Neoliberalism and the Global Order
excerpted from the book
Profit Over People
by Noam Chomsky
Seven Stories Press, 1999
The Washington Consensus
The neoliberal Washington consensus is an array of market
oriented principles designed by the government of the United States
and the international financial institutions that it largely dominates,
and implemented by them in various ways-for the more vulnerable
societies, often as stringent structural adjustment programs.
The basic rules, in brief, are liberalize trade and finance, let
markets set price ("get prices right"), end inflation
("macroeconomic stability"), privatize. The government
should "get out of the way"-hence the population too,
insofar as the government is democratic, though the conclusion
remains implicit. The decisions of those who impose the "consensus"
naturally have a major impact on global order. Some analysts take
a much stronger position. The international business press has
referred to these institutions as the core of a "de facto
world government" of a "new imperial age."
Whether accurate or not, this description serves to remind
us that the governing institutions are not independent agents
but reflect the distribution of power in the larger society. That
has been a truism at least since Adam Smith, who pointed out that
the "principal architects" of policy in England were
"merchants and manufacturers," who used state power
to serve their own interests, however "grievous" the
effect on others, including the people of England. Smith's concern
was "the wealth of nations," but he understood that
the "national interest" is largely a delusion within
the "nation" there are sharply conflicting interests,
and to understand policy and its effects we have to ask where
power lies and how it is exercised, what later came to be called
The "principal architects" of the neoliberal "Washington
consensus" are the masters of the private economy, mainly
huge corporations that control much of the international economy
and have the means to dominate policy formation as well as the
structuring of thought and opinion. The United States has a special
role in the system for obvious reasons. To borrow the words of
diplomatic historian Gerald Haines, who is also senior historian
of the CIA, "Following World War II the United States assumed,
out of self-interest, responsibility for the welfare of the world
... There have been many experiments in economic development
in the modern era, with regularities that are hard to ignore.
One is that the designers tend to do quite well, though the subjects
of the experiment often take a beating.
The first major experiment was carried out two hundred years
ago, when the British rulers in India instituted the "Permanent
Settlement," which was going to do wondrous things. The results
were reviewed by an official commission forty years later, which
concluded that "the settlement fashioned with great care
and deliberation has unfortunately subjected the lower classes
to most grievous oppression," leaving misery that "hardly
finds a parallel in the history of commerce," as "the
bones of the cotton-weavers are bleaching the plains of India."
But the experiment can hardly be written off as a failure.
The British governor-general observed that "the 'Permanent
Settlement,' though a failure in many other respects and in most
important essentials, has this great advantage, at least, of having
created a vast body of rich landed proprietors deeply interested
in the continuance of the British Dominion and having complete
command over the mass of the people." Another advantage was
that British investors gained enormous wealth. India also financed
40 percent of Britain's trade deficit while providing a protected
market for its manufacturing exports; contract laborers for British
possessions, replacing earlier slave populations; and the opium
that was the staple of Britain's exports to China. The opium trade
was imposed on China by force, not the operations of the "free
market," just as the sacred principles of the market were
overlooked when opium was barred from England.
In brief, the first great experiment was a "bad idea"
for the subjects, but not for the designers and local elites associated
with them. This pattern continues until the present placing profit
over people. The consistency of the record is no less impressive
than the rhetoric hailing the latest showcase for democracy and
capitalism as an "economic miracle"-and what the rhetoric
regularly conceals. Brazil, for example. In the highly praised
history of the Americanization of Brazil that I mentioned, Gerald
Haines writes that from 1945 the United States used Brazil as
a "testing area for modern scientific methods of industrial
development based solidly on capitalism." The experiment
was carried out with "the best of intentions." Foreign
investors benefited, but planners "sincerely believed"
that the people of Brazil would benefit as well. I need not describe
how they benefited as Brazil became "the Latin American darling
of the international business community" under military rule,
in the words of the business press, while the World Bank reported
that two-thirds of the population did not have enough food for
normal physical activity.
Writing in 1989, Haines describes "America's Brazilian
policies" as "enormously successful," "a real
American success story." 1989 was the "golden year"
in the eyes of the business world, with profits tripling over
1988, while industrial wages, already among the lowest in the
world, declined another 20 percent; the UN Report on Human Development
ranked Brazil next to Albania. When the disaster began to hit
the wealthy as well, the "modern scientific methods of development
based solidly on capitalism" (Haines) suddenly became proofs
of the evils of statism and socialism-another quick transition
that takes place when needed.
To appreciate the achievement, one must remember that Brazil
has long been recognized to be one of the richest countries of
the world, with enormous advantages, including half a century
of dominance and tutelage by the United States with benign intent,
which once again just happens to serve the profit of the few while
leaving the majority of people in misery.
The most recent example is Mexico. It was highly praised as
a prize student of the rules of the Washington consensus and offered
as a model for others-as wages collapsed, poverty increased almost
as fast as the number of billionaires, foreign capital flowed
in (mostly speculative, or for exploitation of cheap labor kept
under control by the brutal "democracy"). Also familiar
is the collapse of the house of cards in December 1994. Today
half the population cannot obtain minimum food requirements, while
the man who controls the corn market remains on the list of Mexico's
billionaires, one category in which the country ranks high.
How Countries Develop
... In the eighteenth century, the differences between the
first and third worlds were far less sharp than they are today.
Two obvious questions arise
1. Which countries developed, and which not?
2. Can we identify some operative factors?
The answer to the first question is fairly clear. Outside
of Western Europe, two major regions developed the United States
and Japan-that is, the two regions that escaped European colonization.
Japan's colonies are another case; though Japan was a brutal colonial
power, it did not rob its colonies but developed them, at about
the same rate as Japan itself.
What about Eastern Europe? In the fifteenth century, Europe
began to divide, the west developing and the east becoming its
service area, the original third world. The divisions deepened
into early in this century, when Russia extricated itself from
the system. Despite Stalin's awesome atrocities and the terrible
destruction of the wars, the Soviet system did undergo significant
industrialization. It is the "second world," not part
of the third world-or was, until 1989.
We know from the internal record that into the 1960s, Western
leaders feared that Russia's economic growth would inspire "radical
nationalism" elsewhere, and that others too might be stricken
by the disease that infected Russia in 1917, when it became unwilling
"to complement the industrial economies of the West,"
as a prestigious study group described the problem of Communism
in 1955. The Western invasion of 1918 was therefore a defensive
action to protect "the welfare of the world capitalist system,"
threatened by social changes within the service areas. And so
it is described in respected scholarship.
The cold war logic recalls the case of Grenada or Guatemala,
though the scale was so different that the conflict took on a
life of its own. It is not surprising that with the victory of
the more powerful antagonist, traditional patterns are being restored.
It should also come as no surprise that the Pentagon budget remains
at cold war levels and is now increasing, while Washington's international
policies have barely changed, more facts that help us gain some
insight into the realities of global order.
... the question of which countries developed, at least one
conclusion seems reasonably clear development has been contingent
on freedom from "experiments" based on the "bad
ideas" that were very good ideas for the designers and their
collaborators. That is no guarantee of success, but it does seem
to have been a prerequisite for it.
Let's turn to the second question How did Europe and those
who escaped its control succeed in developing? Part of the answer
again seems clear by radically violating approved free market
doctrine. That conclusion holds from England to the East Asian
growth area today, surely including the United States, the leader
in protectionism from its origins.
Standard economic history recognizes that state intervention
has played a central role in economic growth. But its impact is
underestimated because of too narrow a focus. To mention one major
omission, the industrial revolution relied on cheap cotton, mainly
from the United States. It was kept cheap and available not by
market forces, but by elimination of the indigenous population
and slavery. There were of course other cotton producers. Prominent
among them was India. Its resources flowed to England, while its
own advanced textile industry was destroyed by British protectionism
and force. Another case is Egypt, which took steps toward development
at the same time as the United States but was blocked by British
force, on the quite explicit grounds that Britain would not tolerate
independent development in that region. New England, in contrast,
was able to follow the path of the mother country, barring cheaper
British textiles by very high tariffs as Britain had done to India.
Without such measures, half of the emerging textile industry of
New England would have been destroyed, economic historians estimate,
with large-scale effects on industrial growth generally.
A contemporary analog is the energy on which advanced industrial
economies rely. The "golden age" of postwar development
relied on cheap and abundant oil, kept that way largely by threat
or use of force. So matters continue. A large part of the Pentagon
budget is devoted to keeping Middle East oil prices within a range
that the United States and its energy companies consider appropriate.
... one technical study of the topic ... concludes that Pentagon
expenditures amount to a subsidy of 30 percent of the market price
of oil, demonstrating that "the current view that fossil
fuels are inexpensive is a complete fiction," the author
concludes. Estimates of alleged efficiencies of trade, and conclusions
about economic health and growth, are of limited validity if we
ignore many such hidden costs...