The Decade of Perpetual Crises,
1969 through the 1970s
Part I

excerpted from the book

Confronting the Third World

United States Foreign Policy 1945-1980

by Gabriel Kolko

Pantheon Books,1988

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The American role in the Third World under Nixon represented a continuation of those of his predecessors save in one important regard, and it more than undercut the initial constraining premises of the original Nixon Doctrine. Nixon was convinced that the Vietnam War could be won as much through a diplomatic offensive to gain Soviet, and later Chinese, cooperation as any other factor, and his unwavering devotion to this strategy even as it was largely failing led the Administration to believe it could also apply this ambitious global effort to resolve innumerable essentially unrelated issues throughout the Third World. More than any other postwar president, Nixon and his devoted assistant Kissinger treated events and movements in the Third World as mere pawns of a giant Cold War struggle, without concern for their local causes or their real autonomy.

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Chile and the End of Illusions

Chile in many regards resembled the other Latin nations seeking to develop economically, and it posed the same problems for the United States as well. Import-substitute strategies had won support from a rural elite as well as urban middle classes that had both blood and business ties to each other, and the state was assigned an important role in implementing them. Unlike Brazil, however, the effort was less successful in this much smaller country, in part because Yankee-owned firms solidly dominated its copper exports, which earned the large majority of its foreign exchange. U.S. relations with Chile, therefore, operated within a context in which American interests conflicted with those of most of the Chilean political parties. Moreover, unlike Brazil, the Left was far more powerful, partially because of one of the most inequitable land distributions in the hemisphere, and in 1958 the Socialist candidate, Salvador Allende Gossens, narrowly missed defeating conservative Jorge Alessandri for the presidency. After Cuba, Chile by the early 1960s was the one Latin nation most likely to break totally with U.S. hegemony.

Chile's upper and middle classes also possessed the ambiguities that marked conservative nationalist reform movements elsewhere, and their addiction to imports essential for their life-style caused post-1955 governments to run up debts and borrow heavily, periodically allowing the IMF to impose austerity programs requiring more emphasis on exports and reduced internal economic development programs. Politically anti-United States, the elite vacillated between collaboration and hostility toward it. Washington, on the other hand, had to weigh its fear of the Left against its opposition to a conservative nationalism that was the most immediate threat to its interests. Chilean-American relations until 1970 reflected all these conflicting crosscurrents.

Chile received far more aid and loans on a per capita basis than any other Latin nation during the decade of the 1960s, most of it as part of an effort to elect Christian Democrat Eduardo Frei in the September 1964 presidential race. The ClA's direct support for his campaign cost three million dollars, though some estimates run far higher. The United States turned to Frei in 1964 at a time when it preferred officers elsewhere primarily because the Chilean military had been relatively apolitical since 1933, proudly contrasting its professionalism to that of its neighbors. At the same time that Washington chose to support Frei as the man most likely to accommodate its interests yet introduce simultaneously sufficient reform to preempt the Left, it also resolved to politicize Chile's officers, especially regarding the Communist threat within Chile itself, and they became the focus of special strategic intelligence courses organized for them in the U.S. Army's Canal Zone training school. Until that transformation occurred, however, Washington was

compelled to rely on civilian politicians-and it was never happy with the results.

Frei became a problem for the United States partially because of his contradictory program, which sought to introduce a measure of reform along with development in the context of collaboration with foreign investment, which he saw as essential as long as copper required export outlets; but Frei's effort to accomplish essentially irreconcilable goals soon increasingly alienated everyone. Two U.S. companies, Anaconda and Kennecott Copper, accounted for 90 percent of Chile's output, and the only way Frei could raise funds for his programs without borrowing was to force up the price of copper and obtain a greater share of its profits. Frei attempted against stout U.S. resistance to increase the price of copper in 1965 by two cents a pound, to thirty-eight cents, and Washington regarded the matter with "most serious concern" and immediately linked future loans and aid to the dispute. In fact Frei wanted greater trade revenues as well as aid, and he guaranteed the United States a hundred thousand tons of copper a year at thirty-six cents a pound even as the world price, under Vietnam War-induced scarcity, reached over twice that. With aid linked to prices, U.S. officials calculated that the savings to U.S. buyers equaled the value of the surplus food it was dumping in Chile. It was not a situation conducive to Frei remaining sympathetic to Yankee advice or interests, yet while his concessions to the United States alienated the radicals in his own party, his impositions on the Americans managed to deepen their mistrust of him, for in his own way, Frei was an economic nationalist.

Frei sought to attain all his social goals without breaking with the United States when he introduced a plan in 1966 to "Chileanize" the copper industry. Essentially an effort to compel the companies to invest and nearly double their output, it increased their revenues along with their taxes. The state purchased a 51 percent interest in the two U.S. firms, but the Americans were permitted to manage them both at home and overseas, a situation that caused their profits to rise astronomically while Chile's income increased sharply also. At the same time, following an economic downturn that began in 1967, the IMF forced an austerity program upon Chile that required a postponement of land reform and alienated both those to Frei's right and left who objected to such kind treatment of U.S. firms while their needs were either being attacked or neglected. Frei's economic program had become confused and inconsistent, still subject to American control, and the elite began to send its money abroad. Even Washington found Frei's support for its Vietnam policy more than offset by his open opposition to it on all Latin issues, ranging from Peru's and Bolivia's measures against U.S. firms to its invasion of the Dominican Republic and diplomatic isolation of Cuba. In 1969 with his party now well to the left of him, Frei tried to return to total nationalization after the Christian Democrats lost heavily in the 1969 congressional elections. It was Frei who nationalized Anaconda in June 1969, but it was too late. The radical wing took over his party.

In 1969 the Nixon Administration was therefore faced with a possible political defeat in Chile regardless of whether the Left, which now emerged as an Allende-led Popular Unity coalition of Socialists, Communists, and others, won or not. Indeed, the White House's hostility toward the Christian Democrats, who nominated Radomiro Tomic for the September 4, 1970, presidential election on a program of total, immediate copper nationalization, was no less intense. It was obvious that it could lose everything unless it could affect the election outcome.

The United States' deep involvement in the 1970 election was later subjected to massive congressional investigations, so a brief outline here is sufficient. While the U.S. private investments of eight hundred million dollars were surely as important as any reason for its efforts, it was by no means the only one. It was wholly impossible for the Nixon Administration to accept either a leftist or a nationalist victory at the polls. The former was the more frightful because of geopolitics, visions of dominos falling throughout the region, credibility, and all the fixations that had long since become conventional wisdom. But it was Tomic, above all, with his Catholic and middle-class backing, who possessed the greatest and therefore the most dangerous appeal for other nationalist parties in the region and who revealed how fundamental America's economic interests were in its overall calculations. The CIA did not think Chile's loss to either would affect the United States' world military position. What was at stake was both economic and psychological, and the White House was prepared to go to great lengths to hold on to Chile.

The United States moved in three directions: first, it sought to influence the election's outcome via money; next, it tried to have Allende assassinated; and last, it attempted to convince the military to overthrow Allende. These efforts were more or less sequential. The first had been employed with Frei and it was a standard procedure throughout the world, while the last two were frequently utilized as well. "There is a gray area between military intervention and formal diplomacy," Kissinger later characterized this effort, "where our democracy is forced to compete against groups inimical to it." Frustrating the outcome of a free election was a common way of doing so.

The U.S. government itself gave money for anti-Allende activity designed to win the election for Alessandri, the Conservative. The sums actually committed were not large, and probably less than went to Frei in 1964. American firms in Chile, led by ITT, also made comparable contributions, but Washington had convinced itself that Alessandri would win and that huge amounts were unnecessary. When Allende won a plurality of votes, a common event in Chile that meant the Congress would elect him to power fifty days later, the infuriated White House then turned to the assassination and coup options.

The murder of Allende was too difficult for the CIA to organize, though they paid money to at least one assassin who managed only to get himself arrested. More serious was its effort to urge the military to take power, a thought it had been cultivating since 1964 and that conformed to American practices elsewhere. Here the main obstacle was the commander in chief of the army, General Rene Schneider, who was a strict constitutionalist and represented the old army traditions. The CIA both armed and paid a small band of rightist officers to kidnap him, and cooperative officers were assured "of continued American military assistance if they moved," in Kissinger's words, to overthrow Allende, but after failing in two efforts, they simply killed Schneider. The United States later claimed it was done without their weapons or authorization, but that it accomplished the task of eliminating a man they thought a major obstruction cannot be denied. Schneider's assassination did not stimulate a coup; rather, those senior officers who had shown interest now pulled back, and an uncontested congressional election made Allende president on October 24. Allende's first major action was to complete the nationalization of all foreign copper companies, a policy Tomic also endorsed. Chile now had a democratically elected Marxist government pledged to create a "republic of the working class." It was the first in the hemisphere's history.

The White House's policy, while it assigned a major role to covert efforts, was essentially to reinforce its relationship to the military and wait for it to act. As long as the military had a monopoly of the arms, the Allende government's freedom to act was sharply constrained. Meanwhile, the United States turned to economic pressures with the goal, as Nixon jotted in his notes, to "make the economy scream." "Not a nut or bolt will be allowed to reach Chile under Allende," the U.S. ambassador had warned Frei. "Once Allende comes to power we shall do all within our power to condemn Chile and the Chileans to utmost deprivation and poverty...."9 A policy of implacable hostility became official policy. All U.S. aid or loans were cut to a trickle, save insofar as they helped the military, and Washington successfully blocked all new official multilateral bank loans as well. Indeed, the training of Chilean officers in the Panama Canal Zone actually increased, and the White House enlarged the CIA station in Chile and spent over eight million dollars on its work until September 1973. Now it moved systematically and did everything from maintaining constant contact with coup plotters, whom it encouraged in every way, to fabricating documents on Cuban control of the police to drawing up arrest lists and the key targets to take when the coup began.

Allende did nothing to create a counterbalance to the military, whom he courted with increased funding and cabinet posts, and the economy suffered from the inevitable reduction of U.S. aid and the inflationary disorder Frei had bequeathed it. Chile got some aid from the Soviet bloc, but it was not sufficient, and when he went to Moscow at the end of 1972 in the hope of obtaining a hard-currency credit of $500 million, the Russians advised him to come to terms with the United States rather than fight it and face disaster- and they then informed Washington of the fact. He attempted to borrow money elsewhere, with only modest results. Yet despite the innumerable difficulties, the new government successfully introduced land reform and basic social programs that helped the masses, and in the March 1973 congressional elections its vote increased from 37 percent in 1970 to 43 percent of the total despite the fact the United States secretly gave $1,428,000 to the opposition. The middle class, above all, suffered most from inflation and reform, and the United States covertly funded their destabilizing transport strikes against the government's policies, generously aiding the militant opposition.

The officers were almost all from middle-class families and deeply distressed over their plight. After the March elections made it clear that the normal political process would not remove the government, the reticence of a portion of them to act melted and the coup began on September 11, 1973, killing Allende within hours and quickly wiping out what little resistance there was Americans knew of every detail of the planned coup, and the carefully adled CIA strategy for an efficient operation was put into practice. A U.S. naval group and air force team quietly positioned nearby in case the progovemment navy reacted was no longer deemed useful and was withdrawn. Meanwhile, at least three thousand people were killed and untold thousands arrested, and interrogation centers employing torture were set up permanently throughout the country."

A brutally repressive regime was essential to America's interests because there was no civilian political option for it to turn to, and Washington had no hesitation in immediately endorsing the new order and aiding it, revealing again its two-decades-long preference for dictators and repressive regimes in the hemisphere. Chile also proved once more that the United States could never gracefully accept the verdict of democratic politics in any nation, where anti-Yankee sentiment was overwhelming for fear of seeing not only its local investments lost but also encouraging anti-United States economic legislation elsewhere in the hemisphere. The coalition ranged against it in Chile was centrist as well as leftist, revealing that the historically dominant hemispheric trend toward nationalist economic strategies certain to constrict, if not exclude, U.S. investment was more vital and dangerous than ever. Indeed, the very nature of this nationalist vision created a hemispheric consensus that was politically still far more widespread and effective, and therefore threatening, than conventional Left ideologies. Had it survived, the Chilean example would have posed an unprecedented, grave challenge to Yankee hegemony.

The Middle East: Toward Protracted Crisis

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It was the United States' decisive tilt toward Israel after 1967 that made possible the USSR's growing leverage in the Middle East, for the Arab nations that Israel threatened most were unable to obtain all the arms that they desired elsewhere. This fact alone greatly complicated America's policy insofar as it believed, as did Kissinger, that its credibility was also involved whenever Soviet weapons in the hands of non-Communists threatened to defeat U.S. arms in the hands of its friends. This expanded credibility doctrine, which the United States applied during the India-Pakistan crisis in 1971, revealed that while the Nixon Administration would pursue a surrogate strategy, it would be quite as ready as its predecessors also to intervene directly in the area, usually confronting the USSR at the same time, and ultimately remain unable to exercise self-control. This dual-track approach toward conflict in the region was not calculated well in advance but was initially a visceral reaction to immediate events. This was first revealed for the Nixon Administration during the Jordanian crisis of September 1970, and it has remained the fundamental, and dangerous, contradiction as well as the premise of U.S. Middle Eastern policy since then.

Since 1968 Nasser had energetically tried to increase Soviet aid and advisers to his nation, and by 1970 had succeeded to a greater extent than ever before. In the summer of 1970, Nasser and King Hussein decided to move against the radical elements of the Palestine Liberation Organization stationed in both their nations but primarily in Jordan. The now familiar tragic imbroglio in the Arab world broke out when Hussein on September 15 began to stamp out the PLO and when Syria sent tanks and troops to protect them. At this point, in constant touch with and supporting Hussein, Washington announced the dispatch of aircraft carriers and other ships into the eastern Mediterranean and alerted its airborne troops. And while Kissinger warned the bewildered Russians that they would be held responsible should their Syrian "client" not withdraw, the United States also urged the Israelis to prepare to invade if required to save Hussein. Israel in turn demanded and got a U.S. promise to intervene should it become the target of a Soviet or an Egyptian attack. Reassured, Israel mobilized, and on September 23 the thoroughly frightened Syrians, probably under Soviet pressure as well, began to leave Jordan. A major war had been averted. And after trying desperately to keep the conflict from escalating, Nasser died of a heart attack on September 28.

The Jordan crisis, coming just as the British were leaving the region, reinforced the United States' commitment to Iran as its principal ally in the Persian Gulf, and while the containment of the Soviet-armed radical Iraqis was Tehran's primary responsibility, it was also to assure that radicals not undermine the Gulf states. This reliance "on the central importance of Iran to the safeguarding of the American . . . interest in the oil region of the Persian Gulf," as President Jimmy Carter's national security adviser later described it, was to continue until 1978, when the Shah's eagerness to spend vast sums on arms and his pro-Americanism led to his undoing and to a historic new challenge to the United States.'

Israel, meanwhile, became the Administration's principal but not exclusive surrogate in the territory immediately surrounding it, and also Hussein's guarantor. But Nasser's death and the emergence of Anwar Sadat as his successor, who expelled all Soviet advisers in July 1972, soon increased America's options. From this point onward, relations with Egypt improved dramatically. Yet until this trend reached its culmination, the White House relied entirely on Israel, whom they began to arm heavily after early 1972. And while neither the president nor Kissinger had ever thought much of Secretary of State William Rogers's December 1969 plan that recognized UN Resolution 242, calling for Israel's withdrawal from occupied territories, they ceased to press it altogether because of Israel's adamant opposition. Israel now exercised a de facto veto on U.S. diplomatic policy in the region as the reward for its obedience in other domains, even though the Administration thought Israel often unreasonable. Washington did not consider the peace process crucial, however, because it persisted in regarding all regional issues as basically aspects of Soviet-American rivalry with few purely local roots, and Kissinger's main goal was to reduce Soviet influence. This was soon to prove a major error, for, as Kissinger was later to confess, the Soviet advisers in Egypt were probably a major constraint preventing Sadat from using his now formidable military power. When on October 6, 1973, the Egyptians struck the completely surprised Israeli army in Sinai, inflicting huge losses on its tanks and aircraft over the next weeks, they also irreversibly changed the entire military, economic, and political situation in the Middle East.

Israel's allegedly invincible army was now shown to be highly vulnerable, and while the White House warned Moscow not to intervene, it also did nothing to stop the Soviets from resupplying the Egyptians when the battle turned against them. Politically the United States was unwilling to range itself against the entire Arab world, including its Saudi and Persian Gulf allies who supported with both words and funds Egypt's surprise attack and who on October 17 increased the price of oil 17 percent as the initial step in their profound transformation of the world oil structure and its relation to the global economy. As the first reverberations of the October War were felt and a massive oil boycott was set in train, the United States and the USSR united in the UN to try to terminate the fighting.

The radical changes that were to occur in the Middle East after 1973 revealed that the United States' two-decade effort to assume primary control over the area had been a chimera based on illusions and false assumptions from the inception. The British had been completely supplanted, and the Arab world had exploited Soviet willingness to provide enormous quantities of arms even though not a single Marxist state had been established. It was perfectly obvious that nationalism was far more potent than radicalism and that the festering Arab-lsraeli conflict guaranteed that this would remain the case, making anti-Americanism inevitable. "In retrospect," George McGhee, one of the key architects of Middle East policy, admitted in 1974, "this was always a greater danger in the Arab States than communism itself, which didn't find fertile ground among the Arabs." By 1974 the United States, despite Iran, Saudi Arabia, and Israel by its side, was losing control over Middle Eastern oil-the main objective of its efforts there since 1945.

The quickening cycle of change and crisis meant that the region would never again be relegated to the sidelines, and it would increasingly become a central challenge to U.S. foreign policy. Indeed, by the 1970s the Middle East had become the area most likely to draw America into a major war that ultimately risked direct conflict with the Soviet Union itself. Given the vast responsibilities in the region the United States was prepared to assume and . its need both to depend on and protect surrogate regimes of questionable ability, only unresolvable crises loomed before it.

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The United States and the Changing World Economy

The New Relationship in Oil, and Raw Materials

In petroleum, the United States' standing fundamentally altered after 1945 its national share of world output fell from 61 percent in 1938 to 14 percent in 1978, while its domestic proved reserves dropped to 5 percent of the global total in 1979 (at a time when it was consuming 28 percent of the world's oil) compared to 56 percent in the Middle East. By 1960 the United States was importing 19 percent of its supply, then 30 percent in 1972 and 45 percent in 1979, and while the Middle East and North Africa had provided a negligible part of its imports in 1970, by 1980 nearly half of American crude oil imports came from those areas. Authoritative industry sources in 1972 expected the U.S. need for oil in 1985 to be twice the 1970 volume.

By the late 1960s it was clear that the gap between world oil demand and supply was growing wider, and the bargaining position of the surplus producers increased with it. In 1970 Libya broke the unity of U.S. buyers and showed the Middle East that it could use the Organization of Petroleum Exporting Countries (OPEC) to jack up their revenues, which had risen relatively slowly after the organization was formed in 1960. Given the fact that the seven major international companies earned far more in the Eastern Hemisphere than elsewhere, during the period before the October 1973 War the world oil system began to undergo profound changes that the war brought to a head for ostensible political reasons but primarily because the economics of the industry had been shifting in favor of the producing countries, and against the United States, for some years.

In the case of non-petroleum raw materials, the deep concern among all decisionmakers over the depletion of U.S. supplies that the Korean War had triggered, and that the Paley Commission in 1952 had warned required decisive action, by the late 1950s had declined sharply with lower prices and surpluses. By the mid-1960s there was an equanimity in most high-level government circles that the expansion of reserves and acceptable prices would continue indefinitely. Raw materials as a motivating factor in U.S. policy in the Third World remained a major consideration mainly among American companies and officials involved with specific resource-rich nations. Critics of U.S. policy who still stressed its objective significance were dismissed as neo-Marxists.

While there is no doubt that many of Paley's prognostications were incorrect, U.S. dependence on raw materials imports after 1960 nonetheless grew absolutely as well as in qualitative new ways. Adjusted for inflation, U.S. minerals imports doubled from 1950-54 to 1965-69, and increased by half again over the next five years. As a share of consumption, iron and ferroalloys imports grew from 32 percent in 1950-54 to 44 percent in 1975-79, and all other metal ores, after declining for a time, by 1970-75 were 40 percent of consumption. While world reserves of most metals rose after 1950, often dramatically, almost all the growth was outside the United States, principally in the Third World. U.S. deficits and requirements increased by virtually any criterion. Of eighty-six materials Congress's Office of Technology Assessment reviewed, the United States was self-sufficient in twenty-two of them in 1984, while fifty came from diverse or stable sources. Fourteen absolutely vital materials, without which the United States literally could not function militarily and would be seriously hobbled economically, came primarily from central and southern Africa as well as the USSR.

Indeed, by the early 1970s, U.S. experts on raw materials issues had reached a much higher level of understanding in assessing their importance, focusing not only on quantities and shares but also on the vital role of specific materials whose qualitative significance escaped crude numbers. To repeat, technologically advanced industries have a far greater need than ever for relatively small quantities, in dollar and weight terms, of certain materials, and chromium, cobalt, manganese, and the platinum group were probably the most important, and since 1950 these were almost entirely imported. Official experts increasingly measured their true value in terms of multipliers of twenty-five to thirty times: for example, $10 million worth of materials in technologically based industries made possible about $250 million worth of economic activity, and some estimates were even higher. "This approximately $32 billion [of raw materials]," the former director of the U.S. National Commission on Materials Policy told Congress at the end of 1973, "is the life blood of a $1,152 billion economy," and nearly half of it was imported.' The irony of all these data was that the United States' objective economic need to exploit freely the world's poorer nations was greatest at that time after 1945 that its power to control them was relatively the weakest.

Confronting the economic and political problems emerging from these statistics therefore preoccupied the Nixon Administration after 1973 to an extent it had scarcely imagined possible four years earlier, largely because, given the economics of the situation, a crisis between the United States and oil-producing nations was long overdue, for the United States no longer had the capacity, as in 1956, to pump sufficient oil to withstand concerted action from the oil-exporting nations to increase prices. The combined demand of all the industrial capitalist nations made the astonishing stability in oil prices that had persisted until 1970 too assailable. The large oil companies maintained their solidarity on prices until September 1970, when Libya demanded that Occidental Petroleum pay 20 percent over the world price. When the seven major oil companies refused to supply Occidental with alternative sources, it succumbed to Libyan pressures. Oil prices more than doubled in the three years prior to October 1973 as the OPEC nations began picking off other vulnerable companies. In January 1971 the Nixon Administration tried to thwart OPEC's refusal any longer to subsidize Western economic growth with cheap oil. But it found after sending a mission to the Middle East that its military surrogates in both Iran and Saudi Arabia were unwilling to forgo a far greater share of oil profits, and Saudi Arabia, indeed, began to link oil prices to U.S. policy toward Israel. Well before the October 1973 War, official American circles were publicly discussing an imminent conflict with the major exporters.

The oil shock following the October War was a historic turning point in the economic relations between the oil-producing Third World and the major industrial capitalist nations, the United States above all, and it strained traditional political alliances to the limit as nations rushed to protect themselves. From $1.26 a barrel in 1970, the OPEC price rose to $9.40 in 1974 and $24 at the end of 1979. The United States' bill for imports, which was $2.8 billion in 1970 and nearly doubled over the next two years as the crisis began, was $24.3 billion in 1974 and over twice that by 1979-an increase of twenty times! The Arab world cut off exports to the United States temporarily during the October War, but most of America's NATO allies and Japan ostentatiously distanced themselves from Washington's policies in order to escape the boycott and ruination in Arab hands. "It was not," Kissinger later recalled, "one of the finer moments of allied relations."

With both the Shah of Iran and King Faisal of Saudi Arabia joining in the fray to exploit their new unity and leverage, the White House felt utterly betrayed, and its helplessness was reflected in occasional vague threats over coming months and years to invade Saudi Arabia should it prove necessary. The "oil weapon," as Kissinger called it, proved the most effective assault upon American interests since 1945, greatly accelerating a transformation of the world economy and the U.S. position in it that was already well under way. The Gulf states became rich beyond imagination, imposing not only the energy question but also the threat of the use of the vast horde of petrodollars for political purposes as vital issues defining U.S. relations not merely with the Third World but especially with its allies. Oil ... pushed Washington's military focus sharply toward the control of the Gulf and reduced its ability to cope with less dramatic and less costly but nonetheless vital challenges elsewhere in the Third World.

The crisis in oil also spilled over to other raw materials, and the price of metal ores about doubled between 1972 and 1974, even though most U.S. officials dealing with the problem during the early 1970s had already predicted an imbalance in supply and demand in the near future-and therefore higher prices. Responding to such issues preoccupied leading decisionmakers to an unprecedented extent, and an intensive and quite sophisticated focus on raw materials issues, and their policy implications, prevailed among them for the remainder of the decade. Greater use of stockpiling reduction of consumption, and innumerable schemes were discussed widely throughout this period, creating much more interest in Africa as Latin America's share of U.S. minerals imports fell throughout the 1960s.

OPEC revealed that it was possible for the poorer oil nations to stop subsidizing the prosperity in the industrial capitalist nations, and producers of other raw materials made a concerted effort to revive commodity associations as effective bargaining tools to increase their share of the world's blessings-leading to an immediate confrontation with the United States. "The United States has always been lukewarm in its enthusiasm for commodity agreements," the assistant secretary for African affairs admitted in September 1972 with characteristic understatement, "and at times even formally opposed their use." Diplomatic niceties alone had kept it from outright denunciation of nearly all of them, but its rare support for a few was essentially part of a maneuver to control them. In 1969, unable to manipulate the international sugar agreement that the United States had dominated since 1937, it dropped out of it. Expanded markets, more efficient production, and such slogans were ritual American responses to Third World demands for stable and fair prices. In the aftermath of October 1973, the bitter arguments between the United States and those seeking to raise prices revealed that what was at stake was the division of the world's wealth rather than equity, and that sheer power would dictate the outcome of disputes.

The State Department in January 1974 had concluded that the chance of raw materials' prices paralleling those for oil was unlikely in the short run save in copper and bauxite, but given that "the longer run U.S. dependence on foreign sources of raw materials is likely to increase . . . [w]e should consider appropriate steps to reduce the possibility and effectiveness of aggressive action by producers to deprive us of adequate supplies." Mexico and Venezuela especially took the lead in promoting new commodity associations and resuscitating old ones, and the Nixon Administration responded brutally to these "tactics of confrontation," as Kissinger described them. The Latin nations were particularly anxious to develop united efforts because most had little oil relative to their population. "Such tactics are particularly inappropriate for the Western Hemisphere," Kissinger warned, "where they threaten to repudiate a long tradition of cooperative relations with the United States. ,,6 Those relations now were reduced to their barest economic essence.

In 1975 the United States therefore rewrote its trade act to "preempt" and provide "a deterrent against new commodity cartels" by denying nations joining them tariff preferences, notwithstanding its nominal traditional commitment to freer trade and commerce rather than aid. The Administration had little to worry about in reality because it had ample alternative import sources in most cases, and aspiring cartel members were often disunited for a variety of reasons. At the end of 1975 it sought to modify its materialist, self-serving image by proposing convoluted schemes involving the World Bank and private investors to create a hodgepodge of cosmetic changes that would bypass Third World efforts and give a new World Bank institution a "facilitating role as third party with the host country and the foreign investor." None of the schemes was realized.

U.S. militancy in defending its economic interests as a consumer was scarcely new, nor were the renewed threats to "bring to bear available political and economic influence to get a satisfactory resolution" of disputes over everything from trade to protecting its overseas investors. American multinationals were also exporters of raw materials, and they profited enormously from post-1973 price increases. The exact extent of this gain is impossible to calculate, save for the oil companies. Suffice it to say that U.S. direct investment abroad in 1960 was $32 billion, with 35 percent of it in the Third World, while by 1982 it had risen to $ 185 billion, but only 21 percent of it was in the Third World. The profits from all foreign investments have been consistently far higher, usually two to three times, than those within the United States, and returns in the Third World have been, by far, the most lucrative of all. In 1982 they accounted for 39 percent of all profits from foreign investments.

International Banks

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Given the major changes occurring in the world economic structure damaging both the Third World and traditional U.S. power at the same time, it was inevitable that American leaders would seek to exploit far more systematically those international official banking institutions that the Eisenhower Administration and its successors had begun to shift to as more effective and subtle means for attaining their goals. Had the multilateral banks not existed as highly developed instruments by the mid-1960s, then it would have been essential for Washington to create them, but they stand out as a brilliant example of U.S. prescience after 1945 on how to seek to extend its hegemony over the world economy. Without them, America's economic power and its control over basic economic trends in the Third World would have declined much more than they did.

The United States effectively dominated both the World Bank and the IMF as well as their affiliates, and in 1974, a total of 41 percent of the bank's top managers were Americans, and the president was always a U.S. citizen. An official U.S. review in 1982 of its postwar ability to define major multilateral bank decisions concluded that it had succeeded in the great majority of cases where it exerted pressure.

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Washington's growing emphasis on using multilateral banks as the key instruments of a neocolonial policy to integrate Third World nations into a United States-led and -guided world economy was the subject of frequent detailed internal official economic analyses, which made it clear that after decades of experience the banks' negative effects were both understood and desired, even though their authors personally sometimes also had other objectives in mind. In October 1972 the AlD's Bureau for Program and Policy

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The share of the total profits of the thirteen largest U.S. international banks earned abroad rose from 17 percent in 1970 to 49 percent in 1976, for there was a much greater demand for their funds outside the United States. The combined assets of the twenty-one largest U.S. commercial banks operating abroad at the end of 1975 were twenty times the lending resources of the IMF and the EEC special facility combined. Compared to these banks, direct corporate investment seemed paltry as a source of capital, and in various ways state-sponsored economic projects in many Latin nations became means both of independent economic development and deeper entanglement with world capital. But for a relatively brief time some of the Third World nations could borrow freely without accepting strict limits on their use of funds or economic policies. The Latin debt to official creditors in 1979 was less than it was in 1960, but its total debt in 1979, most of it to private banks, was now far greater than ever. To some extent, the main beneficiaries of the dizzying rise in the price of oil were the banks that processed the largest share of the gains. From the U.S. government's viewpoint, all this meant that unless countermeasures were taken, its ability to define the Third World's economic policies was more in doubt than ever. And from the private banks' vantage, some regulation was essential if they were ever to be repaid the interest and principal owed to them.

The debt itself provided the United States with the handle it needed to attempt to reimpose its hegemony via the official banks. Brazil's debt as a percentage of its exports grew from 36 percent in 1973 to 61 percent in 1979, while Mexico's nearly tripled, to 64 percent. By 1976 both private bankers and U.S. officials began to converge on a solution for their common anxieties in the form of a greatly expanded critical role for the IMF in the lending activities of private banks, especially when they had to renegotiate more loans to bail out those nations inevitably falling into distress. Their goal, in the words of a U.S. Senate report, was to "give the IMF more clout in putting pressure on deficit countries to undertake the often painful and politically difficult adjustment policies required to bring their external accounts into balance," measures the banks were least able to impose without turning the political ire of the population of many states against them. As the revised IMF charter assigned it new surveillance functions, IMF "conditionality" increasingly became the impetus for political crises and food riots in a growing number of countries as hapless nations attempted to meet its inflexible, ritual demands to cut social services of all kinds. This struggle remains central to the experiences of our own times.

The Philippines: Creating a Revolution

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The 1969 election that returned Ferdinand Marcos to power in one of the most manipulated and violent, and surely the costliest, electoral campaign in Philippine history exhausted the nation both politically and economically and marked a turning point in its development. The economic difficulties it brought to a head were the logical culmination of years of error and neglect, but the political crisis was a qualitatively new phenomenon, the outcome of a far greater public awareness that both the nation's traditional oligarchic politics and leaders were unable to resolve the massive problems of the society-and thereby ceased to be relevant. It was also the result of an incipient civil war within the traditional elite between those nationalist economic constituencies demanding more than conventional opportunistic politics to protect and advance their interests, and the dominant politicians who since 1946 had treated the state simply as a vehicle for self-enrichment-between those who were eager to serve U.S. interests and those ready to cut the economic cords that still bound the nation. It was this merger of structural economic problems with a new political consciousness that was to cause the Philippines to veer away from inherited methods of confronting problems and toward radical alternatives. These trends presented the United States with altogether new challenges in its Asian neo-colony.

The enormous cost of the 1969 election to the Philippine treasury accelerated the massive deterioration of the economy, but it did not initiate it. Structurally, the economy was weak by virtue of its export dependence and strategic U.S. control over it, which would have caused the nation's debt to rise dramatically even if there had not been spectacular corruption. The 1969 election expenses did, however, produce a sharp inflation of 15 to 20 percent annually over the next three years, running up huge government deficits and forcing it to borrow, and the external public debt nearly doubled over the next year and rose sharply every year thereafter. The country was beginning to fall into the standard Third World debt trap, with all of its consequences. To cope with his problems, Marcos had no alternative but to call upon the World Bank to help him, and to get funds from the consultative group it set up to manage the debt. He accepted the bank's advice to devalue the peso again in February 1970 by 60 percent to stimulate exports. Given the sharp drop in the prices of its main raw materials exports on the world market over the next two years, the bank's cure only aggravated the nation's troubles, inflation included, and compounded the political difficulties Marcos confronted at the very point he was facing a new form of political opposition.

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Nationalism rather than the Left remained the origin of Washington's immediate problem. Estimating the state of the Left in April 1972, American experts dismissed the Huks as inconsequential, with most now mere criminals operating near U.S. bases. The Maoist New People's Army (NPA) of the newly formed Communist Party (CPP) had gone from 390 hard-core members in 1969, with an equivalent number of supporters, to 379 in 1971 and perhaps 10 times that many supporters-in a nation of 37 million people. While this figure was so small as to appear ludicrous, the Americans did note that the NPA, unlike the Huks, had managed to spread teams to a sufficiently larger number of islands to pose greater logistic challenges than the Huks had been able to do, and that they "have a much better reputation than the Philippine Constabulary who have been cited for stealing, intimidating and taking what they need without reimbursement." It was perfectly obvious from such information that the tiny Left's only hope in 1972 was not in its own forces but rather in the intensification of the structural and organizational deficiencies of the existing society-over which it had no control. The system's demise, if it came, would at least at its beginning stages be the result of its own internal contradictions.

It was in this context that Marcos moved toward martial law and an end to the ambiguities of Filipino politics, because, unable to co-opt his opponents, he could only suppress them or relinquish power. Public discussion of martial law increased after the summer of 1971, and American officials either favored it or remained neutral. "The Philippines needs a strong man, a man on horseback to get the country organized and going again," the embassy's political officer during the post-1969 years wrote. In the weeks preceding the proclamation of martial law on September 23, 1972, it was widely believed that Marcos would use alleged "Communist" actions and plots, linking them with his Liberal opponents, to abolish the nation's precarious period of constitutionalism. It was fully evident by this time that the main political trends emerging from Filipino democracy were more threatening than at any time since 1960. If Marcos lost power, then American strategic, economic, and political interests would suffer greatly. It was scarcely conceivable, given its readiness to act in nations where the stakes were far smaller, that Washington would passively accept such an ignominious end to its colonial experience and its long endeavor to show the world how its beneficent efforts could build a model Third World society.

The United States and Martial Law

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The U.S. view of its interests in the Philippines prior to September 1972 had not altered since 1945, and it involved retention and uninhibited use of two major and six small bases, "to avoid injury to established U.S. enterprise, i.e., to foster an orderly transition from the special relationships embodied in Laurel-Langley, and to promote to the maximum feasible extent the continued participation of American enterprise," as well as stability within the Philippines itself. "Moderating Philippine economic nationalism" was far more important than any other immediate American concern, and Washington clearly preferred that "technocrats" administer economic policy. No American official working on the Philippines in 1972 believed there was a danger from Communists. The embassy regarded Marcos highly because while he was both described in the U.S. press, as well as known to be, extremely corrupt, he had also proved himself to be the most receptive of A all major political leaders, notwithstanding a certain populist flamboyance and bouts of opportunism. But most important of all in the summer of 1972, top American leaders had their hands full elsewhere, above all with Vietnam and the U.S. presidential race, and they were indifferent to the fast-moving developments in Manila. It was left to the U.S. ambassador, Henry Byroade, to cope with the issue, and when he was informed during August that martial law would soon be declared, he simply told Marcos that it would be far more palatable in Washington were it justified as essential to cope with Communists. By mid-September its imminent announcement was public knowledge, and the CIA even obtained its text. Marcos decided to check by phone with a preoccupied Nixon, who told him, depending on the account, either to go ahead or raised no objections. Marcos saw Byroade the day before proclaiming martial law and told him that he would now be able to reverse the Quasha decisions and protect U.S. economic interests.

Marcos exploited his opportunity to the hilt, closing down all opposition papers and arresting Liberal and nationalist leaders as well, of course, as those leftists who had not already used the ample advance warnings to escape. AU told, about fifty thousand people were detained, not including those under house arrest, and by 1975 there were still six thousand in Marcos's prisons, including Aquino, his most redoubtable Liberal opponent. No one in Washington objected to this wholesale suppression of civil liberties-a long-familiar, welcome procedure in the U.S. conception of how best to run Third World regimes.

Marcos had arranged for his executive secretary, Alejandro Melchor, to arrive in the United States just as martial law was declared, and after briefing Washington officials and the World Bank on Marcos's plans to help both U.S. business and introduce some overdue reforms, he obtained a pledge of far greater World Bank aid and met with most important American companies involved in the Philippines, assuring them that there was no more danger from nationalist legislation and Supreme Court rulings. On October 3 Marcos issued a new foreign investment decree aimed at attracting oil and mining capital. U.S. oilmen waxed enthusiastic, and The New York Times' Manila correspondent in late October concluded, 'The American business community in the Philippines has greeted with relief the results of the Sept. 23 declaration of martial law." It would mean the end of economic anti-Americanism, at the least, and Marcos's subsequent declarations for free enterprise and foreign investment, and abolition of unions and strikes, sustained this glow of mutual admiration over the next years. The honeymoon, however, assumed that both sides would help each other, and Marcos very much needed aid at this point in time.

In essence, the U.S. relationship to the authoritarian regime changed from a defensive to a dominant one after twelve years of anti-American agitation. The economic aspect of this restoration was crucial, given the immense debts Marcos had run up, and Washington's responsibility for influencing the economy, in accordance with its global policy, was transferred mainly to the World Bank and the IMF. U.S. bilateral economic aid dropped from $125 million in 1973 to $72 million (mainly as loans) in 1979, while military aid during 1973-76-essentially a rental payment for use of the bases-was twice as high as the average for the preceding four years. Political relations with Marcos during these years were excellent, his qualities-corruption not withstanding-much appreciated, save for one gnawing concern that was to remain in the background throughout this period but that was later to emerge as a serious problem: his wife, Imelda.

The United States had no experience with such a person anywhere in the Third World. When William H. Sullivan replaced Byroade in spring 1973 he raised the first alarm regarding a woman he regarded as shrewd, consummately ambitious, and astonishingly corrupt and incompetent. It was clear she wished to succeed her husband eventually and establish a dynasty, but for the moment that danger was more abstract than real. For while Ferdinand could perform services in aborting the nationalist momentum that was gathering, Imelda might wreck everything that had been accomplished. This problem was all the greater because of the highly personalized nature of the regime Marcos was creating.

Marcos in his own way remained enigmatic, pursuing many diverse and essentially conflicting policies at the same time-above all, the aggrandizement of his own power. Ready to evoke nationalist, populist, and even neutralist rhetoric if it suited his purposes, he also retained a sufficient amount of economic protectionist legislation to preserve the national bourgeoisie. Yet he opened the door wide to foreign investors in fact, if not always with comprehensive legislation, at the same time allowing pliable technocrats to play an unprecedented new role in conjunction with World Bank and IMF advisers. This technocratic impulse, which the United States especially encouraged despite its readiness also to tolerate Marcos's venality, he more than counteracted with what was later called "crony capitalism," the transfer of huge private and public funds and privileges to his family and allies, as well as probably the greatest amount of personal corruption (in absolute rather than relative terms) in any Third World nation since 1945.

In the short run Marcos was America's puppet, granting it economic privileges and base rights, but he also ignored much that it desired to see accomplished. But in the long run he so traumatized Filipino life and society, creating all of the essential preconditions for the emergence of a powerful Left opposition, that the problems facing the United States, though very different, were far greater by the end of his regime than ever. And it was the threat of his wife continuing the rape of the nation that eventually compelled Washington to distance itself somewhat from him. For while Marcos was ready to make a tactical alliance with the United States, ultimately he was acting on behalf of his own account, and this was the most recurrent of all the U.S. dilemmas in relying on Third World dictators. America wanted puppets, but efficient ones, and it was never to find them anywhere.

While income distribution became somewhat more inequitable after 1970, reaching 59 percent for the richest fifth in the early 1980s, it was the decisive shift within the elite itself that comprised the most significant change in the economy and power. Marcos decided to reduce drastically the economic holdings of his premartial law political enemies, especially among the Liberals, and he transferred these to his family and closest political allies. Members of the traditional oligarchy who were ready to collaborate with him, and there were many, were left in peace. And, more generally, he allocated immense contracts, concessions, and cash subsidies, amounting to virtual gifts, to his cronies. Suffice it to say that in the year after Marcos's fall in February 1986, the new government sequestered 181 companies of his 5 closest cronies, 2 of them relatives, and nearly 100 companies of his other assorted allies. Together they possessed 56 radio and TV stations, as well as immense tracts of land, buildings, and much else. Government loans to just 10 of his cronies amounted to at least $2.4 billion. Marcos's own fortune is still not fully assessed, but estimates run up to $15 billion, and $5 billion is a conservative figure. Attempting to provide an analytically coherent description of this system defies structured categories because its capriciousness and contradictory nature makes it too convoluted, for Marcos's "New Society," as he called it, was anything but a stable, rationalized, and predictable order. The net effect of such "gangsterist" systems, which existed in China until 1949 and Latin America later, is that they traumatize already fragile societies and accelerate those social and economic developments that produce a strong Left opposition, putting revolution on the agenda where it might otherwise not be.

In the case of the Philippines, while Marcos levied a direct charge on the fortunes of the politically ambitious rival oligarchs, the greatest cost was indirect, and the people paid it. It was here that the United States to some extent lost control of the process, for while it sought primarily to protect its own economic and strategic position, using Marcos as a tool to do so, it scarcely realized that he, like so many like him elsewhere, would further pauperize the nation and foster a far more powerful Left challenge to American interests.

Marcos also basically and permanently altered the framework of power that existed in the nation since 1946 by transforming the military, which had always been relatively small and apolitical, into a personal instrument, in the process creating a crucial new arbiter of power and politics such as existed in many, even most, Third World nations. One of his first acts after declaring martial law was to promote officers he could trust, increase the pay of all of them, and raise living allowances for the lower ranks. He systematically doubled the size of the army by 1977, advancing loyal officers from his home province of llocos Norte, and recruiting soldiers from there as well. Far more important yet was his dramatic enlargement of officers' administrative and judicial responsibilities in normally civilian posts, making them key political executives also. The United States welcomed this trend in the Philippines as it did everywhere in the Third World, believing that since they had brained thousands of these officers they presumably would also become technocratic "modernizers" and advance American goals. Marcos, however, had far better control over them at the inception, but his own crony officers created a split within the officer corps that later further eroded the stability of his regime. In this role the military also became key corruptionists, habituated to the perquisites and exercise of state power.

Confronting the Third World

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