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Originally published November 3, 1986

WITH ITS characteristic penchant for triviality the daily press’ stories out the deregulation of British financial institutions (a.k.a. the Big Bang) have concentrated on the consequences, or lack thereof, for the traditional City of London man with his bowler and his tightly rolled umbrella. Will he be able to compete with Yahoos in shirtsleeves? Perhaps this is as it should be, since the consequences for the rest of the world are only as great as it allows them to be, and the rest of the world has already made its decision evident in Tokyo and Zurich and the Bahamas and New York and even in Chicago.

For a variety of reasons – some doctrinaire and some pragmatic – the world has already decided that international finance should not or cannot be regulated. Computers are too fast, and their ways too mysterious. While it would take you six months, together with fees to two teams of lawyers, premium to at least one title company and a half inch pile of paperwork, to induce your friendly banker to spring for a $50,000 mortgage, that same banker will transfer $50 million to an arbitrager in Hong Kong in the twinkling of an eye. He will have your notarized signature many times on all that paper to show for his deal with you; the Hong Kong deal will be recorded only as an electrical impulse in a computer.

The money may come back, via another blip, as the earth turns. In these circumstances, the pragmatic may well lie back and enjoy it. Margaret Thatcher’s Britain, which has now done this, and Ronald Reagan’s America, which would dearly like to do this, both also have doctrine to sustain them. Untrammeled finance, they believe, makes for liquidity, and liquidity encourages investment, and investment means production, and production means prosperity. They’re right on the first and last points.

The liquidity part of the story is limpidly clear. Give bankers and brokers and insurance companies their heads, and they’ll make your head swim. It is not, however, clear exactly what is liquid. A Singapore computer chatting up one in London doesn’t make it noticeably easier to sell a shirtwaist factory in Katmandu or a spare forklift truck in Trondheim. These things are as solid and stolid as they ever were, and are correspondingly unattractive to speculators; consequently, the new liquidity doesn’t stimulate the production of more of them.

International liquidity may make it somewhat easier to sell a large company, but this does not mean the sale stimulates the creation of anything new. There is no need to create a company in order to sell it; it is much easier to play with what is at hand.

International finance may make it somewhat easier for a large company to borrow large sums. Eurodollars are available, because of the lack of regulation, at a slightly lower rate of interest than domestic dollars. If the Reagan Administration gets its way, this differential will disappear (and if I had my way, it would not be available).

So what is left for international liquidity to do? It comes down to speculation in existing securities or in securities issued for the purpose of speculation. Back in THE NEW LEADER for April 19, 1982, Henry C. Wallich, a governor of the Federal Reserve Board, took me to task for not recognizing that liquid securities make everything liquid. “Eventually,” he wrote, “the money [resulting from a speculative coup] will find an outlet in directly productive new investment, unless it is consumed or hoarded.” I replied that there is a fourth possibility, which is by far the most likely – namely increased speculation. You have only to read the Wall Street gossip columns to know this is so. The economy may be essentially flat, yet day after day investors run from one takeover rumor to another; and if T. Boone Pickens squints his eyes, feverish attempts are made to discover the meaning.

The difference between Governor Wallich and me is by no means an idle one. If I am right, speculation will tend to pre-empt whatever money the banking system makes available, and productive industry will be starved. In addition, the very existence of a speculative market introduces a Catch 22. Because speculation encourages and thrives on running up the prices of securities, it will tend to reduce the earnings ratio of companies that attract its attention. A company that earns $5 a share has a price earnings ratio of 5 per cent if its stock sells for $100 a share; once the stock takes a modest run up to $125, its PE ratio will naturally fall to 4 per cent.

There are repercussions on Main Street and Commercial Street, too. When the company’s financial officer needs the usual line of credit to tide the firm over from the start of a production run to the time, a few or several months away, when income will start flowing from production, he has his regular lunch with the company’s friendly banker. The latter is unexpectedly cool and murmurs that in view of the falling PE ratio he’ll have to ask another half a point for the credit. The next day the principal stockholder, speaking for his sisters and his cousins and his aunts (their grandfather started the company), phones the company president all the way from his yacht in English Harbor, Antigua. He notes that many other stocks have a better PE ratio and wonders what can be done. Should he and the ladies mortify their family pride and sell out, or can the president somehow improve the picture?

Now, it is obvious that, in what are called real terms, the company is as good as it’s ever been and earns as much in dollars and cents as it ever did. The banker and the stockholder (who have contrary concerns) may even be bright enough to understand this, but they are also bight enough to see that they might make more money or safer money by lending or investing elsewhere. They have other options.

The company’s management has options, too, except they are more limited. They can try to increase income, a reduce expenses, or both. Increasing income isn’t the easiest thing to do. Sales can be improved by introducing new products, but that takes time and money, neither of which the company has enough of. Sales also can be improved, at least in theory, by cutting prices; but if the company has been reasonably well managed, its prices are already at the most profitable level.

That leaves the option of reducing expenses. This can certainly be done, and done quickly. Advertising campaigns can be trimmed or aborted; all it takes is a phone call to the agency. Production runs can be cut back and inventory allowed to run down. And of course people can be fired. In the long run-and in the situation we’re imagining, six months can be a long run-these cost-cutting measures may prove counterproductive. You have to spend a dollar to make a dollar; the absolutely perfect way to cut costs is to go out of business.

We don’t have to carry our story any further to see that, no matter how it comes out, bankers and stockholders have more options than do corporation managers and workers. The money that bankers and stockholders invest is more liquid than the sweat and tears the active people invest. Securities are more liquid than people. Workers and managers have personal commitments and can’t easily relocate even when jobs are available.

EVERY KIND of activity is risky, but the liquidity of securities reduces the risk involved in investing them. Liquidity also makes volatile trading possible, with sudden shifts of position to pick up a fraction of a point. Fortunes can be made very fast that way (see New Ways to Get Rich,” NL, September 8). In contrast, it generally takes a lifetime to accumulate a modest retirement nest egg merely by working hard at producing something.

Traditional economists have built their theories on the notion that people are inherently or rationally or necessarily profit maximizers. I don’t myself hold with the notion, but I’m going to accept it here to meet the traditionalists on their own ground. On this ground, it is clear that a speculator who makes a killing in one speculation will look around for more of the same. Only a foolish profit maximizer would ever commit himself (or herself) to a “directly productive new investment,” especially one that required any hands-on productive work of him (or her). That is why the money growth the Federal Reserve Board has allowed since 1982 has gone into the run-ups of the securities and commodities markets, and not into what Governor Wallich called “brick and mortar.” Speculation is a problem, and it is not one that cures itself.

There are, to be sure, some economists who believe that speculation is actually beneficial. They base their arguments on Ludwig von Mises‘ dictum, “Action is always speculation.” To the extent that Mises meant what’s to come is still unsure, he was of course perfectly correct. Moreover, every business tries, within limits, to buy its inputs as cheaply as it can and to sell its outputs as dearly as it can, and so sometimes makes (or loses) a dollar on inventory. But this is not all that a business does. It adds value to what it takes in, and what it puts out increases the goods the rest of us can enjoy. Speculators or financial institutions attempt to increase price, but add no value. They avoid taking physical possession of and physically working with the things denominated in their bonds.

These are the people and institutions who will benefit from the Big Bang. Internationalizing Britain’s financial markets may give employment to a few hundred Yahoos in shirtsleeves, but it will do nothing for productive industry, either in Britain or anywhere else in the world. If we had any sense, we’d keep ourselves and our money out of it.

The New Leader

Originally published May 6, 1985

TO WRITE THIS I had to turn off a television show featuring a rock star, eyes closed in rapture or agony or something, moaning an expression of his solidarity with the people starving to death in Africa. I should-and shall-leave the task of commenting on TV performances to Marvin Kitman. I  will even resist the temptation of recalling the Stan Freberg skit of a few years ago in which he asks everyone to stop at a certain hour of a certain day and tap dance for peace.

There is no question that our fellow citizens’ capacity for pity and terror has been stirred by the pictures they have seen of the starvation in sub-Saharan Africa. There is no question that they want to help in some way. It would be pretty to think of them beginning by wondering how the tragedy came about. For anyone ready to take that necessary initial step there is a new book available called Debt Trap: Rethinking the Logic of Development. Yes, I am afraid that to understand starvation in Africa you must start with money and banking, because they are the roots of the problem.

The author of Debt Trap is Richard Lombardi, a former vice president of the First National Bank of Chicago. His office was in Paris, a nice place to have an office, but he was in charge of lending in both French-speaking and English speaking Africa, and he traveled widely and steadily in those countries. What he saw troubled him deeply, for he is an intelligent and compassionate man. To think about the situation in greater depth he took a leave of absence and became a research associate and Thursday Fellow in Georgetown University’s School of Foreign Service. The result is his important and enlightening work.

Lombardi lays out the connection of starvation with banking roughly as follows: People starve because they cannot get food. They cannot get food because they either do not grow it or have no means of securing it from those who do grow it. In Africa they do not grow so much food as they used to, since many farmers have moved to the city and many more have switched to crops for export, like sugar and coffee and cola nuts. Their governments have induced them to switch to export crops to earn foreign exchange. The governments need foreign exchange to try (unsuccessfully) to meet the interest payments on their foreign loans.

Why do they have foreign loans? It comes down to Gertrude Stein‘s answer when she was asked why she had written Tender Buttons: “Why not?” As Lombardi tells it, the world’s big bankers bought the oil sheiks’ OPEC winnings on the Eurodollar market and then jet-setted around the Third World peddling the money. The bankers called this recycling; actually, it was salesmanship.

The bankers happened to launch their maneuver at about the time that the Third World nations, almost without exception, were in trouble with the World Bank and the International Monetary Fund (IMF). The bankers could offer assistance because they had money and also because they had a new vision-not of banking, but of what they came to describe as “world financial enterprise.” Lombardi credits (if that is the right word) this vision to Walter Wriston, who transmogrified the First National City Bank of New York into Citicorp in 1967. At any rate, the “Citicorp Concept” was reverently discussed in the business press and widely emulated by David Rockefeller‘s Chase Manhattan and the rest. The hairy details I’ll leave you to read in Lombardi’s book, only noting Wriston’s fatuous dictum, “But a country does not go bankrupt.”

The stage was now set. The Third World needed (or wanted) money; the bankers had it (or knew where they could get it). And the bankers had convinced themselves that all Third World loans were risk free. What happened? In 1960, Lombardi tells us, Third World debt totaled $7.6 billion. Today, a quarter of a century later, it is nearly $1 ,000 billion that is, $1 trillion, or an increase of roughly 12,000 per cent. The sum is not owed to the banks alone. UN agencies are heavily committed, as are our Export-Import Bank and its counterparts in other First World nations.

All of this occurred because those who count in both the First World and the Third World have been acting out what Lombardi (using an unlovely but fashionable word) terms a “paradigm.” Two components of the paradigm we have discussed here before: Ricardo’s Law of Comparative Advantage (How Our Sun May Rise Again,” NL, July 12-26, 1982), and the notion that a growing GNP cures all ills (“Sinking By the Numbers,” NL, May 2, 1983). A third principal component, perhaps not now so prominent as the others, is the theory of Walt Rostow (Lombardi erroneously calls him Walter) that developing societies invariably pass through five stages: “the traditional society, the preconditions for takeoff, the takeoff, the drive to maturity, and the age of high mass consumption.” A dream world.

In the grip of this paradigm, everyone began pushing the Third World to modernize and industrialize. The Export – Import Bank and its ilk underwrote sales of steel mills and sugar refineries and atomic energy plants. The national airlines of countries of fewer than a half million souls, most of them tribesmen with neither the need nor the possibility of flying anywhere, bought fleets of Boeing 747 jumbo jets. The World Bank lent money at low rates for roads and airports and dams and other infrastructure. The UN Development Decades favored an urban focus, precipitating a population shift from farm to city. The demand for agricultural exports accelerated the shift, because export crops tend to be more efficiently handled by agribusiness than by customary methods.

Under such prodding the Third World’s GNP rose even faster than the Development Decades had hoped. But Third World debt rose faster yet. This outcome, which should be a puzzle to true believers in the GNP, threatened to swamp the UN agencies. The IMF (then as now) counseled austerity, meaning cut imports (or, more frankly, reduce your standard of living) and expand exports (done by lowering wages and, again, your standard of living).

At that point in time (as Watergate taught us to say) the Citicorp Concept flashed across the horizon. Gone was the old-fashioned bankerly attempt to evaluate the business prospects of each enterprise applying for a loan. In its place was the actuarial notion that lots of risks are safer than a few. Risk itself disappeared because countries did not go bankrupt. Recycling could go on merrily as long as Third World countries could be induced to borrow money at a point or two over what the bankers had to pay for it on the Eurodollar market.

It turned out not to be difficult to induce Third World countries to borrow, what with everyone advising them to do so and especially with fewer and fewer questions asked. Lombardi has some horror stories to relate. A billion dollar steel mill in Nigeria is too sophisticated to use the low-grade ore it was originally intended for. Zaire has the longest transmission line in the world, and no particular need for it at either end. A loan to Costa Rica was underwritten by a banking syndicate on the basis of a news article in Time.

At least some of the borrowers were foolish like fox terriers. They didn’t bother to buy so much as a new presidential palace with the money, instead sending it straight to numbered bank accounts in friendly Switzerland. Periodically, statesmen who had that kind of foresight were overthrown, and their successors opened up their own numbered accounts. No one knows how many billions thus disappeared. The critical fact, however, is that the bankers lending the money didn’t care; they lent the money to countries, not to individuals, and countries don’t go bankrupt, even when they are stolen blind.

Of course, countries whose debts have increased 12,000 per cent in 25 years do usually have trouble meeting even the interest payments. So the IMP urges austerity; food is in short supply; starvation looms-chronic starvation, not the sort that results from a natural disaster.

LOMBARDI paints the unhappy picture with great fervor. He emphasizes that the Third World’s troubles are not merely those of an exploding population. The population problem certainly plays a role, but in the improbable event of zero population growth troubles would remain. The key is breaking that paradigm.

Lombardi suggests ways this can be done. He also shows the trouble the paradigm has caused and will cause in the First World-that is, to you and me. For when bankers lend money to Brazil to buy a steel mill or to Tunisia to manufacture blue jeans or to Taiwan to keypunch data into American computers via satellite, Americans lose their jobs.

The apostles of the Law of Comparative Advantage (a.k.a. “free trade”) counter that building the Brazilian steel mill and the Tunisian garment factory and the Taiwanese data-processing equipment makes jobs for Americans, and to a degree they are right. An hour or two at, say, John F. Kennedy Airport in New York will convince you that Boeing has sold (with Export-Import Bank help) an awful lot of747s to foreign airlines you never dreamed existed. Still, unless we are prepared to give our airplanes and steel mills and wheat and corn away, someone has to pay for them-that is, the loans the bankers have made for us have to be paid off. If they can’t be paid off, our friendly bankers will surely find ways to transfer the bad debts to us taxpayers. And if they are paid off, Third World austerity programs will throw Americans out of work. “When bank credit to Mexico stopped in 1982,” Lombardi observes tellingly, “more jobs were lost in the following six months in the United States than in the three previous years of a depressed U.S. auto industry.”

Banking, in short, is not an innocent enterprise. It can cause starvation in the Sudan and unemployment in Cincinnati. Faulty practice flows from faulty theory. Faulty banking theory flows from faulty reading of history. Lombardi devotes several chapters to this question, and though I don’t always agree with him (in particular, I think he misunderstands evolution), I certainly applaud his effort. I therefore earnestly commend his book to your attention.

A useful supplement to the foregoing is The Dangers of “Free Trade, a new booklet by Professor John M. Culbertson of the University of Wisconsin-Madison. Culbertson details the mischief caused in both the Third and First Worlds by the Law of Comparative Advantage, then suggests new trade policies suited to the actual situation of the actual world we live in. He makes a strong argument for conducting international trade between nations (rather than between private citizens or firms), and he makes a persuasive case for bilateralism (showing that he’s not afraid of unconventional thoughts).

The New Leader

Originally published September 19, 1983

LAST MONTH (NL, August 8-22) I suggested that the world’s Less Developed Countries might be better off if we denied their manufactures (mostly produced by multinationals) unlimited access to our markets. Here I propose to look at the problem from our point of view, starting with the reiteration of some observations I made a year ago about the Atari Democrats’ notion of inventing “sunrise” industries to replace “sunset” industries lost to foreign competition.

One of my points was that whatever we devise can also be devised or copied or, it is occasionally claimed, stolen elsewhere, particularly in the Orient. I must confess my astonishment at some people’s reluctance to accept this point, which seems to me as obvious as a sore thumb-now rendered somewhat sorer by the decision of Atari itself to start moving to Hong Kong. For again and again we have lost our domestic markets to multinational competition, with the results that millions of us are out of work and that our industrial plant is operating at 70 per cent of capacity.

The New York Times ran a story recently about the Sinchu Science-Based Industrial Park, currently being developed in Taiwan. “Sinchu has all the ingredients of Silicon Valley 20 years ago,” says Irving Ho, the park’s director. That may be commercial puffery, but why not? And how could anyone fancy it might be different with the as yet uninvented sunrise industries?

In the famous peroration of The General Theory of Employment, Interest, and Money, Keynes wrote: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” The almost universal obeisance to the doctrine of free trade confirms this observation. Adam Smith lives, defunct though he has been these two centuries.

Adam Smith indeed lives – that is, has a place in history – and we will better understand our own place if we understand his. The first eight chapters of his Book IV [of The Wealth of Nations], where his thoughts on foreign trade are laid out, are not written in a vacuum. They are an explicit, devastating attack on the mercantile system and especially on Thomas Mun‘s England’s Treasure by Forraign Trade, the leading exposition of that system.

Foreign trade, as Smith saw it, served two purposes: it enabled countries to exchange surpluses, and it facilitated the division of labor by expanding the market. In furtherance of these ends he opposed the monopolies and bounties and other restraints on, or inducements to, trade that were root and branch of the mercantile system. And he advocated independence for the colonies, largely because he judged trade with the nearby Continent more profitable.

But a lot has happened in the past 200 years, especially in America, and this makes The Wealth of Nations a historical document, not a present help in trouble. Our domestic market is now far larger than any world market Smith could imagine, and the division of labor has gone far beyond the 18 operations in the manufacture of pins that he immortalized. More important, his merchant adventurers have been succeeded by our multinational conglomerates.

Today’s problem with foreign trade is that our industries are losing out to foreign competition or are being shipped abroad by the multinationals. This happens because foreign labor is cheaper than ours. We are told by the three Harvard Business School authors of Industrial Renaissance: Producing a Competitive Future for America that the members of the United Automobile Workers had better shape up because they are paid 80 per cent more per hour than their Japanese counterparts, who are, in addition, more productive. The American man in the street reads this and says, “Just what I always suspected. American automobile workers are way overpaid. No wonder we’re having this depression.” The American man in the board room reacts a bit differently. “It’s a healthy thing we’re having this depression,” he says. “Now we’ll be able to get those wage scales back down where they belong.”

I venture to suggest that there is another way of looking at these figures (whose accuracy I will not question at the moment, though I may do so another time). One might as logically conclude that Japanese auto workers are underpaid as that our fellow citizens in Detroit are overpaid. Indeed, on the basis of the history of industrial relations, I’d lay even money that a better case could be made this way than that. When you stop to think of it, the idea that a working stiff anywhere is overpaid is not, on the record, over plausible.

Everyone talks about automobiles, but they’re comparatively well off. Sol C. Chaikin, president of the International Ladies’ Garment Workers Union, points out that 25 years ago imports accounted for 5 per cent of the sales of ladies’ and childrens’ apparel, but it is estimated that this year they will account for over 50 per cent. In the Peoples’ Republic of China, garment workers are paid 16 cents an hour; in the Federal Republic of China, the rate is 57 cents; and in Hong Kong it’s a little over a dollar. Does anyone seriously propose to reduce American wages (which in the garment industry are already low) to these levels? If not, what does the incessant chatter about “productivity” mean?

Fashionable economics tells us we should be delighted to buy cheap textiles from the Orient and should concentrate on selling “information” in return. Information about what? one wonders. Books are not meant, because they happily pirate whatever they want right now. Nor is hi-tech (as we’re learning to call it) meant, because our multinationals are already manufacturing “hardware” there. That leaves “software,” but that’s easy to pirate, too. And if Orientals should perversely take an interest in the data we busily beam at each other, they can pick up all they want off a satellite, with a disk they can make cheaply.

We’d better face it: until the world standard of living is brought up to ours, there is nothing whatever that cannot be manufactured less expensively abroad than here. Nothing whatever. How long will it take for the world standard to approach ours? If you’re old enough to read this, you’re too old to live to see the day. The question is, what do we want to do about it now?

There’s no doubt what the National Association of Manufacturers wants to do about it, or the Business Roundtable, or the Reagan Administration. They want to lower labor costs every way they can think of: cut wages, cut fringe benefits, cut safety regulations; and to keep those who still have jobs in line, cut unemployment insurance and welfare generally.

Let’s assume, however, that you and I don’t find labor-baiting attractive. Let’s assume we think it a good thing that the American standard of living is higher than the Japanese or the Taiwanese. If we make these assumptions, how can we protect our standard?

Well, the way to protect is to protect. First, we decide that certain of our important industries are threatened in our home market by severe competition from foreign industries. Second, we determine whether that threat is made possible by wages or conditions that we would consider exploitative. Third, we refuse entry to goods produced in grossly exploitative conditions.

The proposal is not complicated. It does not cover all industry but only the industries we declare to be important and threatened in our home market. It does not require elaborate cost accounting (as do the reciprocal trade provisions against “dumping”) but simply straightforward questions of fact: What are the wage scales? What are the working conditions? Is child labor employed? It does not interfere with foreigners’ or multinationals’ trade anywhere else in the world. In every respect the proposal is analogous to our present laws refusing entry to contaminated foods or dangerous drugs or unsafe automobiles. Those laws protect Americans as consumers; the proposed law would protect us as workers and, incidentally, as entrepreneurs.

IT WILL be objected that the proposal can’t work because it is impossible to compare foreign wage scales and working conditions with ours. In reply, I would enquire how, if the comparisons can’t be made, the noisy critics of the American workingman know he is overpaid. What is proposed is merely the reverse of the critics’ coin. The fact of the discrepancy in wages is accepted; but instead of saying that our fellow citizen Americans are overpaid, we say that our fellow-human Orientals are underpaid. Mathematically, there is no difference in what is said; morally, there is an astronomical difference.

Of course the comparisons can be made, and they will be invidious. The real question is, as the lawyers say, who should have the burden of proof? I am reminded of Thaddeus Stevens‘ reaction to proposals that the North tell the South eliminating slavery was not its war aim. “Ask those who made the war what is its object,” Thad growled. In the present case, I think we could reasonably ask those who want access to our markets to prove that their workers are fairly paid and fairly treated by our standards. American unions and American companies would have the right to challenge the proof. No need to make a big fuss about it, any more than a big fuss is now made about determining that certain foreign automobiles don’t meet our emissions standards or that certain drugs are impermissible.

No doubt many will argue against protecting the American standard of living. Two arguments stand out. The first purports to be consumer oriented. Cheap imports, it says, benefit everybody. But they don’t benefit those millions whose jobs are taken by the imports, and those other millions who are being forced back to the poverty level.

The second argument purports to be producer oriented. Restrictions on international trade, it says, threaten all our industries, because exports now represent our margin of profit. To this argument there are three answers: (1) Our really threatened industries-automobiles,

steel, textiles, etc.-have already lost their export markets; (2) our biggest export business-agriculture will continue because the world needs it; and (3) we have at home an unexplored market larger than any we might lose.

Our 14 million unemployed, plus the millions of working poor, plus their dependents, comprise a “nation” of up to 50 million people-bigger than all but a handful of the 157 members of the UN. In spite of our failures, these people are better educated than the rest of the world, have a better understanding of the work ethic, and are closer to the rest of us in needs and wants. If our national and industrial policies were directed to helping these our fellow citizens, there would be plenty of domestic business to keep U.S. industry fully occupied and highly profitable.

 

The New Leader

Originally published August 8, 1983

LAST SUMMER I wrote a couple of columns questioning the Atari Democrats notion that we should write off our “sunset” industries (automobiles, steel, textiles, what have you), where we’re losing dominance in even our own market, and concentrate on some “sunrise” industries to be invented by a commission of unemployed economists. You will be astonished to hear that in spite of those pieces, the notion is still around. Now, the unstated premise of the Atari Democrats’ notion is the belief that protectionism is unthinkable in the modern world. We learned this in those high school courses on Problems of American Democracy we took instead of history. Even President Reagan learned it. In this year’s Economic Report he said, “I am committed … to preventing the enactment of protectionist policies in the United States.”

I am pained to suggest that President Reagan is wrong once again. In explanation, I am going to start with what the consequences of American protectionism might be for the rest of the world, particularly for what are euphemistically called Less Developed Countries, or LDCs. It is, make no mistake, the LDCs that would ultimately be most seriously affected by a rebirth of protectionism. Most of the talk now is about Japan, but that is merely because most businessmen and most business commentators don’t remember yesterday and can’t imagine that tomorrow may be different from today. It was only yesterday (let us remember) that the Germans were the Wundermenschen. The VW bug had bitten off a piece of the American market long before Toyota mastered the pronunciation of Corolla, Everyone had a Leica before Cheryl Tiegs taught us to prefer Olympus. The cognoscenti turned up their noses at Avery Fisher’s consoles and rushed to get the latest components from Telefunken. German productivity was proverbial.

But now all that is forgotten. The Germans are having a depression just like us, and the Japanese are selling cars and cameras all over Europe. VW is losing money hand over fist, and Telefunken is on the verge of bankruptcy.

A moderately reflective person might wonder whether what happened to the United States, and then to Germany, might not one day happen to Japan. As a matter of fact, it is already happening. The Japanese are writing off their textile industry and are manufacturing electronic components in Singapore and South Korea, just like the rest of us. Aha! says standard economics, this will benefit the Japanese. The benefit will come from lower consumer prices, and the Japanese who lose their jobs to Koreans will turn their hand to things the Koreans want but can’t make. That is the way standard economics thinks things work, and next month we’ll consider why they don’t work that way.

For the present, let’s step back a bit. The factors of production, we learned from standard economics, are land, capital, labor, and perhaps technology. Which of these factors do the multinationals seek in strange strands? Not technology, certainly, and not land, especially if they’re doing their seeking in Singapore. Not capital, either, though a sheik here or there may have more than he can think what to do with. No, the factor sought is labor.

Well, everybody knows that. Asian girls, especially young ones, have remarkably nimble fingers and are wiry and strong and able to work long hours, and they’re smart and eager to learn. Moreover, they’re fresh from the bush or the slums and never saw regular pay before and so are easily pleased. They don’t fuss about safety regulations or health insurance or sex discrimination or any of that stuff. Nor is this so bad as it may sound to us liberals, because these people are in for a tough life any way you look at it, and work in an electronics sweatshop is a lot better than their alternatives, and that is true even without mentioning prostitution.

Overworked and exploited though they may seem by our standards, these girls may have been chosen by destiny to use their nimble fingers to scratch out the first painful steps toward the establishment of a middle class in their underdeveloped lands. Such steps were not easy in the 19th-century Northern Hemisphere, and there is no reason to expect them to be easy in the 21st-century Southern Hemisphere. And unless the steps are taken, the LDCs will continue to be at the mercy of imperialist or neoirnperialist powers. This is the standard view of the situation-hard-nosed, perhaps a bit regretful, but above all forward looking.

Now, I will contend that neither standard economics nor Marxian economics understands what is wrong with imperialism. The thing about imperialism, I propose, is that it is extractive. It extracts the produce of mines and of agriculture, and it pays for these products whatever the market will bear[1]. Sometimes the market will bear a lot, mostly it won’t. Some American farmers are old enough to remember how it was in the days before price supports;  that’s the way it is now and always has been with LDC producers of copper and bauxite, cocoa and bananas and sisal. If you’re puzzled by this performance of the market, you will find it beautifully explained in the works of John Kenneth Galbraith, particularly Chapter VIII of Economics and the Public Purpose. Meanwhile you can rely on the avouchment of your own eyes that somehow prosperity has not come to Guatemala or Guinea or Bangladesh.

It is obvious enough that imperialism extracts the minerals of the earth and the fertility of the fields and ships them abroad. What it does to the factor of land, it also does to the factor of labor. The only reason for employing LDC labor is that it’s cheap. It’s far away and not always very efficient, and usually in need of an embarrassingly brutal dictator to keep it in line. But it is cheap.

Its cheapness is revealed by what it is exchanged for. When the labor of an LDC is used to manufacture products for export to the developed countries, the LDC earns foreign exchange that it spends in the developed countries on what it wants or needs – often on food it once produced itself – until seduced into maximizing exports. To understand what such an exchange means, we can compare the average hourly wage in the LDCs with that in the industrialized world. The precise numbers of course vary from place to place, but a ratio of one to five won’t overstate the differential and will do for purposes of illustration. This requires the LDCs to exchange five hours of their labor for one hour of our labor. The produce of the four-hour labor difference is in effect extracted, no less than the produce of their land was (and still is) extracted.

It is important to understand that this is not a situation of temporary unfairness, or of an imbalance that will be righted even in Keynes’ famous long run. What is extracted is gone forever. The situation, furthermore, has grown steadily worse in our time, much to the bewilderment of everyone who had great hopes for the results of liberation.

WHY HAVEN’T the newly liberated colonies been able to duplicate the success of the U.S. following its freedom? Wasn’t our position right up to World War I just like that of the LDCs? Didn’t we need and use British and European capital, just as the other former colonies need and use the multinationals’ capital today?

No, and again no. We used British and European capital, all right, and for the most part they were handsomely rewarded, but we used it first to build our infrastructure – canals, then railroads, eventually even street railroads. And we were inevitably the ones to employ that infrastructure; there was no way that benefit could be extracted. When foreign capital went into steel and soap and thread and chemicals, those products were for our own market; their benefits were not extracted, either. An interesting short book with a long title published last year, European Direct Investment in the USA before World War I by Peter J. Buckley and Brian R. Roberts, is able to discuss all the details of its subject without once considering the possibility that Europeans invested in the U.S. to manufacture for their own consumption. A sign that our development was not extractive is the fact that throughout the period in question – and indeed until very recently-our wage scales were the highest in the world. (That used to be a proud boast.)

In contrast, when GE manufactures plastic-frame irons in Singapore or Atari makes mind-boggling games in Taiwan, the irons and games do not stay in the underdeveloped world. They are shipped out, and with them is effectively extracted the wage differential between the underdeveloped world and the developed world.

The United States was able to escape similar domination by Britain and Europe in the 19th century mainly because of the sheer size of the country. A chronic shortage of labor kept wage scales relatively high, and a large internal market encouraged the use of foreign capital to produce goods for our domestic demand rather than for export. To duplicate the U.S. performance, the LDCs must duplicate the conditions. This won’t come naturally; they will have to be driven to it. Nevertheless, their objective should be to use their labor to produce what they themselves need. They should be manufacturing equipment for an equivalent of the Rural Electrification Administration. They should be developing trade within the LDC world and reducing their trade with the industrial world. The LDCs will always lose in trading with the industrial world (though a few of their citizens may become filthy rich); by trading among themselves they can pull themselves up by their bootstraps, just as we did a century ago.

Such quasi- internal trade would require cooperation on a scale that appears implausible. But the industrialized world-particularly, as I’ve said, the United States – could enforce such cooperation on the LDCs by the simple expedient of denying their manufactures unlimited access to our market. If GE could not sell its Singapore-produced irons in the U.S., it would find it necessary either to produce something else in Singapore, or to pass up the opportunity to employ its capital there in a highly profitable way. Even if it opted for the latter solution and pulled out, the Singapore economy would be, literally and figuratively, healthier.

The proposal to deny unlimited access to our market goes against everything we used to be taught. It also goes against what the publicists for big business continue to teach us. It is, however, merely an extension of the anthropologists’ commonplace that subsistence farming is better for peasants than is a one-crop plantation system. In my next column, I will take up more fully how a change might be implemented, as well as what its effect would be on us.


[1] Editor’s note:  Those who knew the author, and his wife Lucile H. Brockway, my parents, know that these ideas were discussed between them and that she published a ground breaking book, “Science and Colonial Expansion” in 1979, four years before this article appeared, that makes these points, and others, at length from an anthropological perspective.  The two of them were quite a pair….

Originally published February 23, 1981

Dear Editor

Foreign Policy

I agree with George P. Brockway’s conclusion that “policies like the human rights program are precisely what is needed, while unleashing the CIA will damage us severely” (“Foreign Policy in a Bipolar World,” NL, January 12). But it seems a gross exaggeration to attribute the decline of Eurocommunism or the survival of Spain and Portugal outside the Russian orbit to former President Carter’s human rights program and the Helsinki Final Act. While it may be easier to arrange “for our enemies to have enemies” than to increase the number of our friends, there is little evidence that this can be achieved by trumpeting the human rights cause. To direct human rights policies” more toward making the USSR mistrusted than toward making ourselves beloved or feared,” depreciates their value.

The best argument for a human rights program is not that it makes enemies for the Soviet Union and friends for the U.S. Human rights are intrinsically good, like international economic prosperity and the absence of world war. They are invaluable, not only because we like them, or because they are the foundation of American independence (“the objective of American foreign policy”), but because the more human rights prevail abroad, the easier it will be to preserve them here.

In the many regions that are critical for our foreign policy-the Middle East, Africa, Central America, Eastern Europe, South Asia-human rights are endangered not only, or even primarily, by threats of Soviet subversion or penetration. The greater danger is that human rights in these crucial areas are imperiled by economic and social disequilibrium. A credible human rights program cannot be separated from concern about and involvement in efforts to achieve more equitable social and economic systems in the destabilized regions.

President Carter’s human rights program was so selective that it seemed deceitful to many in the Third World. It was too obviously a propaganda weapon aimed at discrediting the USSR by focusing on Communist betrayal of freedom, while giving little if any attention to identical or even worse violations by regimes that were supposedly our friends-Iran, China, Korea, the Philippines, and others frequently cited by Amnesty International. Are Arabs, Indians, Latinos, and those to whom the Voice of America sends news about our human rights concerns supposed to take protestations about Soviet dissidents seriously when they fail to hear of our concern about their dissidents?

Carter’s human rights program also failed to link the rights of free speech, free press, free assembly, and free political organization with the rights to work, eat and grow old with dignity and security. In much of Africa, the Middle East, Asia, and Latin America it will be difficult, perhaps impossible, to achieve the first category of rights without the second. A credible human rights program cannot be selective; it must demonstrate concern for the rights of all, and must also seek the right to survive with dignity as well as to protest the misdeeds of oppressive government. Otherwise, the foreign policy advocated by Brockway will be perceived by most of the Third World and much of the rest of the world as mere rhetoric.

Binghamton, N. Y.

DON PERETZ

Professor of Political Science State University of New York

 

George P. Brockway’s article is full of provocative statements. Many of them I agree with, but not all of them can be logically advocated at the same time. I most certainly agree that promoting human rights is not merely moralizing, that this can serve a number of important foreign policy goals. For example, because the Carter Administration took human rights seriously in Latin America, our diplomatic and economic interests were advanced. As a number of countries successfully navigated the difficult transition from authoritarian to democratic rule (Dominican Republic, Ecuador, Peru), we were able to construct a series of close working relationships which immensely improved our diplomatic strength. With the United States no longer identified as a close collaborator of every dictator, American businessmen found a friendlier environment; in Latin America, no major investment disputes developed over the last four years.

I also agree that the United States too often places great stake in the momentary political posture of Third World governments. Treating the world as a zero-sum game, where the “loss” of any state is automatically a gain for the Soviets, the United States has squandered great energy and resources in trying to control the domestic politics of an innumerable number of developing nations. Yet the inherent economic and military importance of these nations, more often than not, is marginal to any reasonable definition of United States interests. Moreover, even if a nationalist government should come to power, whether of the Right or the Left, the chances are very great that it would still want to participate in the international economic system. It would want to trade with U.S. firms and to borrow from U.S. banks, and have no choice but to pay the interest rates established in the London money markets. Very few leaders in the developing world consider either autarky or the Soviet-led COMECON as an alternative to the Western economy. Indeed, even Communist countries-from Hungary to China are anxious to increase their participation in what has become a global economic system.

Brockway is also correct, in my opinion, to argue that an aggressive foreign policy, perhaps resorting at times to covert action, can too often be counterproductive. The Soviets and Cubans were active in Angola before South Africa invaded in 1975, but there is no doubt that the Cuban presence was legitimized in the eyes of most Africans by the South African invasion and the CIA presence. Even when covert operations succeed for the moment, the future can bring disaster. In Central America, an active CIA has helped maintain conservative, generally military governments for decades. But now Somoza is gone and El Salvador today-or Guatemala tomorrow-faces a powerful insurgency that views the United States as the major source of succor for their oppressive governments. Iranians remember all too well our long collaboration with the Shah and his secret police, SAVAK.

In arguing that the Soviets will often find that client states cost more than they are worth, Brockway offers a useful corrective to those who present each Soviet “gain” as a trauma for the West. The Soviets are undoubtedly finding their foreign obligations to be a major drain on their limited resources, and must be wondering whether an expansionist foreign policy is really in their interests. Nevertheless, I am not sure that the United States can be quite as relaxed about Soviet activities in the Third World as Brockway seems to suggest. Especially when Soviet actions take a military form, we ought to register loud disapproval. If we are to establish “rules of the game” for superpower activity in the Third World, constraints must be placed on both the Soviets and on us with regard to the use of force in there. If the Soviets do not desist, the pressure will continue to mount for the United States to respond in kind. Yes, our interest should be in seeing that Third World states are independent states, not clients of any superpower. As Algeria recently demonstrated in helping to gain release of the U.S. hostages held by Iran, genuinely independent countries can often be more useful than “loyal” allies who enjoy little respect in the world and have essentially passive foreign policies.

Yet this formula for genuine nonalignment is not consistent with Brockway’s view that we live in a bipolar world. In a bipolar world, it becomes extremely difficult for relatively weak states to avoid seeking the protection of one of the two superpowers. Each superpower logically sees the disengagement of any country from its sphere of influence as a “loss,” a weakening of its alliance system. Each superpower will therefore struggle, using various means, to maintain its friends in power around the globe.

Fortunately, today we live not in a bipolar nor even in a multipolar world, but a poleless one. Power has become so diffuse that many states have accrued significant quantities of it. Countries such as Mexico, Brazil, Argentina, Nigeria, Libya, Iraq, and India have enough power to try to maneuver international events in accordance with their national interests. Smaller powers in their areas recognize the presence of the regional “influentials,” and must· adjust to this. In the past, we mistakenly imagined that we could manipulate these regional “hegemons” to do our bidding. In fact, they have proven capable of defining their own foreign policies in the light of their perceived national interests. Their policies have sometimes converged with ours, but frequently have not.

A poleless world is infinitely more difficult for the superpowers to manipulate. Either superpower that tries to control events in the Third World today is bound to face frustration and disappointment. For that very reason, if the United States maintains a sense of proportion and keeps its eyes on its true interests, the Third World will be seen as a less threatening place.

Washington, D. C.

RICHARD FEINBERG

Resident Associate Carnegie Endowment for International Peace

 George P. Brockway replies:

 I full agree with Richard Feinberg that we should “register a loud disapproval” when Soviet actions in the Third World take a military turn, and I expect that he agrees with me that our disapproval should itself seldom take a military or even a quasi-military turn.

My fundamental differences from Don Peretz would, however, require volumes to elucidate, though the particular policies we would support are probably very close. In brief, he believes that some things are “intrinsically good,” while I find that the intrinsic goods he mentions are often in conflict. Forty years ago the “intrinsic” good of human rights was in conflict with the “intrinsic” good of the absence of world war. Was one more intrinsic that the other? The inability of “political science” to answer such questions produces the very “unstable amalgam of moralizing and Realpolitik” that I mention in my article.

An aphoristic summary of the position of my article may be found in the concluding words of a forthcoming volume on The Philosophy of History by the late Professor John William Miller: “History does not show men good or bad; it operates by assuming that they are moral-that is, agents. Good, in history, can mean only the perpetuation of those critical processes that define the moral.”

Originally published January 12, 1979

BEFORE HIS old broom sweeps it all away, Ronald Reagan should give careful thought to the possibility that some of Jimmy Carter’s foreign policy-in particular the human rights program and the downgrading of CIA activities-may have a better practical base than even its sponsors imagined. What probably was conceived as born-again do-goodism may actually be the epitome of hardheaded down-to-earth practicality in the world we face today. For unlike our parents and their parents, we now live in a bipolar world. This is something new under the sun.

We have had good experience with an analogous situation in domestic politics, where it is clearly recognized that a two party system is radically different from any other. We believe this  system gives our government a stability denied to those of, say, France and Italy. To the extent that our belief is well founded, and that we understand the nature of the foundation, we may hope for stability in international affairs. If we misunderstand the  situation, we are likely in for trouble.

From the point of view of the voter, the salient fact of two-party politics is that one is generally voting against, rather than for. To put it in its harshest light, as many recently did, one must choose the lesser of two evils. Only rarely is it possible to enter the polling booth with unbounded enthusiasm.

The resulting political atmosphere is often bland, which is another way of saying non revolutionary. The two parties crowd toward the center of the political spectrum and tend to become similar in their programs. That makes possible such sudden voter shifts as we experienced last November, when those who could have been expected to vote against Reagan voted against Carter because of his perceived ineffectuality.

Occasionally, true believers find ways of establishing something approaching an ideological difference between the parties, of giving voters “a real choice.” Handfuls of the faithful are made ecstatic, but the usual consequence is electoral disaster. Barry Goldwater and George McGovern are roundly defeated. Few can have loved Lyndon Johnson or Richard Nixon, even at the height of their powers, yet vast majorities had reasons to vote against their opponents.

On reflection, the vote-against syndrome is not surprising. Quite apart from the great variety of opinion called forth by any question, all tragic or comic views of life recognize that no one is perfect, and moreover, that perfectionists never get anything done. Perfection is not to be looked for; and when the choice is narrowed to two, the less imperfect is the best available. Whether this is good or bad is not to the present point; it is in any case generally acknowledged that this is the way things are in a two-party system.

Where in the end the choice is the lesser of two evils, the winning campaign strategy is not so much to build up one’s own candidacy as to tear down one’s opponent. There is, of course, the danger of a backlash, so it is advisable to mask or moderate the strategy, In recent American politics a tactic has been for the candidate himself to take the high road and let supporters do the mudslinging. Thus Dwight Eisenhower uttered healing platitudes as Nixon and Joe McCarthy screamed about the mess in Washington and 20 years of treason. When the new Nixon ran with Henry Cabot Lodge in 1960, both tried to be statesmanlike and it did not work. Eight years later the new new Nixon was the picture of highmindedness, while Agnew went after effete Easterners and the like in strings of alliterative vituperation. Harry Truman effected a subtle combination of both roles in himself: He gave the do-nothing 80th Congress hell, but left his opponent alone and gasping. John Kennedy and Carter tried variants of this tactic, and it is noticeable how futile Carter became once he had to shift to promoting his own virtue instead of castigating Washington’s sinfulness.

The essential meretriciousness of most of the campaigns mentioned should not mislead us into thinking that bipolar politics is always largely a media event. The classic refutation is provided by the Lincoln-Douglas debates, where Lincoln forced Douglas to destroy his own credibility, especially in the South, by admitting that his doctrine of squatter sovereignty would allow the people of a territory to vote slavery down as well as up. The admission won Douglas the debates, in that he was re-elected to the Senate. But Lincoln achieved his aim of splitting the Democratic Party, and two years later he was elected President. Douglas became the candidate to vote against, whether you were a Southerner in favor of slavery or a Northerner opposed to it.

IT IS ONLY in the last quarter century that the international system has polarized. The balance of power was destroyed by the world wars and consensus was destroyed by Korea. The two superpowers now confront each other. Each has as its minimum goal the maintenance of its independence. Each has as its maximum goal the elimination or metamorphosis of the other. Neither one intends-or wishes -to use the bomb to gain its ends; they must wage their war by other means.

The obvious means suggested by conventional diplomacy is a system of alliances; hence we have NATO on one side and the Warsaw Pact on the other. Yet not a day passes without some event reminding us that our allies do not exactly love us. Even when they seem to agree with us they find ways, often irritating ways, of asserting their independence. They also do not love the Soviets, however; should they have to make a vital choice they will rally, albeit reluctantly, to our side. It is much the same with the Russian satellites. Today the Poles are giving the Russians fits, but no one expects them to break away from their lord and master. In the end, the lesser of the evils will be grudgingly accepted.

The Third World offers a still closer parallel to that of the voter in a two-party system. The very claim of nonalignment testifies to an unwillingness to make an unequivocal commitment to either great power. It may frequently seem that nonalignment is a sham, and it is surely a nuisance. The Third World countries, however, no doubt all wish that they could simply follow the lead of one big power or the other with enthusiasm; their lot would be vastly easier if one of the two competing big powers were worthy of their undying affection. As it is, on issue after issue they must support what appears to them the less reprehensible side; they must decide against, rather than for.

Assuming the foregoing analysis is approximately correct, it would seem that U.S. foreign policy today should be directed more toward making the USSR mistrusted than toward making ourselves beloved or feared. In other words, it is more important for our opponent to lose friends than for us to gain them: the greater the world’s skepticism of the Soviet Union, the safer place it is for us, even if France thinks us tasteless and India is shocked by our materialism.

We have seen this principle at work. The Helsinki Final Act and the Carter human rights program have weakened the Soviet Union. Euro communism, only recently thought likely to engulf the Continent, is no longer heard of. Spain and Portugal, countries Henry Kissinger was ready to write off, have survived outside the Russian orbit. In America, the revisionists’ theory of the origin of the Cold War has become clouded with doubt. These substantial developments are at least partly due to the Soviets being forced to show their hand in their treatment of the dissidents. When Andrei Sakharov is not safe, after 60 years of total and unchallenged Bolshevik rule, it is difficult for anyone to believe in Moscow’s claims of having created an ideal society.

But since Sakharov is not safe, it can be argued as well that the value of the human rights program is open to question. Indeed, many of the dissidents themselves have made known their concern that the Soviet leaders have too weak a hold on power to tolerate being pushed very hard. Like the former American President who claims to understand them, they may, if forced to decide between admitting their guilt and acting it out, do the latter. To really help the dissidents, it is said, we should revert to quiet diplomacy.

There is no denying that our position here becomes ambivalent. Our national interest may be served by pursuing policies that could result in disaster for those we profess to assist. The unpleasant fact is, again, that it is more important for our enemies to have enemies than for us to have friends. This is equally true whether our potential friends are individuals or nations. It may therefore seem that we are using the dissidents to fight our battles, just as Britain was accused in 1940 of fighting to the last Frenchman. But of course the dissidents are using us, too. Humanitarians are, in the end, as tough-minded as self-advertised practical men.

In all this, though, there is an important difference between propaganda and policy. Young Abraham Lincoln’s plan for arguing a weak case was “Skin the defendant.” That is propaganda, and as Lincoln also said, “You can’t fool all of the people all of the time.” In the debate with Douglas, in contrast, he forced Douglas to skin himself. Naturally, Douglas could not have been forced to skin himself if squatter sovereignty had been a defensible idea-but then there would have been no need for a debate.

It is (or can be) the same in international affairs. Talk about Russians using gas in Afghanistan or Americans using germs in Korea or Germans slicing off virgin breasts in Belgium is propaganda. Such horrors are incidental to the main issue and almost  unprovable. Human rights is quite different. To a large extent it proves itself. If there is a free press, where are the opposition papers? If anyone can migrate, why all the barbed wire at the borders? If everyone can speak his mind, why prosecute those who do so? To a large extent, too, it confronts the defendant nation with impossible alternatives: If the Soviet Union cracks down on the dissidents or on the Poles, it loses credibility in the rest of the world. If it does not do so, it risks the gradual-perhaps rapid-erosion of its totalitarian system. To the Soviet leaders, these must be bitter options; we, meanwhile, might feel safer if their society opened up, yet even the first alternative would strengthen our position.

UNDER THE direction of five Presidents, the CIA has been operated on the opposite theory, namely that what we need in the world is friends. Given the results of its efforts, this may seem a perverse reading of events. But it is the sole sensible  explanation for our contributing to the overthrow of Jacobo Arbenz Guzman in Guatemala, Mohammed Mossadegh in Iran, Salvador Allende Gossens in Chile, and similar attempts elsewhere. The CIA has tried to get us friends, by purchase or by pelf, and it has managed to corral a few, several of whom survive. These friends are reasonably sure votes in the United Nations. They are generally enthusiastic suppressors of anything that looks even remotely like a Communist or populist movement. And they have given us a bad name in the world.

Some of this bad name is no doubt unjustified. Whenever anything goes wrong anywhere it is readily blamed on the CIA, whose initials have become a universal cussword. The charges are sadly credible because the CIA’s own propaganda claims credit for many dirty tricks and boasts of the Agency’s ability to do more if only unleashed. Even granting its view of international relations, this boasting is stupid. From any rational view, it undermines the national interest.

In yesterday’s multipolar world (where active friendships could be vital to us) subversive activities made it very difficult for potential friends to ally themselves with us. In today’s actual bipolar world, with its quite different requirements, a policy of buying friends and destroying apparent enemies makes it hard for opponents of the Soviets to declare themselves or to remain steady in their opposition.

It does not much matter to us whether the next blood-and guts corporal or law-and-order colonel announces he is Marxist or anti-Marxist. Either way he will be as suppressive of his fellow countrymen as he feels necessary and as eager for foreign handouts as the game will allow. Either way he will encourage foreign investors on Barnum’s principle about suckers. Either way he will vote against us in the UN as long as CIA posturing validates the theory that we are neocolonialists-and probably a while longer for good measure. But he can’t do us much harm, and more important, he can’t do the Russians much good. We can afford to be scrupulous in our dealings with him; and if our only pressure on him is in regard to human rights, we will, at the least, win the respect of his neighbors and, possibly, the gratitude of the internal opposition that may moderate his excesses or eventually supplant him.

Now that Angola is no longer in the news, for example, one wonders what all the flap was about. Gulf Oil still has its relatively minor business there, because the Angolans need it (or merely want it) regardless of ideology. And looking back, it is hard to see how anyone could have imagined that Angola was of more than marginal strategic importance. In the first place, Arabian harbors and Arabian oil fields would be handier targets for Russian missiles than tankers of whatever registry in the South Atlantic; in the second place, the German experience in World War I demonstrated the uselessness of isolated African outposts. Yet our UN ambassador made a tremendous fuss about Angola’s presumed threat to world peace, and the CIA semi-clandestinely wasted American lives (they were mercenaries but still human beings) and supplies there. Worse than that, the CIA encouraged the entry of the South Africans into the fray, thereby reinforcing in every black and every colored from Capetown to Cairo a conviction of our perfidy. Finally, the CIA’s actions made it impossible for us to gain a diplomatic triumph by exposing the Cubans, and this in turn made it easier for the Cubans to interfere in the horn of Africa.

The CIA (under orders, it would appear, from Secretary of State Henry Kissinger and so, presumably, from President Gerald Ford) could scarcely have done more damage to American national interests if the script had been written by the Russians themselves. It cannot be over emphasized that the ineffectiveness of the CIA is not the point. Most of the damage to the United States would have occurred even if the intervention had succeeded, and all we would have gained would have been another expensive client whose nonexistent Olympic team would have boycotted Moscow. In a bipolar world friends like that are of no use to us, and generally are actually harmful.

The dirty tricks operations of the CIA might have made sense in the last half of the 19th century; In the last quarter of the 20th century they are irrational in the extreme and flatly destructive of the national interest. It is admittedly exasperating that a curious double standard seems to let the KGB be 10 times dirtier and trickier than the CIA ever was. But that is no reason for a grand unleashing. Our interests will not be advanced by presenting ourselves as no better than the Russians, simply somewhat clumsier.

At first glance it might appear that the Soviet takeover of Afghanistan exposed the futility of the policies advocated here. After all, the human rights program and some restraining of the CIA have been in effect for upwards of three years, yet the Russians invaded with impunity. But the most obvious and regrettably soonest forgotten fact of American foreign policy is that its aim should be to protect and advance U.S. interests. Although an independent regime in Kabul might marginally contribute to that aim, it is not identical with it. Afghanistan fits Chamberlain’s mistaken description of Czechoslovakia-a far country of which we know little. It is by no means a second Czechoslovakia, nor is Southern Asia a second Western Europe.

Let us say, for the purposes of argument, that the Russians in Afghanistan are a threat to Pakistan. If they should try to take over that troubled land, it would serve them both right. The USSR would, to be sure, then have access, via Baluchistan, to the warm sea, thus satisfying a long-since-meaningless ambition of the Tsars. It might also, if it were not careful, wind up conquering and ruling India and Bangladesh.

The dominoes of Southern Asia line up from west to east, just as a quarter century ago we feared they were from Vietnam westward. But no matter what direction they topple, they offer nothing except trouble to the toppler. We are not dealing with a situation reminiscent of World War II when Hitler’s dominoes gained for him (and denied to his enemies) productive industry, productive agriculture, skilled manpower-plus a protected eastern flank that facilitated his conquest of Western Europe and opened the route for his eventual attack on the Soviet Union. This last may suggest a geopolitical question: Could the Russians use a conquered subcontinent as a springboard for an attack on China? No one who has heard of the Himalayas is likely to think so. Or could they have in mind an attack on Iran? But they already have a more congenial route open via Azerbaijan.

There remains the question of collective security, in which we have a serious interest. But it is quite different in our bipolar world from what it was hoped to be in the days of the League of Nations, or the early days of the united Nations. The conquest of Cambodia has dealt us a cultural deprivation in the inaccessibility of Angkor Wat; our strategic loss has been insignificant. In the same way we could have afforded to contemplate the takeover of Afghanistan with something less than absolute horror. .

It was really an issue for the Third World, and they rose to the occasion. The UN censure was a major Soviet defeat. But instead of letting this defeat stand as a permanent reproach and inhibition, we trivialized it by connecting it with, of all things, the Olympic Games. That might not have been so bad had we contented ourselves with our own boycott, which would have been noticed whether anyone joined us or not. We made the boycott the subject of a major diplomatic effort, however, and then trivialized that with such ham handed moves as sending Muhammad Ali to Nigeria. Even our handling of the grain embargo showed us more fervent believers in economic determination than the Russians.

As a result, we distracted attention from the Soviet defeat on a major issue to our own defeat on a trivial one. We had an opportunity for productive diplomacy and we threw it away, because we did not understand the bipolar world.

A POLICY IN the present world that involved tarnishing the Soviet’s image would not necessarily hurt their national interest, and this fact should be held steadily before their eyes and ours. Politics is not a zero-sum game. The election of Richard Nixon and Spiro Agnew amounted to a loss not only for the Democrats but for the Republicans as well. The election of Franklin Delano Roosevelt was a universal victory. It is the same in international affairs. The winners of a war suffer grave damage, too; the losers in a trade negotiation may still be better off than they were before. John Paton Davies, John Service and the rest may have lost Chiang Kai-shek’s China, but Mao’s China has proved a greater curb to Russian aggrandizement.

It is often remarked that American foreign policy is now an unstable amalgam of moralizing and Realpolitik. The instability is a consequence of the failure of either element to base itself on the historical situation of the world today. Fine talk and tough talk are equally inappropriate. Both hawks and doves are obsolete. We do not need either to join the Soviet Union or to bury it; we need merely to prevent it from getting into a position where it can bury us.

It is possible that in the long run the constraints of a bipolar international system, like those of a two-party national system, will narrow the differences between the contenders. It should not be expected that such narrowing will automatically decrease hostility. In 1914 Germany and Great Britain were more nearly alike than the most fanciful scenario can project for the Soviet Union and the United States. Nor should it be expected that people-to-people contacts (desirable though they may be in themselves) will invariably have positive nation-to-nation results. In 1940 young Germans, who as children had been cared for in Norway during the starving times of 1918-21, returned to their foster homes as Gauleitern.

In any event, whatever narrowing of ideological differences occurs will come about as a byproduct, not as the consequence of deliberation. Our deliberate policy should be to keep the Soviet Union on the ideological defensive. If this requires improvements in American treatment of black people and black nations, and in Russian treatment of dissidents: well and good. In the unlikely case that the policy requires the opposite: too bad. The objective of American foreign policy remains what it has always been: to maintain the independence of the United States of America. But the means of achieving that objective must suit the times. Our bipolar world is different from everything that has gone before, and policies like the human rights program are precisely what is needed, while unleashing the CIA will damage us severely.

GEORGE P. BROCKWAY, a previous NL contributor, is the
chairman of the board of dir
ectors of W. W. Norton & Co.

Originally published January 1, 1979

(Editor’s note – Occasionally the New Leader would print selections from correspondence in the form of a mini-article.  This is one)

NEW YORK-The United States probably could not and certainly should not do anything to advance or retard the palace revolution that now seems to be proceeding erratically in the Peoples’ Republic of China. We can and should, however, try to understand it, and our understanding will be clearer if we recognize at once that literal translations of Chinese political slogans and epithets are, let us say, inscrutable.

We of course have some experience ourselves with inscrutable politics. A long line of humorists from Artemus Ward through Mr. Dooley and Will Rogers to Russell Baker and Art Buchwald has found that taking political slogans seriously is always good for a laugh. And we are not alone among Western nations in this regard. The wit of W. S. Gilbert had a similar base; nor is political confusion dead in France, where one of the most conservative parties calls itself Radical.

The present Chinese epithet “Gang of Four” strikes us as a bit bizarre, but it is not likely in itself to mislead us. We know that the Chinese are fascinated by numbers; they have Five Kinds of Red and Seven Kinds of Black and much else. In the present case, the four people have been named, and there seems no reason to doubt that they shared similar ideas.

It is when we ask about these ideas that we run into trouble. The Gang was, we are told, counterrevolutionary, which is odd, because this is the very charge the Gang leveled against its successors. The Gang plotted a return to capitalism-again an odd coincidence. And the Gang distorted the Thought of Mao-still another odd coincidence.

Are we faced, then, merely with a clash of personalities? Is all the uproar caused by a personal aversion of Chiang Ch’ing for Teng Hsaio-ping? Or perhaps by his male chauvinism? Or, as in the ostensible occasion for the Great Cultural Revolution, by a dispute over a critique of a play produced two years ago? Such a reading of the situation is by no means impossible, and it does not exclude other complementary readings. There is plenty of precedent for this sort of thing, both in China and elsewhere.

A famous slogan of Teng’s may lead the way to clarification. “It doesn’t matter,” said he in 1967, “whether a cat is black or white so long as it catches mice.” Few Westerners, with the possible exception of doctrinaires like the late Joseph McCarthy, would dream of objecting to this sentiment, which seems the very model of no-nonsense, can-do, winning-is-the-only-thing pragmatism. Yet this apparently innocuous aphorism was an assigned cause of Teng’s fall from Mao’s grace in 1967 and again in 1976.

This happened for a reason surprising and simple: Mao Tse-tung, one of the greatest movers and shakers of history, one of the most successful of doers, one of the most eloquent proponents of dialectical materialism, was not, in the sense generally understood in the West, a materialist at all.

Mao and the Maoists were certainly proud of their material achievements. Wherever visitors went in the early ’70s they were informed that the farm or the factory or the school or the hospital had produced x before Liberation, 2x after Liberation, and 3x after the Great Proletarian Cultural Revolution. At the same time, it was clear that material progress was not an end in itself. The real objective was equality, material equality to be sure, but liberty and fraternity, too. The Cultural Revolution everywhere shamed and degraded those who enjoyed power or status in industry, in education, in medicine, in the Army, in politics, or down on the farm.

That the systematic-unsystematic, rather-destruction of elites disrupted production may have been a surprise to Mao, but it was evidently a price he was willing to pay. “The class struggle,” he reiterated, “is by no means over.” He followed the Marx of The Critique of the Gotha Program in insisting that distribution was not the problem, that once socialist equality was achieved material progress would take care of itself. In any event, there was for everyone to see the degeneration of the Soviets into the totalitarian bureaucracy of Djilas’ New Class. It was this bureaucratic society that the Maoists saw as Right deviationism, as opportunism, as, in the end, capitalist roadism.

A capitalist roader, then, is not necessarily or even probably sympathetic to the ideals or practices of American society. It is unlikely that free speech and the free market hold charms for him. He is, indeed, more likely to understand and seek to emulate the achievements of the Soviets. Mao, on the other hand, was attracted to the United States just because he found Russia repellent.

In short, China’s capitalist road is not an extension of Wall Street. There are no capitalists or protocapitalists in China, in power or out of power, and we will only be misled if we expect ideological slogans to make allies-or enemies- for us. We will find allies, and enemies, too, but we should look for them on the grounds of real rather than imaginary national interest.

GEORGE P. BROCKWAY
January 1, 1979

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