The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers (19 page)

Although both parties theoretically benefit from international exchanges, mutual benefit is unlikely to occur when an imbalance of power exists. The weaker party is likely to find its choices determined by coercion rather than the prospect of a mutually advantageous trade.

Globalization gives free rein to corporate power at the expense of workers and communities. Client governments must give way to the demands of corporate traders, who expect the right to override any domestic legislation that stands in their way. These clients have the obligation to impose harsh Procrustean discipline, one that might make an old imperial power blush.

In the new world of international relationships, imperial powers can subcontract the messy work of repression to compliant dictators, well versed in the payoffs for obedience and the penalty for resistance. In an environment that the great powers credit as representing freedom, such thugs can become fabulously wealthy at the expense of their people. For example, in 1953,
Time
published a glowing article about the kind of freedom that Procrusteans appreciate:

One place where U.S. businessmen abroad can still flourish in a climate of high-riding free enterprise is the oil-booming republic of Venezuela…. Discussing the army dictatorship that has bossed Venezuela for the past five years, a banker explained recently: “You have the freedom here to do what you want to do with your money, and to me that is worth all the political freedom in the world.”
¹

The great powers celebrate the compliant people who administer such states as legitimate leaders, even as great democrats, lending an
air of respectability to the transactions between the great powers and the impoverished lands of the world.

International Procrusteanism provides cheap and reliable offshore workforces, which offer countries such as the United States a double dividend. Over and above low wages for companies that locate their factories abroad, the mere threat of relocation becomes an important component in the traumatization of labor. This method is far more attractive than the risky strategy of counting on the Federal Reserve to increase interest rates.

Heads of state willing to administer the policies of international Procrusteanism rarely have the public interest in mind. Instead, they tend to devote their attention to enriching themselves and their cronies. A culture of corruption is a common legacy of imperial relations. One typical outcome of such rule is a huge accumulation of national debt. The requirement to repay such debt makes independent development impossible.

When countries are not as compliant as Venezuela in the 1950s, powerful nations have a number of means of pressure at their disposal. As Venezuela later learned, they are not shy about using them.

More often than not, direct force is unnecessary. Blockades and other trade sanctions, or just the threat of sanctions or military intervention, are often sufficient to bring compliance. In those rare cases where poor countries still dare to behave defiantly, a powerful creditor, such as the United States, always acting in the name of democracy, can usually topple the recalcitrant government through covert actions, which do not involve the expense of sending in troops.

With either direct or covert imperial control, the fiction of natural market forces is hardly credible. One of the more outlandish examples comes from China, where Britain fought two wars (1839 and 1856) to force the Chinese to open their country to trade in British opium; yet the British treated opium as an illegal drug at home.

In the world of international Procrusteanism, potential wealth carries great risks. Imagine a poor country located on top of a rich oil deposit. Irresistible forces will pressure this country to open its resources through lopsided agreements in which the foreign companies
enjoy the lion’s share of benefits. Yet the great powers will claim to be acting in the best interest of the people in such a country, much like the employers who were willing to lengthen the hours of work to help the common people improve themselves.

Once a compliant regime is in place, all parties give the appearance of deferring to impersonal market forces. Everything is presumed to be entirely voluntary and mutually beneficial; everybody pretends that equality prevails.

Sometimes, the only chance that poor countries have is to seek the protection of some great power that is involved in a rivalry with other great powers. These protectors will seek a payback, but they may partially keep their greed in check to prevent the poor protectorate from defecting to the other side. This strategy is not without the risk that the poor countries can get drawn into wars in which they have no real stake. Since the demise of the Soviet Union, the choice of competing powers is less available to weak countries. The table is now set for the world of international Procrusteanism.

Ideological Preparations

The United States and other developed countries hold out the promise to poor countries that if they comply with the rules of international Procrusteanism, they can enjoy great prosperity. But no country has ever successfully developed on the basis of free markets. The developed countries, themselves, have gone to great lengths to control market forces, especially during their early phases of development.

Successful industrialized countries have historically accepted some market forces, and no country has ever been fully developed without some market forces. But from the earliest days of the United States, the government protected emerging industries from foreign competition. The question was the degree to which market forces had full rein.

The United States gave huge subsidies to the railroads, which were central to the modernization of the economy. Nor should one forget
the enormous contribution that slave labor provided. The slaves directly created wealth for plantation owners and also indirectly for the northern bankers and traders that facilitated southern trade. Those who supplied the largely unindustrialized South with the commodities it needed also profited from the slave economy. Such matters are conveniently forgotten today. Instead market forces alone are credited with the economic successes of the United States.

The Industrial Revolution in Great Britain was also heavily reliant on nonmarket forces. The economy of Great Britain also shared in the benefits of slavery in the United States. The British cotton industry, working up the slave-grown cotton, is usually represented as the primary center of technological improvements. Besides slavery, imperial ventures in Ireland, India, and elsewhere helped to generate the wealth that financed the Industrial Revolution. In addition, the Empire provided a ready market for cotton products.

Another crucial factor that contributed mightily to the Industrial Revolution was often violent overturning of the traditional rights of the poor people in the countryside by a relatively small group of wealthy landowners who claimed ownership of land that other people had worked for generations. After tenants were thrown off their land, they had no option but to enter into the factories. This brutal process was also an important component of the agricultural revolution.

The hypocrisy of the Procrusteans is everywhere apparent in the world’s poor nations, where market activities have existed for many centuries. On the teeming streets of the slums of poor countries, you are likely to see what Adam Smith once called “the pedlar principle of turning a penny whenever one was to be got, “a phenomenon he credited with initially setting capitalism in motion.
²
More recently, Sol Tax termed the same activities “penny capitalism”: desperately poor people hawking cheap goods to other desperately poor people.
³
Penny capitalists can be efficient, but they are not likely to accumulate any capital. Tax’s University of Chicago colleague, Nobel Prize–winner Theodore Schultz, suggested that traditional agriculture was efficient, just not very productive in terms of the market. Given the available technology, the peasants produced as much as possible, but, despite
their efficiency, they were destined to be trapped in poverty. Schultz argued, something naively, that all they needed to prosper was access to capital. Instead, once capitalism gets rolling in these countries, always with the help of force and violence, as was true in the developed countries, indigenous penny capitalism collides with global capitalism and dollar diplomacy. The outcome is never in doubt, as the harried street vendors know.

The Golden Straitjacket

The ideologists of international Procrusteanism propose their own version of Margaret Thatcher’s cruel pronouncement: “There is no alternative.” The
New York Times
commentator Thomas Friedman has developed his own special brand of giddy promotion of the corporate-market economy, while explaining that the hardships it imposes on ordinary people are unavoidable.

Probably unintentionally echoing the
Communist Manifesto
, Friedman proposed that sovereign countries have no choice but to adopt what he calls “the Golden Straitjacket.” Friedman fails to mention that though this Golden Straitjacket might be golden for those at the top of an economy and to a lesser extent for some of the more fortunate of the middle class, it is anything but golden for the masses of people. In the words of the ever-effusive Friedman:

To fit into the Golden Straitjacket a country must either adopt, or be seen as moving toward, the following golden rules: making the private sector the primary engine of its economic growth, maintaining a low rate of inflation and price stability, shrinking the size of its state bureaucracy, maintaining as close to a balanced budget as possible, if not a surplus, eliminating and lowering tariffs on imported goods, removing restrictions on foreign investment, getting rid of quotas and domestic monopolies, increasing exports, privatizing state-owned industries and utilities, deregulating capital markets, making its currency convertible, opening its industries, stock, and bond markets to direct foreign ownership and
investment, deregulating its economy to promote as much domestic competition as possible, eliminating government corruption, subsidies and kickbacks as much as possible, opening its banking and telecommunications systems to private ownership and competition, and allowing its citizens to choose from an array of competing pension options and foreign-run pension and mutual funds. When you stitch all of these pieces together you have the Golden Straitjacket.
⁴

Friedman would have done his readers a service if he had mentioned that the Golden Straitjacket does not sweep aside all subsidies, kickbacks, and corruption—only those that impede the control of multinational corporations. In fact, the multinational corporations remain largely immune from the restraints of the Golden Straitjacket.

Friedman goes on to mention that the same process that created the Golden Straitjacket unleashed what he calls the “Electronic Herd”:

The Electronic Herd is made up of all the faceless stock, bond and currency traders sitting behind computer screens all over the globe, moving their money around with the click of a mouse from mutual funds to pension funds to emerging market funds, or trading from their basements on the Internet. And it consists of the big multinational corporations who now spread their factories around the world, constantly shifting them to the most efficient, low-cost producers…. [The leaders of the Electronic Herd] don’t tell you that they feel your pain, or that they understand your grievance because of your colonial experience. They don’t tell you that you are so unique, so important to stability in the region, that they won’t lay a finger on you. They just have their way with you and move on. The Electronic Herd turns the whole world into a parliamentary system, in which every government lives under the fear of a no-confidence vote from the herd.
⁵

Walter Wriston, as former chief executive officer of Citibank, had actually been, unlike Friedman, at the center of the Electronic Herd. A few years before Friedman, in a book tellingly titled
The Twilight of Sovereignty
, Wriston described the power that people like him enjoyed:

Today information about the diplomatic, fiscal, and monetary policies of all nations is instantly transmitted to electronic screens in hundreds of trading rooms in dozens of countries. As the screens light up with the latest statement of the president or the chairman of the Federal Reserve, traders make a judgment about the effect of the new policies on currency values and buy or sell accordingly. The entire globe is now tied together in a single electronic market moving at the speed of light. There is no place to hide.

This enormous flow of data has created a new world monetary standard, an Information Standard, which has replaced the gold standard and the Bretton Woods agreements. The electronic global market has produced what amounts to a giant vote-counting machine that conducts a running tally on what the world thinks of a government’s diplomatic, fiscal, and monetary policies. That opinion is immediately reflected in the value the market places on a country’s currency.

In this new world order capital will go where it is wanted and stay where it is well treated…. It will flee from manipulation or onerous regulation of its value or use, and no government can restrain it for long.
⁶

Wriston and Friedman are correct that governments that refuse to don the Golden Straitjacket risk seeing their economy shredded. They fail to include the caveat that their own country, which wields hegemonic power, is immune from such consequences. Nor do they explain that other countries without sufficient resources and courage might not have the wherewithal to take the necessary measures to protect themselves.

However, people unfamiliar with Wriston’s career might not fully appreciate the delicious irony in his promotion of the wisdom of the marketplace. Wriston had already capped his career at Citibank when this book appeared. Under his leadership, Citibank had been intent on “selling”—many used the more accurate term “pushing”
⁷
—as much credit as possible to Latin America, so much so that Citibank had been getting nearly 50 percent of its revenue from its loans to Latin America.