Vulgar Libertarianism Watch, Part XVII

Cato Unbound recently promoted an essay by William Easterly, "Why Aid Doesn't Work," as an attempt to to "kick off" a blogospheric "conversation" on the issue.

Implicit in Easterly's essay is the assumption that "globalization" is the result of pro-market policies, rather than state intervention on behalf of transnational corporations:

Economic development happens, not through aid, but through the homegrown efforts of entrepreneurs and social and political reformers. While the West was agonizing over a few tens of billion dollars in aid, the citizens of India and China raised their own incomes by $715 billion by their own efforts in free markets.

Silly me. I thought China had encouraged foreign investment through corporate welfare, like expropriating village land for industrial parks, and sweatshop-friendly labor policies, like forcible suppression of independent labor unions.

Easterly also implicitly assumes that the kind of "structural adjustment" demanded by the Bretton Woods agencies is equivalent to "free market reform":

Dozens of “structural adjustment” loans (aid loans conditional on policy reforms) made to Africa, the former Soviet Union, and Latin America, only to see the failure of both policy reform and economic growth. The evidence suggests that aid results in less democratic and honest government, not more.

In fact, as I've repeatedly argued (see, for example, "The Neoliberal Myth of Small Government"), most of the "reforms" pushed by the IMF and World Bank are just warmed-over state capitalism.

Take so-called "privatization," for example. Here's how Sean Corrigan, a columnist at LewRockwell.Com described the process a few years ago:

Does he [Treasury Secretary O'Neill] not know that the whole IMF-US Treasury carpet-bagging strategy of full-spectrum dominance is based on promoting unproductive government-led indebtedness abroad, at increasingly usurious rates of interest, and then--either before or, more often these days, after, the point of default--bailing out the Western banks who have been the agents provocateurs of this financial Operation Overlord, with newly-minted dollars, to the detriment of the citizenry at home?

Is he not aware that, subsequent to the collapse, these latter-day Reconstructionists must be allowed to swoop and to buy controlling ownership stakes in resources and productive capital made ludicrously cheap by devaluation, or outright monetary collapse?

Does he not understand that he must simultaneously coerce the target nation into sweating its people to churn out export goods in order to service the newly refinanced debt, in addition to piling up excess dollar reserves as a supposed bulwark against future speculative attacks (usually financed by the same Western banks’ lending to their Special Forces colleagues at the macro hedge funds) - thus ensuring the reverse mercantilism of Rubinomics is maintained?

Joseph Stromberg, another Rothbardian free marketer, characterized most privatization as "funny auctions, that amounted to new expropriations by domestic and foreign investors...."

And as Nicholas Hildyard pointed out, the privatization is only nominal. It leaves a larger share of functions under nominally private direction, but operating within a web of protections, advantages and subsidies largely defined by the state:

While the privatisation of state industries and assets has certainly cut down the direct involvement of the state in the production and distribution of many goods and services, the process has been accompanied by new state regulations, subsidies and institutions aimed at introducing and entrenching a "favourable environment" for the newly-privatised industries.

As on the mark as these three critics are, there are a few points I'd add. First, the state assets to be "privatized" are often infrastructure, built with World Bank loans, whose main purpose was to make foreign capital investments profitable. Second, the debt acquired to build that infrastructure is used to blackmail the local government into adopting neoliberal structural adjustment "reforms" that include selling the same infrastructure, to the same politically connected international investors, for pennies on the dollar. Third, to entice foreign capital into buying the assets, the local government often has to spend more money to make them saleable than they get from the proceeds. Fourth, the new owners' first order of business is usually systematic asset-stripping, resulting in far more money than they paid for the "privatized" property. In other words, what we're really talking about is looting.

Easterly, finally, tosses around the generic term "aid" as though it referred mainly to aid to the poor (as Eric Cartman might say, "a bunch of tree-hugging hippie crap"), when in fact the majority of Western foreign aid and loans from multilateral financial bodies has been corporate welfare to Western corporations. The World Bank was created, originally, to subsidize the export of surplus capital. And the majority of its loans have been, as we saw above, for the transportation and utility infrastructure needed to make Western capital investments profitable. According to Gabriel Kolko's 1988 estimate [Confronting the Third World: United States Foreign Policy 1945-1980], almost two thirds of the World Bank's loans since its inception had gone to transportation and power infrastructure. A laudatory Treasury Department report referred to such infrastructure projects (comprising some 48% of lending in FY 1980) as "externalities" to business, and spoke glowingly of the benefits of such projects in promoting the expansion of business into large market areas and the consolidation and commercialization of agriculture [Dept. of the Treasury. United States Participation in the Multilateral Development Banks in the 1980s (GPO, 1982)].


So what kinds of genuinely free market policies could the West undertake to promote prosperity in the Third World? Here are a few, for starters:

1. Western governments should support genuine property rights in the land. That is, they should stop siding with the Latifundistas and other landed oligarchies against land reform, and support strengthening of the peasantry's traditional tenure rights in the land. The history of American foreign policy in the Third World, unfortunately, is pretty accurately symbolized by its intervention on behalf of United Fruit Company in Guatemala: decades of collusion between landlord and general oligarchies, American agribusiness interests, and the U.S. national security establishment. Murray Rothbard, a libertarian considerably less prone than the Catoids to confuse "property rights" and the "free market" with plutocratic interests, acknowledged that most "property rights" in the Third World were really what Thomas Hodgskin called "artificial" and Albert Jay Nock called "law-made" (see "Rothbard on Feudalism and Land Reform") Such property claims, descended largely from state grants of land under colonial regimes, came at the expense of the legitimate property rights of the peasants who had appropriated the land through their own labor.

One reason Third World labor is willing to work in sweatshops as their "best available alternative" is that they've been forcibly deprived of any better alternative. If the countless land expropriations of recent decades had not taken place, if the property rights of peasant cultivators had been upheld against quasi-feudal property rights based on state land grants to absentee landlords, if hundreds of millions of now landless laborers still had independent access to subsistence farming, the bargaining position of labor against Wal-Mart's suppliers would be considerably different. As was the case with the enclosures in Britain, employers find it a lot harder to get cheap labor when workers have independent access to the means of production. Some factual questions were recently raised about Ellennita Muetze Hellmer's JLS article "Establishing Government Accountability in the Anti-Sweatshop Campaign," but that shouldn't obscure the validity of her central point: it's disingenuous for sweatshop employers to congratulate themselves on providing crutches to destitute Third World laborers when they've colluded with government in breaking their legs in the first place.

2. Repudiate international "intellectual property" accords. The central motivation behind the GATT intellectual property regime was to permanently lock in the collective monopoly of advanced production technology by TNCs, and impede the rise of independent competition in the Third World. It would, as Martin Khor wrote, "effectively prevent the diffusion of technology to the Third World, and would tremendously increase monopoly royalties of the TNCs whilst curbing the potential development of Third World technology." The developed world pushed particularly hard to protect industries relying on or producing "generic technologies," and to restrict diffusion of "dual use" technologies. Not to put too fine a point on it, the aim of international "intellectual property" law is to lock the Third World into a permanent status of global sweatshop, hewers of wood and drawers of water for Western capital [Martin Khor, The Uruguay Round and Third World Sovereignty (Penang, Malaysia: Third World Network, 1990); Chakravarthi Raghavan, Recolonization: GATT, the Uruguay Round & the Third World (Penang, Malaysia: Third World Network, 1990)].

3. Replace the phony neoliberal version of "privatization" with the real thing--that is, privatization based on respect for the property rights of the taxpayers whose sweat equity is embodied in the assets. Murray Rothbard argued that state property should be treated as "unowned" in the Lockean sense, and subject to homesteading by those actually mixing their labor with it ["Confiscation and the Homestead Principle," Libertarian Forum June 15, 1969]. In the case of public utilities, that means organizing them either as producers' co-ops under the control of workers' syndicates, or consumer cooperatives owned by the ratepayers. All state property and services should, in some similar fashion, be returned directly to the people. The state has no right to sell, to its favored cronies, property that was originally paid for with money looted from the taxpayers.

4. More generally, the U.S. should abandon the Palmerstonian model of fake "free trade" for the genuine article, as conceived by Cobden. According to Oliver MacDonough ["The Anti-Imperialism of Free Trade," The Economic History Review (Second Series) 14:3 (1962)], the Palmerstonian system was utterly loathed by the Cobdenites. The sort of thing Cobden objected to included the "dispatch of a fleet 'to protect British interests' in Portugal," to the "loan-mongering and debt-collecting operations in which our Government engaged either as principal or agent," and generally, all "intervention on behalf of British creditors overseas" and all forcible opening of foreign markets. Cobden opposed, above all, the confusion of "free trade" with "mere increases of commerce or with the forcible 'opening up' of markets."

Real free trade policy, on the other hand, doesn't require multilateral bureaucracies like the WTO. It simply requires eliminating U.S. trade barriers, and allowing Americans to trade or invest anywhere they want to in the world on whatever terms they can negotiate--provided that they also internalize all costs and risks of doing business overseas, without the U.S. government subsidizing their operating costs, insuring them against nationalization by hostile governments, and suchlike. It's that simple.