Rollback - Part IV

by Noam Chomsky

Z Magazine, May 1995


Towards a Utopia of the Masters

The economic crisis for the general population is a global one. In the past 20 years, economic growth has fallen well below the levels of the 1950s and 1960s (which were, to be sure, historically unique). World per capita income fell in 1993 for the fourth straight year, while the unemployment situation, already grim, worsened in most countries. The International Labor Organization (ILO), in its World Employment 1995 report, "Predicts Rising Global Joblessness," the Wall Street Journal reports, noting however that "many management theorists" regard the analysis as outdated because "the whole concept of a job -- steady work at steady pay from the same employer -- must be discarded." The only major exception to the growing catastrophe of global capitalism is East and Southeast Asia, with the exception of the Philippines -- incidentally, the sole part of the fastest growing economic region of the world that has been under tight U.S. control for a century and (coincidentally) resembles the Latin American disaster area.

Japan's former colonies have resumed the rapid economic growth of the colonial period; though a brutal imperial power, Japan treated its colonies quite differently from the Western norm. Within the region dominated by Japan and the overseas Chinese financial network, states have been powerful enough to organize capital as well as to control labor. Unlike the rest of the South, they have not been encumbered by what economic historian Paul Bairoch calls the most extraordinary myth of "economic science": "It is difficult to find another case where the facts so contradict a dominant theory than the one concerning the negative impact of protectionism," he writes, reviewing much of the record though considerably understating the significance of state intervention for the wealthy, because he limits himself to a narrow category of market interferences. The conclusions, of course, have been understood by the architects of policy, which is why they have progressed while those subjected to their whims have suffered.

The official tale is that the Japan-based region is passionately dedicated to markets. We even read that "talk of labor standards enrages many export-oriented countries in Asia"; the term "countries" here refers, for example, to the brutal and corrupt rulers in Indonesia's developmental state, but not to the working people courageously struggling for the right to organize and demanding labor standards. In internal discussion, we find greater honesty. Thus a Federal Reserve report attributes Singapore's economic growth to a domestic "forced savings" policy and other state action.1

Unemployment remains higher in Europe than in the U.S., but as the ILO and others observe, that fact has to be placed in the context of the much harsher conditions of work in the United States and the reduced social contract generally. While the U.S. work week is reaching postwar peaks, the battle for a 40-hour week having been lost long ago, in Europe it has fallen to 38-39 hours, with much longer holidays and leaves and more benefits. To take just one case, until 1993 the U.S. was one of the very few countries in the world that did not provide for statutory maternity leave, and its provisions still fall far below the European standard -- in fact below the agreement negotiated by plantation workers in Uganda, which grants male workers seven days of paternal leave. The same picture is revealed by ratification of ILO conventions guaranteeing labor rights. The U.S. has by far the worst record in the Western hemisphere and Europe, with the exception of El Salvador and Lithuania. It does not recognize even standard conventions on child labor and the right to organize.2

The major factors that have led to the global economic crisis are well understood. One is the globalization of production, which has offered the masters tantalizing opportunities. The business press frankly warns the "pampered Western workers" that they must abandon their "luxurious life styles" and such "market rigidities" as contracts, pensions, health and safety in the workplace, and other outdated nonsense, even the very concept of a job. Economists talk of job flow, pointing out that it is hard to estimate -- and also largely beside the point. The threat suffices to force working people to accept employers' demands. The end of the Cold War, returning most of Eastern Europe to its traditional Third World service role, places new weapons in the hands of the rulers, as the business press has reported with unrestrained glee. GM and VW can shift production to the restored Third world in the East, where they can find workers at a fraction of the cost of the "pampered Western workers," meanwhile enjoying high tariff protection and the other amenities that "really existing free markets" provide for the rich. The U.S. and U.K. are leading the way in grinding down working people and the poor, but others will follow along, thanks to the globalization of production. Inequality is back to the depression days in the U.S., back to Victorian times in England, though Latin America still wins the prize for worst record in the world, thanks to our kind tutelage over many years.3

As many studies have shown, relative equality is a significant factor in economic growth and improvement in health and living standards. The fact is recognized by the World Bank, but without influencing the policies that it and its IMF associate impose on the Third World, which dramatically increase inequality and undermine other factors that the Bank identifies as essential for growth, notably education and welfare. There is ample historical precedent. For over 200 years, "experiments" have been conducted by the powerful following the highest principles of economic science, with startlingly uniform results: benefits for the experimenters and their power base, tragedies for the experimental animals. Right-thinking people, again, are to draw no conclusions.

A second factor in the general crisis is the huge explosion of unregulated financial capital since the Bretton Woods system was dismantled by Richard Nixon and the radical change in its constitution. Daily turnover on foreign exchange markets may be approaching $1 trillion, some estimate. In the early 1970s, about 90% of capital in international exchanges was for investment and trade, 10% for speculation. By 1990, those figures had reversed, and a 1993 estimate is that only 5% is related to "real economic transactions" (Wilfried Guth of the Deutsche Bank, who argues further that these processes are undermining free trade, as do others). The consequences were understood early on. In his 1978 presidential address to the American Economics Association, Nobel laureate James Tobin suggested that taxes be imposed to slow down speculative flows, which, if unimpeded, would drive the world towards a low-growth, low-wage economy, with booming profits as well. By now, the point is widely recognized; a commission headed by Paul Volcker, former chairman of the Federal Reserve, attributes about half of the 50% decline in growth rates since the early 1970s to the huge growth of currency speculation.4

The world is being moved by state-corporate policy towards a kind of Third world model, with sectors of great wealth, a huge mass of misery, and a large superfluous population, lacking any rights because they contribute nothing to profit-making for the rich.

These developments are commonly attributed to inexorable market forces. Analysts then divide over the contribution of various factors, primarily trade and automation. But the discussion cannot sensibly proceed without recognition of major interferences with markets. Huge state subsidy and intervention have always been required to make trade appear efficient, not to speak of ecological costs imposed on future generations who do not "vote" in the market, and other "externalities" consigned to footnotes. To mention merely one slight market distortion, a good part of the Pentagon budget has been devoted to "secure flow of oil at reasonable prices" from the Middle East, "overwhelmingly the preserve of the United States" (Phebe Marr of the National Defense University) -- a contribution to the "efficiency of trade" that rarely receives attention, apart from other contributions to "the health of the economy." There are plenty of others.

As for automation, it surely contributes to profit at some point, but that point was reached by decades of protection within the state sector, as David Noble has shown. Furthermore, the specific form of automation designed within the state system was often driven by considerations of power more than profit or efficiency; it was designed to deskill workers and subordinate them to management, not because of market principles or the nature of the technology, but for reasons of domination and control.5

Such contributions to private power give further insight into the attractiveness of the military system for modern state capitalism, particularly its appeal to "conservatives," who are commonly in the lead in demanding that markets be undermined for class interests. Reaganite America and Thatcher's England are the primary recent examples -- both paragons of "conservatism," both leaders in expansion of state-subsidized industry. The U.S. case is well-known. As for Thatcher, her blind pursuit of Friedmanite dogmas that were refuted at every turn succeeded in creating the worst crisis for manufacturing industry since the industrial revolution, destroying almost 1/3 of the manufacturing plant within a few years, a fact extensively detailed (and deplored) by actual conservatives, notably Ian Gilmour. Nevertheless, the disaster was somewhat alleviated by the growth of state-subsidized industry. At least in military industry and sale of torture equipment to countries with awful human rights records, England remains a world leader. London is not far behind Washington in its aggressive pursuit of arms sales including such meritorious customers as Saddam Hussein and Suharto, pursuing the shared doctrine expressed by Thatcher's Defense Procurement Minister Alan Clark: "I don't really fill my mind much with what one set of foreigners is doing to another."6

Corporate decisions for power rather than simple profit are often reasonable enough as a tactic in relentless class war. Particular choices of technology provide one example. The recent health care debacle is another case in point. Much of U.S. industry would probably gain from a rational public insurance program, which is why it was advocated editorially by Business Week. But it is unwise to allow the general public to realize that government can carry out useful acts. Despite the heavy shadow cast by business, government remains the one system of power and authority that is to some degree under public influence, unlike private tyrannies, which are almost entirely unaccountable. Enhancing their power is worth some sacrifice in profit.

There are other reasons for sacrificing short-run gain. Executives point out to the business press that it is worthwhile to ship manufacturing jobs even to Germany, with its much higher labor costs, so as to facilitate class warfare. A Gillette Corporation executive explains that the company is "concerned about having only one place where a product is made," primarily because of "labor problems." Thus if Boston workers strike, Gillette could supply both the European and U.S. markets from its Berlin plant, thereby breaking the strike; and vice versa. It is only reasonable, then, that Gillette should employ over three times as many workers abroad as in the U.S., irrespective of costs. Strikes of critical importance are now underway in Illinois, where Caterpillar and other corporations are attempting to destroy the last vestige of unions. "Like many US companies, Caterpillar has pursued a business strategy that has nudged American workers away from defiance toward compliance," business correspondent James Tyson reports. The strategy includes "manufacturing at cheaper facilities abroad" and "relying on imports from factories in Brazil, Japan, and Europe" -- and, of course, hiring scabs and temps and relying on the criminal state to refuse to enforce labor laws, a stand raised to principle by the Reaganites,

Such considerations help explain why U.S. corporations are "creating jobs overseas" despite the fact that "a dollar and falling labor costs have made American products increasingly competitive," as the Times reports. Overseas investment is rising at twice the rates of exports, and profits corporations earn from production abroad are almost double those from exports. These are natural ways to use the "dazzling profits" they reap from "conservative" social policies, and the further gains anticipated from the Gingrich Contract.7

Courts too have sometimes been frank about their contributions to the rollback campaign. Denying an appeal by workers who had lost jobs when Ohio plants were moved to states with cheaper labor, the Sixth Circuit Court of Appeals stated accurately that "States and counties in the United States compete with each other for companies contemplating relocation," and labor laws neither "discourage such relocations" nor bar closing of unionized plants in favor of "a nonunion plant in another part of the country or in a foreign country," as "contemplated" by NAFTA. The Court then explained the background. Congress and the courts "have made the social judgment, rightly or wrongly, that our capitalistic system, Darwinian though it may be, will not discourage companies from locating on the basis of their own calculations of factors relating to efficiency and competitiveness. The rules of the marketplace govern. By so reflecting commercial interests, the institutions of government serve -- according to current legal and economic theory -- the long-term best interests of society as a whole. That is the basic social policy the country has opted to follow."

The candor is unusual, though the deception is typical. "The country" has "opted" for no such course, and it is radically false that "the rules of the market place govern" or that the system is "Darwinian" (in the intended sense of "social Darwinism," which has little to do with biology) -- except, of course, for the poor and the weak, who are indeed subjected to these rules by those who cast their usual shadow by means of Congress and the courts.

As for the dedication of "legal and economic theory" to "the long-term best interests of society as a whole," perhaps that was best described by Swiss economist Simonde de Sismondi 175 years ago, commenting on the doctrines of the founder of modern economic theory, David Ricardo, who patiently explained that employment was of no consequence to an economy as long as rent and profits, which funded new investment, were in good shape. "Wealth is everything, men are absolutely nothing?," Sismondi replied: "In truth then, there is nothing more to wish for than that the king, remaining alone in the island, by constantly turning a crank, might produce, through automata, all the output of England." Others have no further right to be in England, and should go elsewhere, the laws of the new science proclaimed.

The founders of the science were surpassed by none in their devotion to the "happiness of the people," and even advocated some extension of the franchise to this end: "not indeed, universally to all people, but to that part of them which cannot be supposed to have any interest in overturning the right of property," David Ricardo explained, adding that still heavier restrictions would be appropriate if it were shown that "limiting the elective franchise to the very narrowest bounds" would guarantee more "security for a good choice of representatives." There's an ample record of similar thoughts, and actions, to the present day.8

The internationalization of production puts quite a different cast on contemporary debate about "American decline." As a geographical entity, the country is declining in many respects. But the principal architects of policy have quite different interests, as the "merchants and manufacturers" did in 18th century England, and make sure that they are "most peculiarly attended to," whatever the effect on others, including their own populations. Nothing fundamental has changed in that regard since Adam Smith's observations, apart from the dedicated zeal of the efforts to suppress the obvious. With these truisms in mind, we should not be surprised to find that while the U.S. role in manufacturing production is declining if we consider the geographical entity, it is holding its own quite nicely if we consider the share in global production of U.S.-based corporations. The same is true of the "trade deficit." If we consider international borders, the U.S. has a huge deficit. But when the Commerce Department recalculated, counting profits of U.S. companies abroad as U.S. exports, the deficit turned into a huge surplus: the recalculation was reasonable, the Wall Street Journal explained, because the profits gained abroad "benefit companies domestically through greater investment and R&D." The recalculation interprets the words "United States" in the terms that matter for the "principal architects of policy: not the geographical area or its people, but the people who count.9

These remarks barely skim the surface. It's easy to understand the mood of desperation, anxiety, hopelessness and fear that is so prevalent in the world, outside of wealthy and privileged sectors who see the opportunity to achieve at last the kind of power that was out of reach when the democratic distemper infected nation-states and popular forces could mobilize to win human rights and defend them.

"Intractable Contradictions"

Recall the concerns of New York Times reporter David Rosenbaum that "however worthy the goals and however sensible the principles" of the Gingrich reformers, their dedication to the poor faces "seemingly intractable contradictions." The most important one, scrupulously ignored, is the need to protect the wealthy and powerful from market discipline in traditional ways, now being extended. But there are other problems.

Educated and privileged sectors, reasoning along Ricardo's lines, see little problem in the fact that policies are executed in "technocratic insulation," unimpeded by public interests and concerns. But the population has to be controlled somehow. For obvious reasons, one cannot appeal to them on grounds of the intended effects of the policies that are being implemented. So other methods are required. There are standard devices. Many can simply be locked up or confined to urban slums. Others can be entrapped by artificial "creation of wants" or other forms of diversion. They can be left in confusion and despair by corporate and other propaganda, a huge industry in the United States for many years. Or they can be mobilized in fear and hatred -- of foreigners, of one another -- or by religious fundamentalist appeals.

The masters of mankind understand very well that people must not be given opportunities to organize in a functioning civil society, which might enable them to pool limited resources and to take their affairs into their own hands. But when the limited admissible means are used to mobilize people to do such needed work as rolling back the social contract, "intractable contradictions" arise. The problems are classic: they were recognized by German industrialists who had supported Hitler's forces as a way to destroy the labor movement, and found -- not to their pleasure -- that he and his followers had some ideas of their own. The Iranian merchants who relied on fundamentalist religious leaders to mobilize the public against the Shah faced the same dilemma shortly after. Some similar "intractable contradictions" are arising right now as the rollback campaign gains force.

The problems have troubled the business press. A Fortune cover story is headlined "Today's GOP: The Party's Over for Big Business." To mobilize popular forces, the corporate world has been compelled to resort to what are called "cultural issues." But its troops are now prepared to fight the "culture war," as Pat Buchanan and others refer to the various forms of fanaticism they are seeking to engender. That process has opened a "culture gap," Fortune observes. The CEOs are generally liberal in cultural attitudes. They don't want their children to be forced to pray in schools or taught "creation science." They want their daughters to have opportunities. They not only tend to be pro-choice, but about 60% of CEOs are "adamantly pro-choice, agreeing with the statement that `a woman should be able to get an abortion if she wants one, no matter what the reason'." They do not want to live in a society and culture dominated by Christian fundamentalists, people who worship the Enola Gay or run around with assault rifles, or who debate subtle points about Beast 666 from the Book of Revelations and listen to Pat Robertson explaining how Presidents from Wilson to Bush may have been pawns of "a tightly knit cabal" run by Freemasons and "European bankers," who seek "a new order for the human race under the domination of Lucifer." But these are the sectors they are forced to turn to as a popular base for their assault on democracy and human rights.

Among CEOs, the overwhelming favorite for President is Dick Cheney; Bob Dole and Phil Gramm were backed by a mere 17%, and "right down at the bottom of the pack with a 3% show of support...was Newt Gingrich." Unfortunately for them, however, "The religious right now controls the GOP," Fortune comments in bold face: "Religious conservatives are the single most powerful force within the GOP," no small group in one of the world's most extreme religious fundamentalist cultures. They "hold veto power over the Republican presidential nomination." "There's a real cultural disconnect between the FORTUNE 500 and social conservatives," a lobbyist "with strong ties to Christian fundamentalist groups and the new Republicans" observes.

The Wall Street Journal talks uneasily about "class warfare" -- a term usually avoided like the plague in respectable circles -- referring to a war over "values" that pits the "upper-middle class elites of professionals and managers," their constituency, against the guy in the street who supports the Republican Party that is supposed to do the bidding of these upper-middle class elites. The religious conservatives who hold "veto power" have no great interest in big business, which they rightly see as hostile to the values that they uphold. They gain support from "a few large companies on the fringe of corporate America -- the tobacco industry, Amway." But within the functioning economy, they are viewed with no little dismay, apart from their role in implementing the rollback campaign. They oppose government support for big corporations, threatening a disaster for "free enterprise" if they cannot be kept down in the trenches. They agree that "It's rollback time," as one of their activists says, but they have in mind something quite different from the CEOs. They don't like it when a corporation that has its home in Gingrich's Cobb County denounces an official resolution condemning "the gay life style." The CEOs rightly fear that their troops may move beyond the "culture war," proceeding to undermine the basic framework of state-subsidized private power.

Funding for the Gingrich army reveals the contradictions clearly. Major funders are from marketing schemes like Amway, smaller insurance companies, hedge-funds, and the like. These sectors control plenty of money but are at the fringes of the economy. They are "very much in sync with the `Contract With America'," the Wall Street Journal reports, which is true only under a special but perhaps accurate interpretation of the support for the Pentagon on the part of their forces, who, unlike the CEOs, are not much interested in the government's role as the "savior" of advanced industry. Furthermore, they come from sectors of the population that really are cringing in fear and terror, seeing enemies coming to get them on all sides, a fact about the extraordinary cultural scene that one cannot simply ignore.10

The contradictions are showing up in Washington. The Commerce Department under Clinton has become "a pro-business dynamo," the Wall Street Journal observes, serving private power to an unprecedented degree. But the Gingrich army doesn't understand, which leads to an "uncanny circumstance: Big business allied with a Democratic administration against Republic proposals to trim Commerce's sails." The same is true of the Export-Import Bank, the National Institutes of Health (which have "given birth to the biotechnology industry," the New York Times observes), and the National Institute of Standards and Technology and the Technology Reinvestment Project, Clinton-inspired adjuncts to the Pentagon subsidy to advanced industry. These are wasteful because they are not devoted solely to "military uses," GOP critics charge, failing to comprehend the way the real economy works and perhaps believing the lurid tales about Beast 666, Arab terrorists, and who knows what other agent of Lucifer or the United Nations. Even the hated regulatory agencies, such as the FDA, have support from major corporations, which can see ahead far enough to judge the effects of another thalidomide scandal.11

In the early part of this century, there was much fascination with "corporate entities," social "organisms" that have unique rights beyond those of mere individuals. These ideas, growing from more or less the same Hegelian intellectual soil, took several forms, notably Bolshevism, fascism, and the modern corporation. Corporations were granted extraordinary rights by Courts and lawyers, often with the support of "progressives." They are, furthermore, as totalitarian an institution as humans have managed so far to contrive. Terminology is crafted to avoid the substance behind the shadow, so such terms as "fascist" and "totalitarian" are restricted to political entities. But the similarity in character is unmistakable. Two of these systems of centralized, autocratic, and unaccountable power have succumbed. The third not only remains but is increasing its sway and dominance. There are divisions and conflicts of course, but also much similarity of general conception worldwide, and overarching institutions are also taking shape. The internal contradictions may or may not prove "intractable," but they have ominous import however they are resolved.

The transition from containment of democracy and human rights to actual rollback should be seen against this background. We should also recognize that the new phase of the struggle against the "great beast" is based upon social policies with particular goals that are not graven in stone or founded in laws of nature or society, any more than the human institutions from which they arise.



1 Pascal Zachary, WSJ, Feb. 22, 1995. FRBSF Weekly Letter (Federal Reserve), Oct. 21, 1994; Dick Taylor, p.c.

2 ILO, World Labour Report 1994.

3 See my World Orders, Old and New (Columbia, 1994).

4 Ibid. John Frank and Fraser Mustard, Richard Wilkinson, Daedalus, Fall 1994. World Bank, see David Felix, "Industrial Development in East Asia: What are the lessons for Latin America," UNCTAD Discussion Papers No. 84, May 1984. See my Year 501 (South End, 1993). Guth, Tobin, cited by Felix, "The Tobin Tax Proposal," Working Paper #191, June 1994, UN Development Programme. WSJ, May 9, 1994.

5 Marr, Middle East Journal 48.2, Spring 1994. Noble, Forces of Production (Knopf 1984); Progress without People (Charles Kerr 1993).

6 Gilmour, Dancing with Dogma (Simon & Schuster, 1992); see World Orders for excerpts. John Pilger, Weekend Guardian, Nov. 12, 1994; Distant Voices (Vintage, 1994). Paul Lashmar, New Statesman & Society, Jan 20, 1995.

7 Louis Uchitelle, NYT, July 25, 1994. Tyson, CSM, Jan. 24, 1995.

8 Allen, et al., v Diebold, INC, 33F.3d 674 *677, decided Sept. 6, 1994. Sismondi cited by Robert Heilbroner, "foreword," Jeremy Rifkin, The End of Work (Putnam, 1995). Ricardo, cited by Rajani Kanth, Political Economy and Laissez-faire" (Rowman and Littlefield, 1986).

9 WSJ, "World-Trade Statistics Tell Conflict Stories," March 28, 1994.

10 Fortune, Feb. 6, 1995. Dennis Farney, WSJ, Dec. 14, 1994. Jill Abramson and David Rogers, WSJ, Feb. 9, 1995.

11 Helene Cooper, WSJ, Dec. 28, 1994. Jonathan Landay, CSM, Feb. 21, 1995.


This article was originally published in Z Magazine, an independent magazine of critical thinking on political, cultural, social, and economic life in the U.S.

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