Confessions of an Economic Hit Man

by John Perkins

  “What do you mean?”

  “We’ve been considering building a new canal, a sea-level one, without locks. It can handle bigger ships. The Japanese may be interested in financing it.”

  “They’re the Canal’s biggest clients.”

  “Exactly. Of course, if they provide the money, they will do the construction.”

  It struck me. “Bechtel will be out in the cold.”

  “The biggest construction job in recent history.” He paused. “Bechtel’s loaded with Nixon, Ford, and Bush cronies.” (Bush, as U.S. ambassador to the UN, and Ford, as House Minority Leader and Chairman of the Republican National Convention, were well-known to Torrijos as Republican powerbrokers.) “I’ve been told that the Bechtel family pulls the strings of the Republican Party.”

  This conversation left me feeling very uncomfortable. I was one of the people who perpetuated the system he so despised, and I was certain he knew it. My job of convincing him to accept international loans in exchange for hiring U.S. engineering and construction firms appeared to have hit a mammoth wall. I decided to confront him head-on.

  “General,” I asked, “why did you invite me here?”

  He glanced at his watch and smiled. “Yes, time now to get down to our own business. Panama needs your help. I need your help.”

  I was stunned. “My help? What can I do for you?”

  “We will take back the Canal. But that’s not enough.” He relaxed into his chair. “We must also serve as a model. We must show that we care about our poor and we must demonstrate beyond any doubt that our determination to win our independence is not dictated by Russia, China, or Cuba. We must prove to the world that Panama is a reasonable country, that we stand not against the United States but for the rights of the poor.”

  He crossed one leg over the other. “In order to do that we need to build up an economic base that is like none in this hemisphere. Electricity, yes—but electricity that reaches the poorest of our poor and is subsidized. The same for transportation and communications. And especially for agriculture. Doing that will take money—your money, the World Bank and the Inter-American Development Bank.”

  Once again, he leaned forward. His eyes held mine. “I understand that your company wants more work and usually gets it by inflating the size of projects—wider highways, bigger power plants, deeper harbors. This time is different, though. Give me what’s best for my people, and I’ll give you all the work you want.”

  What he proposed was totally unexpected, and it both shocked and excited me. It certainly defied all I had learned at MAIN. Surely, he knew that the foreign aid game was a sham—he had to know. It existed to make him rich and to shackle his country with debt. It was there so Panama would be forever obligated to the United States and the corporatocracy. It was there to keep Latin America on the path of Manifest Destiny and forever subservient to Washington and Wall Street. I was certain that he knew that the system was based on the assumption that all men in power are corruptible, and that his decision not to use it for his personal benefit would be seen as a threat, a new form of domino that might start a chain reaction and eventually topple the entire system.

  I looked across the coffee table at this man who certainly understood that because of the Canal he enjoyed a very special and unique power, and that it placed him in a particularly precarious position. He had to be careful. He already had established himself as a leader among LDC leaders. If he, like his hero Arbenz, was determined to take a stand, the world would be watching. How would the system react? More specifically, how would the U.S. government react? Latin American history was littered with dead heroes.

  I also knew I was looking at a man who challenged all the justifications I had formulated for my own actions. This man certainly had his share of personal flaws, but he was no pirate, no Henry Morgan or Francis Drake—those swashbuckling adventurers who used letters of marque from English kings as a cloak to legitimatize piracy. The picture on the billboard had not been your typical political deception. “Omar’s ideal is freedom; the missile is not invented that can kill an ideal!” Hadn’t Tom Paine penned something similar?

  It made me wonder, though. Perhaps ideals do not die, but what about the men behind them? Che, Arbenz, Allende; the latter was the only one still alive, but for how long? And it raised another question: how would I respond if Torrijos were thrust into the role of martyr?

  By the time I left him we both understood that MAIN would get the contract for the master plan, and that I would see to it that we did Torrijos’s bidding.

  CHAPTER 14

  Entering a New and Sinister Period in Economic History

  As chief economist, I not only was in charge of a department at MAIN and responsible for the studies we carried out around the globe, but I also was expected to be conversant with current economic trends and theories. The early 1970s were a time of major shifts in international economics.

  During the 1960s, a group of countries had formed OPEC, the cartel of oil-producing nations, largely in response to the power of the big refining companies. Iran was also a major factor. Even though the shah owed his position and possibly his life to the United States’ clandestine intervention during the Mossadegh struggle—or perhaps because of that fact—the shah was acutely aware that the tables could be turned on him at any time. The heads of state of other petroleum-rich nations shared this awareness and the paranoia that accompanied it. They also knew that the major international oil companies, known as “The Seven Sisters,” were collaborating to hold down petroleum prices—and thus the revenues they paid to the producing countries—as a means of reaping their own windfall profits. OPEC was organized in order to strike back.

  This all came to a head in the early 1970s, when OPEC brought the industrial giants to their knees. A series of concerted actions, ending with a 1973 oil embargo symbolized by long lines at U.S. gas stations, threatened to bring on an economic catastrophe rivaling the Great Depression. It was a systemic shock to the developed world economy, and of a magnitude that few people could begin to comprehend.

  The oil crisis could not have come at a worse time for the United States. It was a confused nation, full of fear and self-doubt, reeling from a humiliating war in Vietnam and a president who was about to resign. Nixon’s problems were not limited to Southeast Asia and Watergate. He had stepped up to the plate during an era that, in retrospect, would be understood as the threshold of a new epoch in world politics and economics. In those days, it seemed that the “little guys,” including the OPEC countries, were getting the upper hand.

  I was fascinated by world events. My bread was buttered by the corporatocracy, yet some secret side of me enjoyed watching my masters being put in their places. I suppose it assuaged my guilt a bit. I saw the shadow of Thomas Paine standing on the sidelines, cheering OPEC on.

  None of us could have been aware of the full impact of the embargo at the time it was happening. We certainly had our theories, but we could not understand what has since become clear. In hindsight, we know that economic growth rates after the oil crisis were about half those prevailing in the 1950s and 1960s, and that they have taken place against much greater inflationary pressure. The growth that did occur was structurally different and did not create nearly as many jobs, so unemployment soared. To top it all off, the international monetary system took a blow; the network of fixed exchange rates, which had prevailed since the end of World War II, essentially collapsed.

  During that time, I frequently got together with friends to discuss these matters over lunch or over beers after work. Some of these people worked for me—my staff included very smart men and women, mostly young, who for the most part were freethinkers, at least by conventional standards. Others were executives at Boston think tanks or professors at local colleges, and one was an assistant to a state congressman. These were informal meetings, sometimes attended by as few as two of us, while others might include a dozen participants. The sessions were always lively and raucous.

&nb
sp; When I look back at those discussions, I am embarrassed by the sense of superiority I often felt. I knew things I could not share. My friends sometimes flaunted their credentials—connections on Beacon Hill or in Washington, professorships and PhDs—and I would answer this in my role as chief economist of a major consulting firm, who traveled around the world first class. Yet, I could not discuss my private meetings with men like Torrijos, or the things I knew about the ways we were manipulating countries on every continent. It was both a source of inner arrogance and a frustration.

  When we talked about the power of the little guys, I had to exercise a great deal of restraint. I knew what none of them could possibly know, that the corporatocracy, its band of EHMs, and the jackals waiting in the background would never allow the little guys to gain control. I only had to draw upon the examples of Arbenz and Mossadegh—and more recently, upon the 1973 CIA overthrow of Chile’s democratically elected president, Salvador Allende. In fact, I understood that the stranglehold of global empire was growing stronger, despite OPEC—or, as I suspected at the time but did not confirm until later, with OPEC’s help.

  Our conversations often focused on the similarities between the early 1970s and the 1930s. The latter represented a major watershed in the international economy and in the way it was studied, analyzed, and perceived. That decade opened the door to Keynesian economics and to the idea that government should play a major role in managing markets and providing services such as health, unemployment compensation, and other forms of welfare. We were moving away from old assumptions that markets were self-regulating and that the state’s intervention should be minimal.

  The Depression resulted in the New Deal and in policies that promoted economic regulation, governmental financial manipulation, and the extensive application of fiscal policy. In addition, both the Depression and World War II led to the creation of organizations like the World Bank, the IMF, and the General Agreement on Tariffs and Trade (GATT). The 1960s was a pivotal decade in this period and in the shift from neoclassic to Keynesian economics. It happened under the Kennedy and Johnson administrations, and perhaps the most important single influence was one man, Robert McNamara.

  McNamara was a frequent visitor to our discussion groups—in absentia, of course. We all knew about his meteoric rise to fame, from manager of planning and financial analysis at Ford Motor Company in 1949 to Ford’s president in 1960, the first company head selected from outside the Ford family. Shortly after that, Kennedy appointed him secretary of defense.

  McNamara became a strong advocate of a Keynesian approach to government, using mathematical models and statistical approaches to determine troop levels, allocation of funds, and other strategies in Vietnam. His advocacy of “aggressive leadership” became a hallmark not only of government managers but also of corporate executives. It formed the basis of a new philosophical approach to teaching management at the nation’s top business schools, and it ultimately led to a new breed of CEOs who would spearhead the rush to global empire.1

  As we sat around the table discussing world events, we were especially fascinated by McNamara’s role as president of the World Bank, a job he accepted soon after leaving his post as secretary of defense. Most of my friends focused on the fact that he symbolized what was popularly known as the military-industrial complex. He had held the top position in a major corporation, in a government cabinet, and now at the most powerful bank in the world. Such an apparent breach in the separation of powers horrified many of them; I may have been the only one among us who was not in the least surprised.

  I see now that Robert McNamara’s greatest and most sinister contribution to history was to jockey the World Bank into becoming an agent of global empire on a scale never before witnessed. He also set a precedent. His ability to bridge the gaps between the primary components of the corporatocracy would be fine-tuned by his successors. For instance, George Shultz was secretary of the treasury and chairman of the Council on Economic Policy under Nixon, served as Bechtel president, and then became secretary of state under Reagan. Caspar Weinberger was a Bechtel vice president and general council, and later the secretary of defense under Reagan. Richard Helms was Johnson’s CIA director and then became ambassador to Iran under Nixon. Richard Cheney served as secretary of defense under George H. W. Bush, as Halliburton president, and as U.S. vice president to George W. Bush. Even a president of the United States, George H. W. Bush, began as founder of Zapata Petroleum Corp, served as U.S. ambassador to the U.N. under presidents Nixon and Ford, and was Ford’s CIA director.

  Looking back, I am struck by the innocence of those days. In many respects, we were still caught up in the old approaches to empire building. Kermit Roosevelt had shown us a better way when he overthrew an Iranian democrat and replaced him with a despotic king. We EHMs were accomplishing many of our objectives in places like Indonesia and Ecuador, and yet Vietnam was a stunning example of how easily we could slip back into old patterns.

  It would take the leading member of OPEC, Saudi Arabia, to change that.

  CHAPTER 15

  The Saudi Arabian Money-laundering Affair

  In 1974, a diplomat from Saudi Arabia showed me photos of Riyadh, the capital of his country. Included in these photos was a herd of goats rummaging among piles of refuse outside a government building. When I asked the diplomat about them, his response shocked me. He told me that they were the city’s main garbage disposal system.

  “No self-respecting Saudi would ever collect trash,” he said. “We leave it to the beasts.”

  Goats! In the capital of the world’s greatest oil kingdom. It seemed unbelievable.

  At the time, I was one of a group of consultants just beginning to try to piece together a solution to the oil crisis. Those goats led me to an understanding of how that solution might evolve, especially given the country’s pattern of development over the previous three centuries.

  Saudi Arabia’s history is full of violence and religious fanaticism. In the eighteenth century, Mohammed ibn Saud, a local warlord, joined forces with fundamentalists from the ultraconservative Wahhabi sect. It was a powerful union, and during the next two hundred years the Saud family and their Wahhabi allies conquered most of the Arabian Peninsula, including Islam’s holiest sites, Mecca and Medina.

  Saudi society reflected the puritanical idealism of its founders, and a strict interpretation of Koranic beliefs was enforced. Religious police ensured adherence to the mandate to pray five times a day. Women were required to cover themselves from head to toe. Punishment for criminals was severe; public executions and stonings were common. During my first visit to Riyadh, I was amazed when my driver told me I could leave my camera, briefcase, and even my wallet in plain sight inside our car, parked near the open market, without locking it.

  “No one,” he said, “would think of stealing here. Thieves have their hands cut off.”

  Later that day, he asked me if I would like to visit so-called Chop Chop Square and watch a beheading. Wahhabism’s adherence to what we would consider extreme puritanism made the streets safe from thieves—and demanded the harshest form of corporal punishment for those who violated the laws. I declined the invitation.

  The Saudi view of religion as an important element of politics and economics contributed to the oil embargo that shook the Western world. On October 6, 1973 (Yom Kippur, the holiest of Jewish holidays), Egypt and Syria launched simultaneous attacks on Israel. It was the beginning of the October War—the fourth and most destructive of the Arab-Israeli wars, and the one that would have the greatest impact on the world. Egypt’s President Sadat pressured Saudi Arabia’s King Faisal to retaliate against the United States’ complicity with Israel by employing what Sadat referred to as “the oil weapon.” On October 16, Iran and the five Arab Gulf states, including Saudi Arabia, announced a 70 percent increase in the posted price of oil.

  Meeting in Kuwait City, Arab oil ministers pondered further options. The Iraqi representative was vehemently in favor of targeting t
he United States. He called on the other delegates to nationalize American businesses in the Arab world, to impose a total oil embargo on the United States and on all other nations friendly to Israel, and to withdraw Arab funds from every American bank. He pointed out that Arab bank accounts were substantial and that this action could result in a panic not unlike that of 1929.

  Other Arab ministers were reluctant to agree to such a radical plan, but on October 17 they did decide to move forward with a more limited embargo, which would begin with a 5 percent cut in production and then impose an additional 5 percent reduction every month until their political objectives were met. They agreed that the United States should be punished for its pro-Israeli stance and should therefore have the most severe embargo levied against it. Several of the countries attending the meeting announced that they would implement cutbacks of 10 percent, rather than 5 percent.

  On October 19, President Nixon asked Congress for $2.2 billion in aid to Israel. The next day, Saudi Arabia and other Arab producers imposed a total embargo on oil shipments to the United States.1

  The oil embargo ended on March 18, 1974. Its duration was short, its impact immense. The selling price of Saudi oil leaped from $1.39 a barrel on January 1, 1970, to $8.32 on January 1, 1974.2 Politicians and future administrations would never forget the lessons learned during the early- to mid-1970s. In the long run, the trauma of those few months served to strengthen the corporatocracy; its three pillars —big corporations, international banks, and government—bonded as never before. That bond would endure.

  The embargo also resulted in significant attitude and policy changes. It convinced Wall Street and Washington that such an embargo could never again be tolerated. Protecting our oil supplies had always been a priority; after 1973, it became an obsession. The embargo elevated Saudi Arabia’s status as a player in world politics and forced Washington to recognize the kingdom’s strategic importance to our own economy. Furthermore, it encouraged U.S. corporatocracy leaders to search desperately for methods to funnel petrodollars back to America, and to ponder the fact that the Saudi government lacked the administrative and institutional frameworks to properly manage its mushrooming wealth.