Socioeconomic Sovereignty

excerpted from the book

Rogue States

The Rule of Force in World Affairs

by Noam Chomsky

South End Press, 2000, paper

Socioeconomic Sovereignty

p208
A century ago, during the early stages of the corporatization of the United States, discussion(about these matters)was quite frank. Conservatives a century ago denounced the procedure, describing corporatization as a "return to feudalism" and "a form of communism," which is not an entirely inappropriate analogy. There were similar intellectual origins in neo-Hegelian ideas about the rights of organic entities, along with the belief in the need to have a centralized administration of chaotic systems- like the markets, which were out of control. It's worth bearing in mind that in today's so-called "free-trade economy" a very large component of cross-border transactions (which are misleadingly called trade), probably about 70 percent of them, are actually within centrally managed institutions, within corporations and corporate alliances, if we include outsourcing and other devices of administration. That's quite apart from all kinds of other radical market distortions.

The conservative critique-notice that I am using the term "conservative" in a traditional sense; such conservatives scarcely exist any more-was echoed at the liberal/progressive end of the spectrum early in the 20th century, most notably perhaps by John Dewey, America's leading social philosopher, whose work focused largely on democracy. He argued that democratic forms have little substance when "the life of the country"-production, commerce, media-is ruled by private tyrannies in a system that he called "industrial feudalism," in which working people are subordinated to managerial control, and politics becomes "the shadow cast by big business over society." Notice that he was articulating ideas that were common coin among working people many years earlier. And the same was true of his call for the replacement of industrial feudalism by self-managed industrial democracy.

Interestingly, progressive intellectuals who favored the process of corporatization agreed more or less with this description. Woodrow Wilson, for example, wrote that "most men are servants of corporations," which now account for the "greater part of the business of the country" in a "very different America from the old, .. . no longer a scene of individual enterprise, ... individual opportunity, and individual achievement," but a new America, in which "small groups of men in control of great corporations wield a power and control over the wealth and business opportunities of the country," becoming "rivals of the government itself," and undermining popular sovereignty, exercised through the democratic political system. Notice this was written in support of the process. He described the process as maybe unfortunate, but necessary, agreeing with the business world, particularly after the destructive market failures of the preceding years had convinced the business world and progressive intellectuals that markets simply had to be administered and that financial transactions had to be regulated.

Similar questions are very much alive in the international arena today: talk about reforming financial architecture, and that sort of thing. A century ago, corporations were granted the rights of persons by radical judicial activism, an extreme violation of classical liberal principles. They were also freed from earlier obligations to keep to specific activities for which they were chartered. Furthermore, in an important move, the courts shifted power upward from the stockholders in a partnership to the central management, which was identified with the immortal corporate person. Those of you who are familiar with the history of Communism will recognize that this is very similar to the process that was taking place at the time, very much as predicted, in fact, by left-Marxist and anarchist critics of Bolshevism. People like Rosa Luxemburg warned early on that the centralizing ideology would shift power from working people to the party, to the central committee, and then to the maximal leader, as happened very quickly after the conquest of state power in 1917, which at once destroyed every residue of socialist forms and principles. The propagandists on both sides prefer a different story for self-serving reasons, but I think that's the more accurate one.

In recent years, corporations have been granted rights that go far beyond those of persons. Under the World Trade Organization rules, corporations can demand what's called the right of "national treatment." That means that General Motors, if it's operating in Mexico, can demand to be treated like a Mexican firm. Now that's only a right of immortal persons; it's not a right of flesh-and-blood persons. A Mexican can't come to New York and demand national treatment and do very well, but corporations can.

Other rules require that the rights of investors, lenders, and speculators must prevail over the rights of mere flesh-and-blood people generally, undermining popular sovereignty and diminishing democratic rights. Corporations are able in various ways to bring suits, bring actions, against sovereign states, and there are interesting cases. For example, Guatemala, a couple of years ago, sought to reduce infant mortality by regulating the marketing of infant formula by multinationals. The measures that Guatemala proposed were in conformity with World Health Organization guidelines, and they kept to international codes, but the Gerber Corporation claimed expropriation, and the threat of a World Trade Organization complaint sufficed for Guatemala to withdraw, fearing retaliatory sanctions by the United States.

The first such complaint under the new World Trade Organization rules was brought against the United States by Venezuela and Brazil, who complained that EPA regulations on petroleum violated their rights as petroleum exporters. Washington backed down that time, also allegedly in fear of sanctions, but I'm skeptical about that interpretation. I don't think the US fears trade sanctions from Venezuela and Brazil. More likely the Clinton administration simply saw no compelling reason to defend the environment and protect health.

These issues are arising very dramatically and, in fact, obscenely right now. Tens of millions of people around the world are dying from treatable diseases because of the protectionist elements written into the World Trade Organization rules that grant private megacorporations monopoly pricing rights. So Thailand and South Africa, for example, which have pharmaceutical industries, can produce life-saving drugs at a fraction of the cost of the monopolistic pricing, but they're afraid to do so under threat of trade sanctions. In fact, in 1998 the United States even threatened to withdraw funding if the World Health Organization even monitored the effects of trade conditions on health. i5 These are very real threats today.

All of this is called "trade rights." It has nothing to do with trade. It has to do with monopolistic pricing practices enforced by protectionist measures that are introduced into what are called free trade agreements. The measures are designed to ensure corporate rights. They also have the effect of reducing growth and innovation. And they are only part of the array of regulations introduced into these agreements which prevent development and growth. What is at stake is investor rights, not trade. And trade, of course, has no value in itself. It's a value if it increases human welfare, otherwise not.

In general the principle of the World Trade Organization, the primary principle, and related treaties, is that sovereignty and democratic rights have to be subordinated to the rights of investors. In practice that means the rights of the huge immortal persons, the private tyrannies to which people must be subordinated. These are among the issues that led to the remarkable events in Seattle. But in some ways, a lot of ways, the conflict between popular sovereignty and private power was illuminated more sharply a couple of months after Seattle, in Montreal, where an ambiguous settlement was reached on the so-called "biosafety protocol." There the issue was very clearly drawn. Quoting the New York Times, a compromise was reached "after intense negotiations that often pitted the United States against almost everyone else" over what's called "the precautionary principle." What's that? Well the chief negotiator for the European Union described it this way: "Countries must be able to have the freedom, the sovereign right, to take precautionary measures with regard" to genetically altered seed, microbes, animals, crops that they fear might be harmful. The United States, however, insisted on World Trade Organization rules. Those rules are that an import can be banned only on the basis of scientific evidence.

Notice what's at stake here. The question that's at stake is whether people have the right to refuse to be experimental subjects. So, to personalize it, suppose the biology department at the university were to walk in and tell you, "You folks have to be experimental subjects in an experiment we're carrying out, where we're going to stick electrodes in your brain and see what happens. You can refuse, but only if you provide scientific evidence that it's going to harm you." Usually you can't provide scientific evidence. The question is, do you have a right to refuse? Under World Trade Organization rules, you don't. You have to be experimental subjects. It's a form of what Edward Herman has called "producer sovereignty." The producer reigns; consumers have to somehow defend themselves. That works domestically, too, as he pointed out. It's not the responsibility, say, of chemical and pesticide industries to prove that what they're putting into the environment is safe. It's the responsibility of the public to prove scientifically that it's unsafe, and they have to do this through underfunded public agencies that are susceptible to industry influence through lobbying and other pressures.

That was the issue at Montreal, and a kind of ambiguous settlement was reached. Notice, to be clear, there was no issue of principle. You can see that by just looking at the lineup. The United States was on one side, and it was joined, in fact, by some other countries with a stake in biotechnology and high-tech agro-export, and on the other side was everybody else-those who didn't expect to profit by the experiment. That was the lineup, and that tells you exactly how much principle was involved. For similar reasons, the European Union favors high tariffs on agricultural products, just as the United States did 40 years ago, but no longer-and not because the principles have changed; just because power has changed.

There is an overriding principle. The principle is that the powerful and the privileged have to be able to do what they want (of course, pleading high motives). The corollary is that sovereignty and democratic rights of people must go, in this case-and that's what makes it so dramatic-their reluctance to be experimental subjects when US-based corporations can profit by the experiment. The US appeal to the World Trade Organization rules is very natural, since they codified that principle; that's the point.

These issues, although they're very real and are affecting a huge number of people in the world, are actually secondary to other modalities to reduce sovereignty in favor of private power. Most important, I think, was the dismantling of the Bretton Woods system in the early 1970s by the United States, Britain, and others. That system was designed by the US and Britain in the 1940s. It was a time of overwhelming popular support for social welfare programs and radical democratic measures. In part for those reasons the Bretton Woods system of the mid-'40s regulated exchange rates and allowed controls on capital flow. The idea was to cut down wasteful and harmful speculation, and to restrict capital flight. The reasons were well understood and clearly articulated-free capital flow creates what's sometimes called a "virtual parliament" of global capital, which can exercise veto power over government policies that it considers irrational. That means things like labor rights, or educational programs, or health, or efforts to stimulate the economy or, in fact anything that might help people and not profits (and therefore is irrational in the technical sense).

The Bretton Woods system more or less functioned for about 25 years. That's what many economists call the "golden age" of modern capitalism (modern state capitalism, more accurately). That was a period, roughly up until about 1970, a period of historically unprecedented growth of the economy, of trade, of productivity, of capital investment, extension of welfare state measures, a golden age. That was reversed in the early '70s. The Bretton Woods system was dismantled, with liberalization of financial markets and floating exchange rates.

The period since has often been described as a "leaden age." There was a huge explosion of very short-term, speculative capital, completely overwhelming the productive economy. There was marked deterioration in just about every respect-considerably slower economic growth, slower growth of productivity, of capital investment, much higher interest rates (which slow down growth), greater market volatility, and financial crises. All of these things have very severe human effects, even in the rich countries: stagnating or declining wages, much longer working hours, particularly striking in the United States, cutback of services. Just to give you one example in today's great economy that everyone's talking about, the median income (half above, half below) for families has gotten back now to what it was in 1989, which is below what it was in the 1970s. It also has been a period of the dismantling of social democratic measures that had considerably improved human welfare. And in general, the newly imposed international order provided much greater veto power for the "virtual parliament" of private capital of investors leading to significant decline of democracy and sovereign rights, and a significant deterioration in social health.

While those effects are felt in the rich societies, they're a catastrophe in the poorer societies. These issues cut across societies, so it's not a matter of this society getting richer and that one getting poorer. The more significant measures are sectors of the global population. So, for example, using recent World Bank analyses, if you take the top 5 percent of the world's population and compare their income and wealth to the bottom 5 percent, that ratio was 78 to I in 1988 and 114 to 1 in 1993 (that's the last period for which figures are available), and undoubtedly higher now. The same figures show the top 1 percent of the world's population has the same income as the bottom 57 percent-2.7 billion people.

It's quite natural that dismantling of the post-war economic order should be accompanied by a significant attack on substantive democracy-freedom, popular sovereignty, and human rights-under the slogan TINA (There Is No Alternative). It's kind of a farcical mimicry of vulgar Marxism. The slogan, needless to say, is self-serving fraud. The particular socioeconomic order that's being imposed is the result of human decisions in human institutions. The decisions can be modified; the institutions can be changed. If necessary, they can be dismantled and replaced, just as honest and courageous people have been doing throughout the course of history.

Rogue States

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