Rogue States

by Noam Chomsky

  The corporatization process was in large part a reaction to great market failures of the late 19th century, and it was a shift from something you might call proprietary capitalism to administration of markets by collectivist legal entities—mergers, cartels, corporate alliances—in association with powerful states and by now international bureaucracies, which regulate and support private power. The primary task of the states—bear in mind that with all the talk about minimizing the state, in the OECD countries the state continues to grow relative to GNP, notably in the ‘80s and ‘90s—is essentially to socialize risk and cost, and to privatize power and profit. These are tendencies that have moved forward under Reaganite, Thatcherite, and New Democrat doctrines.

  Well, going back to Haines’s formula, it’s not false, but we have to understand “capitalism” as referring to social arrangements that would have scandalized Adam Smith or Ricardo or James Madison—or, for that matter, even the American Republican Party in the mid-19th century. It’s hard to remember now, but at that time the Republican Party opposed even wage labor as not very different from the chattel slavery that had just been overthrown in the Civil War.4 These ideas are deep in the American tradition, without the dubious benefit of radical intellectuals. We also have to understand the phrase “self-interest” in Haines’s formula. It does not refer to the interest of the population, except by the remotest accident—that’s a truism as old as Adam Smith.

  With these translations in mind, we can accept the conventional view that after World War II the United States “assumed, out of self-interest, responsibility for the welfare of the world capitalist system.” That responsibility devolved into several related programs: the first and most important had to do with the domestic society.

  There is a conventional doctrine about the current domestic scene and what it implies for the rest of the world, which has yet to benefit from what are called America’s “entrepreneurial values and rugged individualism.” The standard picture of the domestic scene is given, for example, by a recent lead article in the New York Times. The headline is “America Is Prosperous and Smug,” perhaps too much so, and it goes on to explain that Americans have “boundless confidence” and “expectations of unlimited economic success” in the “happy glow of the American boom,” “the fairy tale US expansion since 1991,” a “remarkable economic success” under the direction of “the saintly [Alan] Greenspan.”5 Another lead article in the New York Times, a front-page article, described what it called a “fat and happy America,” enjoying the current economic boom, “one of the longest and healthiest in American history.”6 It has indeed been a fairy tale for some. Both of the articles I cited give one—the same—example, namely the stock market. There has been enormous asset inflation, which is certainly a fairy tale to the 1 percent of households that own half the stocks and the 10 percent that own most of the rest. It has also been a fairy tale for corporations; the business press has been ecstatic about the profit growth in the last few years. It has been called “extraordinary,” “stunning,” “dazzling,” “stupendous”—I think they have run out of adjectives.

  But it’s not unproblematic. Business Week did detect a problem; they had an article headlined “The Problem Now: What to Do With All That Cash,” as “surging profits” are overflowing the coffers of corporate America. Shortly after it became even worse: “The liquid assets of non-financial corporations hit a staggering $679 billion,” causing “vexing problems” for Boeing, Intel, General Motors and others like them.7 Fortunately, there is a solution, and there is a bipartisan consensus on it: namely, to reduce taxes on capital gains. That is, for the benefit of everyone, not just the top 1 percent, for whom it’s half their income. The purpose of this is to free funds for investment, because the staggering two-thirds of a trillion dollars that’s causing such vexing problems is not enough. I should say, it takes a good education to keep all this in hand with proper sobriety.

  What about the fairy-tale expansion since 1991? Well, it’s true that it breaks new records; for one thing it’s the first recovery in US history that has not been accompanied by increases in wealth and income, apart from the top few percent. It is also one of the weakest recoveries of the post-war period, similar to the anemic ‘70s and ‘80s. In fact, the per capita growth rate of the US economy through 1997 is approximately at the OECD average; it is well below the ‘50s and the ‘60s. It’s also been a period of slower productivity growth, which is a portent for the future.

  So that raises some questions. How can we have dazzling profit growth when the fairy-tale expansion is one of the weakest since the Second World War? Well, there’s a simple answer to that: most of the population has been left out of the story. So, for two-thirds of workers, average incomes are below the late 1970s. In the late 1980s, which was a period of recovery, hunger in the US increased 50 percent, to about 30 million people. Around 1980 the US was rather similar to other industrial societies by what are called quality of life measures—things like poverty, child malnutrition, mortality, the proportion of the population in jail, inequality, and so on—now it’s far in the lead. Working hours have gone way up—Americans apparently work about a month a year more than they did 25 years ago, wages have stagnated, support systems have gone down, working conditions have deteriorated. The decline of US labor costs to the lowest, second to England, in the industrial world was hailed by the Wall Street Journal as “a welcome development of transcendent importance,” and that’s part of the United States being happy and satisfied.

  Illegal firing of union organizers tripled in the 1980s, along with other violations of law, which continue under Clinton. The Reagan administration essentially informed the business world it wasn’t going to apply the laws, and this was reported rather accurately in the business press.8 That’s a big factor in the increase in inequality, the attack on wages and incomes. If you turn to the business pages of the New York Times, they tell the story pretty straight: for example, in a story headlined “America’s Treadmill Economy,” in which most people are “Going Nowhere Fast,” with poor prospects.9 Let’s go back to the headline, “America is Prosperous and Smug,” and so on. That all makes sense as long as we understand what the word “America” means: it doesn’t refer to Americans, it refers to a small, privileged minority, which is in fact the constituency of the New York Times—those are the people you meet in elegant restaurants, boardrooms, and so on—and they are indeed smug and prosperous, happy and confident.

  Let us turn our attention to Alan Greenspan, who presided over the miracle in the 1990s. He recently testified to the Senate Banking Committee on the miracle, which he attributed in part to “greater worker insecurity.”10 Workers are intimidated; they are afraid to ask for a living wage and benefits, and that’s a good thing. It makes Americans confident and smug, if you understand the word “Americans” correctly. The latest economic report of the president also takes great pride in the fairy-tale economy, which it attributes to “significant wage restraint” that results from “changes in labor market institutions and practices.”11 That translates into English as things like non-enforcement of laws on illegal strike-breaking, allowing permanent replacement workers—the US has been cited by the ILO for that, but nobody pays any attention. And there are other factors in the fairy tale. Caterpillar, the construction producer, won a major strike in Illinois, seriously harming one of the major unions, United Auto Workers. How did they do it? Well, by hiring permanent replacement workers, considered illegal in most of the world, and also by using the dazzling profits that they shared with their associates to construct excess capacity abroad, from which they could supply their markets even with the Caterpillar plants in Illinois on strike. Notice that the use of profits to construct excess capacity abroad is not for profits and not for efficiency, but for class war: that is, it’s a way of attacking US workers, and so it was used. Capital is mobile, labor is not, and, unfortunately, international links are quite weak.

  Greenspan recently gave a talk to newspap
er editors in the US. He spoke passionately about the miracles of the market, the wonders bought by consumer choice, and so on. He also gave some examples: the Internet, computers, information processing, lasers, satellites, transistors.12 It’s an interesting list: these are textbook examples of creativity and production in the public sector. In the case of the Internet, for 30 years it was designed, developed, and funded primarily in the public sector, mostly the Pentagon, then the National Science Foundation—that’s most of the hardware, the software, new ideas, technology, and so on. In just the last couple of years it has been handed over to people like Bill Gates, whom, at least, you have to admire for his honesty: he attributes his success to his ability to “embrace and extend” the ideas of others, commonly others in the public sector.13 In the case of the Internet, consumer choice was close to zero, and during the crucial development stages the same was true of computers, information processing, and all the rest—unless by “consumer” you mean the government; that is, public subsidy.

  In fact, of all the examples that Greenspan gives, the only one that maybe rises above the level of a joke is transistors, and they are an interesting case. Transistors, in fact, were developed in a private laboratory—Bell Telephone Laboratories of AT&T—which also made major contributions to solar cells, radio astronomy, information theory, and lots of other important things. But what is the role of markets and consumer choice in that? Well, again, it turns out, zero. AT&T was a government-supported monopoly, so there was no consumer choice, and as a monopoly they could charge high prices: in effect, a tax on the public which they could use for institutions like Bell Laboratories, where they could do all of this work. So again, it’s publicly subsidized. As if to demonstrate the point, as soon as the industry was deregulated, Bell Labs went out of existence, because the public wasn’t paying for it any more: its successors work mostly on short-term applied projects. But that’s only the beginning of the story. True, Bell Labs invented transistors, but they used wartime technology, which, again, was publicly subsidized and state-initiated. Furthermore, there was nobody to buy transistors at that time, because they were very expensive to produce. So, for 10 years the government was the major procurer, particularly for high-performance transistors. In 1958 the Bell Telephone supplier, Western Electric, was producing hundreds of thousands of these, but solely for military applications. Government procurement provided entrepreneurial initiatives and guided the development of the technology, which could then be disseminated to industry.14 That’s “consumer choice” and the “miracle of the market” in the one case that you can even look at without ridicule. And in fact that story generalizes. The dynamic sectors of the economy rely crucially on massive public subsidy, innovation, and creativity; the examples that Greenspan gave are mostly some of the most dramatic cases of this. It’s a revealing set of choices. A lot of this is masked as defense, but that’s not all—the same is true in biotechnology, pharmaceuticals, and so on.

  Naturally, business is delighted with all of this: the public pays the costs and assumes the risks (a kind of “socialism for the rich”), and profit and power are privatized—that’s really existing market theory. It goes back for centuries, but it is dramatically true now. Particular cases make it even more dramatic. Take the former leader of the conservative revolution in Congress, Newt Gingrich. He is a fount of very impressive rhetoric about the work ethic and getting off the cycle of dependency—how seven-year-old children have to learn responsibility, and that sort of thing. But, year after year, he held the championship in bringing home federal subsidies to his rich constituents, in a sector of Georgia where the economy is even more dependent on federal subsidies than in most places.15 His favorite cash-cow was Lockheed-Martin. There is a $200 annual Lockheed-Martin tax per capita in the US. Sometimes, even with all that, Lockheed-Martin goes under; when it does, the government steps in, as under the Nixon administration, with a couple of hundred million dollars of guaranteed loans. It was that performance that led Senator Proxmire to coin the phrase “corporate welfare.” So, that’s conservatism in the House of Representatives. The Senate majority leader, Trent Lott, is the same. The Financial Times described him as “the most successful pork producer in 1997,” which is quite accurate. So, that’s conservatism in the Senate.16

  And it continues—I will just give one last example. Here is a front-page story in the New York Times on “an economic miracle in the United States.” They describe “the prosperous new economy” in “the nation’s most Republican state,” with its “deep-seated distrust of the Federal Government” and its “tradition of self-reliance,”—it happens to be Idaho.17 They point out, as is conventional, that there is downside to the economic miracle: Idaho also breaks national records in child abuse and imprisonment, the unions have been wiped out, reading scores are going down, and so on. But it’s a prosperous new economy, and the most Republican state, and so on. From the article we don’t learn anything about the economic miracle, so you look elsewhere. For example, you can look at the publications of the Idaho National Engineering and Environmental Lab. This is a national laboratory, managed jointly by the Department of Energy with the Lockheed-Martin Corporation—that’s the private contribution symbolizing self-reliance and distrust of the federal government. The publication opens by saying, “Americans have made a huge investment in the Idaho National Laboratory” since it was founded in 1949 to bring us nuclear energy and a nuclear navy. Last year the Department of Energy put $850 million into this single site, which is the “premier engineering lab in the DOE system of national laboratories.” Its mission is to “move federally developed technologies into private industry and academia.”18 In academia, research and development is also federally funded, very substantially; its role is a kind of funnel for transferring public funds into private profits. Notice the phrase, “move federally developed technologies into private industry.” That’s the role of the government in a free-enterprise economy. In the Idaho DOE lab, it’s not only nuclear energy; it’s also radioactive waste disposal, chemical processing, “the world’s most sophisticated materials and testing complex,” a “rapid-tooling technology” laboratory that should “revolutionize the way automobiles and other products are built”—after the taxpayer gifts are handed over to the private sector—a supercomputer center to ensure that the United States stays at the forefront of computer development. To help out on that, the Clinton administration recently slapped a huge tariff on Japanese supercomputers, which were undercutting the US ones—a magnificent contribution to free trade. The Clinton administration’s moves of that sort—tariff interventions—range from supercomputers to Mexican tomatoes, which were banned by tariffs because they were preferred by American consumers.19 There are laws about this, but laws are not for rich and powerful people, they are for places like Haiti. The same DOE publication goes on to say that one of the purposes of the National Lab is to “assist start-up companies in attracting and securing state and federal grants and lines of credit”—that’s what is known as entrepreneurial initiative and rugged individualism. In brief, the public invests massively, for 50 years, hands the gifts over to private power and profit, and we now admire this prosperous new economy, in the nation’s most Republican state, with its deep-seated distrust of the federal government and its tradition of self-reliance.

  Again, it takes a good education to handle all of this, but that is the way the real economy works, in accordance with really existing market theory. And of course it’s not just the US; these are elementary facts about economic history since the 18th century, when England pioneered the way. And it’s well understood in the business world, if not by ideologues—after all, they’re the ones who designed it. The depression in the 1930s removed any lingering beliefs that real capitalism might be viable; the New Deal measures barely affected it, but World War II overcame it. World War II was a grand success economically; there was a kind of semi-command economy, directed by corporate executives who flocked to Washington to run it, and they lea
rned the lessons. It was confidently predicted, across the board, that the US would go right back into depression after the war; therefore something had to be done. The business press was frank about it. Fortune and Business Week reported that high-tech industry cannot survive in a “pure, competitive, unsubsidized, ‘free enterprise’ economy” (specifically the aircraft industry, though the point was more general), and “the government is their only possible savior.”20

  The only question was how. Well, they understood perfectly well. There was an interesting discussion in the business press in the late ‘40s. They understood that social spending could serve to stimulate and sustain the economy, but they much preferred, and quickly hit upon, an alternative; namely, the Department of Energy, NASA, the Atomic Energy Commission—the whole Pentagon system. And there were good reasons, not economic reasons, but more important ones. Social spending has a downside: it has a democratizing effect. So, people have opinions about where you should put a hospital or a school or a road or something. But they have no opinions about what kind of jet plane to build, or what kind of lasers to build. So, you undercut the democratizing effect if you switch to the Pentagon system. Furthermore, social spending tends to be redistributive, whereas the Pentagon system is a pure gift to private power, with no negative side effects. It is also secret. It is easy to sell; you just make people cower in terror, and then they will pay for it, and meanwhile Alan Greenspan, and others like him, can spin fantasies for the public.