Financiers seek to have fondest dreams come true through own secret trade deal

The financial industry has grown ever more powerful in recent decades, so perhaps the world’s governments believe it is only fitting that it has its own secret treaty. Similar to “free trade” agreements that curtail regulation of manufacturers, the Trade In Services Agreement’s Financial Services Annex, if passed, would eliminate the ability of governments to regulate the financial industry.

Incredible as it sounds, the annex, being negotiated in secret among 50 countries with continuing advice from lobbyists, would require signatory governments to allow any corporation that offers a “financial service” — that includes insurance as well as all forms of trading and speculation — to expand operations at will and would prohibit new financial regulations.

The driver of this offensive is the “investor-state dispute mechanism.” Deceptively bland-sounding, the “mechanism” is secret tribunals controlled by corporate lawyers that are commonly used under “free trade” agreements. Corporate executives angered because an environmental or safety rule keeps it from earning the highest possible profit can ask for a hearing at a designated tribunal to adjudicate its “dispute” with a government. Many of the judges who sit on these tribunals are corporate lawyers who otherwise represent corporations, and there is no appeal to their one-sided decisions.

City of London expanding (Photo by Will Fox)

City of London expanding (Photo by Will Fox)

The Financial Services Annex contains language identical to standard language used in “free trade” agreements that obligate “equal treatment” of all corporations. The practical effect of that language would result in the profits of speculators being elevated above all other human considerations, similar to proposed agreements such as the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership that would elevate corporate profits above all other considerations, should they come into force.

The countries negotiating the Trade In Services Agreement (TISA) Financial Services Annex, which include the United States, Canada, Australia, Japan and the 28 countries of the European Union, refer to themselves as the “Really Good Friends of Services.” If the “services” in question are services to the financial industry, then these governments are indeed really good friends.

If it is done in secret, it is for a reason

That we know anything at all about the Financial Services Annex is because the text has been published by WikiLeaks. Just as agreements like the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership are being conducted in secret because, as former U.S. Trade Representative Ron Kirk admitted, if people knew what was in the TPP, it would never pass, the annex is kept hidden from view, except for industry lobbyists.

The leaked text of the Financial Services Annex states it should be declassified “five years from entry into force of the TISA agreement or, if no agreement enters into force, five years from the close of the negotiations.” A deal designed to give financiers even more power over the economy is a state secret!

As with the ongoing “free trade” agreement negotiations, one should not hold one’s breath waiting for substantive information on TISA or the annex. The latest round of negotiations were held June 23 to 27 in Geneva, and here is what the U.S. Office of the Trade Representative reported, in full:

“The fourth round of TISA talks was positive and productive, with participants expecting to table offers by the end of this month. Additionally, the draft text of the agreement was further stabilized with the removal of all brackets concerning the ‘negative list’ approach. U.S. negotiators look forward to further work on this important agreement.”

Yep, that’s it. Despite that meaningless ode to bureaucratic blandness, the United States and the European Union are vying to introduce the most draconian language. WikiLeaks, in a press release accompanying its publication of the secret text, said:

“The US and the EU are the main proponents of the agreement, and the authors of most joint changes, which also covers cross-border data flow. … The draft Financial Services Annex sets rules which would assist the expansion of financial multi-nationals — mainly headquartered in New York, London, Paris and Frankfurt — into other nations by preventing regulatory barriers. The leaked draft also shows that the US is particularly keen on boosting cross-border data flow, which would allow uninhibited exchange of personal and financial data. … [T]he Agreement is being crafted to be compatible with [the General Agreement on Trade in Services] so that a critical mass of participants will be able to pressure remaining [World Trade Organization] members to sign on in the future.”

The intention is to make the agreement universal, solidifying the financial industry’s grip on the global economy.

A backdoor for Wall Street to eliminate Social Security?

Articles 1 and 2 of the Financial Services Annex place no limits on what constitutes covered “financial services”:

“This section/Annex applies to measures affecting the supply of financial services. … A financial service is any service of a financial nature offered by a financial service supplier of a Party. Financial services include all insurance and insurance-related services and all banking and other financial services.”

“Party” in the text refers to a signatory government. Among other provisions, the annex would require:

  • Countries to change their laws to conform to the annex’s text (Article 3).
  • Countries to “eliminate … or reduce [the] scope” of state enterprises (Article 5).
  • Prohibit any “buy local” rules for government agencies (Article 6).
  • Prohibit any limitations on foreign financial firms’ activity (articles 7 and 10).
  • Prohibit restrictions on the transfer of any data collected, including across borders (articles 8 and 11).
  • Prohibit any restrictions on the size or expansion of financial companies and a ban on new regulations (Article 15).
  • Require any government that offers financial products through its postal service to lessen the quality of its products so that those are no better than what private corporations offer (Article 22).

Beyond the dry, bureaucratic language in which the annex is written is the crucial matter of how the text will be interpreted. Already, under the North American Free Trade Agreement, a corporate parcel-delivery service sued Canada in an attempt to have the Canadian postal system dismantled. That attempt failed, but as the secret tribunals issue more and more rulings granting more and more “investors’ rights” that become precedents for the next dispute, it is no stretch to believe that a tribunal of three “really good friends” of the financial industry could issue a ruling that a government retirement system such as Social Security is an illegal restraint on private profit.

Wall Street has long desired a privatization of Social Security, and the Financial Services Annex might prove to be the ticket for it to achieve its most sought-after goal and thereby put other countries’ public retirement systems at risk. Articles 5 and 22 hold the potential for a tribunal to rule that a government financial service such as a national retirement system is an unfair state subsidy. Consider Goldman Sachs, where customers are referred to as “muppets” with the intention of “ripping eyeballs out.” The infamous “vampire squid” stands out among its financial-industry peers for its ability to, in the words of Matt Taibbi:

“hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage.”

The foregoing, of course, is the standard operating principal of the entire financial industry. Is this who you want to control the possibility of your retiring some day?

European privacy laws would also be in the crosshairs. The U.S. has proposed language allowing cross-border movements of personal data without restriction, while the E.U. (which is negotiating on behalf of its 28 member countries) has proposed language allowing data transfers ameliorated only by boilerplate language that exempts personal privacy unless it “circumvents” the annex — a loophole wide enough to drive a truck through.

Existing “free trade” agreements have similar boilerplate language supposedly granting exceptions for human health and safety, but other clauses requiring adherence to “international norms” supersede such exceptions, rendering them meaningless.

Speculators would have unconditional rights to profit

Article 20 contains language sponsored by the U.S. and the E.U. that would require investor disputes to be heard by a panel having “the necessary expertise relevant to the specific financial service” — an invitation for bankers to sit in judgment of such disputes — and Article 13 contains language pushed by the U.S. that is essentially identical to text typically found in “free trade” agreements requiring “equal treatment” of domestic and foreign corporations.

It is that “equal treatment” language that is the battering ram used by corporations to knock down national regulations on health, safety and the environment.

For example, Chapter 11 of the North American Free Trade Agreement codifies the “equal treatment” of business interests in accordance with international law and enables corporations to sue over any regulation or other government act that violates “investor rights,” which means any regulation or act that might prevent the corporation from earning the maximum possible profit. Canada, in two separate cases, had to reverse bans on chemicals known to be dangerous to human health and pay millions of dollars to the chemical manufacturers.

In one of those chemical cases, the tribunal ruled that, when formulating an environmental rule, a government “is obliged to adopt the alternative that is most consistent with open trade.”

These are the types of precedents that will be used to further engorge financial speculators should TISA and its Financial Services Annex become law.

Those living in countries not yet part of these negotiations also have much to fear. Developing countries are mostly shut out of the TISA negotiations. The coalition group Our World Is Not For Sale, which includes more than 200 member organizations, writes:

“The proposed TISA is thus a cynical attempt of the major proponents of so-called ‘free trade’ and aggressive market opening to ensure that corporate wish lists can be fulfilled, without having to make any changes to existing WTO [rules] demanded by poor countries.”

A separate group of 341 civil-society organizations, in an open letter demanding ministers cease TISA negotiations, note that:

“The TISA negotiations largely follow the corporate agenda of using ‘trade’ agreements to bind countries to an agenda of extreme liberalization and deregulation in order to ensure greater corporate profits at the expense of workers, farmers, consumers and the environment. The proposed agreement is the direct result of systematic advocacy by transnational corporations in banking, energy, insurance, telecommunications, transportation, water and other services sectors, working through lobby groups.”

Red carpet for lobbyists, red-baiting for unions

The watchdog group Corporate Europe Observatory reports that the European Commission trade department, which is negotiating on behalf of the E.U.’s 28 countries, has met more than 20 times with the European corporate lobbying group leading the push for TISA, the European Services Forum (ESF), but has met only once with trade unions. In fact, the ESF was set up with the encouragement of the European Commission in the 1990s, leading to a situation “where the public authority lobbies business to lobby itself,” the Observatory said. On the other hand, the Commission has descended to red-baiting unions when they bring up their concerns:

“When the Commission meets concerns about its aggressive services liberalisation agenda, it reacts with ignorance and mockery. A staff member of the European Federation of Public Service Unions, told Corporate Europe Observatory about one of the Commission’s Civil Society Dialogue meetings: ‘When I voiced concerns over the way public services were being dealt with in the EU’s trade policy, one of the officials basically said ‘there is no going back to the Soviet Union.’ ”

Privatization über alles! The European Commission, the bureaucratic arm of the E.U., is free from democratic accountability and if even if it weren’t there would be little or no accountability considering that the four largest blocs within the European Parliament collectively holding 549 of the 751 seats are broadly in favor of “free trade” agreements; the main center-right and center-left blocs hold a majority of the seats between them.

Nor should help be expected from the other side of the Atlantic. Not only does the U.S. consistently push for the most draconian rules regardless of which party is in the White House but its trade representative, Michael Froman, is a former high-ranking executive at Citigroup Inc. who is a protégé of former Treasury Secretary Robert Rubin, an architect of the Clinton administration’s 1990s dismantling of financial regulations, which led to the next decade’s economic collapse.

Multi-national corporations are well organized across borders; financiers and industrialists understand their common interests. If there is any hope to put an end to “free trade” agreements — and then go on the offensive to reverse those already in place — we had better do the same.

How long will Europeans accept austerity?

Europe is not ready to revolt. Or, possibly more accurately, given the 43 percent participation rate, Europeans simply see the European Parliament as irrelevant. Given the little power it has, and the anti-democratic structure of European Union institutions, many saw the election as simply as an opportunity to cast a protest vote.

Yet despite the hand-wringing over the advance of far Right parties (and I am not suggesting that is not worrisome), Europeans continued the general pattern of voters in the global North of alternating between their mainstream parties. The two main blocs, the E.U.’s center-right and center-left groupings, comprising almost all of the major parties, combined for almost 54 percent of the vote, and if we throw in the more than eight percent won by the third-place liberal grouping (for North American readers, European liberals are roughly equivalent to libertarians), the parties of austerity won a solid majority.

The combined total is about ten percentage points less than than won by the three largest groupings in the previous election in 2009, but still a comfortable majority.

Strasbourg, France

Strasbourg, France

The Left made some advances, too, albeit falling short of some expectations.

The fourth-place Green alliance and sixth-place European United Left combined for 13 percent of the vote, considerably more than far Right parties garnered, despite the strong showings of the United Kingdom Independence Party, France’s National Front and the Danish People’s Party. In Greece, Syriza (the Coalition of the Radical Left) came in first place. In Spain the United Left and Podemos — a four-month-old party organized by the “Indignados,” Spain’s Occupy movement — combined for 18 percent of the vote, and Left parties in Portugal did about as well.

Keeping the devil you know

Nonetheless, those who did not bother to vote formed a majority of the E.U. electorate. And those who did vote voted for more of the same, even if in most countries the one major party was swapped for the other major party. More of the same surely isn’t appealing, as the E.U. unemployment rate is 11.8 percent, barely off the 12 percent peak of March 2013. Inequality, although less severe than in the United States, has been rising for three decades. Moreover, the three largest blocs, plus a small right-wing bloc that includes Britain’s Conservative Party, are committed to the Transatlantic Trade and Investment Partnership, a “free trade” agreement being negotiated in secret between the U.S. and the E.U. with the warm approval of multi-national corporations on both sides of the Atlantic.

The lack of democracy in E.U. institutions is not a happenstance; the intention of them is imposition of a U.S.-style régime. There was and is no vote on the mandatory budget constraints national governments must abide by nor the policies of the European Central Bank. When loans are made to Greece by E.U. institutions, the money does not go to Greeks, it passes right through the Greek government and into the hands of French and German banks.

Thus it is no surprise to hear that of E.U. negotiators’ 127 closed meetings concerning the Transatlantic Partnership talks, at least 119 were with large corporations and their lobbyists, information known only because of investigatory work done by a public-interest group, Corporate Europe Observatory.

European food safety and privacy laws are squarely in the crosshairs of U.S.-based multinational corporations. European capitalists are one with their U.S. counterparts that trade rules should be “harmonized” — which means “harmonized” with the lowest standards. This is only one aspect of the larger project of neoliberal austerity to which Europe’s center-left parties are as committed as its center-right parties, as the French voters who put François Hollande into office have found. In Germany it was none other than the Social Democratic Party, through its “Agenda 2010” legislation, that instituted austerity there. The so-called German “miracle” rests on a decade of wage cuts for German workers.

You can only do so much in a voting booth

The large number of abstentions and decreased vote totals for major parties are symptomatic of Europeans becoming fed up with economic stagnation, high unemployment and the relentless austerity being imposed on them by unaccountable, undemocratic supranational institutions. But only in a handful of countries, where austerity has pushed down the hardest, have sizable opposition movements coalesced.

Those voters who could be bothered to vote for the European Parliament are not yet exhausted with their political and economic systems, mostly remaining content to alternate between major parties. Although the vote totals for the extreme Right were, overall, not as dramatic as press reports have portrayed them, nonetheless the strong increase in those votes is cause for concern, especially as Britain’s Conservative leadership increasingly appears inclined to adopt UKIP talking points and France’s Union for a Popular Movement does the same with National Front talking points.

When there is not an active Left to provide an alternative to institutional decay, the Right will fill the vacuum with scapegoating, programs to weaken anything that counters corporate power, paeans for a return to a mythological past, and the potential for nationalistic violence, a threshold already trampled by Greece’s Golden Dawn. But change in capitalist systems does not derive from parliamentary maneuvers, it comes from organized, militant popular movements.

We do not yet live in dictatorships; there remain cracks, seams and fissures in political systems that enable reforms. These can be significant reforms such as those won in the 1960s and, in the United States, in the 1930s. But those democratic spaces are closing — the ever more powerful spying apparatuses, militarized police, top-down rules imposed through “free trade” agreements and subsidies lavished on the already wealthy do not fall out of the sky. Moreover, reforms can and are taken back and are better seen as means to larger goals, not ends in themselves.

An intensified race to the bottom is all that is on offer by the governments and institutions of the world’s mature capitalist countries. There is no tweak of policy, nor exchange of one corporate party for another corporate party, that can solve the structural crisis of the global economic system. The European Parliament elections are interesting as a barometer of public opinion, but not for much else. An increasing number of people (although hardly a decisive number as yet) are signaling discontent but also that while they are beginning to decide what they don’t want, what they do want is much more inchoate. Nature abhors a vacuum.

You don’t spend a trillion dollars on the military for benign reasons

The idea that a country spends as much on its military as the rest of the world and has military personnel deployed in three-quarters of the world’s countries does so for purely defensive reasons is the absurdity it appears to be.

As former U.S. Secretary of State Madeleine Albright memorably said to General Colin Powell, “What’s the point of having this superb military you’re always talking about if we can’t use it?” Ah, bipartisanship. Neither Republican nor Democratic administrations have been shy in this regard: The United States militarily has invaded Latin American and Caribbean countries 96 times, including 48 times in the 20th century. That total constitutes only direct interventions and doesn’t include coups fomented by the U.S., such as Guatemala in 1954 and Chile in 1973.

Secretary Albright doesn’t have a short memory so much as ideological blinders. She of course is far from alone there. But before tackling some of those details, an examination of the size of U.S. military spending is in order, although that is not necessarily an easy number to determine. What is undisputed is that the U.S. spends many times more than any other country on Earth.

PentagonOne measure of the world’s military spending is provided by the Stockholm International Peace Research Institute, a self-described independent research organization that is nonetheless largely funded by the Swedish government. According to its figures, the U.S. spent $640 billion in 2013, roughly equal to the combined military spending of the next nine largest spenders combined.

The Stockholm Institute estimates China’s military spending (the world’s second highest) at $188 billion, about 50 percent higher than the figure found in the official Chinese budget, based on its analysis of China’s budget. That is reasonable, but the same standard should be applied to the United States, rather than simply accepting the Pentagon budget figure as the Stockholm Institute has done.

Pentagon budget only part of U.S. military spending

One estimate of actual U.S. military spending in 2013, put forth by the War Resisters League, is $1.355 trillion. The league arrives at that figure by adding military spending deriving from parts of the government other than the Pentagon, including veterans’ benefits and assigning 80 percent of the interest on the national debt. These are in addition to the official Pentagon budget.

In its annual pie charts exposing this spending, the league notes that other groups estimate that 50 to 60 percent of the national debt is attributable to military spending. For the sake of argument, splitting the difference between the high and low figures (using a figure of 65 percent debt assignment), lowers U.S. military spending to about $1.285 trillion. Adjusting U.S. spending to that level, while accepting the Stockholm Institute’s upward revisions for China and Russia, means that the United States spends more on its military than every other country on Earth put together.

There is no conceivable defensive purpose for such massive spending.

Nor is there one for the geographical breadth of the Pentagon. A web site for veterans, Vet Friends, states that the United States currently has military personnel deployed in about 150 countries, and 56 countries have hosted at least 1,000 U.S. troops at some time since 1950. The number of overseas U.S. military bases to which personnel are assigned is a matter of dispute. The Pentagon, in a 2003 report, said it had 702 overseas installations. As the Bush II/Cheney administration’s “war on terror” was then in its early stages, that number has likely grown. A report published by the conservative Canadian newspaper National Post estimates the actual figure is anywhere from 700 to 1,000.

The cost of that vast overseas deployment is no easier to estimate. David Vine, writing for Al-Jazeera, did his best to pin down a reasonable figure:

“How much does the U.S. spend each year occupying the planet with its bases and troops? How much does it spend on its global presence? Forced by Congress to account for its spending overseas, the Pentagon has put that figure at $22.1bn a year. It turns out that even a conservative estimate of the true costs of garrisoning the globe comes to an annual total of about $170bn. In fact, it may be considerably higher. Since the onset of ‘the Global War on Terror’ in 2001, the total cost for our garrisoning policies, for our presence abroad, has probably reached $1.8 trillion to $2.1 trillion.”

Playing the ‘democracy’ card never gets old

Why does the United States government put itself into debt for such unjustifiable spending? The usual story spoon-fed to United Statesians and to the rest of the world is a benign, even self-sacrificing, willingness to be the world’s policeman. The question then becomes one of “Can we afford to do this?” The actual reason — to enforce and extend U.S. dominance and to boost profitability of U.S.-based multi-national corporations — is treated as if such considerations did not exist, despite being repeatedly demonstrated by the words of U.S. government officials.

A splendid example of this self-serving myopia is a 2012 paper produced by the Cato Institute, a font of far right, libertarian material taken seriously in such circles, at least before the Koch Brothers’ coup two years ago that tightened their control over the organization. This paper, “Why the U.S. Military Budget is ‘Foolish and Sustainable,’ ” does acknowledge that military spending “is designed for projecting power abroad, not protecting Americans.” But the paper would have us believe that is because the U.S. is too nice:

“We adopted our current strategy — which amounts to trying to run the world with the American military — because we could, not because it was wisest. … U.S. security guarantees can create moral hazard — emboldening weak allies to take risks they would otherwise avoid in their dealings with neighbors, heightening instability and threatening to pull the United States into wars facilitated by its benevolence.”

The problem, this Cato Institute paper asserts, is that the U.S. allows its allies to “free-ride” on its “benevolence” while receiving nothing tangible in return. The solution to this is to force other countries to spend more on their militaries. In this fairy tale, a global arms buildup would bring an end to the “infantilization” of U.S.-allied countries. Better to force the rest of the world to grow up, the paper asserts:

“Abandoning the pretension that global trade depends on U.S. protection would allow vast reductions in overseas missions and peace-time military expenditures. Avoiding the conflation of foreign disorder would allow American leaders to plan for fewer occupational wars.”

Although those on the receiving end of imperial bombs and dictated “structural adjustments” are not in doubt about the phantasmagoria of these Cato Institute arguments — consistent as they are with the level of debate found in elite circles and the corporate mass media — let us at least dip our toes into a real world-based examination of U.S. foreign policy.

Bankers, banana barons and military interventions

At the beginning of the 20th century, U.S. President William Howard Taft declared that his foreign policy was “to include active intervention to secure our merchandise and our capitalists opportunity for profitable investment” abroad. Those were not idle words. A Nicaraguan dictator, José Santos Zelaya, was overthrown in 1909 because he angered the United States by accepting a loan from British bankers instead of U.S. bankers. Taft then placed Nicaragua’s customs collections under U.S. control and refinanced the loan through two U.S. banks, which were given control of Nicaragua’s national bank and railroad as a reward.

Half a century later, the U.S. overthrew Guatemala’s democratically elected president, Jacobo Arbenz, on behalf of the United Fruit Company. That was a company with friends in high places — Central Intelligence Agency Director Allen Dulles and Secretary of State John Foster Dulles earlier in their careers were partners in United Fruit’s main law firm, Sullivan & Cromwell. A 1952 “national intelligence estimate” (a joint document put together by the CIA and other U.S. intelligence agencies) had this to say about United Fruit’s efforts to maintain its dominant position:

“If the company should submit to Guatemalan demands the political position of the Arbenz Administration would be greatly strengthened. The result, even if it were a compromise agreement, would be presented as a national triumph over ‘colonialism’ and would arouse popular enthusiasm. … The Government and the unions, under Communist influence and supported by national sentiment, would probably proceed to exert increasing pressure against other U.S. interests in Guatemala, notably the Railway.”

Note the use of quote marks around “colonialism,” as if such a concept did not exist, and a privately owned railroad is a “U.S. interest.” Class interests are also revealed by the ritual reference to “Communist influence” — a phrase implying that Guatemalans, or anybody else subject to the formulation, are intellectually incapable of analyzing their own lives and experiences.

In the following decade, the United States backed a military coup overthrowing a democratically elected government in Brazil in 1964. The U.S. ambassador to Brazil, who served in the Kennedy and Johnson administrations, said the coup, which installed a right-wing dictatorship that tortured opponents, would “create a greatly improved climate for private investment.” In more recent times, the Bush II/Cheney administration sought to sweep away all constraints limiting the plundering of Iraq by U.S. multi-national corporations following the invasion, establishing a foothold intended to be replicated elsewhere. That it didn’t succeed doesn’t ameliorate that the attempt was made nor the enormous damage done.

That isn’t only in the history books

And as the failed U.S.-backed coup in Venezuela in 2002, and the current destabilization attempt there, demonstrate, any country that doesn’t orient government policy to the enrichment of foreign capital above all other considerations quickly becomes a target. As a 2006 secret memo revealed by WikiLeaks discusses, the U.S. government spends considerable money destabilizing countries it does not like. This memo, circulated to the Army command for South America in addition to various U.S. embassies, outlines a five-point program to topple then president Hugo Chávez that included tens of millions of dollars funneled through the U.S. Agency for International Development and the creation of opposition groups.

Typical of the warped prism through which U.S. elites view the world, the memo’s first sentence is: “During his 8 years in power, President Chavez has systematically dismantled the institutions of democracy and governance.” That was said of a president whose movement won 16 of 17 national elections, almost all by at least 10 percentage points. (Sixteen more legitimate national electoral victories than achieved by George W. Bush for those keeping score.)

Former U.S. President Jimmy Carter, an observer, characterized the Venezuelan election process as “the best in the world.” Voters in Venezuela make their selections on computers in which party and independent observers participated in 16 pre-election audits, election-machine software has built-in systems to prevent tampering, and a paper receipt is printed out for every vote. A system of community councils is building up participatory democracy, and processes intended to build economic democracy are ongoing.

Venezuela is attempting to create an economy geared toward the betterment of its population, rather than the maximization of corporate profits. The majority of Venezuelans, previously shut out of political participation by the country’s capitalists, are now involved in creating popular institutions.

That is what is seen as a threat by the U.S. government, acting on behalf of its industrialists and financiers, as it has done since the 19th century. Although nowadays financial pressure is the preferred methodology thanks to the development of a global web of banks and multilateral institutions, force underlies the enforcement of these interests around the world. Violence has always been the handmaiden of capitalism.

Opening our eyes to how capitalism began

All systems of inequality and exploitation require violence. When we peer into the past, such a statement is not controversial; it is only when we turn our attention to the present that selectivity is applied.

Capitalism, however, has weaved a vast web of mythology about itself. If we are talking about ancient enough history — say the nineteenth century in the context of the Industrial Revolution — some acknowledgement of brutality is accepted. Inconsistently, the beginnings of capitalism are shrouded in mists of rose-colored haze despite lying further back in time.

Slave memorial in Saint-Paul, Reunion Island (Photo by Tonton Bernardo)

Slave memorial in Saint-Paul, Reunion Island (Photo by Tonton Bernardo)

But think about it: Does the idea that peasants, used to self-sufficiency albeit under often difficult circumstances, would willingly take subservient jobs in inhuman sweatshops make any more sense than today’s apologists who claim that people in developing countries wish to work back-breaking hours for pitiful wages? Horrific, state-directed violence in massive doses enabled capitalism to slowly establish itself, then methodically expand from its northwestern European beginnings.

Peasant uprisings repeatedly broke out across medieval Western and Central Europe, sometimes with explicit demands for equality and sometimes in the form of religious movements challenging the feudal order and, therefore, the Roman Catholic Church that provided the local ideological glue. In response, the church stepped up its Inquisition and its burning of non-conforming women as “witches” as part of the effort to subjugate peasants and town-dwelling working people and to foster divisions within those large groups.*

Entering the new factories at gunpoint

English feudal lords began throwing peasants off their land in the sixteenth century, a process put in motion, in part, by continuing peasant resistance. The rise of Flemish wool manufacturing — wool had become a desirable luxury item — and a corresponding rise in the price of wool in England induced the wholesale removal of peasants from the land. Lords wanted to transform arable land into sheep meadows, and began razing peasant cottages to clear the land. These actions became known as the “enclosure movement.”

This process received further fuel from the Reformation — the Roman Catholic Church had owned huge estates throughout England, and when these church lands were confiscated, the masses of peasants who were hereditary tenants on these lands were thrown off when the confiscated church lands were sold on the cheap to royal favorites or to speculators.

Forced off the land they had farmed and barred from the “commons” (cleared land on which they grazed cattle and forests in which they foraged), peasants could either become beggars, risking draconian punishment for doing so, or become laborers in the new factories at pitifully low wages and enduring inhuman conditions and working hours.

Force was the indispensable factor in creating the first modern working class. Late feudalism was hardly a paradise for small farmers, but Western European peasants, some of whom were independent smallholders, had wrested better conditions for themselves. They had no reason to enter willingly the new workplaces and the Dickensian conditions they would endure there.

The historian Michael Perelman, in his appropriately titled book The Invention of Capitalism, wrote:

“Simple dispossession from the commons was a necessary, but not always sufficient, condition to harness rural people to the labor market. A series of cruel laws accompanied the dispossession of the peasants’ rights, including the period before capitalism had become a significant economic force.

For example, beginning with the Tudors, England created a series of stern measures to prevent peasants from drifting into vagrancy or falling back onto welfare systems. According to a 1572 statute, beggars over the age of fourteen were to be severely flogged and branded with a red-hot iron on the left ear unless someone was willing to take them into service for two years. Repeat offenders over the age of eighteen were to be executed unless someone would take them into service. Third offenses automatically resulted in execution. … Similar statutes appeared almost simultaneously in England, the Low Countries, and Zurich. … Eventually, the majority of workers, lacking any alternative, had little choice but to work for wages at something close to subsistence level.”

Supplementing these laws were displays of military power. A widely quoted document claims that 72,000 were hanged during the early sixteenth century reign of King Henry VIII, throughout which England experienced a series of peasant uprisings. Regardless of what the true number may have been, Henry, who reigned as the enclosures reached their peak, did have large numbers of people executed for being “vagabonds” or “thieves” — in reality for not working.

Force of the state backs the powerful

Systematic state force enabled factory owners to steadily gain the upper hand against artisans, although those nascent capitalists possessed no production innovations at the time. Economist Herbert Gintis wrote:

“Early factories employed the same techniques of production as putting-out [assemblers of finished products working from home] and craft organization, and there were no technological barriers to applying them to these more traditional forms. The superior position of the capitalist factory system in this period seems to derive not from its efficiency sense, but its ability to control the workforce: costs were reduced by drawing on child and female labor, minimizing theft, increasing the pace of work, and lengthening the workweek.”

A process of intensifying exploitation enabled early factory owners to accumulate capital, thereby allowing them to expand and amass fortunes at the expense of their workforces; they were also able to force artisans out of business, forcing artisans to sell off or abandon the ownership of their means of production and become wage laborers. Greater efficiencies can be wrung out through economies of scale, which in turn leads to the ability to introduce new production techniques because the accumulation of capital also provides funds for investment. Such efficiency, in turn, is necessary for the capitalist to take advantage of opportunities for trade.

The gathering pressures of competition eventually ignited the Industrial Revolution and fueled the rise of the factory system. A flurry of inventions useful for production shaped the Industrial Revolution that took root in Britain in the second half of the eighteenth century. The Industrial Revolution emerged not only due to technological and economic factors, but also as a result of capitalist class relations that had already become established. The introduction of machinery was a tool for factory owners to bring workers under control — technological innovation required fewer employees be kept on and deskilled many of the remaining workers by automating processes.

As industrial resistance gathered steam in the early nineteenth century, the British government employed 12,000 troops to repress craft workers, artisans, factory workers and small farmers who were resisting the introduction of machinery by capitalists, seeing these machines as threats to their freedom and dignity — more troops than Britain was using in its simultaneous fight against Napoleon’s armies in Spain.

This period coincided with a “moral” crusade promoted by owners of factories and agricultural estates in which the tiny fraction of commons that had survived were taken away by Parliament; the measure of independence rights to the use of commons provided wage laborers was denounced for fostering “laziness” and “indolence” — defects that could be cured only by forcing full dependence on wage work. Organizing, in the forms of unions and other coordinated activity, soon supplanted machine-breaking, reinforcing capitalists’ desire to use technical innovation to make their workforces docile.

Fortunes built on slavery, colonialism

The process of accumulation by European capitalists was greatly accelerated by slavery and colonialism.

Gold and silver were the mediums of exchange in Europe, Asia and Africa, and currencies were based on these metals. Indigenous peoples in Mexico and the Andes were skilled at mining, creating a supply of both metals that they themselves used for ornamental purposes. Silver shipped to Spain from Latin America by 1660 totaled three times more than the entire pre-existing supply in all of Europe. During this period, silver production in the Americas was an estimated ten times that of the rest of the world combined, all of which was shipped to Spain.

This vast wealth enriched the empires and monarchies of Europe, except for Spain — the metals it imported mostly were delivered to foreign creditors, and the rest spent on the Crusades, the Inquisition and importing manufactured items. Spain imported everything it needed while other countries threw up trade barriers and developed their industries.

The brutality with which this extraction of wealth was carried out led to the reduction of Indigenous populations by an estimated 95 percent. The imperial solution to this genocide was to import slaves from Africa. A steadily increasing number of slaves were shipped from the early sixteenth century as plantations grew in size. During the seventeenth century, Caribbean sugar supplanted mainland precious metals as the mainstay of wealth extraction; for three centuries the European powers would engage in continual struggle for possession of these islands. This sugar economy was based on the slave labor of kidnapped Africans; conditions were so horrific that one-third of the slaves who made it to the Caribbean died within three years — it was more profitable to work slaves to death and buy replacements than to keep them alive.

The triangular trade (Graphic by Sémhur)

The triangular trade
(Graphic by Sémhur)

The slave trade, until the end of the seventeenth century, was conducted by government monopolies. European economies grew on the “triangular trade” in which European manufactured goods were shipped to the coast of western Africa in exchange for slaves, who were shipped to the Americas, which in turn sent sugar and other commodities back to Europe. Britain and other European powers earned far more from the plantations of their Caribbean colonies than from North American possessions; much Caribbean produce could not be grown in Europe, while North American colonies tended to produce what Europe could already provide for itself.

Britain profited enormously from the triangular trade, both in the slave trade itself and the surpluses generated from plantation crops produced with slave labor. Proceeds from the slave trade were large enough to lift the prosperity of the British economy as a whole, provide the investment funds to build the infrastructure necessary to support industry and the scale of trade resulting from a growing industrial economy, and ease credit problems — early industrialists had extremely large needs for investment capital and commercial credit because of long delays in returns on investment due to the slow pace of trade transport.

Profits from the slave trade and from colonial plantations were critical to bootstrapping the takeoff of British industry and modern capitalism in the second half of the eighteenth century into the early nineteenth century.

Wealth for colonial masters, poverty for the colonies

The sociologist Robin Blackburn, in his comprehensive study The Making of New World Slavery, wrote:

“Britain undertook a major series of investment programmes: in the merchant marine, in harbours and docks, in canals, in agricultural improvements and in developing new industrial machinery. The profits of empire and slavery helped to make this possible, enlarging the resources at the command of public authorities, [land-]improving landlords, enterprising merchants and innovating manufacturers. Because of the prior transformation in agriculture, and in British society as a whole, colonial and mercantile wealth could be transmuted into capital employing wage labour.”

This extraction process had opposite effects in those colonies undergoing the most intensive exploitation. The Caribbean countries were reduced to monoculture production, forbidden to manufacture anything, because their agricultural products were so profitable. The mainland colonies that would one day become the United States, by contrast, were allowed to develop the industry and varied agriculture that would in the future enable rapid growth of their economy. African development also was stunted because rulers of coastal kingdoms could buy goods and weapons from Europe while profiting by enslaving Africans from other kingdoms; wealth there was used to buy from imperial powers and thus did not stay in Africa.

The widespread use of slave labor also necessitated that further social divisions be instituted, while institutionalizing global trade. Marxist feminist theorist Silvia Federici, in her book Caliban and the Witch, wrote:

“With its immense concentration of workers and its captive labor force uprooted from its homeland, unable to rely on local support, the [Caribbean and Latin American] plantation prefigured not only the factory but also the later use of immigration and globalization to cut the cost of labor. In particular, the plantation was a key step in the formation of an international division of labor that (through the production of ‘consumer goods’) integrated the work of slaves into the reproduction of the European workforce, while keeping enslaved and waged workers geographically and socially divided.”

On such roots is modern inequality built.

* The remainder of this article consists of extracts from the “Explorations in theories of transition to and from capitalism” section of my forthcoming book It’s Not Over: Lessons from the Socialist Experiment (still seeking a publisher). Footnotes omitted. In addition to the works directly quoted, sources include Karl Marx,“Expropriation of the Agricultural Population from the Land”; David Dickson, The Politics of Alternative Technology; Eric Williams, From Columbus to Castro: The History of the Caribbean; Eduardo Galeano, Open Veins of Latin America: Five Centuries of the Pillage of a Continent; John C. Mohawk, Utopian Legacies: A History of Conquest and Oppression in the Western World; and David McNally, Against the Market: Political Economy, Market Socialism and the Marxist Critique.

When you are on top, ‘might makes right’ is ‘rule of law’

The Obama administration’s moralistic paeans to the “rule of law” concerning whistleblower Edward Snowden would carry considerably more weight if the United States weren’t continuing to harbor an assortment of ex-dictators and a terrorist who killed dozens in an airplane bombing. As soon as we look under the hood, we see “might makes right” at work, not “rule of law.”

If the U.S. government actually cares about the sanctity of international law, it could start by handing over Luis Posada Carriles, convicted of blowing up a Cuban airliner that killed 73 people, to the government of Venezuela. Not only has Mr. Posada has been living in Florida for many years, he has at times worked for the U.S. government since escaping from a Venezuelan jail. Shortly after escaping prison (allegedly thanks to bribes paid by members of the Miami Cuban exile community) he was hired to work on Oliver North’s illegal Nicaraguan Contra supply network, and is suspected of involvement in an attempt to assassinate Fidel Castro in 1994 and a string of tourist-hotel bombings in the Havana area in 1997.

Mr. Posada, who trained with the CIA in the 1960s, gave an interview to three major U.S. newspapers in 1997 in which he admitted to some of activities. Writing about this topic in 2002 in an article published in BigCityLit, I wrote:

“The Miami Herald, Los Angeles Times and New York Times reported Posada’s revelations, which detailed a series of bombings and other terror acts and connections with Cuban exile groups in Miami. Posada, then 70 years old, ‘revealed that key Cuban American lobbyists in this country financed his activities, in apparent violation of U.S. law, while the FBI and CIA looked the other way,’ according to a Los Angeles Times report.”

The National Security Archive, a project of George Washington University that publishes declassified U.S. government documents, provided further details in 2005:

“The National Security Archive today posted additional documents that show that the CIA had concrete advance intelligence, as early as June 1976, on plans by Cuban exile terrorist groups to bomb a Cubana airliner. The Archive also posted another document that shows that the FBI’s attaché in Caracas had multiple contacts with one of the Venezuelans who placed the bomb on the plane, and provided him with a visa to the U.S. five days before the bombing, despite suspicions that he was engaged in terrorist activities at the direction of Luis Posada Carriles. …

“[A] report from the State Department’s Bureau of Intelligence and Research on the bombing of Cubana flight 455 … noted that a CIA source had overheard Posada prior to the bombing in late September 1976 stating that, ‘We are going to hit a Cuban airliner.’ This information was apparently not passed to the CIA until after the plane went down. There is no indication in the declassified files that indicates that the CIA alerted Cuban government authorities to the terrorist threat against Cubana planes.”

They said he’s a terrorist, but gave him a pardon anyway

The Cuban and Venezuelan governments have long requested extradition of Mr. Posada, to no avail. Another Cuban exile leader, Orlando Bosch, was granted a pardon by President George H.W. Bush in 1990 and lived free in the U.S. for three decades until dying in 2011. Mr. Bosch was also suspected in the Cuban airline bombing and in a series of other terroristic acts. Duncan Campbell, writing in The Guardian, reported a decade ago on him:

“According to US justice department records: ‘the files of the FBI and other government agencies contain a large quantity of documentary information which reflects that, beginning in the early 1960s, Bosch held leadership positions in various anti-Castro terrorist organisations. … Bosch has personally advocated, encouraged, organised and participated in acts of terrorist violence in this country as well as various other countries.’ ”

Lest we be tempted to chalk the above up simply to the U.S. government’s bipartisan obsession with Cuba, we’ve only scratched the surface of U.S. hypocrisy over the “rule of law.” Bolivia, for example, has requested extradition of former president Gonzalo Sánchez de Lozada. At the time already responsible for the deaths of dozens of protestors, President Sánchez sent his security forces to put down a peaceful rally opposing the selling off of Bolivian gas reserves; 67 were killed and more than 400 injured. He later fled into exile and was formally charged in 2007 with genocide.

The Obama administration refuses to send him back. A report by Glenn Greenwald in The Guardian states:

“Bolivia then demanded his extradition from the US for him to stand trial. That demand, ironically, was made pursuant to an extradition treaty signed by Sánchez de Lozada himself with the US. … The view that Sánchez de Lozada must be extradited from the US to stand trial is a political consensus in Bolivia, shared by the government and the main opposition party alike. But on [September 7, 2011], the Bolivian government revealed that it had just been notified by the Obama administration that the US government has refused Bolivia’s extradition request.”

Then there is Warren Anderson, former chairman of Union Carbide, who is wanted in India in the wake of the explosion of his company’s Bhopal pesticide plant that killed thousands of people and injured tens of thousands. Indians courts have issued warrants for his arrest, which have been met with silence while he shuttles between houses on the U.S. East Coast.

It’s not only terrorists and corporate criminals who enjoy safe havens in the United States. Amnesty International, in a 2002 report, US is a ‘Safe Haven’ for Torturers Fleeing Justice, estimated that at least 150 torturers were living in the county then, none of whom was brought to justice. The number of torturers that the U.S. has trained, at its School of the Americas at Fort Benning, Georgia, is far higher. At the SOA (currently operating under the name of “Western Hemisphere Institute for Security Cooperation”) the U.S. Army trains Latin American military and police officers in torture techniques as part of its curriculum; the countries with the worst human rights records consistently send the most trainees.

If they don’t like terrorists, why do they train them?

The watchdog group School of Americas Watch, in an investigative report written by Bill Quigley, summarizes the work of the SOA:

“[G]raduates of the SOA have been implicated in many of the worst human rights atrocities in the Western Hemisphere, including the assassination of Catholic bishops, labor leaders, women and children, priests, nuns, and community workers and the massacres of entire communities. Numerous murders and human rights violations by SOA graduates have been documented in Bolivia, Chile, Colombia, El Salvador, Guatemala, Honduras, and Paraguay among others. These horrendous acts correspond to part of the school’s curriculum: systematic use of torture and executions to neutralize dissidents.” [page 2]

An article in The Washington Post, a newspaper (despite its long-ago Watergate reporting) that often acts as if it were an official publication of the U.S. government (and which has eagerly joined in the attacks on Edward Snowden), nonetheless reported straightforwardly on the use of torture manuals released by the Pentagon under pressure:

“U.S. Army intelligence manuals used to train Latin American military officers at an Army school from 1982 to 1991 advocated executions, torture, blackmail and other forms of coercion against insurgents, Pentagon documents released yesterday show. Used in courses at the U.S. Army’s School of the Americas, the manual says that to recruit and control informants, counterintelligence agents could use ‘fear, payment of bounties for enemy dead, beatings, false imprisonment, executions and the use of truth serum.’ ”

That was the summation of a newspaper that ordinarily rushes to defend U.S. foreign policy. The techniques it described were not a small part of the curriculum, nor an aberration, as the Post article implied in an attempt to soften the revelation. A former SOA instructor, Major Joseph Blair, told The Progressive:

“I sat next to Major Victor Thiess who created and taught the entire course, which included seven torture manuals and 382 hours of instruction. … He taught primarily using manuals which we used during the Vietnam War in our intelligence-gathering techniques. The techniques included murder, assassination, torture, extortion, false imprisonment. … Literally thousands of those manuals were passed out. … The officers who ran the intelligence courses used lesson plans that included the worst materials contained in the seven manuals. Now they say that there were only eighteen to twenty passages in those manuals in clear violation of U.S. law. In fact, those same passages were at the heart of the intelligence instruction.” [“School of the Americas Critic,” July 1997]

He killed 1,000 a month, but he’s ‘dedicated to democracy’

The SOA continues to operate. One of the graduates of the school is Efrain Ríos Montt, the most blood-thirsty of a series of brutal dictators who ruled through terror in Guatemala. Each of these dictators ruled with the full support of the U.S. following the CIA-organized overthrow of the democratically elected Jacobo Árbenz Guzmán at the behest of the United Fruit Company, which had previously been the country’s de facto ruler. The succession of dictatorships killed more than 200,000 Guatemalans. The régime of President Ríos Montt murdered more than 1,000 people a month during 1982, with Ríos Montt himself hailed by U.S. President Ronald Reagan as “totally dedicated to democracy” and unfairly the target of “a bum rap.”

Simultaneously, the Guatemalan military intensified its assaults on Indigenous communities. For example, SOA Watch reports, a Guatemalan special forces unit with extensive ties to the SOA, the Kaibiles, carried out this operation:

“[The unit] entered the village of Las Dos Erres, systematically raped the women, and killed 162 inhabitants, 67 of them children. Current President of Guatemala Otto Peréz Molina, also a graduate of the SOA, spent much of his time in military service as a member of the Kaibiles. This military unit was developed by the Guatemalan government in 1974, and its initial leader was a fellow SOA graduate.”

Among the techniques used by Guatemala’s dictators, according to the book Harvest of Empire: A History of Latinos in America by Juan Gonzalez, were dropping mutilated bodies from helicopters into crowded stadiums and cutting out the tongues of people who inquired about the “disappearances” of friends and family.

And let us not forget the loyal sidekick of the U.S., Great Britain, which seeks to extradite WikiLeaks founder Julian Assange to Sweden merely for questioning at the same time it refuses to extradite a convicted pedophile, Shawn Sullivan, to stand trial in Minnesota, claiming that the U.S. justice system has a civil commitment program for sex offenders that is too draconian. The Daily Kos reports that the suspect is charged with raping a 14 year old girl and sexually assaulting two 11 year old girls in 1994, but escaped to Ireland.

In no way is Edward Snowden, a whistleblower who has provided a service to humanity, comparable to the murderous rouges gallery described in this article, but the Obama administration might want to meet its obligations under international law before it further strong-arms other countries. But then “rule of law” in a world in which force maintains vast inequality is a euphemism for “rule of the most powerful.”

History, subordination weigh heavily on unfinished Arab Spring

As exhilarating as it was for the people in Tahrir Square to have forced out Hosni Mubarak, that was the easy part. Dismantling a dictatorial system is much more difficult than seeing off a particular dictator.

This is the reality that Egyptians, and participants in other countries comprising the Arab Spring, continue to face. The dictator does not sit suspended above all of society, but rather rules with the support of a social base. Not rarely the dictator, when in the global South, is supported (and even reliant on) an imperial power with its own agenda. The United States government, whether the occupant of the White House is a Republican or a Democrat, has kept dictators in power throughout the world — the U.S. has militarily intervened in Latin America or the Caribbean 96 times, including 48 times during the 20th century. That total doesn’t include coups fomented by the U.S., such as Guatemala in 1954 and Chile in 1973.

Tahrir Square photo by Jonathan Rashad

Tahrir Square photo by Jonathan Rashad

The leading powers of capitalism were quite comfortable with the pre-Arab Spring status quo and, most notably in the case of the U.S. government, did little to discourage the idea that they’d prefer to keep things as they had been. But this is not to suggest that internal factors should be ignored. The same judges appointed by former President Mubarak preside; the Army continues to impose its will in the judicial and economic spheres; and the Muslim Brotherhood seems comfortable stepping into the shoes of the former régime. The economy continues to not function but the priority among Egypt’s elites is to jockey for power.

The military was the crucial social force on which the dictatorship of Anwar Sadat and Hosni Mubarak rested and, having accumulated significant economic interests to go along with their powers of coercion, is not inclined to loosen its grip. This source of power survived the removal of President Mubarak intact — augmented by the continuance on the bench of the Mubarak-era judges, the pillars of the dictator’s system remain in place. And although the Muslim Brotherhood would likely prefer the power of the military and the judiciary trimmed, it nonetheless appears content to simply place itself at the apex of this system and govern, to the ability it is able, with its own heavy hand.

The imperial powers, needless to say, are not eager for too much democracy in the Arab world, lest their ability to keep their grip on the region’s oil supplies loosen. But the greed of Western oil majors sometimes can backfire. A June 2 article in The New York Times reported that China is reaping the benefits of increased Iraqi oil production, buying half of Iraq’s oil and seeking more. The U.S. failed to gain complete control of Iraq’s oil as it had intended, and the measure of relative independence shown by the Iraqi government resulted in Baghdad setting tougher contract terms than Western oil companies would prefer.

The result, according to the Times, is that Chinese companies have accepted the lower profits resulting from the stricter Iraqi terms, content to secure needed supplies rather than maximize profits. Of course, although oil was a factor in the invasions of Iraq by the Bush I and Bush II/Cheney administrations, bringing Iraq (and, ultimately, the rest of the region) firmly into the U.S. orbit and forcing them open to unfettered penetration by multi-national corporations was a paramount goal. Naturally, this was to have been on a subordinate basis. There is a long history here, starting with the British crushing of Egypt’s attempt to industrialize in the 19th century.

First by military means, then by financial means

Although still formally a part of the Ottoman Empire, Egypt gained considerable autonomy after an Ottoman military commander, Muhammad Ali Pasha, became the ruler of Egypt following the departure of French forces under Napoleon Bonaparte. The new Egyptian leader, after securing power through a massacre of a rival group, embarked on a policy of industrialization and commodity agriculture to facilitate his a goal of Egyptian independence.

Cultivated lands were expanded and crops were grown specifically for export, most importantly cotton. The new strain of cotton he ordered planted was to be the cash crop used to finance Egypt’s economic rise. Lowell Lewis, an agricultural scientist, summarized this process:

“Since British textile manufacturers were willing to pay good money for such cotton, Ali ordered the majority of Egyptian peasants to cultivate cotton at the exclusion of all other crops. At harvest time, Ali bought the entire crop himself, which he then sold at a mark-up to textile manufacturers. In this way, he turned the whole of Egypt’s cotton production into his personal monopoly.”

Had Muhammad Ali been content to be a supplier of a raw material (in this case, cotton), he likely would not have incurred the wrath of the British. But he also was committed to industrial development. Factories in several industries were set up, including textile, and foreign trade monopolies were established. To stop the flood of British textiles imported into Egypt, embargoes were put in place. Britain did not want this competition, ultimately crushing the rise of Egypt through a mix of military and financial means.

Egypt’s ambitious ruler, despite being a viceroy for a province of the Ottoman Empire, built a large army that was used in a series of invasions, expanding his areas of control from Sudan to Syria. Britain had adopted a policy of propping up the Ottoman Empire; a weak but intact empire would suit Britain’s strategic and commercial interests. When Muhammad Ali’s army approached Istanbul, the Ottoman capital, several European powers came to the aid of the Ottomans, handing Egypt’s ruler a decisive defeat. In 1841, he was forced to sign a treaty specifying that Egypt would adhere to “free trade” policies, ending his monopolies and allowing Egypt to be flooded with cheap British imports, decimating Egyptian industry.

Egypt’s peasants had borne much hardship under the pre-1841 policies; they would now suffer more under heavy burdens of debt and taxation, while elite landowners who came to own most of Egypt’s farmlands were taxed at a small fraction of the peasants’ rate. Muhammad Ali had handed much of the elites’ land to them, and his successors continued to oversee a consolidation of land.

That was one component of the 19th century version of neoliberalism, although the term had not yet been coined. Another component was the debt that ensnared Egypt. Muhammad Ali’s grandson, Ismail, sought to modernize Egypt along European lines during his reign in the 1860s and 1870s. But the country went deep into debt to finance this program. Egypt could not even pay the interest, let alone the principal. Rather than risk a repudiation of the debt, the German and French governments forced Ismail to appoint British and French commissioners to oversee Egyptian finances to guarantee that the debt was paid.

As an example, in 1873, the Egyptian government accepted a loan with a face value of £32 million but received only £9 million because of conditions placed on the loan by the lenders — yet had to repay the full face value. Reduced to an exporter of raw materials as the British had intended, and thus overly dependent on volatile cotton prices, by 1877 more than 60 percent of all Egyptian revenue went to service the national debt. Within another five years, Britain’s direct occupation of Egypt had begun.

The players change, but the game does not

Following World War I, Britain maintained tight control of Egypt’s cotton exports, which accounted for 90 percent of Egypt’s exports. Even after Egypt gained independence after World War II, imperialist intrigue did not end. The British and French governments, in collusion with Israel, invaded Egypt in an attempt to seize the Suez Canal and overthrow Egyptian leader Gamal Abdel Nasser. A series of diplomatic maneuvers had led President Nasser to nationalize the Egyptian company that operated the canal, with payments to shareholders at full market prices.

Following British and French withdrawal in the face of international opposition to the invasion, including by U.S. President Dwight Eisenhower, President Nasser proceeded to nationalize British and French assets. He also embarked on plans to industrialize the country and redistributed land. But a decisive loss in the 1967 war with Israel, by then strongly backed by the U.S., undermined the president and weakened the economy. Anwar Sadat became president in 1970, and was rewarded for his re-aligning the country toward the U.S. from the Soviet Union with heavy aid.

Since then, Egypt has been dependent on U.S. aid and, in turn, the country was ruled almost continuously under emergency laws until the fall of Hosni Mubarak. The U.S. provided $1.47 billion in foreign aid to Egypt in 2011, $1.3 billion of which was military assistance. U.S. military-assistance programs have the goal of inducing recipients to align their policies with U.S. wishes, and much of it is specifically earmarked for the recipient to buy arms from U.S. companies. Thus recipient militaries are able to buy materiel that wouldn’t otherwise be able to, and U.S. arms manufacturers’ profits are subsidized.

The size of the military’s share of Egypt’s economy remains a subject of considerable controversy but, whatever the figure, is substantial. The last years of the Mubarak era saw a decisive turn to neoliberal prescriptions; although the military might have seen privatization schemes as a threat to its commercial interests, the post-Mubarak military command, which appears to possess decisive political power even after the ascension of Mohamed Morsi to the presidency, reached a tentative agreement (not yet ratified) with the International Monetary Fund, attached to the usual austerity conditions.

The Egyptian military has expanded into shipbuilding, railroad cars, real estate development, heavy equipment leasing and military materiel. It also is a part owner of companies in a variety of other industries, including computers and oil and gas pipelines.

The military and the Muslim Brotherhood are rivals for power, but whatever the differences between them, they have mutual interests in maintaining the status quo. The judiciary is another pillar of the old régime, and has flexed its muscles by issuing a series of rulings undermining the establishment of new institutions.

A United Nations report issued last month reports that more than 40 percent of Egypt’s population lives below the country’s poverty line of $2 per day, while two percent of the country’s population controls 98 percent of the economy; poverty, inflation and unemployment are steadily rising. A law passed by the military bans strikes, sit-ins and protests, and fewer Egyptians have access to health care because it is increasingly privatized. Meanwhile, Egypt’s Muslin Brotherhood-appointed prime minister announced this week that “there are no differences” between he and the International Monetary Fund concerning austerity measures the IMF is demanding in return for providing a loan.

Egypt’s generals want U.S. money and the Brotherhood promotes Turkey’s neoliberal Justice and Development Party as model. The military, the Brotherhood and the remnants of the Mubarak régime are the only institutions remaining, and the U.S. government can’t be displeased about that. It destroyed all Left entities that posed any threat, refusing to tolerate even nationalistic leaders whose “socialism” was limited to rhetoric, such as Gamal Abdel Nasser. Doing so was in the tradition of the previous leading capitalist power, Britain.

The inability of the Arab Spring, thus far, to bring about any meaningful reform, let alone revolutionary change, is inseparable from the region’s history and continued subordinate status in the world capitalist system.

Can a no-growth future and capitalism be compatible?

Is the era of economic growth over for advanced capitalist countries? If stagnation is what is on offer for the future, what does that portend?

The first question, although limited to the United States, is the subject of an interesting paper by the economist Robert J. Gordon, in which he makes a case that the era of high growth that has persisted for the past two centuries is drawing to a close and that, by the end of the 21st century, the annual growth in gross domestic product per capita may be as low as 0.2 percent — the estimated rate of growth prior to the 18th century.

The paper provides a useful starting point for discussion. A central idea that the paper rests on is that nearly all of the dramatic gains in standards of living, GDP growth and life expectancy that have occurred since the dawn of the Industrial Revolution had already occurred by the 1970s, and that those earlier inventions had vastly more impact than the Internet/computer/dot-com boom that arose in the mid-1990s.

To illustrate this point, Professor Gordon provides a graphic of past, present and projected future growth that assumes the shape of a steep bell curve. British economic growth is represented from 1300 to 1906, estimated by historians for the first four hundred years and by actual figures from 1700 because it was then the leading capitalist power. After 1906, actual United States growth in GDP per capita is used to the present day (because it became the leading capitalist power), followed by the author’s estimates out to 2100. The graph rises sharply starting at around 1870 until about 1950, peaking at 2.5 percent. It’s been downhill since, a trend that is forecast to continue until the growth rate declines to the Medieval rate.

If such a pattern does materialize — and Professor Gordon is far from alone in such pessimistic projections — what would that mean for an economic order, capitalism, that is based on endless growth? That is a question well outside the scope of his paper, and there is no intention here to imply a criticism of a paper for not discussing something beyond its scope. But as this blog attempts to tackle big questions, we are free to ask at a moment when stagnation is already upon us: Can capitalism survive an extended period of essentially no growth?

The Industrial Revolution and continued industrial innovation has brought fantastic changes to humanity, with the most dramatic changes coming in the 20th century. Professor Gordon posits three periods of major inventions: 1750 to 1830, 1870 to 1900 and the recent period of computer innovation. He argues that the first two periods brought a rapid series of inventions that took upwards of a century to be fully realized, fueling long periods of growth that lasted until the mid-20th century. Starting with the steam engine and the cotton gin, products resulting from the inventions of these periods include television, air conditioning and modern expressway systems.

Another example is indoor plumbing, which eliminated much manual labor, Professor Gordon writes:

“Every drop of water for laundry, cooking, and indoor chamber pots had to be hauled in by the housewife, and wastewater hauled out. The average North Carolina housewife in 1885 had to walk 148 miles per year while carrying 35 tonnes of water. Coal or wood for open-hearth fires had to be carried in and ashes had to be collected and carried out.” [pages 4-5]

Motorized vehicles also had a dramatic effect on productivity and standards of living:

“The average horse produced 20 to 50 pounds of manure and a gallon of urine daily, applied without restraint to stables and streets. … The low standard of living reflected not just the small amount that people could purchase but also the amount of effort at the workplace and at home where they had to expend to perform ordinary tasks. … To maintain a horse every year cost approximately the same as buying a horse. Imagine today that for your $30,000 car you had to spend $30,000 every year on fuel and repairs. That’s an interesting measure of how much efficiency was gained from replacing the horses. Gone was the need for unsanitary and repulsive jobs of people who had to remove horse waste.” [page 5]

After 1970, a slowdown in productivity growth (output per hour) began because the “one-time-only” benefits accruing from the earlier inventions and their spinoffs “had occurred and could not happen again.” The years from 1996 to 2004 brought an uptick in productivity and economic growth, but that had passed even before the economic downturn set in. The rapid development of online commerce lasted only a decade, and the innovations from the widespread adoption of the Internet have already occurred. Moreover, Professor Gordon argues, this most recent period of innovation did not focus on labor-saving measures but rather on entertainment and communication devices rather than replacing human labor with machines.

I would add that the primary economic effect of the Internet has been to shift commerce from one merchant to another, not altogether different from the mania of the past two decades in the U.S. to build new sports stadiums and casinos, which do nothing but shift consumer spending from one entertainment option to another with the additional expense of massive public subsidies. Professor Gordon illustrates his point most effectively when offering a thought experiment: You can keep all the inventions made in 2002 or earlier but none since, or you can have all the products of the past decade but none resulting from the two earlier periods of inventions.

“Option B is that you get everything invented in the past decade right up to Facebook, Twitter, and the iPad, but you have to give up running water and indoor toilets. You have to haul the water into your dwelling and carry out the waste. Even at 3 am on a rainy night, your only toilet option is a wet and perhaps muddy walk to the outhouse. Which option do you choose?

I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for option A is so obvious. The audience realises that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decade on which they have become so dependent.” [page 5]

The author offers six “headwinds” that he believes will reduce the growth of U.S. GDP per capita to a snail’s pace: the mass of retiring baby boomers leaving the workforce will cause output per capita to grow more slowly than productivity; the decline in U.S. educational attainment and growth in higher-education costs; growing inequality; the outsourcing and wage pressure inherent in globalization; environmental damage; and debt and the reduction in growth that results from austerity imposed to reduce debt.

Other than the reference to globalization as one of the six “headwinds” that will increasingly buffet the U.S. economy, the paper too narrowly analyzes the U.S. economy as a closed system, a weakness perhaps unavoidable given its specific focus. It is in no way controversial to note that no country is immune from the problems of the rest of the world given the deeply interconnected state of the world capitalist economy.

The paper is valuable in that it provides a reminder that the era of rapid economic growth since the Industrial Revolution has been a unique period in human history, and that such a time might not continue. Capitalism is a system that requires constant growth, an often overlooked aspect that has asserted itself in dramatic form as the stagnation of recent years has inflicted so much economic misery in advanced capitalist countries, and elsewhere.

In previous posts on this blog, I have written that the Keynesian policies that fueled the long post-World War II boom in the U.S. economy rested on a pair of one-time occurrences that can’t be repeated because it depended on a strong industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies.

Those neoliberal polices are in the interests of the capitalists who impose them, but are not simply a “choice.” The competitive pressures of capitalism lead to globalization and austerity. Irresistible competitive pressures were foreseen by Karl Marx, who encapsulated some of these problems in his theory of the tendency of the rate of profit to fall. In order to maintain profitability and compete successfully, a capitalist must reduce the costs of production. (This can be more or less stressed at different times; for instance, during the 1990s, there was a Wall Street mania in which industrial companies regularly made public pronouncements proclaiming their intent to become the “lowest-cost producer” in their industry in an attempt to curry favor with speculators.)

Corporate globalization is a natural consequence of the pressure to reduce costs; moving production to countries with far lower wages and few enforceable labor laws is an obvious response under the logic of capitalism. Mechanization is another response — machines make labor more efficient and require fewer workers be employed. But, Marx argued, more advanced methods of production are more capital-intensive, and thus higher efficiency is offset by diminishing returns on capital. The Marxist economist Anwar Shaikh summarized this concept this way:

“[T]he … pattern implies that the more advanced methods tend to achieve a lower unit production cost at the expense of a lower rate of profit. Competition, nonetheless, forces capitalists to adopt these methods, because the capitalist with the lower unit costs can lower his prices and expand at the expense of his competitors — thus offsetting his lower rate of profit by means of a larger share of the market.”*

One way of visualizing this phenomenon is to think of a construction company. Where many workers are necessary when equipped with shovels, far fewer are needed for the same job when the company buys a truck in which one driver can excavate many times the amount of dirt as a worker with a shovel. The company can buy newer and bigger trucks, but the amount of gained efficiency will never be nearly as dramatic as the purchase of the first truck. If we’d like to carry this example further, we might imagine that some of the displaced workers, after turning in their shovels, go to work on the assembly line building the trucks. But competitive pressures eventually cause the truck manufacturer to move the assembly line overseas.

Countervailing factors can frequently reverse this tendency; cuts to wages, work speedups, layoffs, downturns in the prices of natural resources and shuttering of facilities can each buoy profit margins. Nonetheless, some economists argue that it is precisely a falling rate of profit that has caused the ongoing global economic slump. Marxist economist Andrew Kliman perhaps is the most forceful in arguing that the rate of profit has been falling since the 1970s, leading to sluggish investment and economic growth and mounting debt problems despite the adoption of “free-market” policies.

He is not alone in arguing that, unless there is a transcending of capitalism, the only way within capitalism to restore profitability is through a full-scale destruction of the value of existing capital assets — a process not nearly complete despite the harsh austerity imposed around the world since 2008. (Such a destruction happened in the closures of the Great Depression and the physical damage of World War II.)

The various theories discussed here are not necessarily incompatible; capitalism is undergoing a deep structural crisis — not one of its recurring cyclical downturns. This crisis is the culmination of multiple factors that affect one another, and complex analyses are necessary to understand it. Professor Kliman directly declares that stagnation and a crisis-prone economy is the “new normal” while Professor Gordon describes his paper as “intentionally provocative.” But, coming from different perspectives, they envision stagnation as the capitalist future (although the latter discusses only U.S. prospects), as do other perspectives.

What does it mean for a capitalist economy that no longer can grow? The route out of past crises has been expansion to new areas, but infinite expansion on a finite planet is impossible. U.S. capitalists tolerated high wages for a time after World War II because they could expand into overseas markets and thereby increase profits. Once intensified competition from rebuilt Europe and Japan, and the relative maturity of markets, put pressure on profits, the rise of neoliberalism ensued.

In the absence of new markets, the only way to increase or even maintain profits is to reduce costs, and ultimately that means cutting wages and benefits. Doing so, however, leads to a new set of problems — consumer spending in advanced capitalist countries tends to account for 60 to 70 percent of economic activity. When working people don’t have enough money to spend, consumer spending declines and depresses the economy, further squeezing profits. More austerity simply means more economic contraction, as many Europeans are experiencing first-hand.

Capitalist businesses must grow or die, and capitalism functions only if it is expanding. When it doesn’t, or can’t, crisis is the result. If so much money is concentrated into so few hands, those wealthy hands can’t possibly buy enough to offset the deprivation of everyone else, nor should that be a desirable way to run an economy.

If stagnation is the “new normal” of capitalism, then deprivation, pain and worsening inequality is all that it can offer, save for the occasional temporary uptick — a never-ending race to the bottom. Is such a system really the best humanity can do?

* “Falling rate of profit” entry in A Dictionary of Marxist Thought (Tom Bottomore, editor) [Harvard University Press, Cambridge, Massachusetts, 1983], page 159