Please make your comment after we make our decision

Taking a page from their United States counterparts, European Union trade negotiators apparently interpret the word “consultation” as a synonym for “ignore.” Fresh evidence for this attitude toward the public was provided thanks to a leak of the final text of the proposed “free trade” agreement between Canada and the EU.

Although the E.U. trade office, the European Commission Directorate General for Trade, promotes a process of public consultation on its web site, it isn’t the public who gets listened to. The final text of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) includes language mirroring corporate wish lists unchanged from previous drafts despite the fact that the E.U. trade office has not had time to analyze comments submitted by the public.

This farce of a “consultation” process mirrors the secretive negotiations in the better known Trans-Pacific and Transatlantic trade agreements. Corporate lobbyists are well represented in these talks, but the public, watchdog groups and even parliamentarians and legislators are barred from seeing the text. The CETA text is also secret, but was leaked by the German television news program Tagesschau, which published the entire 521-page document on its web site. Yep, 521 pages.

The Rideau Canal in Ottawa (photo by John Talbot)

The Rideau Canal in Ottawa (photo by John Talbot)

Critical to understanding the CETA text is Section 33, the portion simply labeled “dispute settlement.” Under that bland heading a reader finds the muscle — what is known as an “investor-state dispute mechanism.” These “mechanisms,” found in many bilateral and multilateral trade deals, are corporate-dominated secret tribunals that hand down one-sided decisions with no oversight, no public notice and no appeals. Governments that agree to these mechanisms legally bind themselves to mandatory arbitration with “investors” in these secret tribunals on which most of the judges are corporate lawyers who represent the “investors” in other legal proceedings.

Kenneth Haar, a spokesman for the watchdog group Corporate Europe Observatory, in an interview with the EurActiv news site, called the dispute mechanism “an outright danger to democracy,” and said:

“The Commission is not really serious about its own consultation. It’s more about image than substance. … I think those who chose to respond to the Commission’s consultation are being ridiculed.”

Decisions will be final and unaccountable

Employing the standard sweeping language, CETA’s Article 14.2 (the articles here are numbered “14” even though they are found in Section 33) states: “[T]his Chapter applies to any dispute concerning the interpretation or application of the provisions of this Agreement” [page 472]. Article 14.10 goes on to declare, “The ruling of the arbitration panel shall be binding on the Parties. … The panel shall interpret the provisions referred to in Article 14.2 in accordance with customary rules of interpretation of public international law” [page 476].

“Customary” international law is whatever one of these secret tribunals says it is. Environmental regulations, “buy local” laws or any other government action that a corporation claims will hurt its profits can be, and frequently are, ruled illegal by these tribunals when adjudicating disputes under existing trade agreements. Such rulings set precedents that become “customary” international law.

In case these “customary” laws are not clear, on page 480 of the CETA text is Article 14.16, which would supersede national law:

“No Party may provide for a right of action under its domestic law against the other Party on the ground that a measure of the other Party is inconsistent with this Agreement.”

Your law was passed in a democratic process? Too bad — it will be overruled if an “investor” doesn’t like it.

CETA’s proposed rules are consistent with what is being secretly negotiated in the Transatlantic Trade and Investment Partnership between the U.S. and E.U., and in the Trans-Pacific Partnership being negotiated among 12 Pacific Rim countries. A majority of the world’s economy would be removed from any possibility of democratic control should these three trade deals come into effect.

The watchdog group Council of Canadians warns:

“The Harper government has thrown Canadian municipalities under the bus, forever banning ‘buy local’ and other sustainable purchasing policies that help create jobs, protect the environment and support local farmers and businesses. The Harper government has also agreed to lengthen patents and give new monopoly protections to already profitable brand name drug companies, which will needlessly add hundreds of millions to the cost of prescription drugs in Canada.”

Not even water would be exempt. If a water system is privatized and a local government chooses to re-municipalize it because rates have risen while service declines (as has routinely occurred on both sides of the Atlantic), the investor would be able to hold out for an extra windfall under the terms of the trade deal.

Only corporate lobbyists need apply

Although the public, and public-interest groups, are not heard, corporate lobbyists are. For example, there are 605 “advisers” with access to the text of the Trans-Pacific Partnership and who shape U.S. negotiating positions. Virtually every one is an executive of a multi-national corporation or a corporate lobbyist working for an industry association.

It is little different in Europe. Corporate Europe Observatory reports that 92 percent of the closed-doors meetings of the E.U. trade office have been with corporate lobbyists, while only four percent have been with public-interest groups. The trade office has gone so far as to actively solicit the involvement of corporate lobbyists. That perspectives other than those of multi-national capital are not considered can be inferred from the very way public input is solicited, the Observatory said:

“How would the average citizen respond to questions such as: ‘If you are concerned by barriers to investment, what are the estimated additional costs for your business (in percentage of the investment) resulting from the barriers?’ So, clearly, the close involvement of business lobbyists in drawing up the EU’s position for the [Transatlantic Trade and Investment Partnership] talks is a result of the privileged access granted to them.”

It’s no different for CETA, and the same dynamic exists across the Atlantic. Former U.S. Trade Representative Ron Kirk once admitted that if people knew what was in the Trans-Pacific Partnership, it would never pass. It is important to remember that these massive “free trade” deals are not simply business as usual — they go well beyond even the draconian rules of the North American Free Trade Agreement.

So although the competitive pressures of each country attempting to give an advantage to its multi-national corporations does mean that maneuvering through differing interests requires lengthy negotiations — not to mention the sometimes conflicting interests of various industries — at bottom there is a unifying class interest in the overall project. It is true that the U.S. adopts the hardest line in the trade negotiations it participates in (before we even get to the military muscle it applies to force open Southern countries), yet the absence of the U.S. from a Canada-European Union trade deal has made no practical difference to its outcome.

That different countries, different administrations, reach similar one-sided “free trade” agreements in which “investors” are allowed to overrule national laws, and labor, safety and environmental regulations are “harmonized” at the lowest level, is a product of capitalist competition. The rigors of that structural competition mandate expansion and growth — as local markets mature, capital has no choice, if it is to survive relentless pressure from competitors, other than opening new markets and relentlessly cutting costs to maintain profit levels. “Free trade” agreements represent one of the most effective ways to accomplish that.

Popular revolts against these agreements must be continued, and strengthened, but there will be no end to them as long as economic and social decisions are allowed to be made by “markets,” which are not disembodied entities sitting dispassionately on an Olympian throne but rather are the aggregate interests of the most powerful industrialists and financiers.

Freedom for capital, not people

Libertarianism is a philosophy of might makes right. The natural philosophy for the age of neoliberalism, as well demonstrated by the Koch brothers, but also, it would appear, a justification for the ugliest elements of United States history.

Consider the following words of Ayn Rand:

“Now, I don’t care to discuss the alleged complaints American Indians have against this country. I believe, with good reason, the most unsympathetic Hollywood portrayal of Indians and what they did to the white man. They had no right to a country merely because they were born here and then acted like savages. The white man did not conquer this country. …

Since the Indians did not have the concept of property or property rights — they didn’t have a settled society, they had predominantly nomadic tribal ‘cultures’ — they didn’t have rights to the land, and there was no reason for anyone to grant them rights that they had not conceived of and were not using. …

What were they fighting for, in opposing the white man on this continent? For their wish to continue a primitive existence; for their ‘right’ to keep part of the earth untouched — to keep everybody out so they could live like animals or cavemen. Any European who brought with him an element of civilization had the right to take over this continent, and it’s great that some of them did. The racist Indians today — those who condemn America — do not respect individual rights.”

A U.S. Air Force plane drops a white phosphorus bomb on Vietnam in 1966.

A U.S. Air Force plane drops a white phosphorus bomb on Vietnam in 1966.

The occasion for Ayn Rand’s cold-blooded, racist words was her speech to the graduating class of the U.S. Military Academy at West Point on March 6, 1974. She said the above during the question-and-answer session, but the text of the actual talk wasn’t much more humane. During her talk, among many head-slappers, the infamous philosopher of greed said:

“Something called ‘the military-industrial complex’ — which is a myth or worse — is being blamed for all of this country’s troubles. Bloody college hoodlums scream demands that R.O.T.C. units be banned from college campuses. Our defense budget is being attacked, denounced and undercut by people who claim that financial priority should be given to ecological rose gardens and to classes in esthetic self-expression for the residents of the slums.”

Civilizing them with a gun

I recall someone named Dwight Eisenhower raising concerns about a “military-industrial complex.” It seems to me he was in a position to know what he was talking about, even if he waited until the end of his career to provide a warning after devoting so much of it building up said complex.

At the time of the West Point talk, three million Vietnamese were dead due to a war nearing its conclusion. Was it valid to protest? Among other feats, the U.S. leveled major cities — 77% of the buildings in Hue, one of Vietnam’s biggest cities, were completely destroyed. Dams were blasted away, allowing salt water from the South China Sea to flood farmland, making the growing of food impossible.

In South Vietnam, 9,000 of 15,000 hamlets were damaged or destroyed, as were 25 million acres of farmland and 12 million acres of forest. Killed were 1.5 million cattle. In North Vietnam, 34 of the largest 36 cities suffered significant damage, with 15 completely razed, while 4,000 of about 5,800 communes were damaged. More than 1 million acres of farmland and 400,000 cattle were destroyed in the North. (These statistics are from Manufacturing Consent by Noam Chomsky and Edward S. Herman.)

The Vietnamese were ungrateful for this exemplary treatment, in the imperialist mind, similar to the ungrateful Native Americans who are “racist” because they have failed to appreciate the lessons in civilization they were being taught while the subjects of a genocide.

I don’t see why the above words of Ayn Rand should be considered any different than Nazi pronouncements on Jews.

Domination in the age of financialization

Although there is a temptation to think of libertarians as young conservatives who want to smoke marijuana — a picture sometimes true of libertarian followers — when libertarian leaders talk about “freedom,” what is really meant is freedom for the holders of capital to pursue profit maximization without limits. The cult of the market is a logical expression of the extreme individualism embodied in libertarianism.

One of the most influential articulators of that was Friedrich Hayek. The Austrian School economist asserted that solidarity, benevolence and a desire to work for the betterment of one’s community are “primitive instincts” and that human civilization consists of a long struggle against those ideals. “The discipline of the market” is the provider of civilization and progress, he wrote.

Thus, unregulated capitalism is “civilization” and anything else is a product of “primitive” group instincts that have survived from our prehistoric hunter/gatherer ancestors in the Hayekian worldview.

From these ideas, it is a small step to the concepts of “money equals speech” and “corporations are people” promulgated by the U.S. Supreme Court. This is an extension of “shareholder rights” to the political sphere — the more you own, the more say you have. A form of conquest and domination for the age of financialization.

If there is no community, no common interest, then why can’t someone, anyone, take whatever they want from the less strong? Give Ayn Rand credit for one thing: She stripped away all the accretions of individualist verbiage, all the rarefied theory of orthodox economics, and enunciated with unusual clarity what lies at the core of capitalist triumphalism. It hasn’t served the world very well.

When water is a commodity instead of a human right

The shutoff of water to thousands of Detroit residents, the proposed privatization of the water system and the diversion of the system’s revenue to banks are possible because the most basic human requirement, water, is becoming nothing more than a commodity.

The potential sale of the Detroit Water and Sewerage Department is one more development of the idea that water, as with any commodity, exists to produce private profit rather than to be a public necessity. And if corporate plunder is to be the guiding principal, then those seen as most easy to push around will be expected to shoulder the burden.

Thus, 17,000 Detroit residents have had their water shut off — regardless of ability to pay — while large corporate users have faced no such turnoff. The Detroit Water and Sewerage Department began its shutoff policy in March with a goal of shutting off the water to 3,000 accounts per week. Residents can be shut off for owing as little as $150. That is only two months of an average bill.

Water is a human right, the people of Detroit say. (Photo by Moratorium NOW! Coalition to Stop Foreclosures, Evictions, amd Utility Shutoffs)

Water is a human right, the people of Detroit say. (Photo by Moratorium NOW! Coalition to Stop Foreclosures, Evictions, and Utility Shutoffs)

Detroit water rates have more than doubled during the past decade, according to Left Labor Reporter, and in June another 8.7 percent raise was implemented. Yet only in July, months after residential water shutoffs began, did the water department announce it would send warning notices to delinquent businesses. There is no report, however, that any business has had its water turned off.

About half of the city’s overdue water payments are owed by commercial and industrial customers. Forty offenders, according to the department, have past-due accounts ranging from around $35,000 to more than $430,000. One golf course operator is said to owe hundreds of thousands of dollars.

The same week that the residential water shutoffs began, Detroit Emergency Manager Kevyn Orr put the water department up for sale. The department takes in about $1 billion in revenue per year, The Wall Street Journal reports, and collects more revenue than it spends. The system would potentially be a valuable asset for one of the multi-national corporations that have taken over privatized water systems around the world, mostly to the regret of the local governments and ratepayers.

Reversing the privatization of water

If Emergency Manager Orr succeeds in selling off Detroit’s water system, he will be bucking a trend. Dozens of cities in France and Germany have reversed earlier privatizations and are taking back their water systems after finding that higher prices and reduced services had been the norm post-privatization. French private water prices are on average 31 percent higher than in public water services. Five Pennsylvania towns that privatized their water saw their rates more than triple on average.

That rate differential shouldn’t come as a surprise — a government doesn’t need to generate a profit like a corporation. A water company, like any other capitalist enterprise, is expected to generate large profits for its investors and giant payouts to its executives, and thus must extract more money out of its property.

If the water system is privatized, Detroit’s city budget will receive a one-time boost, but forgo future revenues and lose control of a public good built with public money. Nor is there any guarantee that it would be sold at market value. A utility undervalued would produce quicker profits for any water company that got its hands on it, and every incentive is for it to be bought at as low a price as possible.

Banks, however, have already extracted huge profits from Detroit’s infrastructure. The water department is believed to have paid banks penalties of $537 million to escape its disastrous interest-rate default swaps. Instead of simply selling plain-vanilla bonds — paying bond holders a set amount on a set schedule — Detroit (like many municipal governments) became entangled in various complicated financial derivatives layered on top of its bonds.

Investment banks sold local governments interest-rate swaps as a form of insurance as a hedge against rising interest rates. But if interest rates went down — which they did — then the governments would be on the hook for large sums of money. (That rates would fall was predictable; central banks cut interest rates as a matter of routine during recessions.) Thanks to financial engineering falsely sold as “insurance,” the Financial Times reports it will cost Detroit $2.7 billion to pay back $1.4 billion in borrowing — this total includes $502 million in interest payments and $770 million as the cost of the derivatives.

The $537 million the Detroit water department handed to banks to escape continued extra payments to cover the swaps is more than four times the entire past-due water bill, residential and commercial, at the start of the water shutoffs in March.

Not so quick to challenge the banks

Yet there appears to be no effort to recoup any of that penalty money or to investigate if there was any illegality in the deals. Curt Guyette, writing for a Detroit alternative publication, Metro Times, said:

“Given the fact that former Mayor Kwame Kilpatrick, who is now is serving a decades-long sentence in federal prison for running the city as if it were a criminal enterprise when these deals went down, [was then in office] it doesn’t seem unreasonable to at least suspect that something shady might have been going on.

Nonetheless, Orr and the legal team from [corporate law firm] Jones Day — where Orr was a former partner, and which has as clients both Bank of America and a division of UBS — have, as the complaint [filed in federal court by community activists] points out, ‘failed to investigate the misconduct or take measures to recoup any portion of the $537 million in suspect termination fees paid to the banks.’ ”

Both Bank of America and UBS profited enormously from the interest-rate swaps. Emergency Manager Orr does not seem terribly bothered by democratic processes, however. He is going ahead with a separate plan to privatize Detroit’s parking department despite the fact that the City Council voted, 6-2, against it. The Detroit Free Press reports that the parking system generates $23 million in revenue with only $11 million in expenses. This would be another revenue stream leaving public hands, and the same needs of a private owner to generate profits would be expected to lead to the same results that privatizations of water systems and other public services have led.

The people of Detroit are fighting back, through demonstrations, lawsuits, appeals to the United Nations and in physically blocking crews assigned to turn off the water. Water is also being turned back on without asking for permission from authorities. Activists demand the immediate resumption of water service for everyone and to make water affordable. Detroit Debt Moratorium, for example, is calling for water bills to be capped at two percent of household income.

These efforts have borne some fruit as Emergency Manager Orr issued an order handing Mayor Mike Duggan managerial control over the water department in late July. The department subsequently declared a moratorium on water shutoffs until August 25.

A commodity is privately owned for the purpose of profit, regardless of human need; that the commodity is something as necessary as water does not alter that a commodity goes to those who can pay the most. The market determines who gets what, or if you get it at all — and the market is simply the aggregate interests of the most powerful industrialists and financiers. The agony of Detroit is the logical conclusion of reducing social and economic decisions to market forces. Detroit just happens to the be the locality that got there first.

Capitalism in outer space

Would it be possible to circumvent Earth’s physical limitations with a rapid colonization of the solar system? Yet it would be a temporary panacea since humanity would still not have unlimited resources.

To put this another way: Could humanity pull a rabbit out of the hat by industrializing space and tapping the solar system’s abundant metal and gas resources to overcome the dwindling availability and environmental devastation of our home planet? Would we want to?

I’ve been stimulated to think about these questions since reading Kim Stanley Robinson’s science fiction novel 2312. Set three centuries into the future, around the year that is its title, the novel envisions a time when humans live comfortably on Mercury, Mars, the Moon, satellites of Jupiter and Saturn, the asteroid belt, and more than 19,000 hollowed-out asteroids engineered to create a staggering assortment of environments. Still more real estate is being opened up with the terraforming of Venus nearing completion.

Complex political, environmental and social problems nonetheless endure, with multiple political blocs stretching across the solar system: a still capitalist Earth struggling with vast environmental distress, including a 20-meter rise in sea level, with various off-Earth colonies still under control of major countries; a “Mondragon Accord” consisting of off-Earth localities working together within a cooperative economy modeled on the eponymous collective enterprise; a socialist Mars, now one of the solar system’s biggest powers; and an unknown number of those hollowed-out asteroids that comprise the “unaffiliated,” some of which exist in self-imposed isolation.

Mars before terraforming (Image created by NASA via Hubble Space Telescope)

Mars before terraforming (Image created by NASA via Hubble Space Telescope)

This imagined 24th century, for all its technological wonders and the copious free time of many off-Earth inhabitants, is a time of hideous inequality, particularly for Earth’s billions of desperately poor and billions more comprising a planetary precariat; these broad groups still comprise most of Earth’s population. Capitalism continues to do its work, centuries in the future, only now the divide is not North/South but rather Space/Earth.

Despite the social consciousness Mr. Robinson brings to his marvelous novels — I have been a fan of his since reading his Mars trilogy in the 1990s — this all seems rather too easy. His 2312, as with his earlier works, is outstanding literature that soars vastly above ordinary science fiction, wrestling with complex socio-economic problems and human relationships from a Left perspective through characters that are actually fully formed human beings. One of these is rare in the genre; having both puts him in very rarified company, with, for example, Ursula K. Le Guin.

Industrializing the solar system

There has frequently been an underlying pessimism in Mr. Robinson’s novels despite his creation of worlds with alternative social systems, dizzying technological advances, and racial, gender and sexual-orientation equality. That is, capitalism seems unmovable, continuing to grind down large sections of humanity and further degrading environments long past the point of any rational excuse and despite alternative socialist systems flourishing somewhere.

In light of this, let’s rephrase the opening questions I asked: Can capitalism be saved by industrializing the solar system? In the world of 2312, that is what has happened. Earth is in bad shape indeed, with 11 billion mostly precarious inhabitants, countless species wiped out and drowned cities. Food grown in and imported from hollowed-out asteroids devoted to agriculture, and access to natural resources mined across the solar system, are what keep it from complete collapse.

But, again, it seems too easy. Our present-day course continues through this century into the first decades of the 22nd century before a series of technology breakthroughs — including space elevators, artificial intelligence and automated self-replicating factories that convert raw materials into finished products — touch off a fantastic exodus into space; in less than a century the solar system out to Saturn is settled and thousands of asteroids are hollowed to create new, artificial worlds to inhabit.

Venus before the real estate rush (Image created by NASA and National Space Science Data Center via Pioneer 1 probe)

Venus before the real estate rush (Image created by NASA and National Space Science Data Center via Pioneer 1 probe)

I can’t help but think of Arthur C. Clarke’s maxim that any technology sufficiently advanced is indistinguishable from magic. So it is here, with robotic machines creating the infrastructure both to make planets, moons and space rocks inhabitable and collecting and delivering vast amounts of raw materials from across the solar system. The terraforming of Mars is made possible by stripping the Saturnian moon Titan of half of its nitrogen. Venus’ terraforming requires the disassembly of another Saturnian moon and bombarding Venus with the ex-moon’s ice while Venus cools off behind a sunscreen that blocks the Sun, freezing out its carbon dioxide atmosphere.

A truly gargantuan amount of capital would be required to finance these projects! And surely there would be a pushback against such wholesale destruction. In the author’s Mars trilogy (a different universe and story), the Mars colonists, having effected a revolution to free themselves from the grip of Earth’s dominant corporations, are divided into those who wish to go no further than the pre-revolution partial terraforming already forced through by Earth and those who wish to make Mars fully Earth-like.

In 2312, however, environmentalism is strangely absent, although internally understandable as most of the action is off Earth and virtually every character of note is a “spacer” native to someplace else — their very existence is based on artificial environments, technology, the use of resources across the solar system and political alliances across space. In such a time and place, the vast engineering that makes space civilization work would appear as an inevitability; such environmental disputes that do exist are territorial.

The chicken and egg of space

Setting aside that any systematic attempt to exploit other worlds would surely be accompanied and critiqued by an environmental movement, the depicted 24th century civilization rests entirely on magic in the Clarkeian sense. The depicted mechanics of engineering are physically possible but would they be viable for an Earth destroying itself environmentally, economically and morally?

Although ever mounting inequality could conceivably pool enough capital to make early stages of space colonization financially possible, the countervailing factors of environmental destruction, global warming, depletion of natural resources and increasing unrest on a world scale as more billions are immiserated (and all the problems that flow from them) should give us pause. Were humanity to continue on its current course into the 22nd century, it would most likely be too late.

The metals, gases and water to be found throughout the solar system would greatly expand the natural resources available for humanity, surely providing enough to create the necessary early space-colony infrastructure, but we have a chicken-and-egg problem: The resources to establish a space presence exist, but can’t be reached until we are present in space.

A rational system geared for human need rather than private profit, in which a healed planet has reversed its gathering crises, seems better equipped. There would not be the concentrated capital that now exists, but with a planned, democratic economy it might be possible to slowly establish bases on the Moon, or perhaps Mars or nearby asteroids (presumably accompanied by an environmental movement), should humanity see it in its common interest and as a spur to useful technological development distributed in an egalitarian manner.

Under capitalism, it is inevitable that private enterprise will take the helm, with expectations of the highest possible profit. But space capitalists would have to be heavily subsidized by governments; already, the U.S. space agency NASA is shifting more of its budget to contracts with private companies to launch rockets for it. Should a space program become just another corporate subsidy? And as tempting as grabbing the solar system’s natural resources may be, limitations will assert themselves. Capitalism requires ceaseless expansion and growth and that is no more possible in a finite solar system than on a finite Earth.

A badly degraded Earth, saddled with massive poverty, environmental degradation and billions struggling to survive in the face of dwindling resources and global warming, is an unlikely candidate to, in the nick of time, develop a series of magical technologies that save the day. But even this outer space cornucopia, where spacers routinely travel billions of miles the way the more privileged among us take airplane trips, is dependent on the surplus value extracted from Earth’s inhabitants, both on Earth itself and on major projects, such as the Venusian terraforming. That is so even though Earth in turn is dependent on the food and raw materials continually sent to it by spacers.

None of this, I wish to stress, is meant as a criticism of Mr. Robinson. His novel 2312 does what the best literature does — stimulate thinking at the same time we enjoy well-crafted writing. As I was reading it last month while on vacation in Vermont, my partner asked me to read a bit of it out loud to her and just the first six pages, vivid descriptions of the Mercurian city moving along a planet-circling track while “sun walkers” walk the surface ahead of the deadly sunrise on excursions, matching the pace of the city, made her want to read it herself, so enraptured did she become. Me too.

“Justice” for a billionaire, none for the state he ripped off

There has been much cheering across the corporate media about the Permanent Court of Arbitration in The Hague ordering the Russian government to pay more than US$51 billion as compensation for confiscating the assets of Yukos, yet silence concerning the original theft of the company by Mikhail Khodorkovsky.

The basis of the decision by the arbitration court was that the assets of Yukos, seized for alleged non-payment of taxes, were sold for US$9 billion, well below the estimated value of the company. Conveniently left out of this picture is that Mr. Khodorkovsky purchased the assets for $159 million seven years earlier in a rigged process that he controlled. He did so as one of seven oligarchs who bought deeply unpopular former President Boris Yeltsin a second term and were handed control of the country’s vast natural resources as a reward.

This is a story that can not be separated from the fall of the Soviet Union and the looting of its assets, with a handful of newly minted oligarchs, mostly former black marketeers who became bankers, coming to control post-Soviet Russia’s economy. Estimates of the size of the assets that came to be owned by the seven biggest oligarchs (Mr. Khodorkovsky was one of them) in the late 1990s range up to one-half of the Russian economy. This at the same time that the Russian economy shrank by 45 percent and an estimated 74 million Russians lived in poverty according to the World Bank; two million had been in poverty in 1989.

Siberian mountain formation (photo by Irina Kazanskaya)

Siberian mountain formation (photo by Irina Kazanskaya)

An important factor in the failure of Mikhail Gorbachev’s perestroika was that working people saw the reforms as coming at their expense. A 1987 reform loosened job protections in exchange for enterprise councils that were to have given workers a voice in management, but the councils were largely ineffective or co-opted by managements. The law had also been intended to eliminate labor shortages. It didn’t, and a 1990 reform was stealthily passed to reduce employment and eliminate the ability of working people to defend themselves. Enterprises would now have private owners with the right to impose management and ownership shares could be sold.

Exhaustion from years of struggle also were a factor in the lack of organized resistance to the elements of capitalism that were introduced in the last years of perestroika and to the shock therapy that was imposed on Russia at the start of 1992, days after the formal dissolution of the Soviet Union and the assumption of uncontested power by President Yeltsin. Shock therapy wiped out Russians’ savings through hyperinflation and state enterprises were sold at fire-sale prices, or sometimes simply taken.

Connections allowed him to set up businesses

Mr. Khodorkovsky used his connections as an official within the Communist Youth League to found a company that imported and resold computers and other goods at huge profits and engaged in currency speculation. The proceeds were used to buy companies on the cheap and found a bank. His bank, Menatep, earned large fees by providing credit when it was in scarce supply during the post-Soviet collapse.

When President Yeltsin was up for re-election in 1996, he faced a daunting challenge as his popularity rating was well below 10 percent — tens of millions of Russians had been plunged into poverty and the economy had contracted for several years in succession. The president admitted in his memoirs that he was about to cancel the election. But he was presented with a plan by the seven oligarchs, the scheme that became known as “loans for shares.”

These seven oligarchs offered President Yeltsin a bargain: In lieu of paying taxes, they would make loans to the government so it could meet its expenses, such as actually paying its employees. In return, the government would give the oligarchs collateral in the form of shares of the big natural-resources enterprises that were soon to be privatized. (Other state enterprises had been quickly privatized upon the implementation of shock therapy.)

If the loans were repaid, the bankers would give the shares back. If not, the oligarchs would hold auctions to sell the collateral. The government had no ability to pay back these loans, but President Yeltsin issued a decree sealing the deal in August 1995.

The oligarchs used their own banks to conduct the subsequent auctions, and, through a mix of rigged terms and conveniently closed airports, won them all at prices that were small fractions of the enterprises’ reasonable market value. These enterprises represented Russia’s enormous reserves of oil, nickel, aluminum and gold, and a minority share in the dominant gas company, Gazprom.

These seven oligarchs all became billionaires through the “loans for shares” scam. The oligarchs, who owned almost the entire Russia mass media, spent 33 times the legal limit on the election and provided 800 times more television coverage of President Yeltsin than was provided to his opponents.

Mr. Khodorkovsky’s bank, Menatep, was put in charge of the auction of Yukos. It avoided competitive bidding, enabling his holding company to buy it for $159 million, only $9 million above the starting price. As long as Boris Yeltsin was president, the oligarchs could steal all they wanted. Nor did Western authorities complain about this; President Yeltsin’s bombardment and illegal disbanding of the Russian Parliament in 1993, resulting in more than 500 deaths, was celebrated as a democratic triumph. Indeed, the World Bank’s chief economist for Russia declared, “I’ve never had so much fun in my life.”

Corporate lawyers as arbitrators

The Permanent Court of Arbitration that handed down the $51 billion judgment is one of the international tribunals that hear investor-state disputes behind closed doors. As is customary with these bodies, the arbitrators are corporate lawyers appointed by governments.

In the Yukos case, each side could choose one of the three panelists who hear the case. The deciding panelist was Yves Fortier, a former chair of one of Canada’s biggest corporate law firms and of Alcan Inc., a mining company since bought by Rio Tinto, and a director of several other companies.

I see no sense in denying that politics were behind Mr. Khodorkovsky’s prison sentence and his loss of Yukos. But there can be no dispute that politics and shady dealing earned him his fortune in the first place. The gangster capitalism in which he excelled in the 1990s, cheered on by the West, was without mercy. Are there going to be outpourings of sympathy for the tens of millions of Russians immiserated so that the country’s Khodorkovskys could become billionaires? I think we already know the answer.

We cannot shop our way out of environmental crisis, ‘green’ or not

Eight weeks ago, I wrote about the delusions of “green capitalism,” that there is no alternative to a dramatic change in the organization of the global economy. That led to a vigorous discussion, and I thank all of you who contributed to it.

This week, I’d like to return to this theme, in the form of discussing an interesting paper that I could then only quote briefly. The paper, “Green capitalism: the god that failed,” by Richard Smith of the Institute for Policy Research & Development in London, packs a powerful argument into its 33 pages. The paper was published in issue No. 56 (March 2011) of Real-World Economics Review. (That a publication for non-orthodox practitioners needs to take such a name speaks volumes of the field as a whole.) The author’s basic theses are:

  • “Green capitalism” is “doomed from the start” because maximizing profit and environmentalism are broadly in conflict; the occasional time when they might be in harmony are rare exceptions and temporary. This is because the managers of corporations are answerable to private owners and shareholders, not to society. Profit maximization trumps all else under capitalism and thereby sets the limits to ecological reform.
  • No capitalist government can impose “green taxes” that would force out of business the coal industry or any other because the result would be recession and mass unemployment. Without carbon or other “green” taxes, the “entire green capitalist project collapses.”
  • Green-capitalism proponents vastly underestimate the speed with which environmental collapse is coming. No amount of tinkering can alter the course of environmental destruction under the present system. Humanity, therefore, must replace capitalism with a post-capitalist ecologically sustainable economy.
  • Resource extraction is inherently polluting but can’t be shut without chaos. It is not possible to “dematerialize” much of the economy as green-capitalism proponents believe possible. The only way to reduce greenhouse-gas emissions is to “enforce a drastic contraction of production in the industrialized countries.” Such a thing is not possible in capitalism because the affected industries would be committing suicide to agree to this and nobody would promise jobs to those displaced; this could only be carried out through a socialization of industry and a redeployment of labor to sectors that need to be developed for social good.
  • Consumerism and over-consumption are not “cultural” or the result of personal characteristics — they are a natural consequence of capitalism and built into the system. Problems like global warming and other aspects of the world environmental crisis can only be solved on a global level through democratic control of the economy, not by individual consumer choices or by national governments.

Cap-and-trade equals profits by polluting

European attempts to implement “cap and trade” schemes to limit greenhouse-gas emissions were countered from the start by industry lobbyists asking for exceptions because, they argued, they would lose competitiveness, and some threatened to move elsewhere, taking jobs with them. Governments gave in. Polluters and traders took in windfall profits, with no real effect on emissions. Dr. Smith wrote:

“German electricity companies were supposed to receive 3 percent fewer permits than they needed to cover their total emissions between 2005 and 2007, which would have obliged them to cut emissions by that amount, instead the companies got 3 percent more than they needed — a windfall worth about $374 billion at that time.” [page 119]

A proposal to directly tax carbon in France, proposed by the administration of Nicolas Sarkozy, was ruled unconstitutional because most of France’s major polluters would have been let off the hook entirely while households would have assumed the burden. Dr. Smith put the farce of this failed proposal in perspective:

“The court said that more than 1,000 of France’s biggest polluters could have been exempted from the charges, and that 93 percent of industrial emissions would not have been taxed at all. But even if Sarkozy had successfully imposed his carbon tax, this tax would have raised the price of gasoline by just 25 US cents per gallon. Given that the French already pay nearly $9 per gallon for gasoline, it’s hard to see how an additional 25 cents would seriously discourage consumption let alone ‘save the human race.’ ” [page 120]

A part of Moofushi's bleached coral reef (Alifu Dhaalu Atoll, Maldives), damaged by warming sea temperatures.  (Photo by Bruno de Giusti)

A part of Moofushi’s bleached coral reef (Alifu Dhaalu Atoll, Maldives), damaged by warming sea temperatures.
(Photo by Bruno de Giusti)

Some advocates of cap-and-trade or carbon taxes in the United States try to get around industry pushback by advocating they be made “revenue-neutral.” But if “carbon tax offsets are revenue neutral, then they are also ‘impact neutral,’ ” Dr. Smith writes. That brings us back to the reality that imposing drastic cuts would be the only way to effect the significant reductions in greenhouse-gas emissions necessary to prevent catastrophic global warming in coming decades. That, in turn, can’t be done without massive dislocation.

Yet reductions are not only necessary, but will be required by physical limits — the world’s population is using the resources at the rate of 1.5 Earths and the United Nations predicts we’ll be using two Earths by 2030. Moreover, if all the world’s peoples used resources at the rate that the United States does, “we would need 5.3 planets to support all this.” Needless to say, we have only one Earth available.

More efficiency leads to move consumption

One of the pillars on which green capitalists rest their advocacy is increased efficiency of energy usage, achieved through technological innovation. But energy usage has been increasing, not decreasing, despite greater efficiencies wrung out of a range of products. Gains in efficiency can, and frequently are, used to expand production; given that capitalist incentives reward expansion, that is what is done. Moreover, “green” industries are not necessarily green. The “god that failed” paper points out:

“Even when it’s theoretically possible to shift to greener production, given capitalism, as often as not, ‘green’ industries just replace old problems with new problems: So burning down tracts of the Amazon rainforest in order to plant sugarcane to produce organic sugar for Whole Foods or ethanol to feed cars instead of people, is not so green after all. Neither is burning down Indonesian and Malaysian rainforests to plant palm-oil plantations so Britons can tool around London in their obese Landrovers.” [page 128]

Making motor vehicles more fuel-efficient, although a goal that should be pursued, nonetheless falls far short of a solution. Fuel usage from the increasing number of vehicles and longer distances traveled are greater than all the savings from fuel efficiency. And focusing on only when the vehicle is being driven leaves untouched most of the pollution caused by them, Dr. Smith writes:

“Most of the pollution any car will ever cause is generated in the production process before the car even arrives at the showroom — in the production off all the steel, aluminum, copper and other metals, glass, rubber, plastic, paint and other raw materials and inputs that go into every automobile, and in the manufacturing process itself. Cars produce 56 percent of all the pollution they will ever produce before they ever hit the road. … [S]o long as [automakers] are free to produce automobiles without limit more cars will just mean more pollution, even if the cars are hybrids or plug-in electric cars.” [page 131]

Those electric vehicles are only as “clean” as the source of electricity used to power them. Many plug-in electric vehicles are coal-powered vehicles because coal is a common source of electricity. Looking at it holistically, such an electric vehicle would be more polluting than a gasoline-fueled vehicle; and the majority of the pollution from the manufacturing (for the vehicle itself) would be there just the same. Then there is the pollution and greenhouse-gas emissions of the electric-car battery. Nickel is a primary input; the Russian city that is the site of the world’s largest source of nickel, Norilsk, is one of the world’s most polluted places.

“I would not be surprised if the most ecological cars on the planet today are not those Toyota Priuses or even the Chevy Volts with their estimated [seven- to 10-year] lifespan, but those ancient Fords, Chevrolets, and Oldsmobiles cruising round the streets of Havana. For even if their gas mileage is lower than auto-producer fleet averages today, they were still produced only once, whereas American ‘consumers’ have gone through an average of seven generations of cars since 1960 (when the U.S. embargo ended car imports to Cuba), with all the manufacturing and disposal pollution that entailed.” [page 133]

Consumerism props up capitalist economies

Planned obsolescence is part of the problem, across the spectrum of manufactured products. Capitalist manufacturers don’t want products that last a long time; repeatedly selling new products is far more profitable. But it would be overly simplistic to lay full blame for this on greed, however much greed is rewarded by a capitalist economy. Household consumption — all the things that people buy for personal use from toothbrushes to automobiles — accounts for 60 to 70 percent of gross domestic product in almost all advanced capitalist countries. If people aren’t buying things, the economy struggles.

Proponents of green capitalism fail to grasp the structural causes of over-consumption. However much better for the environment, and the world’s future, drastic reductions in consumerism would be, moral exhortations can’t be effective. Trapped in an idealist mirage that capitalism can be “tamed” or “repurposed,” green capitalists, through seeking individual solutions to structural and systemic problems, not only miss the forest for the trees but leave the economic structure responsible untouched. People in the global North should consume less, but to place the blame on individual behavior lets the manufacturers of useless products off the hook and is blind to the economic realities should the system be left in place intact.

Once again, we can not shop our way out of economic and environmental problems. Even not shopping would bring its own set of problems, Dr. Smith writes:

“[H]ow can we ‘reject consumerism’ when we live in a capitalist economy where, in the case of the United States, more than two-thirds of market sales, and therefore most jobs, depend on direct sales to consumers while most of the rest of the economy, including the infrastructure and not least, the military, is dedicated to propping up this super consumerist ‘American way of life?’ Indeed, most jobs in industrialized countries critically depend not just on consumerism but on ever-increasing overconsumption. We ‘need’ this ever-increasing consumption and waste production because, without growth, capitalist economies collapse and unemployment soars. …

[I]t’s not the culture that drives the economy so much as, overwhelmingly, the economy that drives the culture: It’s the insatiable demands of shareholders that drive corporate producers to maximize sales, therefore to constantly seek out new sales and sources in every corner of the planet, to endlessly invent [new needs]. … ‘[C]onsumerism’ is not just a ‘cultural pattern,’ it’s not just ‘commercial brainwashing’ or an ‘infantile regression.’ … Insatiable consumerism is an everyday requirement of capitalist reproduction, and this drives capitalist invention and imperial expansion. No overconsumption, no growth, no jobs. And no voluntarist ‘cultural transformation’ is going to overcome this fundamental imperative so long as the economic system depends on overconsumption for its day-to-day survival.” [pages 141-142]

There is no way out other than replacing capitalism with a steady-state economy based on meeting human needs, and that could only be attained through bottom-up, democratic control. No one promises new jobs to those who would be displaced under capitalism; logically, then, those who jobs and ability to earn a living is dependent on polluting or wasteful industries resist environmental initiatives. The wholesale changes that are necessary to prevent a global environmental catastrophe can’t be accomplished under the present economic system; it would require a different system with the flexibility to re-deploy labor in large numbers when industries are reduced or eliminated, and one that would have no need to grow. Inequality would have to be eliminated for any kind of global democratic economy to be able to function.

Richard Smith pronounces this “a tall order to be sure.” That it is. But with many world cities, and entire countries, at risk of becoming inhabitable due to rising sea levels, more erratic weather and an accelerated timetable to deplete the world’s resources, what choice do we have? Green capitalism is not only not green, it is worse than illusion because of the false hope it dangles in front of our eyes.

Economists say solution to problems is more of the same

Neoliberalism is dead! Long live neoliberalism! Such is the contradictory message given by the OECD in its report on the global economy’s next 50 years.

Seemingly intent on providing yet more evidence that orthodox economics is a service for the one percent rather than a science, the report’s prescriptions are a mix of advocacy of more of the same policies that have brought the world to its present crisis with mild reforms that would be in direct opposition to the logical outcomes of those same policies and contradict the interests of the corporate beneficiaries of those policies.

The paper, “Policy Challenges for the Next 50 Years,” published by the OECD (the Organisation for Economic Co-operation and Development, a club of the the world’s most developed countries along with a few large developing countries), carries the caveat that it does not necessarily reflect the view of OECD member countries, but as it is presented as a “synthesis” of several earlier OECD studies, it is fair to consider the paper an authoritative representation of elite thinking.

(Mural by Ben Shahn)

(Mural by Ben Shahn)

Those elites, evidently, see difficulties ahead but believe the adoption of the right policies will allow everything to be just fine as we march into the second half of the 21st century with the world capitalist system intact and robust.

Perhaps the biggest contradiction, or perhaps an unwillingness to think through the implications, is the paper’s prediction of a steady decline in world economic growth, from an overall 3.6 percent (but only 1.2 percent for OECD countries) in the 2010-2020 decade to 2.4 percent (0.5 percent for OECD countries) in the 2050-2060 decade. Although the “Policy Challenges” paper never uses the word, or so much as hints at it, that is a forecast of another half-century of stagnation.

The implications of that stagnation are a sputtering economy, more unemployment and more inequality because capitalism is a system that requires growth. A system based on endless growth can’t function without it — slow growth (all the more so no growth) means misery for working people as the recent years of “recovery” from the 2008 economic collapse has demonstrated. That is so even without the austerity policies advocated by the “Policy Challenges” paper, which would only accelerate dislocation.

A lot of austerity and a little wishful thinking

Among the prescriptions the paper calls for are:

  • More and bigger “free trade” agreements, supported by “policies that favour … worker mobility (e.g. pension portability).”
  • “Enact social insurance reforms to maintain labour supply in the face of rising longevity and an ageing workforce.”
  • Push more of the costs of a university education onto students.
  • International coordination of intellectual property rights, greenhouse-gas emissions and taxation.
  • Adoption of policies to encourage renewable energy.
  • Phasing in higher capital requirements for banks and continued “accommodative” monetary policies.
  • “Flexible” labor markets that are “pursued in a way that cushions their potentially negative impact on equality.”

At first glance, the above list appears to be a somewhat eclectic mix of austerity and, shall we say, Keynesian lite (albeit with the emphasis on austerity). But the austerity measures fit snugly into current economic policy while the ameliorative measures are directly in opposition to not only current policy but the advocated austerity measures.

It is disingenuous to advocate more corporate globalization through more and bigger “free trade” agreements while at the same arguing for harmonization of taxation and environmental rules so as to avoid a race to the bottom. The very point of corporate globalization and, especially, “free trade” agreements is to take advantage of lower wages and lesser environmental and labor standards among different countries. We already are in a race to the bottom, fueled by existing “free trade” agreements, which “harmonize” downward.

The accompanying call for “pension portability” is code for privatizing public-retirement systems. It also presupposes that working people have pensions connected to their jobs, but in the United States that is a relic of the past for the vast majority of employees. At best, a worker might have a “defined contribution” plan such as a 401(k) that mostly relies on the employee’s own contributions and shifts the risks from employer to employee. A public retirement system has no need for “portability”; only a privatized system free of employer responsibility and job security does.

Bullet point number two above, in parallel with “pension portability,” is a polite way of advocating people work more years before being eligible for retirement and receive less money on which to retire. Bizarrely, the OECD paper rests its labor prescriptions on “labor shortages in the OECD” countries! Huh? The unemployment rate for the European Union, which includes most of the OECD countries, is 10.3 percent. The official U.S. unemployment rate is 6.1 percent, but the real rate is 12.1 percent. (The “U-6” figure including part-time workers needing full-time work and discouraged workers.)

The paper forecasts “income convergence between OECD countries and developing countries” in the coming decades (although it does not address if that will be an upward or a downward convergence) that “may dampen work-related migration flows, exacerbating labour shortages in the OECD” [page 26]. Completely missing are future flows of migrants escaping environmental damage from global warming. The paper sees global warming as no big deal, despite predicting that greenhouse-gas emissions will double from 2010 to 2060.

Although the paper does state that “rising greenhouse gas concentrations pose the most comprehensively global risk to economic output,” [page 30] it projects that the cut to global gross domestic product will be only 0.7 to 2.5 percent.

Oh, that’s right, it’s the “magic of the market”

The rosy future of a benign world of international convergence in which income inequality is entirely the product of differentiated skill levels depicted by the OECD paper rests on the neoliberal belief in “free trade” agreements. The paper asserts:

“Openness to trade is associated with higher incomes and growth. These benefits are transmitted through several channels: shifting production from low to high productive locations; relocation of factors of production towards sectors and firms with high productivity; and rising incomes due to an increase in market size that supports more specialisation, faster technology diffusion and stronger incentives to invest in ‘non-rival’ assets.” [page 34, citation omitted]

Reality is far different from these neoliberal fairly tales. Production has been shifted to “high-productive locations” only if we define those as locations in which the maximum possible amount of profit is extracted through the lowest wages and harshest working conditions. That is “productive” — for the industrialists and financiers who extract and pocket these profits.

That “free trade” agreements fill the pockets of capitalists while immiserating working people certainly accounts for much of the reason for the persistent promotion of them as job-building exercises, but not all of it. Ideology also plays a part. The economic models are based on the “magic of the market” that assume, inter alia, that capital and labor instantaneously react to changing conditions but never cross national borders; that market mechanisms will ensure full use of all resources; and that flexible exchange rates will prevent lowered tariffs from causing changes in trade balances.

In his recent book, Capitalist Globalization: Consequences, Resistance, and Alternatives, non-orthodox economics professor Martin Hart-Landsberg dismantled these arguments. He wrote:

“[T]his kind of modeling assumes a world in which liberalization cannot, by assumption, cause or worsen unemployment, capital flight or trade imbalances. Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly lead capital and labor to shift into new, more productive uses. And since trade always remains in balance, this restructuring will generate a dollar’s worth of new exports for every dollar of new imports. Given these assumptions, it is no wonder that mainstream economic studies always produce results supporting ratification of free trade agreements.”

That is still the case as seen in the unrealistic, propagandized boosterism for deals like the Trans-Pacific Partnership and more subtle but similar assumptions imbedded in the OECD “Policy Challenges for the Next 50 Years” paper. The paper, despite its embrace of more reliance on market forces as the “solution” to human development, is seemingly oblivious to the consequences of markets.

Market forces will call the tune, not wishful thinking

Calls for international coordination of taxation and governmental regulations, and for higher capital requirements for banks, fly directly in the face of what has and and will occur as a result of market forces — a race to the bottom. Capitalist markets are nothing more than the aggregate interests of the most powerful industrialists and financiers. “Free trade” agreements continually push rules more draconian, and facilitate monopolies on an international scale, because doing so benefits those interests. That is why these agreements are negotiated in secret, with full participation by corporate lobbyists while labor and environmental advocates are shut out.

To argue, as the final bullet point above does, that “flexible” labor markets should be “pursued in a way that cushions their potentially negative impact on equality” is oxymoronic. Just how are the falling wages and substitution of part-time work for full-time generated by labor “flexibility” not going to create a “negative impact” on equality?

(OECD projections of world economic growth. Graphic from "Policy Challenges for the Next 50 Years" paper, page 15, OECD)

(OECD projections of world economic growth. Graphic from “Policy Challenges for the Next 50 Years” paper, page 15, OECD)

The slowing growth forecast — in particular for the world’s mature capitalist countries, forecast to decline to 0.5 percent annually by mid-century and not average much above one percent per year during any other decade — contains serious implications. Again, that is a forecast of permanent stagnation. Under capitalism, gross domestic products must increase faster than the working population because of new machinery, computerization, work speedups and layoffs continually introduced by capitalists subject to relentless competitive pressures.

Economic growth of 2.5 percent is necessary simply to maintain the unemployment rate where it is and “substantially stronger growth than that” is necessary for a rapid decrease, according to a former White House Council of Economic Advisers chair, Christina Romer.

Capitalism already fails to produce jobs. Using International Labour Organisation figures as a starting point, professors John Bellamy Foster and Robert W. McChesney calculate that the “global reserve army” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) totals 2.4 billion. In contrast, the world’s wage workers total only 1.4 billion!

The stimulus to the global economy from the Internet has likely already run its course; thus it would take a future unforeseen technological breakthrough to provide growth on the scale of what was seen during much of the 20th century. The economist Robert J. Gordon, in a 2012 paper forecasting dwindling future growth, argued that this most recent period of innovation from computers focused on entertainment and communication devices, while earlier periods of innovation brought a rapid series of inventions that took upwards of a century to be fully realized, fueling long periods of growths.

A major effect of the mass introduction of computers was simply to shift commerce to online merchants from traditional ones. By contrast, the taming of electricity and the inventions of steam engines and automobiles powered development for long periods of time.

An economic system designed to meet human needs, rather than private profit, would have no need to grow. But as capitalism is designed for private profit, and requires continual growth to maintain itself, harsher austerity (and the force that will be necessary to implement it) is what is on offer by the world’s elites.