Neoliberalism and the Global Order
excerpted from the book
Profit Over People
by Noam Chomsky
Seven Stories Press, 1999
The Washington Consensus
The neoliberal Washington consensus is an array of market oriented principles
designed by the government of the United States and the international financial
institutions that it largely dominates, and implemented by them in various
ways-for the more vulnerable societies, often as stringent structural adjustment
programs. The basic rules, in brief, are liberalize trade and finance, let
markets set price ("get prices right"), end inflation ("macroeconomic
stability"), privatize. The government should "get out of the
way"-hence the population too, insofar as the government is democratic,
though the conclusion remains implicit. The decisions of those who impose
the "consensus" naturally have a major impact on global order.
Some analysts take a much stronger position. The international business
press has referred to these institutions as the core of a "de facto
world government" of a "new imperial age."
Whether accurate or not, this description serves to remind us that the
governing institutions are not independent agents but reflect the distribution
of power in the larger society. That has been a truism at least since Adam
Smith, who pointed out that the "principal architects" of policy
in England were "merchants and manufacturers," who used state
power to serve their own interests, however "grievous" the effect
on others, including the people of England. Smith's concern was "the
wealth of nations," but he understood that the "national interest"
is largely a delusion within the "nation" there are sharply conflicting
interests, and to understand policy and its effects we have to ask where
power lies and how it is exercised, what later came to be called class analysis.
The "principal architects" of the neoliberal "Washington
consensus" are the masters of the private economy, mainly huge corporations
that control much of the international economy and have the means to dominate
policy formation as well as the structuring of thought and opinion. The
United States has a special role in the system for obvious reasons. To borrow
the words of diplomatic historian Gerald Haines, who is also senior historian
of the CIA, "Following World War II the United States assumed, out
of self-interest, responsibility for the welfare of the world capitalist
... There have been many experiments in economic development in the
modern era, with regularities that are hard to ignore. One is that the designers
tend to do quite well, though the subjects of the experiment often take
The first major experiment was carried out two hundred years ago, when
the British rulers in India instituted the "Permanent Settlement,"
which was going to do wondrous things. The results were reviewed by an official
commission forty years later, which concluded that "the settlement
fashioned with great care and deliberation has unfortunately subjected the
lower classes to most grievous oppression," leaving misery that "hardly
finds a parallel in the history of commerce," as "the bones of
the cotton-weavers are bleaching the plains of India."
But the experiment can hardly be written off as a failure. The British
governor-general observed that "the 'Permanent Settlement,' though
a failure in many other respects and in most important essentials, has this
great advantage, at least, of having created a vast body of rich landed
proprietors deeply interested in the continuance of the British Dominion
and having complete command over the mass of the people." Another advantage
was that British investors gained enormous wealth. India also financed 40
percent of Britain's trade deficit while providing a protected market for
its manufacturing exports; contract laborers for British possessions, replacing
earlier slave populations; and the opium that was the staple of Britain's
exports to China. The opium trade was imposed on China by force, not the
operations of the "free market," just as the sacred principles
of the market were overlooked when opium was barred from England.
In brief, the first great experiment was a "bad idea" for
the subjects, but not for the designers and local elites associated with
them. This pattern continues until the present placing profit over people.
The consistency of the record is no less impressive than the rhetoric hailing
the latest showcase for democracy and capitalism as an "economic miracle"-and
what the rhetoric regularly conceals. Brazil, for example. In the highly
praised history of the Americanization of Brazil that I mentioned, Gerald
Haines writes that from 1945 the United States used Brazil as a "testing
area for modern scientific methods of industrial development based solidly
on capitalism." The experiment was carried out with "the best
of intentions." Foreign investors benefited, but planners "sincerely
believed" that the people of Brazil would benefit as well. I need not
describe how they benefited as Brazil became "the Latin American darling
of the international business community" under military rule, in the
words of the business press, while the World Bank reported that two-thirds
of the population did not have enough food for normal physical activity.
Writing in 1989, Haines describes "America's Brazilian policies"
as "enormously successful," "a real American success story."
1989 was the "golden year" in the eyes of the business world,
with profits tripling over 1988, while industrial wages, already among the
lowest in the world, declined another 20 percent; the UN Report on Human
Development ranked Brazil next to Albania. When the disaster began to hit
the wealthy as well, the "modern scientific methods of development
based solidly on capitalism" (Haines) suddenly became proofs of the
evils of statism and socialism-another quick transition that takes place
To appreciate the achievement, one must remember that Brazil has long
been recognized to be one of the richest countries of the world, with enormous
advantages, including half a century of dominance and tutelage by the United
States with benign intent, which once again just happens to serve the profit
of the few while leaving the majority of people in misery.
The most recent example is Mexico. It was highly praised as a prize
student of the rules of the Washington consensus and offered as a model
for others-as wages collapsed, poverty increased almost as fast as the number
of billionaires, foreign capital flowed in (mostly speculative, or for exploitation
of cheap labor kept under control by the brutal "democracy").
Also familiar is the collapse of the house of cards in December 1994. Today
half the population cannot obtain minimum food requirements, while the man
who controls the corn market remains on the list of Mexico's billionaires,
one category in which the country ranks high.
How Countries Develop
... In the eighteenth century, the differences between the first and
third worlds were far less sharp than they are today. Two obvious questions
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.
What about Eastern Europe? In the fifteenth century, Europe began to
divide, the west developing and the east becoming its service area, the
original third world. The divisions deepened into early in this century,
when Russia extricated itself from the system. Despite Stalin's awesome
atrocities and the terrible destruction of the wars, the Soviet system did
undergo significant industrialization. It is the "second world,"
not part of the third world-or was, until 1989.
We know from the internal record that into the 1960s, Western leaders
feared that Russia's economic growth would inspire "radical nationalism"
elsewhere, and that others too might be stricken by the disease that infected
Russia in 1917, when it became unwilling "to complement the industrial
economies of the West," as a prestigious study group described the
problem of Communism in 1955. The Western invasion of 1918 was therefore
a defensive action to protect "the welfare of the world capitalist
system," threatened by social changes within the service areas. And
so it is described in respected scholarship.
The cold war logic recalls the case of Grenada or Guatemala, though
the scale was so different that the conflict took on a life of its own.
It is not surprising that with the victory of the more powerful antagonist,
traditional patterns are being restored. It should also come as no surprise
that the Pentagon budget remains at cold war levels and is now increasing,
while Washington's international policies have barely changed, more facts
that help us gain some insight into the realities of global order.
... the question of which countries developed, at least one conclusion
seems reasonably clear development has been contingent on freedom from "experiments"
based on the "bad ideas" that were very good ideas for the designers
and their collaborators. That is no guarantee of success, but it does seem
to have been a prerequisite for it.
Let's turn to the second question How did Europe and those who escaped
its control succeed in developing? Part of the answer again seems clear
by radically violating approved free market doctrine. That conclusion holds
from England to the East Asian growth area today, surely including the United
States, the leader in protectionism from its origins.
Standard economic history recognizes that state intervention has played
a central role in economic growth. But its impact is underestimated because
of too narrow a focus. To mention one major omission, the industrial revolution
relied on cheap cotton, mainly from the United States. It was kept cheap
and available not by market forces, but by elimination of the indigenous
population and slavery. There were of course other cotton producers. Prominent
among them was India. Its resources flowed to England, while its own advanced
textile industry was destroyed by British protectionism and force. Another
case is Egypt, which took steps toward development at the same time as the
United States but was blocked by British force, on the quite explicit grounds
that Britain would not tolerate independent development in that region.
New England, in contrast, was able to follow the path of the mother country,
barring cheaper British textiles by very high tariffs as Britain had done
to India. Without such measures, half of the emerging textile industry of
New England would have been destroyed, economic historians estimate, with
large-scale effects on industrial growth generally.
A contemporary analog is the energy on which advanced industrial economies
rely. The "golden age" of postwar development relied on cheap
and abundant oil, kept that way largely by threat or use of force. So matters
continue. A large part of the Pentagon budget is devoted to keeping Middle
East oil prices within a range that the United States and its energy companies
consider appropriate. ... one technical study of the topic ... concludes
that Pentagon expenditures amount to a subsidy of 30 percent of the market
price of oil, demonstrating that "the current view that fossil fuels
are inexpensive is a complete fiction," the author concludes. Estimates
of alleged efficiencies of trade, and conclusions about economic health
and growth, are of limited validity if we ignore many such hidden costs...
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