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Free trade for a freer world! - What exactly does that mean?
Free Trade is shorthand for a number of economic policies that expand the rights of multi-national corporations and investors to operate in more locations under fewer regulations with less commitment.
These companies and individuals, freed of burdensome government regulations amass great wealth. Wealth that supposedly will filter down through the economy and enrich the poorest.
In fact the result is increased economic inequality both within and between nations, greater economic and political insecurity, poverty and even disease.
The Free Trade policy traces to the end of World War II with the founding of the now dominant global financial institutions, the International Monetary Fund and the World Bank which have been the preferred international economic tools of U.S. presidents for decades.
Harry Dexter White, the mastermind behind the IMF and World Bank was the son of Russian immigrants and was accused of being a communist spy. By 1941 White had become chief international economist of the Treasury.(In 1948 an FBI informant shocked a Federal Grand Jury, when she charged White with passing documents from Federal Agencies to the Soviets.)
In July 1944 President Franklin Roosevelt brought together representatives of 44 governments to Bretton Woods, New Hampshire, for the UN Monetary and Financial Conference. The IMF was the focus of the 1944 Bretton Woods meeting. The objective was "formulation of a definite proposal for an International Monetary Fund and possibly for a bank". Both the IMF and the World Bank are lending institutions. They make loans at more favourable rates than commercial banks. Each institution was created with the central focus on expanding international trade.
The IMF would ensure that economies had stable exchange rates with which to trade. The World Bank would ensure that countries had the necessary infrastructure to facilitate trade. The International Trade Organisation would control the rules of trade. The US multi-national corporations were at the heart of the system.
Although US Treasury Secretary, Henry Morgenthau chaired the US delegation, White was the lead negotiator behind the scenes.
On April 12th 1945 President Roosevelt died and Truman assumed the Presidency. Four months later Congress passed legislation establishing the World Bank and the IMF.
The International Trade Organisation, ITO, never actually came into being because the US Congress refused to ratify it. The basic idea was agreed to by all those present in Bretton Woods - an international institution to write and guide the rules of international trade. It was also agreed that a separate international meeting would be held to work out the details. This meeting, the UN Conference on Trade and Employment, did not take place until 1947 and was held in Savannah, Cuba. It differed significantly from the Bretton Woods meeting, primarily because of those who attended i.e. representatives of 56 nations, almost all of which were developing countries.
While the details of the ITO were being hashed out a general agreement on tariffs and trade (GATT) was established as an interim international negotiating body. After decades of negotiation the ITO was finally agreed on in 1995 and became the World Trade Organisation.
The three Bretton Woods Institutions: the IMF, World Bank and WTO, were let loose on an unsuspecting world. These three have been regarded as the natural course of progress, but in reality they were created by individuals who chose specific policies in order to meet the interests of certain governments and financial players - the US banks and multi-national corporations.
The loudest criticism against the World Bank and the IMF emerged from those countries that would be forced to live under their policies - the developing world.
The United States and Britain amongst other wealthy nations viewed this as a threat. Developing countries also created their own new institutions including the organisation for petroleum exporting countries - OPEC - founded in 1961. The framework for a new global economic architecture that would permit the poor and powerless to achieve parity with the rich and powerful.
In November 1975 the wealthiest nations formed their own block the group of 7 - G7 - the United States, the United Kingdom, Canada, France, Germany, Italy and Japan - eventually joined by Russia - becoming today's G8. Rather than support developing countries' demands for a strengthened UN, the United States chose increasingly to turn its time, money and political attention to the World Bank and IMF. Institutions where it maintained dominant control.
In order to appease developing countries seeking to make the UN the arbiter of development programmes, the United States offered instead new benefits at the World Bank and the IMF including the International Development Association which made soft loans to developing countries i.e. essentially money at better rates.
In 1971 President Nixon took the US dollar off the gold standard. The core function of the IMF as established at Bretton Woods was to manage a system of fixed exchange rates based on the US dollar and the gold standard. The end of the gold standard meant that floating exchange rates replaced fixed rates and that the value of every nation's currency was now determined by the market or by its government not by the dollar, gold or the IMF, thus one of the IMF's core functions was eliminated.
In response the IMF's focus shifted to monitor more aggresively the exchange rate policy.
In 1970 US domestic oil production hit its peak with outputs declining from this point on. The Arab/Israeli war of 1973 came next with the United States throwing its support behind Israel. In response, the Arab nations of OPEC used oil as a weapon by imposing a full oil embargo against the United States in 1973. Oil had officially become a weapon of war.
In 1977 Defence Secretary, Harold Brown, testified before Congress "there is no more serious threat to the long-term security of the United States than the growing deficiency of secure and assured energy resources".
President Carter turned to the World Bank to find more oil and directed the institution to invest in oil for the first time. In fact most of the World Bank's loans were made to nationalised oil companies.
President Reegan's attitude towards the World Bank differed significantly. He used the World Bank to force countries to change their laws so that US corporations could gain direct access to their oil. The British Prime Minister, Margaret Thatcher, followed the same model and the same economic theory underpinning corporate globalisation. i.e. "Greed is good."
In December 1978 the second oil shock hit. An Iranian oil embargo reduced world supplies by almost five per cent and increased prices by 150%. In the United States inflation skyrocketed. In order to avoid defaulting to the bank the developing nations turned to the IMF and World Bank for loans, thereby becoming doubly indebted, first to the private commercial banks and then to international lending institutions.
The increase in World Bank oil exploration projects under President Reegan was monumental. Between 1982-4 the World Bank funded more than 55 oil and gas projects in every corner of the globe in countries as diverse as Bangladesh, Ethiopia, Guinea-Bissau, Guyana, Morocco, Nepal, Pakistan, Papua New Guinea, the Philippines, Senegal and Zambia. When oil was found the World Bank ushered in US oil companies who then laid down their roots and stayed. But oil was not the only source of interest, there were also agricultural products, copper and other ores, timber, labour, capital, land etc., to be had.
Before the 1980s, IMF and World Bank funds had been lent for projects with relatively few strings attached. The developing countries were in debt to both foreign commercial banks and the lending institutions. The banks wanted their money back. Foreign companies wanted access and the developing countries were not in a position to say no. In order to receive loans they now had to adhere to a series of strict conditions that would reduce domestic spending whilst increasing capital available to pay back loans.
The conditions were always the same regardless of the country in question. They all followed the same corporate globalisation model: privatise government industries, eliminate restrictions on foreign ownership, eliminate barriers to trade, eliminate government restrictions on foreign corporations, cut government spending, devalue the nation's currency and focus development on exporting key resources such as oil, minerals, trees and agricultural products.
From the 1980s the policies of the World Bank and the IMF have had serious and often tragic effects on nations like Zambia, Russia, Argentina and South Africa.
The supporters of these economic and military policies are mainly found in the energy sector. In fact the Bush administration is the first time that the President, Vice President and Secretary of State are all former energy company officials.
Oil profits were so high in 2005 that the top three companies, Exxon/Mobil, Chevron and KonocoPhillips earned nearly $64 billion between them. Companies such as Halliburton and Chevron respectively count the Vice-President and Secretary of State as former officials. The Bechtel Corporation, the largest engineering company in the world did extensive work in the oil and gas fields and has exercised influence through its current and past executives including current board member and former company president, George Schultz.
Lockheed Martin the country's largest military contractor and the world's largest arms exporter have also played a lead role with no fewer than 16 past company officials holding positions within the Bush administration.
Each of these companies played a lead role in advocating war against Iraq in 2003 and have since profited greatly. Chevron had its most profitable year earning in 2005 $14 billion. Bechtel's revenue in 2003 $17.4 billion in 2004 Halliburton's stock price quadrupled in value between 2003 - 2006. Vice President Dick Cheney is a stock holder in both Halliburton and Lockheed.
The Bush administration used the military invasion of Iraq to oust its leader, replace its government, implement new economic, political and oil laws and write a new constitution. The new economic laws have transformed Iraq's economy applying some of the most radical, sought-after corporate globalisation policies in the world, overturning existing laws on trade, public services, banking, taxes, agriculture, investment, foreign investment, media and oil and give sweeping advantages to U.S. corporations including greater U.S access and corporate control of Iraq's oil.
Thus they have succeeded in spreading corporate globalisation policy to Iraq, securing both short and long-term profits for U.S. corporations.
Iraq is only the beginning. With the encouragement of Bechtel, Chevron. Halliburton, Lockheed Martin and others, the agenda has expanded to countries across the Middle East. Insulated by oil revenues, the countries of the Middle East have been largely immune from the need to sign Free Trade agreements. The invasion and occupation of Iraq has demonstrated the lengths which will be taken to fulfil its interests.
President Bush reaffirmed the intention to expand Free Trade in his 2005 UN address. Much of which was devoted to the World Trade Organisation's meeting in Hong Kong three months later. Founded in 1995, the WTO, has 148 member governments and is the most powerful institution, writing and enforcing the rules of globalisation. With its headquarters in Geneva it administers agreements on issues as broad as agriculture, telecommunications and services. It monitors the internal laws of its members. Arbitrates disputes between governments over its rules and enforces its rulings through the imposition of sanctions.
Before the WTO, multi-nation trade laws dealt mainly with the movement of goods between countries, primarily tariffs. The WTO continued to regulate these aspects of trade, but went further moving inside countries and regulating their internal laws. Because of its unprecedented reach, the WTO has generated some of the most vigorous opposition of any global institution.
The WTO rules commit nations to subsidise agricultural producers and exporters while denying governments the ability to provide price supports, market protection or subsidise inputs such as fertiliser, seeds or tools to their farmers. The result is that small farmers the world over are undercut by cheaper subsidised products and then pushed off their land into poverty while control of the world's food supply concentrates in the hands of those who are able to export their crops on the world market in other words the ever-shrinking number of giant agricultural corporations.
On September 20th 2001 US trade representative, Robert Zoellick announced that the Bush administration would be "countering terror with trade".
In the name of fighting terror he called for the passage of a series of corporate globalisation agreements including negotiations to expand the WTO and "fast track" authority. "Fast track" refers to legislation that allows the president to move trade bills through Congress quickly over-riding core aspects of the democratic process.
It is clear that the formulation of the Bush agenda is the culmination of decades (even centuries) of work, ideas and planning by a relatively small group of people, who may not agree on everything, but who agree on enough to pool their resources and set out their own rules for governing the world.
"The new rules of globalisation - and the players writing them - focus on integrating global markets and neglect the needs of people that markets cannot meet. The process is concentrating power and marginalising the poor, both countries and people." (United Nations 1999 Human Development Report).
The results of the impact of the economic policies imposed by the World Bank, IMF, and WTO is clearly shown in nations as diverse as Zambia, Russia, Argentina, Mexico, China and South Africa.
On February 18th 2004 the people of Zambia went on nationwide strike. Forty years earlier Zambia became the second wealthiest nation in Saharan Africa. It had a strong manufacturing sector, thriving copper exports and a government that paid a large role in guiding the economy. But the 1973 oil shock brought with it a triple financial burden. First it increased the cost of imported oil. Second it increased the cost of all imported goods. Finally it led to a lower demand for Zambia's key export - copper. As a result Zambia was forced to borrow from foreign donors. Its external debt rose from $814,000,000 in 1970 to $3.2 billion in 1980. Zambia turned to the IMF and the World Bank to pay off the debts.
The World Bank provided $6.6 million in loans for a petroleum exploration programme. In 1982 no oil was found. Between 1983/7 the World Bank and IMF applied a structural adjustment programme. It required several changes in the Zambian economy. All of which were designed to force the government to free as much of its money as possible from domestic spending in order to pay back its loans. The Zambian government was required to eliminate price support for goods such as corn and fertiliser, devalue the currency in order to make exports more attractive on the global market, eliminate its barriers to imports which had been used to protect the domestic industries from foreign competition, reduce government spending by freezing wages.
The results were grim. Local production came to a near standstill because it could not compete with the newly introduced foreign competition.
Under intense public pressure the Zambian government told the IMF and the World Bank that it would not accept this punishment and abandoned the SAPs in 1987.
This experiment lasted a year before the donors rebelled. The IMF and the World Bank's funds were suspended as were the funds from Zambia's international lenders who withdrew their money. Zambia could not face the elimination of all of its foreign loans and was subsequently forced back into line.
The World Bank and the IMF never accept a government-run enterprise. They prefer to see it run by the private sector. Therefore governments must privatise or turn public entities such as drinking and sewage water systems that are owned, operated and/or managed by government over to private entities such as corporations.
At the same time increased trade liberisation meant that Zambia had to reduce tariffs which forced local companies to face global competition. The Zambian textile industry was decimated. Overall manufacturing employment fell by 43% from 1991 to 1998. After the tariff reductions only eight firms remained in 2002. This is an all too common result of corporate globalisation policies the world over.
South Africa - once the most stable state in Africa when the Rand that now hovers at 14 to the pound, was 1.8. All the political hu-ha against apartheid was really no more than a ploy for the bankers to get control of the economy and the government.
The 20-year foreign loan agreements signed by Trevor Manuel, the finance minister, which gave effect to the warship and warplane contracts (for equipment when there are no competent operatives to use it) is a typical third world debt entrapment, which in violation of the Public Finance Management Act have never been referred to Parliament for authority.
On November 9th 1989 the Berlin Wall crumbled. On Christmas Day 1991 the red flag was lowered from the Kremlin and by the end of December the Union of Soviet Socialist Republics was no more
As in Iraq fifteen years later, the oil sector was the most gleaming prize on the Russian horizon. Russia sits on approximately 5% of the world's known oil reserves. Some estimates put the potential reserves as high as 14%. All of this oil was controlled by the State and US oil companies wanted it. The economists saw an opportunity to transfer the world's most renowned State-controlled communist economy into a market-driven capitalist one.
The Freedom Support Act became law in August 1992 and specifically called for a US contribution to the IMF so that the IMF could provide more resources to Russia.
By June lst 1992 Russia was admitted into both the IMF and World Bank. Shortly thereafter the loans started to flow.
In August the Bank released a description of its loan of $760,000,000 to support reforms for the transition to a market economy. The reforms included privatisation and restructuring of state-owned enterprises, promotion of foreign direct investment, pro-competition and anti-monopoly policies, reform of financial institutions and the commercial banking sector.
When it came to actual restructuring the World Bank took a back seat to the IMF. IMF loans to Russia began on August 5th 1992 with $719 million. This increased to over $1 billion a year in both 1993 and 1994 and tripled to just under $3.6 billion in 1995 followed by $2.5 billion in 1996, $1.5 billion in 1997, $4.6 billion in 1998. The year the Russian economy collapsed. The following year Russia received less than half a million from the IMF and was then cut off.
The transformation of the Russian economy was fast and furious. First the IMF required that the Government eliminate all price supports. This sent prices sky-rocketing. Russians quickly spent all their savings, which led to a 520% increase in inflation in the first three months alone. Millions of people saw their life savings/pensions eviscerated virtually over night. The IMF required the government to slam on the monetary and fiscal brakes bringing about a massive depression. Within four years of reform the average income fell by 50%.
Next came rapid mass privatisation. Among the many problems with the forced privatisation was the apparent ignorance about how vertically intergrated the Russian economy was. Thus when one firm closed, others followed. Privatisation led to the elimination of government revenue from its once profitable enterprises . Russian production was not ready to compete with world markets.
From 1992-1998 Russian output declined by more than 40%. Exactly as happened in Zambia, the IMF made the faulty assumption that the Russian government would get its income once derived from its enterprises from taxes. With Russians out of work, there was no one to tax. They had assumed that foreign private investors would rush to buy up Russian businesses, but the companies waited, meantime the government had no income base, neither the privatised companies nor the remaining state-controlled industries were earning income. As a result millions of workers were denied wages and pensions were delayed or non-existent.
While only 2% of the population had lived in poverty even at the end of the dismal Soviet period, reform saw poverty rate soar to almost 50%, with more than half of Russia's children living below the poverty line.
In 1998 Boris Kagarlitsky, a senior research fellow of the Russian Academy of Science, said
"the chief concern of the IMF decision makers was not the success of Russia but the prosperity of the western financial community making a lot of money out of our crisis."
There were of course winners. In this case Russia's well-placed oil and gas magnates, bankers and real estate operatives who stepped in to take advantage of the newly reformed economy. With the re-distributive tools of the government eliminated by the IMF and the World Bank wealth was generated but into whose hands? The Jews?
So where was the foreign investment? Why didn't the West rush in? They did - but only to the oil sector. Halliburton in Azerbaijan, Georgia in Kazakstan and Russia, Chevron in Kazakstan and Russia and Bechtel in Azerbaijan, Georgia, Russia, Kazakstan and Turkmenistan. Other companies aided by the World Bank include Total, Exxon-Mobil and Enron.
The economic policies of the IMF, the World Bank and the US Government implemented in post-Soviet Russia were responsible for Russia's 1998 financial collapse, using the same policies forced on Iraq in the wake of the 2003 invasion. The two countries provide stark parallels both were economies heavily controlled by the government. Both were forced to transition to market-controlled economy virtually over night. Both have been described by American political and economic leaders as experiments to demonstrate that American economic policies can turn round whole regions. Both have a wealth of oil lying just beneath the surface of their soil. Both have been forced to change their laws in order to grant US corporations increased access to their resources.