TOWARD GREATER INEQUALITY

Noam Chomsky

In his column in the New York Times, Anthony Lewis wrote, "Since World War ll, the world has experienced extraordinary growth." Meanwhile, at a meeting in Quito, Ecuador, Juan de Dias Parra, the head of the Latin American Association for Human Rights, said, "In Latin America today, there are 7 million more hungry people, 30 million more illiterate people, 10 million more families without homes, 40 million more unemployed persons than there were 20 years ago. There are 240 million human beings in Latin America without the necessities of life, and this when the region is richer and more stable than ever, according to the way the world sees it." How do you reconcile those two statements?

It just depends on which people you're talking about. The World Bank came out with a study on Latin America which warned that Latin America was facing chaos because of the extraordinarily high level of inequality, which is the highest in the world (and that's after a period of substantial growth). Even the things the World Bank cares about are threatened.

The inequality didn't just come from the heavens. There was a struggle over the course of Latin American development back in the mid-1940s, when the new world order of that day was being crafted.

The State Department documents on this are quite interesting. They said that Latin America was swept by what they called the "philosophy of the new nationalism," which called for increasing production for domestic needs and reducing inequality. The basic principle of this new nationalism was that the people of the country should be the prime beneficiary of the country's resources.

The US was sharply opposed to that and came out with an economic charter for the Americas that called for eliminating economic nationalism (as it's also called) in all of its forms and insisting that Latin American development be "complementary" to US development. That means we'll have the advanced industry and the technology and the peons in Latin America will produce export crops and do some simple operations that they can manage. But they won't develop economically the way we did.

Given the distribution of power, the US of course won. In countries like Brazil, we just took over-Brazil has been almost completely directed by American technocrats for about fifty years. Its enormous resources should make it one of the richest countries in the world, and it's had one of the highest growth rates. But thanks to our influence on Brazil's social and economic system, it's ranked around Albania and Paraguay in quality of life measures, infant mortality and so on.

It's true, as Lewis says, that there's been very substantial growth in the world. At the same time, there's incredible poverty and misery, and that's increased even more.

If you compare the percentage of world income held by the richest 20% and the poorest 20%, the gap has dramatically increased over the past thirty years. Comparing rich countries to poor countries, it's about doubled. Comparing rich people to poor people within countries, it's increased far more and is much sharper. That's the consequence of a particular kind of growth.

Do you think this trend of growth rates and poverty rates increasing simultaneously will continue?

Actually, growth rates have been slowing down a lot; in the past twenty years, they've been roughly half of what they were in the preceding twenty years. This tendency toward lower growth will probably continue.

One cause is the enormous increase in the amount of unregulated, speculative capital. The figures are really astonishing. John Eatwell, one of the leading specialists in finance at Cambridge University, estimates that, in 1970, about 90% of international capital was used for trade and long-term investment-more or less productive things- and 10% for speculation. By 1990, those figures had reversed: 90% for speculation and 10% for trade and long-term investment.

Not only has there been radical change in the nature of unregulated financial capital, but the quantity has grown enormously. According to a recent World Bank estimate, $14 trillion is now moving around the world, about $1 trillion or so of which moves every day.

This huge amount of mostly speculative capital creates pressures for deflationary policies, because what speculative capital wants is low growth and low inflation. It's driving much of the world into a low-growth, low wage equilibrium.

This is a tremendous attack against government efforts to stimulate the economy. Even in the richer societies, it's very difficult; in the poorer societies, it's hopeless. What happened with Clinton's trivial stimulus package was a good indication. It amounted to nothing-$19 billion, but it was shot down instantly.

In the fall of 1993, the Financial Times [of London] trumpeted, "the public sector is in retreat every where." Is that true?

It's largely true, but major parts of the public sector are alive and well-in particular those parts that cater to the interests of the wealthy and the powerful. They're declining some what, but they're still very lively, and they're not going to disappear.

These developments have been going on for about twenty years now. They had to do with major changes in the international economy that became more or less crystallized by the early 1970s. For one thing, US economic hegemony over the world had pretty much ended by then, and Europe and Japan had reemerged as major economic and political powers. The costs of the Vietnam War were very significant for the US economy, and extremely beneficial for its rivals. That tended to shift the world balance.

In any event, by the early 1970s, the US felt that it could no longer sustain its traditional role as-essentially-international banker. (This role was codified in the Bretton Woods agreements at the end of the Second World War, in which currencies were regulated relative to one another, and in which the de facto international currency, the US dollar, was fixed to gold.)

Nixon dismantled the Bretton Woods system around 1970. That led to tremendous growth in unregulated financial capital. That growth was rapidly accelerated by the short term rise in the price of commodities like oil, which led to a huge flow of petrodollars into the international system. Furthermore, the telecommunications revolution made it extremely easy to transfer capital-or, rather, the electronic equivalent of capital-from one place to another.

There's also been a very substantial growth in the internationalization of production. It's now a lot easier than it was to shift production to foreign countries-generally highly repressive ones-where you get much cheaper labor. So a corporate executive who lives in Greenwich, Connecticut and whose corporate and bank headquarters are in New York City can have a factory somewhere in the Third World. The actual banking operations can take place in various offshore regions where you don't have to worry about supervision-you can launder drug money or what ever you feel like doing. This has led to a totally different economy.

With the pressure on corporate profits began in the early 1970s, a big attack launched on the whole social contract that developed through a century of struggle and that had been more or less codified around the end of the Second World War with the New Deal and the European social welfare states. The attack was led by the US and England, and by now has reached continental Europe. It's led to a serious decline in unionization, which carries with it a decline in wages and other forms of protection, and to a very sharp polarization of the society, primarily in the US and Britain (but it's spreading).

Driving in to work this morning, I was listening to the BBC [the British Broadcasting Company, Britain's national broadcasting service]. They reported a new study that found that children living in workhouses a century ago had better nutritional standards than millions of poor children in Britain today.

That's one of the grand achievements of [former British Prime Minister Margaret] Thatcher's revolution. She succeeded in devastating British society and destroying large parts of British manufacturing capacity. England is now one of the poorest countries in Europe-not much above Spain and Portugal, and well below Italy.

The American achievement was rather similar. We're a much richer, more powerful country, so it isn't possible to achieve quite what Britain achieved. But the Reaganites succeeded in driving US wages down so far that we're now the second lowest of the major industrial countries, barely above Britain. Labor costs in Italy are about 20% higher than in the US, and in Germany they're maybe 60% higher.

Along with that goes a deterioration of the general social contract and a breakdown of the kind of public spending that benefits the less privileged. Needless to say, the kind of public spending that benefits the wealthy and the privileged-which is enormous-remains fairly stable.

***

an interview of Noam Chomsky by David Barsamian
from the book Secrets, Lies and Democracy, published in 1994
Odonian Press
Box 32375
Tucson, AZ 85751
tel 602-296-4056 or 800-REALSTORY
fax 602-296-0936

other Noam Chomsky books published by Odonian Press

What Uncle Sam Really Wants
The Prosperous Few and the Restless Many

Secrets, Lies, and Democracy