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. And 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, as 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 1965. 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 as 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.

Capitalists say the darndest things

Profits must be the only true human right if as basic a necessity as water is not. But although the modern public-relations industry has succeeded in rebranding robber barons as “captains of industry,” not even the most able army of flacks can always stop corporate executives from accidentally telling the world what they really think.

It’s no secret that some of the world’s biggest corporations are draining aquifers and reselling tap water at enormous profit. But they want to go further and make paying for water mandatory. Water is simply another “market commodity” in this view — most notoriously propagated by Nestlé S.A. Chairman Peter Brabeck-Letmathe in a six-minute video issued by his company. It’s fair to say that the apparent attempt by Nestlé to project an image of a company soberly grappling with the world’s problems through a stern rationality backfired spectacularly.

Photo by Marlon Felippe

Photo by Marlon Felippe

Mr. Brabeck-Letmathe’s body language renders as nonsense Nestlé’s post-video contention that he didn’t mean what he said. Beginning at the 2:07 mark, he is shown as saying:

“It’s a question of whether we should privatize the normal water supply for the population. And there are two different opinions on the matter. The one opinion, which I think is extreme, is represented by the NGOs [non-government organizations], who bang on declaring water a public right.”

The chairman grimaces at the very thought of water being considered a right, then lets loose a smirk, signaling unmistakable contempt for what immediately follows:

“That means that as a human being you should have a right to water. That’s an extreme solution. And the other view says that water is a foodstuff like any other and like any other foodstuff it should have a market value. Personally I believe it’s better to give foodstuff a value so that we’re all aware that is has a price and that one should take specific measures for the part of the population that has no access to this water and there are many different possibilities there.”

A right to water is “extreme”! Such an opinion may well be considered “extreme” in many corporate boardrooms, but such opinions are not free of corporate interests. If the route to increasing profits is dependent on privatizing the commons and public services, such is the belief system that will arise. Thanks to their tireless work in combating such “extreme” beliefs, the one percent are doing just fine, thank you. That the perspective of industrialists and financiers are different from the rest of us is exemplified by Mr. Brabeck-Letmathe at the video’s 5:34 mark:

“We’ve never had it so good. We’ve never had so much money. We’ve never been so healthy. … We have everything we want and still we go around as if we were still in mourning for something.”

Well, maybe things aren’t quite so rosy

Yes, stop whining just because wages are declining around the world, unemployment remains high, inequality is reaching levels not seen since the 1920s, the environment is dangerously polluted, global warming is poised to spiral out of control, the power of the biggest capitalists and their multi-national corporations has rendered democratic participation a joke, older workers are thrown out of their jobs and their pensions unilaterally cut, there are few jobs for young workers who are mired in debt, housing and education costs rise far faster than inflation, and the world’s governments join hands with capitalists in a global race to the bottom with no accountability to their electorates.

If your idea of democracy is nothing more than having more flavors of cola to choose from, then indeed you have everything you want.

In an effort to ameliorate the damage, Nestlé subsequently issued a press release claiming its chairman “thinks water is a human right.” It turns out, if we were to believe Nestlé’s spin, that he was merely “trying to raise awareness about the issue of water scarcity. … He is not in favour of privatization, but is advocating more efficient water management by individuals, industry, agriculture and governments.”

That doesn’t square with what the Nestlé chairman plainly said in his video. Nor does it acknowledge the role of Nestlé in making water more scarce. Water, in fact, is big business. Bottled water is dominated by three of the world’s biggest companies: The Coca-Cola Company (Dasani), PepsiCo Inc. (Aquafina) and Nestlé (Poland Springs, Deer Park, Arrowhead and others). The world’s two largest private managers of water systems, Veolia Environment and Suez Environment, have combined revenue of US$51 billion. Much to grab, indeed.

Paying for the same thing that comes out of your tap

Companies that sell bottled water are not necessarily sending teams to remote mountain ranges. A report on AlterNet by Michael Blanding notes:

“[M]any times bottled water is tap water. Contrary to the image of water flowing from pristine mountain springs, more than a quarter of bottled water actually comes from municipal water supplies. … Both Coke and Pepsi exclusively use tap water for their source, while Nestlé uses tap water in some brands.

Of course, Coke and Pepsi tout the elaborate additional steps they take that purify the water after it comes out of the tap, with both companies filtering it multiple times to remove particulates before subjecting it to additional techniques such as ‘reverse osmosis’ and ozone treatment. Reverse osmosis, however, is hardly state of the art — essentially consisting of the same treatment applied through commercially available home tap water filters, while ozonation [a water-treatment process] can introduce additional problems such as the formation of the chemical bromate, a suspected carcinogen.”

A Natural Resources Defense Council study of more than 1,000 bottles representing 103 brands of bottled water found one-third contained levels of contamination exceeding allowable limits. Among these contaminants were synthetic chemicals, bacteria and arsenic.

It is not only bottling and repackaging tap water that is lucrative — supplying the tap water is as well if privatized. A study by Food & Watch Watch found that:

  • Investor-owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities.
  • After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year.
  • Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.

Dozens of municipalities in France, Germany and the United States are taking back their water and sewer systems, reversing earlier privatizations. Local governments consistently discovered that privatization led to higher prices, reduced services and deteriorating working conditions for holdover employees. Corporations operating these systems were simply putting into practice what the Nestlé chairman said in his video: Water is a commodity to be bought by those willing to pay a higher price.

In one notorious case, the World Bank forced the privatization of the water system in the Bolivian city of Cochabamba in 1999. Bechtel, the company that was handed the water system as the sole bidder in a secret process, charged a sum equal to one-quarter of city residents’ average household income and imposed a contract provision banning the collection of rainwater. After massive local protests backed by a global campaign forced it to leave the city, Bechtel sued Bolivia for US$50 million in damages and lost profits although its investment is believed to have been less than $1 million and Bechtel’s revenues are six times the size of Bolivia’s gross domestic product.

Even the weather is expected to earn a profit

Other government services taken for granted, like weather forecasting, are not exceptions. Bizarre as it sounds, executives at private weather-forecasting services like AccuWeather for years have advocated that the U.S. government’s National Weather Service be barred from issuing forecasts. The Weather Service is the most reliable forecaster in the country and taxpayers spend hundreds of millions of dollars on it. Yet we are supposed to eliminate this public benefit, converting it in its entirety into a corporate subsidy, so one capitalist can make a profit!

The concept that knowledge of a coming storm should be reserved for those willing to pay was pushed by AccuWeather and a lobbying group then calling itself the Commercial Weather Services Association, with one of the U.S. Senate’s dimmest bulbs, fundamentalist Rick Santorum, promoting a bill in 2005 that would bar the National Weather Service from issuing forecasts except during unspecified emergencies.

Under the bill, the agency would continue to collect data and then give all of them to private companies. AccuWeather would issue forecasts without the burden of collecting its own data, instead getting it for free at taxpayers’ expense. As a report in Slate noted, the bill’s language said:

“Data, information, guidance, forecasts, and warnings shall be issued … through a set of data portals designed for volume access by commercial providers of products or services.”

The disingenuousness of this bill was stated bluntly at the time by Jeff Masters on his Weather Underground blog:

“Private weather industry forecasters do their own forecasting, but will usually check their forecast against what the [National Weather Service] says before sending it out. If the NWS forecast differs considerably, there will frequently be an adjustment made towards the NWS forecast, resulting in a better ‘consensus’ forecast. So, with the proposed legislation, not only would we lose the best forecasts available, but the forecasts from the private weather companies would also worsen.”

But a couple of capitalists would make a bigger profit — so what if more people would die in floods or other natural disasters? That’s the magic of the market at work.

The 1 percent get richer thanks to you working harder

It is not your imagination — you are working harder and earning less. Despite significant productivity gains during the past four decades, wages have remained flat.

This is a global phenomenon, not one specific to any country. It is not a matter of the viciousness of this or that capitalist, nor the policy of this or that government. Rather, widening inequality flows naturally from the ideological construct that now dominates economic thinking. Consider Henry Giroux’s succinct definition of neoliberalism:

“[I]t construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”

“Freedom” is reduced to the freedom of industrialists and financiers to extract the maximum possible profit with no regard for any other considerations and, for the rest of us, to choose whatever flavor of soda we wish to drink. Having wrested for themselves a great deal of “freedom,” the world’s capitalists have given themselves salaries, bonuses, stock options and golden parachutes beyond imagination while ever larger numbers of working people find themselves struggling to keep their heads above water.

Demonstrating for a $15 an hour minimum wage (Photo courtesy of Socialist Alternative)

Demonstrating for a $15 an hour minimum wage (Photo courtesy of Socialist Alternative)

On the one hand, U.S. chief executive officers earned 354 times more than the average worker in 2013. And even with the bloated pay of top executives and the money siphoned off by financiers, there was still plenty of cash on hand — U.S. publicly traded companies are sitting on a composite hoard of $5 trillion, five times the total during the mid-1990s.

Working harder without getting paid for it

On the other hand, there is the much different fortunes of working people. A study of four decades of wage trends in the United States, for example, revealed that the median hourly wage is less than two-thirds of what it would be had pay kept pace with productivity gains. Authors Lawrence Mishel and Kar-Fai Gee, writing for the Spring 2012 edition of the International Productivity Monitor, calculated the extraordinary mismatch between productivity gains and wages. Their study found:

“During the 1973 to 2011 period, the real median hourly wage in the United States increased 4.0 percent, yet labour productivity rose 80.4 percent. If the real median hourly wage had grown at the same rate as labour productivity, it would have been $27.87 in 2011 (2011 dollars), considerably more than the actual $16.07 (2011 dollars).” [page 31]

Almost every penny of the income generated by that extra work went into the pockets of high-level executives and financiers, not to the employees whose sweat produced it.

Working people in Canada have fared little better. Labor productivity increased 37.4 percent for the period 1980 to 2005, while the median wage of full-time workers rose a total of 1.3 percent in inflation-adjusted dollars, according to a Fall 2008 report in the International Productivity Monitor. The authors of this report, Andrew Sharpe, Jean-François Arsenault and Peter Harrison, provided caveats as to the direct comparability of productivity and wage statistics, but found the mismatch to be real as labor’s share of Canadian gross domestic product has shrunk. The authors note that, in Canada, almost all income gains have gone to the top one percent. They write:

“If median real earnings had grown at the same rate as labour productivity, the median Canadian full-time full-year worker would have earned $56,826 in 2005, considerably more than the actual $41,401 (2005 dollars).” [page 16]

Wage erosion is also at work in Europe. A Resolution Foundation paper found a differential between productivity and wage gains for British working people, although smaller than that of the United States. It also found that British workers did not lose as much ground as did French, German, Italian and Japanese workers. That conclusion is based on a finding that the share of gross domestic product going to wages in those countries has steeply declined since the mid-1970s.

That German workers also suffer from eroding wages might seem surprising. But it should not be — German export prowess has been built on suppressing domestic wages. In 2003, the then-chancellor, Social Democrat Gerhard Schröder, pushed through his “Agenda 2010” legislation, which cut business taxes while reducing unemployment pay and pensions. German unions allowed wages to decline in exchange for job security, which means purchasing power is slowly declining, reinforcing the trend toward Germany becoming overly dependent on exports.

Making a few calculations from International Labour Organization statistics on labor productivity and wages provided for individual countries, I found that average real wages in Germany declined 0.5 percent per year for the period of 2000 to 2008 while German labor productivity increased 1.3 percent per year. (The only years for which data is available for both.)

You can’t sell it if everybody is broke

Despite the overwhelming evidence of increasing hardship for so many people, economic orthodoxy insists we scream in horror at the very thought of raising wages. Such screaming is based on ideology, not on facts. Low-wage workers in the United States earn far less today than they did in 1968, despite their having a much higher level of education now as compared with then. The federal minimum wage is 23 percent lower than it was in 1968 when adjusted for inflation.

An Economic Policy Institute study by Heidi Shierholz, released in January 2014, found there are nearly three job seekers for every one open position. The lack of jobs reflects larger structural weaknesses, not a “lack of education” as orthodox economists, committed to austerity, continue to claim. She writes:

“Today’s labor market weakness is not due to skills mismatch or workers lacking skills for available jobs, but instead due to weak demand. If today’s high unemployment were a problem of skills mismatch, some sizable group or groups of workers would be now facing tight labor markets relative to 2007, before the recession started. Instead weak demand for workers is broad-based; job seekers dramatically outnumber job openings in every industry, and unemployment is significantly higher at every education level than in 2007.”

Household spending accounts for 69 percent of the U.S. gross domestic product; persistent unemployment and stagnant or falling wages can only lead to continuing economic weakness. Demand is what creates jobs. Raising wages, which in turn would stimulate demand, would, in a logical world, appear to be one route to ameliorating stagnation. In fact, a strong consensus exists that, contrary to what the one percent and their hired propagandists say, raising the minimum wage would be beneficial.

A Center for Economic Policy and Research paper surveying two decades of minimum-wage studies concludes:

“Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers. The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. … [P]robably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.” [pages 22-23]

Similarly, the National Employment Law Project reports a strong consensus in favor of increasing the minimum wage:

“The opinion of the economics profession on the impact of the minimum wage has shifted significantly over the past fifteen years. Today, the most rigorous research shows little evidence of job reductions from a higher minimum wage. Indicative is a 2013 survey by the University of Chicago’s Booth School of Business in which leading economists agreed by a nearly 4 to 1 margin that the benefits of raising and indexing the minimum wage outweigh the costs. …

Two decades of rigorous economic research have found that raising the minimum wage does not result in job loss. While the simplistic theoretical model of supply and demand suggests that raising wages reduces jobs, the way the labor market functions in the real world is more complex. Researchers and businesses alike agree today that the weight of the evidence shows no reduction in employment resulting from minimum wage increases.”

The University of Chicago, the infamous incubator of the “Chicago School” ideology that provides the intellectual “justification” for neoliberalism, can hardly be described as a pro-labor bastion.

Catching up with the demands of 50 years ago

One of the demands of the March on Washington in 1963 was a minimum wage of $2 an hour. Adjusted for inflation, $2 an hour in 1963 would be worth $15.35 today. Yet the federal minimum wage in the United States is $7.25 an hour, and the highest minimum wage mandated by any state government is Washington’s $9.32.

The $10.10 an hour lately proposed by the Obama administration sounds like an improvement when compared with current rates, but in reality it is the usual crumbs on offer by the Democratic Party — the White House is proposing two-thirds of what was demanded 50 years ago!

Rather than settle for the Democrats’ “austerity lite,” a growing movement is demanding the minimum wage be increased to $15 an hour. When a broader perspective is used — drawing on historical demands and, as noted above, that the median hourly wage should be around $28 — the tired arguments that businesses “can’t afford” any raise to the minimum wage fall apart. Sarah White, an activist with Socialist Alternative, which has launched a national campaign for a $15 minimum, writes:

“To fight against the growing movement to raise the minimum wage, mega-corporations are trying to deflect attention from their super-profits by spending huge sums of money on publicity focusing on the ‘concerns of small business.’ Socialist Alternative is very open to helping small businesses — but not on the backs of the workers. Everyone working full-time deserves a decent living. Help for small businesses can be organized by taxes on big business (which are at historically low rates) and eliminating corporate welfare to subsidize small businesses, along with cutting the property tax burden on small businesses. … Raising the minimum wage will help small businesses by increasing the spending power of their potential customers.”

Exorbitant rent increases have forced countless small businesses to close in gentrifying neighborhoods across the country. Commercial rent control that would leave mom-and-pop businesses with a low enough overhead to survive, instead of them having to send all their money to landlords interested in nothing more than squeezing every dollar out of a neighborhood, would do vastly more good than any potential harm caused by a $15 minimum wage.

Close to 60 percent of families below 200 percent of the poverty line have a family member who works full-time, year-round and 47 million U.S. residents rely on food stamps. At the same time, the world’s 1,645 billionaires have an aggregate net worth of US$6.4 trillion, an increase of $1 trillion in just one year.

Individualistic ideology, promoting the idea of personal responsibility for unemployment, low wages and economic insecurity, is a crucial prop holding up the system that leads to such disastrous results. There are no individual solutions to structural inequality.

If you have enough money, you get to create education policy

When a society sees children as fodder for profit instead of tomorrow’s citizens to be educated, privatization has surely gotten out of hand. Shortcomings in education, a product of larger societal deficiencies, would best be addressed in a systemic manner, but instead we get hedge-fund managers leading attacks on those favorite scapegoats of the Right, teachers.

The latest exhibit comes to us from New York City, where new Mayor Bill De Blasio is under sustained attack for applying the most gentle tap to the brakes in the runaway train of charter-school approval. What crime did Mayor De Blasio commit that has brought thunderous denunciation onto his head? He approved only 39 of 49 charter-school applications that had been rubber-stamped late in 2013 in the waning days of the administration of the previous mayor, financial industry billionaire Michael Bloomberg.

Brooklyn Bridge

Brooklyn Bridge

New York City already has nearly 200 charter schools. These are controversial not simply because public money is directed from public schools to private, for-profit companies, but because the charter schools take space away public schools and pay no rent. Yep, private operators use public space for free while public school students lose facilities.

One of the largest operators of charter schools in New York is Harlem Success Academy, which operates 18 of them — all located in public school buildings. Juan Gonzalez, a columnist for the New York Daily News, reported on the experience of the Mickey Mantle public school for special-education students when the academy arrived:

“ ‘We lost our library and a bunch of classrooms that [first] year,’ [special-education teacher Lynn] Manuell says. The following year, as Harlem Success increased its enrollment, Mickey Mantle was ordered to give up more space. ‘We lost our technology room, our music room, our art room and we had to start sharing the cafeteria, the gym and playground,’ Manuell says. … A fellow teacher conducts four periods a week of gym in a regular classroom because so little time has been allotted in the main gym to the Mickey Mantle pupils.”

Those with less get less so those with more get more

The chief executive officer of Harlem Success is Eva Moskowitz, who drew a salary of $488,000 in 2011. Her ability to pay for the public facilities she uses is demonstrated by a teacher who writes on education issues, Mercedes Schneider:

“Since 2006, Eva Moskowitz has been running a small charter empire that has at least $50 million in government per-pupil funding, at least $30.9 million in total, end-of-year assets, and the support of hedge fund millionaires. Why is it, then, that her Success Academies have never paid a dime in rent for the public school space occupied by her charter schools?”

A good question. Ms. Moskowitz, a former city council member, justifies her charter-school empire by saying that her students get higher test scores than the citywide average. But as a private school, her academies can pick and choose their students, notes education researcher Diane Ravitch:

“The media do not know that her schools do not serve the same demographic as the children in the public schools. She enrolls fewer children with special needs and fewer English language learners. Her schools have a high suspension and attrition rate.

Her logic seems to be that since she gets high test scores (note the above sentence as one does tend to get high scores by keeping out low-scoring students), she deserves to get whatever space she wants, rent-free. By that logic, the city should give extra privileges to students with high scores, and should take away space and privileges and programs from those with low scores.”

Maybe they aren’t better after all

Better results on standardized tests is a primary argument proponents of charter schools routinely make. The corporate media accepts these claims without investigation, yet the facts tell a different story. At best, charter schools have roughly comparable results; those that show better results are in the minority.

A widely cited 2009 study by Stanford University’s Center for Research on Education Outcomes found that 83 percent of charter schools studied in 16 U.S. states had results that were either worse or not significantly different than public school results. A second study by the center in 2013, covering 26 states and New York City, found that 75 percent of charter schools had results that were not significantly different or were worse than public school results.

The Rand Corporation, hardly an entity hostile to business interests, reached substantially similar conclusions in its study of California charter schools:

“Regarding student achievement, results are mixed. Students in charter schools generally have comparable or slightly lower test scores than students in conventional public schools, but there is variation among the types of charter schools. With respect to governance, only a small proportion of chartering authorities are collecting accountability information such as student grades, promotion rates, and dropout rates.”

Halfway across the country, in Milwaukee, a report released in December 2012 by the Forward Institute found that the higher scores of the city’s charter schools in comparison to public schools “is explained by their bias selection of low truancy students.” Overall, however, this report found that charter schools have had a negative impact on student poverty because “schools with higher poverty enrollment levels have experienced per-pupil funding cuts more than two times the cuts in the most affluent districts.” The report’s sobering conclusion is this:

“[W]hen controlling for school and community factors, charter schools in Milwaukee do not offer a better educational outcome for students.”

Just as in New York, you can “achieve” better results if you can pick and choose your students, and provide more resources.

This offensive against public education is not new. When I was a student myself in 1970s New Jersey and an adult still living there in the following decade, the incessant ideology was that Catholic schools were better than public schools. The Catholic schools also could rid themselves of less desirable students, and the thesis wasn’t true anyway. When a ranking of area high schools was undertaken, the two public high schools in my home town were ranked first and second, while the Catholic schools ranked well down the pack. I was fortunate to grow up in a town that put money into its school system.

Turning schools into drill halls

Charter schools place a heavy emphasis on standardized testing. Yet even if it were true that charter schools could deliver consistently higher scoring on them, it is questionable at best whether such tests are actually evidence of student learning.

A National Research Council report in 2011 found that “The available evidence does not give strong support for the use of test-based incentives to improve education.” That shouldn’t be a controversial statement — turning schools into drill halls so students can regurgitate material to pass a test is not a substitute for leveraging teachers’ professional skills to encourage creative learning. The council’s report states:

“The tests that are typically used to measure performance in education fall short of providing a complete measure of desired educational outcomes in many ways. This is important because the use of incentives for performance on tests is likely to reduce emphasis on the outcomes that are not measured by the test.

The academic tests used with test-based incentives obviously do not directly measure performance in untested subjects and grade levels or development of such characteristics as curiosity and persistence. However, those tests also fall short in measuring performance in the tested subject and grade in important ways. … [S]cores on the tests used with incentives may give an inflated picture of learning with respect to the full range of the content standards.”

Here we have an important clue. Corporate titans want employees with strong technical skills without the ability to think independently. In U.S. universities, there is a heavy emphasis on business and business-friendly courses while liberal arts are under sustained attack. The charter-school movement is very well funded and promoted by industrialists and financiers — this is not altruism based on supposed concern for student learning, but rather an attempt to take over education to suit their narrow economic interests.

The billionaires who drive education policy

On the national level in the United States, by far the three biggest funders are the Bill and Melinda Gates Foundation, the Eli and Edythe Broad Foundation and the Walton Family Foundation. Microsoft founder Bill Gates became wealthy producing software that doesn’t work well because he can exploit a monopoly he was accidentally handed; Eli Broad became wealthy building suburban houses, taking advantage of the many government subsidies that enabled the suburbs; and the Waltons benefit enormously from Wal-Mart’s leading role in forcing manufacturers to re-locate to China because that is the only way they can meet Wal-Mart’s demand for low prices.

What possible qualification do such people have to dictate education policy?

Nonetheless, they have driven policy across the country, even at the federal level. The Obama administration’s “Race to the Top” competition for education funding, the intellectual product of the three foundations, induced states to change laws and favor charters to get the money, according to a detailed report by Joanne Barkan in Dissent. The Gates Foundation even supplied consultants to states to help them win Race to the Top money. That is merely one of numerous examples, Ms. Barkan writes:

“A few billion dollars in private foundation money, strategically invested every year for a decade, has sufficed to define the national debate on education; sustain a crusade for a set of mostly ill-conceived reforms; and determine public policy at the local, state, and national levels.”

Hedge-fund millionaires are bankrolling much of the push for charter schools on the local level in Chicago and New York. Chicago Mayor Rahm Emanuel (“Mayor 1%”) sought to crush the teachers’ union and drastically increase the use of charter schools as part of his neoliberal agenda when his hard-line tactics induced the teachers to go on strike in September 2012.

He failed because the union worked with the community ahead of time to explain the stakes, and to prepare parents for the possibility that the teachers would be forced to go on strike. When the inevitable attacks came in the predictable form — “the teachers are greedy” “the teachers only care about getting more of your tax money” — they did not have the usual impact. Mayor Emanuel had clearly expected the community to be on his side; instead the people were with the teachers.

Providing muscle for Mayor Emanuel were hedge-fund managers running an organization called “Education Reform Now,” an advocate for charter schools that paid for a series of automated telephone calls to Chicago parents during the three-day period in June when the teachers were voting to authorize a strike, and for a barrage of television commercials attacking the teachers during the strike.

Hedge-fund money talks, politicians snap to attention

And that brings us back to New York. Hedge-fund managers are major backers of charter schools there; they are heavily represented on the boards of the Harlem Success Academy and its individual schools. They are also financial backers of New York state Governor Andrew Cuomo, himself a promoter of charter schools and corporate agendas in general who spoke at rally organized by Eva Moskowitz on March 4.

That was an event in which Ms. Moskowitz closed her schools and bused her students to the rally, which merited no comment in the corporate media. Just ask yourself: What would the reaction have been had public schools closed for political purposes, particularly if done so with union backing. Everyone would have to wear earplugs the screaming denunciations would be so loud.

The fact that charter schools tend to be non-unionized with less experienced teachers making less money and possessing less job security should not be left out of the picture.

Governor Cuomo has racked up considerable contributions from financiers seeking to control education, according to a Chalkbeat New York report:

“Cuomo’s reelection bid has so far received nearly $400,000 from a cadre of wealthy supporters of Eva Moskowitz’s Success Academy Charter School network, according to an updated tally of newly-released campaign filings. Some money has even come from Moskowitz’s political action committee, Great Public Schools, which has given $65,000 to Cuomo since 2011. … By one tally of the 2014 filings, Cuomo racked up at least $800,000 in donations from 27 bankers, real estate executives, business executives, philanthropists and advocacy groups who have flocked to charter schools and other education causes in recent years.”

Although recently disbanded when watchdogs began requesting its donors be made public, the governor had set up a “Committee to Save New York,” a group of wealthy business leaders and real estate barons that spent $17 million promoting government austerity, cuts to pensions and tax cuts for the rich.

Education advocates in New York City — those concerned with students and not profits — have pinned their hopes on Mayor De Blasio, who promised that he would charge charter schools rent. So far, however, he seems to have gotten cold feet. He has yet to announce a plan, and now says he wants to charge them on a sliding scale rather than a standard rate. The New York City Independent Budget Office has calculated that the city would generate $92 million by charging a flat rate of $2,320 per student.

Millionaire hedge-fund managers and other wealthy backers are opposed, helping to orchestrate ferocious attacks in the corporate media, particularly by the city’s tabloids. The New York Times reports that charter advocates “warn that such a move would alienate donors amid worries that their contributions would end up in the city treasury.” Everybody, through paying taxes, sharing responsibility for the most basic of social services — educating children — should be the most minimum duty for anyplace that considers itself civilized.

That little tidbit about “alienation” speaks volumes about the inequality that has become so pervasive and reveals the real agenda here — educating some children so that they become corporate drones and throwing away other children as excess humanity without value. Why doesn’t this sicken more of us?

The scorecard of NAFTA: Losses for all three countries

The North American Free Trade Agreement has been a lose-lose-lose proposition for working people in Canada, the United States and Mexico.

Let us count the ways: Lost jobs, reduced wages, more unemployment, higher food prices and reversals of environmental laws. NAFTA, a 20-year laboratory for mainstream economics, has been a bonanza for the executives of multi-national corporations, and that is all you need to know why the so-called “free trade” model continues to be promoted despite the immiseration and dislocation it spawns. Agreements like NAFTA, and proposed deals that would go further in handing power to corporate executives and financiers such as the Trans-Pacific Partnership, have little to do with trade and much with ensuring corporate wish lists are brought to life.

Not dissimilar to medieval doctors who insisted that having leeches bleed the patient was the only course of action, neoclassical economists, who dominate the field, won’t budge from their prescriptions of neoliberal austerity. But although the medical field has made enormous strides in recent centuries, there is no such progress among neoclassical economists. That is because said economists — most often under the banner of “Chicago School” but sometimes using other names — promote ideology on behalf of the powerful, not science for all humanity.

"Canada in fog" photo by Kat Spence

“Canada in fog” photo by Kat Spence

Thus the spectacularly wrong predictions made for NAFTA before it was went into force on January 1, 1994, have no effect on their predictions for new deals. To provide one example, in 1993 the Peterson Institute for International Economics predicted 170,000 jobs would be created in the U.S. alone by 1995, that the U.S. would enjoy an expanded trade surplus with Mexico and that the Mexican economy would grow by four to five percent annually under NAFTA.

As we will see presently, none of those rosy predictions came close to becoming reality. (True to neoliberal form, the institute is grandly predicting “gains of $1.9 trillion” for the Trans-Pacific Partnership.) The point here isn’t to pick on one particular institution — in fact, it is quite typical. The models developed to make these predictions and explain economics are mathematical constructs disconnected from the real world.

Sure it works better in a dream world

The Chicago School and other mainstream neoclassical schools of economics rest their models on the concept of “perfect competition,” which assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possess sufficient power to affect the market. This model assumes that employees are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences. That this bears little resemblance to the real world is not your imagination.

From this, mainstream economists assume all trade will be beneficial because all economic activity quickly adjusts to create a new equilibrium following a disruption. As Martin Hart-Landsberg wrote in his 2013 book Capitalist Globalization: Consequences, Resistance and Alternatives:

“[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.” [page 104]

World Bank studies promoting “free trade” agreements, Professor Hart-Landsberg wrote, assumes that tariff reductions will have no effect on government deficits, governments will automatically be able to replace lost tariff revenue with revenue from other sources and that there is full employment. He writes:

“Although working people have been ill served by capitalist globalization, many are reluctant to challenge it because they have been intimidated by the ‘scholarly’ arguments of those who support it. However … these arguments are based on theories and highly artificial simulations that deliberately misrepresent the workings of capitalism. They can and should be challenged and rejected.” [page 80]

Mexican farmers forced off their lands

Mexico had annual per capita gross domestic product growth of 0.9 percent in the first 20 years of NAFTA — one-fifth of the per capita GDP growth of the preceding 20 years. The Center for Economic and Policy Research reports that Mexico’s growth during the past 20 years under NAFTA ranks the country 18th of 20 Latin American countries and is half of the average Latin American growth rate. Among other results, the center reports:

• 4.9 million family farmers have been been displaced — more than half the total number of Mexican farmers in 1991.
• More than 14 million more Mexicans live below the poverty line than in 1994. Just more than half of Mexicans are below the poverty line, nearly identical to the 1994 rate, but the population has increased.
• Inflation-adjusted wages have risen two percent over 18 years and are barely above the 1980 level.

Subsidized corn from the United States flooded Mexico, sold below the costs of small Mexican farmers. Corn imports from the U.S. increased fivefold and pork imports from the U.S. increased by more than 20 times, according to a Truthout report by David Bacon.

As a result, Mexican farmers forced off their land either became seasonal workers on growing agribusiness farms, sought work in the cities or migrated north. Seasonal agricultural workers (those working less than six months per year) grew by almost three million — more than doubling their ranks — during the same period that 4.9 million family farmers were displaced. The number of Mexicans emigrating to the U.S. rose by almost 80 percent from 1994 to 2000, before falling significantly afterword because of the post-9/11 increased border security.

Nor did Mexicans get cheaper food as a result of the flood of U.S. corn. Public Citizen, in its just released report on NAFTA, reports that the deregulated price of tortillas nearly tripled in the first 10 years of the agreement and that a Mexican minimum-wage earner can buy 38 percent less than he or she could when NAFTA went into effect.

The only countervailing effect, the increase in factory jobs as maquiladoras (factories near the U.S. border producing for export) increased for a time, but those low-wage jobs are now dwindling because China’s wages are far cheaper than Mexico’s. The same pitiless market competition that sent jobs south now sends them across the Pacific. China now accounts for 23 percent of U.S. imports as compared to Mexico’s 12 percent, according to International Monetary Fund statistics.

A 2011 paper issued by the Economic Policy Institute summarized the effects of NAFTA on Mexico:

“From the standpoint of the business community, NAFTA’s most important achievement was that it made Mexico a much safer and more attractive location to invest and outsource U.S. manufacturing production. NAFTA’s investment provisions created new and improved safeguards for foreign investors, including new dispute settlement tribunals providing a mechanism for settling disputes with foreign governments outside of the Mexican legal system. By eliminating Mexico’s developmental state and use of local content rules, and other demands and conditions on foreign investors, the trade agreement greatly reduced the cost of doing business in Mexico, and increased the security of those investments.” [page 6]

Mexico’s conversion into an export platform does not mean higher skills for its workforce. The biggest initiative in job creation came during the administration of Vicente Fox, which offered training in low-skill jobs for landscapers, construction workers, factory workers and maids.

Hundreds of thousands of jobs leave the United States

The United States has seen a net displacement of almost 700,000 jobs through 2010 directly attributable to NAFTA, according to Economic Policy Institute calculations. Moreover, the U.S. has had large annual trade deficits with Mexico since NAFTA was implemented; in earlier years, trade was roughly balanced between the two. In addition to the job losses, Public Citizen reports these negative impacts on U.S. workers:

• U.S. food prices have risen 67 percent since NAFTA took effect, despite an increase in food imported from Mexico and Canada.
• Purchasing power for U.S. workers without a college degree, adjusted for inflation and taking into account those consumer goods that have become cheaper, has declined 12 percent under NAFTA.
• Two-thirds of displaced manufacturing workers who were rehired in 2012 experienced a wage cut; the reduction in the majority of cases was at least 20 percent.
• U.S. manufacturing and services exports to Mexico and Canada grew slower after NAFTA took effect than it had been earlier.

By making it easier for capitalists to move production, NAFTA has directly contributed downward pressure on wages. With fewer well-paying manufacturing jobs, pressure on wages not only affects manufacturing but other industries as well as displaced workers seek employment elsewhere.

Capital mobility has been an irresistible hammer for holding down wages and worsening job conditions — a study by Cornell University Professor Kate Bronfenbrenner found that more than 50 percent of employers made threats to shut down and/or move their facilities in response to unionization activity during the three-year period of 1993 to 1995, and that the rate of actual shutdowns tripled from the pre-NAFTA rate. She wrote:

“NAFTA has created a climate that has emboldened employers to more aggressively threaten to close, or actually close their plants to avoid unionization. The only way to create the kind of climate envisioned by the original drafters of the [National Labor Relations Act], where workers can organize free from coercion, threats, and intimidation, would be through a significant expansion of both worker and union rights and employer penalties in the organizing process both through substantive reform to U.S. labor laws and by amendments to the North American Agreement on Labor Cooperation.” [page 3]

That would take massive organizing to achieve. The Obama administration is actively trying to use the rules of NAFTA as a starting point for further weakening of labor, safety, health and environmental laws in the ongoing Trans-Pacific Partnership negotiations, which would tighten corporate control should the ongoing TPP negotiations be successful. The White House undoubtedly has the same goals for the Transatlantic Trade and Investment Partnership talks with the European Union.

Canadian safety net shredded to ‘compete’ in markets

Spending on Canada’s social safety net has decreased while corporate revenue has doubled and manufacturing jobs disappeared. In addition, a Canadian Centre for Policy Alternatives researcher reports, the country’s growing trade surplus with the United States has translated to few jobs. The study found:

• After 12 years of NAFTA, government transfers to individuals have dropped from 11.5% of GDP to 7.8% of the country’s GDP.
• “[M]uch of the growth in gross exports over the last decade reflected the markedly elevated use by Canadian-based companies of imported inputs in their production, significantly overstating the employment impact of the growth of manufactured exports.”
• The length that Canadians could collect unemployment benefits was reduced, the amount of the benefits were cut and the criteria for those eligible were reduced, reducing the proportion of unemployed people who qualified for unemployment insurance to one-third from three-quarters.
• Composite revenues of 40 of Canada’s biggest businesses increased 105 percent from 1988 to 2002, while their workforces shrank by 15 percent.

These developments fueled rising inequality, the centre’s executive director, Bruce Campbell, wrote:

“The most striking feature of this growing inequality has been the massive gains of the richest 1% of income earners at the expense of most of the population. The growth of precarious employment, the undermining of unions as a countervailing power to transnational capital, the erosion of the Canadian social state, and heightened economic dependence on the United States are the hallmarks of the free trade era in Canada.” [page 53]

Pressing its advantage, Canadian big business interests demanded and received tax cuts on the ground that Canada could not be competitive otherwise. Those cuts resulted in loss of C$20 billion in federal revenue for 2005 alone, the study said, on top of provincial revenue losses of $30 billion. The tax cuts were primarily given to high-income individuals and corporations, who argued that these would create “a level field of competition” with the United States but also increase labor market “flexibility” — a code word meaning lower wages and reduced job security, always the goal of capitalists.

It’s always our turn to ‘cut back,’ never the bosses’ turn

The key NAFTA provision is Chapter 11, which 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 law that might prevent the corporation from extracting the maximum possible profit.

Under these provisions, taxation and regulation constitute “indirect expropriation” mandating compensation — a reduction in the value of an asset is sufficient to establish expropriation rather than a physical taking of property as required under U.S. law. Older decisions become precedents for further expansions of investor “rights” and thus constitute the “evolving standard of investor rights” required under “free trade” agreements.

Toothless “side agreements” on labor rights are meaningless window dressing; the arbitration bodies that decide these cases (in secret with no accountability or right of appeal) are governed by the main body of the text, such as Chapter 11. Corporations can sue governments over regulations or laws they don’t like, but working people and governments have no right to sue.

As Mr. Bacon put it in his Truthout report:

“The most any union or group of workers got from filing a case was ‘consultations’ between the governments and public hearings. There is no process in the agreement for penalties for violation of union rights. And although there are minor penalties for violating child labor or occupational health laws, they’ve never been implemented. Not a single contract was signed as a result of the side-agreement process, nor was a single worker rehired. Those unions that have filed cases have generally sought to use the process to gain public exposure of abuses and exert indirect pressure on employers.”

The neoliberalism that began gathering steam with the rise of Margaret Thatcher and Ronald Reagan, and which has intensified since, is not the handiwork of some secretive cabal, nor is it some tragic bad turn from an otherwise “rational” system. It is the natural evolution of modern capitalism and its relentless competition. “Free trade” agreements that have little to do with trade and much to do with imposing corporate wish lists in the service of ever more inequality and power imbalances is an inevitable component.

Implementing a “reform” of agreements designed to maximize corporate profits above all other considerations and shred the remnants of democracy is less than an illusion. Overturning the entire “free trade” apparatus is indispensable to any serious project of building a better world. Trade should conducted for the benefit of all, not only the one percent — unlike the current global system in which human beings are in the service of markets instead of the other way around.

Putting a gun to their own heads: Governments give themselves a ‘free trade’ offer they can’t refuse

A frequent criticism of “free trade” agreements is that corporations are elevated to the level of a country. It might be more accurate to say that corporations are elevated above countries.

The muscle in trade agreements like the North American Free Trade Agreement or the proposed Trans-Pacific Partnership is the mandatory use of “investor-state dispute mechanisms.” That bland-sounding bureaucratic phrase is anything but bland in its application — these “mechanisms” are the tools used to turn corporate wish lists into undemocratic reality.

Labor, environmental, social-justice and other groups rally on the steps of New York City Hall on January 14 to demand Congress vote against fast-track legislation.  (Photo courtesy of New York State AFL-CIO)

Labor, environmental, social-justice and other groups rally on the steps of New York City Hall during a January 14 snowstorm to demand Congress vote against fast-track legislation.
(Photo courtesy of New York State AFL-CIO)

The concrete form of these “mechanisms” are corporate-dominated secret tribunals that hand down one-sided decisions with no oversight, no public notice and no appeals. This is so is because governments that sign trade agreements legally bind themselves to mandatory arbitration in these secret tribunals despite (or because of) their one-sided nature. It is a virtually certainty that, should be they passed into law, the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) will contain some of the most draconian language yet in this area.

Activists in the TPP countries, as well as those in the European Union, should pay particular attention to the experience of Canada under the North American Free Trade Agreement (NAFTA). Canada has been the principal target within NAFTA because of its superior environmental laws in comparison to the United States and Mexico, with U.S.-based multi-national corporations the primary suers. Environmental, safety, labor and “buy local” laws around the Pacific and in Europe will be targets should the TPP and TTIP be implemented.

The rules of NAFTA allow multi-national corporations to sue national governments because rules safeguarding the environment, for example, are interpreted to “unfairly” reduce profits. Decisions handed down in the secret tribunals — in which corporate lawyers who specialize in representing corporations in these kinds of cases sit as judges — further stretch the bases on which corporations can successfully sue governments. NAFTA, and tribunal judgements stretching it, constitutes the starting point from which the U.S. government, sometimes assisted by other governments, seeks to impose still more draconian rules.

Corporations can change laws to suit themselves

Decisions made under NAFTA rules are noteworthy because of their outrageousness, but also merit attention because they provide a preview of what is in store for other countries under the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership. Here are some “highlights”:

  • Eli Lilly and Company is suing Canada for $500 million because Canada would not grant it two patents, rulings upheld by the Supreme Court of Canada. Eli Lilly claims the denial is an illegal confiscation of profits — it is using NAFTA as a tool to dismantle Canada’s well-developed patent system. No tribunal ruling yet.
  • Ethyl Corporation sued Canada for $250 million because of a ban on a gasoline additive known as MMT, a chemical long believed to be dangerous to health. Ethyl claimed the Canadian ban was an “expropriation” of its “investment” and a violation of the principal of “equal treatment” even though, had a Canadian producer of MMT existed, it would have had the same standard applied. Canada settled to avoid a total defeat, paying Ethyl a smaller amount and reversing its ban.
  • A U.S. company, Metalclad, sued Mexico because a city government refused to grant it a permit for a waste dump (similarly denied to a Mexican company that previously wanted to use the site). Mexico lost, and had to grant the permit despite environmental concerns and pay $15.6 million to Metalclad.
  • Another U.S. company, S.D. Myers, sued Canada because of a ban on the transportation of PCBs that conformed with both a Canada-United States and a multi-lateral environmental treaty. A tribunal ordered Canada to pay $5.6 million and reverse the ban, negating the two environmental treaties and ignoring the fact that PCBs are known carcinogens banned since 1979 in the U.S. The tribunal ruled that, when formulating an environmental rule, a government “is obliged to adopt the alternative that is most consistent with open trade.” So much for democracy!

The above is merely the tip of the iceberg. How do such extraordinarily one-sided decisions get handed down? Because the corporations dominate the tribunals and play a heavy role in writing the trade agreements to begin with. There are 605 corporate lobbyists who have access to the Trans-Pacific Partnership text — officially known as “trade advisers” — but no members of any legislative body are allowed to see it, and the public is completely shut out. The “advisers” are eagerly working to make the TPP a repository for their wish lists.

The key to making corporate dreams come true is the “investor-state dispute mechanism.” Under these mechanisms, governments legally bind themselves to settle “disputes” with “investors” in the secret tribunals. By far the most used of these tribunals is the International Centre for Settlement of Investor Disputes (ICSID) — an arbitration board that is an arm of the World Bank. Cases that go before one of the Centre’s tribunals are decided by a panel of three judges that are selected from a roster. The judges are appointed by the national governments that have signed on to ICSID, which include most of the world’s countries.

Working to overturn Australian laws, but he’s ‘neutral’

These judges are not disinterested arbiters. For example, one of the judges appointed to the ICSID by New Zealand is David A.R. Williams, who is currently representing Philip Morris in its suit seeking to force Australia to overturn its tobacco regulations. Australia’s rules limiting tobacco advertising and packaging, enacted in the interests of public health, were found to be legal by Australia’s supreme court, the High Court.

Not willing to accept the Australian constitution, Philip Morris moved some of its assets to Hong Kong, so it could declare itself a Hong Kong company eligible to sue Australia under the Australia-Hong Kong bilateral investment treaty, which, unlike some Australian trade pacts, allows corporations to sue one or the other government. (This case is still pending.)

The ultimate arbiter of a constitution, or writer of laws, are not domestic bodies subject to democratic checks, but unaccountable corporate representatives acting in secret. Who are these mercenaries? As an example, each of the eight ICSID judges appointed by the United States has a long career dedicated to serving large corporations. Six are currently partners in some of the world’s most formidable corporate law firms, one is an academic who formerly was a corporate lawyer and one is a lobbyist for a business group that seeks to codify pro-corporate trade rules under law.

That is a common pattern. One of Australia’s appointees is Doug Jones, a lawyer with one of Australia’s largest corporate law firms, and one of Chile’s is Carlos Eugenio Jorquiera, a corporate lawyer and president of the country’s National Chamber of Commerce.

Further titling the scales are that only corporations, not governments nor public-interest groups, can sue under these treaties. Governments must pay expenses that can total tens of millions of dollars, regardless of outcome, with no provisions to block frivolous claims. The judges are paid by the hour, with no defined limits on costs, giving them an incentive to drag out proceedings, which in turn favors deep-pocketed “investors.”

In fact, the TPP would place no limits on who qualifies as an “investor”: Anyone who applies for a permit or license, or who “channels” resources or capital to set up a business, without placing any limits on what qualifies for such a status, would be eligible to sue.

‘Customary law’ is what a corporation says it is

Leaked article 12.7 of the TPP, for instance, provides a long list of prohibitions against government actions. Under it, laws imposing capital controls (even to ameliorate a crisis), rules governing domestic content of products or any protections of any domestic industry would be illegal. It then provides a generic exception allowing environmental or other measures “that are not inconsistent with the Agreement; necessary to protect human, animal, or plant life or health; or related to the conservation of living or non-living exhaustible natural resources.”

But that exception is rendered meaningless not only by other, superseding, rules but by the rulings of the corporate-lawyer judges in the secret tribunals. Leaked TPP language specifically requires that excepted rules must be “not inconsistent with the Agreement.” The key sentence opens Article 12.6: “Each Party shall accord to covered investments treatment in accordance with customary international law.” The “Party” here are national governments, and the “customary international law” is that already established by NAFTA and the decisions made by ICSID and similar tribunals concerning disputes under NAFTA and other trade agreements.

Last year’s change of government in Australia has left working peoples in the 12 TPP negotiating countries more vulnerable. Under the previous Labor governments, Australia had refused to agree to the insertion of an investor-state dispute mechanism in the TPP. The new Tony Abbott government, however, has shown worrisome signs of reversal on this critical issue, claiming that such mechanisms would provide “greater market access for Australian exporters.”

The world’s 99 percent can’t afford to lose any bulwark against substituting corporate-dominated secret tribunals for democracy because the Obama administration is pushing hard for the most draconian rules. Knowing that secrecy is the only way for the TPP to gain approval of the U.S. Congress, the White House is pushing for “fast-track authority” — under which, Congress could not change so much as a comma of an agreement, would be severely limited in its ability to debate and would be obligated to vote yes or no in a very short period of time.

An increasingly strong pushback by activists in the U.S. has led to more than 200 members of Congress publicly committing themselves to voting against fast-track, which only Congress can impose on itself. Many of the other 11 national governments negotiating the TPP are nervously watching this development, because if Congress votes against fast-track, it will be far more difficult for TPP to earn congressional approval, leaving those governments less willing to buck their own internal oppositions.

If you believe that democracy is preferable to corporate dictatorship, the time is now to join an international fight against the Trans-Pacific Partnership and its spawn, such as the Transatlantic Trade and Investment Partnership.

The Federal Reserve inflates another bubble, but not for you

If you haven’t experienced the “recovery” from the Great Recession the corporate media keeps insisting is here, that’s because “quantitative easing” is a new way to say “trickle-down.” In this latest version, the Federal Reserve has pumped trillions of dollars into financial markets to create a stock market bubble.

Panic at the New York Stock Exchange (image via U.S. Library of Congress)

Panic at the New York Stock Exchange (image via U.S. Library of Congress)

Other than a small secondary effect of re-animating real estate prices, a growing bubble in stock prices has constituted the extent of the economic impact. Good for the one percent, not so good for the rest of us.

“Quantitative easing” is the technical name for a Federal Reserve program in which it buys U.S. government debt and mortgage-backed securities in massive amounts. In conjunction with keeping interest rates near zero, quantitative easing is supposedly intended to stimulate the economy by encouraging investment. A reduction in long-term interests rates would encourage working people to buy or refinance homes; for businesses to invest because they could borrow cheaply; and push down the value of the dollar, thereby boosting exports by making U.S.-made products more competitive.

In real life, however, the effect has been an upward distribution of money and an increase in speculation. This new form of trickle-down has not worked any differently than it did during the Reagan administration. Now that the Federal Reserve will gradually reduce the amount of bonds it purchases (announced last month) and perhaps end the program by the end of 2014, Wall Street and corporate executives worry that their latest party might be over.

What hasn’t changed, and won’t anytime soon, is the weakness of the global economy, particularly for the world’s advanced capitalist countries. If you aren’t making enough money to get by, you aren’t planning a shopping spree. If working people, collectively, continue to see wages erode, happy days are not at hand. They aren’t.

The top one percent has captured almost all of the “recovery,” which is why the corporate media continues to peddle its mantra. Emmanuel Saez, an economist at the University of California, calculates that 95 percent of all U.S. income gains from 2009 to 2012 went to the top one percent. That result is an intensification of a pattern — Professor Saez calculates that 68 percent of all income gains for the longer period of 1993 to 2012 went to the top one percent.

Fueling a speculative binge

How is this connected to quantitative easing? The money borrowed by corporations has not gone toward investment or hiring new workers, but rather into buying back stock and speculation. Financiers and executives riding the crest of this wave of cheap money in turn use their gains to further speculate, or to buy expensive works of art, itself speculation that the wildly rising prices for collectible works will continue.

U.S. corporations bought back about $750 billion of their stock in 2013. When a corporation buys back its stock, it is spreading its profits among fewer stockholders, thereby boosting its stock price. That’s more profits for financiers and bigger bonuses for executives, achieved without investing in the enterprise.

The billionaire Stanley Druckenmiller in a television interview called the Federal Reserve’s quantitative easing program:

“[T]he biggest redistribution of wealth from the middle class and the poor to the rich ever. … I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work. But it hasn’t worked for five years.”

Mr. Druckenmiller said this on CNBC, a cable-television business news station whose anchors openly cheer news of rising corporate profits and celebrate wealth accumulation. The “five years” he mentioned is a reference to the three successive programs of quantitative easing that began in the final weeks of the Bush II/Cheney administration. In a separate report, CNBC journalist Robert Frank writes that it has become “increasingly clear” that the wealthiest one percent are the big winners:

“The largesse of the Federal Reserve over the past five years has amounted to one of the largest ever subsidies to the American wealthy — fueling record fortunes, record numbers of new millionaires and billionaires, and an unprecedented shopping spree for everything from Ferraris to Francis Bacon paintings. The prices of the assets owned by the wealthy, and the things they buy, have gone parabolic, bearing little relationship to the weak, broader economy. …

Fed policy has fueled a surge in the value of financial assets. Since the wealthiest 5 percent of Americans own 60 percent of financial assets, and the top 10 percent own 80 percent of the stocks, those gains in financial assets have gone disproportionately to a small group at the top.”

Stock prices reaching unsustainable levels

More speculative money is poured into stock markets because the heavy Federal Reserve buying of bonds dampens demand in that sector. Ted Levin, writing for the business publication SmallCap Network, summarizes this effect:

“[Q]uantitative easing involves buying long-term bonds, which in turn drives down the interest rates on these. The reason for this is that when there is a strong demand for bonds — which is exactly what quantitative easing artificially creates — bond issuers do not have to offer such high interest rates in order to attract investors. This in turn means that bonds are less attractive to non-governmental investors, and so they turn to stocks instead — driving up the price.

The second reason is that quantitative easing makes more capital available to businesses at lower rates. This allows them to swap high-cost debt for low-cost debt and buy back stock — improving their earnings per share and driving up the value of the remaining stock.”

The most basic measure of a stock, or the stock markets as a whole, is the “price/earnings ratio.” The P/E ratio is a company’s yearly profit divided by the price of one share. As of January 14, the P/E ratio for the S&P 500, the standard barometer, was at about 19.5 and has been rising steadily the past couple of years. A handful of times in history, the P/E ratio has risen above 20, only to crash each time. The historical average is 14.5 — meaning that stocks are currently overvalued.

Stock prices have become unmoored from underlying economic conditions — and are frequently pure speculation. Most trading is done through computer programs, often with a stock bought and sold in fractions of a second to take advantage of quick pricing changes, and increasingly exotic derivatives to draw in ever more speculative money by the wealthy who are awash in far more money that can possibly invest rationally.

Wall Street’s party will wind down as slowly and gently as the Federal Reserve can manage, and it may yet reverse itself and continue its quantitative-easing program. As of the end of December 2013, the Fed has spent a total of $3.7 trillion over five years on quantitative easing and the Bank of England has committed £375 billion to its quantitative easing.

How much could these enormous sums of money have benefited working people had this money instead been used to create jobs directly or for productive social investment? And these barrels of money thrown to financiers are merely the latest tranches — the U.S., E.U., Japan and China committed 16.3 trillion dollars in 2008 and 2009 alone on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus. For the rest of us, it’s been austerity and mounting inequality.

Going beyond the obvious question of why such absurdly one-sided policies should be tolerated, it also necessary to ask: Why do we continue to believe an economic system that requires such massive subsidies “works”?