Whose World Order? Conflicting Visions
I want to at least mention quite a number of different topics. The mentions are ineveitably going to be far too brief every one of them deserves intensive thought and discussion and they? re not at all comprehensive. But what I want to kind of suggest, if I can do it, is that these are some of the threads that out to be woven together to give some kind of coherent picture of where we stand today, what kinds of problems we have to face and where we might find at least a standpoint to begin to think about them in a constructive way.

I want to go back a half a century - I think we live very much within an era that was more or less created then. There are occassional moments in human affairs where power relations make it possible to establish social and economic arrangements that actually merit the term world order. Merit might not be the right word. It? s not necessarily a phrase that should be invested with positive connotations, as history amply reveals. One of the most dramatic and in fact most easily timed of those moments was about 50 years ago in the aftermath of the most devasting single catastophe in human history which took place right in the heartland of western civilization. At the end of the war, the United States, of course, had an overwhelming share of global wealth and power and, perfectly naturally, dominant forces within the state corporate nexus in the United States planned to use that power to organize the world as much as they could in accord with their own conceptions of their interests and those they represented.
Of course, there were conflicting visions both at home and abroad and they had to be contained, or better, rolled back, to borrow some cold war rhetoric. That was done with varying degrees of success, but in fact the basic conflicts persist and for elementary reasons - they persist because they are about fundamental values they are about freedom and justice and human dignity and human rights in a world of inequality - great inequalty and great concentration of power (the real world, that is) these values quite commonly constitute an arena of conflict between centres of power and most of the rest. A good deal of history revolves around these conflicts in the last half century this is no exception and I? m sure the next will not be either.

Well at the onset of the current era, about a half century ago, the framers of the world order of that day, the new world order of that day, they faced these challenges everywhere. At home, what had to be contained, maybe rolled back, were the very strong commitments of a large majority of the population to social democratic ideals that the business world rightly perceived as a grave threat to their traditional dominance. They were the hazard-facing industrialists in the rising political power of the masses, as the National Association of Manufacturers put it in their internal literature. It was the crisis of democracy that was posed by a population that sought to enter the political arena, as frightened liberal internaltionalist elites phrased essentially the same problem after the ferment of the 1960s, expressing particular concern about what they called the institutions responsible for indoctrination of the young, which were failing to carry out their disciplining role properly.
Similar problems were faced throughout the industrial world. They were enhanced by the prestige and appeal of the anti-fascist resistance, which was a complex affair, but often had radical democratic thrusts. They were enhanced further by the discrediting of the traditional conservative order, which had been linked closely to the fascist system. Reinstating that traditional order in its essentials was a primary task of the early post-war years and it was achieved to a large extent often in not very pretty ways. As in the United States, this project continues. It? s taken new forms in the last 25 years, as here and as throughout the world, under the guise of neo-liberalism or economic rationalism or free market doctrine, which is permeated with a good deal of deceit, hypocrisy and maybe outright fraud. All of these issues are strongly very, very much alive right now - here, Europe and elsewhere.

In the Third World, the south - the developing world as its euphemistically called - similar problems were compounded by strong pressures, uncontrollable pressures, to overturn the imperial systems, and the legacy of dependancy and subordination that they had left. The basic issues were very much the same in most of the world but they were revealed with particular clarity, with starkest clarity, in Latin America for the simple reason that the United States faced no challenge there, no outside challenge, so you see the principles operating in their purest form. There was a real challenge, but it was from the domestic population - no outside challenge.

As In Europe, these conflicts in Latin America came to a head even before the war was over, in the case of Latin America very dramatically in February 1945 at a hemispheric conference (Canada was not part of the Western hemisphere in those days, remember, so Western hemisphere means United States to the south. I don? t think Canada attended the conference, but maybe I? m mistaken.) The hemispheric conference was supposed to organize affairs for the hemisphere. We know from U.S. internal records now that the Uinited States was deeply concerned with what the State Department called the ? ? philosophy of the new nationalism? that was spreading all over Latin America and indeed all over the world, quoting State Department documents. The philosphy of the new nationalism, which embraced policies designed to bring about a broader distribution of wealth and to raise the standard of living of the masses on the principle that the first beneficiaries of the country? s resources are the people of that country. That heresy is called radical nationalism or economic nationalism and of course it has to be stamped out - the first beneficiaries of a country? s resources are U.S. investors, their counterparts elsewhere, and local elites who are associated with them.

At the hemispheric conference the United States - given the power relations of course the U.S. prevailed - and it imposed what was called an economic charter for the Americas which called for an end to economic nationalism in all its forms. In the cruel and bloody history of the half-century that followed, these remained central themes and they will continue to. They are very much alive today now they are often framed differently in the context of the investor rights agreements that are mislabeled free trade agreements NAFTA, the forthcoming, maybe, Multilateral Agreement on Investments, MAI, and what? s called globalization, which is a specific form of international integration (not by any means the only necessary form) it? s the specific form that? s crafted primarily to serve the interests of its designers, again not terribly surprisingly, transnational corporations, financial institutions and the bureaucracies that they control and of course the major states that are part of the system.

The most critical part of the Third World was then and I think remains today the Middle East, for the very simple reason that it? s the locus of the world? s major energy supplies for as far ahead as anybody can see. Hence, it was considered to be, and is still considered to be, of particular importance that the first beneficiaries of that wealth are not the people of the region rather the resources must be under effective U.S. control, they must be accessible to the industrial world on terms that the United States leadership can see is appropriate and, crucially, the huge profits that are generated must flow primarily to the United States, secondarily to its British junior partner, to borrow the term used by the British Foreign Office rather ruefully to describe its new role in the post Second World War era. This is done in various ways. In part it? s recycled by local managers who have to be dependent on the global rulers, a long story which continues.

Well quite naturally these arrangements breed continual conflict. Internal U.S. documents describe them in the conventional way. The conflicts are conflicts with radical nationalism, radical Arab nationalism that threatens U.S. dominance. For the public it? s put a little differently, varying over time. These days it? s international terrorism, or the clash of civilization tomorrow it will be something new, but it? s basically the same ones all the time. The question is, who? s going to be the first beneficiaries of the region? s resources.
These conflicts are likely to become more virulent and ominous in the coming years, at least if the analysis and projection of quite a number of geologists are anywhere near accurate. A reasonably broad consensus (there? s plenty of room for disagreement and uncertainty) but a reasonably broad consensus was captured in the headline of a major review article on the topic, in the journal Science - the journal of the American Association of the Advancement of Science a couple of weeks ago. The headline was, ? ? The next oil crisis looms large and perhaps close.? It may be a little hard to believe in a period when gasoline prices are at an historic low, but there are many who regard that as an aberration, a short-term aberration. The crisis that many people fear is that the rate of discovery has been declining for some time after having risen steadily since the earliest discovery of oil, and the Gulf region, the Arabian peninsula and the Persian Gulf region, that has by now virtually regained the share of energy production that it had in the early 1970s, (You? ll recall that that was sufficient to bring the era of super-cheap energy to a sudden end it happened to be a temporary end but a foretaste of what lies ahead.) basically back to that share, meaning that degree of power, and that share is expected to increase, in part because world consumption is increasing very rapidly and most of the known energy reserves by a big measure are in that region. And it? s also speculated, not apparently implausibly, that something like the 50-per-cent mark of exploitable capacity may not be too far away, maybe within the next few decades. All of this combines to suggest to policy makers and others that the need to control that region is going to become increasingly important and that? s going to mean very likely increasing confrontations with radical nationalism.

As a kind of a sidelight to this, I think that, very likely, the latest terrorist exchange in the last few weeks might well be seen in this context. I? m referring to the terrorist bombings of the U.S. embassies in Africa, allegedly by groups who are opposed to U.S. domination of the major oil producers, and the U.S. missile attacks on Sudan and Afghanistan. One might ask, why those targets? Well, like the bombings of the embassies in Africa, the U.S. selected targets that were vulnerable, not the ones to which the messages were aimed, in either case. The message for the missile attacks may well have been directed elsewhere, in this case very likely to Riyadh and Teheran. There have been recent steps towards rapprochement between Saudi Arabia and Iran, historic enemies, and that? s not an appealing prospect for U.S. global managers. It raises fears, which have been lingering for a long time, of regional groupings that will get out of control in the strategically most important part of the world, which holds the greatest material prize in world history - that? s quoting U.S. assessments from the late ? 40s, which still prevail.

The U.S. missile attacks have been criticized (you? ve read plenty of criticisms of them) as being counterproductive (elite opinion has held that) because of their effects on the Sudan and Afghanistan. Well, it? s a pragmatic judgment, apparently. The same opinion seems to be largely unconcerned by the fact that, effective or not, there were war crimes - that? s now partially conceded in the case of Sudan. However, just keeping to the pragmatic judgment, it might be evaluated in the light of a secret 1995 study of the U.S. Strategic Command, called Essentials of Post-Cold War Deterrence, which was released recently under the Freedom of Information Act. It? s an interesting document. It resurrects Nixon? s madman theory, as it was called. It says that the United States should portray itself as irrational and vindictive with leadership elements out of control and it should exploit the nuclear arsenal for that purpose. This madman posture can be beneficial to creating and reinforcing fears and doubts among adversaries, real or potential. In this case perhaps the big players in the region, Saudi Arabia and Iran, whose potential rapprochement, which has been going on now for almost a year, is doubtless a very frightening prospect in Washington. Well, we don? t have documentary evidence, so that? s speculation. But I think it? s not unreasonable.

Well there? s a lot to say about all these topics (and these are things I? m just mentioning) and related aspects of the post-war global system that I haven? t even mentioned. But let me just leave it as something to think about and turn to something related namely, the institutional structures, the institutional framework that was designed for world order 50 years ago, and how it? s fared, and what it looks like today.

The institutional structure had three basic components. One was an international political order - that? s articulated in the United Nations Charter. A second part was concerned with human rights and the norms for the behavior of governments towards their citizens - that? s the Universal Declaration of Human Rights. (Its 50th anniversary will be celebrated, or maybe mourned, in December 1998.) The third component was an international economic order. That? s the Bretton Woods system, as it? s called, designed by the United States and Great Britain, the global manager and the junior partner. I want to talk mostly about the third, but a few words about the first two.

The first, the international political order, (essentially the UN Charter) that? s based on a very simple, straightforward principle, and elaborated in various ways. The principle is that the threat or use of force in international affairs is disallowed, unacceptable, has to be barred totally, with two exceptions. One exception is when the threat or use of force is specifically authorized by the Security Council after the Security Council determines that peaceful means have failed. The second is the famous Article 51, which says that nothing in this Charter abrogates the right of self-defence against armed attack until the Security Council acts. That? s a rather narrow and specific notion. It means, for example, that if Cuban armies invade the United States, the United States is supposed to notify the Security Council and then, until the Security Council has a chance to do something about this terrible threat, it? s allowed to defend itself in anyway that? s necessary. Whether that example is hypothetical or not depends on what you want to believe. The Cuban threat to the United States was recently downgraded by the Pentagon, so we don? t have to tremble in total fear anymore. That elicited a good deal of anger in Congress and the conclusion was rejected by the White House, which invoked Cuba? s threat to the national security and existence of the United States, just a few months ago, in the course of rejecting World Trade Organization jurisdiction when the European Union protested before the WTO gross U.S. violations of trade agreements and international law that had already been condemned by just about every international agency, including even the normally quite compliant Organization of American States. So, depending on where you sit, that example was real or hypothetical, but whatever it is, that? s the exception permitted by the UN Charter by the framework of political order and received international law. And those are the only exceptions to the threat or use of force.
Now of course there is no enforcement mechanism - this has to be by acceptance. There is in fact an enforcement mechanism, namely the great powers, and to be realistic exactly one of them, namely the United States, so that? s the enforcement mechanism. But that suffices to show that the whole system is null and void because the United States rejects the principles out of hand. It rejects them both in practice and in fact in doctrine. There? s no need to waste time on the practice in the past half century the bombing of a pharmaceutical plant in the Sudan a couple of weeks ago is a recent illustration but one that? s completely trivial in historical context, though I suppose that terrorist destruction of half of the medical supplies and fertilizers in the United States might be taken a shade more seriously.
Whatever the practice may be, and you can know that perfectly well, or should, what? s interesting about the recent years is that official doctrine expresses with great clarity and precision the utter contempt for the principles of world order that are of course grandly proclaimed when they serve some power interest. This has been going on since the Reagan years and it is a change, a doctrinal change you might say it? s a change toward greater honesty. Anyhow, it? s a change. Since the Reagan years the United States has officially reinterpreted the Article 51, the crucial article, to justify its repeated reliance on force. It has held that Article 51, I? m quoting actually, authorizes self-defence against future attack. Article 51 permits the United States to defend its interests. This became even more ludicrous in the Clinton years. It was all formulated rather straightforwardly by Ambassador Albright, now Secretary of State, when she informed the UN Security Council, which was then refusing to go along with some U.S. demands about Iraq? she informed the Security Council that the United States will act ? ? multilaterally when we can, unilaterally when we must in an area important for our interests.? That means unconstrained by the world court which had already been dismissed as irrelevant 10 years earlier by the most solemn treaty obligations, the foundations of world order, and so on. I stress that the only innovation in all of this in the past 15 years is that contempt for these high principles is now openly proclaimed, with the acquiescence and the applause of the educated classes - that? s a change. But it serves to indicate where the foundations of world order stand after 50 years. In brief, the United Nations and its Charter are fine when they serve as an instrument of power, otherwise the decisions and the condemnations are not even worth reporting, and they are not reported, let alone obeying.
Incidentally, you? ve been following I? m sure the recent debate about founding an international criminal court on war crimes and as you know the United States, essentially alone refused to go along with that. U.S. opposition is effectively a veto when the General Assembly votes 151 to 1 on something (or 2 if the U.S. picks up a client state). That amounts to a veto, just for straight power reasons - nothing obscure about it. And this effectively vetoes the criminal court on war crimes. The official argument that was given by the Clinton administration and Congress was that an international tribunal might carry out frivolous prosecution of U.S. soldiers engaged in peacekeeping operations. That? s not very credible, especially if you look at the U.S. role the U.S. is mostly disqualified from peacekeeping operations - that? s literally true. The reason is because it has a very unusual, maybe unique, military doctrine and that is that no military forces are permitted to come under any threat so if there is any threat at all, they are supposed to react with overwhelming force and that means that in any situation that involves civilians, you know, anything short of total war, the U.S. military simply can? t be deployed and in fact isn? t if you look at the peacekeeping operations. So that? s not a plausible argument, but there are other ones that are plausible and are barely beneath the surface, and that is the very likely concern that an independent judicial inquiry, if it existed, might, as it should, move up the chain of command and that? s going to lead it very soon to pretty high places, including the White House. That would be true whether the issue is Indochina or Central America and Panama or Somalia or other exploits.

Well, again, a lot to say about that, but let? s turn to the second element of world order the Universal Declaration of Human rights. Doubtless we will all hear much rhetoric in the coming months about the universality of the high principles that are proclaimed and about the challenge of relativity that? s posed by various bad guys around the world. Those charges will be accurate enough, unfortunately, and probably understated, but you are unlikely to hear about a different topic namely, U.S. adherence to the universal declaration both in action and in doctrine. Well again, I? ll put aside action and just keep to the doctrine. If you look at the doctrine you find out quickly that the United States is a leader of the relativist camp. One is unlikely to see headlines about that, but it? s pretty clear - the United States dismisses one fundamental component of the universal declaration completely as having no status that? s the component that? s concerned with the socio-economic provisions, which have the same status as any others in the universal declaration, but the U.S. doesn? t agree. They are a letter to Santa Claus, as Ambassador Jean Kirkpatrick put it. They are preposterous and a dangerous incitement, as they were described by U.S. Ambassador Morris Abrams. He was in fact testifying at part of the discussion by the UN Commission on Human Rights, which was considering a Declaration on the Right of Development which very closely paraphrased the socio-economic conditions of the universal declaration and which, incidentally, the U.S. proceeded to veto.

Well again there? s more to say, but let? s proceed to the third point the international economic order - the Bretton Woods system, as it? s called, and its institutions. That? s all over the front pages now with the fears of a global meltdown that might affect privileged folk like us, as well as just the usual victims, so therefore it? s news. Well, the Bretton Woods system had two basic principles set up institutions like the World Bank and the IMF, which are called the Bretton Wood institutions - but it had two basic principles which one has to keep in mind, they? re important. One principle was to liberalize trade a goal was to liberalize trade, more free trade. The second principle had to do with capital flow and it was the opposite. The goal was to regulate capital flow and control it, keep fixed exchange rates, keep capital controls and so on. That was agreed by both the U.S. and the British negotiators - the U.S. main negotiator was Harry Dexter White, the British, John Maynard Keynes - and it expressed a very common conception at the time, which has a lot of plausibility. It? s built into the rules of the IMF. There is now an effort, the U.S. is leading an effort, to try to change those rules, but up until now they have been breached many times. The rules of the IMF still authorize countries to regulate capital flow and they prohibit the IMF from giving credits to cover capital flight. Many of you who follow these affairs all know how well that one? s been observed, but anyhow it is a rule.
There was thinking behind this, there were reasons. The reasons were in part theory, what some international economists call an incompatibility thesis, which in fact remains the guiding principle of UNCTAD, the main UN Conference on Trade and Development. The theory is that capital flight, so short-term speculative flows which lead to exchange rate fluctuations and so on, that they are going to undermine trade and investment, so they are inconsistent with one another. You can? t liberalize both and recent experience is, I think, consistent with that assumption. The second reason was not a theory, it was a truism. The truism is that free flow of capital definitely undermines democracy in the welfare state, which was at that time far too popular to ignore (it? s the mid-20th century). The basic point (I? m essentially paraphrasing White and Keynes here) is that capital controls allow governments to carry out monetary and tax policies to sustain unemployment incomes, social programs, maintain public goods, without fear of capital flight, which will punish this irrational behavior (irrational in that it? s only for the benefit of people, not for the benefit of investors and speculators, and it will be punished by capital flight for obvious reasons). That? s the essential point - free flow of capital quickly creates what some international economists call a virtual senate of financial capital which will impose its own social policies by the threat of capital flight, which leads to higher interest rates, economic slowdown, budget cuts for health and education, recession, maybe collapse. It? s a powerful weapon.

All of that was articulated quite explicitly in essentially in the words I? ve repeated at the time by the U.S.-U.K. negotiators, and it? s not particularly controversial. (In fact not controversial at all, then or now. If you think it through it? s kind of obvious, as it was to them.) And all of that is quite important to keep in mind in looking at the current period because there? s a challenge to that in the last 25 years and we see the consequences. (And it? s now being re-evaluated because the consequences are even hitting the rich people and that? s where we are now.) Well, the Bretton Woods system as formulated, that is efforts to liberalize trade and regulate capital, that was in place ? to a substantial degree through the first half of this period, the first quarter century after it was established. That? s what? s sometimes called the golden age of post-war state capitalism - high rates of growth of the economy, of productivity, expansion of the social contract right through the ? 50s and ? 60s. The system was dismantled from the early 1970s. Richard Nixon unilaterally abrogated its basic principles other major financial centres joined in. By the 1980s capital controls were mostly gone in the rich countries and the smaller economies like South Korea were simply compelled to drop them. That, incidentally, is widely regarded now as a major factor in its recent collapse, alongside of quite extreme market failures in the private sector throughout East and Southeast Asia and of also the west, which was involved in crazed lending.

I should add at this point that, in the light of the recent economic crisis in East Asia, the more serious analysts recognize and insist that the East Asian economic miracle was quite real. (I? m distinguishing East Asia from Southeast Asia here - they? re quite different.) So one of the most important and influential, and I think intelligent, Joseph Stieglitz, who is now the chief economist of the World Bank (he was formerly head of council of economic advisors here, and it plays a very important role) he emphasizes in recent World Bank publications and elsewhere that this is post-crisis - that the East Asian economic miracle was not only real but it was in his words an amazing achievement historically without precedent and, furthermore, he points out, based on very significant departures from the official doctrines of the so-called Washington consensus and that it should last, it should thrive, in fact, unless it is destroyed by irrational markets as it could be. Stieglitz points out - remember this is the chief economist of the World Bank I? m talking about in a World Bank publication - that in East Asia the basis for the amazing achievements and the miracle, which has no precedent, is that governments took major responsibility for the promotion of economic growth, abandoning the religion that markets know best, and intervening to enhance technology transfer, relative equality, education, health, along with (he doesn? t stress this but he should have) industrial planning and coordination, and in fact strict capital controls until they were forced to relinquish them in the last few years. Stieglitz also mentions, though he doesn? t go into it, that the rich countries, every one of them - from England on through the United States up to the present, every single one of them had followed a somewhat similar path, actually far more so than the World Bank has yet acknowledged. Another big topic I can? t go into, but an interesting one and again worth keeping in mind.
Well what has happened since the Bretton Woods system essentially collapsed in the early 1970s? It did end the golden age of post-war state capitalism. Just focusing on the rich countries, primarily the United states and Britain, although it happens to others in various degrees in an integrated economy, over the rich countries as a whole, the growth of the economy and the growth of productivity have slowed very markedly. Actually, contrary to what you read, trade also slowed, if you look closely, in the United States specifically and England. Incomes stagnated or declined throughout this period for the great majority of the population working conditions deteriorated, social services have been significantly cut, infrastructure is in serious danger with very little required public spending, the welfare state has significantly eroded. (End of side one)

? There has also been a closely correlated, dramatic increase in incarceration. It? s closely correlated because a large part of the society is just becoming superfluous for wealth formation. In an uncivilized society you send out the death squads to kill them in a civilized society you throw them in jail. Since 1980, when this system really took shape, when it was in place, at that time incarceration rates in the United States were roughly like that of other industrial countries, kind of at the high end but not off the scale, and so crime rates in the United States are not unusually high, contrary to what you read. Again they? re sort of toward the high end but not unusual, with one exception namely, killing with guns. But that? s a separate matter that has to do with laws, cultural patterns and so on, it doesn? t have anything to do with crime. And that remains the case. In fact, crime rates have declined since 1980, but the incarceration has gone way up . I think it? s a direct reflection of the inequality and the need for social control. It tripled in the 1980s and it? s been rising very fast through the 1990s it? s now five to 10 times as high as other industrial societies. In fact the U.S. is world champion in imprisoning its population, at least among countries where there is any minimally reliable statistics. If you take the prison population into account, that adds another two per cent to the unemployment rate, which places the U.S. squarely in the middle of the European level. Actually, even without that it? s not at the bottom, believe it or not, it? s about 30 per cent. Of course, you have to decide what you? re talking about if you count in prison labor, which is not trivial, and very good for folks like Boeing Aircraft and AT & T and others (a terrific work force), if you count them in, then of course the unemployment figures change again. Anyhow these two parallel developments have been going on and I think have integrated.
Throughout the same period profits have soared, particularly in the 1990s. The current jitters on Wall Street have to do with the concern that there may be an end to what for the last couple of years the business press has been calling this stupendous and dazzling and extraordinary growth of profits. They? ve run out of adjectives and they may now be worried that the facts are ending too. There has been an astronomical increase in capital flows, a huge increase, mostly very short term. About 80 per cent now is estimated to have a round trip -- it goes out and back, in a period of a week or less, often hours or even minutes. That means it? s virtually unrelated to the real economy, to trade and investment. In fact, current estimates are that about five per cent of the roughly trillion and a half-dollar per day capital flow is related to the real economy. The rest is speculative. If you go back to 1970, the figures were essentially reversed. It was about 90 per cent of a much smaller sum was related to the real economy and maybe 10 per cent was speculative. It? s also based very heavily on extensive borrowing it? s highly leveraged, in the jargon, and that? s a factor that accelerates something which is often also ... oops? whoever owns these microphones is going to have a problem. Ignore them? OK. Happy to ignore microphones all the time.

This high borrowing, this highly leveraged character of investment, which is something new, incidentally (a lot of things are old but this is new), that? s accelerating the irrationality of financial markets. They? ve become much more volatile and unpredictable there have been wildly fluctuating exchange rates related to speculative flows and there have been increasing financial crises. The IMF recently did a study of the period 1980-1995, a 15-year period, and it found that about 80 per cent of its roughly 180 members had had one or more banking crises, ranging from significant to quite serious. Again, that wouldn? t have surprised Keynes and White or any of the framers of Bretton Woods, or the economists? thinking behind them.
In the same period, again in conformity with their thinking, has been an assault, an attack on free markets, a sustained assault on free markets, to quote the head of economic research of the World Trade Organization, in a major technical study. That was led by the Reaganites. They were talking free markets for the poor but doing something else for the rich. This analyst, Patrick Low, estimates the effect of Reaganite protectionist measures at about three times as high as those of the other industrial countries which were bad enough. Well again, that? s what was expected. During the Reagan years, lots of lofty rhetoric but protection was virtually doubled. The public subsidy, which is another violation of free trade principle, was increased, bailouts increased, both for domestic banks and international banks. In the Untied States - it? s happened throughout the world but mostly in the United States - In the United states the goal was to somehow overcome very serious management failures that were leading to a decline of U.S. industry and were a matter of great concern at the time. Those of you who read the business press remember a lot of discussion and concern about the need to reindustrialize America. American industry was collapsing, mostly because of management failures. The Pentagon was called in to fill its traditional role to do something about this problem. (That? s actually a role that goes back to the early 19th century before there was a pentagon.) The pentagon was called in to develop a program under Carter which was greatly extended under Reagan, to design what was called the factory of the future, based on lean production and automation and other developments in which the American management had fallen way behind and then to hand it over to industry as a gift. The purpose was to save central components of the industrial system from mainly Japanese competition, which was wiping it out, and to place them in a position to dominate the emerging technologies and markets of the next era. The Internet and information technology, generally, are rather dramatic examples of this but not the only one.

All of this continues under Clinton, alongside the free market rhetoric. Radical interference with free trade is standard when convenient. And it? s across the spectrum. So Mexican tomatoes were effectively barred from the U.S. market, as was openly stated, because U.S. consumers prefer them and they were undercutting Florida growers, sort of at the other end of the trading spectrum. High tariffs were a couple of months ago introduced on Japanese supercomputers to protect U.S. manufacturers like Cray Enterprises, which is called private enterprise I guess because the profits are privatized. (The markets are public and much of the technology and funding is public as well but the profits are private.)

If you want to see the real meaning of free trade and neo-liberalism in its cruelest form, just take a look at the relation between the richest and the poorest country of the hemisphere - the United States and Haiti. Haiti was forced to liberalize radically as a condition on terminating the terror and torture of the coup (?) regime, which was pretty awful - I was there at the time, but you didn? t have to be there to know it. The cost of liberalization is quite severe. One effect is that Haitian rice production, one of their few potential economic strengths has been seriously harmed and virtually destroyed because it is now competing with US agri-business, which is crazy to begin with, and even crazier when you recognize that 40 per cent of its profits come from government subsidies, thanks to Reaganite contributions to free trade. Recently, the United States has started dumping chicken parts in Haiti, undermining another. The reason is that American consumers don? t like dark meat, so the producers, these big factory farms, have a lot of extra dark meat, so why not dump it on Haiti? We? re to wipe out one of the few hopeful enterprises that had developed there. They can? t dump it on Canada because Canada has huge tariffs to block that kind of behavior. Haitian tariffs are forced to be, I think, roughly one-fiftieth of what Canada? s are, same with the Dominican Republic and Jamaica, but Haiti has to liberalize.

Just within the last few days, U.S. steel manufacturers have been demanding that the U.S. government force Japan and Russia to cut back steel imports into the United States they are particularly worried about Japan because it? s high quality steel, which is undercutting them. And probably they will. The U.S. has instruments to do that. Super 301 it? s called you threaten to close off the market to a country and if they don? t do it you tell them. And of course Haiti, since it? s a free and equal world, Haiti has the same instrument they could object to U.S. dumping of chicken parts by threatening to close off Haitian markets to U.S. exporters, just as the U.S. can do, so it? s all free and equal. Well, that? s free trade.

Without going on with that, for the Third World generally, given the relations of force, the post-Bretton Woods era, the last 25 years, have been pretty much a disaster. Some have escaped, mainly by not playing by the rules the way the rich countries have done. Russia is a dramatic example since it returned itself to the traditional Third World role about 10 years ago. Well, there? s a standard picture about all of this for the United States. The standard picture is that the United States has a fairy tale economy, that Americans are smug and prosperous in the happy glow of the American boom, there? s a fat and happy America enjoying one of the healthiest booms in American history - these are all quotes from front page headlines in the New York times, fairly typical. They all give an example, the same example, up until this summer at least the example was the stock market, and it indeed is a fairy tale, especially for the top one per cent of households who own about half the stock and other assets, and to some extent for the 10 per cent who own most of the rest. Well, what about the next 10 per cent, you know the 80th to the 90th percentile, right below the top ten per cent? What about them? Well for them their net worth has declined in the 1990s for the reason that debt, which is enormous, has increased faster than the growth of stock and other assets. And it just gets worse as you go down. Eighty per cent of families work a lot more hours just to keep from losing even more ground they have not yet recovered the levels of 1989, let alone (that? s comparable stage of the last business cycle), let alone 1973 - that? s when the new economy really began to take hold.

All of this is without precedent in American history. It? s never happened before. It? s the first time that during an economic recovery that these were the consequences you can? t even catch up to where you began for a large majority of the population. As far as economic growth is concerned during this fairy tale boom, it? s roughly at the average for the OECD, the rich countries as far as growth of per capita income is concerned, it? s below the OECD average - it? s actually roughly like the anemic ? 70s and ? 80s and nowhere near the golden age. But it? s a fairy tale for some and those are the ones who tell us about it. Those are the Americans who are smug and happy, the rest are some other thing.

The reason for the fairy tale is in fact frankly explained, for example by Allan Greenspan, fed chair. He attributes it to what he calls significant wage restraint and greater worker insecurity. The Clinton administration in its economic report attributes it to salutary changes in labour market institutions, which is a delicate way of saying the same thing. The business world agrees. If you look at the business press, they point out that workers are too intimidated to seek some share in the good times. Just this week Business Week reported studies showing that 60 per cent of workers are very concerned about job security for working people and 30 per cent are somewhat concerned. When 90 per cent of the work force are insecure, that helps keep profits up and inflation low enough to please the financial institutions, so it? s a fairy tale economy. Well, there are a lot of reasons for this. One reason is simply the threat of job transfer if people raise their heads another is the destruction of unions, which really took off during the Reagan years by straight corporate crime which was authorized by the Reagan administration -- again the business press has been clear and frank about this.

These are specific social and economic policies designed to keep things this way that includes the investor rights agreements. That? s a long story in itself, as you should know, or if you don? t you should quickly find out. The OECD, the rich countries, are seeking to ram through the Multilateral Agreement on Investments, the sort of super investor rights agreement, in October. (You ought to know it because Canada has been unique in that there has been substantial public opposition to this.) They? re planning to do it in October, in secret if they can they? ve been trying to do it in secret for a long time. They failed last April and that caused near panic in business circles - it? s worth looking at. The Financial Times in London, sort of the world? s premier business daily, had an agonized article after they failed about what they called the horde of vigilantes who descended on the OECD countries and the corporate world were totally helpless in the face of this massive assault by Maude Barlow and such, and they had to collapse. You really have to read it to get a picture of the panic. It also quoted trade diplomats who warned that unless this crisis of democracy is overcome, I? m quoting now, it may become harder to do deals behind closed doors and submit them for rubber-stamping by parliaments, as in the good old days. Well, that tells you very clearly what it? s all about. It? s again the hazard-facing - the corporate sector - in the rising political power of the masses, that? s been frightening rich and powerful people ever since the first modern democratic upsurge in 17th century England.

Well, there? s a ton more to say about this but it? s getting late so let me just end. Question Is this globalized economy really out of control? Well it? s very hard to believe that. It? s a large majority of the exchanges, the international exchanges, are within what? s called the triad - North America, Europe and Japan. These are all areas that have parliamentary institutions, they don? t have any fear of military coups, which means what? s going on is in principle subject to public policy decisions and can be made in practice so as well. And well beyond that - that? s all within existing institutions, assuming existing institutions don? t change at all - but that? s a pretty strong assumption. No one should have ever made it in the past, certainly, and there? s no particular reason to believe that some magic moment has come. In general, institutions are not self-legitimizing - they? ve got to legitimize themselves. We live in a world which is largely dominated by unaccountable private tyrannies and they have to justify themselves. They are not automatically self-justifying. When they were created in the United States by radical judicial activism early in this century, conservatives, (who used to exist, they don? t anymore except in name) bitterly condemned this change which they saw as a major attack on classical liberal ideas and fundamental theories of human rights. They condemned it actually as a form of communism and a return to feudalism, which was not totally inaccurate.
Anyhow, the institutions are not self-legitimizing. They are internally tyrannical, they are unaccountable to the public, they administer markets through their internal operations and through strategic alliances with alleged competitors, they are backed by powerful states which provide subsidies and risk protection and bailouts if needed, and so on. And there? s a question as to whether those institutional arrangements are necessary and appropriate, a very serious question. It? s entirely natural for the doctrinal institutions to try to direct the public attention somewhere else (in fact it would be astonishing if that were not true) to direct attention away from crucial issues and also to try to induce a general mood of hopelessness and despair - what Linda McQuaig in a recent book on Canada, a good book on Canada, calls the Cult of Impotence, she? s describing how it works here -- and to drive people towards individual survival strategies. Makes a lot of sense to try to do all that. It? s understandable and understanding it can be liberating, as always it can liberate people to design and follow, if they choose, very different paths. These may well involve, and in my opinion should involve, dissolving centres of unaccountable power, extending democratic arrangements well beyond to central parts of the society from which they are excluded, and may make it possible to address in a serious way the injustice and the needless suffering that defaces contemporary life and to demonstrate that the human species is not a kind of lethal mutation which is destined to destroy itself and much else in a flick of an eye, from an evolutionary point of view. That is not a completely unlikely prospect, in my opinion, under prevailing conditions of social life.
Neoliberalism and Global Order

I would like to discuss each of the topics mentioned in the title neoliberalism and global order. The issues are of great human significance and not very well understood. To deal with them sensibly, we have to begin by separating doctrine from reality. We often discover a considerable gap.
The term ? ? neoliberalism? suggests a system of principles that is both new and based on classical liberal ideas Adam Smith is revered as the patron saint. The doctrinal system is also known as the ? ? Washington consensus,? which suggests something about global order. A closer look shows that the suggestion about global order is fairly accurate, but not the rest. The doctrines are not new, and the basic assumptions are far from those that have animated the liberal tradition since the Enlightenment.

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 class analysis.

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 capitalist system.? Haines is concerned with what he calls ? ? the Americanization of Brazil,? but only as a special case. And his words are accurate enough.
The United States had been the world? s major economy long before World War II, and during the war it prospered while its rivals were severely weakened. The state-coordinated wartime economy was at last able to overcome the Great Depression. By the war? s end, the United States had half of the world? s wealth and a position of power without historical precedent. Naturally, the principal architects of policy intended to use this power to design a global system in their interests.

High-level documents describe the primary threat to these interests, particularly in Latin America, as ? ? radical? and ? ? nationalistic regimes? that are responsive to popular pressures for ? ? immediate improvement in the low living standards of the masses? and development for domestic needs. These tendencies conflict with the demand for ? ? a political and economic climate conducive to private investment,? with adequate repatriation of profits and ? ? protection of our raw materials? -ours, even if located somewhere else. For such reasons, the influential planner George Kennan advised that we should ? ? cease to talk about vague and unreal objectives such as human rights, the raising of the living standards, and democratization? and must ? ? deal in straight power concepts,? not ? ? hampered by idealistic slogans? about ? ? altruism and world-benefaction? - though such slogans are fine, in fact obligatory, in public discourse.

I am quoting the secret record, available now in principle, though largely unknown to the general public or the intellectual community.
? ? Radical nationalism? is intolerable in itself, but it also poses a broader ? ? threat to stability,? another phrase with a special meaning. As Washington prepared to overthrow Guatemala? s first democratic government in 1954, a State Department official warned that Guatemala had ? ? become an increasing threat to the stability of Honduras and El Salvador. Its agrarian reform is a powerful propaganda weapon its broad social program of aiding the workers and peasants in a victorious struggle against the upper classes and large foreign enterprises has a strong appeal to the populations of Central American neighbors where similar conditions prevail.? ? ? Stability? means security for ? ? the upper classes and large foreign enterprises,? whose welfare must be preserved.

Such threats to the ? ? welfare of the world capitalist system? justify terror and subversion to restore ? ? stability.? One of the first tasks of the CIA was to take part in the large-scale effort to undermine democracy in Italy in 1948, when it was feared that elections might come out the wrong way direct military intervention was planned if the subversion failed. These are described as efforts ? ? to stabilize Italy.? It is even possible to ? ? destabilize? to achieve ? ? stability.? Thus the editor of the quasi-official journal Foreign Affairs explains that Washington had to ? ? destabilize a freely elected Marxist government in Chile? because ? ? we were determined to seek stability.? With a proper education, one can overcome the apparent contradiction.

Nationalist regimes that threaten ? ? stability? are sometimes called ? ? rotten apples? that might ? ? spoil the barrel,? or ? ? viruses? that might ? ? infect? others. Italy in 1948 is one example. Twenty-five years later, Henry Kissinger described Chile as a ? ? virus? that might send the wrong messages about possibilities for social change, infecting others as far as Italy, still not ? ? stable? even after years of major CIA programs to subvert Italian democracy. Viruses have to be destroyed and others protected from infection for both tasks, violence is often the most efficient means, leaving a gruesome trail of slaughter, terror, torture, and devastation.

In secret postwar planning, each part of the world was assigned its specific role. Thus the ? ? major function? of Southeast Asia was to provide raw materials for the industrial powers. Africa was to be ? ? exploited? by Europe for its own recovery. And so on, through the world.

In Latin America, Washington expected to be able to implement the Monroe Doctrine, but again in a special sense. President Wilson, famous for his idealism and high moral principles, agreed in secret that ? ? in its advocacy of the Monroe Doctrine the United States considers its own interests.? The interests of Latin Americans are merely ? ? incidental,? not our concern. He recognized that ? ? this may seem based on selfishness alone,? but held that the doctrine ? ? had no higher or more generous motive.? The United States sought to displace its traditional rivals, England and France, and establish a regional alliance under its control that was to stand apart from the world system, in which such arrangements were not to be permitted.

The ? ? functions? of Latin America were clarified at a hemispheric conference in February 1945, where Washington proposed an ? ? Economic Charter of the Americas? that would eliminate economic nationalism ? ? in all its forms.? Washington planners understood that it would not be easy to impose this principle. State Department documents warned that Latin Americans prefer ? ? policies designed to bring about a broader distribution of wealth and to raise the standard of living of the masses,? and are ? ? convinced that the first beneficiaries of the development of a country? s resources should be the people of that country.? These ideas are unacceptable the ? ? first beneficiaries? of a country? s resources are U.S. investors, while Latin America fulfills its service function without unreasonable concerns about general welfare or ? ? excessive industrial development? that might infringe on U.S. interests.

The position of the United States prevailed, though not without problems in the years that followed, addressed by means I need not review.
As Europe and Japan recovered from wartime devastation, world order shifted to a tripolar pattern. The United States has retained its dominant role, though new challenges are arising, including European and East Asian competition in South America. The most important changes took place twenty-five years ago, when the Nixon Administration dismantled the postwar global economic system, within which the United States was, in effect, the world? s banker, a role it could no longer sustain. This unilateral act (to be sure, with the cooperation of other powers) led to a huge explosion of unregulated capital flows. Still more striking is the shift in the composition of the flow of capital. In 1971, 90 percent of international financial transactions were related to the real economy-trade or long-term investment-and 10 percent were speculative. By 1990 the percentages were reversed, and by 1995 about 95 percent of the vastly greater sums were speculative, with daily flows regularly exceeding the combined foreign exchange reserves of the seven biggest industrial powers, over $1 trillion a day, and very short-term about 80 percent with round trips of a week or less.

Prominent economists warned over 20 years ago that the process would lead to a low-growth, low-wage economy, and suggested fairly simple measures that might prevent these consequences. But the principal architects of the Washington consensus preferred the predictable effects, including very high profits. These effects were augmented by the (short-term) sharp rise in oil prices and the telecommunications revolution, both related to the huge state sector of the U.S. economy, to which I will return.

The so-called ? ? Communist? states were outside this global system. By the 1970s China was being reintegrated into it. The Soviet economy began to stagnate in the 1960s, and the whole rotten edifice collapsed twenty years later. The region is largely returning to its earlier status. Sectors that were part of the West are rejoining it, while most of the region is returning to its traditional service role, largely under the rule of former Communist bureaucrats and other local associates of foreign enterprises, along with criminal syndicates. The pattern is familiar in the third world, as are the outcomes. In Russia alone, a UNICEF inquiry in 1993 estimated that a half-million extra deaths a year result from the neoliberal ? ? reforms,? which it generally supports. Russia? s social policy chief recently estimated that 25 percent of the population has fallen below subsistence levels, while the new rulers have gained enormous wealth, again the familiar pattern of Western dependencies.

Also familiar are the effects of the large-scale violence undertaken to ensure the ? ? welfare of the world capitalist system.? A recent Jesuit conference in San Salvador pointed out that over time, the ? ? culture of terror domesticates the expectations of the majority.? People may no longer even think about ? ? alternatives different from those of the powerful,? who describe the outcome as a grand victory for freedom and democracy.
These are some of the contours of the global order within which the Washington consensus has been forged.

The Novelty of Neoliberalism
Let us look more closely at the novelty of neoliberalism. A good place to start is a recent publication of the Royal Institute of International Affairs in London, with survey articles on major issues and policies. One is devoted to the economics of development. The author, Paul Krugman, is a prominent figure in the field. He makes five central points, which bear directly on our question.

First, knowledge about economic development is very limited. For the United States, for example, two-thirds of the rise in per capita income is unexplained. Similarly, the Asian success stories have followed paths that surely do not conform to what ? ? current orthodoxy says are the key to growth,? Krugman points out. He recommends ? ? humility? in policy formation, and caution about ? ? sweeping generalizations.?
His second point is that conclusions with little basis are constantly put forth and provide the doctrinal support for policy the Washington consensus is a case in point.

His third point is that the ? ? conventional wisdom? is unstable, regularly shifting to something else, perhaps the opposite of the latest phase-though its proponents are again full of confidence as they impose the new orthodoxy.

His fourth point is that in retrospect, it is commonly agreed that the economic development policies did not ? ? serve their expressed goal? and were based on ? ? bad ideas.?

Lastly, Krugman remarks, it is usually ? ? argued that bad ideas flourish because they are in the interest of powerful groups. Without doubt that happens.?

That it happens has been a commonplace at least since Adam Smith. And it happens with impressive consistency, even in the rich countries, though it is the third world that provides the cruelest record.

That is the heart of the matter. The ? ? bad ideas? may not serve the ? ? expressed goals,? but they typically turn out to be very good ideas for their principal architects. 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 recal 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 t