1. The Freedom that Counts
2. The Flight of the Bumble Bee
3. The Good News
4. Reshaping Industrial Policy
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.1
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.2
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.3
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 policies" 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.4
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.5
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.6
The crucial role in industrial development of the "visible hand" -- planning and coordination of production, marketing and R&D -- is well-known from the studies of business enterprise by Alfred Chandler over the past 30 years. Summarizing and extending work by Chandler, David Landes, and other historians of development, William Lazonick argues that industrial capitalism has passed through three major phases: the "proprietary capitalism" of 19th century England, with family-owned firms and a substantial degree of market coordination; the "managerial capitalism" of the United States, with "administrative coordination" for planning and organization; and the "collective capitalism" of the Japanese model, which allows still more efficent long-term planning and coordination. In each case, private enterprise has relied extensively on the state power that it largely controls, though in different ways. The TNCs extend these internally coordinated, state-supported systems worldwide.7
"Import substitution [through state intervention] is about the only way anybody's ever figured out to industrialize," development economist Lance Taylor observes: "In the long run, there are no laissez-faire transitions to modern economic growth. The state has always intervened to create a capitalist class, and then it has to regulate the capitalist class, and then the state has to worry about being taken over by the capitalist class, but the state has always been there." Furthermore, state power has regularly been invoked by investors and entrepreneurs to protect them from destructive market forces, to secure resources, markets, and opportunities for investment, and in general to safeguard and extend their profits and power.8
With the conventional pretext gone, Washington sought new ways to maintain the subsidy to advanced industry. One method is foreign arms sales, which also help alleviate the balance-of-payments crisis. As the Cold War came to a definitive end, the Bush Administration created a Center for Defense Trade to stimulate arms sales while proposing government guarantees of up to $1 billion in loans for purchase of US arms. The Defense Security Assistance Agency was reported to have sent more than 900 officers to some 50 countries to promote US weapons sales. Pentagon officials trace the policy to a July 1990 order that Embassy officials should expand their assistance to US arms exporters; the Gulf war was then prominently featured as a sales promotion device. At a Pentagon-industry conference in May 1991, industry officials asked the government to pick up the costs of US military equipment and personnel sent to contractor trade shows around the world for sales promotion. The Pentagon agreed, reversing a 25-year policy. The first taxpayer-funded display was at the June 1991 Paris Air Show.
Lawrence Korb of the Brookings Institution, formerly Assistant Secretary of Defense in charge of logistics, observed that the promise of arms sales had kept stocks of military producers high despite the end of the Cold War, with arms sales rising from $12 billion in 1989 to almost $40 billion in 1991. Moderate declines in purchases by the US military were more than offset by other arms sales by US companies. Since "President Bush called last May  for restraint in weapons sales to the Middle East," AP correspondent Barry Schweid reported in early 1992, "the United States has transferred roughly $6 billion in arms to the region," part of the $19 billion in US weapons sent to the Middle East since Iraq's invasion of Kuwait. From 1989 through 1991, US arms exports to the Third World increased by 138 percent, making the US far and away the leading arms exporter. The sales since May 1991 are "fully consistent with the president's initiative and the guidelines" in his call for restraint, State Department spokesman Richard Boucher announced -- quite accurately, given the actual intent.
Bush Administration calls for restraint were timed for the triumphal celebration of the Gulf war, as part of the PR campaign on the new era of peace and tranquility that we are entering, thanks to the valor of our grand leader. On February 6, 1991, Secretary of State James Baker told the House Foreign Committee that the time had come for concrete steps to stem the flow of armaments to the Middle East, "an area that is already overmilitarized." On March 6, in his triumphant address to a cheering joint session of Congress, the President announced that control of arms sales would be one of his major postwar goals: "it would be tragic," he said, "if the nations of the Middle East and Persian Gulf were now, in the wake of war, to embark on a new arms race."
In recognition of the scale of the tragedy, the Administration, a few days earlier, had provided the Senate Foreign Relations Committee with a confidential listing of planned sales reaching to record levels, more than half for the Middle East; and informed Congress of a $1.6 billion sale of advanced fighter aircraft to Egypt. A week after the speech, Congress was informed of a $760 million deal for Apache helicopters to the United Arab Emirates. The Pentagon then used the Paris Air Show for an unprecedented sales pitch, displaying with pride (and hope) the goods that had so magnificently destroyed a defenseless Third World country. Secretary of Defense Cheney announced new arms transfers to Israel and plans to stockpile $200 million worth of US weapons there; another $7 billion in weapon sales, mainly to the Middle East, was announced in July. The UK followed the same path. China was the only weapons exporter to call for concrete limits on arms sales to the Middle East, a proposal quickly dismissed by the US and its allies.9
Military Keynesian initiatives have not been limited to the taxpayer subsidy (R&D) and a state-guaranteed market. While the US "lags far behind nations like Japan and Germany in per-capita spending on foreign economic aid," William Hartung points out, about one-third of its foreign aid budget "is devoted to direct grants or loans to foreign governments for the purchase of U.S. military equipment"; other programs are shaped to the same ends.
Such considerations, however, should not obscure the more fundamental role of the Pentagon system (including NASA and DOE) in maintaining high-tech industry generally, just as state intervention plays a crucial role in supporting biotechnology, pharmaceuticals, agribusiness, and most competitive segments of the economy. The Reagan Administration sharply increased protectionist measures along with steps to support failing banks and industries, and generally to assist US corporate power.
By IMF standards, the United States, after a decade of Reaganite folly, is a prime candidate for severe austerity measures. But it is far too powerful to submit to the rules, intended for the weak.
As noted, the World Bank now estimates that protectionist measures of the industrial countries -- keeping pace with free market bombast -- reduce the national income of the South by twice the amount of the official "development assistance." The latter may help or harm the recipients, but that is incidental. Typically, it is a form of export promotion. One notable example is the Food for Peace program, designed to subsidize US agribusiness and induce others to "become dependent on us for food" (Senator Hubert Humphrey), and to promote the global security network that keeps order in the Third World by requiring that local governments use counterpart funds for armaments (thus also subsidizing US military producers).
A more significant case is the Marshall Plan. Its goal was "to avert `economic, social and political' chaos in Europe, contain Communism (meaning not Soviet intervention but the success of the indigenous Communist parties), prevent the collapse of America's export trade, and achieve the goal of multilateralism," and provide a crucial economic stimulus for "individual initiative and private enterprise both on the Continent and in the United States," undercutting the fear of "experiments with socialist enterprise and government controls," which would "jeopardize private enterprise" in the United States as well (Michael Hogan, in the major scholarly study). The Marshall Plan also "set the stage for large amounts of private U.S. direct investment in Europe," Reagan's Commerce Department observed in 1984, establishing the basis for the modern TNCs, which "prospered and expanded on overseas orders, ...fueled initially by the dollars of the Marshall Plan" and protected from "negative developments" by "the umbrella of American power," Business Week observed in 1975, lamenting that this golden age of state intervention might be fading away. Aid to Israel, Egypt, and Turkey, the leading recipients in recent years, is motivated by their role in maintaining US dominance of the Middle East, with its enormous oil energy reserves.10
So it goes case by case.
The utility of free trade as a weapon against the poor is illustrated by a World Bank study on global warming, designed to "forge a consensus among economists" (of the rich men's club) in advance of the June 1992 Rio conference on global warming, New York Times business correspondent Silvia Nasar reported under the headline "Can Capitalism Save the Ozone?" (the implication being: "Yes"). Harvard economist Lawrence Summers, chief economist of the World Bank, explained that the world's environmental problems are largely "the consequence of policies that are misguided on narrow economic grounds," particularly the policies of the poor countries that "have been practically giving away oil, coal and natural gas to domestic buyers in hopes of fostering industry and keeping living costs low for urban workers" (Nasar). If the poor countries would only have the courage to resist the "extreme pressure to improve the performance of their economies" and to protect their population from starvation, then environmental problems would abate. "Creating free markets in Russia and other poor countries may do more to slow global warming than any measures that rich countries are likely to adopt in the 1990's," the World Bank concludes -- correctly, since the rich are hardly likely to pursue policies detrimental to their interests. In the small print, the consensus economists also recognize that "more effective government regulation" reduces pollution, but grinding down the poor has obvious advantages.
The same page of the Times business section carries an item on a confidential memo of the World Bank leaked to the Economist. Its author is the same Lawrence Summers. He writes: "Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the [Third World]?" This makes good sense, Summers explains: for example, a cancer-producing agent will have larger effects "in a country where people survive to get prostate cancer than in a country where under-5 mortality is 200 per thousand." Poor countries are "under-polluted," and it is only reasonable to encourage "dirty industries" to move to them. "The economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that." To be sure, there are "arguments against all of these proposals" for exporting pollution to the Third World: "intrinsic rights to certain goods, moral reasons, social concerns, lack of adequate markets, etc." But these arguments have a fatal flaw: they "could be turned around and used more or less effectively against every Bank proposal for liberalisation."
"Mr Summers is asking questions that the World Bank would rather ignore," the Economist observes, but "on the economics, his points are hard to answer." Quite true. We have the choice of taking them to be a reductio ad absurdum argument and thus abandoning the ideology, or accepting the conclusions: on grounds of economic rationality, the rich countries should export pollution to the Third World, which should cut back on its "misguided" efforts to promote economic development and protect the population from disaster. That way, capitalism can overcome the environmental crisis. Free market capitalism is, indeed, a wondrous instrument. Surely there should be two Nobel prizes awarded annually, not just one.
Confronted with the memo, Summers said that it was only "intended to provoke debate" -- elsewhere, that it was a "sarcastic response" to another World Bank draft. Perhaps the same is true of the World Bank "consensus" study. In fact, it is often hard to determine when the intellectual productions of the experts are intended seriously, or are a perverse form of sarcasm. The huge numbers of people subjected to these doctrines do not have the luxury to ponder this intriguing question.11
Though not intended for us, "free trade does, however, have its uses," Arthur MacEwan observes in a review of the uniform record of industrial and agricultural development through protectionism and other measures of state intervention: "Highly developed nations can use free trade to extend their power and their control of the world's wealth, and businesses can use it as a weapon against labor. Most important, free trade can limit efforts to redistribute income more equally, undermine progressive social programs, and keep people from democratically controlling their economic lives." It is hardly surprising that the "New Evangelists" of neoliberal theology have won an overwhelming victory within the doctrinal system. The evidence about successful development and the actual consequences of neoliberal doctrine is dismissed with the contempt that irrelevant nuisance so richly deserves. "The carrying out of [God's] plan...is the History of the world," Hegel explained: "That which does not accord with it, is negative, worthless existence."12
In the post-affluence period, the ideological institutions have dedicated themselves with renewed vigor to convincing the intended victims of the great benefits of the Higher Truths designed for subject peoples. The wonderful news about the marvels of free market economies is broadcast to the people of the South who have been devastated by these doctrines for years, and East Europeans are invited to share in the good fortune as well. Elites in the targeted countries are quite supportive, anticipating that they will benefit, whatever happens to the lesser orders.
One aspect of the internationalization of the economy is the extension of the two-tiered Third World model to the core countries. Market doctrine thus becomes an essential ideological weapon at home as well, its highly selective application safely obscured by the doctrinal system. Wealth and power are increasingly concentrated among investors and professionals who benefit from internationalization of capital flow and communication. Services for the general public -- education, health, transportation, libraries, etc. -- become as superfluous as those they serve, and can therefore be limited or dispensed with entirely. Some, it is true, are still needed, notably prisons, a service that must in fact be extended, to deal with useless people. As care for the mentally ill declines, prisons become "surrogate mental hospitals," a study of the National Alliance for the Mentally Ill and Ralph Nader's Public Citizen observes. The psychiatrist who led the research observes that "there were far fewer psychotic people in jail 100 years ago than we have today," as we revert to practices reformed in the 19th century. Almost 30 percent of jails detain mentally ill people without criminal charges. The drug war has also made a major contribution to this technique of social control. The dramatic increase in the prison population in the late 1980s is largely attributable not to criminal acts, but to cocaine dealing and possession, as well as the harsher sentencing favored by "conservatives." The US has by far the highest rate of imprisonment in the world, "largely because of drug-related crimes" (Mathea Falco). How fortunate we are not to be in China, where the "lingering police-state mentality leaves little room for the kinds of creative solutions the West favors in addressing social maladies such as drug addiction," the Wall Street Journal explains.
Prisons also offer a Keynesian stimulus to the economy, both the construction business and white collar employment; the fastest growing profession is reported to be security personnel. They also offer a method of economic conversion that does not infringe on corporate prerogatives and hence is acceptable. "Fort Devens top pick for US prison," a front-page Boston Globe headline happily proclaims; the new federal prison may overcome the harm to the local economy when the army base closes.13
High on the list of targets for the New Evangelists is public education, dispensable, since the rich can buy what they want in the "education market" and the thought that one might be concerned about the larger society has been relegated to the ashcan of history along with other ancient prejudices. An upbeat story in the liberal Boston Globe describes an experiment in the "desperate city" of Baltimore, where schools are collapsing. Several schools are being handed over to a for-profit company that will introduce the "entrepreneurial spirit": "private-sector efficiency and a new educational model...means, for example, hiring nonunion custodians and placing special education students into mainstream classrooms." The former special education teachers, and the union custodians with their higher benefits, will be picked up by the schools that remain public. Another achievement of the "entrepreneurial spirit" is to replace high-cost teachers with low-wage interns and volunteers (parents). These miracles of capitalism should "provide valuable lessons as America seeks ways to improve its education system."14
A central feature of the recent ideological offensive has been the attack on "big government" and pleas for relief for the poor taxpayer -- undertaxed (with the least progressive taxes, by a good margin) in comparison with other developed countries,15 a major reason for the steady deterioration of education, health, highways, indeed anything that might benefit the irrelevant public. At the same time, protectionist devices, subsidy, bail-outs, and other familiar elements of the welfare state for the rich are quietly extended, while praise for the free market resounds to the skies. The combination is a major achievement of the state-corporate-media alliance.
The world is complicated; even the most successful plans carry hidden costs. "The Reagan nightmare of supply side economics and military Keynesianism" had no more enthusiastic champion than the Wall Street Journal, which now complains about the predictable effects as they impinge on wealth and power. "Public higher education -- one of the few areas where America still ranks supreme -- is being pounded by state spending cuts," the Journal reports, echoing the concerns of businesses that "rely heavily on a steady stream of graduates." This is one of the long-predicted consequences of the cutback of federal services for all but the wealthy and powerful, which devastated states and local communities. Class war is not easy to fine tune.
The economic managers of the 1980s not only left the US with a legacy of unprecedented public and private debt, but also with the lowest rate of net private investment of any major industrial economy. Net new investment in the 1980s fell to its lowest level (as a share of national income) since World War II. In 1989-1990, the US fell behind Japan in absolute level of industrial investment, with a population twice as large. The US position in high-tech industry also declined. Another legacy of "the nightmare" is a decline of spending for research and development -- like health and education, "investment" for the future. R&D has fallen to "perilous" levels, the policymaking arm of the National Science Foundation (National Science Board) reported in a 1992 study. Corporate spending, which had risen steadily before, virtually levelled (in constant dollars) from 1985. These trends, if continued, would be "fatal to the technological competitiveness of the US," the co-chairman said. Blaming bad management practices and corporate debt, the NSB reports that the US falls below its major trade competitors in total R&D, and 25 percent below in non-military industrial R&D. Corporate debt reached such levels that "by the time the recession began in July 1990, corporate interest rates were absorbing 44 percent of pretax profits, more than double the average for the 1960s and 1970s," economist Robert Pollin writes. Borrowing was used for consumption and financial speculation, including $1 trillion spent on mergers and acquisitions, with no indication of economic rationalization but ample evidence of a heavy debt burden, and a decline of 5 percent in corporate R&D as compared to a 5 percent increase for companies not involved in these practices, the NSF reported (for 1986-1987).16
For 40 years, US industrial policy has been based on the Pentagon system, with its regular stimulus to high-tech industry and state-guaranteed market to cushion management decisions. When a government stimulus was needed, a threat to our existence could readily be concocted: the Korean War in 1950, Kennedy's "missile gap," the impending Russian takeover of the world and the "window of vulnerability" in the late Carter-early Reagan years. The fakery was evident in each case, but Soviet power and tyranny were real enough, and that sufficed. Massive state intervention in the economy provided the US with a comfortable lead in advanced sectors of technology. It served as "an important pillar of the economy," ideologists and business leaders now concede as they lament the passing of the Soviet threat, which could always be invoked to keep the government crutch in place. In the post-World War II period, military spending has led the way out of recession, a senior economist at the Boston Federal Reserve Bank observes, and "There has never been a time when a rise in defense spending would mean more for the economy than now." Many economists consider the major factor in the Bush recession to be the cutback in military procurement -- orders placed with factories, which have not only accounted for a healthy segment of the output of goods and services but have had a substantial multiplier effect, creating jobs in companies that produce consumer goods for the relatively high-paid workers in companies that are profitable thanks to the taxpayer subsidy. "The impact is bigger than you can see by just looking at the numbers," conservative economist Herbert Stein of the American Enterprise Institute notes. "The abrupt dissolution of the Soviet Union" has undermined the device instituted to maintain the economy after World War II, Times economics correspondent Louis Uchitelle reports, and "leading military companies" like General Electric are in trouble, as is high-tech industry generally.17
The old pretexts are gone, and it is no longer so simple to hail the virtues of free market capitalism while feeding at the public trough. New methods are needed.
At the same time, the cutting edge is shifting towards other areas, notably biotechnology. Like other competitive sectors of the economy, the pharmaceutical and health industries and agribusiness have always benefitted from a state-organized subsidy for research, development, and marketing. These areas are now gaining a greater role in planning for the years ahead. In the early postwar years, research would "spin off" electronics and computer firms. Today, biotech firms are springing up around the same research institutions, by rather similar mechanisms.
The US National Institutes of Health are engaged in what the Wall Street Journal calls "the biggest race for property since the great land rush of 1889," in this case, "staking U.S. patent claims to thousands of pieces of genetic material -- DNA -- that NIH scientists are certain are fragments of unknown genes." The purpose, the NIH explains, is to ensure that US corporations dominate the biotechnology business, which the government expects "to be generating annual revenue of $50 billion by the year 2000," and vastly more beyond. A patent for a basic human blood cell could allow a California company to "corner the market for a broad array of life-saving technologies," to cite merely one example. The biotech business took off after a 1980 Supreme Court decision granting a patent for an oil-dissolving microorganism developed through genetic engineering, the Journal observes. Medical procedures such as bone-marrow transplants and gene-based therapies will also be protected by patent. The same could be true of engineered animals and seeds.
We are now speaking of control of the essentials of life. By comparison, electronics deals with mere conveniences.
Foreign governments that are able to intend to retaliate. The scientific community at home and abroad has also expressed its opposition to these efforts. One cynical researcher remarked that as government-industry efforts are proceeding, some day parents might have to pay royalties for having children. A meeting at the National Academy of Sciences sent "a strong message that the U.S. and international genetics community is still vehemently opposed to NIH's moves," Science magazine reports. Representatives of leading US and European scientific organizations "argued that if the NIH is allowed to go ahead, it will start a patent stampede that will destroy international collaboration and hinder product development." The first South-North Human Genome Conference passed a unanimous resolution saying that "intellectual property should be based on the uses of sequences rather than the sequences themselves," and leading European scientists called for an international treaty to block patenting of gene sequences as such. A representative of the (US) Industrial Biotechnology Association noted that industry has reservations too, but the organization "believes that NIH had no choice but to file the applications," and NIH Director Bernardine Healy said that NIH will proceed in order "to protect its options -- and those of the taxpayer," the latter phrase being one of the euphemisms for those who stand to profit, and for whom social policy is regularly designed in state capitalist welfare states (for the rich).
In March 1992, Senator Mark Hatfield introduced legislation calling for a moratorium on patenting of genetically-related organisms, but withdrew it after "it drew widespread industry opposition and in particular sparked an all-out lobbying effort by the Industrial Biotechnology Association," the newsletter of the health research industry reported. Administration officials also lobbied against the amendment, as did the Congressional Biotechnology Caucus. A moratorium "would lead us to forfeit our lead in biotechnology, where patent rights are a key to the large [private] investment needed for product development," the Secretary of Health and Human Services asserted. Meanwhile, a study of the National Academy of Sciences and Engineering proposed a $5 billion quasi-governmental company "to channel federal money into private applied research": publicly-funded research that will yield private profit. Another report, entitled The Government Role in Civilian Technology: Building a New Alliance, calls for new efforts to extend "the close and longstanding" government-industry relationship that has "helped to establish the commercial biotechnology industry." It recommends a government-funded "Civilian Technology Corporation" to assist US industry to commercialize technology by encouraging "cooperative R&D ventures in pre-commercial areas." The ventures will be "cooperative" -- with the public paying the costs -- up to the point of product development. At that point costs change to profits, and the public hands the enterprise over to private industry.18
The "vile maxim of the masters" has a corollary in the state capitalist societies: public subsidy, private profit.
A few weeks after these reports appeared, the head of the NIH project resigned along with virtually his entire staff to set up a private laboratory, with a stake of $70 million from a group of venture capitalists. The chairman of the funding corporation "said he had suddenly realized that there was an international race to lock up the human genome," and that the NIH lacked the funds to win; "I suddenly said to myself, `My God -- if this thing doesn't get done in a substantive way in the United States, that is the end of biotechnology in the U.S.'" There may also be a buck or two for the benefactors attempting to save the US economy, who will keep the rights to any product developed. Scientists "are aghast at the possibility that the human genome could be locked up and owned by private investors," also noting that the technique used to isolate the gene leaves the scientific work -- discovering the function of the already patented gene -- to be done by others. Scientists generally are calling for an international agreement to prohibit such patents. For now, the race to lock up the future biotech industry continues.19
These developments give new urgency to the US demand for increased protection for "intellectual property" -- including patents -- at the ongoing GATT negotiations. "America's interest in intellectual property is by no means altruistic," the Economist observes. "From movies to microchips, America ran a healthy $12 billion surplus on its trade in ideas in 1990," while most other developed countries ran a loss, and the Third World is not even in the game. The new protectionist measures are intended to ensure that US corporations dominate the health and agricultural industries, thus controlling the essentials for human life; and to guarantee to US pharmaceutical corporations huge profits. Prices of the 20 most used prescription drugs rose at four times the inflation rate from 1984 to 1991, a 1992 study revealed, yielding skyrocketing profits for the drug companies; nearly half the 10 percent annual increase was devoted to marketing, profits, and administrative expenses.
"Basic biomedical research has long been heavily subsidized by United States taxpayers," the New York Times business pages observe, and "high-tech pharmaceuticals owe their origin largely to these investments and to Government scientists," funded by billions of taxpayer dollars. But drugs created with a public subsidy are priced beyond the reach of those who pay for their development, let alone the bulk of the world's population. Protection of "intellectual property" is designed to guarantee monopoly profits to the publicly-subsidized corporations, not to benefit those who pay; and the South must be denied the right to produce drugs, seeds, and other necessities at a fraction of the cost.
On similar grounds, the US refused to sign the a treaty on preserving the world's biological species. The Assistant Secretary of State for the Environment, Curtis Bohlen, said that the treaty "fails to give adequate patent protection to American companies that transfer biotechnology to developing companies," and "tries to regulate genetically engineered materials, a competitive area in which the United States leads," the Times reports.20
The US International Trade Commission estimates that US companies stand to gain $61 billion a year from the Third World if "intellectual property" rights are protected in accord with US demands, a cost to the South of somewhere between $100-300 billion when extrapolated to the other industrial countries, dwarfing the debt service flow of capital from South to North. The same US demands will require poor farmers to pay royalties to TNCs for seeds, denying them the traditional right to re-use seeds from their harvests. Cloned varieties of commercial crops exported by the South (palm oil, cotton, rubber, etc.) will also be commercial property, subject to increased royalties. "The main beneficiaries will be the core group of less than a dozen seeds and pharmaceuticals companies which control over 70 percent of world seeds trade," and agribusiness generally, Kevin Watkins observes.21
While the US seeks to ensure monopoly control for the future, the drug companies it protects are cheerfully exploiting the accumulated knowledge of indigenous cultures for products that bring in some $100 billion profits annually, offering virtually nothing in return to the native people who lead researchers to the medicines, seeds, and other products they have developed and refined over thousands of years. "The annual world market value for medicines derived from medicinal plants discovered from indigenous peoples is US $43 billion," ethnobotanist Darrell Posey estimates. "Less than 0.001 percent of the profits from drugs that originated from traditional medicine have ever gone to the indigenous people who led researchers to them." Profits of at least the same scale derive from natural insecticides, insect repellents, and plant genetic materials, he believes. The international seed industry alone accounts for some $15 billion a year, based in large measure on genetic materials from crop varieties "selected, nurtured, improved and developed by innovative Third World farmers for hundreds, even thousands of years," Maria Elena Hurtado adds.22
Only the knowledge of the rich and powerful merits protection.
The director of India's Working Group on Patent Laws comments that "the levels of contradiction and hypocrisy are breathtaking." The rich "call for competitiveness, but what they want is monopoly. It is blackmail. They are seeking to do through economic rules what formerly the powerful did through armies of invasion and occupation." The manager of a Bombay drug company adds that the West "protected their own infant industries, and they pirated the world to create wealth; and they now preach to other countries to practice what they never did themselves." The developed countries "only permitted product patents after their domestic industry and infrastructure were well established. Germany allowed product patents in pharmaceuticals only in 1966, Japan in 1976, Italy in 1982." The effect of the new economic rules will be to prevent such countries as India from manufacturing life-saving drugs at a fraction of the cost charged by the state-subsidized corporations of the rich countries.
Like other developed countries, the US did not abide by the rules it now seeks to impose. In the 19th century, the US rejected foreign claims to intellectual property rights on grounds that they would hamper its economic development. Japan followed the same course. And today, the concept of "intellectual property rights" is finely crafted to suit the needs of the powerful. Exactly as in the case of "free trade," Churchill's disruptive "hungry nations" with their indecent clamor are to be denied the methods that were used by the "rich men dwelling at peace within their habitations."23
The array of plans of the rulers is viewed from the South as "an act of unbridled piracy," Watkins observes, given that the genetic materials used by the Western corporations to create their patented and protected products are derived from Third World crops and wild plants, cultivated, refined, and identified over countless generations. The seed and pharmaceutical companies thus "reap monopoly profits, while the genius of the Third World farmers, past and present, in selecting and developing individual seed strains goes unrewarded." The New World Order as a whole is described by Egypt's leading newspaper, al-Ahram, as "codified international piracy," referring in this case to Bush Administration maneuvers to set up a confrontation with Qaddafi for domestic political purposes in the routine manner. The terminology is apt enough.24
The unbridled piracy takes on increased urgency as indigenous agriculture and knowledge are undermined by pressures on the South to abandon production for domestic needs in favor of ecologically unsustainable agroexport in the interests of the TNCs. One consequence is that the world's biological resources -- mostly in the South -- are in decline, raising the danger of disease and blight to potentially quite serious levels. To whatever extent biotechnology may provide a remedy, the effect again will be to transfer power and wealth to the world rulers, if the demands of the corporations for increased protection are implemented. That they will be is almost a foregone conclusion, given the distribution of power and the insulation of decision-making from public interference in the new imperial age of Year 501.
1 Rabe, Road, 129.
2 Asia Watch, Human Rights; Shorrock, Third World Quarterly, Oct. 1986. Harvard Human Rights Journal 4, Spring 1991; see my article in Peters, Collateral Damage.
3 Fitzgerald, Between, citing Ryutaro Komiya, et al., Industry Policy of Japan (Tokyo, 1984; Academic press, 1988). Johnson, National Interest, Fall 1989.
4 Amsden, "Diffusion of Development: the Late-Industrializing Model and Greater East Asia," AEA Papers and Proceedings, 81.2, May 1991. See particularly her Asia's Next Giant. Smith, Industrial Policy; citing Hollis Chenery, Sherman Robinson, and Moises Syrquin, Industrialization and Growth: A Comparative Study (Oxford, 1986). Brazil, see ch. 7. Comparisons, see DD, ch. 7.7.
5 Francis, CSM, May 14, 1992. Amsden, op.cit. Huelshoff, Sperling, in Merkl, Federal. Ronald van de Krol, FT, Sept. 28; Economist, May 23, 1992. Dertouzos et al., Made in America. Felix, "On Financial Blowups and Authoritarian Regimes in Latin America," in Jonathan Hartlyn and Samuel A. Morley, eds., Latin American Political Economy (Westview, 1986). Also Lazonick, Business Organization, 43. Ibid., on the role of banks in German industrial development. Gerschenkron, Economic Backwardness, Landes, Unbound, for extensive discussion.
6 Bils, cited by Du Boff, Accumulation, 56. Bartel, editor, Challenge, July/August 1992. See Du Boff on the general topic. Brady, Business, on 1920s and '30s. A classical study of the abandonment of the free market is Polanyi, Great Transformation. For further references, see DD, ch. 1, n. 19.
7 Lazonick, Business Organization.
8 Taylor, Dollars & Sense, Nov. 1991.
9 Steven Elliott-Gower, Assistant Director, Center for East-West Trade Policy, U. of Georgia, NYT News Service, Dec., 23, 1991. Jeffrey Smith, WP weekly, May 18-24; Korb, CSM, Jan. 30; Schweid, BG, Feb. 15, 1992. Hartung, World Policy Journal, Spring 1992. The ambitious plans were not realized, the Congressional Research Service reported in July 1992, with sales declining in 1991 though the US still accounted for 57 percent of all arms sales to the Third World; Robert Pear, NYT, July 21, 1992.
10 On Food for Peace, see NI, 363, and sources cited, particularly Borden, Pacific Alliance. Hogan, Marshall Plan, 42-3, 45. Commerce Department analysis, Wachtel, Money Mandarins, 44f. BW, April 7, 1975.
11 Nasar, NYT, Feb. 7; "Furor on Memo at World Bank," NYT, Feb. 7; Reuters and Peter Gosselin, BG, Feb. 7, 1992. Economist, Feb. 8, Feb. 15 (Summers's letter), 1992.
12 MacEwan, Dollars & Sense, Nov. 1991. Hegel, Philosophy, 36.
13 "Criminalizing the Seriously Mentally Ill"; Anita Diamant, BG, Sept. 10, 1992. Falco, and other articles, Daedalus, "Political Pharmacology," Summer 1992. James McGregor, WSJ, Sept. 29, 1992; this front-page story on Burmese opium in China manages to avoid entirely the major CIA role in creating the curse; see McCoy, Politics. Victoria Benning, BG, June 27, 1992.
14 Paul Hemp, BG, Aug. 30, 1992.
15 Louis Ferleger and Jay Mandle, Challenge, July/Aug. 1991. US tax rate is 95 percent of Japan's and 71 percent of Western Europe's, according to figures cited by economist Herbert Stein, criticizing the "myth" that US taxes are high by international or historical standards; WP Weekly, Sept. 7, 1992.
16 Sonia Nazario, WSJ, Oct. 5, 1992. Wachtel, op. cit., "Afterword"; John Zysman, "US power, trade and technology," International Affairs (London), Jan. 1991. Benjamin Friedman, NYRB, Aug. 13; CSM, Aug. 14; Science, Aug. 21; Pollin, Guardian (NY), August 1992.
17 Uchitelle, NYT, A1, Aug. 12, 1992.
18 Michael Waldholz and Hilary Stout, "Rights to Life," WSJ, April 7; Leslie Roberts, Science, May 29, 1992. The Blue Sheet, April 8, 15, 1992.
19 Gina Kolata, NYT, July 28, 1992.
20 Economist, Aug. 22, 1992. Richard Knox, BG, Sept. 11, 1992, study by Families USA Foundation; drug manufacturers conceded its accuracy. Fazlur Rahman, NYT, April 26; William Stevens, NYT, May 24, 1992.
21 Watkins, Fixing, 94-5.
22 "Intellectual Property Rights," Anthropology Today (UK), Aug. 1990.
23 Jeremy Seabrook, Race & Class, July 1992. Watkins, Fixing, 96.
24 David Hirst, Guardian (London), March 23, 1992.