Debt, Drugs and Democracy: An Interview with Noam Chomsky
Mendonça, María Luisa
In the Third World, the overwhelming majority of the population had nothing to do with all the borrowing. They got no gains from it-in fact they were probably harmed by it-so why should...
...By this standard, there is very little Third World debt...
...Iraq was an ally-Saddam Hussein was an ally and a friend...
...This brings up other problems...
...Privatization plays a key role within this system...
...Treasury John Maynard ynes (right) and U.S...
...It would mean that people in workplaces and communities would control everything that's involved in their lives, including the productive apparatus, commerce, planning for the future, distribution of resources and so on...
...And that extends to everything from relations within the family to the organization of global society...
...Well, there's nothing surprising about that...
...It argued that the reason is that Mexico is a dictatorship, and therefore they can force the population to accept the outside rules...
...In a Third World country there's a lot of superfluous people, like street children in Rio...
...Since liberalization of capital started about 25 years ago, the whole international economy has declined seriously...
...So, if the Russians are coming, then people are scared, and they are obedient...
...And then it had the following interesting phrase: It said the forces have to be aimed at the Middle East, where the threats to our interests "could not be laid at the Kremlin's door...
...This means that we accept that it's no longer the Russian threat, but the threat of radical nationalism...
...The United States is purportedly a civilized country, so you throw them into jail...
...In contrast, in East Asia, in the last 30 or 40 years, the imports have been capital goods designed to construct an economy...
...What are the mechanisms through which these countries become increasingly dependent on international financial institutions...
...It basically follows U.S...
...The Jesuits who were killed in El Salvador were dissidents who were the voice of the poor, so you kill them...
...Then the article said, "Well, look at Brazil-here we're going to have some problems...
...From the time of colonization, Latin American countries have not been able to control their own wealthy classes...
...Patriarchal families are a form of authority and subordination which I don't think are good for anybody, and, I think people wouldn't want if they had a choice...
...How do you see this problem, given that one of the IMF's most important forms of control when giving a loan is to impose conditions such as the privatization of national industries...
...In fact the large majority of the population of Brazil didn't have anything to do with the debt, but they're being asked to pay it...
...First of all we must understand that the United States itself is becoming a kind of Third World society-albeit a very rich one...
...It said that Mexico is an "economic miracle"-the numbers all look fine, the macroeconomic statistics are great, the growth rate is going up, inflation is down-just perfect, they're following all the rules...
...That's ridiculous...
...So the problem was just those people of the region who don't understand that their resources and wealth have to go to us...
...Just as with the British in India-they didn't run the country with British troops...
...power than it was in the past...
...In Latin America, there are imports-but they tend to be luxury imports for a small group of wealthy elites...
...That keeps the general population under control...
...What forms of control does the United States use today compared with the Cold War period...
...In a recent book, economist Barry Eichengreen points out that in the late nineteenth and early twentieth centuries, the flow of capital investment and trade relative to the economy was not very different from what it is today...
...So, a goal of the social policies of the past 25 years has been to create a small sector of extreme wealth and a large mass of people who are somewhere between getting by and misery-that's a typical Third World structure...
...They set policy...
...You've got to live with it...
...If they are overcome, then Latin America as a whole could just refuse to pay the debt, just as the United States refused to pay Cuba's debt to Spain...
...The United States has nothing against Islamic fundamentalism per se-after all, one of the leading U.S...
...The arbitrator, Chief Justice of the United States Supreme Court and former President William Howard Taft, ruled against England-then the responsible authority for Canada-in favor of Costa Rica on the grounds that the debt had been imposed on the Costa Ricans under unfair conditions of power, and therefore had no legal standing...
...It was just the imposition of these larger socio-economic structures...
...And it has another e, but one way is effect: You frighten everyone else...
...But that goes right back to socio-economic structures in which a tiny sector has enormous control over land and other resources, and in a rich country, much of the population is starving and living in extreme poverty...
...So gains are high in a market system if the risks are high...
...What about the drug war...
...A more democratic society won't accept it, and therefore the reforms can't be so easily imposed...
...Guatemala and Central America were Cold War battle fronts...
...When Brazil was the darling of the international investors, Brazil's generals said, "The economy is doing fine-it's just the people who aren't...
...People invest in Third World countries because the yields are very high...
...These assets were developed by local working people and industrialists and now they'll be picked up and owned by Merrill Lynch and others at very low cost because the Asian economies are in collapse...
...The people who invest-they don't accept the risk, because they transfer it to their own populations...
...The U.S...
...So what did they do...
...Controlling the population in the United States is a big problem...
...They had nothing to do with borrowing it, they got no gains from it-in fact, they may even have been harmed by it-so why should they pay it...
...According to Eichengreen, things changed in the twentieth century...
...He wasn't an Islamic fundamentalist...
...The United States tries to enforce these socio-economic relations as outlined in the Charter for the Americas and numerous other internal documents...
...There's a huge intervention system that goes from the Pacific to the Azores aimed at the Middle East, and that is to be maintained...
...They don't pay taxes and they don't have responsibilities...
...policies toward Latin America were articulated quite clearly in 1945...
...There's a picture of Archbishop Romero over there...
...We can't overlook power relations-they exist...
...That's the point...
...There were also restrictions on capital flight-and there were good reasons for that...
...Private investors make enormous profits from very risky investments, but then, through the international financial institutions, they essentially have free "risk insurance...
...If a government is "irrational" -if it decides to do things for the general population instead of for foreign investors, say, as Itamar Franco was trying to do when he refused to pay his state's debt to Brazil's central government-onomist and honorary advisor to the U.K...
...That's how Cuba could survive...
...With that space for independence gone, the Third World is much more subject to U.S...
...So the point of the liberalization of capital and its effect is to diminish democratic control everywhere and to undermine social programs...
...That's the point of liberalization...
...Take Colombia-the most violent spot in Latin America at the moment...
...Not the peasants, not the working people...
...Brazil is more disorderly, it's more democratic, people don't automatically follow the rules because they're forced to do so by violent means...
...There was essentially no Cold War issue...
...In the United States, it has a dual effect...
...Let's take the Brazilian debt...
...Every year, the White House presents Congress with a glossy propaganda pamphlet explaining why you have to have a huge Pentagon budget, and Congress passes it...
...It was more or less a regional actor...
...The debt is an ideological construction...
...Recently, Guatemala has been prominent in the news because of the release of the report of the UN Commission for Historical Clarification...
...But today countries don't owe money to a particular country...
...Say I borrow money Maria Luisa Mendonqa coordinates the Brazil Program at Global Exchange...
...So the space for independence is gone, which means the Third World is much more sub29REPORT ON GLOBAL FINANCE fickers, Islamic fundamentalists, and so on-whoever you want...
...In fact, religious fundamentalism is probably more extreme in the United States than in Iran, so it can't be fundamentalism that's the problem...
...It's not as serious for the latter because they're richer, but they're still being robbed...
...To say that Cuba was involved is like saying that Eastern Europe was a Cold War battle front because Luxembourg was supporting the opposition...
...With regard to the Western Hemisphere, the idea was very explicit: We're finally going to implement the Monroe Doctrine...
...And it's the predictable-and surely the intended-effect of liberalization of capital flows...
...There are two Vol XXXIII, No JuLY/AuGusT 1999 25 itary dictators, some landowners and the super-rich...
...The article went on to ask, "How come Mexico has been so well behaved...
...This also means that in Latin America, for example, for the moment military intervention and military coups are not as necessary...
...policy, which is not that different from England's or France's or Germany's...
...It was understood that the liberalization of capital flows harms the economy...
...Union eliminates the space for non-alignment...
...That's when the new world order was being created...
...There was an interesting article about this in The Wall Street Journal a couple of days ago comparing Mexico and Brazil...
...It has nothing to do with the availability of drugs, but that's not what it's for...
...Well, that's gone...
...This is what's happening in Mexico-transferring the pain to the general population to secure high profits for investors and local elites...
...It socializes risk by paying off investors and transferring the cost of bad investments to taxpayers in rich countries...
...What, then, are the consequences for democracy...
...allies is Saudi Arabia, the most It's hard to get declining incom to keep them fr and drugs do t "success" of thi extreme Islamic fundamentalist state in the world...
...That, he says, is the basic reason that Bretton Woods was constructed as it was...
...They did at one time-in the good old days under the generals--but now it's not working so well...
...been the policy for 50 years...
...The cooperation of Latin American elites is a key element...
...That's just not true in Latin America...
...That's like you being asked to pay if I spent my money somewhere else and couldn't pay it back...
...It's serving other purposes, and serving them pretty well...
...And this holds true throughout the continent...
...Latin America is completely different in consumption patterns than East Asia...
...So, it said, maybe Brazil is going to be a harder problem to deal with than Mexico...
...So, new enemies have to be concocted: international terrorists, Hispanic narcotrafVoL XXXIII, No 1 JULY/AuGUST 1999 With the collapse of the Soviet Union, Third World countries could no longer play one superpower off against the other...
...It doesn't make any sense...
...It's not the Russians...
...That's the source of the problems...
...And, in fact, liberalization of capital played a big role in that...
...The IMF socializes the risk...
...They're all oriented toward the outside, so the infrastructure and the culture and the imports and everything else are all separated and related to the imperial powers...
...So was Indonesia, the largest (mostly) Islamic state, as long as the corrupt and murderous dictatorship was maintaining control...
...The wealthy in East Asia have responsibilities...
...South Korea, which was a very successful economy-not a pretty place, but a successful economywas compelled to liberalize capital flows in the early 1990s and within a few years this caused it to collapse, as we would expect...
...By gross measures, globalization is about back to what it was before World War I. But of course there are big differences...
...Other cases have actually come to international arbitration...
...Every time you carried out an atrocity you could say, "Oh well-Cold War...
...The structure of the system is such that the people who borrowed don't have to pay-they socialize it by making the population pay, even though the population didn't borrow the money...
...There is capital flow by the wealthy to outside...
...Governments had to impose financial controls and regulations to compensate for the fact that countries that had become wealthy and industrialized had become more democratic...
...from you, and I put the money in a Swiss bank, or I buy a Mercedes, and then my creditors come and I tell them, "I'm sorry-I have no money...
...Sure, that's going to lead to violence...
...investors...
...Why does it follow all the IMF policies which lead to these effects...
...She is the co-author, with Medea Benjamin, of Benedita da Silva: An Afro-Brazilian Woman's Story of Politics and Love (Food First, 1997...
...You pay it...
...Who were they killing...
...So, for example, Brazil would be allowed to pursue what they called "complementary development," but not competitive development...
...Latin America is a classic example of this and it has been for a long time, especially in the most violent parts of Latin America...
...There is no way to impose Mexican-style reforms, in which most of the population suffers so that foreign investors can get paid off, except by some kind of force, and that's just the problem that Brazil is now facing...
...The way this worked can be seen in the way the United States dealt with Guatemala...
...In Brazil, they can be killed...
...The United States opposed state control of industry, fearing it might be responsive to public interests...
...That's the way market systems work-through the socialization of risk and through the socialization of cost, with the IMF acting as "the credit community's enforcer," as Lissakers puts it...
...Under existing power relations, there's just no option but paying this illegitimate debt, which is not a debt-it's robbery, basically...
...It's in Latin America...
...Sometimes you have to accept robbery, and that is what's happened with Third World debt...
...When the United States "liberated Cuba" in 1898-meaning, prevented Cuba from liberating itself-it cancelled Cuba's debt to Spain on the grounds that it was an odious debt because it had been forced on Cuba by the relations of subordination and power to which it was subject, and therefore had no legal standing...
...Crime States is one of the very :hat...
...The right approach is to question the people with the figurative gun-the rich countries...
...But the interaction between countries has been very limited and in a large country like Brazil, there aren't even well-developed connections within the country...
...Parliamentary Labor parties and unions emerged, the franchise was expanded, and countries became more democratic, so governments could no longer impose financial rectitude on a helpless population...
...In Colombia there is limpieza social, or social cleansing--a euphemism for killing them...
...Take Guatemala...
...Notice that the problem was not Iraq at that time...
...The whole idea of a debt is an ideological concept having to do with power relations...
...This is quite important...
...Neither at the global level nor at the local level should such arrangements be tolerated...
...How do you see the problem of Third World foreign debt...
...Economic austerity and what is called "financial rectitude" can be imposed on countries if it's done forcibly...
...Big flows of speculation, big outflows, the collapse, and then Western corporations and investment firms come in to pick up the pieces...
...But after World War II, it was clear it was going to take over most of the world...
...We also have to protect what they call the "defense industrial base," a term that means high-tech industry...
...These policies are not being forced on them...
...And it decided it had to knock out of their heads the idea that the people of these countries should be primary beneficiaries of their countries' resources...
...In fact, a good part of the Central American war was a war against the Catholic Church which dared to adopt a "preferential option for the poor...
...government decided it couldn't allow that because the first beneficiaries of the country's resources had to be U.S...
...Let's take Islamic fundamentalism...
...Third World countries could be in between the two powers, playing one off against the other...
...If they don't-if they would prefer to be ruled by slaveowners and dictators-well, then I'm wrong...
...The drug war has had no impact whatsoever on availability of drugs or street prices in the United States, but it has had other effects...
...Every newspaper article says, "Yeah, we made a mistake...
...These things go together...
...In other words, Brazil could develop its steel industry, but not produce anything of high quality such as specialized steel, which the United States was producing...
...They are all connected individually to the external power, to France or England last century and now to the United States...
...But now we'll kick out Britain and France and take the whole thing over ourselves...
...There's nothing novel about this...
...They have nothing to pay...
...And the reason is because of the controls of the virtual senate, the controls provided by ideological constructs like the debt, the liberalization of capital and the imposition of Mexican-style reforms, as is happening in Brazil now...
...If somebody's standing over your head with a gun, you can't say, "That's illegitimate, I refuse to do what you say...
...Latin America was in the pocket of the United States...
...The IMF is a method for paying off investors and transferring the risk to the taxpayers in rich countries...
...The real problem is independent nationalism...
...Of course the CIA coup happened for a reason: to maintain those socio-economic relations...
...the population is suffering bitterly but it's called an "economic miracle...
...We're not worried about them...
...Executive Director of the International Monetary Fund, Karen Lissakers, pointed out several years ago that Washington's principles, "if applied today, would wipe out a substantial part of the Third World indebtedness," because it was imposed under unfair conditions of power and subordination...
...An economist who is now U.S...
...Ec Over the last 20 years, power has been trans- KE ferred to the hands of financial capital, so banks, at investors, speculators and financial institutions in make policy...
...They also said that we have to maintain the intervention forces...
...Take a look at the standard histories of the international financial system...
...It's not just the 1954 U.S.-backed coup...
...So the prison population is going way up, mostly because of drugs-victimless crimes-and it's aiming at the "superfluous people," the people who don't have any role in profit making in this people to accept kind of a society...
...You have said that controlling natural resources is a way to exert control over the population...
...The interesting pamphlet to look at was March 1990, after the Berlin Wall had fallen and the Soviet Union was collapsing...
...The West in general, but particularly the United States, is benefiting from the East Asian economic crisis in that it's able to pick up financial and industrial assets in East Asia that are now on the auction bloc...
...The major U.S...
...That's a strong weapon against democratic control of policymaking in every area, and it's happening more and more...
...Well, the policies continue without change, because the Cold War had almost nothing to do with it...
...If anybody ought to pay it, it's the borrowers...
...They got no gains from it-in fact they were probably harmed by it-so why should they pay...
...It points out that there's only one problem: The population is suffering badly...
...people don't have jobs...
...They sought to control international speculation regulating capital flows and exchange rates...
...They may be ten years from now, but they're not now...
...easy way to pay the debt: Bring the capital back...
...The Cold War was useful ideologically...
...It ensures that policy will be geared toward enriching investors, the holders of financial capital, which becomes more and more speculative, therefore harming the general economy...
...For about ten or 15 years now it's been pretty obvious the Russians aren't coming...
...They ran it with Indian elites who were enriching themselves while the country was falling into disaster...
...The IMF rep- Traders crowd the floor of the Sio Paulo Stock Exchange, the largest resents that policy...
...He was a "voice for the voiceless"-so you kill him...
...The United tightened...
...The same is true of international society, which is ruled by either the direct violence of military forces or the indirect violence of global economic institutions, including the IMF, which serves as "the credit community's enforcer...
...In Latin America, it's a cover for counterinsurgency...
...So the enemy is Brazil getting too sophisticated, so we need a huge Pentagon budget...
...The Brazilian debt, like most of the Latin American debt, is more or less comparable in scale to capital flight...
...In the European Union, the power given to central bankers is overwhelming...
...They're choosing them...
...Another difference, also going back to the colonial period, is that the links between Latin American countries are still very weak...
...They're the ones who have to agree that there's no debt, and they are the ones who can take the gun away...
...It imposed what was called the Charter for the Americas, which banned "economic nationalism"-meaning development along national lines...
...Well, one way to control them is by having a foreign enemy...
...Until World War H, the United States, though it was the richest country in the world, was not a major player on the world scene...
...They more or less correlate: the greater the risk, the greater the gain...
...The liberalization of financial flows by creates what some economists call a "virtual senate": if private investors don't like what some country is doing, they can pull their money out...
...In fact, Central America was no Cold War battle front-there wasn't a Russian in sight...
...That was explicit: This is "our little region over here," which we're going to control...
...To the extent that there is a debt-if you believe in capitalist principles-the debt ought to be paid by the people who borrowed it...
...We can extend his argument to the present: As you now eliminate regulation, you force countries to become less democratic...
...Yes, but that's another form of robbery...
...It's a political problem...
...Many more hours of work-more than any other industrialized society-for stagnating or declining incomes...
...ers-where fear of crime and drugs is used as a method of social control...
...In the United States for the past 25 years, maybe twothirds of the population has seen their incomes stagnate or decline even though they work much harder...
...The debt is largely controlled by financial institutions like the IMF...
...In fact, it's the biggest problem: How do you control your own population...
...The people of that country may not agree that the beneficiaries of their resources have to be in New York and London, and therefore we need intervention forces...
...Now it's, and I'm quoting, "the technological sophistication" of Third World powers-that's the new enemy...
...Treasury Assistant Secretary Harry Dexter White the March 1946 inaugural meeting of the IMF Board of Governors Savannah, Georgia...
...That's the few societies-I don't even know of any othe war on drugs...
...It can't be Islam that's the problem-Saudi Arabia's just fine...
...The Cold War was a pretext...
...The IMF, of course, means the United States...
...It seems to me that the right way to the look at the debt is to say that for the overwhelming majority of the population there is no debt...
...The first thing to bear in mind is that debt is not an economic problem...
...One difference, as he points out, is that investors in the pre-World War I period could be confident that currencies would remain stable because if anything went wrong, the cost of adjustments could be forced on the population...
...Then there's the question of whether that debt even means anything...
...But I don't think that's what people want, so I'd like to see the kind of society that is moving in those directions...
...Something very crucial does change, however, especially for the Third World: The collapse of the Soviet ject to U.S...
...But here it is largely risk-free...
...On the matter of resources, the United States was concerned with what it called the "philosophy of the new nationalism," which it saw as spreading throughVOL XXXIII, No 1 JULY/AUGUST 1999 27REPORT ON GLOBAL FINANCE out Latin America, which holds-I'm now quoting-"that the first beneficiaries of the development of a country's resources should be the people of that country...
...Sometimes it takes the form of Islamic fundamentalism...
...It's relatively egalitarian-not totally so, but much more so than Latin America...
...So, there's an VOL XXXIII, No 1 JuLY/AucusT 1999 25REPORT ON GLOBAL FINANCE forms of robbery going on: The populations in the debtor countries are being robbed blind by austerity programs, while the taxpayers in rich countries are also being robbed...
...They pay taxes, they are not allowed-up until recently, anyway-to export capital, and they're forced by a powerful state to contribute to the development of the society...
...Up until now we couldn't do it, because Britain and France were strong competitors...
...And that, again, is a classical pattern...
...Starvation is getting worse, NACIA REPORT ON THE AMERICAS 26REPORT ON GLOBAL FINANCE The liberalization of financial flows, which has occurred over the past 25 years, creates a "virtual senate"private investors who can pull out their money at any time if they don't like a given country's policies...
...About 20 years later, Costa Rica refused to pay a debt to the Royal Bank of Canada, claiming it was an unfair loan...
...You can no longer play that game...
...And the drug war...
...In this case they are milNACIA REPORT ON THE AMERICAS 24REPORT ON GLOBAL FINANCE The IMF is another form of robbery...
...One crucial part of what the UN Commission pointed out is that Guatemala has been subject to socio-economic arrangements imposed on it by the United States and giant corporations...
...There is a huge propaganda campaign to make people terrified of drugs and terrified of crime-which is a code word for being terrified of blacks and Hispanics and so on, because of the class/race correlations...
...Sometimes it takes the form of the Catholic Church, as in the 1980s when the United States was at war with the Catholic Church in Central America...
...What kind of political and social system would you like to see...
...Whether it was the Soviet Union or Mars-it didn't matter-the existence of some other power left the space for a degree of independence...
...power than it was in the past...
...The poverty rate is going up-it was always terrible but it's getting much worse...
...So, it's not that the drug war is a failure...
...We have to "protect our resources," as George Kennan, the head of the State Department planning staff, put it-referring to "our resources" that happen to be located somewhere else...
...They in effect come to define government policy...
...Unless these internal problems are overcome, there is no way to get rid of that gun-pointing at peoples' heads...
...I think people would want a voluntaristic, anarchist society...
...That's exactly what's happening in East Asia...
...Even the most wild fanatic couldn't claim that the Russians were coming...
...It's hard to get people to accept that, but one way is to keep them frightened, and crime and drugs do that...
...It would extend freedom and democratic choices...
...The legal concept of "odious debt," which is reasonably well-established in international law, states that they don't have to pay...
...If I borrowed it, I have to pay it...
...what do you do with them...
...In other words, the public funds high-tech industry via the Pentagon...
...That is not the way it works...
...But there's a more serious argument, which was clearly articulated at Bretton Woods, that if you allow the free flow of capital, you undermine democracy and the welfare state...
...The other question is: Should debtor countries have to pay at all...
...None of these are credible threats...
...They're enriching themselves...
...NACLA REPORT ON THE AMERICAS 28REPORT ON GLOBAL FINANCE What happens after the Cold War ended...
...But of course, it was the Cold War so what do you expect...
...Furthermore, the United States has nothing against fundamentalism...
...When the Bretton Woods system-the international financial system-was established in the mid-1940s, a fundamental part of it was regulation of financial flows, to keep major currencies within a fixed band close to each other so that there would be no speculation in currencies...
...For years, the intervention forces have been mostly aimed at the Middle East, because that's where the main resources are...
...What happened is that the pretext changed, and it changed very fast...
...in fact, it's a great success...
...The Bush Administration submitted the glossy pamphlet, same as before-we need a huge Pentagon budget, everything's the same-but the pretext had changed...
...Who are the enemies today and how are they being created...
...Every year prior to the collapse of the Soviet bloc it was the same: "The Russians are coming-we need to defend ourselves...
...then it can immediately be punished by pulling out capital...
...I would like to see a system that eliminates hierarchies and authoritarian structures...
...Who borrowed it...
...At a hemispheric conference in Chapultepec, Mexico in February 1945, the United States laid down the law...
Vol. 33 • July 1999 • No. 1
