Untitled Document
While most commentators have in recent months focused on US and Israeli
militarism in the Middle East and South Asia, US capitalism is preparing for
a new offensive domestically and overseas. Three areas are targeted
by the Bush Administration and its Congressional allies: 1)
a renewed effort to privatize social security, reduce social programs such as
Medicare and Medicaid while increasing individual payments, further reduce taxes
on corporations and the rich and state regulatory controls over corporations,
especially the Sarbanes-Oxley Law, in order to ease corporate global financial
transactions, at the risk of small investors; 2) a big push
by US multinational corporations to finance their exploitation and takeovers
of ‘emerging countries’ (Third World) by capturing local savings;
3) a major effort to lower trade and investment barriers –
such as local subsidies and tariffs – for US industrial, financial and
other service corporations while retaining a privileged place for heavily subsidized
US agro-exporters and protected US agro businesses in the domestic market.
The inter-relation of economic empire building – both in terms of control
over overseas markets and enterprises – is closely linked to domestic
policies. Tax cuts for the corporation and rich increase capital for export;
privatized social security adds billions in profits for Wall Street investment
banks; cuts in Medicare and Medicaid and increased fees and co-payments, provides
greater funds to pay wealthy bondholders. The empire grows while the domestic
social economy is impoverished.
Empire Building via Cuts in Entitlement Benefits
The appointment of Hank Paulson, former CEO of Goldman Sachs, the leading Wall
Street investment bank, to head the US Treasury Department is a decisive move
toward re-opening Wall Street’s battle to privatize the trillion dollar
Social Security program.
With Paulson leading the cheering section, Congress ended its summer session
by eliminating the estate tax (inheritance tax) for all but the wealthiest taxpayers,
and extended several business tax breaks (Financial Times August 2, 2006). Clearly
the Treasury Secretary is party to the strategy of forcing a budgetary crisis
by reducing the taxes on the rich and then blaming the costs of the social security
and medical programs upon which the middle and working class depend.
In a plea to Congress, consistent with his Wall Street loyalties, Paulson demanded
that all the public social programs be ‘reformed’ to avoid a looming
deficit, while defending the elimination of inheritance taxes for multi-millionaires
and billionaires. Paulson emphasized that reviving Bush’s failed effort
to privatize social security and reduce Medicare and Medicaid “would be
his first priority”, (Financial Times August 2, 2006 p1). With typical
aplomb and a straight face, Paulson urged Congress to “rise above partisan
differences” by handing over the social security payments to Wall Street
investment houses. In an even more bizarre move, Paulson justified his tax cuts
for the rich and his increase in individual payments for retirees and poor as
a problem of ‘demographics”. “Demographics don’t lie
and demographics aren’t partisan. If left unchecked, these programs would
significantly impair our economic flexibility and erode out competitiveness”
(FT August 2, 2006). The problem is not ‘demographic’ – an
aging problem – but the large-scale, long-term tax cuts which have reduced
government revenue and the Government’s use of Social Security contributions
to fund current deficits incurred because of the decline in inheritance, high
income, capital gains and other progressive taxes. Paulson’s speech at
Columbia University in early August put the privatization of Social Security
“firmly back on the agenda”, claiming he had Bush’s full backing.
It is clear that Paulson ‘sacrificed’ his multi-million dollar salary
at Goldman Sachs and put in ‘trust’ his hundreds of millions in
bonuses and options, not out of civic duty, but to turn over billions of dollars
of Social Security contributions to be ‘managed’ at lucrative fees
by his partners and cohorts in Goldman Sachs, Citibank, JP Morgan and the rest
of ‘his gang’.
His move to ‘reform’ entitlement payments to the poor and elderly
to provide flexibility and competitiveness for big business means essentially
to lower Government outlays to the middle, working and lower classes in order
to further lower taxes for the corporate world and increase government subsidies
for overseas traders and investors. ‘Flexibility’ in this context
means potentially more room to lower corporate taxes, or to move funds from
entitlements to fund payments to bondholders; it also likely means extending
age requirements for retirees and increasing fees for medical care.
Budgetary constraints have nothing to do with ‘demographics’ and
everything to do with fiscal policy. Achieving ‘economic flexibility’
can be accomplished by corporations accepting lower rates of profits, greater
emphasis on public investment in a deteriorating infrastructure, big cuts in
a ballooning public military spending, and above all enforcing tax collection
from evasive billionaires. According to a recent study (Financial Times, August
2, 2006), “abusive tax shelters were costing the US Treasury $40-70 billion
dollars a year in uncollected taxes.” If we add other tax loopholes and
less ‘abusive’ tax shelters, we could easily double the above figure.
One of the biggest tax dodgers uncovered by Congressional investigators is the
billionaire Haim Saban, Chairman of the Los Angeles-based Saban Capital Group
and major contributor to Israeli political action committees (PACs) in this
country as well as numerous Jewish philanthropies. He was accused by a Congressional
sub-committee of “shielding” $1.5 billion dollars from capital gains
taxes ‘ad infinitum’ by using a web of fake stock deals and phony
corporations on the Isle of Man” (ibid). Another billionaire tycoon, Robert
Wood Johnson, heir of the Johnson and Johnson Consumer Corporation was also
charged with using a securities firm to carry out fake stock sales to show losses.
The problem of a looming budget crunch can easily be solved by increasing Government
regulation and audits of the very wealthy rather than the middle and lower third
of our taxpayers. In line with his obfuscation of the revenue side of the budget,
Paulson has moved to weaken the recent increase in government oversight of multi-national
corporations. Paulson has moved to repeal or water down the Sarbanes-Oxley Act,
which imposes tough reporting requirements for corporations. Once more citing
the need “to achieve the right regulatory balance to allow us to be competitive”,
Paulson is pressing Congress to return to the Enron and WorldCom era when CEOs
had greater leeway in cooking the books and fleecing investors and employees.
What is especially important is Paulson’s very direct and prompt intervention
in response to the leaders of investment banking – he acts exactly as
one of them.
With Paulson as the leading economic voice and policymaker in the Bush Administration,
the big push is to cut social programs, lower taxes and turn over Social Security
funds in order to strengthen the expansion of US financial power overseas, both
through acquisitions and mergers as well as by direct majority shares in equities.
Economic Imperialism: Victims Finance their own Exploitation
The new strategy adopted by MNCs in order to acquire overseas enterprises and
to finance investments in foreign markets is by borrowing from local banks.
This has several obvious advantages – including reducing all risk by using
other countries’ savings. According to the Financial Times, “Many
chief executive are looking to use the rapidly maturing local capital markets
in emerging countries to finance their subsidiaries. By borrowing from local
savings in local currencies, the MNC can lower their dollar debt and pay local
creditors with devalued currency if inflation increases and decrease “foreign
exchange risks”. The biggest US financial and non-financial companies,
such as Citigroup and General Electric and financial businesses as well as Volkswagen,
Daimler-Chrysler and Kimberly-Clark borrow ‘locally’. By borrowing
locally the MNCs free capital for acquisitions of local-public and private enterprises.
MNCs on the forefront of empire building have several advantages in pursuing
local financing: it reduces the parent company’s equity exposure, shifting
the risk to local banks and investors; and it lowers the risk of nationalization
because the subsidiary has powerful local bondholders who have clout in local
governments which may be reluctant to confront them. With Paulson freeing up
more capital for big business, and the latter enjoying greater freedom to borrow
risk-free in the Third World, empire building has the material basis to proceed
with greater flexibility and with greater competitive advantages.
Trade Imperialism: Collapse of Doha and the Rise of Mercantilism
Most of the world’s advocates of free trade blame the US for the failure
of the Doha world trade talks. Apart from Washington’s rhetoric calling
for a ‘global free trade’ agreement in the current ‘Doha Round’,
in practice it is pursuing a mercantilist policy of protecting non-competitive
local producers and setting quotas on imports, which compete favorably with
local producers. Washington subsidizes agro-export corporate ‘farmers’
and avidly pushes the rest of the world, particularly Asian, African and Latin
American countries to lower tariffs in manufacturing, services and agriculture
to highly competitive US corporations. The breakdown of Doha trade talks in
late July 2006, was almost unanimously blamed on the US which argued that the
rest of the world should lower their farm import tariffs to US agricultural
products, subsidized to the tune of $19 billion in 2005 (FT, July 25, 2006 p1).
Even the neo-liberal Brazilian President Lula DaSilva, who shares the US position
in reducing farm tariffs, blamed US intransigence on subsidies for the failure
of the trade talks. Washington’s ‘trade reforms’ proposed
at Doha in 2006 actually raise the ceiling for trade distorting subsidies $3.5
billion dollars over actual spending in 2005 (FT July 24, 2006 p5). Washington’s
demand to saturate Asian rice markets, African cotton markets and Latin American
soya markets with heavily subsidized agricultural products thus driving millions
of Third World farmers and peasants into bankruptcy dampened the spirits even
of the most ardent Third World advocates of ‘free markets’. Kamal
Nath, India’s Trade Minister, pithily summed up the problem by saying,
“Indian farmers con compete with US farmers but not with the US Treasury”
(FT July 24, 2006 p5). Washington’s big trading partners in Brazil, India,
China, South Africa and elsewhere have offered to lower or eliminate tariffs
on manufactured goods, services (including high tech, low tech and information-based
industries), financial and banking sectors, retail and wholesale commerce, pharmaceuticals
and other sectors, sign on patent protection codes in exchange for the US ending
its quotas and tariffs on labor-intensive industries, steel, textile and other
light consumer goods industries and eliminating its multi-billion dollar agricultural
subsidies. Washington has rejected a global free trade reciprocity agreement,
and has instead pursued bilateral trade agreement with client regimes willing
to sacrifice local farm and manufacturing producers. For example, Washington
has signed bilateral free trade agreements with Chile and Peru, which are largely
mineral and raw material-exporting countries; it has signed a free trade agreement
with tropical fruit and coffee-exporting Central America and Colombia –
the latter a recipient of over $5 billion dollars in military aid over the past
7 years. Uruguay, another likely free trade partner with Washington, is banking
on selling more beef, mutton and wool and hosting more highly contaminating
paper mills. Mexico is a key ‘free trade’ partner, providing a cheap
labor platform for US assembly plants re-exporting to the US, and exporting
over 20 million low paid ‘temporary’ workers to the US over the
past decade. In addition Mexico has lowered all investment barriers to the US
takeover of its banking, transport, retail trade, fast food, telecommunications
and agro-export sectors and opening its markets to the massive inflow of US-subsidized
agricultural products.
While continuing to formally pursue a global free trade agenda, Washington,
in practice, is building a series of satellite bilateral trade and investment
pacts which extend the US economic empire.
Economic and Military Modes of Empire Building
While world attention has focused largely on Washington’s military interventions
and violent covert operations as the most visible signs of empire building,
they have overlooked the far more successful domestic and overseas economic
strategies designed to enhance the US economic empire. Substantial evidence
exists that US Middle East policymakers did not take account of major multi-national
corporate interests in launching the Afghan and Iraq Wars, and backing the Israeli
invasions of Gaza and Lebanon. The predominant role of civilian militarists
(predominantly Zionists and pro-Israel officials inside the government) and
the multi-headed Jewish Lobby were far more active than oil, or military industrial
manufacturers in designing, planning and propagandizing sequential wars against
Arab and Muslim adversaries of Israel. The adverse consequences of these US
proxy wars, particularly the record oil price has over time pushed the US economy
toward a recession. To compensate for the economically and politically costly
losses resulting from US military expansion and the negative repercussions working
their way through the economy, the Bush Administration has turned away from
previous industry-based Treasury Secretaries to Wall Street’s premier
representative Hank Paulson. His strategy is to work within the militarist parameters
imposed by the neo-conservatives and vigorously pursue a cut and slash policy
on all major social policies, including the privatization of Social Security.
Faced with and conforming to the policy of a huge and growing military budget
and massive tax cuts for the rich, the only option for fueling US overseas economic
expansion is by putting trillions of dollars of Social Security funds under
Wall Street management, slashing government funded Medicare and Medicaid funds,
undercutting corporate legislation facilitating imaginative accounting and overseas
transfers, encouraging US overseas subsidiaries to exploit local savings and
pushing neo-mercantilist bi-lateral trade agreements that allow US subsidized
exporters and investors to take over client regime economies.
Will Paulson, Bush’s closest economic adviser, succeed in expanding the
economic empire while the Pentagon and State Department wage war? There are
several reasons to doubt his success. Bush’s previous effort to privatize
Social Security failed. Although the vast majority of US citizens vehemently
oppose privatization, Paulson will pursue a step-by-step process by which he
may be able to build a ‘bi-partisan’ coalition, especially as a
fiscal crisis resulting from the recession may lower tax revenue and raise the
decibels about doing ‘something’ (cuts) in entitlement programs.
The route of bilateral trade agreements will continue but cannot expect to advance
beyond overt client regimes, especially in Latin America because of mass pressure,
the opposition of Venezuela and the non-reciprocal nature of US liberal trade
reforms (the maintaining of US farm subsidies). If the wars in the Middle East
continue to erode political support for the Bush regime, Paulson’s capacity
to implement regressive social policies will decline. It is hard to imagine
even the US public supporting the privatization of Social Security, cuts in
Medicaid, a growing casualty rate in Iraq and Afghanistan and global diplomatic
isolation for backing the Israeli war machine. One might argue that the economic
empire builders will eventually displace the civilian militarists, the Israel-Firsters
and re-assert a new ideological cocktail of domestic nationalism and overseas
economic expansionism. This is highly unlikely under Paulson’s watch precisely
because he is tied to Wall Street which is par excellence based on international
movements of capital and would be deeply concerned with any variant of ‘nationalism’
which might provoke overseas imitators.
Whether Paulson succeeds in imposing his reactionary agenda to fuel the economic
empire will largely depend on the degree of mobilization of the passive majority
and the degree of popular resistance in the Middle East: together they can undercut
Paulson’s capacity to create a bi-partisan empire-building coalition.
James Petras, a former Professor of Sociology at Binghamton
University, New York, owns a 50 year membership in the class struggle, is an
adviser to the landless and jobless in brazil and argentina and is co-author
of Globalization Unmasked (Zed). His new book with Henry Veltmeyer, Social Movements
and the State: Brazil, Ecuador, Bolivia and Argentina, was published in October
2005. He can be reached at: jpetras @ binghamton.edu
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