Chalmers Johnson - The Sorrows of Empire - Militarism, Secrecy, and the End of the Republic

Prior to September 11,2001, three other major developments occurred to further discredit globalization. In March 2000, the Meltzer Report, mandated by the U.S. Congress, concluded that the IMF had “institutionalized economic stagnation” and that the World Bank was “irrelevant rather than central to the goal of eliminating global poverty.” Several years earlier, the U.S. Treasury had asked Congress to increase U.S. guarantees to the IMF by $18 billion. In light of the developmental disasters then occurring in East Asia, Brazil, and Russia, Congress set up an International Financial Institutions Advisory Commission to investigate the records of the IMF and the World Bank, under the chairmanship of neoconservative Alan Meltzer of Carnegie Mellon University and the American Enterprise Institute. The findings of the “Meltzer Report” were already common knowledge in the Third World, but this was the first time they were put forth by a reputable figure within the Washington consensus. Meltzer wrote, “Both institutions are driven to a great extent by the interests of key political and economic institutions in the Group of Seven (G7) countries—particularly, in the case of the IMF, the U.S. government, and U.S. financial interests.” When it came to addressing its avowed goal of eliminating global poverty, the World Bank’s performance, he concluded, was “miserable.” 40

Soon after, Argentina’s economy collapsed disastrously, further evidence of IMF and World Bank incompetence. Argentina had faithfully followed the free-market ideas of neoliberalism and the prescriptions of the IMF, even selling off its banking sector to foreigners, who, by 1998, owned 80 percent of the country’s banks, and pegging the peso at parity to the value of the dollar, meaning that one peso was worth one dollar and both currencies circulated freely in the country. By 2002, Argentina held the unenviable record of having accumulated the largest amount of public debt by any single country in history—some $160 billion. 41Its national income shrank by nearly two-thirds in the space of a year; more than half of its largely middle-class population found itself living below the poverty line; and no politician of any orientation dared appear on the streets for fear of public lynching.

The IMF agreed to help the Argentine government meet its debt service payments and then made exactly the same mistake it had in 1997 in East Asia. As a condition for its loans, it demanded an austerity budget that involved firing large numbers of government workers, cutting pensions, reducing wages, and eliminating fringe benefits. Rioting and a fierce police reaction brought the country to a standstill. In December 2000, the IMF provided nearly $40 billion to Argentina on the condition that the government continue to pay foreign debts by intensifying its squeeze on the poorest elements of the society. No government could meet these terms and avoid revolution. Argentina went through five governments and six economic ministers in fourteen months, but the IMF decided that the country was still not being tough enough and was, in any case, of little strategic importance to the United States. It therefore pulled the plug and refused to supply any more loans. Double-digit monthly inflation resulted, the peso fell in value by 220 percent, and social order collapsed. Argentina, once the most prosperous country in Latin America, became a basket case—thanks to neoliberalism, globalization, and the IMF.

The third event that helped discredit globalization was the disclosure of major malfeasance at Enron and other multinational corporations based in the United States. When the agents of globalization, the corporations themselves, are revealed as criminal conspiracies to defraud both their customers and their own employees and their governments, not just the practice but the whole idea of globalization becomes farcical. Evidence that this might be the case was already accumulating in the months leading up to September 11. After the attacks, when the United States shifted decisively from economic to military imperialism, globalization stood revealed in all its predatory nakedness.

Following 9/11, munitions and war profiteering replaced the blatantly illegal or crony capitalism deals of the late 1990s as the best way for politically well-connected capitalists to make money. The military-industrial complex and its protector, the Pentagon, have always played powerful roles in the post-World War II economy, but after 9/11 they became the economy’s stars. Arms manufacturing, however, does not follow the rules of globalization. Normally it has only one customer and is not subject to market discipline. Risks of profit and loss are simply not taken into account by governments when national security is an issue. Munitions making is an example not of “free enterprise” but instead of state socialism.

The United States is officially and explicitly opposed to “industrial policy,” which is said to subvert the free market in order to produce a governmentally desired outcome. Anathema to orthodox Anglo-American economics, industrial policy is outlawed by the WTO under provisions addressing nontariff barriers to trade. There is, however, a glaring exception to this rule—the production and sales of weapons. The United States has long run one of the world’s most highly developed industrial policies through its defense sector. It is illegal, for example, for the United States openly to subsidize Boeing’s 747 jumbo jets for export (as the European Union does for Airbus’s airliners), but the government has found numerous ways around this restriction, for decades financing technological innovation in universities and enterprises under the cover of national defense needs. Foreign military sales are often financed by Pentagon loans and concessions, and the privatization of numerous activities formerly performed by the armed forces serves the interests of privately owned companies. Given recent trends toward militarism, the United States has become a de facto industrial-policy superpower.

The original GATT Treaty of 1947 treated military subsidies as different from all others under a “national security exception” that became part of every trade treaty negotiated since then. This exception allows states to underwrite production, promote sales, and impose trade embargoes if they do so in the name of national security. Moreover, all structural adjustment programs of the IMF and World Bank include a security exception. This means that although the IMF may impose an austerity budget on a country seeking an emergency loan, it permits the purchase of weapons from a foreign power, usually the United States, even as jobs and health benefits are being slashed. In 1997, when South Korea buckled under its burden of debt, the IMF suggested that it suspend buying military equipment until it had recovered, but the U.S. government overruled this directive. Similarly, Turkey has for years relied on IMF loans to keep its financial system functioning while it has sheltered some 14 percent of its gross domestic product from IMF-required reductions by putting the endangered expenditures into its military budget.

In 1993, the Clinton administration came up with a great new corporate welfare idea—giving defense contractors tax breaks if they would merge into bigger, more diversified agglomerations. For example, the Pentagon supplied the Lockheed Aircraft Corporation and Martin Marietta with $1.2 billion in tax relief when in 1995 they merged to form Lockheed Martin, the world’s largest weapons manufacturer. Similarly, after the Cold War ended, Boeing began to move away from arms production—until the tax breaks were announced. Then it reversed course, bought up McDonnell Douglas and parts of Rockwell International, and became one of the world’s largest arms exporters.

A further expansion of the military economy is made possible by interpreting the war on drugs as an element of national security. While the U.S. Export Import Bank is prohibited from financing military sales, an exception is made if the weapons are to be used in drug interdiction. The bank has therefore been a prime financier of Sikorsky’s sale of nineteen Black Hawk helicopters to Colombia, allegedly to be used in its drug war. In 1996, in order to get around the remaining restrictions on lending Ex-Im Bank funds for military purchases, the government went a step further and created a new agency called the Defense Export Loan Guarantee Fund. It disbursed nearly $8 billion to U.S. companies in its first year of operations. 42