in the peripheral states,
the former East European satellites, tends to dilute the strength of the
core of the European commercial-industrial economic center, namely France
and Germany, and would bring in countries that are more subject to U.S.
influence. So it might undermine moves towards European independence. 

A lot of the things that are going on in the world are similar. Take the
Iraq war. I’m sure that a large part of the purpose of the Iraq war is
with an eye on Europe and North East Asia. If the United States can control
the world’s energy resources, then it has what George Kennan 50 years ago
called “veto power” over what competitors can do. The more astute political
analysts, like Zbigniew Brzezinski, have pointed that out pretty openly.
He wasn’t particularly in favor of the war, but he said that it would give
the United States “critical leverage” over European and Asian competitors.

It’s not too well known, but Clinton’s expansion of NATO to the East was
an explicit violation of formal promises made to Gorbachev in, I think,
1990 by George Bush Sr. Gorbachev agreed to the unification of Germany
on condition that NATO not expand to the East. For Russia to agree to German
unification is a very hazardous step. I don’t have to run through it, but
the history of the past century explains why. Clinton quickly backed off
on that commitment and did expand NATO to the East, which is a tremendous
strategic threat to the Soviet Union. It caused the Russians to change
their military doctrines. Russia had previously adopted the NATO doctrine
of first strike with nuclear forces, even against non-nuclear states. But
in the early 1990s, they dropped it. Once NATO expanded, they reinstated
it. So now we have superpowers facing each other with first-strike strategic
options and missiles on hair-trigger alert, practically a recipe for global

Dennis Ott has been an undergraduate student of philosophy and linguistics
at Cologne University. He is currently a graduate student in the department
of linguistics at Harvard University.