<nettime> Interview with Noam Chomsky (part 1)

[konfront@xs4all.nl]

1.  Noam Chomsky: "Whose World Order: Conflicting Visions" part 1.

Renowned scholar and political activist Noam Chomsky spoke Sept. 22 to a
crowd of about 3,400 at the Jack Simpson Gymnasium on the University of
Calgary campus. The following was transcribed from a cassette recording of
the event, by Greg Harris of the U of C's Communications Office. Chomsky,
a master of the subordinate clause, often manages to keep several ideas
aloft in the same sentence; although highly interesting, his parenthetic
speaking style can occasionally challenge the transcriber's skill in
deploying punctuation. False starts, ums, wells, and you knows have
usually been edited out. If you find this useful (or, alternatively, if
you see any egregious errors), email gharris@ucalgary.ca]

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Whose World Order: Conflicting Visions

Chomsky: I want to at least mention quite a number of different topics.
The mentions are ineveitably going to be far too brief; every one of them
deserves intensive thought and discussion and they're not at all
comprehensive. But what I want to kind of suggest, if I can do it, is that
these are some of the threads that out to be woven together to give some
kind of coherent picture of where we stand today, what kinds of problems
we have to face and where we might find at least a standpoint to begin to
think about them in a constructive way.

I want to go back a half a century - I think we live very much within an
era that was more or less created then. There are occassional moments in
human affairs where power relations make it possible to establish social
and economic arrangements that actually merit the term world order. Merit
might not be the right word. It's not necessarily a phrase that should be
invested with positive connotations, as history amply reveals. One of the
most dramatic and in fact most easily timed of those moments was about 50
years ago in the aftermath of the most devasting single catastophe in
human history which took place right in the heartland of western
civilization. At the end of the war, the United States, of course, had an
overwhelming share of global wealth and power and, perfectly naturally,
dominant forces within the state corporate nexus in the United States
planned to use that power to organize the world as much as they could in
accord with their own conceptions of their interests and those they
represented.

Of course, there were conflicting visions both at home and abroad and they
had to be contained, or better, rolled back, to borrow some cold war
rhetoric. That was done with varying degrees of success, but in fact the
basic conflicts persist and for elementary reasons - they persist because
they are about fundamental values; they are about freedom and justice and
human dignity and human rights in a world of inequality - great inequalty
and great concentration of power (the real world, that is); these values
quite commonly constitute an arena of conflict between centres of power
and most of the rest. A good deal of history revolves around these
conflicts in the last half century; this is no exception and I'm sure the
next will not be either.

Well at the onset of the current era, about a half century ago, the
framers of the world order of that day, the new world order of that day,
they faced these challenges everywhere. At home, what had to be contained,
maybe rolled back, were the very strong commitments of a large majority of
the population to social democratic ideals that the business world rightly
perceived as a grave threat to their traditional dominance. They were the
hazard-facing industrialists in the rising political power of the masses,
as the National Association of Manufacturers put it in their internal
literature. It was the crisis of democracy that was posed by a population
that sought to enter the political arena, as frightened liberal
internaltionalist elites phrased essentially the same problem after the
ferment of the 1960s, expressing particular concern about what they called
the institutions responsible for indoctrination of the young, which were
failing to carry out their disciplining role properly.

Similar problems were faced throughout the industrial world. They were
enhanced by the prestige and appeal of the anti-fascist resistance, which
was a complex affair, but often had radical democratic thrusts. They were
enhanced further by the discrediting of the traditional conservative
order, which had been linked closely to the fascist system. Reinstating
that traditional order in its essentials was a primary task of the early
post-war years and it was achieved to a large extent often in not very
pretty ways. As in the United States, this project continues. It's taken
new forms in the last 25 years, as here and as throughout the world, under
the guise of neo-liberalism or economic rationalism or free market
doctrine, which is permeated with a good deal of deceit, hypocrisy and
maybe outright fraud. All of these issues are strongly very, very much
alive right now - here, Europe and elsewhere.

In the Third World, the south - the developing world as its
euphemistically called - similar problems were compounded by strong
pressures, uncontrollable pressures, to overturn the imperial systems, and
the legacy of dependancy and subordination that they had left. The basic
issues were very much the same in most of the world but they were revealed
with particular clarity, with starkest clarity, in Latin America for the
simple reason that the United States faced no challenge there, no outside
challenge, so you see the principles operating in their purest form. There
was a real challenge, but it was from the domestic population - no outside
challenge.

As In Europe, these conflicts in Latin America came to a head even before
the war was over, in the case of Latin America very dramatically in
February 1945 at a hemispheric conference (Canada was not part of the
Western hemisphere in those days, remember, so Western hemisphere means
United States to the south. I don't think Canada attended the conference,
but maybe I'm mistaken.) The hemispheric conference was supposed to
organize affairs for the hemisphere. We know from U.S. internal records
now that the Uinited States was deeply concerned with what the State
Department called the "philosophy of the new nationalism" that was
spreading all over Latin America and indeed all over the world, quoting
State Department documents. The philosphy of the new nationalism, which
embraced policies designed to bring about a broader distribution of wealth
and to raise the standard of living of the masses on the principle that
the first beneficiaries of the country's resources are the people of that
country. That heresy is called radical nationalism or economic nationalism
and of course it has to be stamped out - the first beneficiaries of a
country's resources are U.S. investors, their counterparts elsewhere, and
local elites who are associated with them.

At the hemispheric conference the United States - given the power
relations of course the U.S. prevailed - and it imposed what was called an
economic charter for the Americas which called for an end to economic
nationalism in all its forms. In the cruel and bloody history of the
half-century that followed, these remained central themes and they will
continue to. They are very much alive today; now they are often framed
differently in the context of the investor rights agreements that are
mislabeled free trade agreements: NAFTA, the forthcoming, maybe,
Multilateral Agreement on Investments, MAI, and what's called
globalization, which is a specific form of international integration (not
by any means the only necessary form); it's the specific form that's
crafted primarily to serve the interests of its designers, again not
terribly surprisingly, transnational corporations, financial institutions
and the bureaucracies that they control and of course the major states
that are part of the system.

The most critical part of the Third World was then and I think remains
today the Middle East, for the very simple reason that it's the locus of
the world's major energy supplies for as far ahead as anybody can see.
Hence, it was considered to be, and is still considered to be, of
particular importance that the first beneficiaries of that wealth are not
the people of the region; rather the resources must be under effective
U.S. control, they must be accessible to the industrial world on terms
that the United States leadership can see is appropriate and, crucially,
the huge profits that are generated must flow primarily to the United
States, secondarily to its British junior partner, to borrow the term used
by the British Foreign Office rather ruefully to describe its new role in
the post Second World War era. This is done in various ways. In part it's
ecycled by local managers who have to be dependent on the global rulers, a
long story which continues.

Well quite naturally these arrangements breed continual conflict. Internal
U.S. documents describe them in the conventional way. The conflicts are
conflicts with radical nationalism, radical Arab nationalism that
threatens U.S. dominance. For the public it's put a little differently,
varying over time. These days it's international terrorism, or the clash
of civilization; tomorrow it will be something new, but it's basically the
same ones all the time. The question is, who's going to be the first
beneficiaries of the region's resources.

These conflicts are likely to become more virulent and ominous in the
coming years, at least if the analysis and projection of quite a number of
geologists are anywhere near accurate. A reasonably broad consensus
(there's plenty of room for disagreement and uncertainty) but a reasonably
broad consensus was captured in the headline of a major review article on
the topic, in the journal Science - the journal of the American
Association of the Advancement of Science a couple of weeks ago. The
headline was, "The next oil crisis looms large and perhaps close." It may
be a little hard to believe in a period when gasoline prices are at an
historic low, but there are many who regard that as an aberration, a
short-term aberration. The crisis that many people fear is that the rate
of discovery has been declining for some time after having risen steadily
since the earliest discovery of oil, and the Gulf region, the Arabian
peninsula and the Persian Gulf region, that has by now virtually regained
the share of energy production that it had in the early 1970s, (You'll
recall that that was sufficient to bring the era of super-cheap energy to
a sudden end; it happened to be a temporary end but a foretaste of what
lies ahead.) basically back to that share, meaning that degree of power,
and that share is expected to increase, in part because world consumption
is increasing very rapidly and most of the known energy reserves by a big
measure are in that region. And it's also speculated, not apparently
implausibly, that something like the 50-per-cent mark of exploitable
capacity may not be too far away, maybe within the next few decades. All
of this combines to suggest to policy makers and others that the need to
control that region is going to become increasingly important and that's
going to mean very likely increasing confrontations with radical
nationalism.

As a kind of a sidelight to this, I think that, very likely, the latest
terrorist exchange in the last few weeks might well be seen in this
context. I'm referring to the terrorist bombings of the U.S. embassies in
Africa, allegedly by groups who are opposed to U.S. domination of the
major oil producers, and the U.S. missile attacks on Sudan and
Afghanistan. One might ask, why those targets? Well, like the bombings of
the embassies in Africa, the U.S. selected targets that were vulnerable,
not the ones to which the messages were aimed, in either case. The message
for the missile attacks may well have been directed elsewhere, in this
case very likely to Riyadh and Teheran. There have been recent steps
towards rapprochement between Saudi Arabia and Iran, historic enemies, and
that's not an appealing prospect for U.S. global managers. It raises
fears, which have been lingering for a long time, of regional groupings
that will get out of control in the strategically most important part of
the world, which holds the greatest material prize in world history -
that's quoting U.S. assessments from the late '40s, which still prevail.

The U.S. missile attacks have been criticized (you've read plenty of
criticisms of them) as being counterproductive (elite opinion has held
that) because of their effects on the Sudan and Afghanistan. Well, it's a
pragmatic judgment, apparently. The same opinion seems to be largely
unconcerned by the fact that, effective or not, there were war crimes -
that's now partially conceded in the case of Sudan. However, just keeping
to the pragmatic judgment, it might be evaluated in the light of a secret
1995 study of the U.S. Strategic Command, called Essentials of Post-Cold
War Deterrence, which was released recently under the Freedom of
Information Act. It's an interesting document. It resurrects Nixon's
madman theory, as it was called. It says that the United States should
portray itself as irrational and vindictive with leadership elements out
of control and it should exploit the nuclear arsenal for that purpose.
This madman posture can be beneficial to creating and reinforcing fears
and doubts among adversaries, real or potential. In this case perhaps the
big players in the region, Saudi Arabia and Iran, whose potential
rapprochement, which has been going on now for almost a year, is doubtless
a very frightening prospect in Washington. Well, we don't have documentary
evidence, so that's speculation. But I think it's not unreasonable.

Well there's a lot to say about all these topics (and these are things I'm
just mentioning) and related aspects of the post-war global system that I
haven't even mentioned. But let me just leave it as something to think
about and turn to something related: namely, the institutional structures,
the institutional framework that was designed for world order 50 years
ago, and how it's fared, and what it looks like today.

The institutional structure had three basic components. One was an
international political order - that's articulated in the United Nations
Charter. A second part was concerned with human rights and the norms for
the behavior of governments towards their citizens - that's the Universal
Declaration of Human Rights. (Its 50th anniversary will be celebrated, or
maybe mourned, in December 1998.) The third component was an international
economic order. That's the Bretton Woods system, as it's called, designed
by the United States and Great Britain, the global manager and the junior
partner. I want to talk mostly about the third, but a few words about the
first two.

The first, the international political order, (essentially the UN Charter)
that's based on a very simple, straightforward principle, and elaborated
in various ways. The principle is that the threat or use of force in
international affairs is disallowed, unacceptable, has to be barred
totally, with two exceptions. One exception is when the threat or use of
force is specifically authorized by the Security Council after the
Security Council determines that peaceful means have failed. The second is
the famous Article 51, which says that nothing in this Charter abrogates
the right of self-defence against armed attack until the Security Council
acts. That's a rather narrow and specific notion. It means, for example,
that if Cuban armies invade the United States, the United States is
supposed to notify the Security Council and then, until the Security
Council has a chance to do something about this terrible threat, it's
allowed to defend itself in anyway that's necessary. Whether that example
is hypothetical or not depends on what you want to believe. The Cuban
threat to the United States was recently downgraded by the Pentagon, so we
don't have to tremble in total fear anymore. That elicited a good deal of
anger in Congress and the conclusion was rejected by the White House,
which invoked Cuba's threat to the national security and existence of the
United States, just a few months ago, in the course of rejecting World
Trade Organization jurisdiction when the European Union protested before
the WTO gross U.S. violations of trade agreements and international law
that had already been condemned by just about every international agency,
including even the normally quite compliant Organization of American
States. So, depending on where you sit, that example was real or
hypothetical, but whatever it is, that's the exception permitted by the UN
Charter by the framework of political order and received international
law. And those are the only exceptions to the threat or use of force.

Now of course there is no enforcement mechanism - this has to be by
acceptance. There is in fact an enforcement mechanism, namely the great
powers, and to be realistic exactly one of them, namely the United States,
so that's the enforcement mechanism. But that suffices to show that the
whole system is null and void because the United States rejects the
principles out of hand. It rejects them both in practice and in fact in
doctrine. There's no need to waste time on the practice in the past half
century; the bombing of a pharmaceutical plant in the Sudan a couple of
weeks ago is a recent illustration but one that's completely trivial in
historical context, though I suppose that terrorist destruction of half of
the medical supplies and fertilizers in the United States might be taken a
shade more seriously.

Whatever the practice may be, and you can know that perfectly well, or
should, what's interesting about the recent years is that official
doctrine expresses with great clarity and precision the utter contempt for
the principles of world order that are of course grandly proclaimed **
when they serve some power interest. This has been going on since the
Reagan years and it is a change, a doctrinal change; you might say it's a
change toward greater honesty. Anyhow, it's a change. Since the Reagan
years the United States has officially reinterpreted the Article 51, the
crucial article, to justify its repeated reliance on force. It has held
that Article 51, I'm quoting actually, authorizes self-defence against
future attack. Article 51 permits the United States to defend its
interests. This became even more ludicrous in the Clinton years. It was
all formulated rather straightforwardly by Ambassador Albright, now
Secretary of State, when she informed the UN Security Council, which was
then refusing to go along with some U.S. demands about Iraq=D6she informed
the Security Council that the United States will act "multilaterally when
we can, unilaterally when we must in an area important for our interests."
That means unconstrained by the world court which had already been
dismissed as irrelevant 10 years earlier by the most solemn treaty
obligations, the foundations of world order, and so on. I stress that the
only innovation in all of this in the past 15 years is that contempt for
these high principles is now openly proclaimed, with the acquiescence and
the applause of the educated classes - that's a change. But it serves to
indicate where the foundations of world order stand after 50 years. In
brief, the United Nations and its Charter are fine when they serve as an
instrument of power, otherwise the decisions and the condemnations are not
even worth reporting, and they are not reported, let alone obeying.

Incidentally, you've been following I'm sure the recent debate about
founding an international criminal court on war crimes and as you know the
United States, essentially alone refused to go along with that. U.S.
opposition is effectively a veto when the General Assembly votes 151 to 1
on something (or 2 if the U.S. picks up a client state). That amounts to a
veto, just for straight power reasons - nothing obscure about it. And this
effectively vetoes the criminal court on war crimes. The official argument
that was given by the Clinton administration and Congress was that an
international tribunal might carry out frivolous prosecution of U.S.
soldiers engaged in peacekeeping operations. That's not very credible,
especially if you look at the U.S. role; the U.S. is mostly disqualified
from peacekeeping operations - that's literally true. The reason is
because it has a very unusual, maybe unique, military doctrine and that is
that no military forces are permitted to come under any threat; so if
there is any threat at all, they are supposed to react with overwhelming
force and that means that in any situation that involves civilians, you
know, anything short of total war, the U.S. military simply can't be
deployed and in fact isn't if you look at the peacekeeping operations. So
that's not a plausible argument, but there are other ones that are
plausible and are barely beneath the surface, and that is the very likely
concern that an independent judicial inquiry, if it existed, might, as it
should, move up the chain of command and that's going to lead it very soon
to pretty high places, including the White House. That would be true
whether the issue is Indochina or Central America and Panama or Somalia or
other exploits.

Well, again, a lot to say about that, but let's turn to the second element
of world order: the Universal Declaration of Human rights. Doubtless we
will all hear much rhetoric in the coming months about the universality of
the high principles that are proclaimed and about the challenge of
relativity that's posed by various bad guys around the world. Those
charges will be accurate enough, unfortunately, and probably understated,
but you are unlikely to hear about a different topic: namely, U.S.
adherence to the universal declaration both in action and in doctrine.
Well again, I'll put aside action and just keep to the doctrine. If you
look at the doctrine you find out quickly that the United States is a
leader of the relativist camp. One is unlikely to see headlines about
that, but it's pretty clear - the United States dismisses one fundamental
component of the universal declaration completely as having no status:
that's the component that's concerned with the socio-economic provisions,
which have the same status as any others in the universal declaration, but
the U.S. doesn't agree. They are a letter to Santa Claus, as Ambassador
Jean Kirkpatrick put it. They are preposterous and a dangerous incitement,
as they were described by U.S. Ambassador Morris Abrams. He was in fact
testifying at part of the discussion by the UN Commission on Human Rights,
which was considering a Declaration on the Right of Development which very
closely paraphrased the socio-economic conditions of the universal
declaration and which, incidentally, the U.S. proceeded to veto.

Well again there's more to say, but let's proceed to the third point: the
international economic order - the Bretton Woods system, as it's called,
and its institutions. That's all over the front pages now with the fears
of a global meltdown that might affect privileged folk like us, as well as
just the usual victims, so therefore it's news. Well, the Bretton Woods
system had two basic principles: set up institutions like the World Bank
and the IMF, which are called the Bretton Wood institutions - but it had
two basic principles which one has to keep in mind, they're important. One
principle was to liberalize trade; a goal was to liberalize trade, more
free trade. The second principle had to do with capital flow and it was
the opposite. The goal was to regulate capital flow and control it, keep
fixed exchange rates, keep capital controls and so on. That was agreed by
both the U.S. and the British negotiators - the U.S. main negotiator was
Harry Dexter White, the British, John Maynard Keynes - and it expressed a
very common conception at the time, which has a lot of plausibility. It's
built into the rules of the IMF. There is now an effort, the U.S. is
leading an effort, to try to change those rules, but up until now they
have been breached many times. The rules of the IMF still authorize
countries to regulate capital flow and they prohibit the IMF from giving
credits to cover capital flight. Many of you who follow these affairs all
know how well that one's been observed, but anyhow it is a rule.

There was thinking behind this, there were reasons. The reasons were in
part theory, what some international economists call an incompatibility
thesis, which in fact remains the guiding principle of UNCTAD, the main UN
Conference on Trade and Development. The theory is that capital flight, so
short-term speculative flows which lead to exchange rate fluctuations and
so on, that they are going to undermine trade and investment, so they are
inconsistent with one another. You can't liberalize both; and recent
experience is, I think, consistent with that assumption. The second reason
was not a theory, it was a truism. The truism is that free flow of capital
definitely undermines democracy in the welfare state, which was at that
time far too popular to ignore (it's the mid-20th century). The basic
point (I'm essentially paraphrasing White and Keynes here) is that capital
controls allow governments to carry out monetary and tax policies to
sustain unemployment incomes, social programs, maintain public goods,
without fear of capital flight, which will punish this irrational behavior
(irrational in that it's only for the benefit of people, not for the
benefit of investors and speculators, and it will be punished by capital
flight for obvious reasons). That's the essential point - free flow of
capital quickly creates what some international economists call a virtual
senate of financial capital which will impose its own social policies by
the threat of capital flight, which leads to higher interest rates,
economic slowdown, budget cuts for health and education, recession, maybe
collapse. It's a powerful weapon.

All of that was articulated quite explicitly in essentially in the words
I've repeated at the time by the U.S.-U.K. negotiators, and it's not
particularly controversial. (In fact not controversial at all, then or
now. If you think it through it's kind of obvious, as it was to them.) And
all of that is quite important to keep in mind in looking at the current
period because there's a challenge to that in the last 25 years and we see
the consequences. (And it's now being re-evaluated because the
consequences are even hitting the rich people and that's where we are
now.) Well, the Bretton Woods system as formulated, that is efforts to
liberalize trade and regulate capital, that was in place =D6 to a
substantial degree through the first half of this period, the first
quarter century after it was established. That's what's sometimes called
the golden age of post-war state capitalism - high rates of growth of the
economy, of productivity, expansion of the social contract right through
the '50s and '60s. The system was dismantled from the early 1970s. Richard
Nixon unilaterally abrogated its basic principles; other major financial
centres joined in. By the 1980s capital controls were mostly gone in the
rich countries and the smaller economies like South Korea were simply
compelled to drop them. That, incidentally, is widely regarded now as a
major factor in its recent collapse, alongside of quite extreme market
failures in the private sector throughout East and Southeast Asia and of
also the west, which was involved in crazed lending.

I should add at this point that, in the light of the recent economic
crisis in East Asia, the more serious analysts recognize and insist that
the East Asian economic miracle was quite real. (I'm distinguishing East
Asia from Southeast Asia here - they're quite different.) So one of the
most important and influential, and I think intelligent, Joseph Stieglitz,
who is now the chief economist of the World Bank (he was formerly head of
council of economic advisors here, and it plays a very important role) he
emphasizes in recent World Bank publications and elsewhere that this is
post-crisis - that the East Asian economic miracle was not only real but
it was in his words an amazing achievement historically without precedent
and, furthermore, he points out, based on very significant departures from
the official doctrines of the so-called Washington consensus and that it
should last, it should thrive, in fact, unless it is destroyed by
irrational markets as it could be. Stieglitz points out - remember this is
the chief economist of the World Bank I'm talking about in a World Bank
publication - that in East Asia the basis for the amazing achievements and
the miracle, which has no precedent, is that governments took major
responsibility for the promotion of economic growth, abandoning the
religion that markets know best, and intervening to enhance technology
transfer, relative equality, education, health, along with (he doesn't
stress this but he should have) industrial planning and coordination, and
in fact strict capital controls until they were forced to relinquish them
in the last few years. Stieglitz also mentions, though he doesn't go into
it, that the rich countries, every one of them - from England on through
the United States up to the present, every single one of them had followed
a somewhat similar path, actually far more so than the World Bank has yet
acknowledged. Another big topic I can't go into, but an interesting one
and again worth keeping in mind.

Well what has happened since the Bretton Woods system essentially
collapsed in the early 1970s? It did end the golden age of post-war state
capitalism. Just focusing on the rich countries, primarily the United
states and Britain, although it happens to others in various degrees in an
integrated economy, over the rich countries as a whole, the growth of the
economy and the growth of productivity have slowed very markedly.
Actually, contrary to what you read, trade also slowed, if you look
closely, in the United States specifically and England. Incomes stagnated
or declined throughout this period for the great majority of the
population; working conditions deteriorated, social services have been
significantly cut, infrastructure is in serious danger with very little
required public spending, the welfare state has significantly eroded.

There has also been a closely correlated, dramatic increase in
incarceration. It's closely correlated because a large part of the society
is just becoming superfluous for wealth formation. In an uncivilized
society you send out the death squads to kill them; in a civilized society
you throw them in jail. Since 1980, when this system really took shape,
when it was in place, at that time incarceration rates in the United
States were roughly like that of other industrial countries, kind of at
the high end but not off the scale, and so crime rates in the United
States are not unusually high, contrary to what you read. Again they're
sort of toward the high end but not unusual, with one exception: namely,
killing with guns. But that's a separate matter that has to do with laws,
cultural patterns and so on, it doesn't have anything to do with crime.
And that remains the case. In fact, crime rates have declined since 1980,
but the incarceration has gone way up. I think it's a direct reflection of
the inequality and the need for social control. It tripled in the 1980s
and it's been rising very fast through the 1990s; it's now five to 10
times as high as other industrial societies. In fact the U.S. is world
champion in imprisoning its population, at least among countries where
there is any minimally reliable statistics. If you take the prison
population into account, that adds another two per cent to the
unemployment rate, which places the U.S. squarely in the middle of the
European level. Actually, even without that it's not at the bottom,
believe it or not, it's about 30 per cent. Of course, you have to decide
what you're talking about; if you count in prison labor, which is not
trivial, and very good for folks like Boeing Aircraft and AT & T and
others (a terrific work force), if you count them in, then of course the
unemployment figures change again. Anyhow these two parallel developments
have been going on and I think have integrated.

Throughout the same period profits have soared, particularly in the 1990s.
The current jitters on Wall Street have to do with the concern that there
may be an end to what for the last couple of years the business press has
been calling this stupendous and dazzling and extraordinary growth of
profits. They've run out of adjectives and they may now be worried that
the facts are ending too. There has been an astronomical increase in
capital flows, a huge increase, mostly very short term. About 80 per cent
now is estimated to have a round trip -- it goes out and back, in a period
of a week or less, often hours or even minutes. That means it's virtually
unrelated to the real economy, to trade and investment. In fact, current
estimates are that about five per cent of the roughly trillion and a
half-dollar per day capital flow is related to the real economy. The rest
is speculative. If you go back to 1970, the figures were essentially
reversed. It was about 90 per cent of a much smaller sum was related to
the real economy and maybe 10 per cent was speculative. It's also based
very heavily on extensive borrowing; it's highly leveraged, in the jargon,
and that's a factor that accelerates something which is often also ...
oops=D6 whoever owns these microphones is going to have a problem. Ignore
them? OK. Happy to ignore microphones all the time.

This high borrowing, this highly leveraged character of investment, which
is something new, incidentally (a lot of things are old but this is new),
that's accelerating the irrationality of financial markets. They've become
much more volatile and unpredictable; there have been wildly fluctuating
exchange rates related to speculative flows and there have been increasing
financial crises. The IMF recently did a study of the period 1980-1995, a
15-year period, and it found that about 80 per cent of its roughly 180
members had had one or more banking crises, ranging from significant to
quite serious. Again, that wouldn't have surprised Keynes and White or any
of the framers of Bretton Woods, or the economists' thinking behind them.

In the same period, again in conformity with their thinking, has been an
assault, an attack on free markets, a sustained assault on free markets,
to quote the head of economic research of the World Trade Organization, in
a major technical study. That was led by the Reaganites. They were talking
free markets for the poor but doing something else for the rich. This
analyst, Patrick Low, estimates the effect of Reaganite protectionist
measures at about three times as high as those of the other industrial
countries which were bad enough. Well again, that's what was expected.
During the Reagan years, lots of lofty rhetoric but protection was
virtually doubled. The public subsidy, which is another violation of free
trade principle, was increased, bailouts increased, both for domestic
banks and international banks. In the Untied States - it's happened
throughout the world but mostly in the United States - In the United
states the goal was to somehow overcome very serious management failures
that were leading to a decline of U.S. industry and were a matter of great
concern at the time. Those of you who read the business press remember a
lot of discussion and concern about the need to reindustrialize America.
American industry was collapsing, mostly because of management failures.
The Pentagon was called in to fill its traditional role to do something
about this problem. (That's actually a role that goes back to the early
19th century before there was a pentagon.) The pentagon was called in to
develop a program under Carter which was greatly extended under Reagan, to
design what was called the factory of the future, based on lean production
and automation and other developments in which the American management had
fallen way behind and then to hand it over to industry as a gift. The
purpose was to save central components of the industrial system from
mainly Japanese competition, which was wiping it out, and to place them in
a position to dominate the emerging technologies and markets of the next
era. The Internet and information technology, generally, are rather
dramatic examples of this but not the only one.


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