Noam Chomsky On The Economy

AK: The economic crisis is felt acutely in the US, but has now spread to the entire world, even to countries (in South America, for example) that initially thought they would be spared. And the American presidential campaign and elections cannot but concern people everywhere, given the dominant role of the US globally. The simultaneous unfolding of the two -- the crisis and the presidential campaign -- has naturally elicited considerable discussion outside the US. In the Middle East, in particular, there has been a kind of speculation, perhaps wishful thinking, be it from the left or from the right. Some Arab commentators have speculated that an Obama administration will follow less aggressive policies. Some other Arab commentators want to see the economic crisis as the sign of an imminent American global decline, and warn pro-American governments and parties to stop doing the bidding of a doomed North American hegemon. What is your response to this kind of thinking? More generally, in relation to the Middle East, what direction is US policy likely to take with the coming Obama administration in the wake of the economic crisis?

NC: I think that US hegemony will continue to decline as the world becomes more diverse. That process has been underway for a long time. US power peaked at the end of World War II, when it had literally half the world's wealth and incomparable military power and security. By 1970, its share of global wealth had declined by about half, and it has remained fairly stable since then. In some important respects, US domination has weakened. One important illustration is Latin America, Washington's traditional "backyard." For the first time since European colonization 500 years ago, South America is making significant progress towards integration and independence, and is also establishing South-South relations independent of the US, specifically with China, but elsewhere as well. That is a serious matter for US planners. As it was discussing the transcendent importance of destroying Chilean democracy in 1971, Nixon's National Security Council warned that if the US cannot control Latin America, it cannot expect "to achieve a successful order elsewhere in the world" -- that is, to control the rest of the world. Controlling Latin America has become far more difficult in recent years.

It is important to recognize that these goals were explicitly and clearly articulated during World War II. Studies of the State Department and Council on Foreign Relations developed plans, later implemented, to establish a "Grand Area," in which the US would "hold unquestioned power," displacing Britain and France and ensuring the "limitation of any exercise of sovereignty" by states that might interfere with its global designs. Planners called for "an integrated policy to achieve military and economic supremacy for the United States" in the Grand Area, which was to include at least the Western hemisphere, the former British Empire, and the Far East. As the war progressed, and it became clear that Soviet military power was crushing the Nazi war machine, Grand Area planning was extended to include as much of Eurasia as possible. Since that time fundamental policies have changed more in tactics than in substance. And there is little reason to expect any change of goals with a new US administration, though the possibilities of realizing them are declining in a more complex and diverse global system.

With regard to the Middle East, policy has been quite stable since World War II, when Washington recognized that Middle East oil supplies are "a stupendous source of strategic power" and "one of the greatest material prizes in world history." That remains true. It is interesting that as the pretexts for invading Iraq become more difficult to sustain, mainstream commentary is beginning to concede the obvious reasons for the invasion, and the need for the US to maintain control of Iraq, to the extent that it can. Thus when Obama called for shifting the focus of US military operations from Iraq to Afghanistan, the Washington Post editors instructed him that he was making a serious mistake, since Afghanistan's "strategic importance pales beside that of Iraq, which lies at the geopolitical center of the Middle East and contains some of the world's largest oil reserves." Propaganda about WMD and democracy is fine to keep the domestic public quiet, but realities must be recognized when serious planning is at stake.

Both Democrats and Republicans accept the principle that the US is an outlaw state, entitled to violate the UN Charter at will, whether by threatening force against Iran (an explicit violation of the Charter) or by carrying out aggression (the "supreme international crime," in the words of the Nuremberg Tribunal). They also accept the principle that the US not only has the right to invade other countries if it chooses, but also to attack any country that it alleges is supporting resistance to its aggression. Here the guise is "the war on terror." Murderous attacks by US drones in Pakistan are one illustration. The recent US cross-border raid from Iraq, on October 26, on the town of Bukamal in Syria is another. The editors of the Lebanese Daily Star are quite right in warning that the attack on Syria is another contribution to the "loathsome legacy" of the Bush II administration. But it is not just Bush II, and there is, currently, no substantial basis for expecting any significant change under a new administration with regard to Iraq, Iran, Afghanistan, Israel-Palestine, or any other crucial issue involving the Middle East.

AK: Some on the left in the US have warned that, as American economic power wanes and with it the political influence that follows, the US will rely more on military force to assert itself. So, unless there is a concomitant drop in Washington's drive to remain the dominant global power, there will be more military provocations and a far more dangerous world. However, the US military is already over-stretched -- in Iraq, in Afghanistan, and elsewhere -- and many former military officers have recently gone public in expressing their concerns about a broken army. So, is this kind of speculation unduly alarmist?

NC: I am frankly somewhat skeptical. For one thing, though ground forces are indeed overstretched, the US military is awesome in scale and power. US military spending is roughly comparable to the rest of the world combined, and the military is far more advanced technologically. It is rather striking that a small client state, Israel, claims to have air and armored forces that are larger and technologically more advanced than any NATO power, apart from the US. And the US is alone in the world in having a global basing system and naval and air forces that allow it to carry out violent action virtually everywhere. It is also alone in developing capacities for space warfare, over the strong objections of the rest of the world.

In the economic sphere, for about thirty years the world has been tripolar, with powerful centers in North America, Europe, and East Asia. The diversification of the global economy has proceeded since, and may be somewhat accelerated by the current financial crisis, though that is not obvious. The US has enormous advantages in the economic domain, though also substantial weaknesses, like severe indebtedness. Europe could become an independent force in world affairs, but has chosen to subordinate itself to Washington. It has readily accepted extreme provocations, among them, Clinton's expansion of NATO to the East in violation of firm promises by the Bush I administration to Gorbachev, when he made the astonishing concession of allowing a united Germany to join a hostile military alliance. Some recent consequences in the Caucasus of this policy of expansion to the East have been on the front pages. The Asian countries have accumulated huge financial reserves, so much so that Japan, despite its stalling economy, is purchasing major US assets. In principle, China and Japan could diversify their currencies away from dollars. The effects could be dramatic, but it is not likely, for one reason because of their reliance on the US market, for another, because of US power, which they do not want to confront.

It is true that Bush II has severely harmed the interests of those who own and run the society, one reason why he has come under such intense criticism within the mainstream. But it has hardly been a lethal blow. There is much talk about India and China becoming the major powers of the next century. No doubt they will continue to gain economic power, but they have enormous internal problems, unknown in the West. One indication is given by the UN Human Development Index, in which China ranks 81st and India 128th (unchanged through the period of its partial liberalization and rapid growth). And there is much more.

AK: There is a relation you have mentioned in some of your recent writings, between neo-liberal economics and the diminishing space for democratic participation. This is something that is rarely discussed, even by commentators on the left, as if proponents of financial liberalization coincidentally happen to be anti-democratic. The connection is at best observed, but not articulated. In fact, the neo-liberal economists have always advocated their policies in the name of democracy and swear by their commitment to it. Would you explain the mechanism of this connection and how it worked in past decades?

NC: It is true that the relation is ignored, apart from some of the professional literature. But it is straightforward, and highly significant.

After World War II, the victors established a global economic order, the Bretton Woods system: Britain was represented by John Maynard Keynes, the US by Harry Dexter White. A core principle was constraints on capital. Governments were permitted to control capital flight, a principle that still is in the IMF rules, though ignored. And currencies were regulated within a narrow band. The motives were twofold. The first was economic: Keynes and White believed that these measures would stimulate economic growth and trade. The second was sociopolitical: both understood that unless governments are able to regulate capital, they will not be able to carry out social democratic (welfare state) measures. These had enormous support among populations that had been radicalized by the Great Depression and the anti-fascist war (World War II).

The basis for the sociopolitical motive is straightforward. Free capital movement establishes what international economists have called a "virtual parliament" of investors and lenders, who carry out a "moment-by-moment referendum" on government policies. The "virtual parliaments" can "vote" against these policies if it considers them irrational: enacted for the benefit of people, rather than profit for concentrated private power. They can "vote" by capital flight, attacks on currencies, and other devices offered by financial liberalization. Keynes considered the most important achievement of Bretton Woods to be establishment of the right of governments to restrict capital movement.

Keynes regarded speculation as destructive. His basic insight is well described by Indian economist Prabhat Patnaik, at the UN conference of October 30 on the global financial crisis. Patnaik explains that Keynes "had located the fundamental defect of the free market system in its incapacity to distinguish between `speculation' and `enterprise.' Hence, it had a tendency to be dominated by speculators, interested not in the long-term yield on assets but only in the short-term appreciation in asset values. Their whims and caprices, causing sharp swings in asset prices, determined the magnitude of productive investment and, therefore, the level of aggregate demand, employment and output in the economy. The real lives of millions of people were determined by the whims of 'a bunch of speculators' under the free market system." The replacement of governmental "demand management" by "bubble booms" created by speculators is a prime cause of the current financial crisis, Patnaik argues plausibly, supporting Keynes's analysis.

Both motives of the Bretton Woods planners -- the economic and the sociopolitical -- proved well justified. The following years, until the system was dismantled in the 1970s, are described by economic historians as the "golden age" of capitalism (more accurately, state capitalism). Since financial liberalization and the related neo-liberal programs were introduced in the 1970s, there has been considerable deterioration where the programs have been adopted, though there has been rapid growth where they have been mostly ignored, notably in East Asia. The same has been true of the sociopolitical motive. The Bretton Woods years were the era of substantial progress in establishing basic social and democratic rights, which have been under attack during the neo-liberal/financial liberalization period. To take just the United States for illustration, during the Bretton Wood years, economic growth was not only unusually rapid but also egalitarian: the poorest quintile did as well as the richest. And social indicators, general measures of the health of the society, closely tracked growth. Since the late 1970s, for the majority of the population real incomes have stagnated, work hours have increased, benefits have declined, and social indicators not only did not track growth, but in fact steadily declined.

It is instructive to see how the basic issues are described in the serious literature of economic history. In his standard scholarly history of the international monetary system, Barry Eichengreen points out that in the 19th century, the public had not been much of a problem. Governments had not yet been "politicized by universal male suffrage and the rise of trade unionism and parliamentary labor parties." Therefore the severe costs imposed by the "virtual parliament" could be transferred to the general population, who could do nothing but suffer in silence. But with the success of popular struggle in achieving some level of democracy, and the radicalization of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures."

It is only necessary to add the obvious corollary: with the dismantling of the system from the 1970s, functioning democracy is restricted. It has therefore become necessary to control and marginalize the public in some fashion. These processes are particularly evident in the more business-run societies like the United States. One illustration is the management of electoral campaigns by the Public Relations industry, to ensure that the public is effectively marginalized. As many studies demonstrate, the two political parties -- essentially, two factions of the ruling business party -- are well to the right of the public on many major issues, so there is a good reason for party managers to keep issues sidelined and to concentrate on personalities, "values," character, and so on. The nature of the electoral extravaganzas in American presidential campaigns is well symbolized by the fact that Sarah Palin's hairdresser is paid twice as much as John McCain's foreign policy adviser -- and her role is twice as important, for the party managers and the handlers of the candidates.

The population is not unaware of their marginalization, and naturally do not like it. 80% of the American public feel that the government is run "by a few big interests looking out for themselves," not for the benefit of the public. And a remarkable 95% object that the government does not respond to public opinion -- as is demonstrably the case.

AK: Looking ahead, if a retreat from financial liberalization will open up some space for democratic participation, in what sectors of American society is this likely to happen? The labor movement in the US has gradually weakened since World War II, and will probably take some time to rebuild its base and reassert itself. This is a little speculative, but where do you think genuine democratic participation is likely to start from in the US?

NC: US labor history has been very violent, by comparative standards. By the 1920s, the very lively and popular labor movement had virtually been destroyed, by means that shocked even right-wing observers in England and Australia. During the Depression and World War II, the labor movement revived and became a significant force. Immediately after the war, a corporate-led offensive was launched, with government support, to destroy the unions. The scale was quite remarkable. There are good scholarly studies, but the history is scarcely known. The reason why unions are targeted is straightforward: they not only enable working people to gain basic rights, but they are also an instrument of democratization, providing a means for people with limited resources to come together to formulate plans and to enter the political arena to implement them. Naturally, democracy and worker's rights are regarded as a serious threat by concentrated power. In the 1980s, the Reagan administration informed the business world that the government would not enforce the laws, dating from the New Deal (initiated by President Roosevelt in the 1930's to counter the effects of the Great Depression), which protected workers attempting to organize. Illegal firing of union organizers tripled. In the Clinton years, NAFTA (North American Free Trade Agreement) served the same function. When workers sought to organize, management could threaten to move to Mexico. The threat is illegal, but when the government refuses to enforce the laws, it can be quite effective. Other devices have been developed to crush unions. The media (press, cinema, etc.) have also been mobilized to the cause.

It should be recognized that the leaders of the business world are dedicated Marxists in that they are constantly fighting a bitter class war to control their popular enemy. And since they largely control government and media, the war is quite effective. By now, private sector unionization is very low, though a majority of workers favor unionization. A telling comparison is that in the public sector, where means to destroy unions are less available, unionization remains far higher.

Revitalization of the labor movement is not out of the question. It has happened before, back to the 19th century, after the business classes and their intellectual chorus had spoken confidently of the end of history in a utopia of the masters. But there are also other forces. The country has become much more civilized as a result of the activism of the '60s and its aftermath -- one reason why the '60s period is so bitterly condemned and vilified. The 2008 election is an illustration. The top Democratic candidates were a woman and a black. The Republican vice-presidential candidate is a woman. Independently of what one might think about them, it is important to recall that anything like this would have been unthinkable before the activism of the 60s had its impact. That impact extends quite broadly: to rights of minorities and woman and human rights generally, to concern for future generations (the environmental movement), to recognition of some of the crimes of history that had been suppressed or even glorified, like virtual extermination of the native population; and to many other areas, including opposition to aggression. Though it is not widely understood, opposition to the Iraq invasion has been far higher than to the invasion of Indochina, at a comparable stage. And the opposition has limited the ability of the state to resort to violence.

Some of the most active and important popular movements are more recent. The third-world solidarity movement, which has roots in mainstream America, is a product of the 80s, and has expanded since; it is worth remembering that it is a new development in the history of Western imperialism. The global justice movement -- ludicrously called "anti-globalization" -- developed in the North in the past decade, though its origins in the South are much deeper and more rich. These are potential sources for democratic participation, if they can overcome the success of the business world in atomizing the population, and driving people to individual concerns rather than social engagement -- a very large and important topic that I cannot go into here.

Noam Chomsky On The Economy, Democracy and the American Presidential Elections

Noam Chomsky Interviewed by Assaf Kfoury