Monday, January 15, 2007

Book Review: Profit Over People

Full Title: Profit Over People: Neoliberalism and Global Order
Author: Noam Chomsky

I’ve finished another Chomsky book, but this time, I wasn’t completely blown away, as I usually am by his work. I had been doing a lot of thinking and discussing lately about “neoliberalism”, so when I was in a book store a few months ago, and saw a book by Chomsky on the subject, I snapped it up. However, the book is a few years old, now, and while it was probably pretty startling at the time, there wasn’t much new for me. It’s taken from a series of essays and speeches Chomsky has given on the subject.

One of the key things Chomsky points out in this book, which isn’t something I’ve given much thought to, is that the rhetoric of a “free market economy” is often different from what actually takes place. Under a free market economy, the government is supposed to get out of the way of business, and let the “invisible hand of the market” take care of everything. If a company is suffering, then it’s probably better to let the company go bankrupt, and let other, more able companies, take its place. In reality, this only takes place when the companies in question are foreign companies; when a local company is having trouble, the government tends to step in, although the form of the government bail-out is often somewhat masked; e.g. if the aircraft industry is having troubles, as they did after WW II, then the government simply steps up military spending for aircraft, which bails out the aircraft industry.

The most important departures from free market doctrine, however, lie elsewhere. One fundamental component of free trade theory is that public subsidies are not allowed. But after World War II, U.S. business leaders expected that the economy would head right back to depression without state intervention. They also insisted that advanced industry—specifically aircraft, though the conclusion was more general—“cannot satisfactorily exist in a pure, competitive, unsubsidized, ‘free enterprise’ economy” and that “the government is their only possible savior.” I am quoting the major business press, which also recognized that the Pentagon system would be the best way to transfer costs to the public. They understood that social spending could play the same stimulative role, but it is not a direct subsidy to the corporate sector, it has democratizing effects, and it is redistributive. Military spending has none of these defects.

It is also easy to sell. President Truman’s Air Force Secretary put the matter simply: we should not use the word “subsidy,” he said, the word we should use is “security.” He made sure that the military budget would “meet the requirements of the aircraft industry,” as he put it. One consequence is that civilian aircraft is now the country’s leading export, and the huge travel and tourism industry, aircraft-based, is the source of major profits.

Thus it is quite appropriate for Clinton to choose Boeing “as a model for companies across America” as he preached his “new vision” of the free market future at the Asia-Pacific Summit in 1993, to much acclaim. A fine example of really existing markets, civilian aircraft production is now mostly in the hands of two firms, Boeing-McDonald and Airbus, each of which owes its existence and success to large-scale public subsidy. The same pattern prevails in computers and electronics generally, automation, biotechnology, communications, in fact just about every dynamic sector of the economy.

There was no need to explain the doctrines of “really existing free market capitalism” to the Reagan Administration. They were masters of the art, extolling the glories of the market to the poor while boasting proudly to the business world that Reagan had “granted more import relief to U.S. industry than any of his predecessors in more than half a century”—which is far too modest; they surpassed all predecessors combined, as they “presided over the greatest swing toward protectionism since the 1930s,” Foreign Affairs commented in a review of the decade. Without these and other extreme measures of market interference, it is doubtful that the steel, automotive, machine tool, or semiconductor industries would have survived Japanese competition, or been able to forge ahead in emerging technologies, with broad effects through the economy. That experience illustrates once again that “the conventional wisdom” is “full of holes,” another review of the Reagan record in Foreign Affairs points out. But the conventional wisdom retains its virtues as an ideological weapon to discipline the defenseless.

The United States and Japan have both just announced major new programs for government funding of advanced technology (aircraft and semiconductors, respectively) to sustain the private industrial sector by public subsidy.

To illustrate “really existing free market theory” with a different measure, an extensive study of transnational corporations (TNCs) by Winfried Ruigrock and Rob van Tulder found that “virtually all of the world’s largest core firms have experienced a decisive influence from government policies and/or trade barriers on their strategy and competitive position,” and “at least twenty companies in the 1993 Fortune 100 would not have survived at all as independent companies, if they had not been saved by their respective governments,” by socializing losses or by simple state takeover when they were in trouble. One is the leading employer in Gingrich’s deeply conservative district, Lockheed, saved from collapse by huge government loan guarantees. The same study points out that government intervention, which has “been the rule rather than the exception over the past two centuries… has played a key role in the development and diffusion of many product and process innovations—particularly in aerospace, electronics, modern agriculture, materials technologies, energy, and transportation technology,” as well as telecommunications and information technologies generally (the Internet and World Wide Web are sriking recent examples), and in earlier days, textiles and steel, and of course, energy. Government policies “have been an overwhelming force in shaping the strategies and competitiveness of the world’s largest firms.” Other technical studies confirm these conclusions.

(from the essay Neoliberalism and Global Order, 1996; pp. 36–38 in my edition of the book)

But the neoliberalists (if I may coin that phrase) aren’t just interested in doing business locally. They’re interested in pushing their agenda globally; the most striking example is Iraq, where they drove into the country in hords, with the express intent of turning Iraq into a free market economy. The problem, however, is that this is never the best way to stimulate a country’s economy; it will push some extra money into the hands of the rich–mostly the Trans-National Corporations—but it will very much hurt the majority of the people. Chomsky compares the theory with Japan’s economic growth, and shows that, again, the rhetoric doesn’t match the reality:

… In the eighteenth century, the differences between the first and third worlds were far less sharp than they are today. Two obvious questions arise:

  1. Which countries developed, and which not?
  2. Can we identify some operative factors?

The answer to the first question is fairly clear: Outside of Western Europe, two major regions developed: the United States and Japan—that is, the two regions that escaped European colonization. Japan’s colonies are another case; though Japan was a brutal colonial power, it did not rob its colonies but developed them, at about the same rate as Japan itself.


A group of prominent Japanese economists recently published a multivolume review of Japan’s programs of economic development since World War II. They point out that Japan rejected the neoliberal doctrines of their U.S. advisers, choosing instead a form of industrial policy that assigned a predominant role to the state. Market mechanisms were gradually introduced by the state bureaucracy and industrial-financial conglomerates as prospects for commercial success increased. The rejection of orthodox economic precepts was a condition for the “Japanese miracle,” the economists conclude. The success is impressive. With virtually no resource base, Japan became the world’s biggest manufacturing economy by the 1990s and the world’s leading source of foreign investment, also accounting for half the world’s net savings and financing U.S. deficits.

As for Japan’s colonies, the major scholarly study of the U.S. Aid mission in Taiwan found that U.S. advisors and Chinese planners disregarded the principles of “Anglo-American economics” and developed a “state-centered strategy,” relying on “the active participation of the government in the economic activites of the island through deliberate plans and its supervision of their execution.” Meanwhile U.S. officials were “advertising Taiwan as a private enterprise success story.”

(from the essay Neoliberalism and Global Order, 1996; pp. 28–31 in my edition of the book)

So, despite the doctrine, Japan had been doing exactly the opposite of what the neoliberals had been preaching, and ended up with a better economy for it, not worse.

My favourite essay from the book was Market Democracy in a Neoliberal Order: Doctrines and Reality. It’s from a speech Chomsky delivered at the University of Cape Town in South Africa, in 1997. I won’t post a long blurb from this one; it would be better if you just read it yourself. It’s online at Chomsky’s website, complete with endnotes. I will, however, post part of his introduction:

I have been asked to speak on some aspects of academic or human freedom, an invitation that offers many choices. I will keep to some simple ones.

Freedom without opportunity is a devil’s gift, and the refusal to provide such opportunities is criminal. The fate of the more vulnerable offers a sharper measure of the distance from here to something that might be called “civilization.” While I am speaking, 1,000 children will die from easily preventable disease, and almost twice that many women will die or suffer serious disability in pregnancy or childbirth for lack of simple remedies, and care.[endnote] UNICEF estimates that to overcome such tragedies, and to ensure universal access to basic social services, would require a quarter of the annual military expenditures of the “developing countries,” about 10 percent of U.S. military spending. It is against the background of such realities as these that any serious discussion of human freedom should proceed.

(from the essay Market Democracy in a Neoliberal Order: Doctrines and Reality, 1997; p. 91 in my edition of the book)

I think I’ve mentioned this before, in a review of a previous Chomsky book or article, but this is one of the reasons I like Chomsky’s analysis: He understands not just the big picture, but also the impact on real human lives. It’s too easy, when talking about “big picture issues”, to forget about the impact on real people. In fact, the government and media rely on this; they don’t want us to think too hard about impacts of policies on real people. If you can turn people into abstractions, then putting 90% of the world’s wealth into the hands of 10% of the world’s people doesn’t seem quite as heinous a crime as it really is. And putting in place policies that help North Americans, but result in the loss of thousands of South American lives, doesn’t seem as real, to us, so we don’t complain about it—or care about it.