cj#853.3> Chomsky: “Whose World Order: Conflicting Visions”

1998-10-20

Richard Moore

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Part 3 of series
full version on web: http://www.acs.ucalgary.ca/~gharris/
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Throughout the same period profits have soared, particularly in the 1990s.
The current jitters on Wall Street have to do with the concern that there
may be an end to what for the last couple of years the business press has
been calling this stupendous and dazzling and extraordinary growth of
profits. They've run out of adjectives and they may now be worried that the
facts are ending too. There has been an astronomical increase in capital
flows, a huge increase, mostly very short term. About 80 per cent now is
estimated to have a round trip -- it goes out and back, in a period of a
week or less, often hours or even minutes. That means it's virtually
unrelated to the real economy, to trade and investment. In fact, current
estimates are that about five per cent of the roughly trillion and a
half-dollar per day capital flow is related to the real economy. The rest is
speculative. If you go back to 1970, the figures were essentially reversed.
It was about 90 per cent of a much smaller sum was related to the real
economy and maybe 10 per cent was speculative. It's also based very heavily
on extensive borrowing; it's highly leveraged, in the jargon, and that's a
factor that accelerates something which is often also ... oopsŠ whoever owns
these microphones is going to have a problem. Ignore them? OK. Happy to
ignore microphones all the time.

This high borrowing, this highly leveraged character of investment, which is
something new, incidentally (a lot of things are old but this is new),
that's accelerating the irrationality of financial markets. They've become
much more volatile and unpredictable; there have been wildly fluctuating
exchange rates related to speculative flows and there have been increasing
financial crises. The IMF recently did a study of the period 1980-1995, a
15-year period, and it found that about 80 per cent of its roughly 180
members had had one or more banking crises, ranging from significant to
quite serious. Again, that wouldn't have surprised Keynes and White or any
of the framers of Bretton Woods, or the economists' thinking behind them.

In the same period, again in conformity with their thinking, has been an
assault, an attack on free markets, a sustained assault on free markets, to
quote the head of economic research of the World Trade Organization, in a
major technical study. That was led by the Reaganites. They were talking
free markets for the poor but doing something else for the rich. This
analyst, Patrick Low, estimates the effect of Reaganite protectionist
measures at about three times as high as those of the other industrial
countries which were bad enough. Well again, that's what was expected.
During the Reagan years, lots of lofty rhetoric but protection was virtually
doubled. The public subsidy, which is another violation of free trade
principle, was increased, bailouts increased, both for domestic banks and
international banks. In the United States - it's happened throughout the
world but mostly in the United States - In the United states the goal was to
somehow overcome very serious management failures that were leading to a
decline of U.S. industry and were a matter of great concern at the time.
Those of you who read the business press remember a lot of discussion and
concern about the need to reindustrialize America. American industry was
collapsing, mostly because of management failures. The Pentagon was called
in to fill its traditional role to do something about this problem. (That's
actually a role that goes back to the early 19th century before there was a
pentagon.) The pentagon was called in to develop a program under Carter
which was greatly extended under Reagan, to design what was called the
factory of the future, based on lean production and automation and other
developments in which the American management had fallen way behind and then
to hand it over to industry as a gift. The purpose was to save central
components of the industrial system from mainly Japanese competition, which
was wiping it out, and to place them in a position to dominate the emerging
technologies and markets of the next era. The Internet and information
technology, generally, are rather dramatic examples of this but not the only
one.

All of this continues under Clinton, alongside the free market rhetoric.
Radical interference with free trade is standard when convenient. And it's
across the spectrum. So Mexican tomatoes were effectively barred from the
U.S. market, as was openly stated, because U.S. consumers prefer them and
they were undercutting Florida growers, sort of at the other end of the
trading spectrum. High tariffs were a couple of months ago introduced on
Japanese supercomputers to protect U.S. manufacturers like Cray Enterprises,
which is called private enterprise I guess because the profits are
privatized. (The markets are public and much of the technology and funding
is public as well but the profits are private.)

Throughout the same period profits have soared, particularly in the 1990s.
The current jitters on Wall Street have to do with the concern that there
may be an end to what for the last couple of years the business press has
been calling this stupendous and dazzling and extraordinary growth of
profits. They've run out of adjectives and they may now be worried that the
facts are ending too. There has been an astronomical increase in capital
flows, a huge increase, mostly very short term. About 80 per cent now is
estimated to have a round trip -- it goes out and back, in a period of a
week or less, often hours or even minutes. That means it's virtually
unrelated to the real economy, to trade and investment. In fact, current
estimates are that about five per cent of the roughly trillion and a
half-dollar per day capital flow is related to the real economy. The rest is
speculative. If you go back to 1970, the figures were essentially reversed.
It was about 90 per cent of a much smaller sum was related to the real
economy and maybe 10 per cent was speculative. It's also based very heavily
on extensive borrowing; it's highly leveraged, in the jargon, and that's a
factor that accelerates something which is often also ... oopsŠ whoever owns
these microphones is going to have a problem. Ignore them? OK. Happy to
ignore microphones all the time.

This high borrowing, this highly leveraged character of investment, which is
something new, incidentally (a lot of things are old but this is new),
that's accelerating the irrationality of financial markets. They've become
much more volatile and unpredictable; there have been wildly fluctuating
exchange rates related to speculative flows and there have been increasing
financial crises. The IMF recently did a study of the period 1980-1995, a
15-year period, and it found that about 80 per cent of its roughly 180
members had had one or more banking crises, ranging from significant to
quite serious. Again, that wouldn't have surprised Keynes and White or any
of the framers of Bretton Woods, or the economists' thinking behind them.

In the same period, again in conformity with their thinking, has been an
assault, an attack on free markets, a sustained assault on free markets, to
quote the head of economic research of the World Trade Organization, in a
major technical study. That was led by the Reaganites. They were talking
free markets for the poor but doing something else for the rich. This
analyst, Patrick Low, estimates the effect of Reaganite protectionist
measures at about three times as high as those of the other industrial
countries which were bad enough. Well again, that's what was expected.
During the Reagan years, lots of lofty rhetoric but protection was virtually
doubled. The public subsidy, which is another violation of free trade
principle, was increased, bailouts increased, both for domestic banks and
international banks. In the United States - it's happened throughout the
world but mostly in the United States - In the United states the goal was to
somehow overcome very serious management failures that were leading to a
decline of U.S. industry and were a matter of great concern at the time.
Those of you who read the business press remember a lot of discussion and
concern about the need to reindustrialize America. American industry was
collapsing, mostly because of management failures. The Pentagon was called
in to fill its traditional role to do something about this problem. (That's
actually a role that goes back to the early 19th century before there was a
pentagon.) The pentagon was called in to develop a program under Carter
which was greatly extended under Reagan, to design what was called the
factory of the future, based on lean production and automation and other
developments in which the American management had fallen way behind and then
to hand it over to industry as a gift. The purpose was to save central
components of the industrial system from mainly Japanese competition, which
was wiping it out, and to place them in a position to dominate the emerging
technologies and markets of the next era. The Internet and information
technology, generally, are rather dramatic examples of this but not the only
one.

All of this continues under Clinton, alongside the free market rhetoric.
Radical interference with free trade is standard when convenient. And it's
across the spectrum. So Mexican tomatoes were effectively barred from the
U.S. market, as was openly stated, because U.S. consumers prefer them and
they were undercutting Florida growers, sort of at the other end of the
trading spectrum. High tariffs were a couple of months ago introduced on
Japanese supercomputers to protect U.S. manufacturers like Cray Enterprises,
which is called private enterprise I guess because the profits are
privatized. (The markets are public and much of the technology and funding
is public as well but the profits are private.)

If you want to see the real meaning of free trade and neo-liberalism in its
cruelest form, just take a look at the relation between the richest and the
poorest country of the hemisphere - the United States and Haiti. Haiti was
forced to liberalize radically as a condition on terminating the terror and
torture of the coup (?) regime, which was pretty awful - I was there at the
time, but you didn't have to be there to know it. The cost of liberalization
is quite severe. One effect is that Haitian rice production, one of their
few potential economic strengths has been seriously harmed and virtually
destroyed because it is now competing with US agri-business, which is crazy
to begin with, and even crazier when you recognize that 40 per cent of its
profits come from government subsidies, thanks to Reaganite contributions to
free trade. Recently, the United States has started dumping chicken parts in
Haiti, undermining another. The reason is that American consumers don't like
dark meat, so the producers, these big factory farms, have a lot of extra
dark meat, so why not dump it on Haiti? We're to wipe out one of the few
hopeful enterprises that had developed there. They can't dump it on Canada
because Canada has huge tariffs to block that kind of behavior. Haitian
tariffs are forced to be, I think, roughly one-fiftieth of what Canada's
are, same with the Dominican Republic and Jamaica, but Haiti has to
liberalize.

Just within the last few days, U.S. steel manufacturers have been demanding
that the U.S. government force Japan and Russia to cut back steel imports
into the United States; they are particularly worried about Japan because
it's high quality steel, which is undercutting them. And probably they will.
The U.S. has instruments to do that. Super 301 it's called: you threaten to
close off the market to a country and if they don't do it you tell them. And
of course Haiti, since it's a free and equal world, Haiti has the same
instrument: they could object to U.S. dumping of chicken parts by
threatening to close off Haitian markets to U.S. exporters, just as the U.S.
can do, so it's all free and equal. Well, that's free trade.

[to be continued...]



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