Third Conquest of Latin America

excerpted from the book

Empire's Workshop

Latin America, the United States, and the Rise of the New Imperialism

by Greg Grandin

Metropolitan/Owl, 2006, paper


Immediately after his arrival [in Iraq] (and before handing the reins to old Contra hand John Negroponte), L. Paul Bremer, America's proconsul during what was hoped would be the consolidation stage of the occupation, imposed a package of economic reforms that institutionalized corporate power. He eliminated or lowered tariffs to no more than 5 percent, reduced the top personal income and corporate tax rate to a flat 15 percent, curtailed the right of labor to organize and strike, removed restrictions on foreign corporate ownership, allowed foreign businesses unlimited repatriation of profits, laid off public-sector employees, and privatized state industries. The U.S. occupation has imposed on Iraq a massive state intervention on behalf of multinationals, insured by U.S. taxpayers and subsidized by the U.S. defense budget.

Bremer's "Iraqi Order 81" even prohibited Iraqi farmers from saving heirloom seeds from one year to the next; obliging them to buy them anew each season from corporations like Monsanto and Dow Chemical ...

... the promotion of capitalism has long been a concern of American foreign policy, yet the kind of capitalism advanced by the Bush Doctrine is innovative, at least in its arrogant disregard for the lessons of history. It is a militarized and moralized version that under the banner of free trade, free markets, and free enterprise often makes its money through naked dispossession. It was in Latin America where this brutal new global economy was initially installed, beginning in the 1970s, resulting in what could be called the region's "third conquest"-the first being led by Spanish conquistadores, the second by American corporations starting in the nineteenth century, and the last by multinational banks, the U.S. Treasury Department, and the International Monetary Fund.

In the late 1960s, the Chicago' Boys [Milton Friedman / University of Chicago] had drawn up the platform of Allende's nationalist opponent in the 1970 election, which included many of the proposals that would eventually be implemented under Pinochet. But Allende won, so Chile had to wait.

A month after [Milton] Friedman's visit, the Chilean junta announced that inflation would be stopped "at any cost." The regime cut government spending 27 percent, practically shuttered the national mint, and set fire to bundles of escudos. The state divested from the banking system and deregulated finance, including interest rates. It slashed import tariffs, freed prices on over two thousand products, and removed restrictions on foreign investment. Pinochet pulled Chile out of a number of alliances with neighboring countries intended to promote regional industrialization, turning his own country into a gateway for the introduction of cheap goods into Latin America. Tens of thousands of public workers lost their jobs as the government auctioned off, in what amounted to a spectacular transfer of wealth to the private sector, over four hundred state industries. Multinationals were not only granted the right to repatriate 100 percent of their profits but given guaranteed exchange rates to help them do so. In order to build investor confidence, the escudo was fixed to the dollar. Within four years, nearly 30 percent of all property expropriated not just under Allende but under a previous Alliance for Progress land reform was returned to previous owners. New laws treated labor like any other "free" commodity; sweeping away four decades of progressive union legislation. Health care was privatized, as was the public pension fund.

GNP plummeted 13 percent, industrial production fell 28 percent, and purchasing power collapsed to 40 percent of its 1970 level. One national business after another went bankrupt. Unemployment soared.

Yet by 1978 the economy rebounded, expanding 32 percent between 1978 and 1981. Though salary levels remained close to 20 percent below what they were a decade earlier, per capita income began to climb again. Perhaps even a better indicator of progress, torture and extrajudicial executions began to taper off. With hindsight, however, it is now clear that the Chicago economists, despite the credit they received for three years of economic growth, set Chile on the road to near collapse. The rebound of the economy was a function of the liberalization of the financial system and massive foreign investment. That investment, it turns out, led to a speculative binge, monopolization of the banking system, and heavy borrowing. The deluge of foreign capital did allow the fixed exchange rate to be maintained for a short period. But sharp increases in private debt-rising from $2 billion in 1978 to over $14 billion in 1982-put unsustainable pressure on Chile's currency. Pegged as it was to the appreciating U.S. dollar, the value of the escudo was kept artificially high, leading to a flood of cheap imports. While consumers took advantage of liberalized credit to purchase T\Ts, cars, and other high-ticket items, savings shrank, debt increased, exports fell, and the trade deficit ballooned.

In 1982 the economy fell apart. Copper prices plummeted, accelerating Chile's balance of trade deficit. GDP plunged 15 percent, while industrial production rapidly contracted. Bankruptcies tripled and unemployment hit 30 percent.

The Reagan revolution's initial social base had deep chauvinist root led as it was by activists who saw themselves as opposed not on y to the East Coast corporate elites who dominated the Republican Party, internationalists like Henry Kissinger and Nelson Rockefeller, but to the political liberalism of the Democratic Party. It is hard to imagine a group more removed from the cosmopolitan CEOs who sat around the mainstream corporate Business Roundtable than the evangelical Christian capitalists who organized the Council on National Policy. The Council's members included Pat Robertson, Bob Jones, president of Bob Jones University, founder of Christian Reconstruction Rousas John Rushdoony, Amway's Richard DeVos, John Bircher Nelson Bunker Hunt, conservative philanthropist Joseph Coors, right-wing direct-mail tactician Richard Viguerie, "Onion King" Othal Brand, ex-Ku Klux Klan leader Richard Schoff, and Sun Myung Moon publisher James Whalen. The two confederacies clashed not only over trade issues, with the latter tending toward protectionism and the former toward free trade, but over values. The members of the Council on National Policy saw themselves as deeply grounded in America, and they condemned the lack of patriotism on the part of the internationalists, who would sell out America to the Russians if it meant higher corporate profits. The differences between the two groups revealed themselves in such campaigns as the 1986 boycott of Chevron, organized by Pat Robertson and other Christian capitalists and activists to protest the multinational petroleum company deal with Angola's Marxist government to begin oil production. Organizers of the boycott even distributed Wanted flyers that accused Chevron's CEO, George Keller, of providing "aid and comfort" to "America's Soviet Enemy in Cuban-Occupied Angola."

Such campaigns did not mean that Christian capitalists were isolationists. On the contrary, their anti-Communism made them ardent expansionists. Much of the financial and moral support for Reagan's military buildup and renewed international aggression, for example, came from a network of unabashedly conservative and evangelical entrepreneurs...

... At the time of his boycott of Chevron, Pat Robertson, for example, had been working closely with Angola's anti-Communist rebels, parlaying his close connections with African dictators into vast forestry and diamond-mining holdings for his African Development Corporation.

The militarists on the front lines of the conflicts in Central America and other third-world hot spots, such as Oliver North and John Singlaub, were ideologically and politically affiliated not with the corporations that commanded the heights of world capitalism but with traditional protectionists and the new evangelical entrepreneurs who organized the Council for National Policy, of which both North and Singlaub were members. Yet an alliance with some of Latin America's most violent avengers, such as El Salvador's Roberto D'Aubuisson, placed them in the vanguard of trade liberalization, for the elimination of Latin American nationalists was a necessary step in the advancement of open markets. At a Washington dinner sponsored by a phalanx of right-wing organizations in honor of D'Aubuisson-responsible for the murder of thousands of Salvadorans-one cadre complained that "death squads have a very negative connotation" that was preventing the laureled executioner from getting "across his message of free enterprise, anticommunism, freedom of exports and imports."

The death of New Deal liberalism came in 1973, when the United States was hit by the twin blows of sharply rising oil prices and a seventeen-month recession, described by political scientists Thomas Ferguson and Joel Rogers as "the longest and deepest economic downturn the United States had experienced since the great Depression." The contraction led to a sharpened sense of class consciousness and unity of action among corporate leaders-many of whom had previously supported the New Deal coalition but now rapidly increased their funding of conservative political action committees, advocacy advertising, ad hoc lobbying groups, and rightwing policy and legal think tanks dedicated to the dismantling of economic regulations and social entitlements. The number of probusiness political action committees jumped from 248 in 1974 to 1,100 in 1978. The Olin, Smith Richardson, and Scaife funds, representing chemical, pharmaceutical, and petrochemical interests, paid scholars and journalists to produce, as corporate activist William E. Simon, Nixon's undersecretary of the Treasury, put it, "books, books, and more books" to rejoin the "relationship between political and economic liberty"

... As part of this backlash, opinion and policy makers set their sights on third-world economic nationalism, which was increasingly identified as an obstacle to economic recovery. America, wrote retired general Maxwell Taylor in 1974, was threatened by a "turbulent and disorderly" third world. "As the leading affluent 'have' power," he said, "we may expect to have to fight for our national valuables against envious 'have-nots.'" Carter's secretary of defense, Harold Brown, made the connection between domestic revival and overseas expansion explicit. "The particular manner in which our economy has expanded," he said, "means that we have come to depend to no small degree on imports, exports and the earnings from overseas investments for our material well-being. But now U.S. dependence was threatened, as a number of countries, such as Cuba and, briefly, Chile, tried to pull out of America's orbit, while others threw up obstacles to foreign investment. Between 1970 and 1980, for example, the number of state-owned industries in Brazil and Mexico increased from just over three hundred to more than a thousand.

With détente offering no relief from the crunch generated by increased global competition and a third world hostile to U.S. capital investment, the Forbes 500 knights of the Business Roundtable made their peace with the renascent right and set out to retake the third world. Putting aside their qualms about a potential inflationary risk, non-defense industry CEOs joined in the call for a renewed arms buildup. Executive officers from corporations that used to be squarely in the Democratic camp began to work closely with rightwing think tanks and policy institutes such as the American Enterprise Institute and the Heritage Foundation, which promoted both a dramatic expansion of America's military might abroad and the shredding of the New Deal at home.

Some businesses and intellectuals from the multilateral wing of corporate America offered tepid dissent to Reagan's aggressive foreign policy. But increasingly, the cosmopolitans and the chauvinists came together over the need to project American power, broadly into the third world and especially into Latin America. Even David Rockefeller, an arch-internationalist and the bête noire of the conservative right, got on the bandwagon. A week after Reagan's 1980 victory, he toured Chile, Argentina, Brazil, and Paraguay to reassure the generals that, unlike Carter, the new president "will deal with the world as it is" and not as it should be, promising them that the United States would soon restore full diplomatic and military relations with them no matter what their record on human rights.

By the early 1980s, then, America had undergone a rapid transformation in the class and political relations that defined how it acted in the world. The previous decade's protracted recession both weakened and provoked the northeastern establishment-the internationalist core of the New Deal coalition and the liberal wing of the Republican Party. At the same time, the economic base of the New Right began to expand, as steep rises in commodity prices emboldened agricultural, mineral, and independent oil interests in the South and the West, bringing them together with manufacturers demanding protection, defense contractors, an emerging network of Christian capitalists, and a steady flow of corporate defectors from the Democratic Party. A number of these conservative constituencies, particularly those from the South and Southwest, could draw on their ties with fundamentalists and right-wing populist movements to back up their free-market and foreign policy initiatives with grassroots power and theological justification. As economic internationalists joined with militarists and Christian capitalists to defeat world Bolshevism, avenge Vietnam, and push for open markets, the restoration of America's global military power and the restoration of laissez-faire capitalism were increasingly understood to be indistinguishable goals. This fusion of the goals of corporate America with the passion and ideas of a nationalist backlash created a perfect storm of resurgent American expansionism-an expansionism that would force on the rest of the world the kind of economic regime first institutionalized in Chile.

Reagan's policies halted and then began the reversal of what some economists had identified as a dangerous trend-namely, the democratization of wealth brought about by union power, a progressive corporate and personal tax code, education spending, low unemployment, and social welfare programs. Over the course of the previous three decades, the amount of income claimed by the nation's top 1 percentile dropped from 16 to 8 percent .50 Reagan's tax cuts and increased defense spending reversed this process, creating permanent budget shortfalls and slowing bleeding New Deal and Great Society programs. When unsustainable deficits compelled Reagan to raise revenues, he did so by largely shifting the burden to payroll taxes, which only helped to further weaken support for government programs-understandably so since real wages had begun to decline for many working-class families. Tight money led to rising unemployment and to the gutting of organized labor's bargaining power. Automatic cost-of-living salary increases, job security, and guaranteed pensions were thereby consigned to the ash heap of history. Corporations began the scuttling of America's industrial base, moving production to the Southwest and overseas.

In the international realm, high U.S. interest rates forced European governments anxious to stem the flight of capital to the dollar to respond in kind. They even compelled French president François Mitterrand to turn, according to Reagan's NSC international economics adviser, "full circle" and impose "severe austerity measures," thus ending France's experiment in democratic socialism-and what at the time was the chief ideological challenge to Reaganomics in the developed world. Similar monetary pressure also helped bring conservative governments to power in West Germany and Japan.

In the third world, the global recession overwhelmed national governments. Even before the "Volcker shock," third-world loans were increasingly directed not at capital investment and infrastructure but at papering over growing deficits. Since 1973, rising energy costs had broken the budgets and trade accounts of developing countries, forcing them to borrow more and more money-which London and New York banks, engorged with petrodollars, were only too happy to lend (the percentage of foreign earnings in the thirteen largest U.S. banks increased from just under 19 to nearly 50 percent between 1970 and 1976).

Between 1973 and 1980, third-world debt grew from $130 to $474 billion. With poor nations already staggering under such a debt load, rising U.S. interest rates and an appreciating U.S. dollar turned out to be a deathblow to even the mildest kind of third-world development strategy, as advocated by Alliance for Progress types. Since both third-world debt and currency reserves were denominated in American dollars, for every point the U.S. Fed raised its rate, $2.5 billion was added to the interest of outstanding loans; for every 20 percent the dollar appreciated, another 20 percent was added to the balance. And as interest payments on loans increased by over 50 percent between 1980 and 1982, the recession greatly reduced first-world demand for third-world products, with commodity prices falling nearly 30 percent from 1981 to 1982.

While devastating for the people who lived in the countries involved, the crisis was seen as a "blessing," as William Ryrie, executive vice president of the International Finance Corporation, put it, for America's financial and political leaders. The "debt crisis afforded an unparalleled opportunity;" wrote Jerome Levinson, a former official of the Inter-American Development Bank, that allowed the U.S. Treasury to achieve "the structural reforms favored by the Reagan Administration," which included a "commitment on the part of the debtor countries to reduce the role of the public sector as a vehicle for economic and social development and rely more on market forces and private enterprises."" As interest payments on thirdworld debt soared-growing between 1970 and 1987 from less than $3 billion to over $36 billion-governments, starting first in Latin America, yielded to the IMFs demand to emulate the Chilean example. In exchange for refinancing, they cut subsidies, lowered tariffs, slashed social spending, sold off national industries, and devalued their currencies.

Henry Nau, Reagan's NSC adviser for international trade, described the global crisis provoked by Volcker's austerity program not as an unfortunate consequence of the induced recession but as an intended effect, one that reflected a "coherent analysis and attack on the major economic ills" of the 1970s.58 With the United States losing its edge in the postwar system of industrial capitalism to European, Japanese, and third-world producers, Reaganomics dispensed with the competitive challenge by changing the rules of the game. Abandoning America's postwar promise to act as a global stabilizer, Reagan used monetary policy as a club to assert America's national interest on the world stage, institutionalizing an international system of financial and speculative capitalism that allowed the United States to maintain its primacy even as its industrial base was eroding.

Reagan unveiled the outline of this new system at the International Meeting on Cooperation and Development, held in Cancun, Mexico, in late 1981.

... Compelled by the debt crisis, one country after another implemented a program that was the mirror opposite of what was called for in the nonaligned movement's program for a New International Economic Order. They slashed taxes, drastically devalued their currencies, lowered the minimum wage, exempted foreign companies from labor and environmental laws, cut spending on health care, education, and other social services, did away with regulations, smashed unions, passed legislation that allowed up to 100 percent repatriations of profits, cut subsidies designed to protect national manufacturing, freed interest rates, and privatized state industries and public utilities. Rather than fostering unified efforts to set commodity prices and force fairer terms on the industrialized world, as poor countries were just beginning to do, the debt crisis forced a race to the bottom to attract foreign capital. It was every nation for itself.

In Latin America, the sale of state enterprises was one of t e largest transfers of wealth in world history. In the second half of the nineteenth century and early part of the twentieth, Latin America experienced what some historians have described as a "second conquest." The first was, of course, the plundering of American gold and silver by the Spanish and Portuguese. The second entailed the initial phase of U.S. corporate expansion, as extractive firms like United Fruit Company, Standard Oil, and Phelps Dodge turned to the region as a source of raw materials and agricultural products, coming to control most of the continent's railroads, electric companies, ports, mines, and oil fields. "When the trumpet blared everything on earth was prepared," wrote the Chilean poet Pablo Neruda, capturing the Job-like scope of this dispossession, "and Jehovah distributed the world to Coca-Cola Inc., Anaconda, Ford Motor and other entities."

The third conquest, beginning full scale in the early 1980s, was no less epic. Railroads, postal service, roads, factories, telephone services, schools, hospitals, prisons, garbage collection services, water, broadcast frequencies, pension systems, electric, television, and telephone companies were sold off-often not to the highest but to the best-connected bidders. In Chile, everything from "kindergartens to cemeteries and community swimming pools were put out for bid." Between 1985 and 1992, over two thousand government industries were sold off throughout Latin America. Much of this property passed into the hands of either multinational corporations or Latin America's "superbillionaires," a new class that had taken advantage the dismantling of the state to grow spectacularly rich.

In the United States, the idea of free trade-or neoliberalism - had gained broad bipartisan support among America's political and economic leaders, who helped extend the model inaugurated in Latin America to Eastern Europe and the rest of the third world. Desperate to regain the favor of the capital-intensive, outward-oriented industries that had been the heart of the Democratic New Deal coalition, Bill Clinton made "globalization" the centerpiece of his foreign policy, signing more than three hundred trade agreements, ratifying the North American Free Trade Agreement and the World Trade Organization, and committing his administration to "open other nations' markets." Clinton talked about trying to strike a just balance between the demands of private enterprise and demands that development take place in an equitable manner, similar to Truman four decades earlier. Yet his much hyped environmental and labor side accords to treaties like NAFTA, which promised to humanize free trade, had little teeth matched up against the protections afforded to property and corporate rights. In Latin America, the main effect of all this new international commercial jurisprudence was to ratify-and make nearly impossible to reverse-the dispossession that took place during the previous two Republican administrations.

Clinton had the good fortune to inherit a "largely pacified third world," and so he was able to use an earlier language of political liberalism and multilateral cooperation to sell free trade. But he, along with other leaders of the Democratic Party, had converted from New Deal principles to embrace both free-market absolutism and American militarism. His administration, therefore, served as a bridge between Reagan's resurgent nationalism and George ~ W Bush's revolutionary imperialism.

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