Understanding Power: the indispensable Chomsky (80 page)

M
AN
: In the past twenty-five years, there has been such a massive expansion of multinational finance capital being used for speculation in international stock markets, rather than for investment and trade, that it seems by now the United States is just a colony at the mercy of the movements of international capital—it doesn’t much matter who’s in office, they’re not the ones really setting the agenda anymore. What’s the significance of that phenomenon on the international scene right now?

Well, first of all, we really ought to be a bit more cautious with our language—including myself, because I talk this way all the time. We shouldn’t talk about things like “the United States”—because there is no such entity, just like there’s no such entity as “England” or “Japan” or anything like that. The
population
of the United States may be “colonized,” but the
corporate interests
that are based in the United States aren’t “colonized” at all. So you sometimes hear about “America in decline”—and if you look at the share of the world’s manufacturing production that happens to
take place
in the United States, it’s true, that is in decline. But if you look at the share of the world’s manufacturing production that’s done by
U.S.-based corporations
, that’s not in decline at all: in fact, it’s doing extremely nicely. It’s just that that production is now taking place mostly in the Third World.
  ⁵⁷
So you know, one can talk about the geographical entity “the United States”—but that is not what functions in world affairs. To be brief about it, unless you begin with an elementary class analysis, you aren’t even in the real world: things like “the United States” aren’t entities.

But you’re right, most of the
population
of the United States is being driven towards kind of a Third World “colonized” status—it’s just that we should remember, there’s another sector in the world, which includes rich corporate executives and investors, plus their people in the Third World, like some Mafia thug in Russia who’s running their local thing for them or some rich guy in São Paulo, and they’re a much different grouping. Those people have never been doing better.

Now, about speculative capital—that’s an extremely important part of this. You’re absolutely correct that it’s having a huge impact on national governments. This is really a major phenomenon. Just the numbers themselves are dramatic.

Back around 1970, about 90 percent of the capital involved in international economic transactions was being used for more or less productive commercial purposes, like production and trade, and about 10 percent was being used for speculation. Today those figures are reversed: by 1990, about 90 percent was being used for speculation, and by 1994 it was up to
95
percent. Furthermore, the absolute
amount
of speculative capital has just exploded: the last estimate I saw from the World Bank was that there is now about $14 trillion involved—which means there’s now $14 trillion free to transfer from one national economy to another, an amount which just overwhelms any national government’s resources, and leaves governments with only an extremely narrow range of choices when it comes to setting policies.
  ⁵⁸

Well, why has this huge growth of speculative capital happened? There have been two key reasons. The first had to do with the breakdown of the post-war world economic system, which occurred in the early 1970s. See, during the Second World War, the United States basically reorganized the world economic system and made itself into sort of the “global banker” [at the Bretton Woods United Nations Monetary and Financial Conference of 1944]—so, the U.S. dollar became the global reserve currency, it was fixed to gold, and other countries’ currencies were fixed relative to the dollar. And that system was pretty much what lay behind the very substantial economic growth rate that followed in the 1950s and Sixties. But by the 1970s, the “Bretton Woods” system had become unsustainable: the U.S. no longer was strong enough economically to remain the world’s banker, primarily because of the huge costs of financing the Vietnam War. So Richard Nixon at that point made a decision to just dismantle the whole arrangement: in the early 1970s he took the United States off the gold standard, he raised import duties, he just destroyed the whole system totally. Well, after this international regulatory apparatus had been destroyed, we started to get speculation against currencies on an unprecedented scale, and fluctuating financial exchanges, all these other things that have kept growing ever since.

The second main factor behind this explosion of speculative capital has been the technological revolution in telecommunications—which took place in the same period, and which suddenly made it very easy to transfer currencies from one country to another. So for example, today virtually the whole of the New York Stock Exchange moves overnight to Tokyo: the money is in New York in the daytime, then they just wire it over to Japan every night, and since Japan is 14 hours ahead of us, the same money is used in both places. And by now, about a trillion dollars a day moves around in international speculative markets like that—and that has just a huge effect on national governments.
  ⁵⁹
In fact, by this point, what it means is that the international investing community has virtual veto-power over what any national government can do.

We’re seeing it in the United States right now, actually. The United States has had a very sluggish recovery from the last recession—it may be the slowest recovery ever; certainly it’s the slowest one since the end of the Second World War. But it’s been sluggish in only one respect: there’s been very low economic growth, very little job creation (in fact, for many years wages were actually going
down
in this “recovery”), but profits have been absolutely zooming.
  ⁶⁰
So every year
Fortune
magazine has an issue devoted to the well-being of the important people of the world, the “
Fortune
500,” and what it’s reported during this period is that profits went through the sky: in 1993 they were very happy, in 1994 they were euphoric, and 1995 just broke all records. Meanwhile real wages were going down, growth was very low, production was low—and even the slow growth that’s been taking place has been halted at times because the bond market, as they put it, “signaled” that it didn’t like the growth.

See, financial speculators don’t want growth: what they want is stable currencies, meaning
no
growth. In fact, the business press talks very openly now about “the threat of too much growth,” “the threat of too much employment”: they’re perfectly open about all of this, to one another.
  ⁶¹
And the reason for it is, people who speculate against currencies are afraid of inflation—because it decreases the value of their money, so therefore it’s a big threat to them. And any kind of growth, any kind of stimulation of the economy, any decline of unemployment all threaten to increase inflation. Well, currency speculators don’t like that, so if they see signs of stimulative economic policies or anything that may bring economic growth, they’ll just take their capital out of that country’s economy—and even a slight withdrawal of that sort can easily trigger a recession in those countries.

So what’s happened as a result of all of this is a big drift internationally towards low-growth, low-wage, high-profit economies—because national governments trying to make economic and social policy decisions just have very little leeway to do so by now, or else their economies will be wrecked by capital flight. I mean, Third World governments have no chance at all of doing so at this point—they don’t even have any possibility of carrying out a national economic policy. But by now, it’s even a question whether big countries can—including the United States. I mean, I don’t think that any administration we’ve had in the United States has
wanted
to do things much differently here—but if they
had
wanted to, I think it would have been extremely hard, if not impossible.

Just to give you an indication, right after the 1992 election, the
Wall Street Journal
ran a front-page article just informing its readers that there was no reason to fear that any of the alleged “lefties” around Clinton would do things differently when they got into office. Of course, the business community already knew that perfectly well, as you can see by taking a look at the stock markets towards the end of the election campaign. But in any event, the
Wall Street Journal
explained why, if by some accident Clinton or any other candidate
did
try to initiate a program of social reform in the United States, it would immediately be cut off. They simply stated what’s obvious, and they gave the numbers.

The United States is deeply in debt—that was part of the whole Reagan/Bush program, in fact: to put the country so deeply in debt that there would be virtually no way for the government to pursue programs of social spending anymore. And what “being in debt” really means is that the Treasury Department has sold a ton of securities—bonds and notes and so on—to investors, who then trade them back and forth on the bond market. Well, according to the
Wall Street Journal
, by now about $150 billion a day worth of U.S. Treasury securities alone is traded this way. The article then explained what this means: it means that if the investing community which holds those securities doesn’t like any U.S. government policies, it can very quickly sell off just a tiny signal amount of Treasury bonds, and that will have the automatic effect of raising the interest rate, which then will have the further automatic effect of increasing the deficit. Okay, this article calculated that if such a “signal” sufficed to raise the interest rate by 1 percent, it would add $20 billion to the deficit overnight—meaning if Clinton (say in someone’s dream) proposed a $20 billion social spending program, the international investing community could effectively turn it into a
$40
billion program instantly, just by a signal, and any further moves in that direction would be totally cut off.
  ⁶²

Similarly, there was a great article in the London
Economist
—you know, the big free-trade pop-ideology journal—about the fact that Eastern European countries have been voting Socialists and Communists back into power. But the basic line of the article was, don’t worry about it, because as they said, “policy is insulated from politics”—meaning, no matter what games these guys play in the political arena, policy’s going to go on exactly the way it is, because we’ve got them by the balls: we control the international currencies, we’re the only ones who can give them loans, we can destroy their economies if we want to, there’s nothing they can do. I mean, they can play all of the political games they want to, they can pretend they have a democracy if they like—anything they please—so long as “policy remains insulated from politics.”
  ⁶³

What’s been happening in the contemporary period is really something quite new in history, actually. I mean, in recent years a completely new form of government is being pioneered, one designed to serve the developing needs of this new international corporate ruling class—it’s what has sometimes been called an emerging “de facto world government.” That’s what all of the new international trade agreements are about, N.A.F.T.A., G.A.T.T., and so on; it’s what the E.E.C. [European Economic Community] is about; it’s increasingly taking shape in international financial organizations like the International Monetary Fund, the World Bank, the Inter-American Development Bank, the World Trade Organization, the G-7 planning meetings of the rich industrial countries, and so on and so forth. These are all efforts to try to centralize power in a world economic system geared towards ensuring that “policy is insulated from politics”—in other words, towards ensuring that the general populations of the world have no role in decision-making, and that the level of policy planning is raised to be so remote from people’s knowledge and understanding and input that they have absolutely no idea about the various decisions that are being made that will affect their lives, and certainly couldn’t influence them if they did.

The World Bank has its own term for the phenomenon: they call it “technocratic insulation.” So if you read World Bank studies, they talk about the importance of having “technocratic insulation”—meaning a bunch of technocrats, who are essentially employees of the big transnational corporations, have to be working somewhere in “insulation” from the public to design all the policies, because if the public ever gets involved in the process they may have bad ideas, like wanting the kind of economic growth that does things for people instead of profits, all sorts of stupid stuff like that. So therefore what you want to have is insulated technocrats—and once they’re insulated enough, then you can have all the “democracy” you like, since it’s not going to make any difference. In the international business press, this has all been described pretty frankly as “The New Imperial Age.” And that’s quite accurate: it’s certainly the direction things are going in.
  ⁶⁴

The Fairy Tale Economy

M
AN
: A few moments ago, you described the 1990s economy as “sluggish,” with low growth and low wages. Usually we hear that this is a “fairy tale” economy and everything’s wonderful. Can you say something more about that?

Well, there’s a very important book that comes out every two years, called
The State of Working America
. It’s kind of the main, standard database for what’s going on for working people—meaning most everybody in the economy. The latest data goes up through 1997. And it tells you just what the “fairy tale” economy is. It’s nothing that everybody doesn’t know, they just give all the data.