Year 501 (20 page)

For similar reasons, within the rich societies themselves, large sectors of the population are becoming superfluous by the reigning values and must be marginalized or suppressed, increasingly so in the past 20-year period of economic stagnation and pressures on corporate profit. As noted earlier, societies of the North—notably the United States—are taking on certain Third World aspects. The distribution of privilege and despair in a society with the enormous advantages of ours is not, of course, what one finds in Brazil or Mexico. But the tendencies are not hard to see.

In general, prospects for the overwhelming majority at home and abroad are not auspicious, in the “new imperial age.”

Part II

High Principles

Chapter 4

Democracy and the Market

1. The Freedom that Counts

Among global planners, few captured the essence of policy more clearly than George Kennan when he advised in 1948 that if we are to maintain the “disparity” between our wealth and the poverty of others we must put aside “idealistic slogans” and keep to “straight power concepts.” Deviation from these guidelines is rare. Such ideals as democracy and the market are well and good, as long as the tilt of the playing field guarantees that the right folks win. If the rascal multitude try to raise their heads, they must be beaten into submission in one or another way: in the Third World, outright violence often suffices. If market forces interfere with domestic privilege, free trade is quickly cast to the flames.

The truth of the matter was well articulated by a US banker in Venezuela under the murderous Pérez Jiménez dictatorship: “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.” That about sums it up.
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These doctrines are too deeply-rooted in institutional structures to be seriously challenged within the ruling state-corporate nexus. It can, on occasion, produce someone who will deliver moral lessons on human rights. But when some real interest is at stake, the rhetoric is quickly shelved: say, when it is necessary to support virtual genocide in Timor, to protect Somoza's National Guard while it is slaughtering thousands of civilians, or to tilt towards China and Pol Pot, to select a few examples from the period of an unusual deviation toward High Principle.

The consistent practice is illustrated over a broad range throughout this discussion and in sources cited. To select another case that brings out fundamental principles sharply, consider the response when General Chun's military dictatorship in South Korea crushed the democracy movement in Kwangju in May 1980. Paratroopers “carried out three days of barbarity with the zeal of Nazi storm troopers,” an Asia Watch investigative mission reported, “beating, stabbing and mutilating unarmed civilians, including children, young girls, and aged grandmothers.” Two thousand people were killed in this rampage, they estimate. The US received two requests for assistance: the citizens committee that had called for democracy requested help in negotiations; General Chun requested the release of 20,000 troops under US command to join the storm troopers. The latter request was honored, and US naval and air units were deployed in a further show of US support.

“Koreans who had expected help from Carter were dumbfounded,” Tim Shorrock writes, as “the news of direct support from the US was broadcast to the people of Kwangju from helicopters and proclaimed throughout the nation in blazing newspaper headlines.” A few days later, Carter sent the head of the Export-Import Bank to Seoul to assure the military junta of US economic support, approving a $600 million loan. As Chun took over the presidency by force, Carter said that while we would prefer democracy, “The Koreans are not ready for that, according to their own judgment, and I don't know how to explain it any better.”

Chun arrested thousands of “subversives” calling for democracy, sending them to military-run “purification” camps. Hundreds of labor leaders were purged; new legislation severely weakened unions, leading to a 30 percent drop in membership. Censorship became even more harsh. Gratified with this progress, the Reagan Administration honored Chun by selecting him as the first head of state to visit after the inauguration. Visiting Korea in 1986, Secretary of State George Shultz praised the “terrific job being done in security” and in the economy, and the “impressive movement” towards democracy. He expressed his strong support for General Chun. He harshly criticized the democratic opposition, refusing to meet with its leaders Kim Dae Jung and Kim Young Sam, and explaining that “how [countries] design things can vary and you can still call it democracy.”

To show how much has changed with the Cold War over, President Bush chose the amiable Mobutu of Zaire as the first African leader to be received at the White House, hailing him as “one of our most valued friends” and making no reference to human rights violations. Among others rewarded for their contributions to democracy and human rights were Bush's friends in Baghdad and Beijing, and Romania's mad dictator Ceausescu.
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2.The Flight of the Bumble Bee

In the current phase of intellectual corruption, it must be stressed that, like democracy and human rights, the economic doctrines preached by the rulers are instruments of power, intended for others, so that they can be more efficiently robbed and exploited. No wealthy society accepts these conditions for itself, unless they happen to confer temporary advantage; and their history reveals that sharp departure from these doctrines was a large factor in development.

At least since the work of Alexander Gerschenkron in the 1950s, it has been widely recognized by economic historians that “late development” has been critically dependent on state intervention. Japan and the Newly Industrialized Countries (NICs) on its periphery are standard contemporary examples. In a major study, 24 leading Japanese economists review the decision by the Ministry of International Trade and Industry (MITI) after World War II to disregard prevailing economic theory and to assign a “predominant role in the formation of industry policy” to the state bureaucracy, “in a system that is rather similar to the organisation of the industrial bureaucracy in socialist countries.” Each sector of industry has its section of the government bureaucracy, which works “in close co-operation” with an industry association. Heavy protection, subsidies and tax concessions, financial controls, and a variety of other devices were employed to overcome market deficiencies that would have prevented development. Rejecting standard doctrine, MITI determined that “long-term self-reliance for Japan would be delayed or even undermined by following its apparent comparative advantage into labour intensive sectors.” The radical defiance of economic precepts set the stage for the Japanese miracle, the economists conclude. Western specialists do not disagree. Chalmers Johnson notes that Japan could be described as “the only communist nation that works.”

Some have suggested—only half in jest—that Japan's support for the Brookings Institution and other advocates of standard doctrine is intended to reinforce belief in the classical theory, to the detriment of its commercial rivals.
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The same has been true of the NICs in Japan's periphery. In her important work on South Korean economic progress, Alice Amsden cites such factors as land distribution and wage-salary differentials that are equitable by Western standards, state intervention on the Japanese model to “get prices ‘wrong' in order to stimulate investment and trade,” and high discipline of labor, but more strikingly, of capital, which is controlled by “price ceilings, controls on capital flight, and incentives that made diversification into new industries contingent on performing well in old ones.” Much the same has been true throughout East Asia, she notes. Case by case, the record of export-led growth refutes the doctrines of the neoliberal “New Orthodoxy,” economist Stephen Smith points out. Success was based “on activist trade and industrial policies” that deliberately alter market incentives to place “long-run development goals over short-run comparative advantage.” The most extensive comparative study concludes that “periods of significant export expansion are almost always preceded by periods of strong import substitution”—measures of state intervention in violation of the market (Chenery, et al.). The comparison of Brazil and the East Asian NICs is telling. Until 1980, they developed in parallel, with “active industrial and export polities” and import substitution. But the debt crisis compelled Brazil to adopt IMF-World Bank New Orthodoxy, elevating “trade liberalization over domestic growth objectives” and turning to the export of primary products, with grim consequences. The NICs, with much more powerful state controls, prevented the market disaster, barring capital flight and directing capital to investment.
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Meanwhile China, the one “Communist” country that has kept the Western experts at arms length, remains the only one with rapid economic development (along with vigorous repression and no pretense of democracy). “One phenomenal success has been ‘township and village enterprises', for the most part factories owned by rural farmers,” which “now account for close to 20 percent of China's GNP, employing more than 100 million people,” financial correspondent David Francis writes, quoting a World Bank spokesman who predicts that they “will most assuredly be the single most dynamic form of enterprise on the Chinese scene.”

The German economic miracle also relied on its departures from standard precepts, from the 19th century. The post-World War II system involves elements of “corporatism,” defined as the “broad concertation between employer and employee representatives across industries, which is usually established and sometimes continually supervised under state auspices” (Charles Meier), though this conception underplays the role of central financial institutions, “a particularly significant actor in the German political economy,” Michael Huelshoff writes. “The Reagan nightmare of supply side economics and military Keynesianism” and its “fiscal recklessness and monetary astringency” have received particularly harsh criticism in Germany (James Sperling). The smaller successful economies adopt similar means. Thus Holland relied on cartels coordinated through the Ministry of Economic Affairs for its postwar economic reconstruction, regulating production, sales, supplies, prices, etc. Not all of the more than 400 still operating in 1992 will survive the EC, but the government announced that a “green light” will be given to “positive cartels” that offer protection for companies launching new technologies.

“A strict free-marketeer would declare the German economy, like the bumble-bee, theoretically incapable of flight,” the
Economist
observes with puzzlement, reviewing such departures from orthodoxy as “well-trained and well-paid workers, who sit on oversight boards,” “giant, bank-owned industries unbothered by shareholders, secure from predators and heedless of profit,” high taxes, “cradle-to-grave welfare,” and other sins: “the German economy's riposte to this ancient caricature is to fly.” The theory remains in force, however.

Low wages do not appear to have been a major factor in late development, however attractive they may be to TNCs. “Neither Germany nor the United States industrialized by competing against Britain on the basis of low wages,” Amsden points out, and the same was true of Japan, which undercut British textiles in the 1920s by modern production facilities more than low wages. In Germany and other successful economies, labor conditions and benefits are high, by comparative standards. A study of industrial productivity by MIT specialists notes further that Germany, Japan, and other countries that maintained the “craft tradition” with more “direct participation of skilled workers in production decisions” have been more successful in modern industry than the United States, with its tradition of deskilling and marginalizing workers in the “mass-production model”; lessened hierarchy, responsibility in the hands of production workers, and training in new technologies has also improved results in the US, they conclude. Economist David Felix makes a similar point in comparing Latin America and East Asia. Asians who were less subordinated to Europe and the US than Latin American elites did not assign such high status to foreign-made consumption goods, “allowing much larger segments of the craft sector to survive, accumulate, and modernize the technology,” while also easing balance-of-payments pressures. Amsden attributes South Korea's success in part to reliance on workers' initiative on the shop floor in preference to managerial hierarchies.
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It is, however, not only “late development” that is crucially dependent on departures from doctrinal orthodoxy. The same was true of the “early development” of England, as already discussed. The United States as well. High tariffs and other forms of state intervention may have raised costs to American consumers, but they allowed domestic industry to develop, from textiles to steel to computers, barring cheaper British products in earlier years, providing a state-guaranteed market and public subsidy for research and development in advanced sectors, creating and maintaining capital-intensive agribusiness, and so on. Elimination of tariffs in the 1830s would have bankrupted “about half the industrial sector of New England,” economic historian Mark Bils concludes.

There were experiments with unconstrained markets in 19th century England, quickly abandoned. Free trade was (selectively) introduced and dropped as domestic power interests dictated. In the US, business regularly turned to the state to overcome its problems, initiating government bureaucracies from the 1880s and demanding protection and subsidy. By the 1930s, faith that capitalism might be viable had virtually disappeared, as the advanced countries moved towards one or another form of state-integrated economic system. It should be a virtual truism that “Since World War II, military spending had become the backbone of our goods production. It could be, and was, managed to sustain the level of aggregate demand and unemployment, adjusted periodically as the business cycle might require, and used to help meet the growth targets...” (Richard Bartel). Military spending in World War II convinced corporate executives of the validity of the Keynesian model of state intervention, and they have taken for granted since that the state must intervene actively to protect and subsidize the wealthy and privileged, notoriously during the Reagan years.
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