The Chains of Globalization: How Corporate Power Is Dismantling Democracies And Impoverishing The Third-World

by Michael

This essay is primarily a primer on six works by three authors I have been reading in the past few weeks. These are the economists Ha-Joon Chang and Joseph Stiglitz, as well as political commentator Noam Chomsky. These three have an overlapping view of how the present economic and political system works, giving a critical and cynical look at those who hold power within our society. Much of the content has been taken from scatterings found throughout their works.

There are substantial differences between capitalism in actual practice and as a theoretical and ideological belief.  By capitalism I do not mean the mechanisms of exchange nor is it the system of entrepreneurship. Further capitalism is quite varied as the practice of tech companies whose profit has been in beneficial inventions compared to banks that engage in predatory lending and rent-seeking are not equivalent[1]. The question is on power, on who controls political and economic power domestically and abroad. This of course extends to who has power over the material prize of third world resources.

In previous state-economic systems, joint stock companies of the mercantilist states in the 16th and 17th century came to dominate the political power, just as control over land and serfs in feudal societies gave the nobility political control. In today’s world, corporate power has come to dominate state power. Today’s capitalism must be understood therefore as a state-corporate enterprise which maintains political and economic domination over democratic society.

Government intervention runs deep in capitalist history, as virtually all industrialized nations had pursued protectionist and statist measures in order to industrialize. The industrial revolution in Britain had first required intervention to create labor markets, as well as military force to destroy competition in India and Ireland[2].  State intervention includes the enormous wall of tariffs and capital control that made the United States the economic superpower by the end of WW2, and the state-managed industrialization of the Newly Industrialized Economies.

Though in recent years, the free-market has been said to have replaced state capitalism, this in actual practice remains far from the truth. Domestically, neoliberalism has only been applied to labor and social programs in the naive belief that marketization yielded benefits, despite Reagan having ramped up protectionism and Keynesian (where states maintain economic growth) military spending[3]. With neoliberalism, the third-world has been brought home with declining incomes for perhaps two-thirds of the population as well as drastic declines in social services, though that is a topic for another day.

The subject of this essay will be on the power systems the industrialized nations use to maintain control over the third world. The standard policy towards the third world by the industrialized nations has been to create and maintain opportunities for plunder, otherwise known as favorable atmospheres for trade and investment. Under the veneer of neoliberal ideology, the World Trade Organization, the World Bank and the International Monetary Fund has operated as the truncheons used to carry out political intervention in favor of corporations, more specifically the so-called transnational corporations. The UN Human Development Program report in 1992 attributed the rise in inequality between the Rich and Poor nations as largely due to the IMF and the World Bank, working for the rich nations. Upwards of $21 billion dollars per year are transferred from the third world to first-world nations as of 1992 writes The Economist. The consequences of this are that as much as 14 million children die per year due to servicing external debt, as I will later discuss why in greater detail.

While the poor nations are pushed to pursue free-market policies the wealthy nations remains as protectionist as ever[4].Trans-national corporations, which were supposed to embody this free-market design, still maintain most manufacturing at home on average about 70-80% of manufacturing remains at home in the industrialized nations, and ownership and management are usually confined to a home country. What has been described as transnational has primarily consisted of dominating other economies[5].

Democracy in Actual Practice

      The actions carried out in favor of investors and economic actors, are done so in secrecy from the democratic majority which for the most part instinctively opposes these policies. Because of the pervasive influence of money, democracy has yet to fully be realized in most so-called democratic states[6]. As political scientist Walter Lippmann observed, democratic governments has always been the control of the democratic majority by a gentry of ambitious political and economic leaders. He believes this is necessary to crush the public opinion of the majority, which is disparaged as chaotic and idiotic, through upholding the power of the “minority of the opulent”. On the world stage, Winston Churchill observes that this gentry must behave like “rich men dwelling at peace within their habitations” by keeping power away from the “hungry nations” and place it in the hands of the “satisfied nations”. I must add that these “rich men” are not individuals; rather they exist as institutions with singular objectives. In the case of elite-run governments it is the maximization of power to carry out their objectives, in the case of corporations which run them, in the pursuit of profits.

By no stretch is actual democracy a farce in capitalist democracy, rather it has been the greatest obstacle to the absolute tyranny of corporations. If one looks at history, the emergence of the modern democratic and arguably socialist state has been as a reaction by the most affected against the disastrous effects of capitalism[7] (Karl Polanyi’s The Great Transformation is an excellent insight into this). Throughout the 19th century, voting rights have only extended gradually, from only the elites towards the middle-class and landless and eventually to women. The fear was that people would vote for redistribution of resources.

Labour activists, environmental activists and human-rights activists have wielded the only means they possess, popular conscience, against the moneyed power of capitalist institutions which usually opposed these democratizing tendencies.  With further knowledge of other countries and other areas, this popular activism has often turned to the improvement of rights and conditions of the most disenfranchised people in the world. Indeed one of the great advances in human civilization has been the realization of the miserable conditions of millions and the need to alleviate their suffering, as many technological and medical advances, NGOs and charities and so-on bear testament to. Our dominant power systems and its hierarchical institutions (both governmental and economic institutions) however do not operate in such a manner and in fact works against this very human morality as I will now discuss.

Capitalism’s Great Leap Forward

       As I have mentioned earlier, at the end of the 1980s, UNICEF had published a report condemning financial institutions and first-world nations for the deaths of nearly 14 million children annually due to servicing national debt. This did not improve much as decade later it was reported that roughly 13 dollars are repaid in debts for every dollar of aid given and a comparable number of deaths occurred as well. Many will rightly condemn communism for the Holodomor and the Great Leap Forward and other such crimes, few however are willing to condemn international capitalism for its routine human death toll. On average roughly a third of government tax revenue is taken to repay that colossal debt of the third world, cutting spending towards health-care, education, and social expenses.

Beginning in the 1960s and 1970s, financial institutions saw a profitable opportunity to lend to third-world elites cheap short term loans. What these funds were used for were often stolen by elites in the Third World, many either were installed by or had considerable support from the governments of the West[8]. The short-term nature of these loans meant that long-term development in addition would not work. When these leaders were overthrown or replaced, the debt burden still remained with the poor.  Bankruptcy did not discharge debts as it would in our society, so it had to be extracted somehow.

The International Monetary Fund and the World Bank came to the rescue of these indebted nations by offering loans. They did so at an enormous cost for these societies, as they placed preconditions for these loans. These preconditions were often to roll-back subsidization and development programs such as agricultural subsidies, cut spending which would have long-term payoffs but which have little short-term use such as supporting infant industries, and quite routinely cutting back medical, education and social expenses. Alongside that, opening up markets to foreign investors and removing tariffs and protection for domestic producers were a part of this loan package.

It is without saying that these policies were quite profitable. Before the debt crisis and structural adjustment by the IMF, Brazil and several other Latin American nations had achieved the same rate of growth as the now industrialized countries in Asia[9]. Moreover, Latin America’s literacy rate was on average 12% higher, providing better growth conditions. Market reform under IMF auspices however quickly broke the growth rate, all the while enriching banks in the rich nations. Within the first five years of structural adjustment in Latin America an estimated $150 billion dollars were transferred to the West and as much as $170 billion of capital flight went to banks in the rich nations. This is just one illustration of what generally occurred in Africa and Asia as well. In Africa, the IMF and World Bank had helped to effectively re-colonize the continent and stagnating Africa’s growth until the present day as I will later discuss. At the end of the debt crisis the elites of these nations made off wealthier or untouched and leaving the suffering to the poor.

This would be a revolution in the management of the international economic system. Structural adjustment has been the most pronounced advice given to developing nations by the International Monetary Fund in recent years, though no-longer justified by the need to repay debts. Rather it is justified as ways to maintain growth and to facilitate foreign investment in what is referred to as neoliberal economics. These organizations saw quite clearly the best tactics to facilitate free-trade.

The Unholy Trinity

      The three organizations which today facilitate and control the world economy in the interests of the rich nations are the so-called “unholy trinity”, the World Bank, the International Monetary Fund and the World Trade organization. Though the IMF and World Bank had different functions prior to the 1982 debt crisis, the debt crisis had given them a new found role and purpose. As funding comes from the rich nations, these organizations ended up serving the imperialistic interests of the wealthy industrialized countries.

The IMF and World Bank (which largely serves the same function, the World Bank being second to the IMF) today functions to pry open third-world markets, facilitating the great process of globalization through what is known as structural adjustment programs. Driven by a fanatical and very-much deluded belief in market-based development, the economic advisors of the IMF and World Bank are keen to preach the benefits of “limited government”, meaning limited democratic or national control. This would mean opening up capital and trade markets, and reducing tariffs and subsidies to domestic producers in an effort to remain “fair” as well as rolling back government social spending to prevent inflation. These are of course all policies which the industrialized nations do not follow, and which keeps the developing nations undeveloped. For a further look at this, refer to Bad Samaritans by Ha-Joon Chang.

The effects of their practices remain quite dire, as one meeting of prominent NGOs had concluded the structural adjustment programs have brought disaster on the working poor of as many as 100 countries, while the wealthy nations retain their subsidies and tariffs. Reaching beyond Africa, Asia and Latin America, the IMF and World Bank had by now extended its practices into the newly democratic Eastern bloc, and with the backing of the European Community (the direct precursor to the EU) introduced market reforms into these formerly communist nations throughout the 1990s. This would result in near double digit annual economic decline throughout the decade, and economic collapse in several nations[10]. Productivity declined, social services were rolled back, while former communist party members with the backing of West bought up the remaining industries. Though democracy made huge progress, economically it had been contained.

The World Trade Organization has served as the governing body to arbitrate trade and to establish equal conditions of trade. It comes as little surprise that this body largely favors the interests of transnational corporations against that of nations seeking to regulate their activities, such as for example environmental concern or social concern. This organization however, wields little power outside of the states which run them. As such, the industrialized economies as well as large developing nations such as Brazil, China and India, routinely flout WTO policies were it does not suit them. In addition, negotiations concerning policies of the WTO are largely designed in the “green room” meetings; invitation-only meetings are held by the powerful developing nations and the already developed nations.

The WTO indeed functions more so as a channel for the rich nations as well as companies to dictate the trade policies of the poor nations. One example of this is the debate over the Uruguay Round of the World Trade Organization, which was to remove agricultural barriers of trade. This had effectively broken down over continued subsidization of the rich nations over their agriculture industries and the refusal of the poorer nations to dismantle theirs.

The Re-colonization of Africa

      In the periods following the great wave of decolonization in Africa, economic policies aided by the rising tide of nationalism led to growth rates comparable to Europe during its industrialization period in the 1800s. After two centuries of economic exploitation, during the 1960s the African nations finally threw off the shackles of colonialism. This would not last long, as it bore the direct brunt of structural adjustment beginning in the late 1970s. Why this was brought about was the need to restore an opportunity for investment and trade for the colonizing powers. Structural adjustment meant to minimize the role of government spending and laws such as rolling back social, health, and education spending while enacting laws favorable to corporations which would fill the void. Plans to develop and export certain crops fell through, as governments quickly removed fertilizer and industrial subsidization.  Restrictions on tariffs as well as capital and property control were removed, and so mineral resources were quickly bought up by mining corporations.

The IMF and the World Bank is said to have virtually ran the economies of many African nations in the service of multinational corporations throughout the following three decades and up to today. Structural adjustments were often justified with idea that it would attract foreign investment and lead to technology transfers, ultimately leading to growth and development. None of this of course happened. What did happen was that economic growth rates collapsed, and in many cases social and political development would have regressed. Business interests had a free-hand to plunder its former colonies once again.

One particularly notorious episode was the mining operations maintained during what is known as the “Great War of Africa”. After the crimes of the Rwandan Genocide was being freshly reported, a year later Western nations had provided political and military support for forces committing even greater atrocities right across the border in the Congo. Nearly all leaders involved received support from the industrialized nation, both military-aid and political.

The objective of the West here, specifically the former colonial masters Belgium and France alongside the United States, was to maintain a favorable atmosphere for transnational mining. So goes the standard objective, to provide a favorable climate for investors and corporations. It comes with little surprise that Africa’s worse wars were supported and fueled by the West, a fact barely reported by corporate media. In the midst of atrocities, mining executives had flocked to the Congo in order to ensure brutal leaders with a flow in cash. This is however a two-fold effect. Profits from mining would be used to facilitate arms transfers, with arms totaling nearly $1.5 billion to the Congo.

The presence of these international organizations in Africa remains to this day; a prominent case of their practices was seen in the 2002 famine in Malawi. Before the IMF pushed for structural adjustment, the nation had been producing a grain surplus with fertilizer subsidies and social investment. However, the IMF ordered the nation to sell off their grain stocks and end their subsidization, resulting in famines across the country.

For more information on the present economic circumstances of Africa, and how Western mining corporations and international organizations continue to undermine development and the African political base, refer to this book  and this lecture on the same topic.

The Chickens Have Come Home

      The sordid tale of international capitalism does not end in woe however. Latin America has in the past decade, carved its own path and asserted its own political and economic independence. Through what is referred to as the “Pink Tide’ sweeping the region, populist governments have arisen throughout and nationalized foreign-owned resources. Two factors seemingly have brought about the transition. First is the weakened role of the United States in intervening against governments throughout, such as the failure of the CIA to carry out a coup in Venezuela back in 2002. Latin Americans have demonstrated they would no longer accept US-sponsored death squads and dictators of the Reagan era and openly shunning the Bush Administration (often seen as the continuation of the Reagan era) from intergovernmental meetings.

The Washington Consensus (an economic program built upon neoliberalism) designed to maintain economic domination by corporations over the region, has now been near-totally rejected. When Argentina was hit with an inflation crisis, partially caused by the privatization of social security as prescribed by the IMF, it had pursued the standard policy of austerity, cutbacks and budget balance. This in turn caused even deeper debts as unemployment and poverty soared, but which allowed for creditor repayments.  However popular unrest had sprung out and Argentina kicked the IMF out, created a new currency, renegotiated its debt with creditor banks, and re-implemented cut social programs. With these policies, it would achieve its fastest growth-rates ever, setting a development model rejecting the prescriptions of the powerful. At the same time it must be noted that these are the exact models which the industrialized hypocritically pursued.

Whereas neoliberalism leaves Latin America it enters Europe, as the same inflation-prevention and budget balancing program has eviscerated Southern and Eastern European economies in the last few years. The President of the European Central Bank Mario Draghi had commented that “the European social model”, the democratic welfare built on decades of popular organization, is over and instead will be replaced by the neoliberal policies already in place in the third world, and one now dismantling Greece. A rare slip by the largely undemocratic European Union.

The European Central Bank continues to force Greece, the Baltic States, now Cyprus and perhaps Spain and Italy to adopt the same policies given to the indebted nations of the past. The IMF remains deluded to their actions, as IMF president Christine Lagarde commented how Latvia’s modest growth showed the success of austerity. Little is said of the near 20% economic contraction and a migration of ten percent of its labor force following austerity measures.

Despite clear majorities in these nations rejecting such measures, and the majority of Greeks (alongside Germans, Scandinavians and others) publically calling for Greece to abandon the Euro, the political establishment has prevented it from doing so. By implementing its IMF loan packages, Greece is now deeper into debt, with the addition of unemployment and rolled-back social services. There is considerable fear that Greece’s withdrawal would mean it could adopt the Argentine model of growth, and prompt other Southern European(which do not provide state support for their companies as strongly as the North does) countries to leave the Euro. One among many facts of why Greece has been chained by the EU.

Conclusions

      The fundamental tenant of economics, that man is inherently self-interested and rational, perhaps is quite true when speaking of political and economic power. An Adam Smith quote frequently quoted by Noam Chomsky, comments that the “most ancient evil” has been the “vile maxim of the masters of mankind” which is to seek “all for ourselves and nothing for other people”. The merchants and manufacturers in cahoots with political power, seek their own gains. The great injustice suffered by the third-world, as necessitated by the greed of the masters of mankind, and now placed upon the people of the first-world, bear testament to this fact.

Ordinary people are very much capable of suppressing their self-interest, as the evolution towards social groups and societies necessitated altruistic and selfless values and behavior if groups were to survive. It comes as no surprise that values built upon equality and fairness for all members, comes instinctively to most people just as the capacity for violence against out-groups may also be. Power-structures detached from society however operate in a void of these human tendencies. There is no reason to suppose a corporation or a political leader will act for the benefit of complete strangers unless those complete strangers use their own power to compel them to. The dispersal of power into the hands of many will mean that injustice will not be inflicted on the many, and thus many movements in recent years have sprung up to demand this.

Unrest within our own societies is still simmering as the Occupy Wall Street, Idle No More and the original Tea Party movement demonstrates. Though Occupy has been subjected to a media campaign demonizing them, or otherwise usurped into the existing power-base as the original Tea Party was (having originated as a libertarian movement but usurped by Republicans), public opinion which generally supports the aims of Occupy and some of the Tea Party aims shows the strength of their argument.

Injustice suffered by those abroad can no-longer be hidden, a consequence of the cultural and social globalization of the world amidst the economic globalization. Distrust with government power has in addition reached its peak as the latest NSA scandal demonstrates, and more and more people are waking up to the fact that democracy is not yet a full-fact of life, while progress towards it is slowly being dismantled. As history demonstrates, the step-by-step moves towards democratic tendencies are achievable however. I can do little justice for this topic, so I will point to further works on this.

Books and References

      As I have stated, much of the essay was taken from the following five sources, constructed from notes I wrote over a few weeks. In some places I have taken direct paragraphs as I have noted. These are very informative, well-written works which offers the clearest pictures of how the international system works.

One amazing work is Year 501 the Conquest Continues. Titled so since 1992 was the 501 anniversary of the discovery of the New World, and the terror of genocide and slavery which came after. This looks at the relations between the North and South and the material interests which have motivated some of history’s greater crimes against the latter, spanning again near 500 years of history condensed into two hundred pages. This focuses less so on economic history and institutions; rather it largely looks at the political facts of the world.

This can be found online at http://books.zcommunications.org/chomsky/year/year-overview.html

There is perhaps no mind like Noam Chomsky, his research standards are unusually high, as the depth and diversity of sources are remarkable and every point is neatly and precisely footnoted. This is a standard that applies to Noam Chomsky’s unprecedented 150 authored books, perhaps only matched by Aristotle in personal output. If one is further interested in the topic of imperialism and the injustices of our age, Noam Chomsky is perhaps the best single source.

Deterring Democracy is another great work. Also written at the end of the Cold War, Chomsky elucidates what the actual war was about. The Cold War was useful for the Soviets to maintain control over its puppets, much as it was for the West to do the same to the post-colonial world.  For the capitalist west, it was an attempt to contain third-world nationalism and moves towards economic and political independence. These attempts are universally derided as “communism” even as much of the evidence demonstrates that to be an absurd claim. Further it elaborates on the glossy rhetoric of human-rights and democracy that powerful exploit, despite going directly against the two. Chomsky makes it quite clear a propaganda system engaging in doublespeak and to delude people is at work.

This is also online at http://books.zcommunications.org/chomsky/dd/dd-overview.html

Cambridge economist Ha-Joon Chang’s Bad Samaritans The Myth of Free Trade and the Secret History of Capitalism was where I took most of my points on economic development from. Less intense and less radical than Chomsky, indeed his is ultimately a defense of capitalism against the supposedly capitalist corporations. Ha-Joon Chang gives a brilliant history of development, the state-capitalist model which was used by nearly all industrialized nations. Globalization has proceeded quite wrongly, weakening democracies and ultimately being disastrous for the third-world as countries give up political and economic control.

His attack on the IMF and World Bank, of which he was a former consultant, is very provocative and engaging. Indeed in our age, he points out, many economists have been quite deluded by the abstract, mathematical faith in the market. Academics which can lend credibility to the actions of the powerful (look-up the recent Reinhardt-Rogoff controversy) are given financial and political support, distorting the actual facts of economic development. These are partially why the IMF and the World Bank have not budged in their faith in the market. Hence this is why the wealthy nations act as bad Samaritans in dispensing the wrong advice and policies to the developing world.

His second book, 23 Things They Don’t Tell You About Capitalism is much less of a contained argument. Rather it looks at the prevailing rhetoric and so-called “laws” of economics, and critiques it quite thoroughly. Some of the themes of Bad Samaritans come up here, though it looks at other facts and matters of the economy. A very interesting read, and gives a wide picture of the world economy as a whole.

Former President of the World Bank turned globalization dissident-in-chief Joseph Stiglitz gives another great look at the economy. He has a very insightful, very critical look at the corporate interests which have pervaded political power. The Price of Inequality is an excellent look into the rent-seeking behavior of corporate power, and how thoroughly political power has captured the American government. The Price of Inequality teaches very valuable lessons on the economy and the amazing injustices by the banking sector in causing the 2008 financial crisis, and the even more amazing injustices afterwards. Though the Price of Inequality focuses on domestic politics and economics, Joseph Stiglitz did make his mark on the topic of globalization.

Globalization and Its Discontents, is geared towards the same general themes of Bad Samaritans. I did not look thoroughly into this book, but he does lecture frequently and his lectures generally revolve around topics found in this book. Much of the criticism of the IMF and WTO and so-on I wrote about was taken from these two sources.

Indeed Joseph Stiglitz’s commentaries on the world economy provide a very firm, very knowledgeable outlook on the world today. He, much like Ha-Joon Chang and Noam Chomsky, are motivated by the disastrous outlook of the current trends in globalization, driven by the ruthless exploits of state-backed corporate firms.

[1] Capitalism is said to derive its benefits from technological innovations. A great work on why corporations are actually damaging to innovations through patent laws and rent-seeking behavior, see Price of Inequality by Joseph Stiglitz. If capitalism truly rewarded those who are innovative, people like Jonas Salk and Tim Berners-Lee, who all refused patents, would perhaps be among the wealthiest. Rather those most capable of seeking rent or establishing political or economic monopoly are the wealthiest.

[2] I’ve taken these cases from Ha-Joon Chang’s Bad Samaritans, a good book on the anti-development policies prescribed by the wealthy nations upon the pre-industrial ones.

[3] For a further look see Joseph Stiglitz’s Price of Inequality. He captures the nature of economic monopoly over political power quite well, and how inequality has largely been a political decision.

[4] This bit I have taken almost exactly from Year 501 by Noam Chomsky, particularily the opening paragraph of Chapter 2 subchapter 6 entitled The New Imperial Age

[5] For a better look see Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism, specifically Thing 8 entitled Capital Has A Nationality

[6] By this I mean fully democratic institutions rather than elite-run democratic institutions, with little substantive choice on policies.

[7] Contrary to some beliefs, markets had emerged before democratic institutions. In Britain for example, voting rights for all men did not occur until the end of the century. Even then, the British central bank often blocked legislation which it deemed “redistributionist”. In the United States, functional democracy only worked in the 1930s, as the Supreme Court and Presidency often blocked “monopolistic” popular organizing such as unions until discontent reached critical mass in the depression.

[8] See Deterring Democracy or Year 501 to get a good look at imperialistic policies towards the third-world. Latin America for example, has largely been run by the terror of US-trained death squads and dictators, who assume power through coups when popular democracy gets out of hand.

[9] See Bad Samaritans or Year 501 for a better look at this period. Year 501  provides a more politically-nuanced understanding.

[10] See Year 501: Chapter 3 subchapter entitled “Return to Normalcy” for a better picture of the end of communism in Eastern Europe.