[Start of Part 2]
The Bretton Woods system was in place up until the early 1970s. That's the
period which is often called the golden age of postwar state capitalism.
That was a period of high rates of growth of the economy, of productivity
and expansion of the social contract of the welfare state. This was
dismantled from the early 1970s at first by unilateral acts of the United
States, then followed by Britain, Switzerland, and other financial
centers. By the 1980s capital controls were mostly gone in the rich
countries. The smaller economies came along, almost invariably by force.
In the case of South Korea, a striking case, it was compelled to drop
capital controls in the early 1990s. That led to a huge explosion of
speculative inflow of capital and then a rapid outflow of capital which
wiped out a pretty solid economy. Certainly harmed it badly. Much the same
is true in other parts of Asia that had suwccumbed to this pressure.
It's widely accepted now that liberalisation of capital flow and market
failures are major factors, the dominant factors, in the recent crisis,
which is very serious. Here we have to distinguish East Asia from
Southeast Asia. The East Asian economies, South Korea and Taiwan (Taiwan
has been somewhat immune from this, partly because it did not liberalise
to the same extent) were much more solid economies, Southeast Asian ones
were much more fragile.
The East Asian economic miracle is still regarded by serious analysts as
very real. For example the chief economist at the World Bank, Joseph
Stiglitz, recently in World Bank publications has emphasised that what he
called the East Asian "economic miracle", what he calls an "amazing
achievement", is historically without any precedent and based on
significant departures from the official doctrine, what is called the
Washington consensus, actually much greater departures than he indicates.
And he also thinks it should last unless it's destroyed by irrational
financial markets, he's speaking mostly of South Korea and Taiwan. He
points out that in order to achieve this economic miracle governments took
major responsibilities for the promotion of economic growth, abandoning
the "religion" that markets know best and intervening to enhance
technology transfer, equality, education and health along with, we may
add, industrial policy coordination and strict capital controls, until
they were forced to drop them a few years ago.
Stiglitz also mentions that the rich societies had followed quite similar
paths, in fact far more so than the World Bank has acknowledged. What has
happened since the early 1970s, coincident with the liberalisation of
capital flow, there were some very striking developments. It's reasonable
to think that they were partially caused by it, that could be debated, but
the facts are not debatable. I'm talking now about primarily rich western
societies, in fact primarily the United States and Britain, but others are
dragged along.
The first associated phenomenon, maybe consequence, is that the growth of
the economies and productivity slowed very sharply. The second is that
incomes stagnated or declined for the great majority of the population
Dramatically true in the United States, partially Britain and to some
extent others. The effects in the United States have been associated with
a worsening of working conditions, and extension of the working week. The
American worker works two or three weeks more than in the early 1970s to
at best maintain an income that has declined.
Another fact, also social services have deteriorated, infrastructures have
deteriorated, the welfare state is falling apart, I don't have to tell you
about that here. Thirdly, inequality increased quite rapidly. It had been
declining both in the United States and Britain and elsewhere from around
the 1930s through the golden age up to about 1970. Since then it's
increased, in the United States it's now back to the level of the 1920s.
There has also been a dramatic increase in incarceration, which is surely
related to that. Go back to say 1980, the United States was similar to
other industrial societies, kind of at the high end within the spectrum
both in crime rates and in level of incarceration. Crime rates have not
risen, they in fact have declined, but incarceration has gone through the
roof. The United States is now five to ten times as high, relative to
population, as other industrial societies and well in the lead among any
societies which have meaningful statistics. China may be higher, but
certainly among Western industrial societies it's far, far ahead. It's
overwhelmingly black males and it's a consequence of a completely
fraudulent drug war which is known to be fraudulent. It was designed
essentially, as Senator Moynihan put it (he's one of the few Senators who
pays attention to social statistics) as he put it when the last phase of
the drug war was announced, "we were determining to create a crime wave
among minorities", that's what the policy was for and that's exactly what
was done.
The details are interesting. The scale is so great that if you consider
the number of the population in jail it actually adds about 2% to the
official unemployment rate. Associated to what criminologists now call the
crime control industry, private prisons, prison labour, public funds for
prisons for high tech industry, financial institutions like Merrill-Lynch
and so on and so forth. It's a major industry, it's not the Pentagon but
it's coming close. It's serving, along with the function of getting rid of
the superfluous population, it's serving as another way for public funds
to enrich private power, very much like the military system. Well that's
another consequence or associated phenomenon.
Another associated phenomenon is that profits have soared, particularly in
the 1990s. They've been unprecedented - double-digit profit growth year
after year. The business press has been ecstatic, though.
We have to admit that there are some problems. If you follow the business
press, maybe you read articles in Business Week a couple of years ago
which talked about the problems facing the business world under the
headline "The problem now: what to do with all this cash" as "the coffers
of corporate America were overflowing". About a year later it got even
worse. There was an article reporting that something like two-thirds of a
trillion dollars of corporate wealth is sitting there, causing "vexing
problems" for Intel, IBM, General Electric and others who don't know what
to do with it. Fortunately there's a solution. A solution, and there's a
bipartisan consensus on that. The solution is to cut corporate taxes. The
point is that that is supposed to free up investment funds. The wealth
that is causing such "vexing problems" is not enough. That's what's been
going on until this year. This year things have changed which is part of
the reason for the concern on the front pages.
Another phenomenon that's been taking place in this period is that the
markets have become much more irrational and uncertain. The reason for
that is the enormous, astronomical increase in capital flows, most of it
very short term speculative flows. The scale is astronomical, it's been
estimated well over a trillion dollars a day, but 80 percent of it comes
home within a week, often within hours. None of that contributes to the
real economy, it harms the real economy. The proportion of foreign
exchange transactions that is connected to the real economy, trade and
investment, is now estimated roughly at 5%. That's 95% speculative. If you
go back to the 1970s before the breakdown of the Bretton Woods system, the
figures were essentially reversed, 90% related to the real economy, 10%
speculative and all together a far smaller amount.
Well that's led to very volatile markets. The IMF recently did a study of
the roughly 180 countries that are its members, essentially everybody with
a functioning economy. Of those about 80% had one or more banking crises,
about 20% had serious banking crises from about 1980 to 1995 and it's
getting worse.
Another phenomenon of the same period has been an attack on freedom of
trade and free markets, again as predicted. It's what's called a
"sustained assault' on free markets by the head of economic research of
the World Trade Organisation in a technical monograph. The attack on free
markets has been led by the rich countries, primarily the United States.
The same author, Patrick Low, attributes to Reaganite protectionist
measures about three times the effect of other industrial countries and
that's very plausible. During the Reagan years protection approximately
doubled, subsidies increased very sharply, along with outright bailouts of
domestic banks and international banks.
There was a reason for all of this. The United States had to do something
to overcome very serious management failures that had led to a decline of
US industry. If you go back to around 1980 there was great concern over
what was called a need for reindustrialisation of America - to somehow
save the central components of the industrial system from foreign
competition, mainly Japanese competition, and that was a management
failure. US management has not moved forward to take up modern production
techniques, lean production, flexible production, automation and so on and
so forth.
The government turned to the usual source to overcome all of this, namely
the Pentagon. That's something that's gone on in postwar history, back to
early US history. The Pentagon undertook a management technology program,
the purpose of which quite explicitly was to create, to assist US
management to overcome some of its inadequacies, to create what was called
"the factory of the future", based on automation and other modern devices
which American management hadn't picked up. This increased quite radically
under the Reagan years. They also tried to subsidise US industries
sufficiently so they dominated emerging technology and markets like
information technology and others. The internet is one example. All of
that continues under Clinton including radical interference with free
trade when it's convenient. It's had an effect, it's restored American
industry to its dominant position from when it was collapsing. If it
hadn't been for this it's quite likely that the US would now not have
functioning automotive, electronic, information technology, bio-technology
and other major industries. Well that continues under Clinton as does the
market interference, that's a fixed element of US policy and has been
throughout US history. It goes right across the spectrum.
About three years ago the Clinton administration imposed, essentially
blocked, export of Mexican tomatoes which cost Mexico close to a
billiondollars a year. The very frank and honest reason was simply that
they were undercutting private growers. American consumers preferred them
to Florida agribusiness-grown tomatoes, therefore the US blocked them.
Technically it wasn't a tariff, just a power play where Mexico was forced
to agree.
Just recently at the other end of the spectrum, the Clinton administration
barred Japanese super-computers. And the purpose was frankly stated - to
protect American manufacturers who were unable to compete,private
enterprises. Private enterprises is an odd word its profits are private,
the markets are government, a lot of the technology and funding is
government - sometimes from universities, other parts of the public sector
in terms of funding. But it's true that the profits are private, so in
that sense it's private industry. This again was frankly acknowledged,
wasn't even hidden.
The next one will probably be steel. Steel manufacturers are now calling
for barring imports from Japan, Korea and Russia which are undercutting US
sales. And the US can do that whenever it feels like it. There's a law
called Super - 301 which the US can invoke whenever it likes effectively
to block exports. It just threatens other countries with loss of the US
market unless they accept cutbacks in exports. That's part of US trade law
and used repeatedly. For example it's been used to forceAsian countries
to accept US lethal drugs including one of the most addictive and one of
the most lethal drugs around, namely tobacco.
These countries were compelled to accept US exports as well as advertising
primarily to vulnerable markets, and if they didn't accept them US markets
would close. Under the threat of Super-301 they accepted them with
predictable effects. In China alone, one Oxford University epidemiologist
has predicted that about 50 million people will die of tobacco-related
diseases.
If you really want to see the way it works in all its ugliness an
interesting and horrifying case to look at is the two extremes in the
Western hemisphere. The United States of course is by far the richest
country. The poorest country is Haiti. It's been under US domination for
most of this century including US Marine occupation, and it's now a total
basket case. It's had one democratic election, December 1990, which lasted
about seven months. The US strongly opposed the democratic government and
tried to undercut it. Then came a military coup which was tacitly
supported by the United States. The US finally did move to eliminate the
coup regime, but on a condition. The condition was that Haiti accept an
extremely neo-liberal program. It was forced to liberalise to an extreme
level, maybe New Zealand has a similar level, but for the rest of the
world that's the kind of thing imposed by force. That was the condition
for elimination of the coup, the terror and the torture. And the
consequences in the last couple of years have been as bad as you can
guess.
Haiti is a potentially successful and in fact large rice producer. Rice
production has been destroyed by "free competition" with US agribusiness.
US agribusiness was helped out a little bit by the fact that about 40% of
its profits comes from government subsidies, which increased rapidly under
Reagan, while Haiti has had a free market. One of the few successful
enterprises since the coup has been the production of chicken parts. Well
that's been undercut because chicken parts have been dumped by US
producers. American customers prefer white meat to dark meat and that's
been dumped on the Haitian market way below cost, destroying one of the
few hopeful enterprises.
Canada can block this. Canada is independent enough so that it can impose
tariffs which are 50 times as high as what Haiti is permitted to impose
under its neo-liberal program, and they block US dumping. Technically
Haiti could also use the equivalent of Super-301. That is, they could
threaten the United States to close off the Haitian market to American
exporters unless the US stops this so it's really a free and equal world.
A level playing field, I think is the technical name for it.
I could go on and review in brutal starkness what these things amount to.
To the Third World generally, the post-Bretton Woods era has been pretty
much a disaster. Some have escaped but mainly by also abandoning the
"religion', that is, not following the rules that are imposed by the rich
but virtually never followed by them. In the US there's supposed to be, if
you read the headlines, a tremendous economic boom. On the airplane I was
reading the London Financial Times which was ecstatic about what they call
the "radiant new economy" in the United States and if you read the
headlines that might be what you think. There is supposed to be a
"fairytale economy" in which Americans are supposed to prosper, during
"the healthiest boom in American history" and on and on.
The facts of the matter are a little different. The economic boom is
indeed unprecedented. It's the worst one in postwar American history, the
slowest recovery from the low point of the business cycle in 1989. The
growth in the 70s and 80s was far below the 50s and 60s and the current
recovery is totally unprecedented in that it has left out the large
majority of the population. So roughly 80% of households are working more
hours just to try to stay where they were, they haven't yet recovered the
level of 1989, the low point of the business cycle, let alone the early
1970s when the new economy was introduced. But it is a fairytale for some,
the top 1% of the population are doing magnificently. The top 10% are
doing reasonably well. If you look at the next 10%, it turns out that
during the fairytale economy their net worth has actually declined. Their
debts have increased faster than their assets. If you go below that it,
gets worse and worse the farther you go down.
So the fairytale is for some people, which happens to include the people
who are writing fairytales about it and deluded foreignors who sometimes
believe them. But the facts again are not controversial. Take a look at
the economics journals and so on, you find that. The reasons for this
fairytale are also quite frankly explained. The economic tsar in the
United States is Alan Greenspan, Chair of the Federal Reserve, the
Financial Times calls him "the saintly Mr Greenspan", a highly admired
figure. He testified before Congress at the Senate Banking Committee about
the economic miracle of which he is very proud He attributed it to what
he called "greater worker insecurity" which has led to significant wage
restraint.
The Clinton sdministration in its economic reports to Congress agreed. It
talked about salutary "changes in labour market institutions" which is an
intricate way of saying the same thing. What it means is that workers are
too intimidated to ask for raises, in part because of literally criminal
attacks on unions. Criminal is not an exaggeration. It means in violation
of laws authorised since the Reagan administration which have severely
harmed unions. And in fact about 90% of American workers are insecure. And
that's good for the health of the economy, any economist can explain that
to you, just as a "flexible labour force" is good for the health of the
economy. A flexible labour force means when you go to sleep at night you
don't know if you have a job tomorrow. That's healthy for the economy, it
keeps profits up, it keeps inflation down, and in general yields the kind
of fairytale that we've had. Threats of job transfer under the seriously
mislabeled Free Trade Agreements are another device that contributes to
the health of the economy. They've been studied, it's not reported, but
they've been studied and they're serious.
It's clear enough who's benefited from all of this, and clear enough who's
suffered, namely the majority of the population in the richest country of
the world and for peasants and slum dwellers in the poorest countries in
the hemisphere it's indescribable. It's much less clear what to do to tame
the destructive forces which have been unleashed and that's the problem
that's causing lots of concern in high places. There are now calls for
re-regulation of financial markets from pretty surprising places. The Bank
for International Settlements in Basle which is the super-conservative
institution, the central bank of central bankers, the World Bank which has
now split from the IMF on this issue, a good part of the business press
including the Financial Times, major investors and very prominent free
trade economists are now condemning what they call "the Wall
Street-Treasury complex" which is destroying the international economy by
imposing policies that free financial markets, and that's a problem.
There are proposals that have been on the table for 20 years on how to
tame this beast. They've never made it to the agenda because more powerful
forces in world affairs liked the way things were going, not very
surprisingly. Now they're worried and they may work or they may not work.
It's helpful and I think enlightening to take a longer view of all this.
We are living in the latest phase of a struggle that's been going on for
centuries. It reached its first modern climax in the first modern
democratic revolution in 17th century England. These were complicated
events but one element in them was the conflict over the meaning of
liberty. There was one strand of thought which happened to win out, which
defined liberty as "the freedom to possess and acquire" property and
understood the English common law to be a law of property protecting the
landed gentry. Much of the population disagreed. They took the law of the
gentry to be the enemy of liberty. Remember that this was right in the
middle of the era of enclosures of common land, a period of harsh and
often quite violent transformations of English society which over several
centuries turned the rural population into a subdued working class lacking
their traditional communal rights to land, forests, village solidarity,
craft traditions. They were also without political rights until early in
this century.
In 17th century England a large part of the population was strongly
against this and in fact against both sides in the Civil War between King
and Parliament. As is the case in most civil wars including the American
revolution, much of the population were opposed to both sides. And we know
what they thought because the printing press was available and there were
popular pamphlets being circulated and so on. And they carried a strong
message that the common people wanted to be represented by "countrymen
like ourselves" who "know the people's sores", not by lords and gentlemen
who only oppress us.
Well, they lost but the struggle continued and it went on as the
industrial system was imposed. People had to be taught discipline and
obedience, their working lives were supposed to be worthless. The founders
of modern economics gave a supposedly scientific grounding to all of this,
not incidentally Adam Smith who was pre-capitalist and, in my opinion at
least, anti-capitalist both in spirit and content, but Ricardo and
Malthus and other early 18th century figures who said straight out that
people had to be taught that they have no rights apart from what they
could gain in the labour market. They have no right to live, essentially.
If they can't survive they could go to the workhouse prison or they could
go to the new colonies that were being cleared of the native population A
history that's well known here.
The classic study of this period is Karl Polanyi's book "The Great
Transformation" which remains unsurpassed 50 years later, justly respected
across the serious spectrum. He writes there that "mankind was forced into
the paths of a utopian experiment", namely subordination to market
principles. "Never perhaps in all modern history has a more ruthless act
of social reform been perpetrated"," crushing multitudes of lives". He
says "almost immediately the self protection of modern society set in,
factory laws and social legislation, and a political and industrial
working class movement sprang into being to stave off the entirely new
dangers of the market mechanism." There was widespread despair and
suffering that led to disorder and protest. In fact in the early 19th
century the British army spent much of its time putting down riots. And
after riots came something even more dangerous, namely organised social
movements that began to challenge the principle that had raised
accumulation of capital to the supreme, in fact only, human value, and
quite ominously for their masters it also challenged their right to rule.
That led to changes.
This was never even tried anywhere else but in England it was, thanks to
Britain's overwhelmingly predominant position in the international
economic system, a result of 150 years of protectionism, violence and
extreme state intervention and so on. After 150 years the laissez faire
experiment became possible, but the business classes quickly recognised it
was going to destroy their own interests. As Polanyi puts it accurately,
they recognised that the free market "could not exist for any length of
time without annihilating the human and natural substance of society. It
would have physically destroyed man and transformed his surroundings into
a wilderness." Well, laissez faire doctrine fell into further disrepute as
the business classes recognised that they were going to need to rely on a
powerful state and that markets would have to be administered somehow to
prevent the disaster, preferably administered by themselves of course. So
free market capitalism was essentially abandoned by the beginning of this
century in favour of the system of administered markets of the corporate
era.
Meanwhile popular struggle took new forms. Early in this century voting
rights had to be granted to the general population and the elite reaction
was similar in both of the leading parliamentary democracies. In England
the Conservative Party warned that if they were going to maintain
traditional rule the party would have to " apply the lessons" of the
highly successful propaganda campaigns of World War One. They had to apply
those lessons to the "organisation of political warfare", and that was
done with considerable success. Wilsonian liberals in the United States
drew the same conclusion in the same years, that includes intellectuals,
prominent figures in the developing profession of political science and
most significantly in the public relations industry. If you look at their
literature it's very revealing. Business leaders understood very well that
the industrial system was forcing people into meaningless lives and that
they might revolt, seek to take control of their own lives and work and
that had to be prevented somehow. And the way to prevent it was to extend
the concept of liberty to the mass of the population in some limited form.
The best way to do so, it was quickly understood, was to identify liberty
with the liberty to consume, so people were supposed to perceive their
needs in terms of consumption of goods rather than quality of life and
work. So leaders in the advertising industry explained.
The idea that they might control their own lives and work, that had to go.
It was necessary as business leaders put it, to "nullify the customs of
the ages", just as the enclosure movement had nullified the customs of the
ages in earlier years, then the radical experiment of industrialisation
and the even more radical experiment of laissez faire which was quickly
terminated. Well, if you think about it, the neo-liberal programs of the
last generation are just another phase in the same process and it will
presumably have the same consequences. It's been going on for hundreds of
years and it's not over.
It's quite understandable that concentrations of power should pursue those
ends. It makes good sense. Uunderstanding can liberate people to design
and follow very different paths, to overcome the injustice and the
needless suffering that can deface contemporary civilisation, to defend
"the substance of society", to enrich it for themselves and for others and
to show that human beings are something better than the ridiculous
creatures that are crafted by contemporary ideology and the power that it
serves.
[end of partr 2 - Q&A in Part 3]
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