[Marxism] Noam Chomsky: After the Breakdown of Bretton Woods

[Walter Lippmann <walterlx@xxxxxxxxxxxxx>]

There's so much to think about and focus on in Chomsky's
discussion of the financial crisis, but I'd like here to
focus on the political aspect. Today, the United States 
today is in the final stages of its periodic electoral
spectacle. 

The stark contradiction between the supposed "rights"
which private capital insist on for themselves, above
all the sanctity private property, and everything that
flows from it, and the private domination of contemporary
life, and the social rights which were defined in the 
foundation documents of the United Nations couldn't be 
more stark. 

What's needed more than anything else is to find some
kind of forward-looking manner through which panic-
driven populations of the world can take control over
social life into their own hands. Chomsky helps us to
see the broad parameters of the problem. It certainly
give the lie to Washington's claims that its wars of
aggression and occupation are justified on the basis
of bring "democracy" and "human rights" to the unruly
countries and peoples of the planet. The democracy as
practiced in the United States, of course, cannot be
questions. It's the model to be imposed on everyone
else on earth, universally and absolutely applicable.


Walter Lippmann
Los Angeles, California

============================================================================
In a functioning democratic society, a political campaign would
address such fundamental issues, looking into root causes and cures,
and proposing the means by which people suffering the consequences
can take effective control.
---------------------------------------
The task of financial institutions is to take risks and, if
well-managed, to ensure that potential losses to themselves will be
covered. The emphasis is on "to themselves". Under state capitalist
rules, it is not their business to consider the cost to others - the
"externalities" of decent survival - if their practices lead to
financial crisis, as they regularly do.
--------------------------------------
Investors and lenders can "vote" by capital flight, attacks on
currencies and other devices offered by financial liberalisation.
That is one reason why the Bretton Woods system established by the
United States and Britain after the second World War instituted
capital controls and regulated currencies.*
--------------------------------------
in the neoliberal phase after the breakdown of the Bretton Woods
system in the 1970s, the US treasury now regards free capital
mobility as a "fundamental right", unlike such alleged "rights" as
those guaranteed by the Universal Declaration of Human Rights:
health, education, decent employment, security and other rights that
the Reagan and Bush administrations have dismissed as "letters to
Santa Claus", "preposterous", mere "myths".
============================================================================

After the Breakdown of Bretton Woods
Exposing the Un-Democratic Face of Capitalism
By NOAM CHOMSKY

http://www.counterpunch.org/chomsky10122008.html

The simultaneous unfolding of the US presidential campaign and unraveling of
the financial markets presents one of those occasions where the political
and economic systems starkly reveal their nature.

Passion about the campaign may not be universally shared but almost
everybody can feel the anxiety from the foreclosure of a million homes, and
concerns about jobs, savings and healthcare at risk.

The initial Bush proposals to deal with the crisis so reeked of
totalitarianism that they were quickly modified. Under intense lobbyist
pressure, they were reshaped as "a clear win for the largest institutions in
the system . . . a way of dumping assets without having to fail or close",
as described by James Rickards, who negotiated the federal bailout for the
hedge fund Long Term Capital Management in 1998, reminding us that we are
treading familiar turf. The immediate origins of the current meltdown lie in
the collapse of the housing bubble supervised by Federal Reserve chairman
Alan Greenspan, which sustained the struggling economy through the Bush
years by debt-based consumer spending along with borrowing from abroad. But
the roots are deeper. In part they lie in the triumph of financial
liberalisation in the past 30 years - that is, freeing the markets as much
as possible from government regulation.

These steps predictably increased the frequency and depth of severe
reversals, which now threaten to bring about the worst crisis since the
Great Depression.

Also predictably, the narrow sectors that reaped enormous profits from
liberalisation are calling for massive state intervention to rescue
collapsing financial institutions.

Such interventionism is a regular feature of state capitalism, though the
scale today is unusual. A study by international economists Winfried Ruigrok
and Rob van Tulder 15 years ago found that at least 20 companies in the
Fortune 100 would not have survived if they had not been saved by their
respective governments, and that many of the rest gained substantially by
demanding that governments "socialise their losses," as in today's
taxpayer-financed bailout. Such government intervention "has been the rule
rather than the exception over the past two centuries", they conclude.

In a functioning democratic society, a political campaign would address such
fundamental issues, looking into root causes and cures, and proposing the
means by which people suffering the consequences can take effective control.

The financial market "underprices risk" and is "systematically inefficient",
as economists John Eatwell and Lance Taylor wrote a decade ago, warning of
the extreme dangers of financial liberalisation and reviewing the
substantial costs already incurred - and proposing solutions, which have
been ignored. One factor is failure to calculate the costs to those who do
not participate in transactions. These "externalities" can be huge. Ignoring
systemic risk leads to more risk-taking than would take place in an
efficient economy, even by the narrowest measures.

The task of financial institutions is to take risks and, if well-managed, to
ensure that potential losses to themselves will be covered. The emphasis is
on "to themselves". Under state capitalist rules, it is not their business
to consider the cost to others - the "externalities" of decent survival
- if
their practices lead to financial crisis, as they regularly do.

Financial liberalisation has effects well beyond the economy. It has long
been understood that it is a powerful weapon against democracy. Free capital
movement creates what some have called a "virtual parliament" of investors
and lenders, who closely monitor government programmes and "vote" against
them if they are considered irrational: for the benefit of people, rather
than concentrated private power.

Investors and lenders can "vote" by capital flight, attacks on currencies
and other devices offered by financial liberalisation. That is one reason
why the Bretton Woods system established by the United States and Britain
after the second World War instituted capital controls and regulated
currencies.*

The Great Depression and the war had aroused powerful radical democratic
currents, ranging from the anti-fascist resistance to working class
organisation. These pressures made it necessary to permit social democratic
policies. The Bretton Woods system was designed in part to create a space
for government action responding to public will - for some measure of
democracy.

John Maynard Keynes, the British negotiator, considered the most important
achievement of Bretton Woods to be the establishment of the right of
governments to restrict capital movement.

In dramatic contrast, in the neoliberal phase after the breakdown of the
Bretton Woods system in the 1970s, the US treasury now regards free capital
mobility as a "fundamental right", unlike such alleged "rights"
as those
guaranteed by the Universal Declaration of Human Rights: health, education,
decent employment, security and other rights that the Reagan and Bush
administrations have dismissed as "letters to Santa Claus", "preposterous",
mere "myths".

In earlier years, the public had not been much of a problem. The reasons are
reviewed by Barry Eichengreen in his standard scholarly history of the
international monetary system. He explains that in the 19th century,
governments had not yet been "politicised by universal male suffrage and the
rise of trade unionism and parliamentary labour parties". Therefore, the
severe costs imposed by the virtual parliament could be transferred to the
general population.

But with the radicalisation of the general public during the Great
Depression and the anti-fascist war, that luxury was no longer available to
private power and wealth. Hence in the Bretton Woods system, "limits on
capital mobility substituted for limits on democracy as a source of
insulation from market pressures".

The obvious corollary is that after the dismantling of the postwar system,
democracy is restricted. It has therefore become necessary to control and
marginalise the public in some fashion, processes particularly evident in
the more business-run societies like the United States. The management of
electoral extravaganzas by the public relations industry is one
illustration.

"Politics is the shadow cast on society by big business," concluded
America's leading 20th century social philosopher John Dewey, and will
remain so as long as power resides in "business for private profit through
private control of banking, land, industry, reinforced by command of the
press, press agents and other means of publicity and propaganda".

The United States effectively has a one-party system, the business party,
with two factions, Republicans and Democrats. There are differences between
them. In his study Unequal Democracy: The Political Economy of the New
Gilded Age, Larry Bartels shows that during the past six decades "real
incomes of middle-class families have grown twice as fast under Democrats as
they have under Republicans, while the real incomes of working-poor families
have grown six times as fast under Democrats as they have under
Republicans".

Differences can be detected in the current election as well. Voters should
consider them, but without illusions about the political parties, and with
the recognition that consistently over the centuries, progressive
legislation and social welfare have been won by popular struggles, not gifts
from above.

Those struggles follow a cycle of success and setback. They must be waged
every day, not just once every four years, always with the goal of creating
a genuinely responsive democratic society, from the voting booth to the
workplace.

Note

* The Bretton Woods system of global financial management was created by 730
delegates from all 44 Allied second World War nations who attended a
UN-hosted Monetary and Financial Conference at the Mount Washington Hotel in
Bretton Woods in New Hampshire in 1944.

Bretton Woods, which collapsed in 1971, was the system of rules,
institutions, and procedures that regulated the international monetary
system, under which were set up the International Bank for Reconstruction
and Development (IBRD) (now one of five institutions in the World Bank
Group) and the International Monetary Fund (IMF), which came into effect in
1945.

The chief feature of Bretton Woods was an obligation for each country to
adopt a monetary policy that maintained the exchange rate of its currency
within a fixed value.

The system collapsed when the US suspended convertibility from dollars to
gold. This created the unique situation whereby the US dollar became the
"reserve currency" for the other countries within Bretton Woods.

This column originally appeared in the Irish Times.


=========================================
     WALTER LIPPMANN
     Los Angeles, California
     Editor-in-Chief, CubaNews
     http://groups.yahoo.com/group/CubaNews/
     "Cuba - Un ParaÃso bajo el bloqueo"
=========================================

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