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Friday, November 16, 2007

Latin America Defying Economic Predation

I'm writing to follow up on a few items I discussed in my last post. Bottom line is that deregulation has become a mantra popular among Republicans, who want to seem as pro-business as possible. Corporate lobbying has also inhibited adequate regulation, and I explained that Bush has put lobbyists from a broad range of industries in positions of regulatory oversight.

Laissez faire (do nothing) capitalism has been cherished under the present regime. Disparities in wealth continue to grow in America. Disasters have become opportunties to privatize government services and award no-bid contracts devoid of any oversight. Consequences include preventable mine disasters, unregulated toxic toys, and a major American city woefully neglected more than two years after its partial destruction.

Follow-up on Pthalates

I'd brought up the recent California ban of pthalates, a type of compound with known health risks. Pthalates are dangerous to infants, especially boys' reproductive health. Pthalates are thought to reduce testosterone production and could be a cause of lower sperm counts and sexual dysfunction later in life.

Toy-makers have been one big user of pthalates in their plastics. Pthalates are added to plastics to give them flexibility. DEHP and DBP are two. Newer compounds exist but may be more expensive. Given the body of evidence against pthalates, an extra nickel or two for a safer alternative may seem well worth the cost. Still, for a purely profit-minded corporation, multiplying the additonal safety premium times a million products sold, real profits are at stake, especially if the use of safer components/ingredients is not required by law.

Pthalates are an excellent example of a consumer product that has bypassed adequate regulation. The health risks associated with pthalates has long been understated by the industries that use them. Relying on the business sector to police itself is extremely unlikely when alternatives to riskier compounds cost more. Enforcement efforts are lax, and have suffered further cuts in funding under Bush's brand of laissez faire capitalism.

Unfortunately, toddlers tend to mouth many of these plastics, which allows the toxic compounds to be absorbed into the skin or enter the bloodstream through the digestive tract. Pthalates can also go airborne; this is the off-gassing that occurs as plastic degrades.

According to an article, Toxic Toys, by Mark Schapiro in The Nation, large corporations have removed pthalates pursuant to an EU ban. They had made an effort to stymie the California ban but failed. Pthalates may be common in off-label toys, however, as The Nation article says "if they're plastic and they're soft there's a good chance they contain pthalates."

My advice is to avoid any products containing pthalates if you can. Be cautious with soft plastics, especially around boys.

As was the case with lead paint in Chinese toys, the federal government appears unwilling or unable to control the toxicity of the products we buy, so the consumer--at least if you aren't in the EU or California--is on their own. The real lesson in this deregulated free market is caveat emptor--buyer beware.

Latin America Responds

A new paradigm is being shaped south of the border, where a Friedman-esque (see Correction?, at bottom) definition of free market capitalism is being abandoned. In short, the concept of trickle down economics has been proven to be a complete failure. As Naomi Klein says in an article from The Nation, "the open market schemes of the International Monetary Fund and World Bank are being rejected as undemocratic and injurious to the economic health of poorer Latinos."

For centuries, the people of Latin America have suffered under colonialism. After massacring up to 75% of the continent's indigenous peoples, foreign powers proceeded to enslave and exploit the population to procure raw materials for export and profit. A small and very prosperous upper class emerged, led often by the stereotypical Generale like that played so brilliantly by Richard Dreyfuss in Moon Over Parador.

The aristocratic classes have been usurped by left wing populists like Morales in Bolivia and Chavez in Venezuela. The Wall Street Journal and other mainstream media sources have much maligned the socialistic movements replacing the Yankee, "pro-business" models of government. In 2005, Christian Right broadcaster Pat Robertson even called for Chávez's assassination. The opinion that "assassination was cheaper than war" stirred a powerful reaction through the blogosphere and helped show just how threatened Right wing Americans feel about Latin populism, which almost invariably leans to the left (very vocal anti-socialist movements exist among overseas Cubans and in Venezuela.)

Robertson is freuquently demonized by the Left, for good reason. His charity has seen a great increase in federal funding under Bush's faith-based initiatives, which seek to drive public revenue into religious organizations, in what is widely considered a violation of the Constitutional separation of church and state. [Natural disasters like Katrina offered a window of opportunity for faith-based organizations to supplant the traditional role of government, alongside large contracts with companies like KBR and Bechtel which have influence with the administration.] Robertson's charities have been on the receiving end of Bush's faith-based initiatives, which emphasize abstinence to the exclusion of sex-ed and prevention. In Africa, NGOs that offered education on contraception or abortion were denied all funding.

I'd read that Robertson personally owned a large number of shares in a hedge fund investing in energy development that had seen some of its projects get nationalized under Chávez, so the preacher had been hit financially by Chávez's actions. Like so many other prominent figures on the Right, money and politics are mixed, so one serves the other. Incumbency, even that of tyrants, is valued since it perpetuates the profitable albeit exploitative status quo.

To extend the symbiotic relationship between the political cause and its economic beneficiary is no feat of the imagination. War appears to be an extension of profit-making entitlement, exercised on the back of the public and exploiting the lives of others for personal gain, using nationalism as its backbone and yellow journalism as its screen. Dating to the earliest empires, the conjunction between war and economic policy is nothing new; colonialism is one newer example. Nor is the war-making business limited to the control of a government on the far Right--the profit-making potential of war extends to both parties.

While the prominent anchorperson for the 700 Club would later retract his comments, it had shown the contempt with which people like Robertson treat democratically elected Latin populist leaders. Surely Simon Bolivar and Che Guevara would have been similarly demonized, considering the threat they posed to the ongoing exploitation of economic resources by the ruling classes and their Yanquitos/conquistador friends.

It's the arrogance of our colonialistic thinking that drives so many Latins to explore alternatives to the model we offer, a model that has kept Latin America largely in economic bondage since its discovery. Rather than serve as a glowing example of democracy and economic opportunity, the US has come to be associated with corporate exploitation and neglect of the underclass. These themes have buoyed the popularity of new leaders like Chávez, who provide a political model that encourages broad participation, especially for the poor who've been disenfranchised for so long under dictatorships largely supported by the US.

Training Terrorists?

Recently two friars were sentenced for tresspassing at Fort Huachuca in southern Arizona. Huachuca provides training in interrogation techniques and counterinsurgency warfare. The priests claim the US army teaches torture.

Franciscan Friar Louis Vitale and Jesuit Friar Steve Kelly run a website, www.tortureontrial.org, on the reasons behind their protest. They were recently sentenced to five months in federal prison for trying to deliver a letter to the base commandant.

In one article authored by Attorney Bill Quigley, who defended the pair in Federal court, Fort Huachuca is described as the source of the training manuals for the notorious School of the Americas in Fort Benning, Georgia.

Many graduates of that School went on to serve in governments like those of El Salvador and Honduras, where they committed a string of atrocities in counterinsurgency actions aimed at left wing populist movements during the 80's and beyond. See a list of graduates and their dastardly deeds here. Thirdworldtraveler has a webpage on the SOA here, and another site called School of Americas Watch, http://www.soaw.org, tracks the conduct of SOA alumni.

The blowback from the free training provided to these henchmen is only now really being felt as Latin governments sever their connection to the US military. Klein explains in her article:

"...the governments of Venezuela, Costa Rica, Argentina, Uruguay and Bolivia have all announced that they will no longer send students to the School of the Americas (now called the Western Hemisphere Institute for Security Cooperation)–the infamous police and military training center in Fort Benning, Georgia, where so many of the continent’s notorious killers learned the latest in “counterterrorism” techniques, then promptly directed them against farmers in El Salvador and auto workers in Argentina. Ecuador, in addition to closing the US military base, also looks set to cut its ties with the school. It’s hard to overstate the importance of these developments. If the US military loses its bases and training programs, its power to inflict shocks on the continent will be greatly eroded."

Klein illustrates the influence of militaristic thinking on Latin opinion towards the US well, but she does presume that enhanced "security cooperation" is purely exploitative. It may be that the US can exert positive influence on Latin America; however I don't think using our hard power is ever as effective, or economical, as our soft power. Alliances must be based primarily on non-military cooperation; if an alliance is based purely on military cooperation, it can hardly be considered solid.

Predatory Lending

I'm not much of a expert in Latin affairs and couldn't begin to decribe the long list of dirty laundry that the US and developed world have left behind in Latin America. Despite knowing what little I do, it scarcely takes much thought to recognize that Latin America has been exploited economically and overburdened by austere and punitive measures imposed by the IMF and lenders from more advanced economies. We might have been led to believe these governments brought their suffering "down there" upon themselves, but there appear to be far more nefarious purposes behind the meddling. Dark forces have conspired to keep Latinos down.

In her Nation article, Klein talks about the consequences of the disasterous consequences of meddling in Latin affairs by Western economic and financial powers. Establishing a free trade zone in Latin America has been a major Bush goal. Already accomplished in Mexico, NAFTA's results that include lower incomes south of the border, particularly among farm workers who've immigrated to greener pastures in the north. Higher levels of narco-trafficking and corruption have also come, perhaps not as a direct consequences of NAFTA but certainly strengthened by rural poverty and a lack of political empowerment for the lower classes. In almost all cases, Latinos have been left worse off than before foreign investments, which are repatriated to their home countries. Gold companies, like Newmont Mining, leave behind toxins (link). Profits for the deals have also been traditionally lost to corruption, or are absorbed by the ruling class elite long before ordinary people touch the money.

The colonial argument that we, as a more established country, know better and they, the natives, know less has created shock wave after shcok wave felt by Latins exploited for their labor and natural resources. It's perhaps fitting that we pay the price for the sins of colonialism. At the very least, we can't expect Latin America to welcome exploitation of their natural resources, or cede control over their financial systems to external lenders like the IMF in the name of free markets.

Latin Americans have soured on outside investments and have greatly improved their independence financially as a result of the shock treatment they've received from foreign lenders. However they are still poor, and many have sold rights to foreign companies like Costa Rica, which sold its fishing rights away and has contracted with Harken Energy for oil exploration (link). Harken has an illustrious history, having done business with oil prodigy George W. Bush. Harken is active in Colombia, a nation with a dubious human rights record. See the details on Harken in Columbia in a 2002 article by Sean Donahue.

Blowback might actually impede investment where it could do some good, if indeed more equitable deals can be struck. The consequences of losing foreign investment might be damning, but they can certainly be overcome. One method for replicating outside funding has been the cooperative pooling of resources, along with bartering and swaps that avoid the use of traditional capital altogether. While results might be slow in coming, the economic development that comes from local sources is far more sustainable, and provides more balanced progress than the exploitation of raw materials, which is almost always unsustainable. And in the case of coffee farming, we see mass plantations run by agribusinesses that tend to deflate commodity prices, while denuding the forest. [Personal Note: For this reason, I choose to drink shade grown, Fair Trade coffee. (I use groundsforchange.com) Maintaining mature tree cover (tropical forest canopy) is vital to protecting song birds in North America, which winter in Latin America, and have been losing population.]

The consequences of environmental degradation are quite severe. One potential reason for the extreme damage caused by flooding from Hurriicane Mitch was the deforestation of the region; trees protect the watershed and save lives.

Now back to Klein's article. She explains that the puntive cycle of foreign investors pulling their money out has actually made Latin countries less dependent on foreign capital (notice the jab against Halliburton-style cronyism):

For the cooperatives, there is no fear of facing an economic shock of investors leaving, because the investors have already left. Chávez has made the cooperatives in Venezuela a top political priority...

...Many are pieces of state infrastructure– toll booths, highway maintenance, health clinics–handed over to the communities to run. It’s a reverse of the logic of government outsourcing: rather than auctioning off pieces of the state to large corporations and losing democratic control, the people who use the resources are given the power to manage them, creating, at least in theory, both jobs and more responsive public services. Chávez’s many critics have derided these initiatives as handouts and unfair subsidies, of course. Yet in an era when Halliburton treats the US government as its personal ATM for six years, withdraws upward of $20 billion in Iraq contracts alone, refuses to hire local workers either on the Gulf Coast or in Iraq, then expresses its gratitude to US taxpayers by moving its corporate headquarters to Dubai (with all the attendant tax and legal benefits), Chávez’s direct subsidies to regular people look significantly less radical.

Klein goes on to talk about a form of financial servitude engendered by massive loans to corrupt rulers by First World bankers. Incapable of paying off the massive debt loads, these countries' financial systems end up in ruins, allowing the cycle of debt burdening and collapse to begin once again.

Latin Americans nations are leaving the IMF, abandoning not only Western capital, but the colonial-era inferiority complex relative to the financial systems and capital formulation of more developed nations. Alternative sources and methodologies are sought which break dependency on outside sources of capital.

I'm reminded of the book Confessions of an economic Hitman, which I have yet to read. The premise is that the "economic hitman" extends loans that third world countries cannot hope to pay off. Gradually, rising interest payments squeeze its economy. Hard currency reserves are sent to repay overseas bankers instead of propping up the domestic currency. To compound problems, the falling currency makes imports all the more expensive, which further drains foreign currency reserves. Impoverished by the process, the victimized central bank is forced to borrow from foreigners to stabilize its financial environment, which the excess of foreign borrowing had destabilized. In the end and after the financial shock subsides, the debtor nation is even more deeply in debt.

Perhaps the lending institutions see fit to exercise some mercy by granting more favorable repayment terms. Yet in truth the mercy is simply self-interest: the destabilization could eventually make the loans worthless.

The spectre of predatory lending fits with the idea that economic crises are intentionally manufactured in order to depress wages and devalue worker purchasing power. [Purchasing power means that money buys more goods and services; inflation is essentially theft of money from the working classes, whose incomes rise far more slowly than those of the wealthy.]

Labor movements and alternatives to traditional free market capitalist systems become more attractive at times of economic instability, so long-term destabilization is probably not in the best interest of the corporations and their investors. Labor unions and dangerous ideas like communism became quite popular during the Great Depression. Economic catastrophe might encourage greater political participation as well, which might threaten the hegemony of Big Money over our corrupted electoral process, so too much of a good thing might be bad for the ruling elite.

Junta de la Bush

"South Americanization" is the political equivalent of disaster and crony capitalism. The idea is that Bush and his junta have ruled America much as a traditional Latin despot might. Rule is by decree, the Armed Forces play a much larger political role, and governmental monies are dispersed to a small elite aristocracy.

Looking at the Bush administration's contempt for the law, its politicization of the Justice Department, and disregard for international standard of torture demonstrate the Executive's willingness to use its power for political advancement and economic gain. During the eight years, we've seen great stagnancy in wage growth for the masses, while the top income earners have seen a staggering rise in incomes (up 14% in just one year, 2004, if I recall) attributable to large tax cuts for the wealthy. Meanwhile government spending on the military has exploded, with a good percentage of that rise being fed to companies with close ties to the Executive branch.

Like an IMF loan, the debt on which the spending is based has become the people's burden, and average people will face higher tax burdens for years after the regime vanishes. The higher debt also forces cuts in social spending, impacting the poorer majority disporportionally. The wealthy meanwhile, have shuttled their newfound moneys abroad, and built crafty tax dodges to skirt the inevitable recourse of higher taxes.

And like a third world nation, the US is now dependent on foreigners to finance its purchase of exports and government debt. More than half of our government's debt is now owed to foreigners. Inflation will make the dollar forever cheaper and make financing from domestic sources of capital less competitive against foreign sources, whose currencies will be rising.

Exports might rise, though, but these gains may be transient and exist only as long as the dollar is weak, versus being organic improvements based on sustainable economics. And the diminished global stature of our pro-torture and pro-war leadership weakens the competitiveness of US exports. Import prices will skyrocket and open opportunities for domestic producers, assuming the industrial capacity remains after decades of decline. Political winds could shift and lead to the erection of protectionist barriers, especially if the economy tanks. These would encourage retaliation by foreign governments and threaten our exports.

Where South Americanization will take us, no one knows. Perhaps we will end up more like a banana republic then we now dare admit, as Latin countries move towards more democratized models themselves.

The American people are indeed resilient and the world's most productive, so I do have faith in the US long-term. I am sure an economic crisis is coming, whether the product of too much debt or a general slowdown or both. Pure free market capitalists would argue a correction is precisely the "creative destruction" we need. Yet Naomi Klein consistently produces evidence that such a correction is in no way natural but is rather part of a larger scheme to enrich the wealthy at the expense of average citizens.

The application of shock therapy appears to be the method of choice to affect change; natural disasters and war provide the shock. Crony capitalism, deregulation, and privatization of government services are the methods of choice used by economic predators bent on exploiting the economy for short-term personal gain, whatever the damage to the overall system or people dependent on it.

Additional Resources

For more on Robertson, see "Investigating Pat Robertson" on Alternet. Searching under "Pat Robertson" will yield abundant articles at the more popular alternative websites.

"Latin America says, 'No mas,' to America's corporatocracy" about Chávez and Simon Bolivar by Jason Miller is here.

"Oil's New Mr. Big" by Nelson Schwartz of Fortune talks about Chávez's grappling with Big Oil, an industry he nationalized in Venezuela. It can be found here.

Huffington Post Blogger Nathan Gardels takes issue with Naomi Klein's characterization of Milton Friedman as--in Gardels' words--the "ultimate villain of disaster capitalism."

It's easy to mischaracterize economists as being too scientific, or detached, or the cold opposite of warm humanists. Yet the study of economics is very imprecise and full of contradictions and inconsistencies, so it's perhaps fitting that Gardels writes about Friedman's Last Interview. While Friedman was no saint, he could hardly be called a diabolical force conspiring to enrich the already wealthy at the expense of the public, even if recent years have seen the rise of that phenomena.

It's worth remembering that the economy can lift all boats. There are expolitative elements to economic growth, but capitalism appears to be the best method to date by which an economy can grow. Ideally, the benefits of that growth extend to all people. There are limits to how much free markets can achieve, as Friedman would admit.

The purpose of introducing Friedman's concepts should be put in context. Capitalism and the free markets are not perfect, but neither was Friedman. There's plenty of room to improve on his theories, despite the way politicos have deified the economist and stolen his legacy to advance their agendas.

Politicizing economics tars the Friedman legacy because laissez faire capitalists are identified with the politics of one party--the Republicans--who've claimed Friedman's policies as their own. Friedman, as Gardels' article suggests, was deeply concerned with the inequities of the economic system, more so than his political patrons would ever dare admit.



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