History Handbook: The Passion for Free Markets


For more than half a century, the United Nations has been the main forum for the United States to try to create a world in its image, maneuvering with its allies to forge global accords about human rights, nuclear tests or the environment that Washington insisted would mirror its own values.”

So runs postwar history, we learn from the opening paragraph of a front-page story by New York Times political analyst David Sanger. But times are changing. Today, the headline reads: “U.S. Is Exporting Its Free-Market Values Through Global Commercial Agreements.” Going beyond the traditional reliance on the UN, the Clinton administration is turning to the new World Trade Organization (WTO) to carry out the task of “exporting American values.” Down the road, Sanger continues (quoting the U.S. trade representative), it is the WTO that may be the most effective instrument for bringing “America’s passion for deregulation” and for the free market generally, and “the American values of free competition, fair rules, and effective enforcement,” to a world still fumbling in darkness. These “American values” are illustrated most dramatically by the wave of the future: telecommunications, the Internet, advanced computer technology, and the other wonders created by the exuberant American entrepreneurial spirit unleashed by the market, at last freed from government interference by the Reagan revolution.

Today “governments are everywhere embracing the free-market gospel preached in the 1980s by President Reagan and Prime Minister Margaret Thatcher of Britain,” Youssef Ibrahim reports in another Times front-page story, reiterating a common theme. Like it or hate it, enthusiasts and critics over a broad range of opinion agree—just to keep to the liberal-to-left part of the spectrum —about “the implacable sweep of what its exponents call ‘the market revolution’”: “Reaganesque rugged individualism” has changed the rules of the game worldwide, while here at home “Republicans and Democrats alike are ready to give the market full sway” in their dedication to “the new orthodoxy.”

There are a number of problems with the picture. One is the account of the last half-century. Even the most dedicated believers in “America’s mission” must be aware that U.S./UN relations have been virtually the opposite of what the opening passage depicts ever since the UN fell out of control with the progress of decolonization, leaving the U.S. regularly isolated in opposition to global accords on a wide range of issues and committed to undermining central components of the UN, particularly those with a third world orientation. Many questions about the world are debatable, but surely not this one. As for “Reaganesque rugged individualism” and its worship of the market, perhaps it is enough to quote the review of the Reagan years in Foreign Affairs by a Senior Fellow for International Finance at the Council on Foreign Relations, noting the “irony” that Ronald Reagan, “the postwar chief executive with the most passionate love of laissez faire, presided over the greatest swing toward protectionism since the 1930s”—no “irony,” but the normal workings of “passionate love of laissez faire”: for you, market discipline, but not for me, unless the “playing field” happens to be tilted in my favor, typically as a result of large-scale state intervention. It’s hard to find another theme so dominant in the economic history of the past three centuries. The current enthusiasms about the communications revolution that Sanger is reporting are a textbook case.

Reaganites were following a well-trodden course—recently turned into a comedy act by Gingrich “conservatives”—when they extolled the glories of the market and issued stern lectures about the debilitating culture of dependency of the poor at home and abroad while boasting proudly to the business world that Reagan had “granted more import relief to U.S. industry than any of his predecessors in more than half a century”; in fact, more than all predecessors combined, as they led “the sustained assault on [free trade] principle” by the rich and powerful from the early 1970s, deplored in a scholarly review by GATT secretariat economist Patrick Low, who estimates the restrictive effects of Reaganite measures at about three times those of other leading industrial countries.

The radical “swing toward protectionism” was only a part of the “sustained assault” on free trade principles that was accelerated under “Reaganite rugged individualism.” Another chapter of the story includes the huge transfer of public funds to private power, often under the traditional guise of “security.” Without such extreme measures of market interference, it is doubtful that the U.S. automotive, steel, machine tool, semiconductor industries, and others, would have survived Japanese competition or been able to forge ahead in emerging technologies, with broad effects through the economy.  “Thatcher’s Britain” is another good choice to illustrate “free market gospel.” Just to keep to a few revelations of early 1997, “during the period of maximum pressure to make arms sales to Turkey,” the London Observer reported, Prime Minister Thatcher “personally intervened to ensure a payment of 22 million pounds was made out of Britain’s overseas aid budget, to help build a metro in the Turkish capital of Ankara. The project was uneconomical, and in 1995 it was admitted” by Foreign Secretary Douglas Hurd that it was “unlawful.” The incident was particularly noteworthy in the aftermath of the Pergau Dam scandal, which revealed illegal Thatcherite subsidies “to ‘sweeten’ arms deals with the Malaysian regime,” with a High Court judgment against Hurd. That’s aside from government credit guarantees and financing arrangements, and the rest of the panoply of devices to transfer public funds to “defense industry,” yielding a familiar range of benefits to advanced industry generally.  A few days before, the same journal reported that “up to 2 million British children are suffering ill-health and stunted growth because of malnutrition” as a result of “poverty on a scale not seen since the 1930s.”

The trend to increasing child health has reversed and childhood diseases that had been controlled are now on the upswing thanks to the (highly selective) “free market gospel” that is much admired by the beneficiaries.

A few months earlier, a lead headline reported “One in three British babies born in poverty,” as “child poverty has increased as much as three-fold since Margaret Thatcher was elected.” “Dickensian diseases return to haunt today’s Britain,” another headline reads, reporting studies concluding that “social conditions in Britain are returning to those of a century ago.” Particularly grim are the effects of cutting off gas, electricity, water, and telephones to “a high number of households” as privatization takes its natural course, with a variety of devices that favor “more affluent customers” and amount to a “surcharge on the poor,” leading to a “growing gulf in energy between rich and poor,” also in water supply and other services.

The “savage cuts” in social programs are placing the nation “in the grip of panic about imminent social collapse.” But industry and finance are benefiting very nicely from the same policy choices. To top it all off, public spending after 17 years of Thatcherite gospel was the same 42 1/4 percent of GDP that it was when she took over.  Not exactly unfamiliar here.

Exporting American Values

Let us put aside the intriguing contrast between doctrine and reality, and see what can be learned by examining the new era that is coming into view. Quite a lot, I think. Sanger is celebrating the WTO agreement on telecommunications. One of its welcome effects is to provide Washington with a “new tool of foreign policy.” The agreement “empowers the WTO to go inside the borders of the 70 countries that have signed it,” and it is no secret that international institutions can function insofar as they keep to the demands of the powerful, in particular, the United States. In the real world, then, the “new tool” allows the U.S. to intervene profoundly in the internal affairs of others, compelling them to change their laws and practices. Crucially, the WTO will make sure that other countries are “following through on their commitments to allow foreigners to invest” without restriction in central areas of their economy. In the specific case at hand, the likely outcome is clear to all: “The obvious corporate beneficiaries of this new era will be U.S. carriers, who are best positioned to dominate a level playing field,” the Far Eastern Economic Review (FEER) points out, along with one UK-U.S. megacor- poration. Not everyone is delighted by the prospects. The winners recognize that fact, and offer their interpretation: in Sanger’s words, others fear that “American telecommunication giants…could overwhelm the flabby government-sanctioned monopolies that have long dominated telecommunications in Europe and Asia”—as in the United States, long past the period when it had become by far the world’s leading economy and most powerful state. It is also worth noting that major contributions to modern technology came from the research laboratories of the “flabby government-sanctioned monopoly” that dominated telecommunications here until the 1970s, using its freedom from market discipline to provide for the needs of advanced sectors of industry generally by transfer of public funds (in indirect ways, unlike the more direct modalities of the Pentagon system). Those who cling irrationally to the past see matters a bit differently. The FEER points out that “jobs will be lost” in Asia and “many Asian consumers will have to pay more for phone service before they will pay less.” When will they pay less? For that bright future to dawn, it is only necessary for foreign investors to be “encouraged…to act in socially desired ways,” not simply with an eye to profit and service to the rich and the business world. How this miracle will come to pass is unexplained, though doubtless the suggestion will inspire serious reflection in corporate headquarters.

In the time span relevant to planning, the WTO agreement will raise phone service costs for most Asian consumers, the Review predicts. “The fact is, comparatively few customers in Asia stand to benefit from cheaper overseas rates” that are anticipated with the takeover by huge foreign corporations, mostly American. In Indonesia, for example, only about 300,000 of 190 million people make overseas calls at all, specifically the business sector. “It’s very likely the cost of local telecoms service, in general, will rise” in Asia, according to David Barden, regional telecoms analyst at J.P. Morgan Securities in Hong Kong. But that is all to the good, he continues: “if there is no profitability in the business, there will be no business.” And now that still more public property is being handed over to foreign corporations, they had better be guaranteed profitability—telecommunications today, and a far wider range of related services tomorrow. The business press predicts that “personal communications over the Internet [including corporate networks and interactions] will overtake telecommunications in five or six years, and telephone operators have the biggest interest in getting into the online business.” Contemplating the future of his own company, Intel CEO Andrew Grove sees the Internet as “the biggest change in our environment” at present. He expects large-scale growth for “the connection providers, the people involved in generating the World Wide Web, the people who make the computers” (“people” meaning corporations), and the advertising industry, already running at almost $350 billion annually and anticipating new opportunities with the privatization of the Internet, which is expected to convert it to a global oligopoly.

Meanwhile privatization precedes apace elsewhere. To take one important case, over considerable popular opposition the government of Brazil has decided to privatize the Vale Company, which controls vast uranium, iron, and other mineral resources and industrial and transport facilities, including sophisticated technology. Vale is highly profitable, with a 1996 income of over $5 billion, and excellent prospects for the future; it is 1 of 6 Latin American enterprises ranked among the 500 most profitable in the world. A study by specialists of the Graduate School of Engineering at the Federal University in Rio estimated that the government has seriously undervalued the Company, noting also that it relied on an “independent” analysis by Merrill Lynch, which happens to be associated with the Anglo American conglomerate that is seeking to take over this central component of Brazil’s economy. The government angrily denies the conclusions. If they are accurate, as one may plausibly surmise, it will fall into a very familiar pattern.

Side comment: Communications are not quite the same as uranium. Where there is even a pretense of democracy, communications are at its heart. Concentration of communications in any hands (particularly foreign hands) raises some rather serious questions about meaningful democracy. Similar questions arise about concentration of finance, which undermines popular involvement in social and economic planning. Control over food raises even more serious questions, in this case about survival. A year ago the secretary-general of the UN Food and Agricultural Organization, discussing the “food crisis following huge rises in cereals prices this year,” warned that countries “must become more self reliant in food production,” the London Financial Times reported. The FAO is warning “developing countries” to reverse the policies imposed on them by the “Washington Consensus,” policies that have had a disastrous impact on much of the world, while proving a great boon to subsidized agribusiness—incidentally, also to narcotrafficking, perhaps the most dramatic success of neoliberal reforms as judged by the “free market values” that the “U.S. is exporting.”

Control over food supplies by foreign corporate giants is well underway, and with the agreement on telecommunications signed and delivered, financial services are next in line. Summarizing, the expected consequences of the victory for “American values” at the WTO are:

(1) a “new tool” for far-reaching U.S. intervention into the internal affairs of others; (2) the takeover of a crucial sector of foreign economies by U.S.-based corporations; (3) benefits for business sectors and the wealthy; (4) shifting of costs to the general population; (5) new and potentially powerful weapons against the threat of democracy.

AN IMPROPER FORUM

A rational person might ask whether these expectations have something to do with the celebration, or whether they are just incidental to a victory of principle that is celebrated out of commitment to higher values. Skepticism is heightened by comparison of the Times’ picture of the postwar era with uncontested fact. It is further enhanced by a look at some of history’s striking regularities, among them, that those in a position to impose their projects not only hail them with enthusiasm but also typically benefit from them, whether the values professed involve free trade or other grand principles—which turn out in practice to be finely tuned to the needs of those running the game and cheering the outcome. Logic alone would suggest a touch of skepticism when the pattern is repeated. History should raise it a notch higher. In fact, we need not even search that far. The same day that the front page was reporting the victory for American values at the World Trade Organization, New York Times editors warned the European Union not to turn to the WTO to rule on its charge that the U.S. is violating free trade agreements. Narrowly at issue is the Helms-Burton Act, which “compels the United States to impose sanctions against foreign companies that do business in Cuba.” The sanctions “would effectively exclude these firms from exporting to, or doing business in, the United States, even if their products and activities have nothing to do with Cuba” (Peter Morici, former director of economics at the U.S. International Trade Commission).

That is no slight penalty, even apart from more direct threats against individuals and companies who cross a line that Washington will draw unilaterally. The editors regard the Act as a “misguided attempt by Congress to impose its foreign policy on others”; Morici opposes it because it “is creating more costs than benefits” for the U.S. More broadly at issue is the embargo itself, “the American economic strangulation of Cuba” that the editors term “a cold war anachronism,” best abandoned because it is becoming harmful to U.S. business interests.

But broader questions of right and wrong do not arise, and the whole affair is “essentially a political dispute,” the Times editors stress, not touching on Washington’s “free-trade obligations.” Like most others, the editors apparently assume that if Europe persists, the WTO is likely to rule against the United States. Accordingly, the WTO is not a proper forum. The logic is simple, and standard. Ten years ago, on the same grounds, the International Court of Justice was found to be an inappropriate forum for judging Nicaragua’s charges against Washington. The U.S. rejected ICJ jurisdiction, and when the Court condemned the U.S. for the “unlawful use of force,” ordering Washington to cease its international terrorism, violation of treaties, and illegal economic warfare, and to pay substantial reparations, the Democrat-controlled Congress reacted by instantly escalating the crimes while the Court was roundly denounced on all sides as a “hostile forum” that had discredited itself by rendering a decision against the United States. The Court judgment itself was scarcely reported, including the words just quoted and the explicit ruling that U.S. aid to the contras is “military” and not “humanitarian.” Along with U.S. direction of the terrorist forces, the aid continued until the U.S. imposed its will, always called “humanitarian aid.” Public history keeps to the same conventions. The U.S. then vetoed a Security Council resolution calling on all states to observe international law (scarcely reported), and voted alone (with El Salvador and Israel) against a General Assembly Resolution calling for “full and immediate compliance” with the Court’s ruling,unreported in the mainstream, as was the repetition the following year, this time with only Israel on board. The whole affair happens to be a typical illustration of how the U.S. used the UN as a “forum” for imposing “its own values.”

Returning to the current WTO case, in November 1996, Washington voted alone (with Israel and Uzbekistan) against a General Assembly Resolution, backed by the entire European Union, urging the U.S. to drop the embargo against Cuba. The Organization of American States had already voted unanimously to reject the Helms-Burton Act, and had asked its judicial body (the Inter-American Juridical Committee) to rule on its legality. In August 1996, the IAJC ruled unanimously that the Act violated international law. A year earlier, the Inter-American Commission on Human Rights of the OAS had condemned the U.S. restrictions on shipments of food and medicine to Cuba as a violation of international law. The Clinton administration’s response was that shipments of medicine are not literally barred, only prevented by conditions so onerous and threatening that even the largest corporations here and abroad are unwilling to face the prospects (huge financial penalties and imprisonment for what Washington determines to be violations of “proper distribution,” banning of ships and aircraft, mobilization of media campaigns, etc.). And while food shipments are indeed barred, the Administration argues that there are “ample suppliers” elsewhere (at far higher cost), so that the direct violation of international law is not a violation.

As the issue was brought by the EU to the World Trade Organization, the U.S. withdrew from the proceedings on the ICJ model, effectively bringing the matter to a close. In short, the world that the U.S. has sought “to create in its image” through international institutions is one based on the principle of the rule of force.

The “American passion for free trade” entails that the U.S. government may violate trade agreements at will. No problem arises when communications, finance, and food supplies are taken over by foreign (mainly U.S.) corporations. Matters are different, however, when trade agreements and international law interfere with the projects of the powerful.  Similar troublemaking beyond the hemisphere has also been no slight problem, and continues to spread “dangerous” ideas among people who “are demanding a decent living.

Z

Noam Chomsky is an author, linguist, social critic, and activist. This article is an excerpt. The full article will appear in the Z Reader on the Economy: Protecting the Opulent (coming in June).