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In the Arms of Dictators: America the Great… Global Arms Dealer
By: Andrew Gavin Marshall
The following is a first draft sample from a chapter currently being written for The People’s Book Project. Read more about The People’s Book Project here, and please consider donating to help the Project continue.
The American imperial system incorporates much more than supporting the occasional coup or undertaking the occasional war. Coups, wars, assassinations and other forms of overt and covert violence and destabilization, while relatively common and consistent for the United States – compared to other major powers – are secondary to the general maintenance of a system of imperial patronage. A “stable” system is what is desired most by strategic planners and policy-makers, but this has a technical definition. Stability means that the populations of subject nations and regions are under “control” – whether crushed by force or made passive by consent, while Western corporate and financial interests have and maintain unhindered access to the “markets” and resources of those nations and regions. Since the 19th century development of America’s overseas empire, this has been referred to as the “Open Door” policy: as in, the door opens for American and other Western economic interests to have access to and undertake exploitation of resources and labour.
As the only global imperial power, and by far the world’s largest military power, America does not merely rely upon the “goodwill” of smaller nations or the threat of force against them in order to maintain its dominance, it has established, over time, a large and complex network of imperial patronage: supplying economic aid, military aid (to allow its favoured regimes to control their own populations or engage in proxy-warfare), military and police training, among many other programs. These programs are largely coordinated by and between the Defense Department, State Department, and the United States Agency for International Development (USAID).
Arms sales are a major method through which the United States – and other powerful nations – are able to exert their hegemony, by arming and strengthening their key allies, directly or indirectly fueling civil wars and conflicts, and funneling money into the world’s major weapons manufacturers. The global economic crisis had “significantly pushed down purchases of weapons” over 2009 to the lowest level since 2005. In 2009, worldwide arms deals amounted to $57.5 billion, dropping 8.5% from the previous year. The United States maintained its esteemed role as the main arms dealer in the world, accounting for $22.6 billion – or 39% of the global market. In 2008, the U.S. contribution to global arms sales was significantly higher, at $38.1 billion, up from $25.7 billion in 2007. In 2009, the second-largest arms dealer in the world was Russia at $10.4 billion, then France at $7.4 billion, followed by Germany, Italy, China and Britain.
There are two official ways in which arms are sold to foreign nations: either through Foreign Military Sales (FMS), in which the Pentagon negotiates an agreement between the U.S. government and a foreign government for the sale and purchase of arms, and through Direct Commercial Sales (DCS), in which arms manufacturers (multinational corporations) negotiate directly with foreign governments for the sale and purchase of arms, having to apply for a license from the State Department.
Between 2005 and 2009, U.S. arms sales totaled roughly $101 billion, with direct commercial sales (DCS) accounting for more than half of the total value, at $59.86 billion, and Foreign Military Sales (FMS) accounting for $40.85 billion. The top seven recipients of U.S. arms sales between 2005 and 2009 were: Japan at $13.14 billion, the United Kingdom at $8.32 billion, Israel at $8 billion, South Korea at $6.53 billion, Australia at $4.17 billion, Egypt at $4.07 billion, and the United Arab Emirates (UAE) at $3.98 billion.
The United States experienced a slight decline in global arms sales over 2009, though it maintained its position as the world’s number one arms dealer, holding 30% of the global market. However, the Obama administration in 2010 decided to change certain “export control regulations” in order to make arms deals easier and increase the U.S. share of the global market. The stated reason for the legal change was “to simplify the sale of weapons to U.S. allies,” though it had the added benefit of “generating business for the U.S. defense industry.” The U.S. National Security Advisor at the time, General James Jones, claimed that without the changes, the existing system of arms sales “poses a potential national security risk based on the fact that its structure is overly complicated.”
In early 2010, the Obama administration began pressuring Saudi Arabia and other Gulf dictatorships (aka: “allies”) to increase their purchases of U.S. arms, upgrade their defense of oil installations and threaten Iran with overwhelming military superiority. In the lead were Saudi Arabia and the UAE in undertaking a regional “military buildup” – or arms race – resulting in more than $25 billion in U.S. arms sales to the region over the previous two years. A senior U.S. official in the Obama administration commented: “We’re developing a truly regional defensive capability, with missile systems, air defense and a hardening up of critical infrastructure… All of these have progressed significantly over the past year.” Another senior official stated, “It’s a tough neighborhood, and we have to make sure we are protected,” adding that Iran was the “number one threat in the region.”
Of course, Iran is actually a nation that exists within the region, and thus has the right to defend itself, whereas the United States cannot “defend” itself in a region in which it does not exist. But then, geographical trivialities have never been a concern to imperialists who believe that the world belongs to them and it was a mere accident of history that all the resources exist outside of the empire’s home country. Therefore, with such a rationalization, the United States – and the West more broadly – have a “right” to “defend” themselves (and their economic and political interests) everywhere in the world, and against everyone in the world. Any other nation which poses a challenge to Western domination of the world and its resources is thus a “threat” to whichever region it belongs, as well as to U.S. “national security.”
Iran is of course not the only competition for the United States and the West in its unhindered access to and control of the world, but China is another and arguably much more significant threat (though not an officially sanctioned U.S. enemy, as of yet). Around the same time the U.S. was pushing for increased arms sales to the Persian Gulf dictatorships (no doubt, to advance the causes of “democracy” and “peace”), the Obama administration secured an arms deal with Taiwan worth over $6 billion, incurring the frustration of China. The deal included the sale of 114 Patriot missiles, 60 Black Hawk helicopters, and communications equipment for Taiwan’s fleet of F-16s, with the possibility of future sales of F-16 fighter jets.
The Chinese vice foreign minister expressed “indignation” to the U.S. State Department in response to the arms deal, adding: “We believe this move endangers China’s national security and harms China’s peaceful reunification efforts [with Taiwan]… It will harm China-U.S. relations and bring about a serious and active impact on bilateral communication and cooperation.” In response, the U.S. National Security Advisor General James Jones stated that the announcement shouldn’t “come as a surprise to our Chinese friends.”
In September of 2010, the Obama administration announced the intention to undertake the largest arms deal in U.S. history, the sale of advanced aircraft to Saudi Arabia worth up to $60 billion for fighter jets and helicopters (84 F-15s, 70 Apaches, 72 Black Hawks, and 36 Little Birds), as well as engaging “in talks with the [Saudi] kingdom about potential naval and missile-defense upgrades that could be worth tens of billions of dollars more,” according to the Wall Street Journal, with “a potential $30 billion package to upgrade Saudi Arabia’s naval forces.” The stated objective was to counter the role of Iran in the region, though no agreement had been initially reached. The U.S. was selling the idea to Congress as a means of creating “jobs,” a political euphemism for corporate profits. One official involved in the talks noted, “It’s a big economic sale for the U.S. and the argument is that it is better to create jobs here than in Europe.”
The arms deal would purchase equipment and technology from Lockheed Martin, Raytheon, Boeing, and United Technologies. In recent years, Saudi Arabia had been purchasing more European and Russian-made arms from companies like BAE Systems. U.S. officials were also attempting to ease the fears of Israel while massively building up the arsenal of a close neighbor, ensuring that the planes sold to the Kingdom wouldn’t have long-range weapons systems and further, that the Israelis would purchase the more advanced F-35 jet fighters. The Israeli ambassador to the United States, Michael Oren, commented, “We appreciate the administration’s efforts to maintain Israel’s qualitative military edge.” The potential $60 billion arms deal with the Saudis would be stretched out over several years, though there was talk that the Saudis might only guarantee a purchase of at least $30 billion, at least, initially.
The Financial Times reported that the Arab dictatorships in the Gulf “have embarked on one of the largest re-armament exercises in peacetime history, ordering US weapons worth some $123 billion as they seek to counter Iran’s military power.” Saudi Arabia’s $60 billion was the largest, with the United Arab Emirates (UAE) signing arms deals worth between $35 and $40 billion in purchases of a “high altitude missile defence system” known as THAAD, developed by Lockheed Martin, as well as purchasing upgrades of its Patriot missile defense systems, produced by Raytheon. Oman was expected to purchase $12 billion and Kuwait $7 billion in arms and military technology. The CEO of Blenheim Capital Partners, a consultancy firm which helps arrange arms deals, noted that Middle Eastern and Southeast Asian countries were replacing Western European nations as the largest arms purchasers, adding: “They are the big buyers.”
Anthony Cordesman from the Center for Strategic and International Studies (CSIS) said that the United States was seeking to create a “new post-Iraq war security structure that can secure the flow of energy exports to the global economy.” These massive arms sales would then “reinforce the level of regional deterrence” – or in other words, expand American hegemony over the region through local proxy powers and dictatorships – and thus, “help reduce the size of forces the US must deploy in the region.” As a Saudi defense analyst noted, “[t]he Saudi aim is to send a message especially to the Iranians – that we have complete aerial superiority over them.”
According to three of four members of an ‘Expert Roundup’ published by the Council on Foreign Relations, the $123 billion arms deals with the Arab dictatorships are “a good idea for the United States and the Middle East.” One of the “experts” is Anthony Cordesman, the Arleigh A. Burke Chair in Strategy at CSIS, former director of intelligence assessment in the Office of the Secretary of Defense, as well as having served in several other State Department and NATO staffs, and has been a regular consultant to the Afghan and Iraqi occupation commands, U.S. embassies, and was a member of the Strategic Assessment Group which advised General Stanley McChrystal in developing a new strategy in Afghanistan for 2009. He also regularly consults with the U.S. State and Defense Departments and the intelligence community. Cordesman wrote that the US “shares critical strategic interests with Saudi Arabia,” notably the control of oil for “the health” of the global economy.
Cordesman also emphasized the role of pliant dictatorships in carrying out U.S imperial objectives in the region, writing that the U.S. “needs allies that have interoperable forces that can both fight effectively alongside the United States and ease the U.S. burden by defending themselves,” meaning, to defend America’s interests, which then become the interests of America’s proxies – or “allies.” The arms sales would be a helpful counter to Iran in the region, and secure a strong relationship between “the current Saudi government as well as Saudi governments for the next fifteen to twenty years,” the suggested timeline for delivery of all purchases, providing Saudi Arabia with a “strong incentive to work with the United States” over the long-term.
Loren B. Thompson, the Chief Operating Officer of the Lexington Institute, also participated in the Council on Foreign Relations ‘Roundup’ report, writing that the arms deal “appears to be a careful reconciliation of Saudi requirements with Israeli fears, while also offering a strategic balance against Iran.” Whatever the differences between Saudi Arabia and the United States, he wrote, casting aside the fact that the Kingdom is one of the most brutal and dictatorial regimes in the world, “the Saudis have been reliable allies of America for decades and have exercised a moderating influence on the behavior of other oil-producing states.” Helping the Saudis, Thompson wrote, “means helping ourselves.”
F. Gregory Gause III, Professor and Chair of the Political Science Department at the University of Vermont wrote that the arms deal “will not buy much security in the long run in the Persian Gulf,” but, he added, “there are no good reasons not to sell the Saudis those weapons, and there are some potentially positive results (besides the economic benefits to the US),” such as opposing the “Iranian regional challenge,” with which he included Hezbollah in Lebanon, Hamas in the Occupied Territories of Palestine, “various Iraqi parties,” Syria, and “Shia activists in the Gulf monarchies.” One could not object to the arms sale on the basis of supporting a regime with a horrible record on democracy, women’s rights, Islam, and human rights, Gause wrote, adding: “Moral purity would be purchased at the price of reduced American regional influence.” In other words, it’s a terrible regime, but it’s America’s terrible regime, and thus, challenging or changing the nature of the regime could undermine and erode America’s influence through the dictatorship and over the region.
William Hartung, the director of the Arms and Security Initiative at the New America Foundation, was another “expert” in the Council on Foreign Relations ‘Roundup’ report, providing the one “cautionary note” on the arms deal on the basis that it could amount to fueling an arms race in the region, building up the forces of Saudi Arabia, the Gulf monarchs, and Israel, thus providing pressure on Iran “to ratchet up its own military capabilities.” The Saudi deal “consists primary of offensive weapons,” though it is stated to be for defensive purposes, and if Saudi Arabia were to undertake aggressive military actions in the region, such as in Yemen (as it has), it would more likely “inflame passions” against Saudi Arabia instead of solving security problems.
The United States has for years dominated the arms market of the Persian Gulf, supplying military equipment to Saudi Arabia, UAE, Kuwait, Oman, Qatar and Bahrain, all members of the Gulf Cooperation Council (GCC), a regional governance association. A Middle East “defense analyst” with Forecast International, stated: “The U.S. arms sales to these countries are meant to improve the defense capabilities of the recipient nations, reinforce the sense of U.S. solidarity with its GCC partners and, finally, create a semblance of interoperability with American forces.” After the United States, the largest arms dealers to the region are France, Russia, Britain and China. Russian and Chinese arms mostly went to Iran, while Israel received $2.78 billion in U.S. military aid in 2010.
In October of 2010, the United States assistant secretary of state for political-military affairs, Andrew Shapiro, formally announced the intended Saudi arms deal for the U.S. Congress to approve for a program to last from 15 to 20 years. Shapiro stated that, “This is not solely about Iran… It’s about helping the Saudis with their legitimate security needs… they live in a dangerous neighbourhood and we are helping them preserve and protect their security.”
For an average of $13 billion per year in arms sales between 1995 and 2005, the Department of Defense announced in 2010 that it intended to sell up to $103 billion, though presumably achieving a lower number, such as $50 billion, over the course of the year. A defense industry consultant, Loren Thompson, stated that, “Obama is much more favorably disposed to arms exports than any of the previous Democratic administrations.” Jeff Abramson of the Arms Control Association stated that there was “an Obama arms bazaar going on.” While the discussion about the massive arms sales in most of the press and political discourse was focused upon supporting 200,000 workers in the ‘defense’ industry, industry consultant Thompson was less ambiguous: “It’s about U.S. allies, it’s about maintaining jobs, and it’s about America’s broader role in the world – and what you have to do to maintain that role;” the role being – of course – that of the global imperial hegemon.
Military contractors spread their factories and workforce out across several U.S. states in order to use their leverage as “major employers” with the U.S. Congress and other political powers. Boeing has facilities in over 20 U.S. states, and the corporation’s head of business development for military aircraft, Lt. Gen. Jeffrey Kohler, was previously responsible for overseeing arms exports for the Pentagon. The entire industry of military contractors is entirely dependent upon massive state subsidies to survive, doing 80-90% of their business with the Pentagon. And, as CNN Money reported, “business recently has been good,” with the U.S. more than doubling its military spending since 2001 to roughly $700 billion, nearly as much as the rest of the entire world spends combined.
Congress agreed in December of 2010 to spend $725 billion on ‘defense’ for 2011. Military contractors were largely seeking “growth” – a euphemism for exploitation and profit – by turning to foreign arms sales. The military contractor EADS sought to establish a headquarters in Asia, Honeywell created a new “international sales” division, and Lockheed Martin was planning to increase its revenue share acquired outside the United States from 14 to 20% by 2012, Boeing aimed to increase international sales from 17-25%, and Raytheon had the largest percentage of revenue from overseas at 23%. But sadly, for the arms dealers, it’s not so easy to sell weapons to foreign governments, since each deal requires a license from the U.S. State Department, a pesky barrier to “growth.” The countries with the “biggest appetite for U.S weapons” are “oil-rich nations in the Middle East,” with roughly 50% of foreign military sales by U.S. contractors between 2006 and 2009 being sold to countries in the region, with Boeing reaping the most overall profits. Mark Kronenberg, the head of Boeing’s international business development, noted: “The last time we had a period like this in the Middle East was the early ‘90s,” during the lead up to and aftermath of the first Gulf War, adding, “Here we are, 20 years later, and they’re recapitalizing.”
A report prepared by the U.S. Congressional Research Service and published in December of 2011 detailed Foreign Military Sales (FMS) agreements between the United States and other nations for the period of 2003 to 2010. Between 2003 and 2006, the top ten largest recipients of U.S. arms through FMS (and excluding Direct Commercial Sales and Foreign Military Aid programs) were: Egypt ($4.5 billion), Saudi Arabia ($4.2 billion), Poland ($4.1 billion), followed by Australia, Japan, Greece, South Korea, Kuwait, Turkey, and Israel. For the years 2007 to 2010, the top ten recipients were: Saudi Arabia ($13.8 billion), UAE ($10.4 billion), Egypt ($7.8 billion), followed by Taiwan, Australia, Iraq, Pakistan, UK, Turkey, and South Korea. In 2010, the top ten purchases of U.S. arms were: Taiwan ($2.7 billion), Egypt ($1.8 billion), Saudi Arabia ($1.5 billion), followed by Australia, UK, Israel, Iraq, Jordan, South Korea, and Singapore.
In April of 2011, Leslie H. Gelb, the President Emeritus of the Council on Foreign Relations, wrote that in light of “the possible consequences of the new popular awakenings” across the Middle East, and the fact that as dictatorships increasingly “crack down even harder against the protesters… enabled by Western arms,” Americans “don’t like thinking of themselves or having others think of them as merchants of death.” The “nightmares” of Western policy-makers “comes from their hopes for Arab democracy” – that is, the emergence of “stable democracies over time” – and “their fears that fledgling Arab democracies will go awry.” So naturally, arms deals are a good means to secure U.S. interests in the region.
In May of 2011, Andrew Shapiro, the Assistant Secretary of State for Political-Military Affairs, spoke to the U.S. Department of State’s Defense Trade Advisory Group, at which he said the “demand” for U.S. arms and military technology “will remain strong because the U.S. has longstanding defense commitments to allies around the world,” and “we will remain very busy no matter the fluctuations of the global market.” The “dynamic nature of the geopolitical landscape” would require the U.S. “to adapt to changing situations.” Shapiro stated that, “we are witnessing another geopolitical shift, which may have broad implications for U.S. foreign policy,” referencing the popular uprisings across the Middle East as “perhaps the most significant geopolitical development since the end of the Cold War.” In his speech, Shapiro praised his audience at the Defense Trade Advisory Group (DTAG) as “valuable” in “giving us a formal channel to the private sector,” enabling the State Department “to better evaluate U.S. laws and regulations, especially during times of immense change.”
The members of the DTAG included top executives and officials from such companies as BAE Systems, ITT Defense, Boeing, Booz Allen Hamilton, EADS North America, Intel, General Electric, General Dynamics, United Technologies, Tyco, Northrop Grumman, Honeywell International, Raytheon, and Lockheed Martin, among a total of 45 individuals. According to its website, the DTAG advises the State Department Bureau of Political-Military Affairs “on its support for and regulation of defense trade to help ensure that impediments to legitimate exports are reduced while the foreign policy and national security interests of the U.S. continue to be protected and advanced.”
Shapiro told these corporate representatives that, “It is important to emphasize that arms transfers are a tool to advance U.S. foreign policy. And therefore when U.S. foreign policy interests, goals, and objectives shift, evolve, and transform over time, so will our arms transfer policy.” As always, stated Shapiro, “we urge you to provide your thoughts and ideas over how we should move forward.” Foreign military sales – especially to the Middle East – will continue as “a critical foreign policy instrument” allowing the U.S. to “gain influence and leverage, which can be used to help advance our foreign policy goals and objectives.”
As an example, the United States approved $200 million in military sales from U.S. corporations to the government of Bahrain in 2010, just months before pro-democracy protests erupted in the country, resulting in “a harsh crackdown on protesters,” killing at least 30 and injuring hundreds of more people in a matter of months.
In December of 2011, Andrew Shapiro announced the formal signing with Saudi Arabia to sell the dictatorship $30 billion in F-15 fighter jets to be delivered by 2015, as well as other plans to sell $11 billion in arms to Iraq. The Saudi deal was the result of extensive lobbying efforts by top government officials, including Obama making several phone calls to Saudi King Abdullah, and the U.S. National Security Advisor, Thomas E. Donilon, twice traveling to Riyadh while Vice President Joe Biden led a “high-level delegation” to a funeral for a Saudi Prince in October of 2011.
Embracing the World with Open “Arms”
In 2009, worldwide arms sales stood at $65.2 billion, dropping by 38% to $40.4 billion in 2010, the lowest number since 2003, with the United States contributing $21.4 billion – or 52.7% – of the global arms deals, Russia in second place at $7.8 billion over 2010, followed by France, Britain, China, Germany and Italy, according to a report by the Congressional Research Service. Over 75% of global arms sales in 2010 were for ‘developing’ countries, with India in top place at $5.8 billion in arms deals, followed by Taiwan at $2.7 billion, Saudi Arabia at $2.2 billion, Egypt, Israel, Algeria, Syria, South Korea, Singapore and Jordan.
This relative decline in global arms sales over 2010 was not to be repeated for 2011, with the number skyrocketing to $85.3 billion, with the U.S. contribution tripling to $66.3 billion, accounting for more than three-quarters of global arms deals. Russia stood in a distant second place with $4.8 billion in arms sales. While the United States controls roughly 75% of the global arms trade, it would be wrong to ignore the role of the other major players, though they are far from even competing with the U.S.
The Stockholm International Peace Research Institute (SIPRI) reported that the rise in arms sales had increased by 60% in real terms since 2002, with the total sales of the top 100 arms companies reaching $411.1 billion in 2010. The arms industry is “increasingly concentrated” to the point where the top ten firms account for 56% of all sales, with Lockheed Martin at the top with sales of $35.7 billion in 2010, followed by Britain’s BAE Systems at $32.8 billion, Boeing at $31.3 billion, and Northrop Grumman at $28.5 billion. Other major companies on the top 100 list of arms manufacturers include: General Dynamics, Raytheon, EADS, L-3 Communications, United Technologies, Thales, SAIC, Honeywell, Rolls-Royce, General Electric, KBR, Hewlett-Packard, and DynCorp.
Following the beginning of the Arab Spring and the toppling of the Western-backed dictators in Tunisia and Egypt, British Prime Minister David Cameron continued with a pre-planned tour of the Middle East in February of 2011, leading what the British Green Party leader called a “delegation of arms traders,” with almost 75% of the businessmen accompanying the Prime Minister on his trip to the region representing the defense and aerospace industries. As the first Western leader to visit Egypt following the fall of Mubarak, Cameron praised the pro-democracy movement: “Meeting the young people and the representatives of the groups in Tahrir Square [in Cairo] was genuinely inspiring,” adding: “These are people who have risked a huge amount for what they believe in.” Immediately after praising Egypt’s revolution and expressing his own ‘beliefs’ in democracy, Cameron flew to Kuwait with his arms dealer delegation to sell weapons to other Arab dictatorships. When criticized for the excessive hypocrisy of his democracy-praising and dictatorship arms-dealing tour of the Middle East, Cameron simply asserted that Britain had “nothing to be ashamed of,” as there was nothing wrong with such transactions.
As dictators across the region were becoming increasingly belligerent toward protesters, seeking to violently crush resistance after the successful examples of Tunisians and Egyptians toppling their long-standing dictators, increasing arms shipments to the region’s despots seemed to be only natural for Western imperial powers seeking stability and control. Kevan Jones, the British Shadow Defence Minister noted: “The defence industry is crucially important to Britain but many people will be surprised that the prime minister in this week of all weeks may be considering bolstering arms sales to the Middle East.” Accompanying David Cameron on his trip were 36 corporate representatives, including Ian King, the CEO of BAE Systems, as well as Victor Chavez of Thales UK, Alastair Bisset of Qinetiq, and Rob Watson of Rolls Royce. When questioned about his ‘arms dealer delegation,’ Cameron stated: “I have got a range of business people on the aeroplane, people involved in infrastructure and people involved in the arts and cultural exchanges. Yes, we have defence manufacturers as well. Britain does have a range of defence relationships with countries in the region. I seem to remember that we spent a lot of effort and indeed life in helping to defend Kuwait. So it is quite right to have defence relationships with some of these countries.”
As Cameron was hopping around the region selling weapons, the largest arms fair in the Middle East – the Index 2011 – was taking place in Abu Dhabi, bringing thousands of arms dealers to an exhibition hall with fighter jets flying overhead, tanks in the sand, with Predator drones and assault rifles on display, models fully dressed in the latest riot police outfits, and all choreographed to a hip-hop soundtrack. Meanwhile, not very far from the booming arms fair, protesters in Bahrain were being violently repressed by a dictatorship armed and supported by the West. The British delegation to the arms fair was led by the Defence Minister, Gerald Howarth, helping represent British companies which were displaying and selling their latest tools for ‘crowd control,’ showcasing teargas grenades, stun grenades, and rubber bullets.
A British officer from the government’s Trade and Industry stand at the arms fair was explaining the benefits of a particular fragmentation bomb to a top military official from the Algerian dictatorship. Howarth explained, “I am here as the minister for national security strategy, supporting this important exhibition.” While in 2011 the British had to revoke export licenses to Bahrain and Libya following the violence erupting in both countries, over the previous year the British issued 20 licenses for exports of “riot control weapons,” such as teargas, smoke and stun grenades, to Bahrain, Qatar, the United Arab Emirates, and Oman, as well as nearly 200 million pounds in “crowd control ammunition” to the government of Libya.
Weapons manufacturers stated that they felt the increased criticism inflicted upon their industry following the start of the Arab Spring had left them “battered and bruised.” One arms trader, commenting less than two weeks after Mubarak was toppled, stated that, “[t]he Middle East was a growing market until a few weeks ago,” while a representative from BAE agreed that the market for arms was insecure: “It is too early to say where it will end up… Given what is going on at the moment, nobody is likely to be talking about how to spend their defence procurement budget.” When a representative for the British arms exporter Chemring was questioned about selling CS gas shotgun cartridges and stun grenades, he explained, “we have an ethnical policy in place and look closely at the countries we are considering exporting to and see if they fit that.” A representative for Primetake, a British firm selling rubber ball shot, teargas, and rubber baton rounds, defended his firm: “We are a very respectable organization and we take very careful advice from the Ministry of Defense and the business department.”
Between October of 2009 and October of 2010, the British exported arms and military equipment to multiple countries in the Middle East and North Africa, including over 270 million pounds in materials to Algeria, including combat helicopters, roughly 6.4 million pounds in arms deals with Bahrain, nearly 17 million pounds with Egypt, 477 million pounds with Iraq, 27 million pounds with Israel, 21 million pounds with Jordan, 14.5 million pounds with Kuwait, 6.2 million pounds with Lebanon, 215 million pounds with Libya, 2.2 million pounds with Morocco, 14 million pounds with Oman, 13 million pounds with Qatar, 140 million pounds with Saudi Arabia, 2.6 million pounds with Syria, 4.5 million pounds to Tunisia, and 210 million pounds to the UAE. These sales included assault rifles, tear gas, ammunition, bombs, missiles, body armour, gun parts, gas mask filters, signaling and radar equipment, armoured vehicles, anti-riot shields, patrol boats, military software, shotguns, “crowd-control equipment,” tank parts, military cargo vehicles, air surveillance equipment, armoured personnel carriers, small arms ammunition, heavy machine guns, and a plethora of other products, almost exclusively delivered to dictatorships (with the exception of Israel).
Germany, which stood as the world’s third-largest arms exporter in previous years (after the US and Russia), had doubled its share of the global arms trade over the previous decade to 11%, totaling roughly 6 billion euros in arms deals for 2008 alone, with companies like EADS, Rheinmetall and Heckler & Koch leading the way. Even Russia was becoming a big customer for German military equipment, purchasing armoured plating and tanks.
In 2009, the European Union had established new export rules for arms and military technology, much-praised as preventing the export of arms that “might be used for undesirable purposes such as internal repression or international aggression or contribut[ing] to regional instability.” With the EU rules in place, member countries were free to completely disregard them. A European Commission study leaked to Der Spiegel in 2012 revealed that combined exports from EU nations made the European Union “the world’s largest exporter of weapons” to Saudi Arabia, delivering at least $4.34 billion in equipment in 2010 alone. Sweden helped the Saudi dictatorship build a missile factory, Finland delivered grenade launchers, Germany sold tanks and Britain provided fighter jets. The arms exporters were unfazed by the fact that equipment such as the tanks were used by Saudi Arabia in its “invitation” to invade Bahrain and help the Bahraini dictatorship crush the pro-democracy movement in early 2011. An official with the Swedish Peace and Arbitration Society noted that the Swedish support for building a missile factory in Saudi Arabia has meant that, “we are legitimizing one of the most brutal regimes in the world.” Pakistan had meanwhile become China’s biggest customer for arms exports, while India purchased 10% of the world’s arms exports in 2010 “to defend itself against neighbor and arch enemy Pakistan.”
When German Chancellor Angela Merkel spoke at the Munich Security Conference in 2011, she mentioned the “obligation to pursue value-based foreign policy,” and has often argued that “no compromises” can be made on issues of human rights. As part of Merkel’s respect for “human rights” and “value-based foreign policy,” weapons sales have increased as a significant factor in Germany’s foreign policy strategy, quietly changing the rules for arms exports to increase weapons sales to “crisis regions” as “a major pillar of the country’s security policy.” The objective would be to strengthen countries within “crisis regions” and therefore reduce the possibility that the German military would itself have to participate in “international missions.”
The German publication Der Spiegel referred to this as the “Merkel doctrine” of “tanks instead of soldiers.” Among the key countries to support, identified by Merkel and eight other ministers who met behind closed doors under the aegis of the Federal Security Council, were Saudi Arabia, Indonesia, Qatar, India, and Angola. Merkel explained her doctrine in a speech at an event in Berlin in September of 2011 where she stated that if the West lacks the will and ability to undertake direct military intervention, “then it’s generally not enough to send other countries and organizations words of encouragement. We must also provide the necessary means to those nations that are prepared to get involved. I’ll say it clearly: This includes arms exports.” This, of course, Merkel added, would nicely manifest as a foreign policy “that is aligned with respect for human rights.”
As part of the “Merkel doctrine” of engaging in a “value-based foreign policy” with “respect for human rights,” Germany increased its arms sales to the Algerian dictatorship from 20 million euros in 2010 to nearly 400 million euros in 2012, with German military manufacturer Rheinmetall planning to produce 1,200 armored personnel carriers for Algeria over the next ten years. According to published European Union documents, over 2011, the top five arms exporting countries in the EU were France, the U.K., Germany, Italy, and Spain, collectively exporting over 80% of 37.5 billion euros in arms from EU countries. The European Union, winner of the 2012 Nobel Peace Prize, increased its arms exports by 18.3% since the previous year, with an increase in export licenses to Asia, the Middle East, and sub-Saharan Africa. There were arms licenses issued to Libya, Tunisia, Algeria, Morocco, and over 300-million euros-worth of arms for Egypt. The EU increased its arms exports to “areas of tension,” including India, Pakistan, and a record 465 million euros in arms to Afghanistan, “a country still under partial arms embargo.” However, ‘partial’ is apparently debatable.
With the United States reaching a record-breaking $60 billion in arms deals over 2011, Andrew Shapiro at the State Department stated that 2012 was set to be an equally – if not larger – bonanza for arms dealers. Revealing the role of diplomats and top government officials as glorified lobbyists and corporate representatives, Shapiro told a group of defense writers in the Summer of 2012: “We’ve really upped our game in terms of advocating on behalf of U.S. companies,” adding, “I’ve got the frequent-flyer miles to prove it.” Shapiro had traveled to more than 11 countries over 2012 promoting arms deals, noting that sales were at a record level for the third quarter of 2012, already passing $50 billion. Secretary of State Hillary Clinton had made “advocacy” for arms dealers “a key priority” for U.S. diplomats and State Department officials who “were now expected to undertake such efforts on all trips abroad.” Shapiro and others had been lobbying for American military contractors in deals ranging from Japan’s $10 billion purchase of aircraft from Lockheed Martin to India’s increased arms purchases, where Shapiro saw “tremendous potential” for U.S. arms sales, and to Brazil, where Boeing was competing with France’s Dassault company for a multibillion-dollar defense contract, of which Shapiro stated, “We’re eager to make the best possible case for the Boeing aircraft, and we’re hopeful that it will be selected.”
By March of 2013, the world’s five largest arms exporters were the U.S., Russia, Germany, France, and China overtook the UK for the first time in fifth place, having increased its arms exports by 162% between 2008 and 2012, increasing its share of the global arms trade from 2 to 5%, over 50% of which are delivered to Pakistan, with other large recipients being Myanmar, Bangladesh, Algeria, Venezuela and Morocco. Li Hong, the secretary-general of the China Arms Control and Disarmament Association noted: “Military exports are one way for China to increase its international status,” explaining that, “China needs to increase its influence in regional affairs and from that perspective it needs to increase weapons exports further.” As China increased its own military budget in recent years, it had turned to developing its own weapons industries, thus moving from being the world’s number one arms importer (of conventional weapons) between 2003-2007 to taking second place behind India in the 2008-2012 period, acquiring roughly 69% of its arms imports from Russia.
British Prime Minister David Cameron again traveled to the Middle East, accompanied by his Defense Secretary Philip Hammond and another delegation of arms dealers in 2012, seeking to sell up to 100 Eurofighter Typhoon jets to Saudi Arabia and the UAE, built by EADS and marketed by BAE, competing with France’s cheaper Rafale strike jet made by Dassault Aviation. The increased – and increasingly profitable – arms race in the Middle East was largely facilitated by America’s policies toward Iran. William Cohen is a former U.S. Secretary of Defense in the Clinton administration, current Counselor and Trustee to the Center for Strategic and International Studies (CSIS), former member of the board of directors of the Council on Foreign Relations from 1989 to 1997, current Vice Chairman of the U.S.-China Business Council, on the board of directors of CBS Corporation, and is Chairman and CEO of The Cohen Group, an international business consulting firm. Commenting on the growing arms race in the Middle East, Cohen repeated the usual American propaganda, stating that there was “A very legitimate concern about Iran being a revolutionary country,” though also adding that terrorism, cyberattack threats, and “the implications of the Arab Spring” spurred each country in the region “to make sure it’s protected against that.” Cohen added that military contractors, information technology firms and other corporations “have an enormous opportunity” in the region.
When British Defense Secretary Philip Hammond traveled to Indonesia to promote arms deals for British military contractors like BAE Systems and Rolls-Royce, he explained that increasing military ties with notoriously corrupt Indonesia, posed “manageable” risks. He commented: “From the companies I have talked to, they recognize that there is a challenge but they think that it is manageable, and they can operate here successfully while observing the UK and US legal requirements to address anti-corruption issues.” This statement came amid accusations of Rolls-Royce engaging in bribery to acquire business in China, Indonesia, and elsewhere. Hammond noted that in light of the U.S. “pivot” to Asia, Britain was “looking east in a way we have not done before.” Indonesia had recently purchased F-16 fighter jets and Apache helicopters from the U.S., Sukhoi fighters from Russia, missile systems from China, anti-aircraft missiles, Hawk jets and small arms from British companies. Prime Minister David Cameron defended arms sales to oppressive regimes such as Saudi Arabia, declaring it to be “completely legitimate and right.”
The International Institute for Strategic Studies (IISS), a major think tank, projected that defense spending in Asia would overtake that of Europe for the first time in 2012, noting that Asia was in the midst of an arms race between China and other states in the region. The expenditure of European members of NATO on defense spending over 2011 was just under $270 billion, whereas in Asia it had reached $262 billion (excluding Australia and New Zealand). As China announced increased defense spending, the United States announced a “shift in military strategy” which treats the Asia-Pacific region “as one of the Pentagon’s priorities at a time when forces in Europe are being sharply cut.” Secretary of State Hillary Clinton stated that large and rising powers like China “have a special obligation to demonstrate in concrete ways that they are going to pursue a constructive path.” Leon Panetta, the U.S. Defense Secretary, noted that America’s “military posture in Asia will be increased.”
Indeed, in 2012, Asian defense spending surpassed that of Europe for the first time, reaching a record level of $287.4 billion, though the United States continued to account for 45.3% of total global military spending, meaning that the United States spends almost as much on military expenditures than the rest of the entire world combined. The United States, as part of its Pacific ‘pivot’ in military strategy, increased its arms sales to countries neighbouring China and North Korea. Fred Downey, vice president of the U.S. trade group, Aerospace Industries Association, which includes top U.S. military contractors, noted that the Pacific pivot “will result in growing opportunities for our industry to help equip our friends.” U.S. arms sales to the region increased to $13.7 billion in 2012, up more than 5% from the previous year. There were 65 individual notifications to the U.S. Congress over the previous year regarding total foreign military sales brokered by the Pentagon with a collective value exceeding $63 billion. The State Department, responsible for issuing licenses for direct commercial sales between military contractors and foreign governments, noted that 2012 saw a new record increase with more than 85,000 license requests.
As Obama set a new record for arms sales to the Middle East in 2012, Assistant Secretary of State Andrew Shapiro noted, “If countries view the United States unfavorably, they will be less willing to cooperate on security matters,” and for this reason, “the current administration has sought to revitalize U.S. diplomatic engagement, especially relating to security assistance and defense trade.” The growth in arms sales, noted Shapiro, speaking to the Defense Trade Advisory Group in November of 2012, “has been truly remarkable,” that in spite of the global economic crisis, “demand for U.S. defense sales abroad remains robust” with “significant growth both in direct commercial sales and in foreign military sales.”
As part of America’s Pacific ‘pivot,’ the United States announced a $5.9 billion arms deal with Taiwan in 2011, upgrading the country’s fleet of 145 F-16 fighter jets. Zhang Zhijun, a Chinese Vice-Foreign Minister, commented: “The wrongdoing by the US side will inevitably undermine bilateral relations as well as exchanges and co-operation in military and security areas.” Upon the announcement of the arms deal, Zhijun summoned the U.S. ambassador to China, Gary Locke, and informed him that, “China strongly urges the US to be fully aware of the high sensitivity and serious harm of the issue, [to] seriously treat the solemn stance of China, honour its commitment and immediately cancel the wrong decision.” A top Obama administration official replied, “We believe that our contribution to the legitimate defense needs of Taiwan will contribute to stability across the Taiwan Strait.” The Chinese Ministry of Defense warned that the arms deal “will create a serious obstacle to developing normal exchanges between the two militaries” and that the “U.S. has ignored China’s firm opposition and insisted on selling arms to Taiwan.” Obviously, there are different definitions of “stability” at play.
In April of 2012, the Pentagon announced an arms deal with Japan of four F-35 Joint Strike Fighter aircraft with an option to purchase an additional 38 F-35 jets from Lockheed Martin at an estimated cost of $10 billion. In late 2011, Japan announced its intention to relax a ban on weapons exports which dated back to 1967, which, the Financial Times reported, could open “the way for Japanese companies to participate in the international development and manufacture of advanced weapon systems.” Japan’s largest business lobby, the Keidanren, praised the move as “epoch-making.” Following the “relaxing” of controls, Japan and Britain announced that they would jointly develop weaponry, the first time that Japan would work with another country (apart from the United States) on constructing military equipment.
In October of 2012, the United States announced an arms deal in which South Korea would get longer-range missiles capable of striking anywhere in North Korea, “altering” (or violating) a 2001 accord which barred the U.S. “from developing and deploying ballistic missiles with a range of more than 300km (186 miles),” in order to avert a regional arms race. Obviously, a decision was made to create a regional arms race, so the accord was “altered” and the US agreed to sell South Korea missiles with a range of 800km. South Korea’s defense ministry praised the new deal, stating that they would then be able to “strike all of North Korea, even from southern areas.” The 2001 accord also ensured that the U.S. would not deploy or develop missiles for the South with a payload of more than 500 kg (1,100lbs), since the “heavier a payload is, the more destructive power it can have.” So obviously, that pesky restriction also had to be “altered,” and while long-range missiles maintain the 1,100lb payload, missiles with shorter ranges will be permitted to hold much more. South Korea will also be able to operate U.S.-supplied drones, permitted to hold payloads up to 5,510lb with a range of more than 300km, and no payload restrictions on drones with a flying distance less than 300km. South Korea can also acquire cruise missiles with unlimited range, and some media reports suggested that South Korea had already deployed cruise missiles with a range of more than 1,000km, though officials “refused to confirm” if that were true. The South Korean Defense Ministry reported that North Korea had missiles that could reach South Korea, Japan, and Guam, a Pacific territory of the United States. Thus, the United States intends to counter the “threat” of North Korea by instigating a massive arms race in the region.
Arms Trade Diplomacy: “Chief Commercial Officer” or Ambassador?
As the massive release of diplomatic cables from Wikileaks revealed, U.S. and other diplomats are often little more than glorified lobbyists and salesmen for the Western arms industry. Lockheed Martin got help from the U.S. State Department in selling C-130 military transport planes to the government in Chad starting in 2007. The U.S. Embassy in Chad noted that the government likely could not afford the aircraft, not to mention that it would probably use the aircraft “to defend the regime against a backlash provoked by its refusal so far to open its political system and provide for a peaceful democratic transition.” In other words, the government of Chad wanted to use the military equipment to crush a pro-democracy movement. Nevertheless, noted the U.S. Embassy, we “would concur in allowing the sale to go forward.”
With Chad’s air force chief, its ambassador to the U.S. and a representative from Lockheed Martin promoting the deal with the State Department, the Embassy noted that the sale “would provide a healthy boost to U.S. exports to Chad” and “strengthen U.S. military cooperation.” While Chad told the State Department that it wanted the aircraft “to go after terrorists or help refugees,” the U.S. Embassy noted that in reality, “it needs them to support combat operations against the armed rebellion in eastern Chad,” and commented: “A decision to approve the sale would be met with dismay by many Chadian supporters of peaceful democratic change.” Our conclusion, noted a U.S. Embassy cable, “is that, like it or not, our interests line up in favor of allowing the sale in some form to go forward.” However, the U.S. would have to promote the sale with full knowledge of how Chadians will perceive it, and will have to undertake “a strategy to counter these perceptions.”
Ben Berkowitz wrote for Reuters that Wikileaks cables painted “a picture of foreign service officers and political appointees willing to go to great lengths to sell American products and services,” where, “in some cases, the efforts were so strenuous they raise the question of where if anywhere the line is being drawn between diplomacy and salesmanship.” A State Department spokesperson said in response that the U.S. government “has broad, though not unlimited, discretion to promote and assist U.S. commercial interests abroad.” Such practice became official policy shortly after the end of the Cold War when U.S. Secretary of State Lawrence Eagleburger introduced a bill which gave corporations a direct role in foreign policy. One former U.S. diplomat in Asia noted, “Until (then), U.S. diplomats were not particularly encouraged to help U.S. business. They were busy fighting the Cold War.” Suddenly, he noted, “we were given new direction: if a single U.S. company is looking for business, we should advocate for them by name; if more than one U.S. company was in the mix, stress buying the American product.” The former diplomat added: “It was great to see how influential the right word from the U.S. ambassador was.”
Former Spanish Prime Minister Jose Luis Zapatero had informed the U.S. Embassy, “to let him know if there was something important to the (U.S. government) and he would take care of it,” according to a 2009 diplomatic cable. The embassy took up the offer when General Electric was bidding against Rolls-Royce to sell helicopters to the Spanish Ministry of Defense (MOD), with GE informing the U.S. Embassy that if it did not get the contract, it would close part of its business in Spain. The U.S. Embassy passed the information along to Zapatero’s economic adviser, and, although there was “considerable” evidence that the government was going to award the contract to Rolls Royce, the Zapatero’s office “overturned the decision and it was announced that GE had won the bid,” and the U.S. Ambassador was “convinced that Zapatero personally intervened in the case in favor of GE.”
The U.S. Embassy in the United Arab Emirates promoted the interests of Halliburton to participate in a joint venture with the Abu Dhabi National Oil Co. in 2003, a time at which Halliburton’s former CEO, Dick Cheney, was Vice President of the United States. The contract was eventually awarded to Halliburton. The U.S. Ambassador to the UAE at the time, Marcelle Wahba, noted, “I can’t think of a time when a month went by when a commercial issues wasn’t on my plate… Some administrations put more of an emphasis on it than others, but now I think, regardless of who’s in power you really find it’s become an integral part of the State Department mandate.”
Tom Niles, a former U.S. ambassador to Canada, the European Union and Greece, as well as former president of the “pro-trade group” the U.S. Council for International Business, stated: “By the time I was retired from the Foreign Service, which was 1998, things had changed fundamentally and being an active participant in the commercial program and promoting trade using the prestige of the ambassador and receptions held at the ambassador’s residence was an important part of what I did.” Niles suggested that a U.S. ambassador was as much a “chief commercial officer” for corporations as a diplomat. “We might have been a little bit late to the game. The Europeans understood the crucial role of foreign trade in the growth and development of their economies before we did.” A former ambassador to the UAE noted: “Oftentimes European ambassadors, that’s all they’re there for.” Of course, that’s only logical, considering that European ambassadors do not have to be concerned with managing the world in the same way the United States does. Therefore, their interests are specific: economic.
In the Arms of America
With all the flowery rhetoric of “democracy” and “freedom,” American – and the Western world’s – hypocrisy can easily be revealed with a brief look at the global arms trade: supporting ruthless and repressive dictatorships, as well as creating and supporting regional arms races which increase instability and the threat of war. The objective is simple, and from the imperial perspective, very practical: support regional proxy states to do our dirty work for us. If this happens to increase regional instability and even lead to war, well, such things are inevitable within and as a result of an imperial system. So long as the final result is that the United States and the West maintain their “access” to and control over regions, resources, and populations, the means are incidental.
To put it another way: if our nations were actually interested in concepts and ideas of “democracy” and “freedom” for all people, around the world, why do we sell billions of dollars in weapons and military technology to the countries which most enthusiastically crush democracy and prevent freedom?
The answer to that question reveals the true nature of our society.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, with a focus on studying the ideas, institutions, and individuals of power and resistance across a wide spectrum of social, political, economic, and historical spheres. He has been published in AlterNet, CounterPunch, Occupy.com, Truth-Out, RoarMag, and a number of other alternative media groups, and regularly does radio, Internet, and television interviews with both alternative and mainstream news outlets. He is Project Manager of The People’s Book Project, Research Director of Occupy.com’s Global Power Project, and has a weekly podcast show with BoilingFrogsPost.
 Thom Shanker, “Bad Economy Drives Down American Arms Sales,” The New York Times, 12 September 2010:
 Matt Sugrue, “GAO Report on U.S. Arms Sales, 2005-2009,” Arms Control Now, 29 September 2010:
 Maggie Bridgeman, “Obama seeks to expand arms exports by trimming approval process,” McClatchy, 29 July 2010:
 Joby Warrick, “U.S. steps up weapon sales to Mideast allies,” The Washington Post, 31 January 2010:
 Helene Cooper, “U.S. Approval of Taiwan Arms Sales Angers China,” The New York Times, 29 January 2010:
 Adam Entous, “Saudi Arms Deal Advances,” The Wall Street Journal, 12 September 2010:
 Roula Khalaf and James Drummond, “Gulf states in $123bn US arms spree,” The Financial Times, 20 September 2010:
 Anthony H. Cordesman, et. al, “Is Big Saudi Arms Sale a Good Idea?” Expert Roundup, the Council on Foreign Relations, 27 September 2010:
[12 – 15] Ibid.
 “U.S. dominates Middle East arms market,” UPI, 28 December 2010:
 “US confirms $60bn Saudi arms deal,” Al-Jazeera, 20 October 2010:
 Mina Kimes, “America’s hottest export: Weapons – Full version,” CNN money, 24 February 2011:
 Richard F. Grimmett, “U.S. Arms Sales: Agreements with and Deliveries to Major Clients, 2003-2010,” U.S. Congressional Research Service, 16 December 2011, page 3.
 Leslie H. Gelb, “Mideast Arms Sales Not So Bad,” The Daily Beat, 12 April 2011:
 Andrew J. Shapiro, “Remarks: Defense Trade Advisory Group Plenary,” Dean Acheson Auditorium, U.S. Department of State, 3 May 2011:
 DTAG Activity 2010, “2010-2012 Membership,” The Defense Trade Advisory Group (DTAG), U.S. Department of State:
 Andrew J. Shapiro, “Remarks: Defense Trade Advisory Group Plenary,” Dean Acheson Auditorium, U.S. Department of State, 3 May 2011:
 Agencies, “US arms sales to Bahrain surged in 2010,” Al-Jazeera, 11 June 2011:
 Mark Landler and Steven Myers, “With $30 Billion Arms Deal, U.S. Bolsters Saudi Ties,” The New York Times, 29 December 2011:
 Thom Shanker, “Global Arms Sales Dropped Sharply in 2010, Study Finds,” The New York Times, 23 September 2011:
 Harry Bradford, “U.S. Arms Sales Tripled In 2011 To $66.3 Billion: Report,” The Huffington Post, 27 August 2012:
 Thom Shanker, “U.S. Arms Sales Make Up Most of Global Market,” The New York Times, 26 August 2012:
 Richard Northon-Taylor, “Arms sales rise during downturn to more than $400bn, report reveals,” The Guardian, 29 February 2012:
 Ami Sedghi, “Arms sales: who are the world’s 100 top arms producers?,” The Guardian Data Blog, 2 March 2012:
 “Cameron Middle East visit ‘morally obscene’ says Lucas,” BBC News, 23 February 2011:
 Benjamin Bidder and Clemens Hoges, “Democracy or Dollars?: Weapons Sales to the Arab World under Scrutiny,” Der Spiegel, 1 April 2011:
 Nicholas Watt and Robert Booth, “David Cameron’s Cairo visit overshadowed by defence tour,” The Guardian, 21 February 2011:
 Robert Booth, “Abu Dhabi arms fair: Tanks, guns, teargas and trade at Index 2011,” The Guardian, 21 February 2011:
 Simon Rogers, “UK arms sales to the Middle East and North Africa: who do we sell to, how much is military and how much just ‘controlled’?” The Guardian, 22 February 2011:
 Benjamin Bidder and Clemens Hoges, “Democracy or Dollars?: Weapons Sales to the Arab World under Scrutiny,” Der Spiegel, 1 April 2011:
 “Weapons Exports: EU Nations Sell the Most Arms to Saudi Arabia,” Der Spiegel, 19 March 2012:
 Ulrike Demmer, Ralf Neukirch and Holger Stark, “Arming the World for Peace: Merkel’s Risky Weapons Exports,” Der Spiegel, 30 July 2012:
 “Tanks in the Desert: Germany Plans Extensive Arms Deal with Algeria,” Der Spiegel, 12 November 2012:
 Press Release, “Large increase in EU arms exports revealed,” Campaign Against Arms Trade, 10 January 2013:
 Andrea Shalal-Esa, “U.S. government advocacy said boosting foreign arms sales,” Reuters, 27 July 2012:
 Michael Martina, “World’s Top 5 Arms Exporters: China Replaces UK In Weapons Trade,” Reuters, 18 March 2013:
 Jamil Anderlini and Victor Mallet, “China joins top five arms exporters,” The Financial Times, 18 March 2013:
 “Defense contest over major gulf arms buys,” UPI, 20 November 2012:
 Ben Bland, “UK defence minister bullish on arms sales,” The Financial Times, 16 January 2013:
 “David Cameron defends arms deals with Gulf states,” The Telegraph, 5 November 2012:
 FT Reporters, “Asia defence spending to overtake Europe,” The Financial Times, 7 March 2012:
 Myra MacDonald, “Asia’s defense spending overtakes Europe’s: IISS,” Reuters, 14 March 2013:
 “US Arms Sales to Asia Set to Boom on Pacific ‘Pivot’,” Reuters, 2 January 2013:
 “Obama set record in 2012 for Mideast defense exports,” World Tribune, 4 December 2012:
 Richard McGregor, “US agrees $5.9bn arms deal with Taiwan,” The Financial Times, 21 September 2011:
 Kathrin Hille, “China hits at US over Taiwan arms deal,” The Financial Times, 22 September 2011:
 “U.S. Government Says Japan’s Cost to Buy 42 F-35s Around $10 Billion,” Ottawa Citizen, 2 May 2012:
 Mure Dickie, “Japan relaxes weapons export ban,” The Financial Times, 27 December 2011:
 Reuters, “Japan and Britain ‘set to agree arms deal’,” The Telegraph, 4 April 2012:
 AP, “South Korea to get longer-range missiles under new deal with US,” The Guardian, 7 October 2012:
 07NDJAMENA43, “C-130’s for Chad?”, 12 January 2007, Wikileaks Diplomatic Cables:
 Ben Berkowitz, “Wikileaks reveals extent of State Department’s involvement in arms sales, oil deals,” Reuters, 4 March 2011:
The Financialization of Food and the Profitability of Poverty
By: Andrew Gavin Marshall
The following is a brief excerpt from a chapter of The People’s Book Project, covering issues related to food, water, land grabs, environmental destruction, hunger and poverty. This excerpt examines the global food crisis.
There are a few things upon which humanity is entirely dependent for survival: food, water, land and the environment. One of the central questions with which humanity currently has to address its part, past and present, is the ways in which we, as a species, interact with our environment. When it comes to environmental issues, the primary focus is placed upon the issue of climate change, and while this is indeed an important issue, it could be said that this focus almost misses the forest for the trees. Climatic change is here to stay, it is an inevitability, and it is a requirement for humanity to begin the process of adaptation. However, climate change is not “the problem,” it is a symptom of the problems associated with the environment. The source of the problem is how human society – specifically Western state-capitalist society – interacts with the environment at the local and global level. When examining this question, the issues and concerns raised go far beyond climatic changes, though they all interact.
One cannot separate our interaction with the environment from the interaction between power structures and people, whether we are discussing large states, banks, corporations, international organizations, etc. In a global system in which people are themselves treated as commodities, where more than half the world’s population lives in abject poverty, with hunger and starvation increasing, with imperial powers destabilizing countries, bombing communities, supporting coups and waging wars, oppressing, impoverishing, and destroying, environmental issues are inseparable from social, political, and economic issues.
One need only look at the issue of militarization and war to see a clear relationship between these issues: wars are mostly waged by large states – whether directly or indirectly through proxies – against poor populations in weak ‘Third World’ states. Aside from the obvious destruction the physical war takes – through bombs and bullets – a nation’s infrastructure is destroyed, its people impoverished and oppressed. The American military system – by far the largest in the world – through the maintenance of aircraft carriers, ships, jets, equipment, transportation, weapons, with roughly one thousand military bases around the world, foreign occupations and operations, make this single institution known as the Pentagon “the largest institutional user of petroleum products and energy” in the world. The United States wages wars to secure resources around the world, to dominate and oppress populations, and in doing so, exploits and plunders those very same resources, destroys the environment, spreads poverty, death, and destruction. Its purpose is to serve minute – yet powerful – interests. Yet, it is devastating for the world’s people and the environment.
If we are truly interested with answering the question of how we move forward as a species in dealing with environmental issues, we must ask the parallel questions of how we deal with issues of poverty, hunger, land, exploitation, oppression, war, empire, and power. It seemingly makes the task harder, but it also makes the answers more plausible, and, indeed, possible.
Again, looking at the issue of climate change, we have seen countless international conferences held by global plutocrats, governments, international organizations, banks and corporations and global NGOs and environmental organizations like the World Wildlife Fund and Conservation International, whose boards of directors are dominated by individuals from banks, corporations and oil conglomerates. And we phase surprise that nothing productive is done. The ‘solutions’ we are given for complex problems are based around ideas of carbon credits, carbon trading, carbon caps and carbon markets, effectively commodifying the entire atmosphere, turning pollution itself into a profitable enterprise, and thus, making the problems that much worse. We are told that there are ways to simply ‘Green’ the economy, to promote the interests of state-capitalism and the environment simultaneously. But in a system which has always subjugated the environment and the population at large to the powerful interests which dominate, we are fools to assume they have changed their interests.
A great deal of press was given to the 2009 Copenhagen Conference, and the fact that it ended in failure. The focus was on “who” screwed it up: it was China, it was America, it was Canada! Everyone was pointing the finger at one another. The reality, however, was far more revealing, not only of the failure of Copenhagen, but of the true intent and the result of pursuing environmental issues through the institutions of power which have created the environmental problems in the first place.
The Copenhagen conference was viewed by elites as a means to advancing their institutional power to a more global level, as internal UN documents revealed that the focus was on a “green economy,” noting: “moving towards a green economy would also provide an opportunity to re-examine national and global governance structures.” The document stated that “linkages between environmental sustainability and the economy will emerge as a key focus for public policymaking and a determinant of future market opportunities,” and one top official stated that the environmental, food, and economic “crises provide a unique opportunity for fundamental restructuring of economies so that they encourage and sustain green energy, green growth and green jobs.”
It sounds well enough, but its focus on “market opportunities” for the “green economy” ignores entirely the nature of “market opportunities” being one of the most significant factors in creating environmental crises in the first place. With a focus on advancing issues of “global governance” in order to address environmental issues, the role of dominant institutions in creating the environmental crisis is overlooked, and thus, the ‘solution’ is to enhance the power of those very same institutions to global levels, further removing power from populations and communities (where the real solutions to environmental issues lie). In short, if the issue of ‘power’ – and the global distribution of power between institutions and populations – is not addressed, the ‘solutions’ offered are, at best, little more than band-aids on broken arms.
China received a great deal of the blame for the failure of the Copenhagen talks, but there is more to this story. Perhaps the most significant factor was due to what was called the ‘Danish Text,’ a leaked Danish government document written in secret between the rich and powerful nations to serve as a framework for their actions and intentions at the conference. The agreement would have handed more power to the rich nations, and sideline the UN in any final agreement, as well as “setting unequal limits on per capita carbon emissions for developed and developing countries in 2050; meaning that people in rich countries would be permitted to emit nearly twice as much under the proposals.” In other words, with true Western cultural state-capitalist logic: find the problem, acknowledge the problem, then double the problem! The text was drafted by a select coterie of representatives from Denmark, the U.K. and the United States, and the draft “hands effective control of climate change finance to the World Bank; would abandon the Kyoto protocol – the only legally binding treaty that the world has on emissions reductions; and would make any money to help poor countries adapt to climate change dependent on them taking a range of actions.”
Thus, one of the central institutions of world power – the World Bank – which has advanced the interests of Western banks and corporations across the ‘developing’ world, promoting privatization, deregulation, exploitation, resource extraction, and ultimately, environmental degradation, would then be given the responsibility of ‘solving’ the environmental crisis. And how would it do this? The World Bank would be given control over the dispersal of funds in the same way that it has handled the dispersal of loans in the past. Here’s a hint: it comes with “strings attached.”
A senior diplomat at the talks described the Danish Text as “a very dangerous document for developing countries.” Among the many points in the document were to “force developing countries to agree to specific emissions cuts and measures that were not part of the original UN agreement” and to “weaken the UN’s role in handling climate finance,” as well as aiming to “divide poor countries further.” Allowing for the rich countries to increase their emissions, while poor countries face severe restraints, overlooks the fact that the countries with most emissions already are those very same rich countries. Preventing poor countries from producing emissions would prevent them from developing their own resources as they see fit, instead allowing for the rich countries to move in and further dictate policies in their own interests. Ultimately, it was a draft agreement to advance imperial domination of the rich world over the poor world, using the issue of “climate change” as the excuse.
When the Danish text was leaked, representatives of poor nations were “furious that it is being promoted by rich countries without their knowledge and without discussion in the negotiations.” One diplomat noted: “It is being done in secret. Clearly the intention is to get Obama and the leaders of other rich countries to muscle it through when they arrive next week. It effectively is the end of the UN process.” Further, “It proposes a green fund to be run by a board but the big risk is that it will be run by the World Bank and the Global Environment Facility,” a partnership of ten agencies including the World Bank and UN Environment Programme, thus bypassing more democratically accountable and representative institutions, such as the UN itself. This, stated one diplomat, “would be a step backwards, and it tries to put constraints on developing countries when none were negotiated in earlier UN climate talks.” Since poor countries already suffer the greatest burden, not only of poverty, but of environmental devastation and climatic change (not to mention, war, imperialism, and oppression), the notion of the powerful countries exporting their responsibility to the poor and oppressed does not only fail to address the issues, but would inevitably make the problems much worse. We tend to call this “market logic.”
The release of the Danish text prompted the developing nations, represented by the G-77 (the vast majority of the world’s population) to suspend their participation in the negotiations. Days following the conclusion of the Copenhagen conference, the UN’s climate chief wrote in a confidential internal memo that it was the ‘Danish Text’ that led to the ultimate failure of the talks, stating that, “the text was clearly advantageous to the US and the west, would have steamrollered the developing countries, and was presented to a few countries a week before the meeting officially started.” Within days of the leaking of the ‘Danish Text’, developing nations were accusing the rich countries of engaging in “climate colonialism.” The Sudanese diplomat to the conference stated, “This is all based on the dominance and supremacy of developed countries. One could say the Empire has been doing this since the 16th Century, the Empire has always ruthlessly grabbed natural resources – the new resource is the global atmospheric space and carbon space.” One activist and participant called the deal an act of “carbon colonialism.”
The British delegation at Copenhagen further inflamed tensions and calls of colonialism when it suggested the creation of a “climate fund” by diverting western aid budgets from poverty reduction funds into climate change “adaptation.” Thus, “money earmarked for education or health would be diverted into projects such as solar panels and wind farms,” incurring anger from several developing nations. As one commentator with the Guardian explained, Copenhagen was “a disaster for Africa,” the continent that contributes the least amount of carbon emissions in the world, and will disproportionately suffer the consequences more than any other. Several African nations were coerced into signing the final deal, even though they had walked out of negotiations following the Danish Text, with industrial rich nations threatening to withdraw foreign aid if the deal was not signed.
Again, this is but one of many examples of how environmental issues are intimately related to those of poverty, economics, imperialism, and power, more generally. To address one with any substance, we must address all with perseverance. Or, we could just continue to push for international conferences met with the self-congratulations of global elites who pride themselves on having flown around the world on taxpayers’ dollars to stay in five-star hotels and eat gourmet meals while they discuss issues of poverty and environmental protection, amounting to little more than “agreements to agree” at some point in the future, while globally, business as usual, and more accurately, accelerated rates of exploitation and devastation, dominate the decisions and actions of the powerful.
The Financialization of Food and the Profitability of Poverty
The global food crisis hit international headlines in 2008, with “food riots” erupting in dozens of countries around the world, in Asia, Africa, and Latin America. By May of 2008, it was reported that food riots had hit roughly 37 countries, with some of the more dramatic taking place in Cameroon, Niger, Egypt, and Haiti. At that time, the Food and Agricultural Organization (FAO) warned: “Food is no longer the cheap commodity that it once was. Rising food prices are bound to worsen he already unacceptable level of food deprivation suffered by 854 million people… We are facing the risk that the number of hungry will increase by many more millions of people.”
Governments and repressive regimes around the world were under threat from the rising tide of food price rebellions (commonly referred to as “food riots”), with the rapidly accelerating costs of life’s necessities driving people to desperation, and even pushing governments to the brink of collapse. A UN adviser and economist, Jeffrey Sachs, noted, “It’s the worst crisis of its kind in more than 30 years… It’s a big deal and it’s obviously threatening a lot of governments. There are a number of governments on the ropes, and I think there’s more political fallout to come.” El Salvador’s president, Elias Antonio Saca, told the World Economic Forum that it “is a perfect storm… How long can we withstand the situation? We have to feed our people, and commodities are becoming scarce. This scandalous storm might become a hurricane that could upset not only our economies but also the stability of our countries.” A former adviser to the Ministry of Agriculture in Indonesia added that “[t]he biggest concern is food riots… It has happened in the past and can happen again.” In Haiti, where roughly 75% of the population earn less than $2 per day, with one in five children chronically malnourished, hunger had become so extreme that one “booming” commodity had become “the selling of patties made of mud, oil and sugar, typically consumed only by the most destitute.”
In Haiti, as protesters approached the presidential palace, United Nations “peacekeepers” fired rubber bullets on the hungry and starving, as well as using tear gas, and several protesters were reported to have been killed in the chaos. Food prices rose by an average of 40% since the middle of 2007, and with the price increases, came increased instability and social unrest. An adviser to the Haitian president commented: “I compare this situation to having a bucket full of gasoline and having some people around with a box of matches… As long as the two have a possibility to meet, you’re going to have trouble.”
The American government scrambled to increase “food aid” to countries around the world, fearful for the stability of its protectorates and puppet governments. A U.S. Senator, Richard Durbin, noted: “This is the worst global food crisis in more than 30 years… It threatens not only the health and survival of millions of people around the world, many of them children, but it also is a threat to global security,” with over 36 countries “now facing food crises [and] requiring help from abroad.”
An analyst at a major risk management agency told the Financial Times in November of 2008 that there had been “food protests in 25 countries in the past year,” adding: “In Indonesia the price of rice is directly correlated to the number of strikes or riots… A sharp increase in prices could cause production problems if there are strikes by workers and civil unrest could damage vital infrastructure like roads or telecoms or the government could impose a political crackdown.” The analyst provided advice for global corporations: “What global companies need to do is to avoid being seen as contributing to or being complicit with an issue. Some governments will blame rising food prices on the west, for example.” An analyst at an insurance conglomerate agreed: “Companies need to be aware of how they are perceived and seek to win hearts and minds.” In other words, what is needed is an excellent public relations campaign to ensure that western corporations do not get their deserved share of the blame for rising food prices. The advice was not to avoid contributing to the crisis, but to “avoid being seen as contributing,” after all.
In the span of a year between 2007 and 2008, the global price of wheat rose by 130%, the price of rice – the staple food for the majority of the world’s population – rose by 74%, going up by more than 10% in one day alone. While rising food prices were causing riots, social unrest, and the instability of governments across the ‘Third World,’ the prices were noticeably increasing within the industrial nations themselves, though by no means to the same degree, or with the same dramatic and devastating effects. The FAO estimated that food prices were likely to remain high for at least a decade. Global droughts, climate change, environmental destruction, massive farm subsidies in the west, population growth, and the development of biofuels (food for fuel), have all contributed to the rising costs of food. Of course, a number of other important factors were involved, such as the liberalization of food production and global markets, largely a staple of the neoliberal era, from the mid-1970s onward, and of enormous importance, the role of financial speculation, with banks, hedge funds, and investors speculating on food costs increasing, and thus, driving up the costs of food.
According to a confidential report by the World Bank in 2008 which was leaked to the Guardian, biofuels forced global food prices up by roughly 75%, contradicting the claims of the U.S. government, the main promoter and developer of biofuels, that their production led to a 3% price rise in the cost of food. Robert Bailey, a policy adviser at Oxfam stated: “Political leaders seem intent on suppressing and ignoring the strong evidence that biofuels are a major factor in recent food price rises… It is imperative that we have the full picture. While politicians concentrate on keeping industry lobbies happy, people in poor countries cannot afford enough to eat.” The World Bank estimated that the rising food prices pushed 100 million people worldwide below the poverty line, with government ministers at the G8 conference in Japan describing the food crisis as “the first real economic crisis of globalization.”
The World Bank report contested that: “Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases.” The major droughts in Australia and elsewhere, according to the World Bank report, did not have a significant impact on food prices, with the biggest cause being the US and European drive for biofuels. The report noted: “Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate,” adding that the higher costs of energy and fertilizer contributed to a 15% increase of food costs. Use of biofuels has diverted grain production away from food and toward fuel, with over one-third of U.S. corn used to produce ethanol, and roughly half of vegetable oils in the European Union used to produce biodiesel. Further, farmers have been encouraged to put aside land for use in the production of biofuels instead of food. Finally, and perhaps most importantly, the production of biofuels has encouraged financial speculation in food markets, as prices were expected to increase, and thus speculators were set to make enormous amounts of money if and when prices go up. Speculation, of course, is a self-fulfilling prophecy, as speculators betting that prices will go up inevitably pushes the prices up.
The production of biofuels has been a major strategy by North American and European governments in order to reduce dependency on foreign oil and address climate change and environmental issues. A secret report conducted by the British government – the Gallagher Report – released in 2008, reported that the development of biofuels played a “significant” role in the food price increases. All petrol and diesel in Britain had to contain 2.5% of biofuels by 2008, and was aimed to meet a target of 5% by 2010, while the EU was itself contemplating a 10% target for 2020. Naturally, this would increase food prices accordingly, creating much larger and deeper food crises.
For all the contributory factors, not least of which was the development of biofuels, which collectively account for moderate increases in the cost of food, the primary driver of the food prices was financial speculation. This has been made exceedingly evident as the food crisis was not ended in 2008, but has continued to reach new heights, and the crisis has become almost permanent.
At an emergency meeting on food price inflation in 2010, the UN’s special rapporteur on food, Olivier De Schutter, released a paper in which the increase of food prices was blamed on a “speculative bubble” created by pension funds, hedge funds, sovereign wealth funds, and big banks that speculate on commodity markets. The paper noted that beginning in 2001, “food commodities derivatives markets, and commodities indexes began to see an influx of non-traditional investors… The reason for this was because other markets dried up one by one: the dotcoms vanished at the end of 2001, the stock market soon after, and the US housing market in August 2007. As each bubble burst, these large institutional investors moved into other markets, each traditionally considered more stable than the last. Strong similarities can be seen between the price behaviour of food commodities and other refuge values, such as gold.” De Schutter further wrote: “A significant contributory cause of the price spike [was] speculation by institutional investors who did not have any expertise or interest in agricultural commodities, and who invested in commodities index funds or in order to hedge speculative bets.”
As prices nearly doubled between 2007 and 2008, riots erupted in over 30 countries and 150 million more people were pushed into hunger, the majority of commodity prices in 2010 remained well over 50% of their pre-2007 figures, and were set to continue upwards: “Once again we find ourselves in a situation where basic food commodities are undergoing supply shocks. World wheat futures and spot prices climbed steadily until the beginning of August 2010, when Russia – faced with massive wildfires that destroyed its wheat harvest – imposed an export ban on that commodity. In addition, other markets such as sugar and oilseeds [were] witnessing significant price increases.” Gregory Barrow of the UN World Food Program noted: “What we have seen over the past few weeks is a period of volatility driven partly by the announcement from Russia of an export ban on grain food until next year, and this has driven prices up. They have fallen back again, but this has had an impact.” Food prices were rising by roughly 15% per year in India, Nepal, Latin America and China. A British Green Party MP stated: “Food has become a commodity to be traded. The only thing that matters under the current system is profit. Trading in food must not be treated as simply another form of business as usual: for many people it is a matter of life and death. We must insist on the complete removal of agriculture from the remit of the World Trade Organization.”
In December of 2010, food prices reached a new record high, surpassing the 2008 levels, entering what an FAO economist referred to as “a danger territory,” adding that there was “still room for prices to go up much higher.” As John Vidal wrote in the Guardian, “[t]he same banks, hedge funds and financiers whose speculation on the global money markets caused the sub-prime mortgage crisis are thought to be causing food prices to yo-yo and inflate,” as they have taken “advantage of the deregulation of global commodity markets” and are thus “making billions from speculating on food and causing misery around the world.” Food prices were even rising 10% per year in Britain and Europe, with the UN reporting that prices could be expected to rise at least another 40% within the following decade.
In the mid-1990s, “following heavy lobbying by banks, hedge funds and free market politicians in the US and Britain, the regulations on commodity markets were steadily abolished.” What had previously been “contracts” between farmers and traders turned into “derivatives” which were to be bought and sold on international markets between global investors, “who had nothing to do with agriculture.” Thus, a global market of “food speculation” had been born, noted Vidal: “Cocoa, fruit juices, sugar, staples, meat and coffee are all now global commodities, along with oil, gold and metals.” The same institutions which were responsible for creating the massive housing bubble which resulted in the economic crisis, with foreclosures on millions of homes, reacted to the bursting of that bubble by creating a new one in commodity markets, notably food. Except with this bubble, people don’t have to wait for it to burst in order to suffer, as people are driven deeper into poverty and hunger as it inflates, all the while the institutional “investors” make a killing, quite literally.
When banks and investors began moving billions out of the housing market and into new markets, food speculation became especially attractive. Mike Masters, the fund manager at Masters Capital Management testified in the US Senate in 2008 that, “We first became aware of this [food speculation] in 2006. It didn’t seem like a big factor then. But in 2007/08 it really spiked up… When you looked at the flows there was strong evidence. I know a lot of traders and they confirmed what was happening. Most of the business is now speculation – I would say 70-80%.” In other words, roughly 70-80% of the food price increases were determined by speculation, compared to the plethora of other given reasons, combined. Masters warned the Senate: “Let’s say news comes about bad crops and rain somewhere. Normally the price would rise about $1 [per bushel]. [However] when you have a 70-80% speculative market it goes up $2-3 to account for the extra costs. It adds to the volatility. It will end badly as all Wall Street fads do. It’s going to blow up.”
The president of Strategic Investment Group in New York warned that this speculative market has only increased in size, and that “speculative demand for commodity futures has increased since 2008 by 40-80% in agriculture futures.” In 2010, one London-based hedge fund purchased more than 7% of the world’s stocks of cocoa beans, which drove the price of chocolate to its highest price in 33 years. The UN rapporteur on food, Olivier De Schutter agreed: “Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets.” Deborah Doane of the World Development Movement noted: “People die from hunger while the banks make a killing from betting on food.”
The World Development Movement (WDM) issued a report in the Summer of 2010 blaming the rising food prices on investors and speculators, just as cocoa spiked to its 33-year high after a London hedge fund purchased massive amounts of cocoa stock. The report noted that “risky and secretive” speculative bets on food prices were exacerbating the conditions of the world’s poor, as well as sparking social unrest. Deborah Doane, director of the WDM, noted: “Investment banks, like Goldman Sachs, are making huge profits by gambling on the price of everyday foods. But this is leaving people in the UK out of pocket, and risks the poorest people in the world starving.” She added: “Nobody benefits from this kind of reckless gambling except a few City [of London] wheeler-dealers. British consumers suffer because it pushes up inflation, because of unpredictable oil and raw material prices, and the world’s poorest people suffer because basic foods become unaffordable.” The WDM estimated that Goldman Sachs likely made a profit of $1 billion in 2009 through speculating on food prices, though Goldman Sachs stated that these profits from poverty and hunger were “ludicrously overstated.”
Even in the establishment journal, Foreign Policy, ever an apologist and advocate for American imperialism and global hegemony, the food price increases were blamed on “Wall Street greed.” Perhaps not surprisingly, it was bankers at Goldman Sachs in 1991 that developed a derivative (speculative bet) based upon 24 raw materials, from metals and energy, to coffee, cocoa, cattle, corn, wheat and soy, known as the Goldman Sachs Commodity Index (GSCI). In 1999, when futures markets were deregulated, “bankers could take as large a position on grains as they liked, an opportunity which had, since the Great Depression, only been available to those who actually had something to do with the production of our food.” Other banks followed the lead of Goldman Sachs, and found that they too could reap enormous profits from speculating on food prices (and thereby causing mass poverty, hunger, and starvation), including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers. As Frederick Kaufman wrote: “The result of Wall Street’s venture into grain and feed and livestock has been a shock to the global food production and delivery system. Not only does the world’s food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures.” Speculation thus resulted in a situation where “imaginary wheat dominates the price of real wheat,” as “bankers and traders sit at the top of the food chain – the carnivores of the system, devouring everyone and everything below.”
Alan Knuckman is an analyst with Agora Financials, a consulting firm specializing in commodity investments, which has Knuckman spending his time on the floor of the Chicago Board of Trade (CBOT), the world’s largest commodity futures exchange. Knuckman stated: “This is capitalism in its purest form… This is where millionaires are made.” One might add, however, that it’s also where millions more people in hunger are “made.” Knuckman explained: “I trade in anything you can get in and out of quickly… I’m here to make money.” And that’s what he does, and he does it well. Knuckman reflected the view of many in his field, stating: “I don’t believe in politics… I believe in the market, and the market is always right.” When asked if the soaring food prices were the result of financial speculation, something in which he is directly engaged, Knuckman replied: “I don’t see it.”
One is reminded of a bad joke: two fish meet, one asks the other, “how’s the water today?” to which the other replies, “what’s water?” When one is entirely submerged in a specific universe, it requires a great deal of effort to remove one’s perspective to see a wider world view, and their place within it. Alan Knuckman is quite obviously far removed from the everyday struggles of most people, in his own country, let alone the rest of the world. When questioned by Der Spiegel about the high cost of food, he explained: “The age of cheap food is over… Most Americans eat too much, anyway.” While Americans spend roughly 13% of their disposable income, on average, on food, the world’s poor spend roughly 70% of their budget on food, and thus, high food prices for this population, with one billion people on earth classified as living in hunger, and with food prices hitting new record highs almost every passing year, pushing tens of millions more into poverty and hunger, these price-hikes are “life-threatening.” So what did Knuckman have to say about this? He contended that it amounted to “undesirable side effects of the market,” but of course, as he earlier stated, “the market is always right,” and thus, with that logic of thinking, there is nothing “wrong” with one billion people going hungry, nor with more being pushed into poverty and hunger, which are amounted to mere “undesirable side effects.” As he earlier explained, “I’m here to make money,” and obviously, everything else is incidental.
The international food market, which “is always right,” is also incidentally dominated by major banking houses, and the speculative trade in food securities was created and inflated by the very same banks that created, inflated, and profited off of the housing boom in the United States, such as Goldman Sachs, Lehman Brothers, Bear Stearns, Morgan Stanley, and JP Morgan Chase. These banks, hedge funds, and other speculators are able to reap enormous profits as millions are pushed into hunger and poverty, and the brilliance of this scheme is that the investors don’t have to produce a single thing, and never even come into contact with the real food market, whether production or distribution. They trade in “futures,” betting that prices will go up (or possibly down) in the future, and the real prices of food follow the speculative increases and decreases, and when prices go up, the speculators make money. The World Bank estimated that an increase of 10% in worldwide food prices pushes roughly 10 million more people into poverty, and that while there is enough food to feed the world, “many die of hunger simply because they can no longer afford to pay for it.”
In 2011, the annual meeting for Barclays faced protests by anti-poverty campaigners who were raising awareness about the role of Barclays in driving up food prices and profiting off of hunger, as the UK’s largest participant in food commodity trading, and one of the top three banks involved globally, according to information from the World Development Movement (WDM). The other top two banks in global commodity trading are Goldman Sachs and Morgan Stanley. Deborah Doane of the WDM noted: “First, it was sub-prime mortgages, now it’s food commodities… The lack of transparency in these markets bears worrying resemblance to the behaviour that led to the 2008 financial crash. Like any irrational asset bubble, the investors pile their money in for short-term profits, in spite of the consequences.” Estimates from WDM put the profits Barclays accumulated from food speculation at 340 million pounds in 2010.
By 2012, it was reported that Barclays had made as much as half a billion pounds in two years from food speculation. An official at Oxfam noted: “The food market is becoming a playground for investors rather than a market place for farmers. The trend of big investors betting on food prices is transforming food into a financial asset while exacerbating the risk of price spikes that hit the poor hardest.”
In an early 2012 interview with Der Spiegel, the head of the United Nations Food and Agriculture Organization (FAO), José Graziano da Silva, stated that, “speculation is indeed an important cause of the heavily fluctuating and very high prices” of food, and “only benefits banks and hedge funds, but not producers, processors and buyers – and certainly not consumers.” Apart from placing “regulations” on food speculation, da Silva suggested that the rich industrial countries should end their agricultural subsidies, noting that when the U.S. ended its subsidies for corn-based biofuels in the summer of 2011, global prices of corn immediately dropped, which “had a direct and positive effect on the food situation.” The FAO is hardly a radical organization, firmly entrenched within global power structures, it continues to promote “market solutions” to problems of hunger and food, though is critical of market “excesses.” Da Silva noted, however, that “there is enough food for everybody, but for many people, especially the poor, it’s simply too expensive. They are going hungry, even with full shelves of food.” Thus, when asked if the food crisis was “really a financial problem,” da Silva replied, “Of course.”
In 2011, speculative investment in agricultural commodities amounted to 20 times the amount of money spent by all countries of the world on food and agricultural “aid.” The three biggest players in agricultural commodity speculation – Goldman Sachs, Morgan Stanley, and Barclays, respectively – have reaped hundreds of millions and billions in profits in this speculative assault against the world’s poorest billion people suffering from hunger. The UN rapporteur on food, Olivier De Schutter, noted: “What we are seeing now is that these financial markets have developed massively with the arrival of these new financial investors, who are purely interested in the short-term monetary gain and are not really interested in the physical thing – they never actually buy the ton of wheat or maize; they only buy a promise to buy or sell. The result of this financialisation of the commodities market is that the prices of the products respond increasingly to a purely speculative logic. That explains why in very short periods of time we see prices spiking or bubbles exploding, because prices are less and less determined by the real match between supply and demand.”
The UN World Food Programme referred to the 2008-2011 global spike in food prices as a “silent tsunami of hunger,” pushing 115 million more people into hunger and poverty since 2008. This, explained De Schutter, is “an absolute catastrophe” for the world’s poor. In Kenya, an unemployed single-mother looking after her eight-year-old daughter and 83-year old father explained that since the massive food price hikes: “We stopped eating lunch, and saved the little we had to eat for supper. We drank tea without sugar and sometimes we also missed breakfast. I had to travel so much to wash clothes to get money for food, but sometimes I was so weak I fell down. For supper, we had one or two cups of flour mixed with water and salt. Our life was so hard.” It is worth remembering – and reminding yourself continuously – that there is more than enough food in the world to feed the population of the world, yet, stories like this single mother’s are becoming increasingly common among billions of people. If ever there was a clear sign that something is fundamentally wrong with the global system – and “market solutions” – this is it.
In the summer of 2012, the United States experienced the worst draught in decades, contributing to increased speculation in food markets, driving prices up higher and inducing warnings of another major global food crisis on the brink. Chris Mahoney, the head of agriculture at Glencore, a major global commodity trader, let slip some industry honesty when he stated: “The U.S. weather starting mid-May… has been among the worst three or four years of the century, comparable to the dust bowl years of the mid-1930s… In terms of the outlook for the balance [profits] of the year, the environment is a good one. High prices, lots of volatility, a lot of dislocation, tightness, a lot of arbitrage opportunities… I think we will both be able to provide the world with solutions, getting stuff to where it’s needed quickly and timely, and that should also be good for Glencore.” The CEO of Glencore, Ivan Glasenberg, referred to the volatile food market as “a time when industry fundamentals are the most positive they have been for some time.” Put simply, increased food prices, and thus, increased hunger, is “good for Glencore.” Tens of millions more people pushed into abject poverty and hunger? No need to be concerned, that only means that “industry fundamentals are the most positive they have been for some time.”
What can we conclude, therefore, from a global system of ‘markets’ in which poverty and starvation create massive profits for a few select institutions and individuals, at the expense of literally billions of human beings, and entire nations and societies? Does this really reflect, as one trader stated that, “the market is always right”? Or does it reveal a market which benefits few at the expense of many? The answer is, of course, self-evident: so then why is the issue not framed in such a manner? Instead of acknowledging global markets as inherently and structurally (not to mention ideologically) immoral and wrong, we talk about “reforming” and “regulating” these markets as if minor changes would rectify the fundamental problems. The truth – as hard as it may be for many to accept – is that global markets are fundamentally wrong and immoral.
We acknowledge this type of immorality on an individual level, say with the literary character of Ebenezer Scrooge who profited from the misery of others, but when it reaches global institutional and ideological proportions, we often justify and excuse it, or possibly acknowledge that it is “not perfect” and there are “undesirable side effects,” possibly warranting ‘reform.’ Perhaps the institutional ideology could be best summarized by Ebenezer Scrooge when he was asked to donate to a charity to help the poor and hungry who were at risk of dying, to which Scrooge replied, “If they would rather die… they had better do it, and decrease the surplus population.”
At what point is it acceptable to suggest that humanity is in need of an entirely new way of organization and function? In a world of seven billion people, when billions live in poverty, in slums, and with hunger, at what point do we begin to acknowledge that this system simply does not work? Sadly, it seems that people only often recognize this when they are among the poor, within the slums, and starving. By that point, however, their concerns become those of daily survival, not issues of reform or even activism and revolution. Their days are spent toiling and struggling for a meager dollar or two so that they could afford a meager meal, or if lucky, two meals. Looking after other family members, they do not have the luxury of education, information, and the ready capacity for organization and activism that we – who do not live in hunger and absolute poverty – have. If we continue to uphold a world system which has created and sustains and exacerbates the conditions and prevalence of global poverty, slums, and hunger, we doom others – and indeed ourselves – to that same fate.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, with a focus on studying the ideas, institutions, and individuals of power and resistance across a wide spectrum of social, political, economic, and historical spheres. He has been published in AlterNet, CounterPunch, Occupy.com, Truth-Out, RoarMag, and a number of other alternative media groups, and regularly does radio, Internet, and television interviews with both alternative and mainstream news outlets. He is Project Manager of The People’s Book Project and has a weekly podcast show with BoilingFrogsPost.
Future samples from this chapter will focus on environmental degradation, poverty, and the global land grabs. If you found this excerpt of interest, please consider making a donation to The People’s Book Project to help the research and writing continue.
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 John Vidal, “UN warned of major new food crisis at emergency meeting in Rome,” The Guardian, 24 September 2010:
 Jill Treanor, “World food prices enter ‘danger territory’ to reach record high,” The Guardian, 5 January 2011:
 John Vidal, “Food speculation: ‘People die from hunger while banks make a killing on food’,” The Observer, 23 January 2011:
 Katie Allen, “Hedge funds accused of gambling with lives of the poorest as food prices soar,” The Guardian, 19 July 2010:
 Frederick Kaufman, “How Goldman Sachs Created the Food Crisis,” Foreign Policy, 27 April 2011:
 Horand Knaup, Michaela Schiessl and Anne Seith, “Speculating with Lives How Global Investors Make Money Out of Hunger,” Der Spiegel, 1 September 2011:
 Felicity Lawrence, “Barclays faces protests over role in global food crisis,” The Guardian, 25 April 2011:
 Tom Bawden, “Barclays makes £500m betting on food crisis,” The Independent, 1 September 2012:
 Spiegel Staff, “UN Food and Agricultural Chief: ‘Speculation Is an Important Cause of High Prices’,” Der Spiegel, 16 January 2012:
 Grace Livingstone, “The real hunger games: How banks gamble on food prices – and the poor lose out,” The Independent, 1 April 2012:
 Vince Heaney, “US drought renews food speculation concerns,” The Financial Times, 19 August 2012:
 Tom Bawden, “Unholy trade of making millions out of misery,” The Independent, 23 August 2012:
The Great Corporate Colony: Welcome to Canada Inc., A Subsidiary of the American Empire & Co.
By: Andrew Gavin Marshall
The following is a sample from the first volume of The People’s Book Project, a crowd-funded initiative to produce a series of books studying the ideas, institutions, and individuals of power and resistance. Please consider donating to help the Project come to fruition.
As one of the most resource-rich countries on earth, and the largest single trading partner with the United States, Canada is strategically positioned to influence the changing nature of global power structures. Do we support – and siphon our resources for the benefit of – the American Empire, co-operating in the wholesale plundering of the world, the oppression and impoverishment of peoples, destruction of global ecology, all for the benefit of an increasingly small class of global corporations and banks… Or, do we become independent and free? Canada’s Prime Minister Stephen Harper once said, “You won’t recognize Canada when I get through with it.” With multiple “free trade” agreements under way, expanded corporate rights, expropriation of vast amounts of natural resources, Canada is becoming one of the world’s foremost corporate colonies, unrecognizable from what Canadians once imagined our nation to be.
The Plundering Potential of Resource Wealth
Canada is the second largest country by landmass in the world, after Russia, and with roughly 10% of the population of the United States, it is also one of the most resource rich countries on the entire planet. Looking at a list of the ten most resource-rich nations on earth (determined not by the multitude, but rather the ‘market value’ of the resources they contain) is rather revealing. At number ten, and in descending order is: Venezuela, Iraq, Australia, Brazil, China, Iran, Canada, Saudi Arabia, the United States, and Russia. Canada has one of the largest oil reserves in the world after Saudi Arabia and Iran (though these are largely located in the difficult-to-extract Alberta tar sands), as well as having some of the largest mineral resource deposits in the world, with the second-largest proven reserves of uranium and the third largest amount of timber. According to Statistics Canada, the nation’s natural wealth tripled in value between 1990 and 2009, then valued at $3 trillion, largely due to the increased price of oil.
In June of 2012, the United Nations released a major report in which it established a new index to account for and define ‘wealth’ beyond mere reports of GDP. Termed the “Inclusive Wealth Index” (IWI), it determines national wealth based upon three types of assets: “manufactured” (machinery, buildings, infrastructure, etc.), “human capital” (the population’s education and skills), and “natural capital” (land, forests, fossil fuels, minerals, etc.). The study, Inclusive Wealth Report 2012, analyzed 20 different countries, and was intended to take into account depleting resources and sustainability for future generations when determining a nation’s real wealth. While GDP growth has taken place in China, the U.S., South Africa and Brazil, these nations have significantly reduced their natural capital. Between 1990 and 2008, the “natural capital” of the United States declined by 20%, 17% for China, 25% for Brazil, and 33% for South Africa. In fact, 19 out of the 20 countries studied showed a decline in natural capital, offset only by an increase in human capital (education and skills).
Human capital is based upon the average years of schooling, wages that the country’s workers can demand, and how many years they are expected to work before they retire or die. With this measurement, human capital amounts to the largest percentage of a nation’s wealth (except for Nigeria, Russia, and Saudi Arabia), accounting for 88% of Britain’s wealth and 75% of America’s. Canada is of course included among the 19 countries with rapidly declining natural capital.
Canada’s Minister of Natural Resources Joe Oliver spoke to a gathering of Canaccord Genuity Corporation (a financial services conglomerate) in Toronto in September of 2012, where he explained that Canada’s “tremendous natural wealth” included “huge capacities and reserves of energy, including the third-largest proven oil reserves in the world,” as well as “tremendous hydroelectric capacity, massive tracts of forests and an abundance of minerals and metals.” He added, however: “it’s not enough to have the resources… You have to do something with them.” Oliver listed some of the many resources which Canada has and produces in abundance: oil, natural gas, hydroelectricity, uranium (second largest producer in the world), more than 200 mines turning out more than 60 minerals, “including more potash than anyone else,” as well as aluminum, cobalt, diamonds, nickel, platinum group metals, titanium concentrate, tungsten, chromite, the second-largest exporter of primary forest products, and is the “biggest exporter of wood pulp, newsprint and softwood lumber.” The resource sector, explained Oliver, “is the cornerstone of our economy, our long-term prosperity and our quality of life.”
Oliver explained that the energy, forestry, metals and minerals industries accounted for roughly 15% of Canada’s nominal GDP, the “direct contribution” to the Canadian economy, while the indirect GDP (taking into account “goods and services purchased from other sectors – construction, machinery and equipment, business and professional services”) takes the number up to roughly 20%. The key areas and industries are oil in Alberta, forestry in British Columbia, potash and uranium in Saskatchewan, mining in Ontario and hydro-power in Quebec. Oliver told the assembled crowd in the heart of Toronto’s finance industry that there was “about $650 billion invested in over 600 major resource projects currently underway in Canada or planned in the next 10 years.” He added: “Countries in the Asia-Pacific region are especially hungry for the energy and minerals and metals and forest products they need to fuel their growth and build a better quality of life for their citizens.” There were, he acknowledged, still inherent problems with the global economy which could effect this outlook, but suggested that what the Canadian government can – “and is doing – is establish a competitive business climate so the private sector can capitalize on our enormous potential.” In other words, the Canadian government will establish a highly protective and subsidized market for multinational corporations to more effectively plunder the natural resources. All for altruistic intentions, of course!
Canada’s highly influential big business dominated think tanks have not been far behind in promoting resource plundering by multinational corporations. The Conference Board of Canada published a report in June of 2012 arguing that “Canada’s trade strengths are concentrated in industries that extract natural resources and process raw materials,” including agricultural and food products, minerals and metals, forest products, and electricity exports. In the report, Adding Value to Trade: Moving Beyond Being Hewers of Wood, Michael Burt wrote: “These industries rely heavily on natural resource wealth such as land, water, forests, and mineral products. The abundance of these resources gives Canada a robust comparative advantage in the industries that extract and process them.” Thus, it would be desirable to promote the “development and use of our natural resources, and industries that support the primary sector are competitive with world standards.” The board of directors of the Conference Board of Canada includes executives and/or board members of the Business Development Bank of Canada, EPCOR Utilities, CGI Group, GE Canada, Canada Post Corporation, TransAlta Corporation, ICICI Bank Canada, Cisco Systems Canada, Desjardins Group, IBM Canada, Shell Canada, Xerox Canada, SaskTel, SaskPower, and John Manley, the President and CEO of the Canadian Council of Chief Executives (CCCE), the main business interest group in Canada, made up of the top 150 corporate CEOs in the country.
In October of 2012, the Canadian International Council (CIC) – the Canadian counterpart to the Council on Foreign Relations in the U.S. – published a report entitled, Becoming a Resource Superpower, in which the author, Madelaine Drohan (the Canada correspondent for The Economist) argued that, “without strong leadership and collaboration we risk losing an opportunity to become a real resource superpower.” A series of recommendations were laid out, including the possibility of establishing a sovereign wealth fund (SWF) to pool and invest money made from resources, encouraging the provincial and federal governments in Canada to “stop treating” revenue from resources “as income to be spent and start treating them as capital to be saved or invested.” In other words, the money made from resources should not go back to benefit Canadians, but rather be used to exclusively benefit the investor class.
Other recommendations focused on expanding the relationship between government, business, and academia (as if we don’t have enough of this already): “To do this, federal and provincial governments must concentrate their funding for research and development on collaborative projects between groups of companies and academic institutions.” Another recommendation focused on expanding “trade” networks and energy customers, specifically in the Asia-Pacific, noting: “Canada should focus on negotiations involving the largest possible number of countries, such as the Trans-Pacific Partnership, and look beyond China so we do not repeat the error of putting all our eggs in one basket.” The report then recommended the government to establish highly protectionist trade agreements for corporations, writing: “Government can help companies plug into global value chains by removing impediments and securing the right trade and investment deals.” By definition, that is the opposite of “free trade,” which is why it is important that we call it “free trade,” when in actuality, it is highly protectionist, involving state intervention designed to undermine the ‘market’ and give corporations a subsidized advantage, thus, undermining competition. The last major recommendation was for federal, provincial, and territorial governments to “collaborate on a national blueprint for resource development that identifies the gaps to be filled – including in infrastructure, environmental protection, trade diversification, education, immigration, technology, and supporting sectors – and sets out how to address them, with achievable goals and deadlines.” In other words, massive state-capitalist planning and plundering is required.
The board of directors of the Canadian International Council (CIC) includes the president and CEO of the Canadian Chamber of Commerce, Chair of the Atlantic Council of Canada, Raymond Chrétien (nephew of former Prime Minister Jean Chrétien), while the chief sponsors of the CIC include: Bennett Jones, Power Corporation of Canada (owned by the Desmarais family, Canada’s Rockefellers), the Royal Bank of Canada, AGF, Barrick Gold, BMO Financial Group, Sun Life Financial, Scotiabank, and TD Bank. So naturally, it has everyone’s interests at heart, and by ‘everyone’, I mean, everyone that matters to the investor class (i.e., the investor class).
So, as Canada increases production of oil from Alberta’s tar sands, the government is seeking to expand the major pipelines to the coast in the hopes of acquiring China as a major trading partner, instead of just the United States. Canada sits atop “unknown quantities” of natural gas reserves, what The Economist calls an “unconventional bonanza,” adding: “Just as the 20th century was the age of oil, the 21st could prove to be the century of gas.” However, in August of 2012, Canadian Prime Minister Stephen Harper declared that Canada’s future economic hopes depend upon the natural resources of the Arctic, which has been the focus of a new global grab for resources since the Arctic ice has begun to break up more rapidly. On a visit to the region, Harper stated, “Obviously, there is a tremendous economic opportunity here. The fact that we are attracting investment not just domestically, but from around the globe speaks very highly to the future.” As revealed by documents released to the press, in late 2011, the Mining Association of Canada was lobbying the Environment Minister Peter Kent “to change regulations and allow non-metal mines, such as diamonds, oilsands and coal, to discharge potentially polluted water under federal guidelines.”
In other words, now that the ice is breaking and resources are being readied for plunder, the major mining conglomerates want the government’s permission to treat the Canadian environment the way they treat the environment in the rest of the world, notably, in poor, conflict-ridden countries like Colombia and the Democratic Republic of Congo. After all, what is plundering without the added bonus of environmental devastation? It’s not just a matter of extracting and exploiting all available resources, from which to gain massive profits, but it’s also important for corporations to destroy the surrounding environment so that little, if anything, can flourish and replenish. That is plundering at its most profitable. In October of 2012, it was reported that Canada was going to claim ownership of a massive size of undersea territory in the Arctic, larger than the size of the province of Québec, and roughly equal to 20% of the country’s surface area.
In 2013, Canada will begin chairing a two-year term of the Arctic Council, a grouping of eight nations working together to manage the development of the Arctic as an economically and strategically important global region. With the opening of new and large opportunities for economic exploitation and resource plundering, the states with territory in the Arctic have become increasingly aggressive in their military posturing in the region, “increasingly designed for combat rather than policing,” according to a study by the Centre for Climate and Energy Solutions. The report noted: “Although the pursuit of co-operation is the stated priority, most of the Arctic states have begun to rebuild and modernize their military capabilities in the region.”
Canadian Prime Minister Stephen Harper had been publicly making aggressive statements about competition in the Arctic, particularly in relation to Russia. In private, however, Harper had been making different claims. As revealed by Wikileaks, Harper expressed the message to the Secretary-General of NATO that there was no real military threat in the Arctic, instead expressing the perspective that, “Canada has a good working relationship with Russia with respect to the Arctic, and a NATO presence could backfire by exacerbating tensions.” Harper added, according to the released cables, “that there is no likelihood of Arctic states going to war, but that some non-Arctic members favoured a NATO role in the Arctic because it would afford them influence in an area where ‘they don’t belong’.” All the public statements and aggressive military stances in the region have, however, helped to sway public opinion into believing that there is a “security or sovereignty threat to the northern border,” and thus justify increased expansion into the region for exploitation. The issue is not one of security, but of securing resources (for corporations, no doubt). One released cable from 2009 relayed this point accurately, noting that Canada’s defense plan to build six Arctic Patrol ships for the navy was “an example of a requirement driven by political rather than military imperatives, since the navy did not request these patrol ships. The Conservatives have nonetheless long found domestic political capital in asserting Canada’s ‘Arctic Sovereignty’.” By the summer of 2012, the aggressive rhetoric had essentially vanished, and Harper’s missions to the Arctic were entirely diplomatic and aimed at exploiting the region’s vast natural resources. The Obama administration has also identified the Arctic as “an area of key strategic interest.”
Canada For Sale: “Free Trade” Fanaticism
Canada has been pursuing a vast array of so-called “free trade” agreements with specific countries around the world, as part of the overall program of plundering resources and giving multinational corporations unprecedented control over society. Since the 1988 Canada-U.S. Free Trade Agreement and the 1994 North American Free Trade Agreement (NAFTA), Canada has pursued agreements with several countries, including Israel, Jordan, Chile, Costa Rica, Colombia, Honduras, Panama, Peru and is in talks with the European Union and Japan, as well as China and India.
On August 15, 2011, the Canada-Colombia Free Trade Agreement – a highly protectionist corporate-driven agreement (like all “free trade” agreements) – came into effect. The agreement was reached in 2008, receiving “royal assent” in 2010, and is sure to benefit major corporations and help finance a state which is responsible for the greatest human rights violations in the Western Hemisphere. Canada’s top five exports to Colombia include wheat, newsprint and paper, machinery and equipment, dump trucks as well as beans, peas, and lentils. Colombia’s top five exports to Canada include coal, coffee, bananas, fuel oil and cut flowers (note: this list excludes illicit trade products like cocaine, of which Colombia is a major global exporter).
As critics of the deal pointed to Colombia’s record on human rights abuses, Stephen Harper commented, “No good purpose is served in this country or in the United States by anybody who is standing in the way of the development of the prosperity of Colombia,” by which he means to say that human rights are irrelevant so long as multinational corporations are making large profits. And indeed, policies fit that paradigm very well. Harper added: “Colombia is a wonderful country with great possibility and great ambition. And we need to be encouraging that every step of the way. That’s why we have made this a priority to get this deal done. We can’t block the progress of a country like this for protectionist reasons.” In this sense, the word “protectionist” refers to any impediments, regulations, or barriers to the unhindered exploitation and plundering of a country by multinational corporations. When agreements are protectionist in favour of corporations, securing and enforcing their unhindered monopolization of markets and exploitation of resources, this is called “free trade.”
With more than 70 Canadian corporations in Colombia, from oil and mining to finance, the agreement will open up more access for major companies. For those who mention human rights abuses, Harper had this to say: “I think there are protectionist forces in our country and in the United States that don’t care about development and prosperity in this part of the world. And that’s unfortunate.” Chris Spaulding of Talisman Energy, a Canadian corporation doing business in Colombia, commented that, “It’s very business friendly. They want foreign investment. The labor force is very good. The resources are there.”
According to the Globe and Mail, Colombia has “near bullet-proof potential for rapid growth,” due to low wages, abundant resources, and with the return of “order” (a euphemism for state oppression and control), though the country still has a high murder rate, five times the rate of the United States. Colombia not only signed a free trade agreement with Canada, but also with the U.S., and has received top rates from the World Bank for fostering a good “business climate.” Scotiabank, one of Canada’s big five banks, made a $1 billion purchase of a 51% stake in Colombia’s fifth largest bank, Banco Colpatria. Rick Waugh, the CEO of Scotiabank, declared that, “Colombia is very important to us.”
Toronto-based mining company Gran Colombia Gold Corp has been seeking to remove an entire town, a 500-year old community, to make way for an open-pit mine. When the Colombian government was preparing to displace the town, villagers in the community formed a committee to defend themselves. One of the organizers, a local priest, Father José Reinel Restrepo, publicly denounced the plan to move the town for the benefit of a foreign corporation, even giving television interviews in which he denounced “Canadian imperialism.” He explained: “If they are going to drive me out of here, I would tell them they would have to expel me by way of bullets or machetes – but they can’t oblige me to leave.” Four days later, Father Restrepo was shot dead while traveling to visit his family.
Colombia has a long history with powerful business interests allying themselves with paramilitary outfits to “silence opponents and displace rural populations living atop natural resources.” Under the guise of the “war on drugs,” Colombia’s military, with billions in “aid” from the United States, has co-operated with big business interests and criminal paramilitary groups, purportedly to fight rebel groups (notably FARC), but mostly to clear rural communities to allow for corporate plundering of the resources upon which they sit. In recent decades, some four million people have been displaced by such actions, leaving the country with Latin America’s “most inequitable distribution of wealth.” On top of that, Colombia is a major narco-state, with state, paramilitary and rebel groups all participating in the massive cocaine trade. Many historians have described Colombia as “the world’s most enduringly violent country,” with over five decades of constant internal warfare. With over 20 major Canadian companies holding major investments in Colombia, it’s no wonder that the World Bank rated the country as the best investment climate in Latin America.
The brand of “order” that the government of Colombia has enforced in recent years represents a continuation of the policies of several administrations before it. The human rights and humanitarian crisis in Colombia is “staggering in scale,” with millions displaced, killed, tortured, raped, kidnapped or “disappeared,” more than 280,000 people had to flee their homes in 2010 alone. State, paramilitary and rebel groups have all routinely been accused of vast human rights abuses and war crimes. While the new government of President Santos promised to prioritize human rights when he came to power in 2010, the reality, according to Amnesty International, was that “threats against and killings of leaders of displaced communities and of those seeking the return of lands misappropriated during the conflict, mainly by paramilitary groups, have increased during the Santos government.” In criminal investigations of human rights abuses, witnesses, victims, lawyers, and judges have continuously been threatened or even killed. Threats and murders have also increased for human rights activists, trade unionists, and community leaders.
Canadian law demands that the government table a human rights report for Parliament on the impact of the Canada-Colombia Free Trade Agreement. Instead of submitting the report, the Canadian government decided, in May of 2012, that it would not even adhere to Canadian law, and refused to submit any such report, instead stating that it would produce a report for May of 2013. With more than 259,000 people displaced from their homes in Colombia in 2011 (on top of the 280,000 displaced in 2010), human rights abuses and war crimes will continue, with the tacit (and perhaps active) cooperation of Canadian corporations, notably mining companies. The Canadian government has effectively given the green light for such abuses to continue. While Colombia’s Constitutional Court identified 34 Indigenous nations in the country that were in “grave danger of extinction,” Canadian indifference continued. Alex Neve, the Secretary General of Amnesty International Canada declared that, “Canada must not turn its back on the human rights crisis in Colombia for yet another year… The crucial question that should not be postponed is what role is Canadian investment playing with regard to this emergency?” Neve added: “Failure to carry out a full impact assessment violates Canada’s responsibility of due diligence under international law and denies Canadian corporations working in Colombia the information they need to avoid implicating themselves in grave human rights violations.”
The website for the Canadian ministry for Foreign Affairs and International Trade declared that the Canada-Colombia FTA provided “a key boost for Canadian companies in five important sectors: agriculture, information and communication technologies, mining, oil and gas, and services.” Noting that Canada’s interest in the narco-state was “growing strongly,” the ministry website added that Colombia had “undergone important economic and legal reforms, spurring democracy and global direct investment.” The business climate, it declared, was “now stable and predictable, making Colombia a secure business partner and a solid investment destination.” With that in mind, Canada’s Defence Minister Peter MacKay signed an agreement with the Colombian military in November of 2012 to strengthen its “military relationship with Colombia,” which MacKay stated, “represents a natural evolution in our relationship… And we look forward to continuing to build our ties with the Colombian Armed Forces.” No doubt, as they continue to displace hundreds of thousands of innocent people in order to clear the land for foreign corporations, and of course, to help advance the profits of the international illicit drug trade.
Scotiabank decided to expand its operations further in Colombia, with the purchase of a majority stake in one of Colombia’s largest pension fund companies. Scotiabank has taken on a major role in “financing Colombia’s energy and mining sectors,” with the bank’s head of global wealth management stating, “We look to continue the growth and expansion of this business.” Another executive at Scotiabank stated, “We continue to invest in Colombia because we see this as a market with great potential for growth.” Interestingly, the Canadian Embassy in Colombia is located in the new Scotiabank Tower in Bogota.
Canada continues to pursue further “free trade agreements” with other countries as well, notably, Japan and China. In March of 2012, Canada and Japan agreed to begin free trade talks, already steadfast trading partners. On top of “free trade,” the Japanese Prime Minister Yoshihiko Noda announced that Canada and Japan would also be advancing defence and security “co-operation.” At the announcement, Harper declared that, “This is a truly historic step that will help create jobs and growth for both countries.” Jayson Myers, the president of the Canadian Manufacturers & Exporters association stated, “Japan is a strategic commercial partner… However, it is also a country with whom we’ve had a persistent trade deficit when it comes to manufacturing. These negotiations provide the appropriate forum to resolve ongoing concerns.”
As revealed by secret documents obtained by the media, the Canadian government had been lobbying the United States to join the Trans-Pacific Partnership agreement for the main reason of gaining more access to Japan, with one document noting that the TPP without Japan “does not excite us.” In November of 2012, it was reported that Japan was likely to follow Canada’s entrance into the TPP, the largest and most secretive trade agreement in history, involving 11 Pacific rim countries, and negotiated in cooperation with over 600 corporations. The TPP is highly controversial within Japan, since it could potentially – and likely would – lead to reduced protections and subsidies for the Japanese agriculture sector, an area long considered untouchable. A spokesperson for the Canadian department of Foreign Affairs and International Trade stated, “We welcome Japan’s interest in joining the TPP. Japan’s participation in the TPP would further strengthen Canada and Japan’s strong trade and investment relationship. We are already working closely with Japan towards a bilateral free trade agreement that will bring new jobs and increased prosperity to Canadians and we would welcome the opportunity to also work together in the TPP.”
(For more information on the TPP, please see my three-part series here: The Trans-Pacific Partnership)
Canada has also begun talks with India and hoped to sign a free trade deal with the country by the end of 2013, with Stephen Harper stating, upon a visit to India, “I think I am very clear that we need to go farther and faster.” Stephen Harper lamented against the fact that India has democratic institutions, and thus, undemocratic policies are harder to implement. He stated: “What we do have to realize when we deal with India, as opposed to some other countries that we’re dealing with in the developing world – this country is a democracy… And that means that governments cannot simply dictate a whole set of policy changes to happen the next day. That means governments must develop consensus behind policy changes. And that, in this country is not easy. We understand that.” Luckily for Harper, he doesn’t have to face any such problems at home, with a majority government, tearing the country to pieces day-by-day. Stephen Harper once boasted many years ago, that if he was given the chance to become Prime Minister, “You won’t recognize Canada when I get through with it.” Indeed, that turns out to be quite true. Indeed, back in 1997, Harper wrote an article in which he referred to Canada as “a benign dictatorship,” though there seems to be little ‘benign’ about his majority-government rule.
In September of 2012, Stephen Harper signed an investment treaty with China (as a precursor to a potential free trade agreement), called the Foreign Investment Promotion and Protection Agreement (FIPA). The details of the agreement were kept secret until the deal was tabled in the Canadian Parliament in late September, but the agreement is not to be debated in Parliament because treaty making “is a royal prerogative,” and can thus become law through the initiative of the Prime Minister’s cabinet alone, so long as the treaty is ‘tabled’ in Parliament. Canada already had roughly 24 FIPAs in operation, with roughly a dozen more in the works. FIPAs are not “free trade agreements,” but are designed to simply “protect and promote” foreign investment in legally-binding agreements. In essence, they are quicker and smaller versions of “free trade” agreements, and designed with a similar purpose: to advance corporate rights and the expense of democratic rights.
China’s ambassador to Canada stated that the two countries should move quickly toward a free-trade agreement within a decade, adding, “It’s time to open each other’s markets.” The comments came as a major Chinese state-owned corporation was seeking to take over a Canadian energy company, which would be the first direct foreign takeover of a major actor in Canada’s energy sector, a major concern for Canadians who fear Canada’s resource wealth will not benefit Canadians. On this issue, the Chinese ambassador noted, “Business is business. It should not be politicized… If we politicize all this, then we can’t do business.” The ambassador told a Canadian journalist, “We are not coming to control your resources.” No, of course not, they’re just coming to take the resources. Within a couple months, Prime Minister Harper approved of the Chinese takeover of the Canadian energy company Nexen, as well as another takeover by a Malaysian company in the Canadian energy sector. However, Harper then stated that there would be restrictions on foreign governments buying some of Canada’s largest energy conglomerates (just not these ones in particular). At a press conference, Harper stated, “When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments.” Except, of course, for all the exceptions to that rule.
Critics of the Canada-China FIPA warned that it would reduce Canada to little more than a “resource colony,” which would bind Canada to new investment rights with China for 30 years. Not only does it allow China to gain an increased foothold in Canada’s economy, and specifically, in purchasing Canadian resources, but it also acts “to protect Canadian capitalists when they go into China.” What more could someone ask for? The Council of Canadians, a public interest organization, referred to the Canada-China FIPA as a “corporate rights pact” that would have serious repercussions on Canadian environmental, energy, and financial policies. This is because the deal would allow for lawsuits against the Canadian federal and provincial governments for having “barriers” to investments, which could then be overturned.
Canada is also in the final stages of negotiating a trade agreement with the European Union, called the Comprehensive Economic Trade Agreement (CETA), designed to reduce tariffs and open up “new markets,” having major impacts upon agriculture, intellectual property rights (copyright and patent laws), with drug prices likely to increase “significantly,” as well as allowing for more “labour mobility,” a euphemism for increased labour exploitation. The agreement, which has been in negotiations for years, would “deal another blow to Canada’s already battered manufacturing sector,” with roughly 28,000 jobs under threat, deemed to be the “best-case scenario” by the Canadian Centre for Policy Alternatives. The “worst-case” scenario could see up to 152,000 jobs being “vaporized.”
As is typical, the negotiations are “behind closed doors” and barely deal with actual “trade.” CETA is, much like the TPP, termed a “next generation” free trade agreement, negotiated since May of 2009, and would further deregulate and privatize the Canadian economy, and of course, therefore, increase corporate power, and thus at the expense of democratic accountability. The agreement could restrict how local and provincial governments could spend money, even banning “buy local” policies, increase the cost of drugs by $3 billion, increase Canada’s trade deficit with the EU, allow for European corporations to attack environmental and health protections within Canada as “barriers to investment,” potentially even apply pressure to privatize water, transit, and energy, and even prevent farmers from saving their seeds, as a major gift to GMO manufacturers. Where corporate rights are advanced, democratic rights are dismantled.
A leaked document from the European Commission dated November 6, 2012, revealed that the practice of Canadian municipalities “buying locally” would disappear with the Canada-EU CETA, and that “provincial development programs could go with them.” Canadian municipalities were offering better terms for European access to municipal contracts that those which Canadian provinces give each other. The document, prepared for the European Commission’s Trade Policy Committee noted that the agreement is “the most ambitious and comprehensive offer Canada and its provinces have made to any partner, including the U.S.” EU negotiations will, however, continue to press for more access to energy sectors. Maude Barlow of the Council of Canadians noted: “The amount of room our provinces, municipalities and local communities have to support local farmers and otherwise create the jobs of tomorrow is threatened again by a Canada-European Union free trade deal that will forever prohibit these kinds of economic strategies.” The province of Ontario could alone lose between 13,000 and 70,000 jobs as a result of the agreement, according to the Canadian Centre for Policy Alternatives.
Openly acknowledged by European politicians was that Canada would be getting the short end of the stick in the CETA deal, as a Danish member of the European Parliament stated, “At the moment Europe will be able to export more than what Canada will be exporting.” Another European official closely linked to the negotiations stated, “We will gain a bit more.” Canadian Trade Minister Ed Fast said, “[t]he potential benefits to Canadians under a free trade agreement with the European Union are immense,” though he forgot to acknowledge that the ‘Canadians’ he was referring to are largely corporations, and the elite class that owns them. Michael Hart, a trade expert at Carleton University noted, “[t]rade agreements do not create jobs. Never have. Never will. But ministers have never accepted that economic insight.” And understandably so, after all, it’s rather challenging to sell a trade deal to the public if one openly declares it is for the singular purpose of advancing corporate rights, domination, and plundering. So instead, politicians must always mutter the magical word of “jobs,” which in political language, translates accurately into “profits,” as Noam Chomsky has suggested in the past. Thus, when politicians say that trade agreements will “create jobs,” which they never do, what they are actually saying is that such agreements will “create profits,” and exclusively for major multinational corporations, which they always do.
Canada’s trade agenda is of course driven by big business, whose interests will be served by such “free trade” agreements. In regards to CETA, the Canada Europe Roundtable for Business (CERT) was established in 1999 to contribute “recommendations on trade and investment to government officials and hosting thematic, high-level meeting focused on developing strategic relationships between company executives and with government officials,” according to the website for CERT. A declaration of support in 2008 for a Canada-EU trade agreement was signed by over 100 executives in Europe and Canada, urging Canadian and EU leaders to “design a new type of forward-looking, wide-ranging and binding bilateral trade and investment agreement.” Such an agreement, the document stated, “will provide European companies with a gateway into the vast North American free trade area, while increasing Canadian opportunities in the European Common Market,” serving as “a strategic and important step towards the eventual creation of a comprehensive transatlantic trade and investment area.” Among the signatories to the statement were top executives at the following companies: Anglo American plc, AstraZeneca, Barrick Gold Corporation, BASF, Bayer, Bertelsmann, BNP-Paribas, Bombardier, British Airways, Canadian Chamber of Commerce, Canadian Manufacturers & Exporters, CN, Commerzbank, Deutsche Bank, E.ON AG, Gaz de France, GlaxoSmithKline, Lafarge, Manulife Financial, Merck, Monsanto Canada, Munich Re, Pfizer Canada, Power Financial Corporation, Rio Tinto plc, Royal Dutch Shell, Siemens, SNC-Lavalin, Société Générale, SUEZ, Suncor, ThyssenKrupp, TOTAL SA., TSX Group, Ubisoft Entertainment, and Volkswagen, among many others.
In late October 2012, a number of European and Canadian big business lobbying groups, including BusinessEurope, the Canadian Chamber of Commerce, and the Canada Europe Roundtable for Business (CERT), sent a letter to the Canadian and European trade negotiators, Ed Fast and Karel de Gucht, respectively, urging them to push through on the CETA. The signatories called for Canada and the EU to reach “an ambitious and successful conclusion to the Comprehensive Economic and Trade Agreement (CETA) negotiations by the end of 2012.” The letter said it was “imperative” to “maintain a high level of ambition” in key areas which would benefit Canadian and European corporate interests. Among the many areas for which the letter suggested “a high level of ambition” were in recommending the “full and rapid dismantling of tariffs for all industrial goods,” and “[a]ccess to raw materials and energy products,” the removal of barriers and “discriminations” in service sectors, “full access” to the agricultural sector, including “a satisfactory path forward on the bio-tech issues that have caused trade impediments,” by which is meant to advance the interests of GMO manufacturers. Further recommendations included “access to government procurement” which removes all barriers and allows for increased privatization, and of course, “[r]obust protection and enforcement of intellectual property (IP) rights in both markets,” which would include “the targeting, seizing and destroying of counterfeit imports and exports,” so as to undermine competition and protect monopoly and oligopoly corporations. Finally, the letter stated that the Canada-EU agreement “must also ensure improved labour mobility,” which would allow for increased labour exploitation, enhancing competition between the labour forces of Europe and Canada, which always results in lost jobs, lower wages, and reduced protections and benefits. These are, of course, all very good things for multinational corporations. Since they are terrible things for the populations, they have to be coded in political and economic language, so instead of saying, “we want easily exploitable and cheap labour,” they suggest, “improved labour mobility,” which is also at times referred to as “labour flexibility” (i.e., making labour “flexible” to the interests of multinational corporations).
The Great Canadian Corporate Colony
Such letters from corporate leaders are necessary in order to remind political leaders whose interests they are in office to serve. The Canadian government ensured that it would serve big business interests through trade policy by appointing, in May of 2012, a new ‘advisory panel’ which would “help guide Canada’s ambitious, pro-trade plan in large, dynamic and fast-growing priority markets.” Speaking at the Canadian Chamber of Commerce, International Trade Minister Ed Fast stated: “Our government’s top priority is the economy – creating jobs, growth and long-term prosperity for Canadian workers, businesses and families… We understand the importance of trade to our economy… That is why we are deepening Canada’s trading relationships in priority markets around the world.”
Ed Fast announced the formation of the new advisory panel at the Canadian Chamber of Commerce. The members of the panel include: Murad Al-Katib, president and CEO of Alliance Grain Traders Inc.; Paul Reynolds, president and CEO of Canaccord Financial; Kathleen Sullivan, executive director of the Canadian Agri-Food Trade Alliance (CAFTA), representing 80% of Canada’s agri-food sector; Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, former president and CEO of the Canadian Manufacturers & Exporters, former president and CEO of the Canadian Broadcasting Corporations (CBC), and former government minister; John Manley, former Deputy Prime Minister of Canada, former Foreign Affairs and Finance Minister, and currently president and CEO of the Canadian Council of Chief Executives (CCCE), a corporate interest group made up of Canada’s top 150 CEOs; Catherine Swift, president and CEO of the Canadian Federation of Independent Businesses; Jayson Myers, president and CEO of Canadian Manufacturers & Exporters; Brian Ferguson, president and CEO of Cenovus Energy Inc, a major Canadian oil company; Serge Godin, founder and executive chairman of the board of CGI Group Inc, one of the largest information technology businesses in the world; and Indira Samarasekera, president of the University of Alberta. Upon the announcement of this panel, Ed Fast stated: “I look forward to receiving advice from these knowledgeable Canadian leaders.”
So we return to the statement once made by Prime Minister Stephen Harper: “You won’t recognize Canada when I get through with it.” Sadly, this is quite true as Harper Inc. advance Canada to the status of one of the world’s premier corporate colonies, where plundering for profits, environmental degradation, mass privatization, deregulation, and democratic devastation are the rules of the day. A Canada once thought of as democratic, free, and peaceful, is ever-advancing toward a fully privatized outpost of global corporate tyranny: Canada Inc., a subsidiary of the American Empire & Co.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, with a focus on studying the ideas, institutions, and individuals of power and resistance across a wide spectrum of social, political, economic, and historical spheres. He has been published in AlterNet, CounterPunch, Occupy.com, Truth-Out, RoarMag, and a number of other alternative media groups, and regularly does radio, Internet, and television interviews with both alternative and mainstream news outlets. He is Project Manager of The People’s Book Project and has a weekly podcast show with BoilingFrogsPost.
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The Global Banking ‘Super-Entity’ Drug Cartel: The “Free Market” of Finance Capital
By: Andrew Gavin Marshall
This essay is the product of research undertaken for the first volume of The People’s Book Project. Please donate to help the first volume come to completion: a study of the institutions, ideas, and individuals of power and resistance in a snap-shot of the world today, looking at the global economic crisis, war and empire, repression and the global spread of anti-austerity and resistance movements.
I would like to introduce you, the reader, to some realities of our global banking system, resting on the rhetoric of free markets, but functioning, in actuality, as a global cartel, a “super-entity” in which the world’s major banks all own each other and own the controlling shares in the world’s largest multinational corporations, influence governments and policy with politicians in their back pockets, routinely engaging in fraud and bribery, and launder hundreds of billions of dollars in drug money, not to mention arms dealing and terrorist financing. These are the “too big to fail” and “too big to jail” banks, the centre of our global economy, what we call a “free market,” implying that the global banks – and corporations – have “free reign” to do anything they please, engage in blatantly criminal activities, steal trillions in wealth which is hidden offshore, and never get more than a slap on the wrist. This is the real “free market,” a highly profitable global banking cartel, functioning as a worldwide financial Mafia.
Scientific Research Proves the Existence of a Global Financial “Super-Entity”
In October of 2011, New Scientist reported that a scientific study on the global financial system was undertaken by three complex systems theorists at the Swiss Federal Institute of Technology in Zurich, Switzerland. The conclusion of the study revealed what many theorists and observers have noted for years, decades, and indeed, even centuries: “An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.” As one of the researchers stated, “Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market… Our analysis is reality-based.” Using a database which listed 37 million companies and investors worldwide, the researchers studied all 43,060 trans-national corporations (TNCs), including the share ownerships linking them.
The mapping of ‘power’ was through the construction of a model showing which companies controlled which other companies through shareholdings. The web of ownership revealed a core of 1,318 companies with ties to two or more other companies. This ‘core’ was found to own roughly 80% of global revenues for the entire set of 43,000 TNCs. And then came what the researchers referred to as the “super-entity” of 147 tightly-knit companies, which all own each other, and collectively own 40% of the total wealth in the entire network. One of the researchers noted, “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network.” This network poses a huge risk to the global economy, as, “If one [company] suffers distress… this propagates.” The study was undertaken with a data set established prior to the economic crisis, thus, as the financial crisis forced some banks to die (Lehman Bros.) and others to merge, the “super-entity” would now be even more connected, concentrated, and problematic for the economy.
The top 50 companies on the list of the “super-entity” included (as of 2007): Barclays Plc (1), Capital Group Companies Inc (2), FMR Corporation (3), AXA (4), State Street Corporation (5), JP Morgan Chase & Co. (6), UBS AG (9), Merrill Lynch & Co Inc (10), Deutsche Bank (12), Credit Suisse Group (14), Bank of New York Mellon Corp (16), Goldman Sachs Group (18), Morgan Stanley (21), Société Générale (24), Bank of America Corporation (25), Lloyds TSB Group (26), Lehman Brothers Holdings (34), Sun Life Financial (35), ING Groep (41), BNP Paribas (46), and several others.
In the United States, five banks control half the economy: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs Group collectively held $8.5 trillion in assets at the end of 2011, which equals roughly 56% of the U.S. economy. This data was according to central bankers at the Federal Reserve. In 2007, the assets of the largest banks amounted to 43% of the U.S. economy. Thus, the crisis has made the banks bigger and more powerful than ever. Because the government invoked “too big to fail,” meaning that the big banks will be saved because they are very important, the big banks have incentive to make continued and bigger risks, because they will be bailed out in the end. Essentially, it’s an insurance policy for criminal risk-taking behaviour. The former president of the Federal Reserve Bank of Minneapolis stated, “Market participants believe that nothing has changed, that too-big-to-fail is fully intact.” Remember, “market” means the banking cartel (or “super-entity” if you prefer). Thus, they build new bubbles and buy government bonds (sovereign debt), making the global financial system increasingly insecure and at risk of a larger collapse than took place in 2008.
When politicians, economists, and other refer to “financial markets,” they are in actuality referring to the “super-entity” of corporate-financial institutions which dominate, collectively, the global economy. For example, the role of financial markets in the debt crisis ravaging Europe over the past two years is often referred to as “market discipline,” with financial markets speculating against the ability of nations to repay their debt or interest, of credit ratings agencies downgrading the credit-worthiness of nations, of higher yields on sovereign bonds (higher interest on government debt), and plunging the country deeper into crisis, thus forcing its political class to impose austerity and structural adjustment measures in order to restore “market confidence.” This process is called “market discipline,” but is more accurately, “financial terrorism” or “market warfare,” with the term “market” referring specifically to the “super-entity.” Whatever you call it, market discipline is ultimately a euphemism for class war.
The Global Supra-Government and the “Free Market”
In December of 2011, Roger Altman, the former Deputy Secretary of the Treasury under the Clinton administration wrote an article for the Financial Times in which he explained that financial markets were “acting like a global supra-government,” noting:
They oust entrenched regimes where normal political processes could not do so. They force austerity, banking bail-outs and other major policy changes. Their influence dwarfs multilateral institutions such as the International Monetary Fund. Indeed, leaving aside unusable nuclear weapons, they have become the most powerful force on earth.
Altman continued, explaining that when the power of this “global supra-government” is flexed, “the immediate impact on society can be painful – wider unemployment, for example, frequently results and governments fail.” But of course, being a former top Treasury Department official, he went on to endorse the global supra-government, writing, “the longer-term effects can be often transformative and positive.” Ominously, Altman concluded: “Whether this power is healthy or not is beside the point. It is permanent,” and “there is no stopping the new policing role of the financial markets.” In other words, the ‘super-entity’ global ‘supra-government’ of financial markets carries out financial extortion, overthrows governments and impoverishes populations, but this is ultimately “positive” and “permanent,” at least from the view of a former Treasury Department official. From the point of view of those who are being impoverished, the actual populations, “positive” is not necessarily the word that comes to mind.
In the age of globalization, money – or capital – flows easily across borders, with banks, hedge funds and other financial institutions acting as the vanguards of a new international order of global governance. Where finance goes, corporations follow; where corporations venture, powerful states stand guard of their interests. Our global system is one of state-capitalism, where the state and corporate interests are interdependent and mutually beneficial, at least for those in power. Today, financial institutions – with banks at the helm – have reached unprecedented power and influence in state capitalist societies. The banks are bigger than ever before in history, guarded by an insurance policy that we call “too big to fail,” which means that despite their criminal and reckless behaviour, the government will step in to bail them out, as it always has. Financial markets also include credit ratings agencies, which determine the supposed “credit-worthiness” of other banks, corporations, and entire nations. The lower the credit rating, the riskier the investment, and thus, the higher the interest is for that entity to borrow money. Countries that do not follow the dictates of the “financial market” are punished with lower credit ratings, higher interest, speculative attacks, and in the cases of Greece and Italy in November of 2011, their democratically-elected governments are simply removed and replaced with technocratic administrations made up of bankers and economists who then push through austerity and adjustment policies that impoverish and exploit their populations. In the age of the “super-entity” global “supra-government,” there is no time to rattle around with the pesky process of formal liberal democracy; they mean business, and if your elected governments do not succumb to “market discipline,” they will be removed and replaced in what – under any other circumstances – is referred to as a ‘coup.’
Banks and financial institutions provide the liquidity – or funds – for what we call “free markets.” Free markets in principle would allow for free competition between companies and countries, each producing their own comparative advantage – producing what they are best at – and trading with others in the international market, so that all parties rise in living standards and wealth together. The “free market” is, of course, pure mythology. In practice, what we call “free markets” are actually highly protectionist, regimented, regulated, and designed to undermine competition and enforce monopolization. The “free markets” serve this purpose for the benefit of large multinational corporations and banks.
When we use the term “free markets” we are generally referring to the “real” economy, legitimate and legal. When it comes to illegitimate markets, for example, the global drug trade, we do not tend to refer to them as “free markets” but rather, “illegal” and run by “cartels.” Cartels, like corporations, are hierarchically organized totalitarian institutions, where decisions and power and exercised from the top-down, with essentially no input going from the bottom-up. Large multinational corporations, like large international cartels, seek to control their particular market throughout entire nations, regions, and beyond. Often, co-operation between corporations allow them to function in an oligopolistic manner, where the collectively dominate the entire market, carving it up between them. Major oil companies, agro-industrial firms, telecommunications, pharmaceutical, military contractors and water management corporations are well-known for these types of activities.
Cartels have often been known to engage in a similar practice, though typically they are more competitive with each other. When interests are threatened – which is defined as when a corporation or cartel is at risk of losing its total dominance of its market in a particular region – conflict arises, and often violently so, with the potential for coups, assassinations, terror campaigns, and war. This is when the state intervenes to protect the market for the cartel or corporate interests. Thus, a market like the global drug trade functions relatively similar to those of the “legitimate” economy, pharmaceuticals, energy, technology, etc. The illicit trade in drugs is as much a “free market” as is the trade in automobiles or oil. And of course, the money ends up in the same place: the global supra-government of “financial markets.”
Banking Cartel or Drug Cartel… or What’s the Difference?
In 2009, the United Nations Office on Drugs and Crime reported that billions of dollars in drug money saved the major banks during the financial crisis, providing much-needed liquidity. Antonio Maria Costa, the head of the UN Office on Drugs and Crime stated that drug money was “the only liquid investment capital” available to banks on the brink of collapse, with roughly $325 billion in drug money absorbed by the financial system. Without identifying specific countries or banks, Costa stated that, “Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.”
In 2010, Wachovia Bank (now owned by Wells Fargo) settled the largest action ever under the U.S. bank secrecy act, paying a fine of $50 million plus forfeiting $110 million of drug money, of which the bank laundered roughly $378.4 billion out of Mexico. The federal prosecutor in the case stated, “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.” The fine that the bank paid for laundering hundreds of billions of dollars in drug money was less than 2% of the bank’s 2009 profit, and on the same week of the settlement, Wells Fargo’s stock actually went up. The bank admitted in a statement of settlement that, “As early as 2004, Wachovia understood the risk” of holding such an account, but “despite these warnings, Wachovia remained in the business.” The leading investigator into the money laundering operations, Martin Woods, based out of London, had discovered that Wachovia had received roughly six or seven thousand subpoenas for information about its Mexican operation from the federal government, of which Woods commented: “An absurd number. So at what point does someone at the highest level not get the feeling that something is very, very wrong?” Woods had been hired by Wachovia’s London branch as a senior anti-money laundering officer in 2005, and when in 2007 an official investigation was opened into Wachovia’s Mexican operations, Woods was informed by the bank that he failed “to perform at an acceptable standard.” In other words, he was actually doing his job. In regards to the settlement, Woods stated:
The regulatory authorities do not have to spend any more time on it, and they don’t have to push it as far as a criminal trial. They just issue criminal proceedings, and settle. The law enforcement people do what they are supposed to do, but what’s the point? All those people dealing with all that money from drug-trafficking and murder, and no one goes to jail?
As the former UN Office of Drugs and Crime czar Antonio Maria Costa said, “The connection between organized crime and financial institutions started in the late 1970s, early 1980s… when the mafia became globalized,” just like other major markets. Martin Woods added that, “These are the proceeds of murder and misery in Mexico, and of drugs sold around the world,” yet no one went to jail, asking, “What does the settlement do to fight the cartels? Nothing – it doesn’t make the job of law enforcement easier and it encourages the cartels and anyone who wants to make money by laundering their blood dollars. Where’s the risk? There is none.” He added: “Is it in the interest of the American people to encourage both the drug cartels and the banks in this way? Is it in the interest of the Mexican people? It’s simple: if you don’t see the correlation between the money laundering by banks and the 30,000 people killed in Mexico, you’re missing the point.” Woods, who now runs his own consultancy, told the Observer in 2011 that, “New York and London… have become the world’s two biggest laundries of criminal and drug money, and offshore tax havens. Not the Cayman Islands, not the Isle of Man or Jersey. The big laundering is right through the City of London and Wall Street.”
Just as the “too big to fail” program acts as an insurance policy for the big banks to engage in constant criminal activity, taking ever-larger financial risks with the guarantee that they will be bailed out, the settlements and lack of criminal prosecutions for banks laundering drug money provides the incentive to continue laundering hundreds of billions in drug money, because so long as the fine is smaller than the profit accrued from such a practice, it comes down to a simple cost-benefit analysis: if the cost of laundering drug money is less than the benefit, continue with the policy. The same cost-benefit analysis goes for all forms of criminal activity by banks and corporations, whether bribery, fraud, or violating environmental, labour and other regulations. So long as the penalty is less than the profit, the problem continues.
An article in the Observer from July of 2012 referred to global banks as “the financial services wing of the drug cartels,” noting that HSBC, Britain’s biggest bank, had been called before the U.S. Senate to testify about laundering drug money from Mexican cartels, holding one “suspicious account” for four years on behalf of the largest drug cartel in the world, the Sinaloa cartel in Mexico. In fact, a multi-year investigation into HSBC revealed that the bank was not only a major international drug money-laundering conduit, but also laundered money for clients with ties to terrorism. In July of 2012, as the Senate was publicly investigating HSBC, Antonio Maria Costa stated, “Today I cannot think of one bank in the world that has not been penetrated by mafia money.” The global drug trade is estimated to be worth roughly $380 billion annually, with most of the money made in the consumer markets of North America and Europe. Using the example of the $35 billion per year cocaine market in the United States, only about 1.5% of these profits make their way to the coca-leaf producers (mostly poor peasants) in South America (who became the target of our bombing and chemical warfare campaigns in the “war on drugs”), while the international traffickers get roughly 13% of the profits, with the remaining 85% earned by the distributors in the U.S. HSBC was accused of laundering the profits of the distributors.
The U.S. Senate report concluded that HSBC had exposed the U.S. financial system to “a wide array of money laundering, drug trafficking, and terrorist financing,” including billions in “proceeds from illegal drug sales in the United States.” HSBC acknowledged, in an official statement, that, “in the past, we have sometimes failed to meet the standards that regulators and customers expect.” Among those “standards” that HSBC “sometimes failed to meet,” according to the Senate investigation, were financing provided to banks in Saudi Arabia and Bangladesh which were tied to terrorist organizations, while the bank’s regulator failed to take a single enforcement action against HSBC. Among the terrorist organizations which potentially received financial assistance from HSBC through Saudi banks was al-Qaeda. HSBC put aside $700 million to cover any potential fines for such activities, which is not uncommon for banks to do. Banks like ABN Amro, Barclays, Credit Suisse, Lloyds and ING had all reached major settlements for admitting to facilitating transactions and engaging in money laundering for clients in Cuba, Iran, Libya, Myanmar and Sudan.
As executives from HSBC appeared in the U.S. Senate, the bank’s head of compliance since 2002, David Bagley, resigned as he testified before the committee, commenting, “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.” As Ed Vulliamy reported in the Observer, in May of 2012, a poor black man named Edward Dorsey Sr. was convicted of peddling 5.5 grams of crack cocaine in Washington D.C. and was given 10 years in jail. Meanwhile, just across the river from where Dorsey had committed his crime, executives from HSBC admitted before the U.S. Senate that they laundered billions in drug money, just as Wachovia had admitted to the previous year, with no one going to prison. The lesson from this is clear: if you are poor, black, and are caught with a couple grams of crack-cocaine, you can expect to go to prison for several years (or in this case, a decade); but if you are rich, white, own a bank, and are caught laundering billions of dollars (or hundreds of billions of dollars) in drug money, you will be fined (but not enough to make such practices unprofitable), and may have to resign. Too big to fail is simply another way of saying “too big to jail.”
Of course, it’s not fair to put all the blame for international drug money-laundering on the shoulders of HSBC and Wachovia, as Bloomberg reported, Mexican drug cartels also funneled money through the Bank of America and even the banking branch of American Express, Banco Santander, and Citigroup. Even the FBI has accused Bank of America of laundering Mexican drug cartel funds. But it’s not just drug money that banks launder; all sorts of illicit funds are laundered through major banks, many of which have been fined or are now being investigated for their criminal activities, including JPMorgan, Standard Chartered, Credit Suisse, Lloyds, Barclays, ING, and the Royal Bank of Scotland, among others. Another major Swiss bank, UBS, has been very consistent in committing fraud and engaging in various conspiracies, a great deal of which was committed against Americans, though the bank was given “conditional immunity” from the U.S. Department of Justice.
Financial Fraud and the ‘Get Out of Jail Free Card’
The major banks of the world have been caught in conspiracies of ripping off small towns and cities across the United States, which allowed banks like JPMorgan Chase, GE Capital, UBS, Bank of America, Lehman Brothers, Wachovia, Bear Stearns, and others, to steal billions of dollars from schools, hospitals, libraries, and nursing homes from “virtually every state, district and territory in the United States,” according to a court settlement on the issue. The theft was done through the manipulation of the public bidding process, something that the Mafia has become experts in with regards to garbage and construction industry contracts. In short, the banking system actually functions like a Mafia cartel system, not to mention, taking money from the Mafia and cartels themselves. Banks like JP Morgan Chase and Goldman Sachs engaged in bribery, fraud, and conspiracies which resulted in the bankruptcy of counties all across the United States. Still, they continue to be ‘respected’ by the political class which refuses to punish them for their criminal activity, and instead, rewards them with bailouts and follows their instructions for policy.
Over the summer of 2012, another major banking scandal hit the headlines, regarding the manipulation of the London inter-bank lending rate known as the Libor. The Libor rate, explained the Economist, “determines the prices that people and corporations around the world pay for loans or receive for their savings,” as it is used as a benchmark for establishing payments on an $800 trillion derivatives market, covering everything from interest rate derivatives to mortgages. Essentially, the Libor is the interest rate at which banks lend to each other on the short term, and is established through an “honour system” of where 18 major banks report their daily rates, from which an average is calculated. That average becomes the Libor rate, and reverberates throughout the entire global economy, setting a benchmark for a massive amount of transactions in the global derivatives market. Whereas the derivatives market is a massive casino of unregulated speculation, the Libor scandal revealed the cartel that owns the casino.
The scandal began with Barclays, a 300-year old bank in Britain, revealing that several employees had been involved in rigging the Libor to suit their own needs. More banks quickly became implemented, and countries all over the world began opening investigations into this scandal and the role their own banks may have played in it. By early July, as many as 20 major banks were named in various investigations or lawsuits related to the rigging of the Libor.
Among the major global banks which are being investigated by U.S. prosecutors are Barclays, Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, HSBC, UBS, Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds Banking Group, Rabobank, Royal Bank of Canada, Société Générale, and others. Prosecutors in the U.S., U.K., Canada and Japan were investigating collusion between the major banks on the manipulation of the Libor. In June of 2012, Barclays paid a fine to US and UK authorities, admitting its culpability in the rigging with a $450 million settlement. With information and documents pouring out, implicating further banks and institutions in the scandal, a general consensus was emerging that the Libor had been manipulated since at least 2005, though, as one former Morgan Stanley trader wrote in the Financial Times, the rigging had began as early as 1991, if not before. The British Banker’s Association was responsible for setting the Libor rate by polling roughly 18 major banks on their highest and lowest rates daily. Thus, rigging by one bank would require the co-operating of at least nine other banks in purposely manipulating their rates in order to have any effect upon the Libor. Douglas Keenan, the former Morgan Stanley trader, wrote that, “it seems the misreporting of Libor rates may have been common practice since at least 1991.”
Rolf Majcen, the head of a hedge fund called FTC Capital told Der Spiegel that, “the Libor manipulation is presumably the biggest financial scandal ever.” As regulators were using words like “organized fraud” and “banksters” to describe the growing scandal, it was becoming common to refer to the major banks as functioning like a “cartel” or “mafia.” The CEO of Barclays, Bob Diamond, resigned in disgrace, as did Marcus Agius, the Chairman of Barclays (who also serves as a director on the board of BBC, and is married into the Rothschild banking dynasty). The “cartel” manipulated the Libor for a great number of reasons, among them, to appear to be in better health by rigging their credit ratings upwards. The Business Insider referred to the Libor rigging as a “criminal conspiracy” from the start, essentially designed to promote manipulation as the Libor was determined by an “honor system” for banks to properly report their rates. Imagine giving a pile of credit cards to a group of credit card fraud convicts and establishing an “honour system.” Could one truly be surprised if it didn’t work out? Well, the Libor scandal is effectively based upon the same logic, except that the repercussions are global in scope.
Traders at the Royal Bank of Scotland referenced, in internal emails, to their participation in operating a “cartel” that made “amazing” amounts of money through the manipulation of interest rates, with a former senior trader at RBS writing that managers at the bank had “condoned collusion.” The same trader, who was later hung out to dry by RBS as a scapegoat, wrote in an email to a trader at Deutsche Bank that, “It is a cartel now in London,” where the Libor is established.
The cartel, however, did not simply include the major banks, but also required the cooperation or at least negligence of regulators and central banks. Documents released by the Federal Reserve Bank of New York and the Bank of England show correspondence between then-President of the NY Fed Timothy Geithner (who is now Obama’s Treasury Secretary) and Bank of England Governor Mervyn King discussing how Barclays was manipulating the Libor rates during the 2008 financial crisis. While the NY Fed corresponded with both the Bank of England and Barclays itself on the acknowledgment of interest rate manipulation, it never told the bank to stop the rigging practice. An official at Barclays even informed the NYFed in 2008 that the bank was under-reporting the rate at which it could borrow from other banks so that Barclays could “avoid the stigma” of appearing to be weaker than its peers, adding that “other participating banks were also under-reporting their Libor submissions.”
A Barclays employee told the New York Fed in an April 2008 phone call that, “We know that we’re not posting um, an honest Libor… and yet we are doing it, because, um, if we didn’t do it, it draws, um, unwanted attention on ourselves.” The New York Fed official replied: “You have to accept it… I understand. Despite it’s against what you would like to do. I understand completely.” Several months later, a Barclays employee told a New York Fed official that the Libor rates were still “absolute rubbish.”
While the New York Fed expressed sympathy for the poor and helpless global banks need to engage in fraud and interest rate manipulation in order to lie and appear to be healthier than it was, the Bank of England went a step further, when Paul Tucker, the head of markets at the BoE wrote a note to Barclays CEO Bob Diamond in 2008 suggesting that Barclays lower its Libor rate, thus encouraging the rigging itself, instead of just expressing sympathy for the “need” to commit fraud.
The main British banking lobby group, the British Banker’s Association (BBA), which was responsible for overseeing the Libor rate process (no conflict of interest there, right?), was, in late September of 2012, stripped of its right to oversee the Libor, to be replaced with a formal regulator. The BBA’s “oversight” of Libor dates back to 1984, when the City of London (Britain’s Wall Street) had begun an experiment to establish a new way of setting interest rates, asking the banking lobby group to set the rate in 1986 when the Libor began. The BBA’s Foreign Exchange and Money Markets Committee is responsible for setting the Libor, and they meet every two months to review the process in secret without any minutes being published, and even the membership of the Committee is kept a secret. Spokespersons at Credit Suisse, Royal Bank of Scotland, and UBS refused to comment on whether they had any representatives on the committee, while Barclays, Deutsche Bank, HSBC, Bank of America and Citigroup didn’t even respond to emailed inquiries about their involvement with the committee, as Bloomberg reported. A British regulator, in the understatement of the century, stated, “There is an apparent lack of transparency,” adding that the BBA’s committee “doesn’t appear to be sufficiently open and transparent to provide the necessary degree of accountability to firms and markets with a direct interest in being assured of the integrity of Libor.” When the fox guards the henhouse, it takes a great deal of stupidity to be “surprised” when some hens go missing.
In an April 2008 meeting with officials at the Bank of England, Angela Knight, the head of the British Banker’s Association, suggested that the BBA perhaps should no longer be responsible for oversight of “the world’s most important number,” which had become too big for the BBA to manage. No one at the meeting cared enough to do anything about it, however, and so nothing changed. Where was the incentive to change the system, after all? Yes, massive fraud was taking place, and this was well understood by the banks committing it, as well as the regulators and central banks overseeing it. But on the plus side, everyone was getting away with it. So indeed, there was no incentive to change the system. From the point of view of those managing it, the Libor was functioning as it should. A cartel was established because a cartel was desired. The fact that it was all highly illegal, fraudulent, and immoral was – and is – beside the point. Mexican drug cartels do not worry about the legality of their operations because they are, by definition, illegal. They worry simply about getting away with their illegal operations. The same can be said for the global banking cartel. So long as they get away with criminal cartel operations, there is no incentive to change the system, and instead, there is only an incentive to expand and further entrench the cartel’s operations.
Canada’s antitrust regulator began an investigation into the “international cartel” of banks rigging the Libor, focusing on the role played by banks such as JP Morgan Chase, Royal bank of Scotland, Deutsche Bank, HSBC, and Citigroup, among others. A law professor at the University of Toronto who was hired by the regulator to study the case commented that, “international cartels are of a significant concern for the Canadian economy.” We have truly reached an impressive circumstance when the actual regulators of the banks refer to the banking system as an “international cartel.”
A lawsuit was being filed by several homeowners in the U.S. who were attempting to sue some of the world’s largest banks for fraud, as the Libor manipulation sparked increases on their mortgages, resulting in illegal profits for banks. The class action lawsuit filed in New York in October of 2012 accused banks such as Bank of America, Citigroup, Barclays, UBS, JPMorgan Chase, Deutsche Bank and others of fraud over a period of ten years. For U.S. states and municipalities that bought interest-rate swaps before the financial crisis, the Libor rigging was poised to more than double their losses. Banks had sold roughly $500 billion of interest-rate swaps (in the derivatives market) to municipalities before the financial crisis, with roughly $200 billion of those swaps tied to the Libor. As one legal expert who studies derivatives told Bloomberg, “Almost all interest-rate swaps begin with Libor.” This prompted several states in the U.S. to begin their own investigations into how the Libor-rigging may have negatively affected them.
Punishing the World’s Population into Poverty: Life Under the Global Cartel
While the global cartel of criminal banks rig rates, launder drug money, fund terrorists, engage in bribery, fraud and demand multi-trillion dollar bailouts from our governments (effectively selling their bad debts to the public), and then give themselves massive bonuses, they are also demanding – through what is called “market discipline” – that our governments deal with our debts by undertaking policies of “austerity” and “structural reform,” which are euphemisms for impoverishment and exploitation. Thus, after the cartel helped create a massive financial crisis, and after our governments rewarded them for their criminal activity, the cartel now demands that our governments punish their populations into poverty and open their economies, resources and labour up for cheap and easy exploitation by banks and multinational corporations. This is referred to as the “solution” for getting out of the ‘Great Recession,’ and which is sure to great a Great Depression. Greece is now two and a half years into its “austerity” and “adjustment” reforms, with its debt growing as a result, poverty exploding, misery spreading, health, education, welfare rapidly declining, suicide rates and hunger increasing, as the Greek people are subjected to a program of “social genocide.” Market discipline demands austerity and adjustment, or in other words, class warfare creates poverty and exploitation.
Countries that refuse to implement programs of austerity and adjustment are subjected to financial terrorism by the “international cartel,” as financial markets engage in “market discipline” by using the derivatives market to speculate against that particular country’s ability to pay its interest or debt, thus making its credit ratings decrease and borrowing rates increase, plunging the country into a deeper crisis. In any other scenario, this is called terrorism or in the very least, extortion: do what I say or I will punish you and destroy you. This is what former U.S. Treasury official Roger Altman referred to in the Financial Times as the new “global supra-government” who can “force austerity, banking bail-outs and other major policy changes,” and thus, “have become the most powerful force on earth.” Countries, regional, and international organizations all bow down to the dictates of the “international cartel” of the “global supra-government,” and so countries like Greece, Spain, Ireland, Italy, and Portugal, organizations like the European Union, European Central Bank, powerful states like Germany, France, Britain, and the U.S., and other international organizations like the IMF, Bank for International Settlements, and the OECD all demand and implement austerity measures and structural “reforms.” Either they follow the orders of the “cartel” – which we commonly refer to as the “invisible hand” of the “free market – or they directly challenge “the most powerful force on earth.” In the global economy, a small country like Greece standing up to the “global supra-government” is much like a small Greek restaurant trying to stand up to the city Mafia.
In the U.S., states that were defrauded in the billions of dollars by the cartel, and took on major debts as a result, are now the harbingers of austerity in America. Beginning in 2010, roughly 20 states across the U.S. began implementing austerity measures, and have been doing much worse economically as a result (the predicted effect of austerity). Even the institutions which are the most militant in demanding austerity measures, such as the European Union and the IMF, have acknowledged in recent reports that countries which pursue austerity to supposedly reduce their debts end up getting much larger debts as a result, and that such measures are actually extremely damaging to economies. This is not news, of course, since there is a rather large sample of data from the past 30 years of forced austerity and adjustment measures across Africa, Asia, and Latin America (at the behest of the IMF, World Bank, western governments, and of course, the “cartel”), which show quite clearly the effect that austerity and adjustment have in rapidly expanding poverty and facilitating exploitation. As austerity is hitting several U.S. states, jobs are lost and poverty increases with debt, standards of living decline and the recession deepens into a depression. The population is essentially punished for the crimes of the global cartel, while public employees, pensioners, welfare recipients, teachers and workers get the blame.
In late October of 2012, the CEOs of 80 major corporations and banks in the United States banded together (as any well functioning cartel does) in order to pressure Congress, regardless of who the next President is, to pursue an agenda of harsh austerity measures and structural reforms. In a statement to Congress signed by the 80 CEOs, the American branch of the global cartel (its most significant branch), demanded that policies be enacted immediately, though implemented gradually, “to give Americans time to prepare for the changes in the federal budget.” Among the demands are to reform Medicare and Medicaid, healthcare, Social Security, increase taxes, and generally reduce spending. All of this amounts to a large federal program of austerity, to cut social spending and increase taxes on the population, thus impoverishing the population. This, in the words of the letter to Congress, “must be bipartisan and reforms to all areas of the budget should be included.” Among the signatories to the letter were the CEOs of AT&T, Bank of America, BlackRock, Boeing, Caterpillar, Dow Chemical Company, General Electric, Goldman Sachs, JPMorgan Chase, Merck, Microsoft, Motorola, Time Warner, and Verizon, among many others.
This followed roughly one week after a group of 15 major global bank CEOs sent a letter to President Obama and the U.S. Congress lecturing the U.S. political class on “moral authority,” giving their formal orders to the U.S. political establishment, that regardless of Democratic or Republican administrations, they are losing patience with the democratic apparatus of the state, and warned: “The solvency, productive capacity, and stability of the United States, as well as its moral authority as a global leader, require that its fiscal challenges be credibly met.” Among the signatories to the letter were the CEOs of Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The Wall Street Journal, reporting on this letter, commented that even for “a dying democracy, it’s embarrassing enough to see bankers telling our government what to do,” but in this letter, “we even see foreign bankers telling our government what to do,” as other CEOs of the global cartel signed the letter, from banks such as UBS, Credit Suisse, and Deutsche Bank. The “consequences of inaction” on the U.S. debt, read the letter, “would be very grave.” In other words, the U.S. political class has received a threat from the global cartel that it is now time to implement austerity and adjustment measures, or to face the consequences of financial terrorism.
Hiding the Loot: The Offshore Economy in the Age of the Global Plutonomy
While people are being forced into poverty to pay off the bad debts of the “super-entity” global banking cartel of drug-money laundering banks which make up the “global supra-government,” the richest people in the world have been hiding their wealth in offshore tax havens, and of course, with the help of those same banks. James Henry, a former chief economist at McKinsey, a major global consultancy, published a major report on tax havens in July of 2012 for the Tax Justice Network, compiling data from the Bank for International Settlements (BIS), the IMF and other private sector entities which revealed that the world’s superrich have hidden between $21 and $32 trillion offshore to avoid taxation. Henry stated: “This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries.” John Christensen of the Tax Justice Network commented that, “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people… This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.” Roughly 92,000 of the super-rich, globally, hold at least $10 trillion in offshore wealth. In many cases, the worth of these offshore assets far exceeds the debts of the countries that they flow from, the same debts that are used to keep these countries and their populations in poverty and a constant state of exploitation.
The estimated total of hidden offshore wealth amounts to more than the combined GDP of the United States and Japan, hidden in secretive financial jurisdictions like Switzerland and the Cayman Islands. The process of hiding this wealth is largely facilitated by the major global banks, which compete with one another to attract the assets of the world’s super-rich. James Henry explained that the wealth of the world’s super-rich is “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy;” more of that “free market” magic. The top ten banks in the world, which include UBS and Credit Suisse (based in Switzerland) as well as Goldman Sachs in the United States, collectively managed roughly $6.4 trillion in offshore accounts for 2010 alone. As the report revealed, “for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world,” debts which are largely illegitimate as it stands. This trend is exacerbated in the oil-rich states of the world such as Nigeria, Russia, and Saudi Arabia. The report stated: “The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments.” With roughly half of the world’s offshore wealth belonging to the top 92,000 richest individuals, they represent the top 0.001%, a far more extreme global disparity than that which is invoked by the Occupy movement’s 1% paradigm. Henry commented: “The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy.” Remember, “free market” means that those who own the market (the global cartel), and free to do anything they please.
A 2005 report from Citigroup coined the term “plutonomy,” to describe countries “where economic growth is powered by and largely consumed by the wealthy few,” and specifically identified the U.K., Canada, Australia, and the United States as four plutonomies. Keeping in mind that the report was published three years before the onset of the financial crisis in 2008, the Citigroup report stated: “Asset booms, a rising profit share and favourable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries,” and that, “the rich are in great shape, financially.” It’s only everyone else that is suffering, which by definition, is a “well functioning” economy. As the Federal Reserve reported, “the nation’s top 1% of households own more than half the nation’s stocks,” and “they also control more than $16 trillion in wealth — more than the bottom 90%.” The term ‘Plutonomy’ is specifically used to “describe a country that is defined by massive income and wealth inequality,” and that they have three basic characteristics, according to the Citigroup report:
1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”
2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” [Citigroup strategist Ajay] Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.
3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.
Kapur, who authored the Citigroup report, stated that there were also risks to the Plutonomy, “including war, inflation, financial crises, the end of the technological revolution and populist political pressure,” yet, “the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.”
In February of 2011, Ajay Kapur, the author of the Citigroup report who is now with Deutsche Bank, gave an interview in which he explained that, “the world economy is even more dependent on the spending and consumption of the rich,” and that, “Plutonomist consumption is almost 10 times as volatile that of the average consumer.” He further explained that increased debt levels are a sign of plutonomies:
We have an economy today where a large fraction of the population doesn’t pay federal income taxes and, because of demand for entitlements, we have a system of massive representation without taxation. On the other hand, you have plutonomists who protect their turf and the taxation amounts are not enough to pay for everyone’s demand. So I’ve come to the conclusion that budget deficits are biased toward getting bigger and bigger. Budget deficits are going to become a manifestation of a plutonomy.
The plutonomy is largely characterized by a lack of a consuming and vibrant middle class. This is a trend that has been accelerating for several decades, particularly in North America and Britain, where the middle class population is heavily indebted. The middle class has existed as a consumer class, keeping the lower class submissive, and keeping the upper class secure and wealthy by consuming their products, produced with the labour of the lower class.
The most advanced plutonomies in the world are the most advanced industrial and technological nations, where the major corporations and banks are highly subsidized and protected by the state, as is typical for a state-capitalist society. While the industrial and rich northern state-capitalist societies were able to industrialize and grow rich through highly protectionist measures, the poor south of the world (Africa, Asia, Latin America) were subjected to “free market” policies which opened up their economies to be exploited and plundered by the rich northern nations. No country has ever become an industrial power by implementing free market policies, but rather, by doing the exact opposite: heavy subsidies and state protection for key industries, technologies, and corporate entities.
While the ‘Third World’ was forced to implement “free market” policies in order to get loans, the predictable result took place: mass impoverishment and exploitation. The ‘Third World’ states were run by tiny elites who dominated the countries politically and economically, and who hid their stolen wealth in foreign banks and offshore tax havens. Now, in the midst of the global economic crisis which has been ravaging the world for the past four years, the rich northern countries are themselves implementing the same “free market” policies, though designed to subject their populations to “market discipline” while maintaining – and in fact increasing – the protectionist and subsidized policies for the multinational corporations and banks. It is important to note that “market discipline” and actual “free market” policies are exclusively designed for the general population, not the elite. Workers, students, the elderly, the poor and the many are to be subjected to “market discipline” while the banks and multinational corporations continue to be heavily subsidized (as the largest national welfare recipients) and protected by the state. Thus, just as our banks and corporations have plundered the Third World with rapacious delight over the past three decades, now they will be able to do the same to the populations of the rich nations themselves. The state will transform, as it did in the ‘Third World’, into a typically totalitarian institution which is responsible for protecting the super-rich and controlling, oppressing, or, in extreme cases of resistance, eliminating the ‘problem populations’ (i.e., the people).
Welcome to the global plutonomy in the age of austerity, the result of living under – and tolerating – a global “super-entity” corporate-financial cartel. Truly, one must pause and, if only for a moment, appreciate the ability of this global cartel to function so effectively in spite of its blatant criminal activities, and face almost absolutely no repercussions. Something truly is wrong with a society when a poor black man caught with 5 grams of crack-cocaine goes to prison for ten years, while rich white bank executives admit to laundering billions of dollars in drug money and receive only a fine and a slap on the wrist (maybe).
The lesson is clear: if you are a thief, steal by the billions or trillions, and then no one can do anything about it. If you are in the drug trade: handle only billions (or hundreds of billions) in drug money, and then you will get away with it. If you don’t want to pay taxes, be a member of the top o.oo1% of the world’s super-rich and hide your billions in offshore tax-free accounts. If you want more, create a global economic crisis, demand to be saved by the state to the tune of tens of trillions of dollars, and then, tell the state to punish their populations into poverty in order to pay for your mistakes.
In other words, if you want to indulge your criminal fantasies, lie and steal, profit from death and drugs, dominate and demand, be king and command, become the highly-functioning socially-acceptable sociopath you always knew you could be… think big. Think BANK. Serial killers, bank robbers and drug dealers go to jail; bankers get bailouts and get an unlimited insurance policy called “too big to fail.”
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
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 Andrew Gavin Marshall, “Austerity, Adjustment, and Social Genocide: Political Language and the European Debt Crisis,” Andrewgavinmarshall.com, 24 July 2012:
 Roger Altman, “We need not fret over omnipotent markets,” The Financial Times, 1 December 2011:
 Ben Polak and Peter K. Schott, America’s Hidden Austerity Program,” The New York Times, 11 June 2012:
Jason Cherkis, “A Thousand Cuts: Austerity Measures Devastate Communities Around The World,” The Huffington Post, 17 July 2012:
Editorial, “The Austerity Trap,” The New York Times, 23 October 2012:
Derek Thompson, “American Austerity: Why the States Cutting Spending Are Doing Worse,” The Atlantic, 21 June 2012:
 “CEOs Deficit Manifesto,” The Wall Street Journal, 25 October 2012:
 “Executives Who Signed the Fix the Debt Declaration,” The Wall Street Journal, 25 October 2012:
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 Heather Stewart, “Wealth doesn’t trickle down – it just floods offshore, research reveals,” The Observer, 21 July 2012:
 Heather Stewart, “£13tn hoard hidden from taxman by global elite,” The Observer, 21 July 2012:
 We’re living in a plutonomy, The Telegraph, 2 April 2006:
 Robert Frank, Plutonomics, The Wall Street Journal, 8 January 2007:
 Gus Lubin, Deutsche Bank Says The ‘Global Plutonomy’ Is Stronger Than Ever, And That Means 10X More Volatility, Business Insider, 17 February 2011:
Austerity, Adjustment, and Social Genocide: Political Language and the European Debt Crisis
By: Andrew Gavin Marshall
The following is a sample analysis from my upcoming book on the global economic crisis and global resistance movements. Please consider donating to The People’s Book Project to help support the effort to finish this book.
Political language… is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.
- George Orwell, “Politics and the English Language,” 1946
Political language functions through euphemism, by employing soft-sounding or simply meaningless words to describe otherwise monstrous and vicious policies and objectives. In the European debt crisis, political language employed by politicians, economists, technocrats and bankers is designed to make policies which create poverty and exploitation appear to be logical and reasonable. The language employed includes the words and phrases: fiscal austerity/consolidation, structural adjustment/reform, labour flexibility, competitiveness, and growth. To understand political language, one must translate it. This requires four steps: first, you look at the rhetoric itself as inherently meaningless; second, you examine the policies that are taken; third, you look at the effects of the policies. Finally, if the effects do not match the rhetoric, yet the same policies are pursued time and time again, one must translate the effects as the true meaning of the rhetoric. Thus, the rhetoric has meaning, but not at face value.
The debt crisis followed the 2007-2009 financial crisis, erupting first with Greece, then Ireland, Portugal, Italy and Spain, and threatens even to spread elsewhere. Of those mentioned, only Italy has not received a bailout. Though whether “bailed out” or not, Europe’s people are being forced to undergo “austerity measures,” a political-economic euphemism for cutting social spending, welfare, social services, public sector jobs, and increased taxes. The aim, they are told, is to get their “fiscal house in order.” The people protest, and go out into the streets. The state responds by meeting the people with riot police, batons, tear gas, pepper spray, and rubber bullets. This is called “restoring order.”
The effects of austerity are to increase poverty, unemployment, and misery. People are fired from the public sector, welfare and social benefits are reduced or lost, retirement ages are increased to keep people in the work force and off the pension system, which is also cut. Cuts to health care and education take a social and physical toll; as poverty increases the need for better health care, that very system is dismantled when it is needed most. Taxes are increased, and wages are decreased. People are deeper in debt, and destined for destitution. The objective, we are told, is to reduce public spending so that the government can reduce its deficit (the yearly debt).
In Europe, austerity has been the siren call of all the agencies, organizations, and individuals who represent the interests of elite financial control. In March 2010, the OECD (Organisation for Economic Co-operation and Development) suggested Europe undertake a program of austerity lasting for no less than six years from 2011 to 2017, which the Financial Times referred to as “highly sensible.” In April of 2010, the Bank for International Settlements (BIS) – the central bank to the world’s central banks – called for European nations to begin implementing austerity measures. In June of 2010, the G20 finance ministers agreed: it was time to enter the age of austerity! German Chancellor Angela Merkel, the European midwife of austerity, set an example for the EU by imposing austerity measures at home in Germany. The G20 leaders met and agreed that the time for stimulus had come to an end, and the time for austerity poverty was at hand. This was of course endorsed by the unelected technocratic president of the European Commission, José Manuel Barroso. The unelected president of the European Council, Herman Van Rompuy, also agreed, explaining in his unrelenting economic wisdom that austerity “has no real effect on economic growth.” Jean-Claude Trichet, president of the European Central Bank (ECB), also hopped on the austerity train, writing in the Financial Times that, “now is the time to restore fiscal sustainability.” Jaime Caruana, General Manager of the Bank for International Settlements (BIS) stated in June of 2011 that the need for austerity was “more urgent” than ever, while BIS chairman, Christian Noyer, also the governor of the Bank of France (and board member of the ECB), stated that apart from austerity, “there’s no solution possible” for Greece.
In April of 2011, the two president of the EU – Barroso and Van Rompuy – felt it was necessary to clarify (just in case people were getting the wrong idea), that: “Some people fear this work is about dismantling the welfare states and social protection… Not at all … It is to save these fundamental aspects of the European model… We want to make sure that our economies are competitive enough to create jobs and to sustain the welfare of all our citizens and that’s what our work is about.” However, the following year, the new European Central Bank president, Mario Draghi (former governor of the Bank of Italy), stated in an interview with the Wall Street Journal that, “there was no alternative to fiscal consolidation,” meaning austerity, and that Europe’s social contract was “obsolete” and the social model was “already gone.” However, Draghi explained, it was now necessary to promote “growth,” adding, “and that’s why structural reforms are so important.”
Thus, “austerity packages” will then prepare the state and economy for the next phase, which, we are told, would make the country “competitive” and create “growth.” This is how the country would pay off its total debt, which deficits merely add to. This process is called “structural adjustment” (or “structural reform”) and it requires “competitiveness” to facilitate “growth.”
As we can loosely translate “austerity” into poverty, we may translate “structural adjustment” into exploitation. After all, nothing goes better with poverty than exploitation! How does “structural adjustment” become exploitation? Well through competitiveness and growth, of course! Structural adjustment means that the state liberalizes the economy, so everything is deregulated, all state-owned assets are privatized, like roads, hospitals, airports, rivers, water systems, minerals, resources, state-owned companies, services, etc. This, as the story goes, will encourage “investment” in the country when it “needs it most.” This idea suggests that foreign banks and corporations will enter the “market” and purchase all these wonderful things, explaining that they work better when they are “competitive” in the “free market,” and then with their new investments, they will create new industries, employ local people, revive the economy, and with the “trickle down” from the most productive and profitable, all of society will rise in living standards and opportunity.
But first, other “structural adjustment” measures must be simultaneously employed. One of the most important ones is called “labour flexibility.” This means that if you have protected wages, hours, benefits, pensions… well, now you don’t! If you are a member of a union, or engage in collective bargaining (which has at its disposal the threat of a strike), soon you won’t. This is done because, as the story goes, wages must be decreased to increase the competitiveness of the labour force. Simply put, if less money goes into labour during the process of production, what is ultimately being produced will be cheaper on “the market,” and thus, will become more attractive to potential buyers. Thus, with lower wages comes greater profits. ECB president Mario Draghi himself emphasized that the “structural reforms” which Europe needs are, “the product and services market reform,” and then “the labour market reform which takes different shapes in different countries.” He added that the point was “to make labour markets more flexible and also fairer than they are today.” Isn’t that nice? He wants to make labour markets “fairer.” What this means is that, since some countries have protections for various workers, this is unfair to the workers who have no protections, because, as Draghi explained, “in these countries there is a dual labour market: highly flexible for the young part of the population… [and] highly inflexible for the protected part of the population.” Thus, “labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population.” So to make the labour markets “fair,” everyone should be equally exploitable, and thus, equally flexible.
Labour flexibility will then help “specialize” your country in producing one or a few select goods, which you can produce better, cheaper, and more of than anywhere else. Then your economy will have success and the lives of all will prosper and grow… just not their wages. That is left to the “trickle down” from those whose wages are increased, the corporate, banking, and government executives and managers. That is because they take all the risk (remember, you are not risking anything when you passively accept your wages and standards of living to be rapidly decreased), and thus, they should get all of the reward. And because their rewards are so huge, large scraps will fall off of their table and onto the floor, which the wage-slaves below can fight over. By the laws of what I can only assume is “magic,” this will eventually lift the downtrodden from a life of poverty and labour and all will enjoy the fruits of being in a modern, technological, democratic-Capitalist paradise! Or so the fable goes.
The actual, predictable, and proven results of “structural adjustment” aimed at achieving “growth” through “competitiveness” is exploitation. The privatization of the economy allows foreign banks and corporations to come in and buy the entire economy, resources, commodities, infrastructure and wealth. Because the country is always in crisis when it does this, everything is sold very cheaply, pennies on the dollar kind of cheap. That is because the corporations and banks are doing the government and people a favour by investing in a country which is a large risk. The money the state gets from these sales is recorded as “revenue,” and helps reduce the yearly debt (deficit). The result for the people, however, is that mass layoffs take place, commodity prices increase, service costs increase, and thus, poverty increases. But privatization has benefits, remember; it encourages “competitiveness.” If everything was privatized, everyone would compete with each other to produce the best goods for the lowest costs, and everyone can subsequently prosper together in a society of abundance.
What actually takes place is that multinational corporations and banks, which already own most of the world’s resources, now own yours, too. This is not competitive, because they are ultimately all cartels, and collude together in exploiting vast resources and goods from around the world. They do compete in the sense of seeing which one can exploit, produce, and control more than the other. But at the bottom of this system, everyone else gets poorer. This is called “competitiveness,” but what it actually means is control. So if the economy needs to become more competitive, what is really being said is that it needs to come under more control, and of course, in private corporate and financial hands.
State owned industries are simply closed down, employees fired, and the product or resource which that industry was responsible for producing is then imported from another country/corporation. A corporation takes over that domestic good/resource and then extracts/produces it for itself. But this requires labour. It’s a good thing that the labour force has had its back broken through austerity and adjustment, because now there are no protected jobs, wages, hours, unions, or workers’ rights in general. Thus, the population is free to be exploited for long hours and minimal wages. This makes what they are producing to be cheaper, and thus, more “competitive.” This can become extremely profitable for corporations and banks which took all the risk in this entire process (remember: you don’t count; you had very little to begin with, so you lost very little. They have a lot, and thus, a lot more to lose. That’s what risk means). If workers attempt to form unions or organize and demand higher wages, the corporation can simply threaten to close down the plant, and move the jobs to somewhere else with a more “flexible” labour force. Or, the corporation could simply hire local immigrant populations (or ship in others) and pay them less for more hours, and leave you without any jobs. This is called “labour flexibility.” Labour flexibility translates as cheap labour: to bring everyone down to an equally low level of worker standards, and thus, to encourage “utilization,” which means exploitation.
In the ‘Third World,’ this has been best achieved through what are called “Export Processing Zones (EPZs),” a term used to describe a designated area outside of state control in which corporations may establish factories to freely exploit labour as they choose. Commodities are shipped in, goods are produced in the EPZs, from where they are then exported abroad, free of pesky national taxation and regulation. Ultimately, EPZs are mini corporate colonies. In late May of 2012, it was reported that Germany was looking for “alternatives” to its exclusive focus on austerity, and subsequently came up with a six-point plan for “growth.” One of the most notable points from Berlin was to establish “special economic zones to be created in crisis-plagued countries at the periphery of the euro zone,” as “foreign investors could be attracted to those zones through tax incentives and looser regulations.” Essentially, they are EPZs for the eurozone. The plan also calls for establishing trusts which would organize the sell-off of state assets in massive privatization schemes. Further, what is needed, according to Berlin, was to establish a “dual education system, which combines a standardized practical education at a vocational school with an apprenticeship in the same field at a company in order to combat high youth unemployment.” In other words, no more academic or intellectual education for youth, but rather “vocational” or labour-oriented education, to not allow the expectations of the youth to rise too far, and to simply prepare them for a life of ‘work’ by attaining the necessary vocational skills. And of course, the plan for “growth” from Germany also includes more efforts at establishing “labour flexibility,” which would include “a loosening of provisions that make it difficult to fire permanent employees and to create employment relationships with lower tax burdens and social security contributions.” In other words: make it easy to fire workers, have lower wages, and eliminate benefits.
Economists and politicians often talk about the need to “utilize labour flexibility to increase competitiveness and achieve growth.” What they are really saying is that they need to exploit cheap labour to increase control and achieve profits and power. Lucas Papademos was installed (unelected) as the “Technocratic” prime minister of Greece in November of 2011, in order to “help” Greece undertake the mandatory “reforms.” Papademos was the perfect candidate for the job: he was an economist educated in the U.S., served on the board of the Federal Reserve Bank of Boston, was chief economist at the Bank of Greece, he became Governor of the bank in 1994, where he oversaw the conversion of Greece into the euro, and in 2002, he joined the European Central Bank board, where he became a Vice President under Jean-Claude Trichet.
In a 2005 interview with the Financial Times while he was Vice President at the European Central Bank (ECB), Lucas Papademos said that European “growth” potential was looking good, but added: “There is a risk that, unless there are changes in policies – more reforms in labour and product markets – as well as in the behaviour of private economic agents, this [growth] range may have to be revised downwards.” He explained: “the main way that potential growth could increase is through policies that boost productivity growth and raise labour utilization by increasing the average hours worked and the participation rate in the labour market and by making this market more flexible and adaptable.” In May of 2010, Bank of England governor Mervyn King stated that the eurozone needed “structural reforms, changes in wages and prices in the countries that need to regain competitiveness.” Former ECB president Jean-Claude Trichet had also emphasized that what was needed was a program of fiscal austerity, “accompanied by structural reforms to promote long-term growth.” In other words, what was needed was impoverishment, accompanied by exploitation to promote long-term profits.
The European Financial Stability Facility (EFSF), the Euro-area bailout fund, was headed by a man named Klaus Regling. In an article he wrote for The Banker, Regling emphasized that funds from the EFSF would come with conditions, including of course, austerity measures, but also, “structural reforms, such as modernizing public administrations, improving labour market performance and enhancing the tax systems, with the aim of increasing a country’s competitiveness and growth potential.” In other words, the conditions imposed on countries receiving a bailout would amount to an impoverishment program (“austerity”), combined with increased exploitation (“structural reforms”), through privatization of state industries and assets (“modernizing public administration”), creating a cheap labour force (“improving labour market performance”), extracting all remaining domestic wealth (“enhancing the tax systems”), designed to increase control (“competitiveness”) and profits (“growth”).
Mario Draghi, as president of the ECB, called for a “growth pact” (or a “profit pact”) for Europe, to go alongside the “fiscal pact” (or “poverty pact”). This received quick endorsements from France’s new president Francois Hollande, Angela Merkel, and José Manuel Barroso. Merkel was sure to emphasize, however, that growth would be “in the form of structural reforms.”
The combination of “fiscal austerity” and “structural adjustment” are generally referred to as a “comprehensive structural adjustment program” or a “restructuring of the economy.” This language is important to understand because “restructuring” as a word is used to describe two processes: one, is that it is what is needed to prevent a country from defaulting on its debt and to return the country to a period of growth; and, on the other hand, “restructuring” is used to describe what takes place after a country defaults. The words in both situations are the same, and so are the policies, though in a default they are inflicted more severely. The very process we are told we must undergo to prevent a default, is the very same process that we undergo after a default. Thus, the combination of fiscal austerity and structural adjustment is, in actuality, a slow and painful default.
This combination of austerity and adjustment amounts to a program and effect of social devastation. Thus, the words “structural adjustment program,” “restructuring,” and “default” in actuality translate into social genocide. These three terms provide further insight into their use: the class system is what is being restructured, as middle classes are wiped out and pushed into poverty, the poor are made destitute, and the elite become concentrated and in total control; the political and economic system is being adjusted to fit this restructuring; and the promise that people everywhere were told, that their leaders and society exists to serve their interests, is what is being defaulted on. The state does not default; it is the ‘social contract’ that is defaulted. Just as Mario Draghi told the Wall Street Journal, “the European social model has already gone… Fiscal consolidation is unavoidable in the present set up, and it buys time needed for the structural reforms.” Thus, social genocide.
As George Orwell wrote in his 1946 essay, “political language has to consist largely of euphemism,
question-begging and sheer cloudy vagueness.” But there remains intent and meaning behind the words that are used. When we translate the political language of the European debt crisis, it reveals a monstrous agenda of impoverishment and exploitation. Thus, we also see the necessity of political language for those who use it: one cannot argue openly for programs of impoverishment and exploitation for obvious reasons, so words like “fiscal consolidation” and “structural reform” are used, because they are vague and obscure.
Ultimately, one can get away with saying, “we need a comprehensive austerity package augmented by structural reforms, such as labour flexibility, designed to increase competitiveness and facilitate growth,” as opposed to: “We need to rapidly impoverish our populations, whom we will then exploit to the fullest, such as by creating a cheap labour force, which would increase elite control and generate private profits.” Such honesty and bluntness would lead to revolt, so, political language is used instead. In Europe, political language is part of a ‘power dialectic’ which supports policies and agendas that aim to take more for those who already have the most, and to take from all the rest; to impoverish, exploit and oppress; to plunder, profit and punish.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
Please donate to The People’s Book Project to help this book be finished by the end of summer:
Super Mario Monti and the Dictatorship of Austerity in Italy
By: Andrew Gavin Marshall
The following is Part 2 of a two-part excerpt on ‘Italy in Crisis.’ These excerpts are rough-draft, unedited samples of a chapter on the European debt crisis to be featured in my upcoming book (as yet ‘Untitled’), to be done by the end of the summer. The book covers the following: the origins, evolution, and effects of the global economic crisis; the acceleration of international imperialism; the elite global social engineering project of constructing a system of ‘global governance’; emerging resistance and revolutionary movements (and elite attempts to co-opt, control, or crush them), including the Arab Spring, European anti-austerity protests, the Spanish Indignados, the Chilean student movement, the Occupy movement, the Quebec ‘Maple Spring’, and the Mexican student movement, among others. This sample allows you to see the research that is going into this book, and if you would like to see the book come to completion, please consider making a generous donation to The People’s Book Project. With a fundraising goal of $2,500 the Project has raised $810, and just $1,690 to go!
In Part 1 of this series (The Decline of the Roman Democracy and Rise of the ‘Super Mario’ Technocracy), I examined the Technocratic coup in Italy, which removed the democratically-elected Berlusconi and replaced him with an unelected technocrat, Mario Monti, an economist, Bilderberg member, former European Chairman of the Trilateral Commission, former European Commissioner for Competition, and a former adviser to Goldman Sachs International, was also on the board of the Coca-Cola Company, and founded the European think tank, Bruegel. Mario Monti was installed by the European elites with one purpose: punish the population of Italy through ‘fiscal austerity’ and ‘structural adjustment.’
The Technocracy of Austerity
Monti wasted no time in punishing the people of Italy for the crimes and excesses of Europe and the world’s elite. On December 2, 2011, Monti announced a 30 billion euro ($40.3 billion) package of austerity measures, which included “raising taxes and increasing the pension age.” Monti described the measures as “painful, but necessary.” He told a press conference that, “We have had to share the sacrifices, but we have made great efforts to share them fairly.” Monti, who is both Prime Minister and Economy Minister, said he had renounced his own salaries from those positions. Considering that he was – until taking those positions – an adviser to Coca-Cola and Goldman Sachs, among other prominent jobs, those salaries likely would not make much of a difference to Monti’s bank account, anyway. The Deputy Economy Minister Vittorio Grilli (who is still on the board of the Monti-founded think tank Bruegel), said that, “the package should ensure that Italy meet its target of a balanced budget by 2013.” The Welfare Minister Elsa Fornero broke down into tears as she announced an end to inflation indexing on many pension bands, which would essentially amount to “an effective income cut for many retired people.” Unions spoke out against the cuts, stating that they would “hit poorer workers and pensioners disproportionately hard.” Deputy Economy Minister Grilli said that 12-13 billion euros of the package would come from spending cuts, and the rest of the 30 billion euro package would come from tax increases. The minimum age for pensioners (that is, the retirement age) was set to be raised for both men and women to 66 by 2018, as well as providing “incentives” to keep people in the workforce until the age of 70.
The austerity package was passed by an undemocratic decree which Monti named the “Save Italy” decree, and while the union leaders denounced the package, the main business lobby in Italy, Confindustria, praised the package as vital “for the salvation of Italy and the euro.” As Elsa Fornero, the Minister for Welfare, began crying as she announced the austerity measures, she explained, “We know we are asking for sacrifices, but we hope they will be understood in the name of growth and to avoid collective impoverishment.” Of course, austerity is just that: “collective impoverishment.”
In response to the austerity package, Italy’s three largest labour unions began a week of strikes on December 12, with port, highway, and haulage workers stopping work for three hours on the 12th, while metalworkers, including employees of Fiat, put down their tools for eight hours. Printing press operators stopped working for a full shift, and most newspapers were expected to not publish the following day. Public transport strikes took place on December 15-16, and bank employees were set to stop work in the afternoon of December 16, while the public administration closed down for the entire day of December 19. Susanna Camusso, the head of the largest and most militant labour federation, CGIL, said, “We’re not giving up on the idea that the austerity package must be changed… It hurts workers, pensions and the country as a whole.” Mario Monti held a last-minute meeting with the union leaders to unsuccessfully attempt to stop the strikes that were set to begin the following day.
CGIL leader Camusso said that as a result of the austerity measures, “We see every risk of a social explosion.” CGIL, which represents six million members, half of whom are pensioners, stated that, “We are flexible in the face of the emergency but we are not willing to accept everything… You can’t ride roughshod over people.” With only 57% of Italians working, raising the retirement age, as dictated by the austerity package, would amount to “closing the door on the young unemployed,” warned Camusso, adding that Monti had done nothing for “young people and women who can’t find work, and when they do it is badly paid.”
In late December, the Italian Senate passed a vote of confidence on Mario Monti’s government when they approved the new austerity package. Monti commented: “Today this chamber concludes a rapid, responsible, complex job… on a decree that was passed in extreme emergency and that enables Italy to hold its head high as it faces the very serious European crisis.”
Prior to the European Summit held at the end of January 2012, Mario Monti was holding meetings with Angela Merkel, Nicolas Sarkozy, British Prime Minister David Cameron, and European Council President Herman Van Rompuy. Italy, wrote the Economist, “it seems fair to say, is back at the top table after being quietly shoved off under the leadership of Silvio Berlusconi.” Monti emphasized to Merkel, Sarkozy, and other leaders that the EU needs to not simply “enforce fiscal discipline,” but to stimulate growth. This would mean, according to Monti, “not only finding ways to lower interest rates, but encouraging liberalisation wherever possible.” Monti even suggested that Germany should “liberalize” (meaning: privatize) some of its services. Monti, in an interview with the Economist, stated that, “It is rather unusual for Italy to be at the forefront of pro-market initiatives,” but that he planned to undertake a major liberalization of Italy, saying: “I am convinced that it is also in Italy’s national interest.” Acknowledging that his government is “unelected,” Monti told the Economist that, “there was in Italy a hidden demand for a boring government which would try to tell the truth in non-political jargon.” Monti warned, however, that, “Austerity is not enough, even for budgetary discipline, if economic activity does not pick up a decent rate of growth… A lowering in interest rates does not depend only on Italy’s efforts but also, and essentially, on Europe’s ability to confront the crisis in a more decisive way.” Monti stated that Italy’s domestic political situation is getting problematic for the EU, with a growing appeal to ‘Euroscepticism,’ warning: “What I see now, week after week, in parliament is a widening of the spread of this attitude… The degree of impatience-cum-hostility to the EU, to Germany and to the ECB is mounting.”
Monti warned Merkel and other EU leaders that Italian sacrifices alone would not get Italy out of crisis, that Italy needed some form of outside support, without which, he warned: “a protest against Europe will develop in Italy, also against Germany, which is viewed as the ringleader of E.U. intolerance, and against the European Central Bank… I cannot have success with my policies if the E.U.’s policies don’t change.” In particular, he was referring to the need to bring down Italy’s interest rates, something that could likely only be achieved through the ECB purchasing large amounts of Italian bonds, which would increase “market confidence” in Italy and bring down interest rates. Otherwise, Monti lamented, the popular discontent of the people with the economic situation could push Italy to “flee into the arms of populists.” Spoken like a true unelected technocrat. Imagine that, a government which dares to serve the interests of the people over whom it rules! Not in the ‘New Europe.’
In late January, Philip Stephens, writing for the Financial Times, stated that, “Italy is back,” and that while Merkel “sits at the top of Europe’s power list,” and Sarkozy “can lay claim to be the continent’s most energetic leader,” it is Mario Monti who “is its most interesting.” Stephens declared that, “Mr. Monti’s fate may turn out to be Europe’s.” Barack Obama’s White House announced that in a future meeting between Obama and Monti, the two leaders would discuss “the comprehensive steps the Italian government is taking to restore market confidence and reinvigorate growth through structural reform, as well as the prospect of an expansion of Europe’s financial firewall.” Stephens translated this as: “Mr. Obama is behind Mr. Monti all the way – including when he puts pressure on Ms. Merkel.” Lamenting the Italy of Berlusconi, who was “shunned by his European Union peers,” though always embraced as a friend by Russia’s Putin, Stephens wrote that Monti, “a serious-minded academic with a serious plan, is different in every dimension.” He also noted that there was “a second Italian at the top table,” meaning Mario Draghi, the new President of the European Central Bank, “the other Mario,” who in terms of economic orthodoxy, “styles himself an honorary German.” Stephens wrote that Monti is so important because “it is in Italy that the euro’s long-term prospects will be decided,” as Italy is the euro-area’s third largest economy (after Germany and France), and if Italy “cannot chart a credible economic course, the euro does not have a future as a pan-European project.” While praising Monti’s austerity package, Stephens said that, “the real test will come in liberalizing the economy,” which “will not be easy,” but “the choices are unavoidable.”
Mario Monti, upon unveiling his “liberalization” plans in late January, stated: “Italy’s economy has been slowed down for decades by three constraints: insufficient competition; an inadequate infrastructure; and complicated administrative procedures.” Thus, Monti passed a decree opening the occupation of taxi drivers up to “competition,” prompting taxi drivers to block central streets in Rome. As liberalization brings in higher petrol prices (which were previously under more control), truck drivers and agricultural workers set up barricades in Sicily. One Italian paper (owned by the Berlusconi family) headlined: “Half of Italy is ready to wage war on the government.” Once decrees are issued, they go into effect immediately, but require parliamentary approval within two months. Monti’s liberalization decrees of January (following the austerity decrees of December) also targeted the gas and electricity markets, as well as the insurance sector and public services. Next in Monti’s target: the labour market. One analyst at Roubini Global Economics told the Financial Times: “Although structural reforms are necessary to boost long-term growth, they will take several years to bear fruit and, in a period of economic contraction and government retrenchment, will have an adverse effect on short-term output, deepening the recession which will last through 2013.”
In his first interview since resigning as Prime Minister, Berlusconi told the Financial Times in early February that he was “stepping aside” from frontline Italian politics and had no intention of running for prime minister again. Berlusconi gave his “strongest endorsement to date of the technocratic government led by Mario Monto,” specifically in “its intention to implement labour market reforms opposed by trade unions.” Berlusconi declared: “I have now stepped aside, even in my party.” He explained that he resigned the previous November because he had been attacked “by an obsessive campaign by the national and foreign media that blamed me personally and the government for the high spread of Italian state bonds and the crisis on the stock market.” Thus, he contended: “After having evaluated the causes of the crisis, which did not rest in Italy but in Europe and the euro, I believed that if I had stayed in government I would have damaged Italy as we would have had more terrible media campaigns… With a sense of responsibility, though having a majority in both houses of parliament… I stepped aside and with elegance.” One can always rely upon a politician to sing their own praises, especially if they are undeserving. He did suggest, however, that he would consider running for parliament, quipping: “I still have strong popular backing, almost twice as much as my colleagues Merkel and Sarkozy… In opinion polls, I personally have 36 per cent support. If I walk out in the street I stop the traffic. I am a public danger and I cannot go out to do the shopping.” Berlusconi concluded:
The hope is that this government, which is supported for the first time by the whole of parliament, will have the chance to propose great structural reforms, starting from the state’s institutional architecture, without which we cannot think of having a modern and truly free and democratic country.
Martin Wolf, perhaps the most influential financial columnist in the world, writing for the Financial Times in January of 2012, asked if the two Marios – nicknamed by the media as the “Super-Marios” – will be able to “save the eurozone?” Wolf wrote that they “bring sophisticated pragmatism to the table,” and hoped that they would “shift policy in a more productive direction.” Wolf referred to the ECB’s new long-term refinancing operation announced in December of 2011, which is essentially a bank bailout with a three-year yield at the ECB’s average interest rate (which stands at 1% currently). When the ECB began this new program, roughly 523 banks took 489 billion euros, described by Wolf as “a bold and cunning move by Mr. Draghi and probably the most he could get away with right now.” Wolf also referred to Monti’s willingness to argue that the creditor countries “do more to lower his country’s borrowing costs,” or interest rates, warning in the Financial Times against a “powerful backlash” among voters in the EU periphery states. Wolf wrote that, “Mr. Monti is in a strong position to make this argument,” as Monti “is a well-respected official with staunchly pro-European views and a strong sympathy for German attitudes to competition and fiscal and monetary stability.” Wolf explained that, “Draghi and Monti are addressing two interlinked fragilities: the vulnerability of the banking system and the unsustainable terms on which weaker countries can now borrow.” While praising the “Super-Marios,” Martin Wolf said that they alone could not save the eurozone, whose problems run very deep, and where even the ‘solutions’ to the crises felt by various EU states can make larger, structural reforms even more challenging. As Wolf correctly noted: “In Italy’s case, for example, the combination of high interest rates and vulnerable banks with fiscal austerity is likely to lead to a lengthy and deep recession and so to a rise in cyclical fiscal deficits [debt incurred during and because of the economic crisis at the time] as the structural deficit falls [the debt acquired by spending more than what is brought in through revenue].” Naturally, though, this simply means that the overall debt will increase. Wolf wrote, ultimately, that if “break-up [of the euro] is ruled out, one must choose reforms, however painful.” This is because, according to Wolf, “the costs of failure are so large that the possibility of domestic and eurozone reform must be kept alive.” On this, the “Super-Marios” can be leaders.
When the credit ratings agency Standard & Poor’s downgraded Italy’s debt in January by two notches to BBB, “with a warning of more to come,” Mario Monti stated that he “agrees with almost everything in S&P’s analysis,” and “jokes that he could almost have written it himself.” He told the Financial Times that, “If I ever dictated anything, it must have been what S&P had to say about domestic Italian economic policy,” and then laughed. As a result of the downgrade, Italy had the lowest credit rating of any eurozone country which did not receive a bailout, apart from Cyprus. Why was Monti so pleased with the downgrade? He quoted the report to the interviewer from the Financial Times, going through the risk factors associated with Italy, but adding: “Nevertheless, we have not changed our political risk score for Italy. We believe that the weakening policy environment at European level is to a certain degree offset by a strong domestic Italian capacity.” In other words: “Mr. Monti’s 60 days in office have been enough to convince the agency that his government is on a path of reform that could return the country to growth and shrink its debt levels, but that European Union mismanagement of the eurozone debt crisis is dragging down struggling countries, including Italy.” Mr. Monti stated, “I think I’m the only one in Europe not to have criticized the rating agencies.”
In discussing how his government came into existence, as in, not through democratic means, Monti told the Financial Times that he agreed that he could be helping to bring a “revolution,” referring to the number and extent of measures he intended to pass before democratic elections take place. He explained that if Italy’s borrowing costs (interest rates) fall, “the political parties will not dare stop the experiment [in technocracy] before it has to stop… And in my view the political parties will not dare go back to the acrimonious, superficial and tough confrontation that animated parliament. The image and style of public debate has changed.” He added: “If and when success comes, you will find us not really taking credit… My ambition is that Italy becomes a boring country, in relative terms. It is really in the hands of Europe.”
In February of 2012, Mario Monti gave an interview with PBS Newshour in which he continued to heap praise upon austerity measures, saying that because Greece’s debt had been so high, “it would have been hard – let’s face realities – to have a soft landing from those excesses of deficit without a recession.” He added, “I think there is a valid point if we say that Europe needed to be put under a safe place as regards the public finances of each member state.” Monti thanked “German and other pressures” for pushing countries in that direction of austerity. And now, he claimed, “the time has come to focus more energies on how collectively we can achieve more growth in Europe.” Growth, of course, simply means growth of profits for big banks and multinational corporations.
Super Mario’s ‘Structural Adjustment’: The Meaning of “Growth”
When Europe’s political and financial elite discuss “growth” in the current context as an added “solution” on top of austerity, what they really mean is to implement major structural changes: to liberalize the economy, privatize all assets, state subsidies, services, industries, and resources. This will allow corporations and banks to come in and purchase all of these assets and industries, and since this process takes place in the midst of a deep crisis, they are able to take control of all the assets for very cheap prices. This is called “foreign direct investment.”
The major corporations of Europe, of North America, and elsewhere, will be able to control directly a much larger share of the economy. Their purchases provide short-term funds for the state, thus increasing short-term revenue. However, since state industries are privatized and sold for pennies on the dollar, they are actually losing long-term revenue, but that isn’t mentioned. Markets respond to the short-term, not the long-term, and of course, we want to have our world and its social, political, and economic stability determined by forces that theoretically do not look more than a couple months ahead. The process of liberalization and privatization is also sold on the prospect of “creating jobs,” because the theory goes that corporations will enter the market with the ability to invest and thus, create jobs for workers. The reality is that the corporations buy up the industries, and generally shut them down to relocate elsewhere for cheaper labour. This means mass firings. This also means that unions and labour rights in general have to be dismantled and people have to be kept in line, under control.
Austerity measures are aimed at redistributing wealth from the mass of society to the very top percentiles, which is achieved through increased taxation, mass firing of public sector workers, cuts to social spending, health care, welfare, education and other areas. This, quite predictably, creates a massive social crisis. Many austerity packages – such as Monti’s in Italy – also include efforts to undermine labour and unions. This prepares the work force for the period and programs of “growth,” in which workers will be forced to submit to exploitative working conditions with no collective bargaining rights, or else the industries will simply fire them all, close up shop, and go elsewhere. This is why we hear all the Eurocrats and politicians in Europe and elsewhere explain that austerity and growth are not mutually exclusive, that they can and should co-exist together. Indeed, from the view of the ‘effects’ of these policies, a joint program of “austerity” and “growth” makes perfect sense: commit social genocide (through fiscal austerity), and exploit, plunder, and profit from the spoils of economic war (growth through structural adjustments).
In the ‘Third World’ over the past three decades, these policies were imposed by the IMF, World Bank, Western imperial powers, and Western banks and corporations. With the primary engine being the International Monetary Fund (IMF), countries in Latin America, Africa, and Asia, which were in the midst of a major debt crisis in the 1980s, were forced to sign what were called ‘Structural Adjustment Programs’ (SAPs) with the IMF and World Bank if they wanted to get any loans or aid from Western banks or institutions. The SAPs would be a set of conditions that the countries would have to adhere to if they were to get a loan, and the conditions included a mix of ‘fiscal austerity’ and ‘structural adjustment’: devalue the currency to make it cheaper to invest in the country (but which creates inflation and increases the costs of food, fuel, and other commodities, hurting the poor and middle classes); cut social spending to reduce the deficit (but which saw the destruction of education, health care, welfare and social programs, as well as mass firings from the public sector); trade liberalization, to allow for foreign countries and corporations to more easily invest in the country, and thus, bring in revenue (which meant dismantling all tariffs, trade barriers, price controls, state subsidies, and resulted in the easy exploitation and cheap purchase of the country’s wealth by foreign corporations and banks); and privatization, meant to encourage investment and allow for the market to make state-owned industries and asset more “efficient” (but which resulted in mass firings, closing of entire industries, mass corruption, and total control of the economy being handed to foreign banks and corporations).
The result of SAPs – the combination of “austerity” and “growth” – over three decades has been devastating: poverty has rapidly accelerated and expanded; wealth becomes heavily polarized, with a tiny minority owning the economy, and everyone else with next to nothing; the small elite become increasingly dependent upon and integrated with a global elite (based primarily in the West), and disassociated from their fellow citizens; mortality rates go up as health care and social services are dismantled or made incredibly expensive at a time of deepening poverty in which more people need the services more than ever before; social unrest and repression become rampant, as the people rise up against ‘Structural Adjustment,’ the state resorts to increasingly authoritarian and brutal measures to control or crush resistance to the programs and to protect the dominance of the tiny minority, locally and internationally.
This, essentially, is the fate of Europe and the rest of the industrialized world. Europe, simply being the most integrated region of the world (a trend which is accelerating everywhere in the world), is experiencing the brunt of this crisis before the rest of the industrialized nations of the world. So when politicians and financial elites say that Europe needs “growth” in conjunction with austerity, and this will lead to “recovery”, remember what “growth” means: exploitation, plundering, and profits. When you remember this, suddenly everything the politicians and pundits have been saying for years, suddenly makes sense.
When asked if he felt that there was a danger of “a backlash” in Italy against what people “may see as E.U. imposed changes to their way of life that are very, very painful,” Monti replied that, “there was such a risk of backlash,” but he explained: “I try to avoid that backlash by always presenting the necessary sacrifices that Italians have to go through not as an imposition from Brussels or Germany or the European Central Bank, but rather as a necessary step that Italians have to undertaking — to undertake also at the suggestion of Europe, but basically for their own interests, for the interests of ourselves and of future generations of Italians. This is precisely meant to avoid backlashes.” Interesting statement: saying that austerity is for the interests of Italians and “future generations” is done not to speak truth, but “to avoid backlashes” against the E.U. Monti emphasized that, “it is very, very important” to ensure that the single currency, “which was meant to be the culminating point of the European construction,” does not become, “through psychological negative effects, a factor of disintegration of Europe.”
In an interview with the Wall Street Journal in early February, Mario Monti publicly outlined his strategy for “growth” in Europe, which he proposed privately to other European governments the previous month, pushing Europe beyond austerity and suggesting “tougher European rules aimed at prying open member states’ national industries,” of course to “encourage economic growth and competition in the euro zone.” Monti explained that if this is not done, “Europe will not be a nice place to live in five years from now if we haven’t solved the problem of how to grow… We have to say what growth will look like in a fiscally compacted union.” His proposal “would speed up the process by which European authorities sanction nations that violate the tenets of the EU’s single market.” For Monti and other technocrats like himself, this “growth” does not include government spending. Since Italy is supposed to knock off 30 billion euros ($39.8 billion) – 2% of its GDP – from its public debt “every year for decades,” this means, explained Monti, that “any thought of budget-stimulated growth ideas will have to go away.” Instead, Monti suggested that the European Union “should back single markets more forcefully to support economic growth,” which instead of having Berlin sign off on the EU spending its way to prosperity, would mean “to push Germany to liberalize its own economy,” which, claimed Monti, “would have a trickle-down effect.”
Monti was undertaking various programs of “liberalization” in Italy, such as liberalizing major professions and sectors, such as pharmacies, taxis, and notaries. To handle Italy’s “unemployment” issue, which is significant to say the least, Monti was seeking to “introduce new measures aimed at making it easier for companies to hire and fire workers,” which, he said, “will increase the overall flexibility of the labor market,” meaning that it will allow for cheaper and more easily-exploited labour by corporations. Monti even stated that the changes he was making in the labour market were aimed at “reducing the segmentation of Italy’s labor market between those who are protected, sometimes hyper-protected, and those, particularly the young, who can’t really get into the labor market.” So, instead of having various work forces that are “protected” (or “hyper-protected” in Monti’s words), it would be better to simply bring everyone down to the same level to allow for “flexibility,” or in other words, easy exploitative capacity. For “Super Mario,” no protection is better than any protection when it comes to workers. Imagine if there were politicians who thought the same thing about bankers.
While Europe agreed to a ‘Fiscal Compact’ to ensure austerity, Monti felt that the EU should add to this a growth pact, and felt that the supranational and undemocratic European Union should have “an efficient mechanism to swiftly sanction countries that don’t open up their economies to competition,” meaning exploitation and plundering. Thus, the previous month, Monti submitted a proposal “aimed at giving the European Commission – the EU’s governing body – greater power over sanctioning member states.” This proposal, which had not been reported prior to this interview, “could speed up the process by years, by making it easier for the commission to impose rulings rather than having to take member states to court, as it often does now.” When asked what this has to do with growth, Monti replied: “A lot, because if you give more teeth to the commission to remove national obstacles to the functioning of the single market, we’ll create a large level playing field, which the business community always insists is a key component of growth.” Well that answers that: it will lead to “growth” because the business community says so. Thank you, Prime Minister.
Monti acknowledged that this creates obvious concerns, especially with countries like the U.K. and France which would likely oppose the proposal for fear of its encroachment on their sovereignty, and the existence of a “democratic deficit” which will continue “as member states gradually hand over more of their fiscal and economic policies to the central oversight of European institutions.” But for this, Monti has a solution: “Much of the reconciliation between more centralized governance and the scope for democracy will be resolved through an even stronger role of the European Parliament,” which is, in effect, utterly useless.
The Most Important Man in Europe?
In late February, Time Magazine published an article reporting on an interview they conducted with Monti in which they referred to him as “the most important man in Europe.” The article described Monti as “the tough taskmaster Italy so desperately needs,” though he “has the aura of a gentlemanly grandfather.” Time reported that Monti was “fixing a deadlocked democracy,” no doubt by ruling as an unelected technocrat, “and charging forward with greater European integration,” in a “wholesale overhaul of Italian society.” Monti told Time, “I believe that reforms will not really take hold if they do not gradually come into the culture of the people.” Time declared that for the problem of Italy’s partisan politics, “the solution was Monti.” Monti said that the request to rule came “at such a severe time of crisis for Italy that I could not refuse.” Thus, declared Time Magazine: “Today he reigns over Rome like a new Caesar.” In effect, “the democratic process has been suspended to allow an unelected technocrat to implement policies that elected politicians could not.” Monti himself refers to this as a “temporary mutual disarmament” of the left and right, a technocratic euphemism for “dictatorship of austerity.”
The publication praised Monti’s austerity package in December, his liberalization program in January, and his new plan to overhaul the labour market; then lamented that Monti is taking on “entrenched interest groups,” such as taxi drivers (no joke, the article referred to taxi drivers as “entrenched interest groups”), who staged strikes in Rome and other Italian cities, and pharmacists who were threatening to do the same thing, or truckers that blocked roadways in protest of a fuel-tax hike. The president of a national taxi union stated, “In Italy, the economy was more based on rules that used to be applied to create wealth for the general public… I don’t understand why suddenly the only solution is to get rid of the rules.” He added: “Monti has always lived in the salons… He really doesn’t know the problems of ordinary people.” To this, Monti replied, “Maybe they’re right,” but he felt this was an advantage: “Italy has piled up huge public debt because the successive governments were too close to the life of ordinary citizens, too willing to please the requests of everybody, thereby acting against the interests of future generations.” Monti earned a reputation – and the nickname “Super Mario” – back when he was an EU Commissioner, where he came into conflict with some major global corporations, such as blocking a merger between GE and Honeywell, which prompted the then-CEO of GE, Jack Welch, to refer to Monti as “cold-blooded.” Monti acknowledged that as he is more successful in pushing “reforms,” the effects of those reforms would put pressure on the political parties to abandon him, and make it more difficult for him to continue his programs before he leaves office in 2013. “The point,” explained Monti, “is how to keep this pressure even once the most visible elements of emergency hopefully are over.” This would largely be left to accelerating the process of European integration: “I think there is a genuine wish on the part of the E.U. and Germany and France to again play an active game with Italy for a relaunch of European integration… I think we will be seeing an acceleration of the good news.” Apparently, accelerating the integration and institutionalization of an undemocratic, technocratic, supranational structure is “good news.”
When Mario Monti went to visit Wall Street on the seventh floor of the New York Stock Exchange (to visit his actual ‘constituents’), he received a long, standing ovation when he entered the room with an audience of 200 people. Charlie Himmelberg, a managing director at Goldman Sachs, commented that, “It’s been impressive how quickly the sentiment has changed on Italy.” Blaise Antin, the head of sovereign research at TCW said, “It is a good thing Monti visits investors… But plenty will ultimately depend on the Italian parliament” in the tough choices ahead. Monti told the crowd of Wall Street financiers that, “What’s important is that this improved governance of the euro zone is almost there and the euro zone crisis is almost overcome, I believe.” Monti later reflected at a new conference in New York that he was “warmly greeted by the financial community” on Wall Street. No doubt.
Super Mario Wages War on Workers
After making the rounds in interviews, state visits, meeting Obama, and visiting his constituents at Wall Street, Mario Monti went back to Italy in late February to push forward on his “labour reforms” to undermine and destroy unions and workers’ rights. By March, the effects were being felt among Italians. Monti went to great pains to denounce what he described as Italy’s “two-tier labour market,” dividing generations and leaving the young out to dry. The New York Times wasted no time in supporting Monti’s calls to dismantle this system. Framing the discourse around the generational divide, in which “older workers came of age with guaranteed jobs and ironclad contracts granting generous pensions and full benefits,” the younger Italians, “the best-educated in the country’s history… are lucky to find temporary work, which offers few benefits or stability.” Thus, one of Monti’s “solutions” was to “make it easier for companies to hire and fire.”
Very typical of the neoliberal economic discourse, is to draw conclusions based upon these facts alone: older workers have benefits, younger workers have few opportunities; thus, older workers are destroying future generations with their “entitlements.” Solution: dismantle entitlements and benefits so all can work on an “equal playing field.” The discourse divides workers and people against each other, meanwhile, there is no mention of the fact that the reason why the youth have so few job opportunities has more to do with the lack of state and business investment, the deregulation and privatization of industries over the 1990s (while Mario Draghi was head of the Treasury), the effects of the euro (creating an economic hierarchy between the Northern nations of the EU and the Southern states), or the very obvious fact that Italy is in a severe crisis because its corrupt government colluded with global banks and suffered under the institutions and rules of the E.U., which promote elite interests and undermine democracy and self-determination. No, mentioning the massive – and elite-driven – causes for the crisis Italy faces, and the unemployment issues which are symptomatic of that crisis, is too inconvenient for the New York Times. Instead, it is simply easier and more acceptable in the popular discourse to pit workers against each other, in an effort to undermine them all, collectively.
An economist at Bocconi University, of which Mario Monti was president until he became Prime Minister of Italy, supported this discourse for Italy, arguing: “Reforming contracts, unemployment benefits and salary levels would permit labor productivity to rise, which would in turn permit the country to grow… It’s a central theme for improving a country like Italy.” Undertaking all of these labour “reforms,” in actuality, would allow for youth to enter the job market to a certain degree, as it would mean that other “hyper-protected” workers no longer have protection, and all of Italy’s workforce is left vulnerable to exploitation. Thus, youth could be hired as extremely cheap labour, since for them, some work – even horrible work with little pay – is better than nothing at all. If workers who had protections attempt to organize and salvage various labour rights, companies can simply fire them and hire cheap, young workers with no benefits as replacements. This is called “youth opportunity.” This is how sweatshops became so popular in the ‘developing’ world over the past several decades, which were also brought about through fiscal austerity and structural adjustment: undermine labour/worker rights for easy exploitation, and if they attempt to organize, strike, or obtain rights, foreign corporations can fire them all and hire cheaper labour, close their factories and outsource elsewhere, or ship in cheaper immigrant labour forces. This has the effect of bringing the standards and conditions of the entire work force, and indeed, the global labour market, down to a more easily exploitative position: equality of exploitation (what economists and bankers call “labour flexibility”).
Monti declared: “We have to get away from a dual labor market where some are overly protected, while others totally lack protection and benefits when unemployed.” Thus, he said, “equity and growth” would be the “watchwords” of his government. Since “growth” means profits, plunder, and exploitation, “equity” is a logical addition to this: equity in exploitation. The New York Times, reporting on a 33-year old graduate without job opportunities, said she would “welcome” such changes, as she, “like so many in her generation, feels thwarted, overly reliant on her parents and uncertain of her future.” Amazingly, in the same article, it was acknowledged that the two-tier labour system was not created by “entitlements,” but rather as a result of policies the government undertook nearly a decade previous (in facilitating Italy’s entry into the euro-zone), in which the state made it easier for Italian corporations “to hire younger workers on a range of temporary contracts and internships,” while many of the early-retirement benefits for older workers were put in place during the mass privatizations (undertaken by Mario Draghi), in order to facilitate the reduction of staff “and cutting costs in the period before Italy joined the euro zone.” The article then went on to blame the unions, claiming that “younger Italians have come to see them as part of the problem.”
One must actually pause in appreciation of the intellectual gymnastics displayed by the New York Times in publishing an article which quietly acknowledges that the causes of Italy’s two-tiered labour and employment issues were the result of demands and policies put in place in order to join the single-currency, yet still concluded that the main problem was “overly-protected workers,” and thus, that the solutions lie in undermining labour and workers’ rights. The article even acknowledged that the government’s policies of making it easy for Italian corporations to exploit youth labour were designed “to make the market more flexible,” yet does not question the logic in Monti’s program of solving the crisis brought on by this “flexibility” by implementing measures to make it “more flexible.” The Monti-logic, which the New York Times readily endorses, is to look at policies that didn’t work (in terms of what people were ‘told’ they were meant to achieve), and then to advance and accelerate those same policies in the hopes that it will have the opposite effect as to that which it has always had before. Einstein once said that the definition of insanity is doing the same thing over again, expecting different results. If we actually apply that definition, almost the entire discipline of economics – and most especially neoliberal economics – is absolutely insane. Either that, or they simply use coded rhetoric which sounds like one thing, means another, and is done so to promote a global social, political, and economic agenda which would otherwise be impossible to publicly justify: preserving and accumulating for a tiny minority, and exploiting and punishing the vast majority.
Right on cue, the effects of the economic crisis over the previous year, exacerbated by Monti’s labour reforms and austerity package, was being felt across Italy. In Naples, one of Europe’s poorest cities, by late March it was reported that child labour has returned, as “thousands of children are leaving school to help their families make ends meet,” an increasing trend in the country, in which children work in the black market or “are recruited for sinister purposes by the mafia.” The most common job for child workers is as a “shop assistant,” earning less than a euro an hour. This trend had been developing in Italy over a number of years, as one local government report in the Campania region revealed that between 2005 and 2009, more than 54,000 children left school to join the work force, with 38% of them under the age of 13. The deputy mayor of Naples, located in the Campania region, commented: “Of course, we were the poorest region in Italy. But we haven’t seen a situation like this since the end of the Second World War… At age 10, these kids are already working 12 hours a day, which is a clear breach of their right to development.” The succession of financial reforms put in place by the Italian government since 2008 introduced drastic cuts, and in June of 2010, the Campania region had to end its minimum welfare program, “plunging more than 130,000 families into poverty.” Children from poor families face three options: struggle to stay in school, drop out to work in the black economy, or “join the ranks of the Camorra, the Neopolitan mafia.” Since the beginning of the crisis, support for youth and their families has been cut by 87%, and roughly 20,000 educators in the Campania region had not been paid for two years. Perhaps this is what Mario Monti means by “labour flexibility.”
In late March, reported the Economist, as Mario Monti was engaged in talks with employers and unions, trying to get them to accept labour-market reforms, “when it became clear that unanimity was impossible, Mr. Monti declared the talks over and said his government would press ahead regardless.” It is quite appropriate, one must acknowledge, that for a government which was created through undemocratic means, it should only continue to act and rule undemocratically as well. Such is the path Mario Monti has taken with Italy. On March 16, the Italian parliament’s three largest parties endorsed Monti’s reforms, on the warning from President Napolitano that, “failure to agree would have serious consequences.” The main problem for Monti came from the largest union federation, the CGIL, an historic ally of the Democratic Party (PD), which had endorsed Monti and his austerity packages, leading one senior leader in the PD to suggest that the party leader, Pier Luigi Bersani, “could face a backbench revolt or a party split.”
The Wall Street Journal naturally congratulated Monti, in an article entitled, “Monti pulls a Thatcher,” for showing “political courage” in walking away from negotiations with Italy’s labour unions, announcing that he was “going to move ahead with reforming the country’s notorious employment laws – with or without union consent.” Italy had stringent rules regarding the ability of employers to fire workers, what the Wall Street Journal referred to as a “job-for-life scheme,” which Monti’s reforms will replace with a “generous system of guaranteed severance when employees are dismissed” for what are called, “economic reasons.” The Journal heaped praise upon Monti, as “standing up to Italy’s labor unions takes courage, and not only of the political sort,” noting how there was an economist ten years prior who was shot and killed “for his role in designing a previous attempt at labor reform.” Monti had been ruling by decree since December, but announced in late March that the labour reform proposals would be voted through the National Assembly. The WSJ wrote that as a former economics professor, Mario Monti “has a rare opportunity to educate Italians on the consequences of opposing reform,” to which the Journal suggested, they need only to look at Greece: “If that doesn’t scare them sober, then nothing will help.”
Within a week, Monti allowed for a very slight change to his labour reform bill, which would give judges “greater leeway in determining whether companies were justified in laying off a worker.” The Wall Street Journal then referred to this, in an article entitled, “Surrender, Italian Style,” as a “cave-in to the left side of his political coalition,” and noted that, “Monti was brought in as Prime Minister to retrieve his country from the edge of a Greek abyss,” and that this “labor bill is a surrender to those who are bringing” that abyss to Italy. For the WSJ, any capitulation – no matter how minor (and this particular one was very minor) – to unions and labour, is deemed an absolute “surrender” or “cave-in.” Monti defended himself in a letter to the Wall Street Journal in which he explained that this “surrender” was still a move in the right direction of reform, as it “introduces a more predictable [i.e., controllable] and speedier [i.e., systematic] procedure to handle dismissals for economic or other objective reasons.” He elaborated: “First, a fast, compulsory, out-of-court settlement procedure at local level; then, if conciliation fails, the worker can take the case to a judge as happens in other countries.” In “extreme cases” where the “economic or other reason” for firing the worker is deemed “manifestly inexistent,” the judge then has the ability to decide “for reinstatement instead of compensation.” When the “economic dismissal” is “not justified” in other cases (i.e., not an “extreme case”), compensation will be given with a cap at 24 months of wages. Monti said that it was a “complex reform” and deserves “serious analysis rather than snap judgments.” He then wrote: “I would suggest that perhaps the fact that it has been attacked by both the main employers association and the metalworkers union, part of the leading trade union confederation [CGIL], indicates that we have got the balance right.” This reform, claimed Monti, “will make the Italian labor market more flexible” which “lays the foundation for increase productivity, economic growth and employment.”
In mid-April, Italy’s major unions took to the streets of Rome in protest against Mario Monti’s pension-system reforms put in place in January, “saying it traps hundreds of thousands of workers in a legal limbo without retirement pay.” The reform that raised the retirement age affects those who are already retired. Bloomberg gave the example of Maria Dinelli, who had an early-retirement deal in 2008, in which her former employer provided benefits until her pension was to begin in 2015. Under Monti’s reforms, her pension won’t begin until 2017, upon which she commented, “I’ll be without a salary or pension for two full years before the retirement age, and will have to put money aside… You were told you had guarantees, then you lose it all because a new government takes power and changes the rules.” Tens of thousands of Italians took to the streets of Rome on April 13 as the Italian Labor Ministry said the night before that, “there are 65,000 Italians who may be left without support between when they leave work and when their pension kick in as the higher retirement age delays their payout,” while unions say the amount of people affected is five times that size, at roughly 300,000, prompting one union leader to state, “If these figures were correct,” referring to the Labor Ministry numbers, “then we’d have to say that the thousands of workers who’ve turned to the union for help are not real and just ghosts.” A labor law professor in Rome estimated the number may actually be as high as 450,000.
Monti referred to this plan as “cutting edge.” Well, it certainly ‘cuts.’ Meanwhile, Italians are facing increased taxes and record-high gasoline prices, thus producing a “slump in consumer demand” which pushed Italy into a deeper recession. Nicola Marinelli of Glendevon King Asset Management in London stated: “An overhaul of the pension system was unavoidable because the old scheme was too generous compared to the country’s possibilities and the European standards… That said, the protest of these workers may be a harbinger of future social tensions. I don’t think the younger workers have really realized they will have starvation-level pensions.” Just another “cutting edge” facet of Monti’s reforms. Interestingly, though perhaps not surprisingly, Monti’s reforms had not yet included “a heavy hand with the richest taxpayers,” prompting a labor law professor to opine, “I think it’s about time for those who have more to contribute to the needs of the country.” But such is not the nature of austerity.
In fact, in April it was reported that the political class in Italy, the “army of politicians and senior officials” who support Monti and his reforms in Parliament, “are clinging to fat salaries that far outstrip those of their peers abroad.” Monti had issued a decree which aimed to “prevent public servants earning more than U.S. President Barack Obama,” many of whom “earn considerably more.” Italy’s wealthy, however, not simply the top politicians and bureaucrats alone, “are hardly carrying their share of the burden.” One economist noted: “There has not been an equal distribution of sacrifices… In proportion to their salaries, higher incomes are paying less.” Italy has roughly 1,000 lawmakers across the nation, who earn more than their counterparts in the United States, with a base salary of 11,283 euros per month, while the lowest-earning households in Italy, “hurt most by rising fuel, property and sales taxes,” live “on less than 8,000 euros per year, or 667 euros per month, after taxes.” Between 2006 and 2010, Italy’s poorest families already lost almost 12 percent of their real income, according to data from the Bank of Italy. Unlike the political class, most Italian families are “traditionally thrifty,” however, under austerity in 2011, “households saved only 12 percent of their gross income, the lowest level since 1995.” That is the nature of austerity: when you need to save more than ever before, the ability to do so becomes harder than ever before. In March, a Moroccan worker in Italy set himself on fire in protest, and an Italian businessman did the same. Polls in Italy have shown that the people are “increasingly dissatisfied with the parties and politicians that led the country for the past two decades,” as more than 40% of respondents said that they wouldn’t vote for any of them if there were an election today.
Italy Under Austerity
The Wall Street Journal reported in early April that figures from the Italian Treasury revealed that Monti’s austerity measures were “stunting activity in the euro-zone’s third-largest economy,” and while “recent tax increases are helping Italy cut its fiscal shortfall,” they are also “pushing economic activity to contract even faster.” Industry Minister Corrado Passera stated: “With austerity one doesn’t grow.” The majority of tax increases are on the income of workers, though they also include taxes on consumption (such as Value Added Taxes – VAT) and on property assets. As Italy’s GDP contracted by 1% in the first quarter of 2012, yields on Italian government bonds rose, making it more expensive for Italy to borrow. Former prime minister Berlusconi commented: “The cure that the European Union has prescribed for our country is the one that has already caused a disaster in Greece and is beginning to do so again in Spain,” though he continued to throw his support behind the technocratic government. One businessman in Italy warned that, “Consumers have insurmountable obstacles ahead of them, with higher income-tax rates from March, higher property taxes as of June and a value-added tax increase in September.”
By late April, unemployment in Italy had reached nearly 10%, according to “official” statistics (meaning, it’s actually much higher), and in Sardinia, one in two young people were out of work. The construction industry in Italy has been hard hit, leading to one industry businessman killing himself, adding to a wave of “austerity suicides” across Italy, reaching 25 by April for the year of 2012.
In May of 2012, the Italian anarchist group which had claimed responsibility for shooting a nuclear engineering firm chief threatened to target Mario Monti. The group, referring to itself as the Olga Nucleus of the Informal Anarchist Federation – International Revolutionary Front, sent a statement to a newspaper in southern Italy, warning that “Monti was among seven remaining targets after Roberto Adinolfi, chief executive of Ansaldo Nucleare, was shot in the leg last week.” The statement read: “We say to Monti that he is one of the seven remaining and that the people have no interest in staying in Europe, saving the banks and helping to balance the accounts of a state that squandered money for its own interests.” The statement explained that any suicide connected to tax difficulties brought about by the austerity measures would be punished as a “state murder.” This referred to a series of suicides in Italy by businessmen and others, “despairing at the collapse of their livelihoods because of the crisis.” It was the same anarchist group that in the previous year, claimed responsibility for sending letter bombs to several banks, including to Josef Ackermann, the CEO of Deutsche Bank, while the director-general of Equitalia in Italy lost a finger opening one of the letter bombs in December. One of the members of the group, facing prosecution in court, “called for armed revolution… when asked about the Adinolfi shooting.”
Mario Monti had been pushing himself into European politics as a “mediator” between Germany and the weaker euro-zone economies, to seemingly “broaden” decision-making in Europe beyond the Franco-German axis. In the first few weeks of May, Monti’s technocratic administration had been “courting Berlin on two fronts,” trying to draw the parliaments of both countries closer together, and in term of ideology, they had been “trying to convince German officials – in both private meetings and public speeches – that the compromise solution to stoking growth in Europe’s weaker economies is investment in big public projects, such as transportation, Internet networks or electricity grids, while maintaining fiscal discipline.” Some spending, claimed Monti, should be “exempted” from fiscal austerity, something which Germany had long opposed. But with the French elections in early May getting rid of Nicolas Sarkozy and bringing in the Socialist President Francois Hollande, who favoured a strategy of spending on growth, Monti was seeking to find a common ground between Germany and France, but in a way that ultimately was supportive of the European Union, specifically. Nicholas Spiro, who heads a London-based sovereign debt consultancy, stated, “If there’s one European leader whose policies can appeal to both Chancellor Merkel and President-elect Hollande, it’s Monti.” The refined “growth” program promoted by Monti would be based on “creating bonds to fund European Union infrastructure projects and boosting the firepower of the European Investment Bank to fund public investments.” Thus, it would be based upon European spending, not individual nations spending, and so the debt would be pan-European, and controlled by the EU.
In late April, Mario Monti announced that he would be making more cuts to spending by the end of the year, “and appointed an expert from the private sector as a special commissioner to oversee the spending review.” The cuts, amounting to some 4.2 billion euros (or $5.6 billion), “would allow him to avoid proceeding with a plan to raise the national sales tax to 23 percent in October from 21 percent, a move that could hurt consumer spending and slow a return to growth,” reported the New York Times. Monti stated, “Today we are faced with the necessity of making up for the time lost… And not in years, but in months.” The new special commissioner from the private sector to review the process was Enrico Bondi, known as “Mr. Fix-it” for having successfully restructured the bankrupt Parmalat group. The change in austerity measures followed intense pressure from the business community in Italy to push the burden from increased taxation to more government spending cuts.
In mid-May, yields on Italian debt jumped up to nearly 6%, as evidence emerged that Italy was sliding into an even deeper recession, brought on by Monti’s austerity measures and ‘structural adjustments.’ The government in Italy was openly discussing using troops to protect various targets after a wave of violent actions, claimed by various anarchist groups, such as the shooting of the nuclear industry executive, as well as petrol bombs being thrown at tax offices in early May. An Italian banker warned that unless the European Central Bank was converted into a lender of last resort, Italy faces “massive devaluation, three to five years of hyperinflation, and unbearable unemployment.” Moody’s ratings agency downgraded 26 Italian banks in May, evoking the anger of the Italian Banking Association, which called the downgrade, “irresponsible, incomprehensible, and unjustifiable,” and said it was “an attack on Italy, its companies, its families and its citizens.”
Italy held a series of local elections in early May, in which the Italian comedian, Beppe Grillo, who is also leading a political party, the Five Star Movement, which “rode a wave of protest against austerity politics” and suggested, “We will see you in parliament.” Grillo had been increasingly critical of Monti’s tax hikes, and in one local election forced a run-off with the Democratic Party (PD), and managed to “trounce” Silvio Berlusconi’s Freedom People party in all the local elections, while the right-wing Northern League party, which has also criticized Monti’s reforms, “was humiliated at the polls.” The major Italian newspaper, Corriere della Sera, said, following the elections, “As of yesterday, it seems Monti is now more alone.”
In mid-June, police in Italy, Switzerland and Germany arrested 10 people suspected of involvement in “leftwing terrorist activity” in Italy and elsewhere over the previous three years, connected to one of two organizations, the Informal Anarchist Federation (FAI) and the International Revolutionary Front (FRI). A general in Italy’s semi-militarized Carabinieri police force said that, “the two groups were in contact with the Greek anarchist movement.” The individuals who were arrested, however, were not suspected of being involved in the major act associated with the groups, the shooting of Roberto Adinolfi in Italy, though the General claimed, “The origin is the same.” The arrests did, however, include suspected involvement in the failed letter bomb sent to former Deutsche Bank CEO Josef Ackermann.
In mid-June, as the G20 meeting unfolded in Mexico, Italian Prime Minister Mario Monti said that the euro area needs a “road map with concrete interventions to make the euro more stably credible,” as well as a “pro-growth plan,” stating, “the two things are strictly complementary.” Even though Monti had imposed his brutal austerity measures upon the people of Italy, the bond rates for the country remained high, prompting Monti to comment, “There must be something wrong if a country that complies still has such high interest rates.” Monti noted that through the European Financial Stability Facility (EFSF), the European bail out fund, Italy had supplied loans to Greece, Ireland and Portugal amounting to 31.5 billion euros, commenting, “Italy has not until now asked for loans… She has made a lot of them and every day that passes, is in fact subsidizing others with the high interest rates she pays in the market.”
In late June, following the G20 summit, Mario Monti announced a “growth decree” for Italy, which included “discount loans for corporate R&D [Research & Development], tax credits for businesses that hire employees with advanced degrees, and reduced headcount at select government ministries.” Also in late June, Italy, Germany, France and Spain agreed to a “growth pact” for Europe with the total value of 130 billion euros ($163 billion), noting that, “austerity alone will not be enough to pull the euro zone out of its deep crisis.” The total sum represents 1% of the European Union’s GDP. Also envisioned are “project bonds” which would be financed through the EU’s budget, and issued “for private-sector infrastructure projects,” or in other words, corporate subsidies.
At the end of June, it was reported that Italy’s economic crisis was deepening, due in large part to the austerity measures, but also as a result of the increasingly high yields (interest rates) on Italian bonds, as Italy had to pay the highest interest rates since December in a 5.24 billion euro auction of 5 and 10 year government bonds (meaning that the country pays high interest rates to the financial institutions which purchased these bonds until they expire in a 5-or-10 year term). The ten-year bonds sold at an average rate of 6.19 percent, while the five-year bonds were at an average rate of 5.84 percent. This, the Financial Times warned, “is the latest sign of a deepening double-dip recession in Italy and will add urgency to prime minister Mario Monti’s demands for short-term measures” to reduce interest rates (such as the ECB purchasing bonds on the market). An Italian business lobby, however, went on to praise the “huge steps, unthinkable only a year ago,” which were implemented by Monti’s technocratic government, though adding, “the process is far from being completed.”
In late June, a bickering Italian parliament passed Monti’s labour reform package, just ahead of the EU summit. Angela Merkel said that Italy had “taken the road towards solid public finances, growth, jobs and competitiveness.” The reform of the labour market has been a major demand of the European Commission and the European Central Bank, and thus, Brussels praised the passing of the reforms, and even the IMF chimed in to cheer on Monti. The reform package was passed in parliament as protests led by the labour unions, took place outside, with police helicopters overhead and demonstrators clashing with security forces blocking the way to the parliament building.
At the EU summit at the end of June, Italy and Spain forced leaders to remain at the summit overnight, forcing an agreement to restructure Spain’s 100 billion euro bank recapitalization plan (the Spanish bailout), allowing funds to be injected directly into banks in Spain, “meaning Madrid can sweep the burden of the bailouts off its sovereign books.” Though this, in turn, requires the “creation of a single banking supervisor to be run by the European Central Bank,” likely as a precursor to a European banking union. Italy also received concessions, though less than Spain received, yet was the main driving force behind the revised rules for the eurozone bailout fund – the EFSF (and later the ESM) – which would have it purchasing sovereign bonds in order to lower the borrowing costs, as it would increase confidence in Italian bonds and thus, lower the interest rates, Monti’s key demand in the previous months. The countries that have their bonds purchased by the bailout fund “will no longer be subject to Greek-style monitoring programmes,” but instead, “they would simply have to maintain their EU debt and deficit commitments.” Monti declared, “It is a double satisfaction for Italy.” For Angela Merkel, who had for months refused to support any short-term rescue measures, “the deal was a significant concession.” Though, of course, every concession comes with a condition: “a German-led group of northern creditor countries will gain more control over all of the eurozone banks through the new single supervisor,” the mechanism through which to establish the banking union.
Upon this news, Spanish and Italian government bond yields fell sharply, with a Deutsche Bank economist commenting, “There was so little expectation and since there was a breakthrough at least on bank recapitalizations, the markets salute that.” The German media reported that, “Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of Friday morning,” on June 29. Der Spiegel reported that, “Monti emerged from the late-night negotiations as a clear victor.” Merkel had to concede to Monti, and Spanish Prime Minister Mariano Rajoy, specifically on the issue of “demands” for the bailouts, as Merkel has been the reigning Queen of austerity. Faced up to Monti, however, the permanent European bailout fund – the European Stability Mechanism (ESM) – can loan to countries “which fulfill the budgetary rules laid down by the European Commission… without agreeing to tough additional austerity measures.” Thus, strict oversight by the troika – the European Commission, the European Central Bank, and the IMF – would no longer apply.
Monti’s uprising at the summit began at 7:00 p.m. on Thursday evening, when European Council President Herman Van Rompuy wanted to conclude the first working session and announce the growth pact to the press. Monti, furious, asked Van Rompuy where he was going, and then refused to agree to the growth pact until resolving the issue of establishing “concrete measures to fight the high interest rates on Italian government bonds.” Spanish Prime Minister Rajoy supported Monti, adding that he could not support the growth pact either until such an issue had been resolved. Danish Prime Minister Helle Thorning-Schmidt asked if the attendees “were now all hostages,” and Van Rompuy remained seated. After midnight, representatives from the ten non-euro EU countries left for their hotel rooms, while the 17 eurozone countries “remained in their seats and began a decisive round of negotiations.” After a few hours, Monti and Rajoy convinced Merkel “that countries would in the future be able to receive funds from the ESM without having to submit to troika oversight.” Thus, “only the European Commission’s annual targets will have to be met.” The session ended at 4:20 a.m. on Friday morning, with European Commission President Barroso and Council President Van Rompuy announcing it at a press conference.
This is not to say that austerity and structural adjustment would not be pursued, but simply that the ‘Troika’ (the EC, ECB, and IMF) monitoring and imposition of austerity would cede in favour of general targets set by the European Commission. Those targets, however, would still demand fiscal austerity and structural adjustment, but would not be subject to the same oversight or schedule with which the demands must be met. Ultimately, it was a deal that was not aimed at reducing the imposition and effects of austerity, but rather, was designed to institutionalize more effectively the domination of the European Commission itself (an unelected technocratic institution), as opposed to a more ad-hoc Troika system of oversight.
In the Italy of Mario Monti – and in the European Union at large – austerity is poverty, growth is plundering, labour reform is exploitation, and democracy… is Technocracy. Welcome to Italy, welcome to the new Europe in the age of austerity.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
Please donate to The People’s Book Project to help this book be finished by the end of summer:
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Italy in Crisis: The Decline of the Roman Democracy and Rise of the ‘Super Mario’ Technocracy
Part 1 of “Italy in Crisis”, a series of excerpts from a chapter in an upcoming book.
By: Andrew Gavin Marshall
The European debt crisis continues into its third year, with four government bailouts – of Greece, Italy, Portugal, and Spain – and having imposed harsh austerity measures upon the people of Europe, forcing them to pay – through reduced standards of living and increased poverty – for the excesses of their political and financial rulers. Italy, as Europe’s third largest economy, with one of the largest debt-to-GDP ratios, plays a central role in the unfolding debt crisis across Europe. Part 1 of this excerpt from a chapter on the economic crisis in my upcoming book covers the “suspension” of democracy in Italy and the imposition of a ‘Technocracy’ – an unelected government led by academics and bankers – with a mandate to punish the people, facilitate the financial elite, and serve the interests of the supranational, unelected, technocratic European Union. Power centralized, power globalizes, power plunders and profits on the punishment and impoverishment of people everywhere. This is the story of Italy’s debt crisis.
This is an unedited, rough draft excerpt from my upcoming book – the Preface to the People’s Book Project – which is due to be finished by the end of the summer, and covers the following subjects: the origins, evolution, and consequences of the global economic crisis; the expansion and effects of global imperialism and war; the elite-driven social engineering project of establishing an institutional structure of ‘global governance’; and the rising resistance of people around the world to this system, as well as the attempts of the imperial powers to co-opt, control, or destroy these socio-political movements – the embodiment of the ‘Global Political Awakening’ – from the Arab Spring, to the anti-austerity movements across Europe, the Indignados in Spain, the Occupy Movement, the Chilean Winter and the Maple Spring in Quebec, among others. This project needs your support: I am attempting to raise $2,500 in donations to support the efforts to finish this book by the end of the summer, with $530 raised so far, and $1,970 left to go. Please donate today!
Bilderberg, Berlusconi, and Italian Austerity
The Italian Finance Minister, Giulio Tremonti had attended the Bilderberg meeting in early June of 2011, alongside other notable Italian participants, including Franco Bernabe, CEO of Telecom Italia (and Vice Chairman of Rothschild Europe); John Elkann, the Chairman of Fiat; Mario Monti, the president of Bocconi university and a former EU Commissioner; and Paolo Scaroni, the CEO of Eni, an oil and gas company and Italy’s largest industrial corporation. The Bilderberg meeting for 2011 took place from June 9-12 in Switzerland, and of course was attended by a host of other major European elites, including: Josef Ackermann, Chairman and CEO of Deutsche Bank; Marcus Agius, Chairman of Barclays Bank; the Swedish Ministers for Foreign Affairs and Trade; Luc Coene, the Governor of the National Bank of Belgium; Frans van Daele, Chief of Staff to the President of the European Council; Werner Faymann, the Federal Chancellor of Austria; Douglas J. Flint, Group Chairman of HSBC Holdings; Neelie Kroes, Vice President of the European Commission; Bernardino Leon Gross, Secretary General of the Spanish Presidency; George Papaconstantinou, the Greek Minister of Finance; Herman Van Rompuy, President of the European Council; and Jean-Claude Trichet, President of the European Central Bank, among many others.
In July of 2011, Silvio Berlusconi’s government announced a package of austerity measures hoping to calm markets, seeking to reduce the deficit by 40 billion euros. The package, largely designed by finance minister Giulio Tremonti, only attempted to address Italy’s debt, but markets were also concerned about the country’s “ultra-low-growth,” which has been consistent since Berlusconi returned to office in 2001. Once the austerity measures would be signed into law, several opposition politicians were suggesting the formation of a cross-party “technical government” without Berlusconi in office. The Finance Minister Tremonti announced a wave of privatizations. Apparently, the privatizations and various liberalizations were urged into the austerity package by the main opposition party, the Democratic Party (PD), not Berlusconi’s Freedom People Party. The central bank governor of Italy, Mario Draghi, who was poised to become the next President of the European Central Bank (ECB) following the end of the term of Jean-Claude Trichet, warned the Italian government that “it would have to raise taxes or make further spending cuts” if it wanted to calm markets. By July 14, the Italian Senate approved an increased austerity package worth 70 billion euros (or $99 billion), “aimed at convincing investors that the eurozone’s third-largest economy won’t be swept into the debt crisis.” Italy’s bonds (government debt) saw its borrowing rates (interest) hit record highs as investors were not calmed by the proposed austerity measures.
Even as the austerity measures were being passed, market confidence was still lacking, which was largely credited to the fact that a rift emerged between Berlusconi and his Finance Minister Tremonti, who as a Bilderberg attendee, no doubt has the confidence of markets. Berlusconi reportedly viewed Tremonti as a “rival” and has “repeatedly attacked [Tremonti] as a traitor in newspapers owned by the Berlusconi family.” After Tremonti, who was facing his own corruption charges, was caught on camera calling a colleague a “cretin,” Berlusconi told an Italian newspaper, “You know, he thinks he’s a genius and that everyone else is stupid… I put up with him because I’ve known him for a long time and one has to accept the way he is. But he’s the only one who is not a team player.” It was opined, then, that markets reacted to this rift between the Prime Minister and the Finance Minister, as articulated by an official at F&C Investments, who stated that markets view Tremonti as the “steady counterweight to the unpredictable and capricious” Berlusconi.
In July of 2011, Nichi Vendola, a popular leftist opposition political figure in Italy, wrote an article for the Guardian, in which he critiqued the austerity measures imposed by the Berlusconi government. Vendola wrote that, “Italy will not survive this crisis by listening to the very people who got us into it, especially not when they demand that the middle class and poor foot the bill for their failures.” Vendola also put blame on the European managing of the crisis, as “governments now have an obsessive fixation on employing tighter control of budget deficits to satisfy the European stability pact.” Vendola referred to Tremonti’s austerity package as a “social catastrophe,” and that instead, he suggested, what Italy must do “is turn this policy on its head,” noting that, “Italy’s problem is as much about growth as it is debt.” To do this, Vendola wrote, it “will require a new government,” and that, “Italy needs elections, because only a completely new governing class can achieve the political consensus to design and implement a plan to tackle the crisis.” He suggested that the European stability pact would need to be re-negotiated, and concluded: “It does us little good to please the out-of-touch elite of our capitals while the people have to tighten their belts and our youth are robbed of their future.”
Mario Monti, President of Bocconi University and a former European Commissioner, also agreed that Italy needed a new government, though for different reasons (and a different type of government). He wrote an article in a major Italian paper in August of 2011 in which he advocated – as a solution to Italy’s problems – the formation of a “supranational technical government” which would make all the major decisions in order to “remove the structural constraints to growth,” and opined that “an Italy respected and authoritative… would be of great help to Europe.” Vendola wanted a new government to help the people, and Monti wanted a new government to help “Europe” (read: banks and elites). Guess who became the next leader of Italy!?
Berlusconi Bows Down to the Bankers and Punishes the People
In August, Silvio Berlusconi had to approve a new austerity package, the second in less than a month. In a letter which was leaked to the Italian press, it was revealed that Jean-Claude Trichet, the President of the European Central Bank, and Mario Draghi, the President of the Italian Central bank (from 2006 to 2011, who was set to secede Trichet at the ECB in October of 2011), put pressure on Berlusconi to “implement significant austerity measures.” The letter, written by the two central bankers, demanded “pressing action… to restore the confidence of investors.” Dated August 5, 2011, it was issued just days before the ECB announced its new programme to buy Italian bonds (debt), designed to reduce the country’s borrowing costs (interest on future debt). One of the measures mentioned in the letter instructed Berlusconi to take “immediate and bold measures to ensuring the sustainability of public finances,” to achieve a balanced budget in 2013. This was adopted in the subsequent austerity package put forward by Berlusconi in August. The letter also stated that, “it is possible to intervene further in the pension system, making more stringent the eligibility criteria for seniority pensions and rapidly aligning the retirement age of women in the private sector to that established for public employees.” Further, the “borrowing, including commercial debt and expenditures of regional and local governments should be placed under tight control, in line with the principles of the ongoing reform of intergovernmental fiscal relations.”
In economic-speak, the letter asked for privatizations of public services: “Key challenges are to increase competition, particularly in services to improve the quality of public services and to design regulatory and fiscal systems better suited to support firms’ competitiveness and efficiency of the labour market.” This would require three key actions, the first of which was that, “a comprehensive, far-reaching and credible reform strategy, including the full liberalization of local public services and of professional services is needed,” and that, “this should apply particularly to the provision of local services through large-scale privatizations.” The second major step was “a need to further reform the collective wage bargaining system [meaning: undermine unions] allowing firm-level agreements to tailor wages and working conditions to firms’ specific needs and increasing their relevance with respect to other layers of negotiations.” In other words, destroy the unions so that companies can exploit labour to whatever degree they choose. And thirdly, according to Trichet and Draghi, what was needed was a “thorough review of the rules regulating the hiring and dismissal of employees [which] should be adopted in conjunction with the establishment of an unemployment insurance system and a set of active labour market policies capable of easing the reallocation of resources towards the more competitive firms and sectors.”
In other words, labour rights and laws and the rights of workers need to be dismantled so that companies can do as they please. It’s not simply the unions that need to be destroyed, but the laws for worker security in general. Of course, no advice from central bankers would be complete if it didn’t advocate that the government “immediately take measures to ensure a major overhaul of the public administration in order to improve administrative efficiency and business friendliness.” Trichet and Draghi wrote that it was “crucial” that the government take these actions “as soon as possible with decree-laws, followed by parliamentary ratification,” or, in other words: skip the democratic process because it takes too long, rule by decree, something Italy has a “proud” history of. All of this was demanded to be done before the end of September 2011. In an interview with an Italian paper, Trichet admitted that this was not the first time the ECB had sent such letters to governments (such as Greece), saying, “We have sent messages and we do that on a permanent basis, through various means, addressed to individual governments. We do not make them public.”
Indeed, the European Central Bank had demanded austerity measures be implemented by the governments of Greece, Ireland, Portugal, and Italy, and when Berlusconi submitted to the mandate from the central bankers, he complained that it made his administration look like “an occupied government.” A leading liberal MP in Italy, Antonio Di Pietro, said that, “Italy is under the tutelage of the EU, and a country under tutelage is not a free and democratic one.” An Irish MEP (Member of the European Parliament), Paul Murphy, stated that there had been a “massive shift away from democratic accountability since the start of the crisis,” and that: “There needs to be a check on the enormous power of the ECB, which is unelected, and has basically held a government to ransom.” Europe’s largest trade union federation, the European Public Sector Union, “accused the ECB of directing Italian fiscal and labour policy in secret,” which is, of course, true. The Deputy General Secretary of the federation, Jan Willem Goudriaan, said, “Europe cannot be governed through secret letters of bankers, officials or an unaccountable body.” EU officials, from Angela Merkel, Nicolas Sarkozy, to Herman Van Rompuy and Jean-Claude Trichet, have been increasing their calls for an “economic government” of Europe, tightening and deepening fiscal integration and proposing the creation of new council’s and organizations to impose sanctions on countries and “police the austerity measures of governments,” and even the creation of a European finance ministry. Paul Murphy stated that, “All these proposals, discussions about economic government, are about undermining democracy in order to impose a European shock doctrine… EU elites need to remove points of pressure that can be mounted on governments. If the mass of people are opposed to austerity, they can mount pressure on governments to hold that in check. So the only way it can then be imposed s undemocratically.” The head of a Belgian pro-transparency group stated that, “European powers [are] distancing themselves from voters while at the same time [there is] a growing tendency towards building closer relationships with corporate and specifically financial lobbies… These two trends are explosive and can only lead to a loss of legitimacy for the EU institutions.”
Shortly after, on August 12, the Berlusconi government was meeting to approve the new austerity package to meet the ultimatum from the ECB, amounting to a package of “fiscal adjustments” (i.e., spending cuts) of 20 billion euros in 2012 and 25 billion euros in 2013, with the spending cuts and tax increases to be “enacted immediately by decree, but subject to approval by parliament later,” just as Draghi and Trichet instructed. The rapid tax increases did much to damage even long-time supporters of Berlusconi who had promised that he would “never put their hands in the pockets of the Italian people.” Fiscal federalism was the policy of giving the various regions in Italy more control over their finances. With the new austerity package, the governor of Lombardy, Roberto Formigoni, stated, “It seems clear [fiscal] federalism has vanished.”
In mid-September, Berlusconi won final parliamentary approval for the 54 billion euro ($74 billion) austerity package, while police outside the parliament in Rome had to disperse protesters with tear gas. The German Economy Minister Phillip Roesler told a news briefing in Rome that, “The approval of the austerity package sends a signal of stability… I have respect for what Italy has done with its budget adjustment as this will benefit the whole euro area.” The legislation simply made legal the measures that Berlusconi’s government enacted through un-democratic decree the month before, and were formalized in exchange for the European Central Bank bond purchases which helped to reduce Italy’s borrowing costs. Silvio Peruzzo, an economist at the Royal Bank of Scotland, stated that the plan’s passage is a “very welcome step,” but that the slowing global economy still cast doubts on whether Italy could “meet its fiscal targets and will also render additional corrective measures [austerity packages] very likely.” Even with the endorsement and backing of the ECB, said Peruzzo, Italy’s debt remained “under pressure, which is indicative of a well-rooted lack of confidence in Italy and in the European policies to tackle the crisis.” One the plan was approved, said Italian Finance Minister Tremonti on September 10, “If there are things to change in our growth measures we will, and if there are things to add, we will.”
The Economist reported on the new austerity package, noting that while Berlusconi had approved the austerity package in Italy, designed to cut roughly 45.5 billion euros from the deficit by the end of 2013, he almost immediately back-peddled on 7 billion euros worth of spending cuts and tax increases, “notably a tax on high earners that would have hurt his natural supporters,” meaning, rich people. Thus, even as the package went to the Senate in early September, Berlusconi was fine-tuning the details. Thus, noted the Economist, “the markets [were] again registering alarm,” and at the same time, Italy’s largest and most militant trade union federation, the CGIL, called for a one-day strike in opposition to the austerity package, “protesting over a clause making it easier to dismiss workers and, more generally, over a budget that the CGIL’s leader, Susanna Camusso,” referred to as “unjust because it attacks the weakest.” This further worried “the market” and “investors.” The Economist wrote that: “Mr. Berlusconi had consistently failed to react unless bullied. His first emergency budget in July followed a telephone call from the German chancellor, Angela Merkel,” while the second was of course at the prompting of the ECB.
By October of 2011, the austerity measures in Italy had been wreaking havoc, as non-profit organizations lose their funding and had major bureaucratic obstacles put in their way for community projects, such as the Associazione Obiettivo Napoli, which ran two programs working with children in difficulty in Naples since 1998, helping them clean up local communities and provide counseling. As central government funding to town halls had been cut, organizations like Obiettivo Napoli, “which sit uneasily somewhere between education, welfare and rehabilitation budgets, have been the first to suffer.” Pietro Varriale, who works with the organization, commented on further obstacles put in their way: “They’re saying we need a second degree in education science to be able to do this work… It’s crazy. I have 15 years experience in this field, most of the team likewise, and we all have first degrees. A second degree is going to cost people a fortune, really a lot of money, and there’s no help or grant for that kind of thing. We’ve been given till 2013 to conform.” To add to that, the city of Naples simply stopped paying the bills for the organization, which had to then borrow money from a bank, forcing the employees such as Pietro to have to take on jobs working at bars, waiting tables, picking tomatoes and other piecemeal projects while they continue to work with the association being unpaid: “You keep going because of the kids, the relationships you build up.”
Giancarlo Di Maio, a 23-year old university graduate in Naples working at a secondhand bookshop told the Guardian that, “University here is like a car park. You stay there as long as you can, because there’ll be nothing to do when you come out,” referring to the lack of jobs for youth. As he was employed, he explained: “Every morning, I wake up with a smile… How fortunate am I? Because otherwise, the only other work around here is black. The black economy is a huge, monumental issue for Italy.” His friends might make 30 euros for 10 hours working in a bar, or 20 euros for a night waiting tables in a restaurant. Di Maio, who works at a bookshop owned by his father, said that, “I know plenty of people in their 30s, even some in their 40s, still living with their parents… That’s not normal. For me, that’s one of the biggest problem [sic] in Italy – opportunities, any kind of prospects for young people.” When asked about Italian politics, he replied, “We have the worst political class in Europe, no question… Twenty years of Berlusconi, and not a single reform, nothing for the unemployed, nothing to address the economic crisis. Instead we talk about his sex life… we have a political class who do nothing. They don’t have solutions, and even if they did they wouldn’t try to do anything. They just speak air, it’s all they can do. Posturing.” Expressing some hope at the Occupy movement, though lamenting how it turned to violence in Italy, he explained that people were “finally starting to get angry. They are beginning to see that really, we can’t carry on like this. Italy really is sick. We can’t pretend to be the doctor any more; we need curing ourselves.”
The Technocratic Coup
By early October 2011, it was clear that the “markets” were not satisfied with Berlusconi’s efforts at implementing a program of social genocide (fiscal austerity) which was to their liking. Thus, on October 5, the international ratings agency Moody’s cut Italy’s credit rating for the first time in two decades, adding to the downgrading from Standard & Poor’s two weeks prior. The Italian government responded that the actions of the ratings agencies were “politically motivated.” Even Moody’s acknowledged that the political situation within Italy played a part in its decision, including Berlusconi’s sex scandals, and the growing protests against the austerity measures.
The effect of the downgrades is to make Italian bonds (government debt) less attractive to buy (as it is a riskier investment), and thus, Italy would have to pay higher interest rates. As a result of that, as we have seen with Greece, this makes the country’s overall debt larger (as it amounts to borrowing money to pay back borrowed money), except with the higher yields (interest rates), the future payments will be even more costly, likely to create potential for a bailout (again, just taking more debt to pay interest on older debts). All the while, the overall debt to GDP ratio increases, and austerity measures become the “conditions” for receiving bailouts, and the country is essentially taken over by the IMF, the ECB, and the EC (named the “Troika”), as occurred in Greece. This creates a permanent spiral of expanded debt, economic crisis, and social genocide. This is what is often called “market discipline.”
In mid-October, opposition to Berlusconi’s harsh austerity measures from within Italy was increasing, just as “market pressure” and EU-opposition from outside Italy was building against Berlusconi for his austerity measures being perceived as ‘too little, too late.’ Nine members of Berlusconi’s own coalition said the austerity package “unfairly targets the middle class and fails to tackle Italy’s massive tax evasion problem.” Susanna Camusso, the head of Italy’s largest and most militant labour federation, CGIL, said that a strike is the only way to “change the inequity of this package.” During a global “day of rage” partly inspired by the Occupy Wall Street movement in the United States and the Indignados movement in Spain, October 15 saw various Occupy and other protests erupt around the world, in 950 cities in 80 different countries. In Italy, Rome saw roughly 200,000 protesters come out into the streets, protesting against the austerity measures, the government, the EU, the ECB and the IMF. The protests erupted into violence as hundreds of those assembled began fighting with riot police, who were using tear gas and water cannons against the protesters, and several hundred erupted in urban rebellion (what is often called “riots”) in which banks were destroyed, they set cars and garbage bins on fire, hurled rocks, bottles, and fireworks at the police who continually charged the crowd. Roughly two dozen demonstrators were injured, with one reported to be put in critical condition, and at least 30 riot police were injured.
As Berlusconi’s own government began to fracture in the face of the austerity package, disagreeing on what and how and if to cut, one of Berlusconi’s main coalition partners, the center-right Northern League, hinted that new elections were a possibility. Considering the popularity of the anti-austerity leftist leader Nichi Vendola, this was perhaps too much to bear. European leaders Angela Merkel and Nicolas Sarkozy lost their patience, and in late October, demanded that Berlusconi move forward with the austerity package. In a series of EU summits in late October on handling the economic crisis, discussing specifically the plan to boost the funds of the European Financial Stability Facility (EFSF), there was concern, reported Der Spiegel, “that the current size of the (recently expanded) fund isn’t sufficient should additional countries, particularly Spain and Italy, be infected with debt contagion.”
Following these meetings, it was made “abundantly clear” to the Italians that their “leadership is no longer taken seriously.” Italian papers and TV shows were overwhelmed with covering the “condescending smile” of Angela Merkel to Berlusconi, and comments made by Sarkozy. Merkel and Sarkozy and other EU leaders told Berlusconi in the talks that he had to present a plan within three days “for reducing Italian debt more quickly than current plans call for.” European Council President Herman Van Rompuy said that Berlusconi had “promised to do so.” The following evening, Berlusconi stated, “No one is in a position to be giving lessons to their partners.” European leaders were frustrated that even the austerity package passed earlier in the summer had not been fully implemented, and the government’s stability was continually threatened over debating each new measure. The European Commissioner for Economic and Monetary Affairs, Olli Rhen, said that all the details of the new plan were “unclear.” With the EU summits proposing increasing the EFSF bailout fund from 440 billion euros to 1 trillion, a central feature to the demands of the EU leaders was that countries like Italy impose more stringent austerity measures. As Der Spiegel reported, “A clear Italian commitment to austerity is a key component of that plan.” There was then a good deal of conjecture over the possible departure of Berlusconi. The Italian paper Corriere della Serra reported that Angela Merkel called the Italian President Giorgio Napolitano the previous week “to discuss concerns about Italy’s political leadership.”
In fact, Angela Merkel did make such a phone call to Italy’s president Napolitano in October, violating “an unwritten rule” for Europe’s leaders “not to intervene in one another’s domestic politics.” But this is a new, changing EU, one in which democracy – even the withering façade Western governments maintain – simply no longer matters. Merkel was “gently prodding Italy to change its prime minister, if the incumbent – Silvio Berlusconi – couldn’t change Italy.” The Wall Street Journal reported on the events that led to this incident, explaining that at the annual meeting of the IMF in September, China, Brazil, and the U.S. “berated” Europe for its small bailout fund, and told Europe to borrow “hundreds of billions of euros from the ECB,” something Merkel had long been against, and which was refused by Jens Weidmann of the German central bank, explaining that the bailout fund “was an arm of the governments… and lending to governments was against the ECB’s charter.” On October 19, Sarkozy left his wife who was in labor at a clinic in Paris to fly to Frankfurt to confront Jean-Claude Trichet at a party being held for the President of the ECB to honour him as he prepared to leave the ECB at the end of the month (to be replaced by the president of the Central Bank of Italy, Mario Draghi). Sarkozy argued that the ECB needed to intervene in the bond markets (buying government debt), stating that, “Everything else is too small.” Trichet said that it wasn’t “the ECB’s job to finance governments.”
The ECB had engaged already in certain bond purchases, which “had caused a political backlash in Germany,” and as Trichet said, “I did a bit, and I was massively criticized in Germany.” Merkel, who was present during the shouting match between Trichet and Sarkozy, was frustrated at Sarkozy’s pressure on Trichet, as she had always opposed the ECB printing money to handle the crisis, telling Trichet, “You’re a friend of Germany.” It was the following day, on October 20, that Merkel made her “confidential” phone call to the Italian President in Rome, “the man with authority to name a new prime minister if the incumbent were to lose parliament’s support.” President Napolitano informed Merkel that it was “not reassuring” that Berlusconi had only “recently survived a parliamentary vote of confidence by just one vote.” Merkel then thanked Napolitano for doing what was “within your powers” in promoting reform. Within days, Napolitano began “sounding out Italy’s political parties to test the support for a new government if Mr. Berlusconi couldn’t satisfy Europe and the markets.” It no doubt did not help Berlusconi when he wrote in an Italian paper in late October that the word austerity “isn’t in my vocabulary.”
In early November, at a G20 meeting in Cannes, President Obama and other leaders were “effectively ordering Silvio Berlusconi to accept surveillance of Italy’s austerity measures by the International Monetary Fund,” reported the Guardian. Berlusconi was advised by Merkel, Sarkozy, Herman Van Rompuy and other EU leaders the previous week to come to the G20 with “a specific austerity package,” but due to divisions within his cabinet, Berlusconi “arrived empty-handed.” It was reported that Berlusconi would likely not survive a vote of confidence in the Italian parliament set for the following week. The ECB had been purchasing Italian bonds since August in order to push the yields lower, which dropped to below 5%, but by early November they had been driven up to 6.5%, “levels that make it difficult to pay back debt.” Italian President Napolitano had been holding meetings with party leaders to discuss the possibility of “constructing an interim government if Berlusconi’s collapses.” The G20, which was discussing the possibility of adding $300 billion to the IMF’s bailout fund of $950 billion, and G20 leaders pressured Italy “to sign up to a more specific austerity package or else the US and other countries would not put extra funds into the IMF.”
Just prior to heading to the G20 meeting, Berlusconi had attempted to issue a decree which would pass various austerity measures, “thus bypassing the parliament,” but, reported the EUobserver, he “was held back by [President] Giorgio Napolitano,” as well as the Finance Minister Giulio Tremonti. Instead, Berlusconi was pressured to attempt an amendment to a “law for stability” to be approved the following week, at which time he would likely face a vote of confidence. Enrico Letta, the deputy general secretary of the center-left Democratic Party (PD), the main opposition party, said that, “We think that next week will be a week in parliament where we try to force the situation if Berlusconi does not resign before.”
As Jean-Claude Trichet retired from the ECB at the end of October, and Mario Draghi left the Bank of Italy to take up his new job as President of the ECB, the newly-appointed governor of the Bank of Italy, Ignazio Vasco, said that Italy “needed to take urgent action to boost confidence in the economy and initiate structural reforms,” insisting that the commitments already given to the EU in a “letter of intent” in late October (following Berlusconi being castigated by Merkel and Sarkozy), “must be honoured quickly and consistently.” At the G20 conference, Berlusconi agreed under pressure to have the IMF oversee Italy’s implementation of austerity measures, following late-night talks with G20 leaders. Jose Manuel Barroso, President of the European Commission (EC), said that, “Italy had decided on its own initiative to ask the IMF to monitor. I see this as evidence of how important Italy’s commitment to reform is.” The EC would also monitor Italy’s progress, and was set to visit Italy the following week to undertake a more detailed study. One EU source told the Telegraph that, “We need to make sure there is credibility with Italy’s targets – that it is going to meet them. We decided to have the IMF involved on the monitoring, using their own methodology, and the Italians say they can live with that.” The chief financial officer of Commerzbank, Eric Strutz, said that, “The whole stability of Europe depends on whether Italy gets its act together.”
On November 8, Berlusconi suffered a party revolt in parliament which failed to deliver him a majority, and would likely lead to a vote of non-confidence a few days later. Upon this defeat, Berlusconi announced that he would resign as Prime Minister “as soon as parliament passed urgent budget reforms demanded by European leaders.” President Napolitano announced that he would begin consultations on the formation of a new government, and stated that he would prefer a “technocrat or national unity government.” At the same time, the “markets” had pushed Italy’s bond yields (debt interest) to nearly 7%, figures that saw Greece, Ireland, and Portugal getting bailouts. The leader of the main opposition Democratic Party (PD), Pier Luigi Bersani, said, “I ask you, Mr. Prime Minister, with all my strength, to finally take account of the situation… and resign.” Berlusconi and some of his close allies, however, warned that appointing a technocratic government, the option which was said to be favoured by “markets,” would amount to an “undemocratic coup.” Naturally, that’s just what happened.
Writing for the Guardian, John Hooper suggested that one of four scenarios would take place upon the event of Berlusconi’s resignation: one envisions Berlusconi leaving but the right gaining a broader majority, specifically under Umberto Bossi’s Northern League, who was in Berlusconi’s coalition but had advised him to resign, and was pushing for him to be replaced with the next in command in Berlusconi’s party, Angelino Alfano; another scenario envisioned a “grand coalition,” or a “government of national emergency or salvation,” bringing together all the parties; a third scenario had Italy calling an election, urged by both Berlusconi and Bossi; or the fourth option, “a cabinet of technocrats,” which Hooper wrote was “favoured by the markets and the Italian centre left,” which would consist of “a government filled with specialists who could pass the unpalatable legislation needed to revive Italy’s flagging economy without having to worry about re-election.” This happened before in Italy, when Berlusconi’s government fell in 1994, at which time he was replaced by Lamberto Dini, a central banker, who headed a government of “professors, generals and judges.” In this scenario, suggested Hooper, the likely prime minister would be Mario Monti.
Upon Berlusconi’s failure to achieve a minority during the budget vote on November 8, many officials from the financial community began making their observations, such as Jan Randolph, the head of sovereign risk analysis at HIS Global Insight, who said that, “Berlusconi has effectively lost political capital to carry the country through a period of austerity and structural reform,” and that, “Berlusconi will have to resign.” He went on to suggest that it was possible “that a broad National Unity government headed by a respected technocrat like ex-EU commissioner Mario Monti could be formed.”
As Berlusconi officially resigned on the night of November 12, 2011, he left the president’s palace through a side door as a crowd of over 1,000 people outside yelled, “buffoon,” “Mafioso,” and for him to “face trial.” A poll from early November reported that 71% of Italians favoured his resignation, and upon hearing of his official resignation, the crowd erupted in roars of “Halleluja.”
On November 16 of 2011, Mario Monti was appointed as Prime Minister of Italy. Monti accepted the mandate to form a new government, and was expected to appoint technical experts as opposed to politicians to his cabinet. President Napolitano told Italian politicians that, “it is a responsibility we perceive from the entire international community to protect the stability of the single currency as well as the European frame work.” Berlusconi’s political party, the People of Liberty, said it would accept a Monti government for a short while before elections would have to be scheduled, and Berlusconi referred to his resignation as “an act of generosity.”
Mario Monti is an economist and academic who served as European Commissioner for the Internal Market, Services, Customs and Taxation from 1995 to 1999, and European Commissioner for Competition from 1999 to 2004. Monti is founder and Honorary President of Bruegel, a European think tank he launched in 2005, based in Belgium, and which represents the interests of key European elites. Monti has also been a member of the advisory board of the Coca-Cola Company, and was an international advisor to Goldman Sachs, was a former member of the Steering Committee of the Bilderberg Group, having previously attended the meeting in Switzerland in June of 2011, and was European Chairman of the Trilateral Commission until he resigned when he became Prime Minister of Italy.
Monti’s think tank, Bruegel, represents key elite European interests. The Chairman of the Board of Bruegel is Jean-Claude Trichet, the former President of the European Central Bank (ECB) from 2003 to 2011, who is also a member of the board of directors of the Bank for International Settlements (BIS), and has joined the boards of a number of major corporations, including EADS. Other board members of Bruegel include: Jose Manuel Campa Fernandez, who was the Spanish Secretary of State for Economic Affairs at the Ministry of Economy and Finance from 2009 to 2011, and has been a consultant for the European Commission, the Bank of Spain, the Bank for International Settlements (BIS), the Federal Reserve Bank of New York, the Inter-American Development Bank, the International Monetary Fund and the World Bank; Anna Ekström, the president of the Swedish Confederation of Professional Associations, Saco, and formerly the Swedish State Secretary for the Ministry of Industry, Employment and Communication; Jan Fisher, Vice President of the European Bank for Reconstruction and Development (EBRD), former Prime Minister of the Czech Republic; Vittorio Grilli, the Deputy Minister of the Ministry of Economy and Finance of Italy (whom Monti appointed to his technocratic government in November of 2011), and a former Managing Director at Credit Suisse First Boston; Wolfgang Kopf, Vice President at Deutsche Telekom AG; Rainer Münz, head of Research and Development at Erste Group and Senior Fellow at the Hamburg Institute of International Economics (HWWI), former consultant to the European Commission, the OECD, and the World Bank; Jim O’Neill, Chairman of Goldman Sachs Asset Management; Lars-Hendrik Röller, the Director General of the Economic and Financial Policy Division of the German Federal Chancellery, and is President of the German Economic Association; Dariusz Rosati, former consultant economist at Citibank, former Minister of Foreign Affairs for Poland, former adviser to the President of the European Commission, and was a member of the European Parliament from 2004 to 2009; and Helen Wallace, a British academic expert on European integration.
In October of 2009, Mario Monti was asked by the President of the European Commission Manuel Barroso to draw up a report on how the EU should re-launch its single market. Barroso advised that the report, “should address the growing tide of economic nationalism and outline measures to complete the EU’s currently patchy single market.” Mario Monti was President of the Bocconi University at the time he was asked to write the report. In May of 2010, Monti produced the report and officially handed it in to European Commission President Barroso. The report recommended ways to fight the potential of economic nationalism and to preserve and protect the regional bloc and to advance the process of integration, with Monti arguing that, “There is now a window of opportunity to bring back the political focus of the single market.” The report eventually became the EU’s Single Market Act of 2011.
After becoming the technocratic and unelected Prime Minister of Italy, Monti quickly appointed his new cabinet, of which more than a third of the 17-member cabinet consisted of professors and other technocrats. The cabinet position of Minister of Economic Development, Infrastructure and Transport was given to Corrado Passera, the chief executive of Italy’s largest bank, Intesa Sanpaolo. Passera told the Financial Times upon his appointment as “superminister” that, “If you want to build the wide consensus that is needed, we have to share sacrifices and benefits among all the segments of society with a balanced set of actions and with the right mix of austerity and development programmes.” British hedge fund manager Davide Serra stated, “Monti and Passera are the right guys for the job. They are the dream team.” Upon appointing his new technocratic government, Monti declared: “We feel sure of what we have done and we have received many signals of encouragement from our European partners and the international world. All this will, I trust, translate into a calming of that part of the market difficulty which concerns our country.” On the lack of party representatives in his cabinet, Monti commented, “The absence of political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement.”
A former ambassador who worked with Monti when he was an EU Commissioner recalled Mario’s style of governance, stating, “He didn’t have a very Italian way of going about things… His nickname in those days was ‘The Italian Prussian’.” An article in Reuters described Monti as “a convinced free marketeer with close connections to the European and global policy making elite, Monti has always backed a more closely integrated euro zone,” and went on to mention his leadership positions within the Bilderberg Group of “business leaders” and “leading citizens” and the Trilateral Commission, which “brings together the power elites of the United States, Europe and Japan.” Monti’s government would be given roughly 18 months to push through “reforms” and austerity measures, as another election would not be due until 2013. However, as one outgoing minister commented in November of 2011, “The decisions which Monti will take must pass in parliament and I think that with such a heterogeneous majority he will have many problems. I believe this solution will lead to many problems.”
Monti of course received abundant praise from Europe’s leaders on becoming the new unelected technocratic Prime Minister of Italy. An article by Tony Barber in the Financial Times explained that Italian party politics was simply too problematic, as: “Even a centre-left government with a mandate from the voters would find it hard to maintain the unity and resolution required to implement the unpopular austerity measures and structural economic reforms demanded by Germany, France, the European Commission, the European Central Bank and the International Monetary Fund.” And with the prospect of labour resistance from workers and pensioners, “it is easy to see why Europe’s leaders were eager for Mr Monti to inherit the premiership.” Thus, wrote Barber, “technocracy has an irresistible appeal.” Mario Monti himself had acknowledged that “irresistible appeal” in August of 2011, when he wrote an article in a major Italian paper advocating the formation of a “supranational technical government” which would make all the major decisions in order to “remove the structural constraints to growth,” and opined that “an Italy respected and authoritative… would be of great help to Europe.” And as it turned out, a great help to Monti.
In early December of 2011, after forming his cabinet and being approved by Italy’s lower chamber of Parliament with a rare majority, Mario Monti received the endorsement of Angela Merkel and Nicolas Sarkozy, declaring their “absolute trust” in Monti and in “his structural changes” to his governing of Italy. Monti, upon assuming power, warned Italians in a speech that, “It is not going to be easy, sacrifice will be required.” As Monti’s “technocratic government” is full of appointments from the ruling class, including bankers and other executives, many in Italy were raising concerns that this suggested an inherent conflict of interest in his government, as those who helped create the crisis are brought in to solve it, a highly political government, despite all the claims of an apolitical ‘technocracy’ (technocracies are always political entities, but instead of pushing party ideologies, they push ultra-elite ideologies in the management and maintenance of society). Monti replied that, “There is no conflict of interests… The fact that many of us have played a role in the institutions before doesn’t mean that we will not be totally transparent.” And with that note, Monti appointed Carlo Malinconic as undersecretary for publishing affairs, after having previously served as president of the Italian Federation of Publishing and Newspapers.
Writing in the journal of the Council on Foreign Relations, Foreign Affairs, Jonathan Hopkin, a professor of comparative politics at the London School of Economics, commented that the replacement of Berlusconi with Monti “marks a new stage in the European financial crisis,” in which “the crisis now seems to be wiping out democratically elected governments.” Largely under pressure from bond markets, “Italian politicians have opted to hand power to technocrats, expecting that they will somehow enjoy greater legitimacy as they impose painful measures on an angry population.” Hopkin stated: “This will not work.”
In early November, as democratically-elected governments in Greece and Italy were replaced with unelected and unaccountable technocratic governments, essentially run by and for the European Union and global banks, Tony Barber, writing in the Financial Times, suggested that this is but one of several responses to the economic crisis. Specifically, this response “involves the surgical removal of elected leaders in Greece and Italy and their replacement with technocratic experts, trusted within the EU to pass economic reforms deemed appropriate by policymakers in Berlin, the bloc’s top paymaster, and at EU headquarters in Brussels.” Barber referred to the “sidelining of elected politicians in the continent that exported democracy to the world” as a “momentous development.” In short, “eurozone policymakers have decided to suspend politics as normal in two countries because they judge it to be a mortal threat to Europe’s monetary union.” Thus, these policymakers “have ruled that European unity, a project more than 50 years in the making, is of such overriding importance that politicians accountable to the people must give way to unelected experts who can keep the show on the road.” In Greece, the government was put under the technocratic leadership of Lucas Papademos, a former vice president of the European Central Bank, and upon accepting his appointment, stated: “I am confident that the country’s participation in the eurozone is a guarantee of monetary stability.” In Italy, Mario Monti came to power, a technocrat who “is revered in Brussels as one of the most effective commissioners for competition and the internal market that the EU has known.” One prominent Italian banker commented: “We need a strong national unity government for one to one and a half years to do what the politicians haven’t had the courage to do.”
Running the ECB can be such a ‘Draghi’
In late October of 2011, at a gala event to mark the end of Jean-Claude Trichet’s eight years as president of the European Central Bank, Mario Draghi, the governor of the Bank of Italy, who was selected to take over for Trichet at the start of November, was “working the room” of high-powered European elites, including Angeal Merkel, and IMF Managing Director Christine Lagarde. Between 1984 and 1990, Draghi was the Italian Executive Director at the World Bank, and in 1991, he became the director general of the Italian Treasury until 2001. Between 2002 and 2005, Draghi was the Vice Chairman and Managing Director of Goldman Sachs International, thereafter becoming the governor of the Bank of Italy from 2006 until 2011, also putting him on the Governing Board of the European Central Bank and the Bank for International Settlements (BIS). Draghi is not simply one of the individuals who has been most responsible for handling and managing the economic crisis, but he also played an important role in causing it. As Vice Chairman of Goldman Sachs, and in Italy at the Treasury and the central bank, “Draghi was a proponent of nations and other institutions like pension funds using derivatives to more efficiently manage their liabilities.” This means that Draghi advised that governments should essentially hide their debts in the derivatives market, where they would not be viewed as liabilities, but rather, transactions. These “transactions” were very popular in Greece and Italy, and had a great deal to do with accumulating and hiding the massive debts of these countries.
When Draghi led the Italian Treasury in the 1990s, he “oversaw one of the largest European privatization efforts ever and paved the way for Italy’s entry into the euro,” earning him the nickname, “Super Mario.” Italy liberalized its financial markets, allowing for massive speculation, derivatives, and other banking excesses, and he privatized roughly 15% of Italy’s economy. While Italian governments came and went during this period, Draghi always remained. While both Draghi and Goldman Sachs said that “Super Mario” did not have anything to do with the especially controversial Greece-Goldman Sachs transactions, one Goldman Sachs executive in Europe, “who was not authorized to speak publicly,” told the New York Times that, “Mr. Draghi had discussed similar initiatives with other European governments.” When asked about his involvement at Goldman Sachs, Draghi once replied, “I was not in charge of selling stuff to the governments… In fact, I worked in the private sector even though Goldman Sachs expected me to work in the public sector when I was hired.” However, in a paper which Draghi wrote in 2002 just a couple months after being hired by Goldman Sachs, at which his job description was “to win investment banking business from European governments,” Draghi argued in favour of governments using derivatives “to stabilize tax revenue and avoid the sudden accumulation of debt,” which the New York Times politely described as “faithful to the spirit” of the Goldman-Greece deal.
In an interview with the Financial Times in December of 2011, European Central Bank president Mario Draghi reflected upon the financial crisis and the actions taken to manage it. He explained that the ECB’s long-term refinancing operation (a half-trillion euro bank bailout) was not designed to give banks an incentive to buy government bonds from the “periphery” nations, but rather, that, “the objective is to ease the funding pressures that banks are experiencing,” and that the banks “will then decide what the best use of these funds is.” Draghi stated that, “we don’t know exactly” what banks were doing with the money, but that, “the important thing was to relax the funding pressures.” Draghi reiterated that the banks “will decide in total independence what they want to do.”
It’s interesting to note that when governments get bailouts, they are told what and how to spend the money, and are forced to impose austerity measures that destroy the social fabric and punish the populations of their countries, and then, of course, have to pay back the money at exorbitant interest rates; but when banks get a half-trillion euro bailout, the banks will “decide what the best use” of the money is, and where it goes is not important, it’s only important to “relax” the pressure on the banks, who will repay the debt over a long-term period (3 years) with extremely low interest (averaging 1%). So people get pressure, and banks get pressure “relaxed.”
Draghi told the Financial Times that what is needed most is to “restore confidence,” and for this, there are four answers. The first one “lies with national economic policies, because this crisis and this loss of confidence started from budgets that had got completely out of control.” The second answer, explained Draghi, “is that we have to restore fiscal discipline to the euro area,” which means to impose austerity, “and this is in a sense what last week’s EU summit started [in mid-December 2011], with the redesign of the fiscal compact.” The third answer “is to have a firewall in place which is fully equipped and operational,” meaning a massive bailout fund, which “was meant to be provided by the EFSF.” The fourth answer, according to Draghi, is for countries “to undergo significant structural reforms that would revamp growth,” implying things like liberalization, privatization, and further deregulaiton. When Draghi was asked about the critics of the fiscal compact who suggest that it amounts to a “stagnation and austerity union,” Draghi replied that, “they are right and wrong at the same time.” Draghi repeated the mantra of pro-austerity voices, who always suggest with no historical evidence to support, that there is “no trade-off between fiscal austerity, and growth and competitiveness.” However, Draghi contended, “I would not dispute that fiscal consolidation [austerity] leads to a contraction in the short run.” The correspondent with the Financial Times asked: “But these austerity programmes are very harsh. Don’t [you] think that some countries are really in effect in a debtor’s prison?” Draghi replied: “Do you see any alternative?”
In an interview with the Wall Street Journal in February, Mario Draghi warned European countries “that there is no escape from tough austerity measures and that the continent’s traditional social contract is obsolete.” Draghi said that Europe’s social model was “already gone,” and that the only way to return to “long-term prosperity” was “continuing economic shocks [that] would force countries into structural changes in labor markets and other aspects of the economy.” As European people were suffering through the increased austerity measures, Draghi warned that, “Backtracking on fiscal targets would elicit an immediate reaction by the market.” This of course implies that the market has the ‘right’ to determine the fate of Europe’s people. For Draghi, “austerity, coupled with structural change, is the only option for economic renewal.” The European Commission, headed by Jose Manuel Barroso, agreed with Draghi, stating that despite forecasting a deepened recession brought on by austerity measures, governments “should be ready to meet budgetary targets.” Simon Johnson, the former chief economist of the IMF, said that Draghi was “just sugarcoating the message.” Johnson explained: “A lot of this structural reform talk is illusory at best in the short run… but it’s a better story than saying you’re going to have a terrible 10 years.”
In the interview, Draghi commented on the “positive changes” which had been taking place in the previous few months: “There is greater stability in financial markets. Many government shave taken decisions on both fiscal consolidation and structural reforms. We have a fiscal compact where the European governments are starting to release national sovereignty for the common intent of being together.” When Draghi was asked what his view was “of these austerity policies in the larger strategy right now, forcing austerity at all costs,” Draghi replied: “There was no alternative to fiscal consolidation, and we should not deny that this is contractionary in the short term.” Then, he added, it was necessary to promote growth, “and that’s why structural reforms are so important.” The interviewer asked Draghi what the “most important structural reforms” were for Europe at that time. Draghi replied:
In Europe first is the product and services market reform. And the second is the labour market reform which takes different shapes in different countries. In some of them one has to make labour markets more flexible and also fairer than they are today [in other words: more easily exploited]. In these countries there is a dual labour market: highly flexible for the young part of the population where labour contracts are three-month, six-month contracts that may be renewed for years. The same market is highly inflexible for the protected part of the popuation where salaries follows seniority rather than productivity. In a sense labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population.
When central bankers and politicians and others talk about “labour flexibility,” what they really mean is “worker insecurity.” This was bluntly stated by Alan Greenspan back when he was Governor of the Board of the Federal Reserve System, when in testimony before the US Senate in 1997, he discussed how America’s “favorable” economy was constructed. Greenspan discussed how wage increases for workers did not keep pace with inflation, which was, he explained, “mainly the consequence of greater worker insecurity.” He elaborated: “the willingness of workers in recent years to trade off smaller increases in wages for greater job security seems to be reasonably well documented.” Greenspan credited the creation of “worker insecurity” with technological changes, corporate restructuring and downsizing, as well as “domestic deregulation.” The New York Times reported on this, stating that Greenspan described “job insecurity” as “a powerful recent force in the American economy,” and that Greenspan, “clearly elevated this insecurity to major status in central bank policy.” How does worker insecurity influence central bank policy? The article explained: “Workers have been too worried about keeping their jobs to push for higher wages… and this has been sufficient to hold down inflation without the added restraint of higher interest rates.” However, Greenspan warned that even though job insecurity continues to rise, once “workers become accustomed to their new level of uncertainty, their confidence may revive and the upward pressure on wages resume.”
In his interview with the Wall Street Journal, Mario Draghi was asked if “Europe will become less of the social model that has defined it,” to which Draghi replied: “The European social model has already gone.” Draghi, repeating the mantra of so many in power, stated that, “there is no feasible trade-off between” austerity and growth: “Fiscal consolidation is unavoidable in the present set up, and it buys time needed for the structural reforms. Backtracking on fiscal targets would elicit an immediate reaction by the market.” In terms of “progress” – as Draghi defines it – throughout the crisis, he praised the fiscal compact treaty as “a major political achievement because it’s the first step towards a fiscal union. It’s a treaty whereby countries release national sovereignty in order to accept common fiscal rules that are especially binding, and accept monitoring and accept to have these rules in their primary legislation so they are not easy to change. So that’s a beginning.”
In further testimony in 2000, Alan Greenspan again addressed the issue of “worker insecurity,” which he stipulated was the “consequence of rapid economic and technological change,” which in turn created a “fear of potential job skill obsolescence.” Greenspan stated that, “more workers currently report they are fearful of losing their jobs than similar surveys found in 1991 at the bottom of the last recession,” and that, “greater workers insecurities are creating political pressures to reduce fierce global competition that has emerged in the wake of our 1990s technology boom.” While Greenspan admitted that “protectionist policies” would “temporarily reduce some worker anxieties,” he felt this was a bad idea, as “over the longer run such actions would slow innovation and impede the rise in living standards.” Greenspan elaborated:
Protectionism might enable a worker in a declining industry to hold onto his job longer. But would it not be better for that worker to seek a new career in a more viable industry at age 35 than hang on until age 50, when job opportunities would be far scarcer and when the lifetime benefits of additional education and training would be necessarily smaller?.. These years of extraordinary innovation are enhancing the standard of living for a large majority of Americans. We should be thankful for that and persevere in policies that enlarge the scope for competition and innovation and thereby foster greater opportunities for everyone.
This is called “labour market flexibility.” Of course, as Greenspan was full of praise for the fact that “job insecurity” is a necessary factor in “enhancing the standard of living for a large majority of Americans,” which “fosters greater opportunities for everyone,” what he really meant was that it benefits a tiny minority and creates better opportunities for exploitation. Ironically, this wonderful “boom” in the economy turned out to be a bubble, and it popped within a year of his giving this speech, and then of course, he resorted to building up the housing bubble thereafter… and we know how that went: more worker insecurity, more labour market flexibility, and thus, more benefits to a tiny minority and more opportunities for exploitation and profits. Isn’t the “free market” wonderful?
In April of 2012, Mario Draghi advised the eurozone to adopt a “growth compact” in order to boost economic prospects as he “scaled back his hopes for an early economic rebound,” stating that the eurozone bloc was “probably in the most difficult phases” in which the austerity measures were “starting to reverberate its contractionary effects,” he told the European Parliament. Austerity had, according to Draghi, “taken a larger than expected toll.” A “growth pact” was promoted by the front-runner in the French presidential elections, Francois Hollande, who would go on to win the May 6 elections against Sarkozy. Hollande had called for a “new Europe” stressing “solidarity, progress and protection,” warning against a North-South split in the EU countries. Angela Merkel also approved of Draghi’s call for a “growth pact,” agreeing that austerity was not “the whole answer” to the crisis, but insisted that growth would be “in the form of structural reforms,” which implies liberalization and privatization. She added: “We need growth in the form of sustainable initiatives, not simply economic stimulus programmes that just increase government debt.” While acknowledging the “economic weakness” created by the austerity packages across Europe, Draghi continued to say that, “Europe’s leaders should stay the course on fiscal consolidation.”
European leaders were quick to endorse the calls from Draghi for a “growth pact” for Europe, including Angela Merkel in Germany, and France’s new Socialist president, Fancois Hollande, as well as EC President José Manuel Barroso. Following Draghi’s suggestion, Barroso stated that, “Growth is the key, growth is the answer.” Francois Hollande commented in references to Draghi’s proposal, “He doesn’t necessarily have the same measures in mind as me to foster growth,” as Draghi’s position was closer to that of Angela Merkel, who viewed the pact as consisting of “structural reforms,” not a stimulus which would “again increase national debt.” An analyst at the Cutch bank ING said: “For the ECB, a growth compact does not mean more fiscal stimulus,” which is, of course, only reserved for banks, not people. Instead, stated the analyst, Carsten Brzeski, it entails “structural reforms with a vision.”
In May, this vision was publicly endorsed by Jorg Asmussen, the governor of the Bundesbank (the German central bank), and a member of the Executive Board of the European Central Bank, and was just previously the deputy finance minister of Germany. In a speech on May 21, Asmussen stated that, “we need both” austerity and growth, but that: “Talking about more growth does not mean moving away from the fiscal policy strategy pursued so far. It is not a matter of boosting growth over the next one to two quarters with credit-financed spending programmes, but of increasing potential growth. No one is against growth. The crucial and rather difficult question to answer is how, in ageing societies, to increase potential growth.” As to the question of ‘how’, Asmussen suggested three main components: product market reforms, labour market reforms, and financing of reforms. Product market reforms could include, according to Asmussen, “the completion of the internal market for services… [as] 70% of the EU’s GDP comes from services, but only 20% of services are provided on a cross-border basis.” As for labour market reforms, Asmussen suggested they should be “inspired by the Agenda 2010 programme in Germany,” and that, ultimately: “labour mobility needs to be increased in the euro area (the theory says, we remember, that an optimal currency area requires full mobility of labour). Mobility could be increased through broader recognition of qualifications within Europe, greater portability of pension rights, language courses and a European network of job centres.” The Agenda 2010 programme was, explained Der Spiegel, “a series of labor market and social welfare reforms introduced by former Chancellor Gerhard Schröder that completely restructured Germany’s welfare state,” which included, “easing job dismissal protections, lowering bureaucratic hurdles for starting businesses, setting a higher retirement age and lowering non-wage labor costs,” all of which are “typical examples of structural reforms.”
The Crisis Continues…
And so the European debt crisis continues, and so the austerity measures continue to punish the populations of Europe, and so Italy remains at the forefront of a growing global power grab: a ‘Technocratic Revolution’ in which even the trappings of formal democracy are pushed aside in favour of a government subservient to unelected councils of supranational institutions and global financial interests. In Par 2 of this excerpt on the Italian debt crisis, we examine the austerity programs and structural adjustments undertaken by the technocratic government of Mario Monti.
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 Bilderberg Meetings, Participants, 2011:
 John Hooper, “Italy’s politicians rally round to prevent market’s slide,” The Guardian, 12 July 2011:
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 Nichi Vendola, “Italian debt: Austerity economics? That’s dead wrong for us,” The Guardian, 14 July 2011:
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 Lorenzo Totaro, “Berlusconi’s Austerity Package Wins Final Approval in Italian Parliament,” Bloomberg, 14 September 2011:
 “Italy’s Austerity Budget – Needed: A New Broom,” The Economist, 10 September 2011:
 Jon Henley, “Austerity in Italy: cuts compound bureaucratic obstacles,” The Guardian, 18 October 2011:
 Jon Henley, “Europe on the breadline: hopelessness and Berlusconi,” The Guardian, 18 October 2011:
 Bruno Mascitelli, “As Moody’s trashes Italy, voters can’t count on Berlusconi,” The Conversation, 5 October 2011:
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Antonio Padellaro, “Come previsto,” Il Fatto Quotidiano, 16 October 2011, (original in Italian, translation courtesy of Google Translate):
“Rome counts cost of violence after global protests,” BBC News, 16 October 2011:
Alessandra Rizzo and Meera Selva, “Rioters hijack Rome protests; police fire tear gas,” The Denver Post, 16 October 2011:
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 MARCUS WALKER, CHARLES FORELLE, and STACY MEICHTRY, “Deepening Crisis Over Euro Pits Leader Against Leader,” The Wall Street Journal, 30 December 2011:
 Armorel Kenna, “Austerity ‘Isn’t in My Vocabulary,’ Berlusconi Tells Il Foglio,” Bloomberg, 29 October 2011:
 Patrick Wintour and Larry Elliott, “G20 leaders press Italy to accept IMF checks on cuts programme,” The Guardian, 4 November 2011:
 Philip Ebels, “Berlusconi heads to G20 amid mutiny at home,” EUObserver, 3 November 2011:
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Class War and the College Crisis: The “Crisis of Democracy” and the Attack on Education
The following is the first part of a series of articles, “Class War and the College Crisis.”
By: Andrew Gavin Marshall
Today, we are witnessing an emerging massive global revolt, led primarily be the educated and unemployed youth of the world, against the institutionalized and established powers which seek to deprive them of a future worth living. In Chile over the past year, a massive student movement and strike has become a powerful force in the country against the increasingly privatized educational system (serving as a model for the rest of the world) with the support of the vast majority of the population; in Quebec, Canada, a student strike has brought hundreds of thousands of youth into the streets to protest against the doubling of tuition fees; students and others are on strike in Spain against austerity measures; protests led by or with heavy participation of the youth in the U.K., Greece, Portugal, France, and in the United States (such as with the Occupy Movement) are developing and growing, struggling against austerity measures, overt corruption by the capitalist class, and government collusion with bankers and corporations. Students and youth led the uprisings in Tunisia and Egypt last year which led to the overthrow of the dictators which had ruled those nations for decades.
All around the world, increasingly, the youth are taking to the streets, protesting, agitating, and striking against the abuses of power, the failures of government, the excesses of greed, plundering and poverty. The educated youth in particular are playing an active role, a role which will be increasing dramatically over the coming year and years. The educated youth are graduating into a jobless market with immense debt and few opportunities. Now, just as several decades ago, the youth are turning back to activism. What happened in the intervening period to derail the activism that had been so widespread in the 1960s? How did our educational system get to its present state? What do these implications have for the present and future?
The “Crisis of Democracy”
In the period between the 1950s and the 1970s, the Western world, and especially the United States, experienced a massive wave of resistance, rebellion, protest, activism and direct action by entire sectors of the general population which had for decades, if not centuries, been largely oppressed and ignored by the institutional power structure of society. The Civil Rights movement in the United States, the rise of the New Left – radical and activist – in both Europe and North America, as elsewhere, anti-war activism, largely spurred against the Vietnam War, Liberation Theology in Latin America (and the Philippines), the environmental movement, feminist movement, gay rights movements, and all sorts of other activist and mobilized movements of youth and large sectors of society were organizing and actively agitating for change, reform, or even revolution. The more power resisted their demands, the more the movements became radicalized. The slower power acted, the faster people reacted. The effect, essentially, was that these movements sought to, and in many cases did, empower vast populations who had otherwise been oppressed and ignored, and they generally awakened the mass of society to such injustices as racism, war, and repression.
For the general population, these movements were an enlightening, civilizing, and hopeful phase in our modern history. For elites, they were terrifying. Thus, in the early 1970s there was a discussion taking place among the intellectual elite, most especially in the United States, on what became known as the “Crisis of Democracy.” In 1973, the Trilateral Commission was formed by banker and global oligarch David Rockefeller, and intellectual elitist Zbigniew Brzezinski. The Trilateral Commission brings together elites from North America, Western Europe, and Japan (now including several states in East Asia), from the realms of politics, finance, economics, corporations, international organizations, NGOs, academia, military, intelligence, media, and foreign policy circles. It acts as a major international think tank, designed to coordinate and establish consensus among the dominant imperial powers of the world.
In 1975, the Trilateral Commission issued a major report entitled, “The Crisis of Democracy,” in which the authors lamented against the “democratic surge” of the 1960s and the “overload” this imposed upon the institutions of authority. Samuel Huntington, a political scientist and one of the principal authors of the report, wrote that the 1960s saw a surge in democracy in America, with an upswing in citizen participation, often “in the form of marches, demonstrations, protest movements, and ‘cause’ organizations.” Further, “the 1960s also saw a reassertion of the primacy of equality as a goal in social, economic, and political life.” Of course, for Huntington and the Trilateral Commission, which was founded by Huntington’s friend, Zbigniew Brzezinski, and banker David Rockefeller, the idea of “equality as a goal in social, economic, and political life” is a terrible and frightening prospect. Huntington analyzed how as part of this “democratic surge,” statistics showed that throughout the 1960s and into the early 1970s, there was a dramatic increase in the percentage of people who felt the United States was spending too much on defense (from 18% in 1960 to 52% in 1969, largely due to the Vietnam War).
Huntington wrote that the “essence of the democratic surge of the 1960s was a general challenge to existing systems of authority, public and private,” and further: “People no longer felt the same compulsion to obey those whom they had previously considered superior to themselves in age, rank, status, expertise, character, or talents.” He explained that in the 1960s, “hierarchy, expertise, and wealth” had come “under heavy attack.” The use of language here is important, in framing power and wealth as “under attack” which implied that those who were “attacking” were the aggressors, as opposed to the fact that these populations (such as black Americans) had in fact been under attack from power and wealth for centuries, and were just then beginning to fight back. Thus, the self defense of people against power and wealth is referred to as an “attack.” Huntington stated that the three key issues which were central to the increased political participation in the 1960s were:
social issues, such as use of drugs, civil liberties, and the role of women; racial issues, involving integration, busing, government aid to minority groups, and urban riots; military issues, involving primarily, of course, the war in Vietnam but also the draft, military spending, military aid programs, and the role of the military-industrial complex more generally.
Huntington presented these issues, essentially, as the “crisis of democracy,” in that they increased distrust with the government and authority, that they led to social and ideological polarization, and ultimately, to a “decline in the authority, status, influence, and effectiveness of the presidency.” Huntington concluded that many problems of governance in the United States stem from an “excess of democracy,” and that, “the effective operation of a democratic political system usually requires some measure of apathy and noninvolvement on the part of some individuals and groups.” Huntington explained that society has always had “marginal groups” which do not participate in politics, and while acknowledging that the existence of “marginality on the part of some groups is inherently undemocratic,” it has also “enabled democracy to function effectively.” Huntington identifies “the blacks” as one such group that had become politically active, posing a “danger of overloading the political system with demands.” Of course, this implies directly an elitist version of “democracy” in which the state retains the democratic aesthetic (voting, separation of powers, rule of law) but remains exclusively in the hands of the wealthy power elite. Huntington, in his conclusion, stated that the vulnerability of democracy – the ‘crisis of democracy’ – comes “from the internal dynamics of democracy itself in a highly educated, mobilized, and participant society,” and that what is needed is “a more balanced existence” in which there are “desirable limits to the indefinite extension of political democracy.” In other words, what is needed is less democracy and more authority.
The Trilateral Commission later explained its views of the “threat” to democracy and thus, the way the system ‘should’ function:
In most of the Trilateral countries [Western Europe, North America, Japan] in the past decade there has been a decline in the confidence and trust which the people have in government… Authority has been challenged not only in government, but in trade unions, business enterprises, schools and universities, professional associations, churches, and civic groups. In the past, those institutions which have played the major role in the indoctrination of the young in their rights and obligations as members of society have been the family, the church, the school, and the army. The effectiveness of all these institutions as a means of socialization has declined severely.(emphasis added)
The “excess of democracy” which this entailed created a supposed “surge of demands” upon the government, just at a time when the government’s authority was being undermined. The Trilateral Commission further sent rampant shivers through the intellectual elite community by discussing the perceived threat of “value-oriented intellectuals” who dare to “assert their disgust with the corruption, materialism, and inefficiency of democracy and with the subservience of democratic government to ‘monopoly capitalism’.” For the members and constituents (elites) of the Trilateral Commission, they did not hold back on the assessment of such a threat, stating that, “this development constitutes a challenge to democratic government which is, potentially at least, as serious as those posed in the past by the aristocratic cliques, fascist movements, and communist parties.” This is a very typical elitist use of rhetoric in which when identifying any perceived threat to elite interests, they are portrayed in near-apocalyptic terms. The implication, therefore, is that intellectuals who challenge authority are presented as much of a threat to democracy as Hitler and fascism were.
The Trilateral Commission report explained – through economic reasoning – how increased democracy is simply unsustainable. The “democratic surge” gave disadvantaged groups new rights and made them politically active (such as blacks), and this resulted in increased demands upon the very system whose legitimacy had been weakened. A terrible scenario for elites! The report explained that as voting decreased throughout the 1960s and into the 1970s, active political participation on campuses increased, minority groups were demanding rights (how dare they!), and not only were they demanding basic human rights, but also “opportunities, positions, rewards, and privileges, which they had not considered themselves entitled to before.” That is, unlike the rich, who have considered themselves entitled to everything, always, and forever. Thus, government spending on social welfare and education increased, explained the report: “By the early 1970s Americans were progressively demanding and receiving more benefits from their government and yet having less confidence in their government than they had a decade before.” Most people would refer to that as the achievement of democracy, but for the Trilateral “intellectuals” it was an “excess of democracy,” and indeed, a threat.
Samuel Huntington, naturally, assumed that the decline of confidence in the government was irrational, and had nothing to do with the Vietnam War, police and state repression of protest movements, the Watergate Scandal or other obvious crimes. No, for Huntington, the decline in confidence is tied magically to the “increased expectations” of the population, or, as Jay Peterzell explained in his critique of the report, “the root cause of public disillusionment is consistently traced to unrealistic expectations encouraged by government spending.” Huntington justified this absurd myth on his skewed analysis of the “defense shift” and “welfare shift.” The “defense shift,” which took place in the 1950s, described a period in which 36% of the increase in government spending went to defense (i.e., the military-industrial complex), whereas welfare declined as a proportion of the budget. Then came the “welfare shift” of the 1960s, in which between 1960 and 1971, only a paltry 15% of the increase in spending went to the military-industrial complex, while 84% of the increase went to domestic programs. Thus, for Huntington, the “welfare shift” basically destroyed America and ruined democracy.
In reality, however, Jay Peterzell broke down the numbers to explain the “shifts” in a larger and more rational context. While it was true that the percentages increased and decreased as Huntington displayed them, they were, after all, a percentage of the “increase” in spending, not the overall percentage of spending itself. So, when one looks at the overall government spending in 1950, 1960, and 1972, the percentage on “defense” was 44, to 53, to 37. In those same years, spending on welfare amounted to 4%, 3% and 6%. Thus, between 1960 and 1972, the amount of spending on defense decreased from 53-37% of the total spending of government. In the same years, spending on welfare increased from 3-6% of the total government expenditure. When viewing it as a percentage of the overall, it can hardly be legitimate to claim that the meager increase to 6% of government expenditures for welfare was anywhere near as “threatening” to democracy as was the 37% spent on the military-industrial complex.
So naturally, as a result of such terrifying statistics, the intellectual elite and their financial overlords had to impose more authority and less democracy. It was not simply the Trilateral Commission advocating for such “restraints” upon democracy, but this was a major discussion in elite academic circles in the 1970s. In Britain, this discussion emerged on the “governability thesis” – or the “overload” thesis – of democracy. Samuel Brittan’s “The Economic Contradictions of Democracy” in 1975, explained that, “The temptation to encourage fake expectations among the electorate becomes overwhelming to politicians. The opposition parties are bound to promise to do better and the government party must join in the auction.” Essentially, it was a repetition of the Trilateral thesis that too many promises create too many demands, which then create too much stress for the system, and it would inevitably collapse. Anthony King echoed this in his piece, “Overload: Problems of Governing in the 1970s,” and King explained that governing was becoming “harder” because “at one and the same time, the range of problems that government is expected to deal with has vastly increased and its capacity to deal with problems, even many of the ones it had before, has decreased.” The Italian political scientist Giovanni Sartori asked the question, “Will Democracy Kill Democracy?”
We are pursuing targets which are out of proportion, unduly isolated and pursued blindly, and that are, therefore, in the process of creating… a wholly unmanageable and ominous overload… We are beginning to realize in the prosperous democracies that we are living above our means. But we are equally and more grievously living above and beyond our intelligence, above the understanding of what we are doing.
King explained that, “Political scientists have traditionally been concerned to improve the performance of government.” An obvious mistake, concluded King, who suggested that, “Perhaps over the next few years they should be concerned more with how the number of tasks that government has come to be expected to perform can be reduced.” The “remedy” for all this “overload” of democratic societies was to, first, bring “an end to the politics of ‘promising’,” and second, “attempt to reduce the expectations of voters and consumers” on the political process.
The “threat” of educated youth was especially pronounced. In 1978, the Management Development Institute (a major business school in India) released a report in which it stated:
perhaps the most pernicious trend over the next decade is the growing gap between an increasingly well educated labor force and the number of job openings which can utilize its skills and qualifications… The potential for frustration, alienation and disruption resulting from the disparity between educational attainment and the appropriate job content cannot be overemphasized.
In these commentaries, we are dealing with two diametrically opposed definitions of democracy: popular and elitist. Popular democracy is government of, by, and for the people; elitist democracy is government of, by, and for the rich (but with the outward aesthetic of democracies), channeling popular participation into voting instead of decision-making or active participation. Popular democracy implies the people participating directly in the decisions and functions and maintenance of the ‘nation’ (though not necessarily the State); whereas elitist democracy implies passive participation of the population so much as to allow them to feel as if they play an important role in the direction of society, while the elites control all the important levers and institutions of power which direct and benefit from the actions of the state. These differing definitions are important because when reading reports written and issued by elite interests (such as the Trilateral Commission report), it changes the substance and meaning of the report itself. For example, take the case of Samuel Huntington lamenting at the threat posed to democracy by popular participation: from the logic of popular democracy, this is an absurd statement that doesn’t make sense; from the logic of elitist democracy, the statement is accurate and profoundly important. Elites understand this differentiation, so too must the public.
The Powell Memo: Protecting the Plutocracy
While elites were lamenting over the surge in democracy, particularly in the 1960s, they were not simply complaining about an “excess of democracy” but were actively planning on reducing it. Four years prior to the Trilateral Commission report, in 1971, the infamous and secret ‘Powell Memo’ was issued, written by a corporate lawyer and tobacco company board member, Lewis F. Powell, Jr. (whom President Nixon nominated to the Supreme Court two months later), which was addressed to the Chairman of the Education Committee of the U.S. Chamber of Commerce, representing American business interests.
Powell stipulated that “the American economic system is under broad attack,” and that, “the assault on the enterprise system is broadly based and consistently pursued… gaining momentum and converts.” While the ‘sources’ of the ‘attack’ were identified as broad, they included the usual crowd of critics, Communists, the New Left, and “other revolutionaries who would destroy the entire system, both political and economic.” Adding to this was that these “extremists” were increasingly “more welcomed and encouraged by other elements of society, than ever before in our history.” The real “threat,” however, was the “voices joining the chorus of criticism [which] come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians.” While acknowledging that in these very sectors, those who speak out against the ‘system’ are still a minority, Powell noted, “these are often the most articulate, the most vocal, the most prolific in their writing and speaking.”
Powell discussed the “paradox” of how the business leaders appear to be participating – or simply tolerating – the attacks on the “free enterprise system,” whether by providing a voice through the media which they own, or through universities, despite the fact that “[t]he boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system.” Powell lamented the conclusions of reports indicating that colleges were graduating students who “despise the American political and economic system,” and thus, who would be inclined to move into power and create change, or outright challenge the system head on. This marked an “intellectual warfare” being waged against the system, according to Powell, who then quoted economist Milton Friedman of the University of Chicago (and the ‘father’ of neoliberalism), who stated:
It [is] crystal clear that the foundations of our free society are under wide-ranging and powerful attack – not by Communists or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.
Powell even specifically identified Ralph Nader as a “threat” to American business. Powell further deplored the changes and “attack” being made through the courts and legal system, which began targeting corporate tax breaks and loop holes, with the media supporting such initiatives since they help “the poor.” Powell of course referred to the notion of helping “the poor” at the expense of the rich, and the framing of the debate as such, as “political demagoguery or economic illiteracy,” and that the identification of class politics – the rich versus the poor – “is the cheapest and most dangerous kind of politics.” The response from the business world to this “broad attack,” Powell sadly reported, was “appeasement, ineptitude and ignoring the problem.” Powell did, however, explain in sympathy to the ‘ineptitude’ of the corporate and financial elites that, “it must be recognized that businessmen have not been trained or equipped to conduct guerilla warfare with those who propagandize against the system.”
While the “tradition role” of business leaders has been to make profits, “create jobs,” to “improve the standard of living,” and of course, “generally to be good citizens,” they have unfortunately shown “little skill in effective intellectual and philosophical debate.” Thus, stated Powell, businessmen must first “recognize that the ultimate issue may be survival – survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people.” As such, “top [corporate] management must be equally concerned with protecting and preserving the system itself,” instead of just focused on profits. Corporations, Powell acknowledged, were long involved in “public relations” and “governmental affairs” (read: propaganda and public policy), however, the ‘counter-attack’ must be more wide-ranging:
But independent and uncoordinated activity by individual corporations, as important as this is, will not be sufficient. Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.
While the ‘assault’ against the system developed over several decades, Powell elaborated, “there is reason to believe that the campus [university/education] is the single most dynamic source,” as “social science faculties usually include members who are unsympathetic to the enterprise system.” These academics, explained Powell, “need not be in the majority,” as they “are often personally attractive and magnetic; they are stimulating teachers, and their controversy attracts student following; they are prolific writers and lecturers; they author many of the textbooks, and they exert enormous influence – far out of proportion to their numbers – on their colleagues and in the academic world.” Such a situation is, naturally, horrific and deplorable! Imagine that, having magnetic, stimulating and prolific teachers, what horror and despair for the world that would surely bring!
In purporting that political scientists, economists, sociologists and many historians “tend to be liberally oriented,” Powell suggested that “the need for liberal thought is essential to a balanced viewpoint,” but that the ‘balance’ does not exist, with “few [faculty] members being conservatives or [of] moderate persuasion… and being less articulate and aggressive than their crusading colleagues.” Terrified of the prospects of these potentially revolutionary youths entering into positions of power, Powell stated that when they do, “for the most part they quickly discover the fallacies of what they have been taught,” which is, in other words, to say that they quickly become socialized to the structures, hierarchies and institutions of power which demand conformity and subservience to elite interests. However, there were still many who could emerge in “positions of influence where they mold public opinion and often shape governmental action.” Thus, recommended Powell, the Chamber of Commerce should make the “priority task of business” and its related organizations “to address the campus origin of this hostility.” As academic freedom was held as sacrosanct in American society, “It would be fatal to attack this as a principle,” which of course implies that it is to be attacked indirectly. Instead, it would be more effective to use the rhetoric of “academic freedom” itself against the principle of academic freedom, using terms like “openness,” “fairness,” and “balance” as points of critique which would yield “a great opportunity for constructive action.”
Thus, an organization such as the Chamber of Commerce should, recommended Powell, “consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system… [including] several of national reputation whose authorship would be widely respected – even when disagreed with.” The Chamber should also create “a staff of speakers of the highest competency” which “might include the scholars,” and establish a ‘Speaker’s Bureau’ which would “include the ablest and most effective advocates form the top echelons of American business.” This staff of scholars, which Powell emphasized, should be referred to as “independent scholars,” should then engage in a continuing program of evaluating “social science textbooks, especially in economics, political science and sociology.” The objective of this would “be oriented toward restoring the balance essential to genuine academic freedom,” meaning, of course, implanting ideological indoctrination and propaganda from the business world, which Powell described as the “assurance of fair and factual treatment of our system of government and our enterprise system, its accomplishments, its basic relationship to individual rights and freedoms, and comparisons with the systems of socialism, fascism and communism.” Powell lamented that the “civil rights movement insist[ed] on re-writing many of the textbooks in our universities and schools,” and “labor unions likewise insist[ed] that textbooks be fair to the viewpoints of organized labor.” Thus, Powell contended, in the business world attempting to re-write textbooks and education, this process “should be regarded as an aid to genuine academic freedom and not as an intrusion upon it.”
Further, Powell suggested that the business community promote speakers on campuses and lecture tours “who appeared in support of the American system of government and business.” While explaining that student groups and faculty would not likely be willing to give the podium over to the Chamber of Commerce or business leaders to espouse their ideology, the Chamber must “aggressively insist” on being heard, demanding “equal time,” as this would be an effective strategy because “university administrators and the great majority of student groups and committees would not welcome being put in the position publicly of refusing a forum to diverse views.” The two main ingredients for this program, Powell explained, was first, “to have attractive, articulate and well-informed speakers,” and second, “to exert whatever degree of pressure – publicly and privately – may be necessary to assure opportunities to speak.” The objective, Powell wrote, “always must be to inform and enlighten, and not merely to propagandize.”
The biggest problem on campuses, however, was the need to “balance” faculties, meaning simply that the business world must work to implant spokespeople and apologists for the economic and financial elite into the faculties. The need to “correct” this imbalance, wrote Powell, “is indeed a long-range and difficult project,” which “should be undertaken as a part of an overall program,” including the application of pressure “for faculty balance upon university administrators and boards of trustees.” Powell acknowledged that such an effort is a delicate and potentially dangerous process, requiring “careful thought,” as “improper pressure would be counterproductive.” Focusing on the rhetoric of balance, fairness, and ‘truth’ would create a method “difficult to resist, if properly presented to the board of trustees.” Of course, the whole counter-attack of the business world should not simply be addressed to university education, but, as Powell suggested, also “tailored to the high schools.”
As Powell had addressed the “attack” from – and proposed the “counterattack” on – the educational system by the corporate and financial elite, he then suggested that while this was a more long-term strategy, in the short term it would be necessary to address the public in the short-term. To do so:
The first essential is to establish the staffs of eminent scholars, writers and speakers, who will do the thinking, the analysis, the writing and the speaking. It will also be essential to have staff personnel who are thoroughly familiar with the media, and how most effectively to communicate with the public.
The means of communicating with the public include using television. Powell recommended monitoring television in the same way that they monitor textbooks, with an aim to keep the media under “constant surveillance” for criticism of the enterprise system, which, Powell assumed, was derived from one of two sources: “hostility or economic ignorance.” It is simply assumed that the critiques of business and the ‘system’ are unjustified, derived from a misplaced hatred of society or from ignorance. This point of view is consistently regurgitated throughout the entire memo. To more properly “correct” the media, Powell suggested that surveillance would then prompt complaints to both the media and the Federal Communications Commission, and just as in university speaking tours, “equal time [for business spokespeople] should be demanded,” especially on “forum-type programs” like Meet the Press or the Today Show. Of course, the radio and print press were also to be monitored and “corrected.”
The “faculty of scholars” established by the Chamber of Commerce or other business groups must publish, especially scholarly articles, as such tactics have been effective in the “attack” on the enterprise system. Thus, these “independent scholars” must publish in popular magazines (such as Life, Reader’s Digest, etc.), intellectual magazines (such as the Atlantic, Harper’s, etc.) and the professional journals. Furthermore, they must publish books, paperbacks and pamphlets promoting “our side” to “educate the public.” Paid advertising must also increasingly be used to “support the system.”
Powell then turned his attention to the political arena, beginning with the base assumption that the idea of big business controlling Western governments is mere “Marxist doctrine” and “leftist propaganda,” which, Powell sadly reports, “has a wide public following among Americans.” He immediately thereafter asserted that, “every business executive knows… few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders.” Powell amazingly claimed that in terms of government influence, the poor unfortunate American businessman and corporate executive is “the forgotten man.”
Forget the poor, black, and disenfranchised segments of society; forget the disabled, the labeled, and the imprisoned; forget those on welfare, food stamps, dependent upon social services or local charity; forget the entire population of the United States, who can only incite government recognition and support after years of struggle, constant protests, police repression, assault, curtailment of basic human rights and dignity; those struggles which seek only the attainment of a genuine status of human being, to be treated equal and fair… no, forget those people! The true “forgotten” and “oppressed” are the executives at Union Carbide, Exxon, General Electric, GM, Ford, DuPont, Dow, Chase Manhattan, Bank of America, and Monsanto. They, truly, are the disenfranchised… At least, according to Lewis Powell.
For Powell, education and public propaganda campaigns are necessary, but the poor disenfranchised American corporate executive must realize that “political power is necessary,” and that such power must be “used aggressively and with determination – without embarrassment and without the reluctance which has been so characteristic of American business.” Further, it is not merely in the legislative and executive branches of government where business leaders must seize power “aggressively,” but also in the judicial branch – the courts – which “may be the most important instrument for social, economic and political change.” Charging that both “liberals” and the “far left” have been “exploiters of the judicial system” – such as the American Civil Liberties Union, labor unions and civil rights organizations – business groups such as the Chamber of Commerce would need to establish “a highly competent staff of lawyers” to exploit the judiciary for their own benefit. Powell went on to play a very important role in this process as he was appointed to the Supreme Court almost immediately after having authored this memo, where he made many important decisions regarding “corporate rights.”
In advocating aggression in pushing their own interests, Powell encouraged the business community “to attack the [Ralph] Naders, the [Herbert] Marcuses and other who openly seek destruction of the system,” as well as “to penalize politically those who oppose it.” The “threat to the enterprise system” must not be merely presented as an economic issue, but should be portrayed as “a threat to individual freedom,” which Powell described as a “great truth” which “must be re-affirmed if this program is to be meaningful.” Thus, the “only alternatives to free enterprise” are to be presented as “varying degrees of bureaucratic regulation of individual freedom – ranging from that under moderate socialism to the iron heel of the leftist or rightist dictatorship.” The aim was to tie the average American’s own individual conception of their personal freedom and rights to that of corporations and business leaders. Thus, contended Powell, “the contraction and denial of economic freedom is followed inevitably by governmental restrictions on other cherished rights.” This is the precise message, Powell explained, “above all others, that must be carried home to the American people.” So, by this logic, if today Monsanto and Dow are regulated, tomorrow, your Mom and Dad will be in a dictatorship.
The New Right: Neoliberalism and Education
The Powell Memo is largely credited with being a type of ‘Constitution’ or ‘founding document’ for the emergence of the right-wing think tanks in the 1970s and 1980s, as per its recommendations for establishing “a staff of highly qualified scholars in the social sciences who do believe in the system.” In 1973, a mere two years after the memo was written, the Heritage Foundation was founded as an “aggressive and openly ideological expert organization,” which became highly influential in the Reagan administration.
The Heritage Foundation’s website explains that the think tank’s mission “is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.” Upon its founding in 1973, the Heritage Foundation began to “deliver compelling and persuasive research to Congress providing facts, data, and sound arguments on behalf of conservative principles.” In 1977, Ed Feulner became President of the foundation and established “a new senior management staff” and a ‘resource bank’ in order “to take on the liberal establishment and forge a national network of conservative policy groups and experts,” ultimately totaling more than 2,200 “policy experts” and 475 “policy groups” in the U.S. and elsewhere. In 1980, Heritage published a “public policy blueprint” entitled, “Mandate for Leadership,” which became “the policy bible of the newly elected Reagan administration on everything from taxes and regulation to crime and national defense.” In 1987, Heritage published another policy plan, “Out of the Poverty Trap: A Conservative Strategy for Welfare Reform,” which, as their website boastfully claimed, “changed the entitlement mentality in America, moving thousands off the dole [welfare] and toward personal responsibility,” or, in other words, deeper poverty.
The model of the Heritage Foundation led to the rapid proliferation of conservative think tanks, from 70 to over 300 in over 30 years, which “often work together to create multi-issue networks on the local, state, and federal level and use mainstream and alternative media to promote conservative agendas.” The ultimate objective, like with all think tanks and foundations, is “spreading ideology.”
The Cato Institute is another conservative – or “libertarian” – think tank, as it describes itself. Founded in 1974 as the Charles Koch Foundation by Charles Koch (one of America’s richest billionaires and major financier of the Tea Party movement), as well as Ed Crane and Murray Rothbard. By 1977, it had changed its name to the Cato Institute, after “Cato’s Letters,” a series of essays by two British writers in the 18th century under the pseudonym of Cato, who was a Roman Senator strongly opposed to democracy, and had fought against the slave uprising led by Spartacus. He was idolized in the Enlightenment period as a progenitor and protector of liberty (for the few), which was reflected in the ideology of the Founding Fathers of the United States, particularly Thomas Jefferson and James Madison, for which the Cato Institute credits as the reasoning for the re-naming. While Enlightenment thought and thinkers are idolized – most especially in the formation of the U.S. Constitution – as advocates of liberty, freedom and individual rights, it was the ‘right’ of ‘private property’ and those who owned property (which, at the time, included slave owners) as the ultimate sacrosanct form of “liberty.” Again, a distinctly elitist conception of democracy referred to as ‘Republicanism.’
These right-wing think tanks helped bring in the era of neo-liberalism, bringing together “scholars” who support the so-called “free market” system (itself, a mythical fallacy), and who deride and oppose all forms of social welfare and social support. The think tanks produced the research and work which supported the dominance of the banks and corporations over society, and the members of the think tanks had their voices heard through the media, in government, and in the universities. They facilitated the ideological shift in power and policy circles toward neoliberalism.
The Powell Memo and the general “crisis of democracy” set out a political, social, and economic circumstance in which neoliberalism emerged to manage the “excess of democracy.” Instead of a broader focus on neoliberalism and globalization in general, I will focus on their influences upon education in particular. The era of neoliberal globalization marked a rapid decline of the liberal welfare states that had emerged in the previous several decades, and as such, directly affected education.
As part of this process, knowledge was transformed into ‘capital’ – into ‘knowledge capitalism’ or a ‘knowledge economy.’ Reports from the World Bank and the Organization for Economic Cooperation and Development (OECD) in the 1990s transformed these ideas into a “policy template.” This was to establish “a new coalition between education and industry,” in which “education if reconfigured as a massively undervalued form of knowledge capital that will determine the future of work, the organization of knowledge institutions and the shape of society in the years to come.”
Knowledge was thus defined as an “economic resource” which would give growth to the economy. As such, in the neoliberal era, where all aspects of economic productivity and growth are privatized (purportedly to increase their efficiency and productive capacity as only the “free market” can do), education – or the “knowledge economy” – itself, was destined to be privatized.
In the revised neoliberal model of education, “economic productivity was seen to come not from government investment in education, but from transforming education into a product that could be bought and sold like anything else – and in a globalised market, Western education can be sold as a valuable commodity in developing countries.” Thus, within the university itself, “the meaning of ‘productivity’ was shifted away from a generalized social and economic good towards a notional dollar value for particular government-designated products and practices.” Davies et. al. elaborated:
Where these products are graduating students, or research published, government could be construed as funding academic work as usual. When the ‘products’ to be funded are research grant dollars, with mechanisms in place to encourage collaboration with industry, this can be seen as straightforward manipulation of academics to become self-funding and to service the interests of business and industry.
The new ‘management’ of universities entailed decreased state funding while simultaneously increasing “heavy (and costly) demands on accounting for how that funding was used,” and thus, “trust in professional values and practices was no longer the basis of the relationship” between universities and government. It was argued that governments were no longer able to afford the costs of university education, and that the “efficiency” of the university system – defined as “doing more with less” – was to require a change in the leadership and management system internal to the university structure to “a form of managerialism modeled on that of the private sector.” The “primary aim” of this neoliberal program, suggests Davies:
was not simply to do more with less, since the surveillance and auditing systems are extraordinarily costly and ineffective, but to make universities more governable and to harness their energies in support of programmatic ambitions of neo-liberal government and big business. A shift towards economics as the sole measure of value served to erode the status and work of those academics who located value in social and moral domains. Conversely, the technocratic policy-oriented academics, who would serve the ends of global corporate capital, were encouraged and rewarded.
As the 1960s saw a surge in democracy and popular participation, to a significant degree emanating from the universities, dissident intellectuals and students, the 1970s saw the articulation and actualization of the elite attack upon popular democracy and the educational system itself. From the U.S. Chamber of Commerce and the Trilateral Commission, both of which represent elite financial and corporate interests, the key problem was identified as active and popular participation of the public in the direction of society. This was the “crisis of democracy.” The solution for elites was simple: less democracy, more authority. In the educational realm, this meant more elite control over universities, less freedom and activism for intellectuals and students. Universities and the educational system more broadly was to become increasingly privatized, corporatized, and globalized. The age of activism was at an end, and universities were to be mere assembly plants for economically productive units which support the system, not challenge it. One of the key methods for ensuring this took place was through debt, which acts as a disciplinary mechanism in which students are shackled with the burden of debt bondage, and thus, their education itself must be geared toward a specific career and income expectation. Knowledge is sought for personal and economic benefit more than for the sake of knowledge itself. Graduating with extensive debt then implies a need to immediately enter the job market, if not already having entered the job market part time while studying. Debt thus disciplines the student toward a different purpose in their education: toward a job and financial benefits rather than toward knowledge and understanding. Activism then, is more of an impediment to, rather than a supporter of knowledge and education.
In the next part of this series, I will analyze the purpose and role of education and intellectuals in a historical context, differentiating between the ‘social good’ and ‘social control’ purposes of education, as well as between the policy-oriented (elite) and value-oriented (dissident) intellectuals. Through a critical look at the purpose of education and intellectuals, we can understand the present crisis in education and intellectual dissent, and thus, understand positive methods and directions for change.
 Michel J. Crozier, Samuel P. Huntington and Joji Watanuki, The Crisis of Democracy, (Report on the Governability of Democracies to the Trilateral Commission, New York University Press, 1975), pages 61-62, 71.
 Ibid, pages 74-77.
 Ibid, pages 93, 113-115.
 Ibid, page 162.
 Jay Peterzell, “The Trilateral Commission and the Carter Administration,” Economic and Political Weekly (Vol. 12, No. 51, 17 December 1977), page 2102.
 Wayne Parsons, “Politics Without Promises: The Crisis of ‘Overload’ and Governability,” Parliamentary Affairs (Vol. 35, No. 4, 1982), pages 421-422.
 Val Burris, “The Social and Political Consequences of Overeducation,” American Sociological Review (Vol. 48, No. 4, August 1983), pages 455-456.
 Lewis F. Powell, Jr., “Confidential Memorandum: Attack of American Free Enterprise System,” Addressed to the U.S. Chamber of Commerce, 23 August 1971:
 Julie E. Miller-Cribbs, et. al., “Thinking About Think Tanks: Strategies for Progressive Social Work,” Journal of Policy Practice (Vol. 9, No. 3-4, 2010), page 293.
 The Heritage Foundation, “The Heritage Foundation’s 35th Anniversary: A History of Achievements,” About: http://www.heritage.org/about/our-history/35th-anniversary
 Julie E. Miller-Cribbs, et. al., “Thinking About Think Tanks: Strategies for Progressive Social Work,” Journal of Policy Practice (Vol. 9, No. 3-4, 2010), pages 293-294.
 Mark Olssen and Michael A. Peters, “Neoliberalism, Higher Education and the Knowledge Economy: From the Free Market to Knowledge Capitalism,” Journal of Education Policy (Vol. 20, No. 3, May 2005), page 331.
 Ibid, pages 338-339.
 Bronwyn Davies, et. al., “The Rise and Fall of the Neo-liberal University,” European Journal of Education (Vol. 41, No. 2, 2006), pages 311-312.
 Ibid, page 312.
Fighting the “Rising Tide” of Arab Nationalism: The Eisenhower Doctrine and the Syrian Crisis
By: Andrew Gavin Marshall
The following sample is a compilation of unedited research, largely drawn from official government documents of the State Department, CIA, Pentagon, White House, and National Security Council, outlining the development of the Eisenhower Doctrine and the American imperial perceptions of the threat of ‘Arab Nationalism.’
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The Eisenhower Doctrine and the Threat of Arab Nationalism
Following the Suez Crisis, Nasser’s influence and reputation was enormously strengthened in the Arab, Muslim, and wider decolonizing world, while those of Britain and France were in decline. Nasser’s support for nationalist movements in North Africa, particular Algeria, increasingly became cause for concern. Pro-Western governments in the Middle East stood on unstable ground, threatened by the ever-expanding wave of Pan-Arab nationalism and indeed, Pan-African nationalism spreading from North Africa downward. The United States, however, noting the power vacuum created by the defeat of Britain and France in the conflict, as well as the increasing support from the Soviet Union for nationalist movements in the region as elsewhere, had to decide upon a more direct strategy for maintaining dominance in the region.
As President Eisenhower stated in December of 1956, as the Suez Crisis was coming to a final close, “We have no intention of standing idly by… to see the southern flank of NATO completely collapse through Communist penetration and success in the Mid East.” Secretary Dulles stated in turn, that, “we intend to make our presence more strongly felt in the Middle East.” Thus, the Eisenhower Doctrine was approved in early 1957, calling for the dispersal of “$200 million in economic and military aid and to commit armed forces to defend any country seeking assistance against international communism,” explaining that, “the existing vacuum… must be filled by the United States before it is filled by Russia.” Thus, Eisenhower told Congress, this new doctrine was “important… to the peace of the world.” Some Senators opposed the doctrine; though, with powerful political figures supporting it, as well as the New York Times providing an unfailing endorsement, it was approved in early March of 1957. In the Middle East, Libya, Lebanon, Turkey, Iran, and Pakistan endorsed the doctrine in the hopes of receiving economic and military aid (even before the U.S. Congress approved it), King Hussein of Jordan endorsed it, and funds were further given to Iraq and Saudi Arabia.
The main opposition to the Eisenhower Doctrine came from Syria and Egypt. Nasser later reflected that the doctrine appeared to be “a device to re-establish imperial control by non-military means,” and therefore he would “have nothing to do with it and felt it was directed at Egypt as much as at any communist threat.” This was not, as it turned out, far from the truth. A State Department Policy Planning Paper from early December of 1956 discussed the formation of a new regional policy (which resulted in the Eisenhower Doctrine), and while focusing on the notion that, “[t]he primary threat to the interests of the United States and the West in the Middle East (especially oil, Suez Canal and pipelines) arises from Soviet efforts at penetration,” Nasser and Egypt figured prominently in this formulation, but couched in the rhetoric of the Cold War. In fact, “Soviet penetration” of the Middle East was stated to rest on three main factors, the first of which was identified as the “ambitions of Nasser and the willingness of Nasser and the Syrians to work with the Soviets, especially to obtain arms.” The other two main factors were identified as, “instability and divisions among the other Middle Eastern nations,” referring to Western puppet governments in the region, and “increased animosity toward the UK and France resulting from their military action against Egypt and intensified by the fact that their action was taken in conjunction with Israel’s invasion of Egypt.”
Thus, while the strategy was presented as a means to prevent Soviet “penetration” of the Middle East, the actual content and objectives of the strategy being formulated were directly related to checking Egyptian influence in the region and beyond. Of course, Soviet advances in the area were of concern to the Americans, that cannot be denied, but the prevalence of Egypt and Nasserist influence as a decisive “Third Force” was undeniable as a source of fear among imperial strategists. The strategy overtly stated that “efforts to counter Soviet penetration” in the region “must include measures to… [c]ircumscribe Nasser’s power and influence.” Noting that the American stance during the Suez Crisis has “greatly increased our prestige and opportunity for leadership,” in presenting the view that the United States is “firmly committed to support[ing] genuine independence for the countries concerned,” the State Department document noted that the U.S. would have to avoid “counter suspicion that our aim is to dominate or control any of the countries or to reimpose British domination in a different form. For this reason, our actions will be largely self-defeating if they create a general impression that our objective is directly to overthrow Nasser.” That of course, implies that it is the “indirect objective” of the policy to overthrow Nasser. Noting that Egypt would likely oppose all the measures put forward by the United States in its regional policy, the Policy Planning Paper stated that, “We should play upon [Nasser’s] opposition to stigmatize Egypt as an impediment to peace and progress in the Middle East,” of which the objective would be “to mobilize opinion against Nasser and to circumscribe his power and influence.” The paper stated that it would be important to inform the U.K. and France that the U.S. objective of the program “is directed toward countering Soviet penetration in the Middle East and circumscribing Nasser’s power and influence,” and thus, it would “serve their interests as well as ours,” having in mind “the vital importance of the Middle East to Western Europe.” As such, the U.K. and France should be convinced to “avoid injecting themselves in the Middle East and leave to the US the primary responsibility of restoring the Western position in the area.”
A National Security Council (NSC) report explained that the “opportunistic and nationalistic Nasser government of Egypt gained in influence throughout the area and other Arab heads of state were less able to resist the formation of governments which catered to this surge of nationalism.” Syria was an obvious example; however, even Western friendly governments had to submit to various nationalistic pressures, as Jordan abrogated the Anglo-Jordanian Treaty with Britain, and “King Saud, while publicly friendly to Nasser and the Arab cause, maintained an independent position using his influence for moderation on nationalistic elements, steering a course between the extreme pro-Soviet and strongly pro-West Arab groups.” It’s important to note how Arab nationalism is described as “the extreme pro-Soviet” course when it actually represented a “Third Force” not allied to either the West or East. While the U.S. had an “extremely favorable” position in the Middle East following the Suez Crisis, the USSR was subsequently “given the greatest credit in the Arab world for the cessation of hostilities in Egypt.” Egypt and Syria increased their economic and military ties with the Soviet bloc, and through such support to these and other Arab nations, “the Soviet Union appeared as the defender of the sovereignty of small countries and of Arab nationalism against the threats of Western ‘imperialism’.” Explaining the “major operating problems” facing the United States in the region, nationalism was identified as the primary threat. The NSC Operations Coordinating Board report stated:
Throughout the Arab area there have been increasing manifestations of an awakened nationalism, springing in part from a desire to end both real and imagined vestiges of the mandate and colonial periods, but stimulated by opportunism, Soviet propaganda, aid and infiltration, and by Egyptian ambitions and intrigue. Because the former mandatory and colonial powers were from Western Europe, the nationalism has assumed generally an anti-Western form. This situation has created opportunities for Soviet exploitation, and has, at the same time, placed the United States in a difficult position. The natural U.S. sympathy with those genuinely desirous of becoming free and completely sovereign nations runs, at times, into sharp conflict with actions required to maintain the strength of the Western alliance and to support our closest allies.
Further problems include the threat to Western economic interests in the area, with the potential for nationalization following the example of the Suez Canal, which could put at risk substantial U.S. private investments in the Arab world. Another major problem was with the divides within the Western alliance itself on how it viewed the Arab world and its problems. Significantly, “the United States sees in nationalism much that represents a threat to the West,” but “it tends to regard this nationalism as an inevitable development which should be channeled, not opposed,” whereas “Britain and France have seen this nationalism… as a threat to their entire position in the area.” The NSC paper lamented that, “It is likely that for the time being Nasser will remain the leader in Egypt,” but “the United States cannot successfully deal with President Nasser.” The United States, then, must determine “the degree to which it will actively seek to curb Nasser’s influence and Egyptian activities in the Near East and Africa.”
Syria became an important part of this equation. Increasingly left-leaning, with major pipelines carrying oil to the Mediterranean supplying much-needed oil for Western Europe’s recovery, and the largest Communist Party in the Arab world, Syria was a strategic nightmare for Western interests. After the Suez Crisis, Syria and Egypt both edged toward closer ties with the Soviet Union, not out of an ideological proclivity toward communism, but because of a pragmatic approach toward preserving and expanding Arab nationalism, which the West was actively opposed to while the USSR had endorsed, naturally, as a means to gaining strategic inroads into the Middle East, not out of any benevolent conception of justice for colonized peoples. In 1956, President Eisenhower stated:
Syria was far more vulnerable to Communist penetration than was Egypt. In Egypt, where one strong man prevailed, Colonel Nasser was able to deal with Communists and accept their aid with some degree of safety simply because he demanded that all Soviet operations be conducted through himself. In Syria, where a weak man was in charge of the government [Quwatli], the Soviet penetration bypassed the government and dealt directly with the various agencies, the army, the foreign ministry, and the political parties. Syria was considered ripe to be plucked at any time.
The fears of Soviet penetration were of course exaggerated beyond the on-the-ground realities, as per usual. The real fear was the potential for Syria to more closely align with Egypt and become a strong partner in Nasser’s non-aligned “Third Force” which happened to be in a location of major strategic interest to the West. As the Eisenhower Doctrine framed the language in terms of the Cold War confrontation between the West and East, the internal documents leading to the formation of the doctrine pointed to the isolation and diminution of Egyptian influence in the region as the main objective. Britain’s only remaining pseudo-protectorate in the region through which it could protect its oil interests was in Iraq, while its relationship with Jordan was faltering under nationalistic pressure. The British then, had a major interest in Syria, a an idea was being pushed through Iraq where the leader of the country, Nuri al-Said, “had sought to take the leadership of the Arab nationalist movement away from Egypt by instituting a ‘Fertile Crescent’ union of Iraq, Syria, Lebanon, Palestine, and Jordan.” The British objective and vision for the region, not coincidentally, “corresponded with this ambition.” Syria was viewed as a potential point through which to secure access to oil by ensuring a pro-Iraqi government, as well as checking Arab nationalism and Nasser.
In October of 1957, the United States produced a National Intelligence Estimate analyzing “probable developments affecting US interests” in the Middle East “during the next several years.” The outlook for the United States and the West in the Middle East “has deteriorated,” stated the estimate. The USSR’s influence has increased by “supporting the radical element of the Arab nationalist movement,” meaning Nasser. The NIE stated that, “radical Arab nationalists control only Egypt and Syria” at the moment, however, “sympathy and support for their strong anti-Western, revolutionary, and pan-Arab policies come from a substantial majority of the Arabs of the Near East,” while the indigenous support for the West in the region “comes largely from the outnumbered and often weakly-led conservative nationalist elements.” Acknowledging that the regimes in Syria and Egypt were likely to maintain for a few years, their reliance upon the Soviet Union would likely increase, and, moreover, “Nasser and the Syrian leaders will probably continue to exert a powerful influence over radical Arab nationalists throughout the area, except in the unlikely event of their emerging clearly as Soviet puppets.” Even if these specific regimes collapsed, noted the NIE, “the radical Arab nationalist movement will continue as a basic element in the Near East situation.”
The “conservative grouping” which supports the West in the region, consists of Saudi Arabia, Jordan, Iraq, and Lebanon, “forms a loose coalition of regimes that look to the US for aid because of their common interest in the existing system and opposition to the forces of revolution represented by the radicals.” While they do not oppose Arab nationalism in general, for it also justifies their own self-rule, they remain conservative and opposed to radical elements typified by Nasser. The NIE noted that the potential “for broadening or consolidating the position of the conservative forces in the Arab states are poor, although these forces will continue to be an important factor in the area.” One of the main problems was the continued Arab-Israeli dispute, of which prospects for a solution were poor. The NIE warned that the United States believed “that there will almost certainly be some armed conflict in the area during the next several years,” likely in Syria, Jordan, Yemen, and potentially with Israel. While France and the U.K. have lost influence in the region, the USSR has increased its own, with supplying arms to Egypt, Syria, and Yemen, and the U.S. is the main representative of the West in the Middle East. As such, the NIE stated, the region “has thus become a principal arena of the contest between the US and the USSR.”
Since the Suez Crisis, “Nasser has become… the spokesman and symbol of radical Pan-Arab nationalism.” Yet, the conservative forces in the region, especially Iraq, Lebanon, Jordan, and Saudi Arabia, remained increasingly distrustful of Nasser, and thus welcomed the Eisenhower Doctrine “as an opportunity to strengthen their own positions,” resulting in “a division of the Arab Near East into two loose groupings.” The radical Pan-Arab nationalist movement of Nasser and Syria “advocate the union of all Arabs in a single state,” and are “both the most dynamic and the most violent in their anti-Westernism, the most interested in a military buildup as a symbol of Arab strength, and at the present time the most activist in their hostility toward Israel.” Nasser and the Syrian leaders, stated the NIE, “are revolutionaries who believe in replacing many traditional social and economic institutions with a state socialism of their own devising.” Importantly, the NIE observed that, “[t]he majority of politically conscious Arab Moslems throughout the Near East, particularly the middle class intelligentsia, are sympathetic to this concept of Arab nationalism,” and believe that the interests of the West in the region are “Israel, oil, and domination of the area.” Further, they “also believe the West to be opposed to their concept of Arab unity.” The conservative elements, which reject the radical notions of Arab nationalism, reject ties to the Soviet Union, and draw themselves close to the West, are “largely confined to the upper and professional classes and [have] little popular support.” In other words, the pro-West regimes are simply dominated by “conservative and traditional” elites, while the majority of the population of the region support Nasser’s vision of Pan-Arab nationalism.
Oil interests in the region remained paramount for the West. The NIE took note of the fact that the “non-Communist world looks increasingly for its petroleum requirements to the vast reserves of the Middle East,” which was “particularly true of Western Europe,” which in 1957, “consumes almost three million barrels of oil per day, of which 72 percent comes from the Middle East,” and that rate was expected to increase by 1965. Nationalistic governments and movements in the region were exerting increasing pressure upon the “existing pattern of oil production and transportation” in seeking “increased revenue and more control over oil operations.” Luckily for the West, the conservative elements control the major oil producing areas, but transportation of oil through pipelines and waterways go through areas dominated by the radical Arab nationalist regimes. In fact, 35% of oil going to the West from the region was transported by pipeline, while 65% went through the Suez Canal. The NIE noted, however, that “Egypt and Syria are unlikely, except under extreme provocation, to exercise their capability to stop the flow of oil from the Persian Gulf area to the Mediterranean.” Opposition to Israel was identified as “the principal point of agreement among all factions of Arabs and acute tension between the Arab states and Israel will continue.” The Cold War struggle between the West and East “is regarded as a battle of giants which concerns the Arab world only insofar as it intrudes in Arab affairs or offers opportunities to the Arabs to advance their own interests.” Thus, Arab views toward the Soviet Union and the West are not framed in the Cold War dialectic of the “Free World” versus “Communist dictatorship,” but rather “the result of past experience, present friction, and future aspirations,” which naturally put the West in the part of imperial aggressors, while the Soviet Union can legitimately portray itself as ‘anti-imperial.’ The United States will continue to represent the West in the region, but “Britain, France, and other Western states will be critical of US policy if it does not act effectively to protect Western interests, particularly in petroleum, when threatened.”
Western influence had increased among the conservative Arab regimes over the preceding year, but has failed to be recognized “among the Arab public,” who fail “to understand Western indignation at Nasser’s nationalization of the Suez Canal Company and at his taking Soviet arms.” The French-British-Israeli invasion of Egypt confirmed the radical Arab nationalist portrayal of “Western imperialists,” and, while U.S. actions during the crisis increased its favor in the region, the “Soviet threats against the UK made an equal or greater impression on the Arab public.” The U.S. stance during the crisis “was misinterpreted among the Arabs as an indication that the US intended to back the Pan-Arab program against the UK and France, and many became confused and disillusioned when this turned out not to be the case.” While radical Arab nationalism will continue over the following years, stated the NIE, “[t]he forces of conservative Arab nationalism are likely to continue to be generally identified with the West,” and in some areas this could lead to “instability.” Israel, for its part, “will continue to receive outside financial and diplomatic support [largely from France] and will persist as a dynamic force within the area,” as well as seeking “to keep its armed forces qualitatively superior to those of its Arab opponents.”
For Western interests in the region, a number of factors had to dictate American policy. Naturally, the possibility of cooperation with Syria and Egypt remained slim, while conservative Arab governments were “likely to become progressively more dependent upon the US,” which would mean that “economic progress in these states will be regarded in the area as an index of the value of association with the US.” The increasing “public expectation of improvement in economic standards and welfare will impose difficulties upon governments,” as the “radical nationalist governments of Egypt and Syria are committed to ambitious social and economic reforms,” though they may likely fail to “fulfill their expectations, even with Soviet assistance, and they will probably experience political difficulties as a consequence.” For the conservative governments, which are home to the vast oil reserves of the region, they will have the “financial resources with which to effect reforms which would probably broaden the base of popular support and thus ultimately strengthen their position and that of the conservative grouping.”
Syria and Jordan: The Evolution of a Crisis
The Syrian Crisis emerged between July and October of 1957, after the Ba’ath Party (an Arab Socialist party) won control of the Parliament and Cabinet in early January, with increased Syrian disputes with Turkey over territory, reluctance to grant the Saudi ARAMCO company a pipeline across the country (owned by the Rockefeller Standard Oil Company), and the acceptance of left-wing Arab groups, the “moderate” Syrian leadership was increasingly sidelined. The United States and its Western allies, particularly Britain, had been involved for a number of years in supporting various coups in Syria. One coup was supposed to take place in 1956, but was outflanked by the importance of the Suez Crisis. Codenamed Operation Straggle, it was felt that the plans could be resumed once the British and French had left Suez. Thus, in late 1956, the British and Americans began again discussing “certain operational intentions regarding Syria,” and the CIA stated that “the UK, France, Turkey, Israel, and Iraq all… would welcome US participation and support in strong measures to check or counter the leftward trends in Syria.” With the passing of the Eisenhower Doctrine, Syria had been identified “as evidence of Russian intent” in the region. Syria, of course, denounced the doctrine, and American strategists, such as Allen Dulles at the CIA, increasingly painted Syria with a Soviet brush.
Jordan played an increasingly important role in this situation. King Abdullah, long supported and in fact, put in power by the British, had been assassinated by a Palestinian in 1951. In 1953, King Hussein emerged as the conservative leader of the country. Jordan, situated between Israel, Syria, and Saudi Arabia, was a pivotal player in any schemes at regional “stability” and preventing the spread of Pan-Arab nationalism. As Britain’s influence in the region dissipated, King Hussein sought to cement his regime’s ties with the Americans. Jordan had, for years, been subjected to cross-border raids from Israeli commandos, and the conservative pro-Western government of Jordan had to subdue national public opinion to refrain from striking back. The U.S. attempted to pressure Jordan into a peace settlement with Israel, but when Colonel Ariel Sharon destroyed a West Bank village in 1953, killing sixty-nine Palestinians, most of whom were women and children, “such a hope [had] been dashed to smithereens,” said a U.S. official at the time. Jordan had to wrestle with the reality of being home to a massive Palestinian refugee population, which was the source of enormous instability and caution for any regime in power. While King Hussein, due largely to domestic pressures, refrained from joining the Baghdad Pact (an alliance between Britain, Iraq, and Turkey), once Nasser had purchased Soviet arms in 1955, both the UK and United States began to see Hussein’s Jordan as “virtually impotent” in the confrontation of “universal popular Jordanian enthusiasm for [the] flame of Arab political liberation ignited by Nasser’s arms deal.” Thus, reported an American official in Amman, the capitol of Jordan, the “[p]olitical situation in Jordan is disintegrating and resulting instability is playing into [the] hands of anti-Western nationalists and Communists.”
The British, in response, attempted to entice Jordan to join the Baghdad Pact, which was looked favourably upon by King Hussein. However, when news of this spread to the West Bank, wrote Douglas Little, “anti-Western demonstrations erupted and pro-Nasser Palestinians demanded that Hussein sever his ties with Britain and rely instead on Soviet arms and Saudi gold.” Thus, lamented a British official, “If Saudi/Egyptian/Communist intrigue can prevent Jordan joining the Pact… despite the King and Government wishing to do so… how far has the rot spread?” The “rot” referred to by the British official, of course, was Arab nationalism. Many American officials felt that Britain would be completely extricated from Jordan, leaving CIA Director Allen Dulles to comment in early 1956 that, “The British… have suffered their most humiliating defeat in modern history.” King Hussein shortly thereafter removed the head of the Arab Legion, which was the British-controlled Jordanian army, and put the army under absolute Jordanian control, leading the British to cut Jordanian economic and military aid in retribution. The Americans, however, felt this was a smart move by Hussein, as the “King is now [a] hero and no longer [a] puppet.” Hussein put in place a new leader of the Arab Legion, described by some as an “anti-Western opportunist,” of whom the British presented as having an objective for Jordan that, “is likely to be a military dictatorship on the lines of Colonel Nasser.” This leader, Abu Nuwar, even invoked many concerns among the Americans, who were wary of his pro-Nasser stance and his ties to Palestinian leaders in the West Bank. With the Suez Crisis under way, Jordan requested Iraq send hundreds of military advisers, to which Israel responded with “savage blows” against the Arab Legion, in Eisenhower’s own words, increasing the fear that, “Jordan is going to break up… like the partition of Poland.”
In October of 1956, elections in Jordan led to the formation of a Government coalition of Communists and anti-Western nationalists, “led by Sulieman Nabulsi, a pro-Palestinian East Bank activist whom [King] Hussein reluctantly named prime minister on the eve of the Suez war.” As British participation in the Suez war became clear, Jordan’s government threatened to toss out the Anglo-Jordanian Treaty of 1948, leading Arab Legion chief Abu Nuwar to warn U.S. diplomats that, “If [the] US wants to salvage anything in Jordan,” it would have to act quickly to “furnish military and economic aid… [to] compensate for British aid which will soon be ended.” Hussein warned the Americans that Nuwar and Nabulsi were even considering Soviet aid as a replacement for British subsidy. Thus, the United States jumped into Jordan with $30 million in aid. With the Eisenhower Doctrine unveiled in early 1957, Hussein quietly endorsed the program, to which he was rewarded with suitcases of cash from the CIA, and in April, Hussein forced the prime minister to resign, instigating large anti-Western protests. At that time, however, Allen Dulles informed the National Security Council, “The situation in Jordan had reached the ultimate anticipated crisis… The real power of decision rests largely with the Army, whose loyalty to the King is uncertain.” Two days later, amid protests denouncing the Baghdad Pact and the Eisenhower Doctrine, Nuwar, the head of the Army, attempted to oust King Hussein in a coup. The King, however, was not taken by surprise. With the help of the CIA’s Kermit Roosevelt, he had mobilized loyalist army factions who forced Nuwar into exile in Syria. The crisis, however, continued, as massive anti-US demonstrations took place in Amman and Jerusalem, leading Hussein to ask Secretary of State John Foster Dulles if he could count on US support in proposing “to take a strong line in Jordan, including martial law on the West Bank.” Dulles then urged Eisenhower to send a battalion of US Marines into the Eastern Mediterranean “to signal US support for the embattled Hussein.”
The United States then immediately granted $10 million in economic aid to Jordan, followed closely with $10 million in military aid, both provided through the auspices of the Eisenhower Doctrine, designed to ensure that the Arab Legion remained as “as effective force for the maintenance of internal security,” which translates into domestic repression. Jordan got a new Prime Minister, ostensibly pro-Western, and America increasingly replaced the British as the imperial master of Jordan. Problems persisted, however, as Secretary Dulles noted, as within “wretchedly poor” Jordan, the Palestinians “were a continuing menace to stability,” and “the King sat on dynamite where the refugees were concerned.”
The Syrian Crisis
At the same time, as the crisis began to boil over in Syria, Eisenhower stated that, “If by some miracle stability could also be achieved in Syria,” by which he means pro-Western subservience, “American would have come a long way in an effort to establish peace in that troubled area,” by which he means domination. The CIA, for its part, was already encouraging right-wing factions of the Syrian military to “join forces effectively against the leftists.” In May of 1957, the CIA was attempting to remove “the pro-Communist neutralists” and “achieve a political change in Syria.” With Syrian elections, both Communists and Ba’athist made large gains, while an oil refinery was being constructed at Homs by Czech engineers from the Soviet bloc, and Soviet military advisers made inroads into the nation, resulting in a $500 million grain-for-weapons deal signed with Soviet Premier Khrushchev in July of 1957. In August, the National Security Council’s Operations Coordinating Board produced a report explaining that, “Syrian leaders seem more inclined to accept Soviet influence blindly than in any other country in the area… There was evidence that the Soviets are making Syria the focal point for arms distribution and other activities, in place of Egypt.” Within two days, the United States gave authorization for the covert operation against Syria, which the CIA had been planning for months, aiming to install the former Syrian pro-West leader, Shishakli. This operation, however, according to the U.S. Ambassador to Syria in 1957, was “a particularly clumsy CIA plot” which had been “penetrated by Syrian intelligence.” It was later revealed that, “[h]alf a dozen Syrian officers approached by American officials immediately reported back to the authorities so that the plot was doomed from the start.” Therefore, on August 12, the head of Syrian counterintelligence expelled known CIA agents, arrested their local assets, and put the U.S. Embassy under surveillance. Eisenhower expelled the Syrian ambassador to the United States, which was reciprocated with Syria expelling the American ambassador. Painting the picture of a Syria which was about to “fall under the control of International Communism and become a Soviet satellite,” Secretary Dulles supported invoking the Eisenhower Doctrine.
On August 21, 1957, an emergency meeting on Syria was held at the White House, and Secretary Dulles asked the Chairman of the Joint Chiefs of Staff to attend, stating that, “We are thinking of the possibility of fairly drastic action… so come with anybody he needs in that respect.” Though the actual minutes of the meeting remain classified, Eisenhower’s memoirs reflect on some of the discussion that took place: “Syria’s neighbors, including her fellow Arab nations, had come to the conclusion that the present regime in Syria had to go; otherwise the takeover by the Communists would soon be complete.” The U.S. would then encourage Iraq and Turkey to mass troops along their borders with Syria, and “if Syrian aggression should provoke a military reaction” – note how it’s defined as “Syrian aggression” as opposed to “reaction” or “defense” to an aggressive military buildup on its borders – the United States would “expedite shipments of arms already committed to the Middle Eastern countries and, further, would replace losses as quickly as possible.” As such, the U.S. Sixth Fleet was again ordered to the eastern shores of the Mediterranean, as it was during the Jordanian crisis earlier that year, while U.S. jets were sent from Western Europe to a NATO base in Turkey. Over the following two weeks, the Americans slowly backed down from their aggressive strategy, which threatened to provoke a major regional war drawing both the Soviet Union and the United States directly into the conflict. Soviet leader Khrushchev wrote a letter to Eisenhower in early September warning him not to intervene in Syria. John Foster Dulles claimed that the crisis had created “a period of the greatest peril for us since the Korean War,” saying that Khrushchev was “more like Hitler than any other Russian leader we have previously seen.” In typical Orwellian fashion, changing the actual crisis from that of a major covert and potentially overt American aggression in the region, Dulles, when speaking to the press, expressed his “deep concern at the apparently growing Soviet Communist domination of Syria.”
While the conservative Arab allies were hesitant to pursue aggressive American policies against Syria, Turkey seemed to be ready for war, as even “despite words of caution from American diplomats and NATO officials,” Turkey “refused to demobilize the 50,000 troops they had massed along the Syrian frontier.” Dulles attempted to placate the Soviets, explaining that Eisenhower was convincing the Turks to retract, and Khrushchev warned, “if Turkey starts hostilities against Syria, this can lead to very grave consequences, and for Turkey, too,” which was a NATO ally, and thus, if Turkey was “to go it alone in Syria,” the Soviet Union would “attack Turkey, thereby precipitating an open, full scale conflict between ourselves and Russia.” With this in mind, U.S. officials bribed Turkey with economic and military aid to demobilize the border in late October. Following the crisis, Syrian leaders saw a dual threat of either Soviet domination of their country or Turkish invasion. In response to this, they promoted a formal union with Egypt along the lines espoused by Pan-Arab nationalism, and in early 1958, the United Arab Republic (UAR) was formed between Syria and Egypt. The Americans then feared that Nasser would use the UAR “to threaten Lebanon, Jordan, Saudi Arabia and Iraq and perhaps engulf them one by one.” However, despite the American fears that the UAR would seek to absorb other Arab states, the United States felt that a merger with Egypt would repress Communist elements in Syria, and that open hostility to the UAR would only incur Arab resentment. Thus, while the UAR was formed on 1 February 1958, the United States formally recognized it on 25 February, and the Syrian crisis came to an end.
U.S. Policy After the Syrian Crisis
On 24 January 1958, a National Security Council report on “Long-Range U.S. Policy Toward the Near East” was issued which explained that the Middle East was “of great strategic, political, and economic importance to the Free World,” as the region “contains the greatest petroleum resources in the world and essential facilities for the transit of military forces and Free World commerce.” Thus, it was deemed that the “security interests of the United States would be critically endangered if the Near East should fall under Soviet influence of control,” and that the “strategic resources are of such importance” to the West, “that it is in the security interest of the United States to make every effort to insure that these resources will be available and will be used for strengthening the Free World,” noting also that the “geographical position of the Near East makes the area a stepping-stone toward the strategic resources of Africa.” The Report went on note:
Current conditions and political trends in the Near East are inimical to Western interests. In the eyes of the majority of Arabs the United States appears to be opposed to the realization of the goals of Arab nationalism. They believe that the United States is seeking to protect its interest in Near East oil by supporting the status quo and opposing political or economic progress, and that the United States is intent upon maneuvering the Arab states into a position in which they will be committed to fight in a World War against the Soviet Union. The USSR, on the other hand, had managed successfully to represent itself to most Arabs as favoring the realization of the goals of Arab nationalism and as being willing to support the Arabs in their efforts to attain those goals without a quid pro quo. Largely as a result of these comparative positions, the prestige of the United States and of the West has declined in the Near East while Soviet influence has greatly increased. The principal points of difficulty which the USSR most successfully exploits are: the Arab-Israeli dispute; Arab aspirations for self-determination and unity; widespread belief that the United States desires to keep the Arab world disunited and is committed to work with “reactionary” [i.e., dictatorial] elements to that end; the Arab attitude toward the East-West struggle; U.S. support of its Western “colonial” allies [France and Britain]; and problems of trade and economic development.
These points of “exploit” are, further, accurate. The United States, affirmed the NSC report, “supports the continued existence of Israel,” and “our economic and cultural interests in the area have led not unnaturally to close U.S. relations with elements in the Arab world whose primary interest lies in the maintenance of relations with the West and the status quo in their countries – Chamoun of Lebanon, King Saud, Nuri of Iraq, King Hussein [of Jordan].” These relations, stated the document, “have contributed to a widespread belief in the area that the United States desires to keep the Arab world disunited and is committed to work with ‘reactionary’ elements to that end,” while the USSR can proclaim “all-out support for Arab unity and for the most extreme Arab nationalist aspirations, because it has no stake in the economic, or political status quo in the area.” In its look at the advances of Communism in the region, the report stated that, “Communist police-state methods seem no worse than similar methods employed by Near East regimes, including some of those supported by the United States,” while the “Arabs sincerely believe that Israel poses a greater threat to their interests than does international Communism.” Lamenting against perceptions of the West in the region, the NSC document noted that the Arabs “believe that our concern over Near East petroleum as essential to the Western alliance, our desires to create indigenous strength [i.e., police-states, dictatorships, strong militaries] to resist Communist subversion or domination, our efforts to maintain existing military transit and base rights and deny them to the USSR, are a mere cover for a desire to divide and dominate the area.”
Unfortunately for the United States reputation, the NSC report stated, “[t]he continuing and necessary association of the United States in the Western European Alliance makes it impossible for us to avoid some identification with the powers which formerly had, and still have, ‘colonial’ interests in the area.” In other words, yes, the United States supports colonialism and imperialism in the Middle East. Further, “[t]he continuing conflict in Algeria excites the Arab world and there is no single Arab leader, no matter how pro-Western he may be on other issues, who is prepared to accept anything short of full Algerian independence as a solution to this problem,” and thus, this creates “fertile ground for Soviet and Arab nationalist distortion of the degree of U.S. and NATO moral and material support to the French in Algeria.” While the area is rife with “extremes of wealth and poverty,” the blame is put on “external factors” such as “colonialism” as well as “unfair arrangements with the oil-producing companies, and a desire on the part of the West to keep the Arab world relatively undeveloped so that it may ultimately become a source of raw materials and the primary market for Israeli industry.” The NSC document then stated that, “we cannot exclude the possibility of having to use force in an attempt to maintain our position in the area,” but that, “we must recognize that the use of military force might not preserve an adequate U.S. political position in the area and might even preserve Western access to Near East oil only with great difficulty.”
As an American objective in the region, the NSC document stated that, “[r]ather than attempting merely to preserve the status quo, [the United States should] seek to guide the revolutionary and nationalistic pressures throughout the area into orderly channels which will not be antagonistic to the West and which will contribute to solving the internal social, political and economic problems of the area.” However, the report went on to essentially counter this point with the policy objective of seeking to “[p]rovide military aid to friendly countries to enhance their internal security and governmental stability,” or in other words, to maintain the status quo, and, “where necessary, to support U.S. plans for the defense of the area.” The document did, however, recommend that when a “pro-Western orientation is unattainable,” to “accept neutralist policies of states in the area even though such states maintain diplomatic, trade and cultural relations with the Soviet bloc… so long as these relations are reasonably balanced by relations with the West.” The United States should “provide assistance… to such states in order to develop local strength against Communist subversion and control and to reduce excessive military and economic dependence on the Soviet bloc.”
In dealing with the “threat” of Pan-Arab nationalism, the NSC report recommended that the United States should proclaim its “support for the ideal of Arab unity,” but to quietly “encourage a strengthening of the ties among Saudi Arabia, Jordan and Iraq with a view to the ultimate federation of two or all of those states.” The aim of this would be to create a “counterbalance [to] Egypt’s preponderant position of leadership in the Arab world by helping increase the political prestige and economic strength of other more moderate Arab states such as Iraq, the Sudan, Saudi Arabia, and Lebanon.” In Syria, the aim was simply to seek “a pro-Western, or if this is not possible, a truly neutral government.” Further, it was essential to continue “friendly relations with King Saud and continue endeavors to persuade him to use his influence for objectives we seek within the Arab world.” Referencing the potential use of covert or overt warfare and regime change, the document stated that the United States had to “[b]e prepared, when required, to come forward, as was done in Iran [with the 1953 coup], with formulas designed to reconcile vital Free World interests in the area’s petroleum resources with the rising tide of nationalism in the area.”
The preceding was a research sample of a chapter on the American Empire in the Middle East in The People’s Book Project. This chapter was made possible through donations from readers like you through The People’s Grants. The new objective of The People’s Grants is to raise $1,600 to finance the development of two chapters on a radical history of race and poverty. If you find the following research informative, please consider donating to support The People’s Book Project.
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 Peter L. Hahn, “Securing the Middle East: The Eisenhower Doctrine of 1957,” Presidential Studies Quarterly, (Vol. 36, No. 1, March 2006), pages 39-40.
 Ibid, page 41.
 Document 161, “Paper Prepared in the Bureau of Near Eastern, South Asian, and African Affairs and the Policy Planning Staff,” Foreign Relations of the United States, 1955-1957, Vol. 12, Near East Region; Iran; Iraq, 5 December 1956.
 Document 178, “Operations Coordinating Board Report,” Foreign Relations of the United States, 1955-1957, Vol. 12, Near East Region; Iran; Iraq, 22 December 1956.
 Ivan Pearson, “The Syrian Crisis of 1957, the Anglo-American ‘Special Relationship’, and the 1958 Landings in Jordan and Lebanon,” Middle Eastern Studies (Vol. 43, No. 1, January 2007), pages 45-46.
 Ibid, pages 46-47.
 Document 266, “National Intelligence Estimate,” Foreign Relations of the United States, 1955-1957, Vol. 12, Near East Region; Iran; Iraq, 8 October 1957.
[11 – 15] Ibid.
 Douglas Little, “Cold War and Covert Action: The United States and Syria, 1945-1958,” Middle East Journal (Vol. 44, No. 1, Winter 1990), pages 68-69.
 Douglas Little, “A Puppet in Search of a Puppeteer? The United States, King Hussein, and Jordan, 1953-1970,” The International History Review (Vol. 17, No. 3, August 1995), pages 512, 516-519.
 Ibid, pages 519-522.
 Ibid, pages 522-524.
 Ibid, pages 524-525.
 Douglas Little, “Cold War and Covert Action: The United States and Syria, 1945-1958,” Middle East Journal (Vol. 44, No. 1, Winter 1990), pages 69-71.
 Ibid, pages 71-73.
 Ibid, pages 73-74.
 Peter L. Hahn, “Securing the Middle East: The Eisenhower Doctrine of 1957,” Presidential Studies Quarterly, (Vol. 36, No. 1, March 2006), page 44.
 Document 5, “National Security Council Report,” Foreign Relations of the United States, 1958-1960, Vol. 12, Near East Region; Iraq; Iran; Arabian Peninsula, 24 January 1958.