Understanding Power: the indispensable Chomsky (54 page)

Well, it wasn’t until recent years that laissez-faire ideology was revived again—and again, it was as a weapon of class warfare. I mean, as far as I can see, the principles of classical economics in effect are still taught: I don’t think what’s taught in the University of Chicago Economics Department today is all that different, what’s called “neo-liberalism” [an economic stance stressing cutbacks in social services, stable currencies, and balanced budgets]. And it doesn’t have any more validity than it had in the early nineteenth century—in fact, it has even
less
. At least in the early nineteenth century, Ricardo’s and Malthus’s assumptions had
some
relation to reality. Today those assumptions have
no
relation to reality.

Look: the basic assumption of the classical economists was that labor is highly mobile and capital is relatively immobile—that’s required, that’s crucial to proving all their nice theorems. That was the reason they could say, “If you can’t get enough to survive on the labor market, go someplace else”—because you
could
go someplace else: after the native populations of places like the United States and Australia and Tasmania were exterminated or driven away, then yeah, poor Europeans could go someplace else. So in the early nineteenth century, labor was indeed mobile. And back then, capital was indeed
immobile
—first because “capital” primarily meant land, and you can’t move land, and also because to the extent that there was investment, it was very local: like, you didn’t have communications systems that allowed for easy transfers of money all around the world, like we do today.

So in the early nineteenth century, the assumption that labor is mobile and capital is immobile was more or less realistic—and on the basis of that assumption, you could try to prove things about comparative advantage and all this stuff you learn in school about Portugal and wine and so on [Ricardo’s most famous hypothetical for demonstrating how free trade could be mutually advantageous to participating countries involved England concentrating on selling cloth and Portugal wine].

Incidentally, if you want to know how well those theorems actually work, just compare Portugal and England after a hundred years of trying them out—growing wine versus industrializing as possible modes of development. But let’s put that aside …

Well, by now the assumptions underpinning these theories are not only
false
—they’re the
opposite
of the truth. By now labor is
immobile
, through immigration restrictions and so on, and capital is highly
mobile
, primarily because of technological changes. So none of the results work anymore. But you’re still taught them, you’re still taught the theories exactly as before—even though the reality today is the exact opposite of what was assumed in the early nineteenth century. I mean, if you look at some of the fancier economists, Paul Krugman and so on, they’ve got all kinds of little tricks here and there to make the results not quite so grotesquely ridiculous as they’d otherwise be. But fundamentally, it all just is pretty ridiculous.

I mean, if capital is mobile and labor is immobile, there’s no reason why mobile capital shouldn’t seek
absolute
advantage and play one national workforce against another, go wherever the labor is cheapest and thereby drive
everybody’s
standard of living down. In fact, that’s exactly what we’re seeing in N.A.F.T.A. [the North American Free Trade Agreement] and all these other international trade agreements which are being instituted right now. Nothing in these abstract economic models actually
works
in the real world. It doesn’t matter how many footnotes they put in, or how many ways they tinker around the edges. The whole enterprise is totally rotten at the core: it has no relation to reality anymore—and furthermore, it never did.

The Real Market

So take a look at one of the things you don’t say if you’re an economist within one of the ideological institutions, although surely every economist has to know it. Take the fact that there is not a single case on record in history of any country that has developed successfully through adherence to “free market” principles: none. Certainly not the United States. I mean, the United States has always had
extensive
state intervention in the economy, right from the earliest days—we would be exporting fur right now if we were following the principles of comparative advantage.

Look, the reason why the industrial revolution took off in places like Lowell and Lawrence is because of high protectionist tariffs the U.S. government set up to keep out British goods. And the same thing runs right up to today: like, we would not have successful high-tech industry in the United States today if it wasn’t for a huge public subsidy to advanced industry, mostly through the Pentagon system and N.A.S.A. and so on—that doesn’t have the vaguest relation to a “free market.”

In fact, if you want a good illustration, just read today’s
New York Times
. There’s a story on the business page about how we’ve got a funny kind of economic recovery going on in the country right now: there’s a lot of economic growth, but not many good new jobs—you know, big surprise. And they use one factory as an example, a stove factory that’s being set up in Tulsa by the Whirlpool corporation. Well, the last paragraph of the article points out how the “free market” really works: the reason why Whirlpool decided to put the factory in Tulsa instead of, say, in Mexico, is that the taxpayers in Tulsa County are going to pay 25 percent of the corporation’s capital costs.
  ³⁷
Okay, that’s how the free market
really
works—in fact, that’s how it’s
always
worked, from the early days of the industrial revolution right up until this morning, without any known exception.
  ³⁸

As a matter of fact, the United States has been the most economically protectionist country in history. We’ve traditionally had the highest protectionist tariffs in the world, so much so that one leading economic historian in a recent book (published by the University of Chicago Press, no less) describes us as “the mother country and bastion of modern protectionism.”
  ³⁹
So for example, in the late nineteenth century, when Europe was actually toying around with laissez faire for a brief period, American tariffs were five to ten times as high as theirs—and that was the fastest economic growth period in American history.
  ⁴⁰

And it goes on right until the present. The United States developed a steel industry a century ago because it radically violated the rules of the “free market,” and it was able to recover its steel industry in the last decade or so by doing things like restricting imports from abroad, destroying labor unions to drive down wages, and slamming huge tariffs on foreign steel.
  ⁴¹
I mean, the Reaganites always talked enthusiastically about “market forces,” but they refused to allow them to function—and for a very simple reason: if market forces had been allowed to function, the United States would no longer have an automobile industry, or a microchip industry, or computers, or electronics, because they would have just been wiped out by the Japanese. So therefore the Reaganites closed off American markets and poured in huge amounts of public funds. And actually, they were perfectly frank about it to the business community—though of course, not to the public. So when he was Secretary of the Treasury, James Baker proudly proclaimed to a business audience in 1987 that Ronald Reagan “has granted more import relief to U.S. industry than any of his predecessors in more than half a century”—which was far too modest, actually; Reagan probably provided more import relief to industry than all his predecessors
combined
in that period.
  ⁴²

Of course, the “free market” ideology is very
useful
—it’s a weapon against the general population here, because it’s an argument against social spending, and it’s a weapon against poor people abroad, because we can hold it up to them and say “You guys have to follow these rules,” then just go ahead and rob them. But nobody really pays any attention to this stuff when it comes to actual planning—and no one ever has.

So there was just a British study of the hundred leading transnational corporations in the “
Fortune
500,” and it found that of the hundred, every single one of them had benefited from what’s called “state industrial policy”—that is, from some form of government intervention in the country in which they’re based. And of the hundred, they said at least twenty had been saved from total collapse by state intervention at one point or another. For instance, the Lockheed corporation was going under in the early 1970s, and the Nixon administration just bailed them out with public funds.
  ⁴³
Okay, so they’re back in business. And now they
stay
in business because the public pays for C-130s [military aircraft], and upgrading F-16s, and the F-22 project, and so on—none of which has anything to do with a “free market” either.

Or take the fact that so many people live in the suburbs and everybody has to drive their own car everywhere. Was that a result of the “free market”? No, it was because the U.S. government carried out a massive social-engineering project in the 1950s to destroy the public transportation system in favor of expanding a highly inefficient system based on cars and airplanes—because that’s what benefits big industry. It started with corporate conspiracies to buy up and eliminate streetcar systems, and then continued with huge public subsidies to build the highway system and encourage an extremely inefficient and environmentally destructive alternative. That’s what led to the suburbanization of the country—so you get huge shopping malls in the suburbs, and devastation in the inner cities.
  ⁴⁴
But these policies were a result of planning—they had nothing to do with the “free market.”

Actually, the most dramatic example of these “market distortions” that I can think of—which I suspect is never even taught in economics courses—concerns the reason why the United States had an industrial revolution in the first place. Remember, the industrial revolution was fueled by textiles, meaning one commodity: cotton. And cotton was cheap, that was crucially important. Well, why was cotton cheap? Was it because of market forces? No. Cotton was cheap because they exterminated the native population here and brought in slaves—that’s why cotton was cheap. Genocide and slavery: try to imagine a more severe market distortion than that.

Other countries who had their own cotton resources also tried to start on industrial revolutions—but they didn’t get very far, because England had more guns, and stopped them by force. Egypt, for example, had its own cotton resources, and started on an industrial revolution at about the same time as the United States did, around 1820—but the British weren’t going to tolerate an economic competitor in the Eastern Mediterranean, so they just stopped it by force. Okay, no industrial revolution in Egypt.
  ⁴⁵

The same thing also happened in Britain’s earliest “experiment” with these ideas, in what was called Bengal, in India. In fact, Bengal was one of the first places colonized in the eighteenth century, and when Robert Clive [British conqueror] first landed there, he described it as a paradise: Dacca, he said, is just like London, and they in fact referred to it as “the Manchester of India.” It was rich and populous, there was high-quality cotton, agriculture, advanced industry, a lot of resources, jute, all sorts of things—it was in fact comparable to England in its manufacturing level, and really looked like it was going to take off. Well, look at it today: Dacca, “the Manchester of India,” is the capital of Bangladesh—the absolute symbol of disaster.
  ⁴⁶
And that’s because the British just despoiled the country and destroyed it, by the equivalent of what we would today call “structural adjustment” [i.e. economic policies from the World Bank and International Monetary Fund which expose Third World economies to foreign penetration and control].

In fact, India generally was a real competitor with England: as late as the 1820s, the British were learning advanced techniques of steel-making there, India was building ships for the British navy at the time of the Napoleonic Wars [1803–1815], they had a developed textiles industry, they were producing more iron than all of Europe combined—so the British just proceeded to de-industrialize the country by force and turn it into an impoverished rural society.
  ⁴⁷
Was that competition in the “free market”?

And it goes on and on: the United States annexed Texas [in 1845], and one of the main reasons for that was to ensure that the U.S. achieved a monopoly on cotton—which was the oil of the nineteenth century, it was what really fueled the industrial economies. So the American leadership figured that if they could take Texas, which was a major cotton-producing area, then they would be able to strangle England economically. See, England was the main enemy at that time, they hated England: it was much more powerful militarily than the United States, it kept us from conquering Canada and seizing Cuba the way elites here wanted to—and in fact, the only reason the American colonists had been able to defeat England in the American Revolution in the first place was that the French military had massively intervened in the colonial uprising here to help overthrow British power.
  ⁴⁸
So England was the real enemy. And if you read the Jacksonian Democrats, Presidents Polk and Tyler and so on, they were saying: if we can get Texas, we can bring England to our feet and gain mastery of the trade of the world. In fact, the worst charges, paranoid charges, that were leveled against Saddam Hussein before the Gulf War apply precisely to the Jacksonian Democrats: they wanted to monopolize the main resource of the world so they could bring everybody else to their feet.
  ⁴⁹