This is the second part of an excerpt from Douglas Rushkoff’s new book Life Inc. You can read the first part here.

Over There…

At the end of World War II, it became clear that the last of the official colonies—such as Ceylon, the Ivory Coast, and Burma—would be returned to local rule. The problem for locals, however, was that their economies and social infrastructures had been devastated over a century or more of corporate exploitation. They couldn’t just start over. They needed a hand. Of course, the former colonial empires were willing to lend it—for a price.

By Douglas Rushkoff

To be fair, most European nations were having their own problems in the late 1940s. The only one of the allies that had made it through the war without significant damage was the United States. Foreseeing the need for a postcolonial world order, the Allied nations sent delegates to a meeting at a hotel in Bretton Woods, New Hampshire, in 1944 to figure out a new global monetary system. The U.S. was in a position to leverage its authority as Europe’s military savior and the only surviving industrial economy to promote its own fiscal agenda: free markets and monetary leadership. Everyone else’s currencies would be pegged to the dollar, and the world would enjoy open markets, which benefited the U.S., as the economy poised to grow the most. The meeting established the International Monetary Fund, set up the World Bank, and laid the foundations for an international trade pact that was finally implemented fifty years later by George Herbert Walker Bush and Bill Clinton as the World Trade Organization.

Through the World Bank and the International Monetary Fund, lender nations would be in a position to assist developing nations with huge injections of cash. By accepting the loans, however, borrower nations would be obligated to open themselves to rules of free trade as established by the international lending community at Bretton Woods. This made them vulnerable to a new style of the same old colonialism.

Taking a loan meant opening one’s ports to foreign ships, and one’s markets to foreign goods. It meant allowing foreign corporations to purchase land within a country, and to compete freely with any domestic company. Nations would not be allowed to impose restrictions on what sorts of goods could be imported, or which resources could be extracted. In short, taking a loan from the IMF meant losing all forms of “protectionism.” And while protectionism has been cast, in free- market terms, as a fear- based reaction to the healthy and necessary functioning of the market, there are instances when nations might simply be attempting to protect their real territories and people from the tyranny of the balance sheet. For, even if every currency in the world was in some way pegged to U.S. money, not every gain and loss proved to be measurable in dollars and cents.

For one, the economic globalization negotiated in Bretton Woods has given wealthy industrial nations the ability to pass environmental liabilities on to poorer nations. As documented in several of David Korten’s books on corporate power, wealthy nations actually take credit for this exploitation of poorer ones on the grounds that they’re bringing them prosperity.

Japan, for example, financed and constructed a copper smelting plant in the Philippines to produce cathodes. The Philippine Associated Smelting and Refining Corporation (PASAR) was built on four hundred acres of land sold to the company by the government at giveaway prices. PASAR is now a prosperous multinational, and in dollar terms the local economy is bigger than it was before. This same case study is regularly cited as a global free- trade success story: Japan now has a ready supply of copper without any of the environmental damage associated with its production, and the gross domestic product of the Philippines has been increased.

But the Filipinos actually living in the area are sick and jobless. Plant emissions, including boron, arsenic, and heavy metals, have polluted local water, poisoned fish, and sickened residents. The contamination of the land has made it impossible for them to return to subsistence farming, and their government is busy repaying Japan and the IMF for the loans that built and subsidized the plant.

Because the gross domestic product of an exploited area invariably goes up, case studies like this are used as evidence of how IMF practices and free trade provide necessary assistance to developing nations. Using these metrics, the more pollution a project can generate, the more environmental remediation and medical costs will be rung up, increasing the GDP even further. In purely corporatist terms— which are the only ones most of us physically removed from the effects of our actions have to go on—pollution is good.

IMF Annual Meeting

By lending money to developing nations, wealthier nations can force them into agreements that “grow” their economies while sapping them of their ability to take care of themselves. In order to repay ever- increasing debts, poorer nations must dedicate increasingly larger tracts of land for export crops. They grow food that their own citizens quite literally cannot afford. Since their acceptance of loans means allowing corporations from other nations to purchase land, debtor nations lose their best farmland to wealthier foreign farm conglomerates anyway. Locals who used to farm for subsistence now must farm that same land for day wages, if it is farmable at all.

Through the use of loans with binding free- market provisions, powerful nations and the corporations they support have restored the grip that chartered monopolies once had over these same regions.Their policies are analogs of those of their predecessors: the same exploitation of land from a distance, only removed another degree.

Consider the strategy of any typical early chartered corporation. In 1602, the Dutch Crown sanctioned the United East India Company to conquer territory and exploit resources in the Pacific. The Company’s scheme was to acquire lands in Indonesia by lending money to cultivators and then dispossessing them when they failed to make payments. This was made easier by trade policies that guaranteed the farmers’ failure. The Company got the Dutch to prohibit cultivation of the most profitable export crops—like cloves—on land not already under Dutch ownership. Loans failed, and more collateral in the form of land passed into Company hands. Indonesians lost access to the most fertile land, and were ultimately forced to buy their rice from United East India at the artificially inflated, monopoly- supported prices. The local economy was devastated as more land and labor were surrendered to the corporation.

As if borrowing from the United East India Company playbook, modern corporations leverage the power they’ve been granted through free- trade agreements. Where old- school colonialism was enforced with gunships, the new school uses bank loans, currency, and membership in the international community. The World Bank and the IMF impose policy prescriptions on the nations to whom they lend money, all geared toward opening their markets to the interests of foreign corporations. When they fail to make their mortgage payments, these nations are subjected to “structural adjustments” that increase the resources they must commit toward repayment of the debt. As a result, debt payments made to the World Bank calculated as a percent of total government budgets have doubled each decade in Latin America and Africa. More loans lead to more collateralization, which in turn leads to more losses.

Eventually, as with a restaurant in hock to the mob, all productive assets and resources end up owned by foreign corporations and devoted to export production in order to repay the loans. Public services and utilities are taken over by foreign corporations and run for a profit. The World Bank serves as the loan shark, financing corporate missions at the expense of developing nations, while the IMF plays the menacing debt collector—backed by First World armies and their intelligence agencies.

One step further abstracted from the land and resource- management techniques of their predecessors, modern corporations exploit a sloped monetary policy to lend scarce currency to nations who pin their hopes for advancement on participation in the global economy. Only too late do they realize that this participation is limited to providing labor, resources, and land to some of the very same corporations from whom they were liberated half a century before. These loans turn out to be antidevelopmental, increasing dependence on imported technology, driving people off their lands, polluting them, and making subsistence farming impossible. And adding insult to injury, today’s corporations retell these stories on their websites and in quarterly reports as evidence of the economic opportunities they offer the rest of the world. But just because GDP has gone up, things back here in the real world have not necessarily gotten better.

The World Trade Organization, finally established in 1995, is testimony to just how universally accepted these practices have become in the developed world—and just how dependent we are on them for our lopsided prosperity. This wasn’t a Republican idea or a Democratic one, but a corporatist mentality that patiently waited for acceptance. Widespread protests by disparate groups of environmentalists, labor activists, and others who understood one or more of these points were ridiculed by most American, British, and German media as the work of unfocused, untidy, and uninformed people, afraid of the globalized future.

What these protesters understood all too well, however, is that WTO policies aren’t moving us forward at all, but sending us back into history. Indeed, we might as well be in the colonial era: the WTO plays the role of the monarchy, writing policies as favorable to today’s multinationals as their forerunners’ charters were to the corporations in which they invested. For who is in the WTO, ultimately? Board members of the banks and conglomerates who benefit from its policies.

As long as the pollution and labor unrest are “over there” somewhere, and only represented in terms of the profit they generate for one corporation or another, they are good for the bottom line—or, at worst, collateral damage to people who were probably killing each other in tribal wars, anyway. This is their path toward participation in the global marketplace.

Defenders of the free market—including editors of financial publications from The Economist to The Wall Street Journal—deride any critique of these development strategies as jingoistic, ill- informed, and protectionist. They like to cite David Ricardo’s 1817 theory of comparative advantage, which most of us were taught as freshmen in Econ 101. I had the pleasure of learning it in a Princeton lecture hall with a thousand other college freshmen from the left- leaning former Fed vice chairman Alan Blinder, and it goes something like this:

The theory of comparative advantage shows how trade can benefit all parties as long as they produce goods with different relative costs. It’s easy to see that if Country A makes shoes faster, and Country B makes hats faster, then everyone in Country A should make shoes, and everyone in Country B should make hats. But what if Country A makes both shoes and hats faster than Country B? The people in Country B should still go ahead and produce whichever item they are relatively better at, and Country A should make the other item.

So even if the U.K. can make cars and dresses less expensively than Italy can make either one, it’s still more efficient for Italy to make whichever one of these that Britain produces less efficiently. Let’s say it’s dresses. When the two nations trade their stuff, both do better. For every man- hour the U.K. spends making cars, it earns more value to trade for Italy’s dresses than it would if it made dresses for itself. It’s better to have everyone in the U.K. doing the thing they do best, and then trade with other countries that are doing what they do best.

 

David Ricardo

Corporations use the theory of comparative advantage to justify the way they do foreign trade and, moreover, to explain why building cars and trucks over in Mexico or Brazil doesn’t really take away jobs from people in Detroit or Birmingham. The domestic workers simply need to be “retrained” to do what Westerners do best (whatever that is), and then everything will be okay.

A closer look at Ricardo’s theory, however—the kind of look offered by a teacher like Blinder—reveals that it depends on a set of preconditions. The equations work out only if you’ve got full employment in both nations. It’s not more economically efficient to do international trade if it ends up decreasing employment in the more efficiently operating industrial economy. Furthermore, Ricardo himself argued that his theory works only if the trade between the two nations is balanced—something the United States has not enjoyed with, say, China for over a decade.

In today’s corporatized global marketplace, Ricardo’s work is all but obsolete, and the examples he used to prove his point have little or nothing to do with the way comparative advantage is universally applied. Ricardo showed how the climate in Portugal made it relatively more efficient for the Portuguese to make wine than for the English to do it. The Portuguese vintner enjoyed soil more conducive to growing grapes, and was much less likely to lose his crop to bad weather. It made sense, under these circumstances, for the British farmer to convert his fields to pasture for sheep. He could export wool to Portugal in return for the wine—and both could fully employ their workers in these pursuits. Even if the Portuguese farmer could have raised sheep more efficiently than the Brit, he’s better off doing the thing that he’s relatively better at. More total wine and sheep are produced, lowering everyone’s costs. Trade is good, especially if it allows nations to specialize in what they do best, or what their natural endowment allows.

This excerpt is from Douglas Rushkoff’s newest bestseller Life Inc. Next week the last part of this extended excerpt will be published on Liberate the Mind.

This post is tagged corporatocracy, US hegemony