Kenneth Whyte, Maclean's, September 10, 2007

Talking about war, free-market fundamentalism and a breed of politicos who thrive on disaster

There's a school of thought that free markets and democracy go hand in hand and together they make people free and prosperous. You're arguing that free-market ideology has triumphed around the world not because people have embraced the market but because the ideology has been imposed on them, often in moments of distress. Furthermore, these moments of distress have sometimes been created by governments as a pretext to bring in free-market policies. To top it all off, the policies haven't really worked. They've just enriched the people who introduced them. How's that for a summary?

That's pretty good. I would quibble with a few things. I don't know that there are examples of the governments themselves creating the crises.

Okay. Is violence inherent in capitalism or is that something that's recently mutated out of capitalism as it's been practised over the last several hundred years?

I think you can make that argument. But the book is really looking at a war between different kinds of capitalism. It's about a battle of ideas between Keynesianism -- a mixed economy, which is what we have in this country -- and what I describe as a fundamentalist strain of capitalism which has an objection to the very idea of mixed economy. When these sort of fundamentalist capitalists get their way what is constructed is not capitalism at all, it's actually corporatism, China being one example ...

Give me the attributes of fundamentalist capitalism.

They're almost the attributes of every fundamentalist: the desire for purity, a belief in a perfect balance, and every time there are problems identified they are attributed to perversions, distortions within what would otherwise be a perfect system. I think you see this from religious fundamentalists and from Marxist fundamentalists, and I would argue that [Austrian economist Friedrich] Hayek and [University of Chicago economist Milton] Friedman shared this dream of the pure system. These are brilliant mathematicians, in many cases, so it looks perfect in their modelling. But I think anyone who falls in love with a system is dangerous, because the world doesn't comply and then you get angry at the world.

So you have these economists advocating for this pure form of capitalism -- what is the attraction of disasters to these people?

Well, disasters are moments where people are blasted out of the way, where they are in a state of shock, whether they're scattered -- as after a hurricane hits in New Orleans -- or just picking up the pieces after having been bombed, or their entire world view has just been shattered -- as after Sept. 11. These are malleable political moments. And there is an awareness that disasters create these opportunities, so you have a whole movement -- much of it standing at the ready within the think-tank infrastructure. I think of these think tanks as sort of idea-warmers -- they keep the ideas ready for when the disaster hits. Milton Friedman said that only a crisis, real or perceived, produces real change, and when that crisis hits, the change that occurs depends on the ideas that are lying around.

Let's talk about Chile. This is a country that ... when was it, about 1970, Allende was elected. He was a social democrat, socialist, comes into power but doesn't get along with the United States, is seen to be friendly to Castro and the Soviet Union, and successive American presidents are highly suspicious of him.

It was Nixon and Kissinger together. I end the book with a quote from a declassified letter from Kissinger to Nixon where he says that the threat of Allende was not about any of the things they were publicly saying at the time -- that he was cozying up to the Soviet Union, that he was only pretending to be a democrat and that he was going to turn Chile into a totalitarian system. Kissinger writes the real threat is the problem of social democracy spreading. The Soviet Union was a convenient bogeyman. It was easy to hate Stalin, but what was always more of a threat was the idea of democratic socialism, a third way between totalitarian Communism and capitalism.

And you think they feared that more than they feared the Soviet Union in the context of the Cold War?

Well, if you follow the coups, the overthrow of [Prime Minister] Mossadegh in Iran, [President] Arbenz in Guatemala -- these are the first two CIA coups in the '50s -- these were democratic nationalists, and it was always the same pattern of setting up this bogeyman of it's really a Soviet regime in disguise. So if we follow the coups, what we see is a desire to stomp out, systematically, this idea of a middle democratic ground. And they are a threat to U.S. foreign investment, there's no doubt.

So Allende's overthrown by Pinochet, Pinochet has a great deal of support from the United States and from the economists of the Chicago School, and is well-known to have engaged in mass murders and various forms of brutality against his opposition, and you see that as an integral part of the program, really, of installing this new economics in Chile?

The idea that you could turn Chile into a laboratory for extreme Chicago School economics is a little like thinking you could launch a revolution against capitalism in Beverly Hills. It was deeply inhospitable for these ideas. But in this collaboration between Pinochet and the economists who'd gone to the University of Chicago on grants from the U.S. State Department, Chile was a laboratory for all these ideas that to this day have not been implemented in the United States, like a flat tax -- a 15 per cent flat tax -- charter schools, labour laws that essentially made it illegal for unions to be involved in any political activity. Straight out of the handbook, you know? It was like they took Friedman's manifesto and just turned it into law. The idea that this could happen in Chile at this point in history when there was so much support for developmentalism of course required force.

You talk a lot about torture and brutality and the shock of massive change and what it does to populations, and you see it as part of the mindset of the economists, that that was the only way -- to severely shock and disorient people -- to get them to change their behaviour and accept a new ideology.

There was, and continues to be, an understanding that unless there is a massive crisis that makes the alternative look even worse, then people just don't give up things that make their lives better, whether it's unemployment insurance or public housing. I mean, look at New Orleans. People wouldn't have given up their homes if there hadn't been a natural disaster. Now, they didn't plan the natural disaster but I can tell you I was in New Orleans a week after the hurricane hit, while it was still half under water, and the newspapers were quoting a Republican congressman saying, "We couldn't clean out the housing projects but God did."

Let's go to China, which you see as another laboratory of the same sort. I'm the last one to want to apologize for China because I see it as a repressive state and not really an open economy, but that said, I do acknowledge there have been improvements in freedoms and living standards. They've gone from like an F to maybe an E+ or a D- or something. How do you see it?

The debate in China right now is not self-congratulatory. There's a new school of intellectuals in China -- they call themselves China's new left -- and they're criticizing the party. The government, the Communist party, is extremely worried about the levels of inequality that have opened up between the countryside and the city and between the hyper-rich and the hyper-poor living side-by-side. And it's responding in two ways. One is to do some redistribution, which is really outside of the Chicago model. You have major new investments in the countryside, you have a commitment to waive school fees for the first nine years for rural children, because there were 87,000 protests in China last year -- an unbelievable statistic -- so clearly someone's not happy with how things are going in China.

At the same time we're starting to see the extraordinary ways in which China is becoming a laboratory for new technologies to put people under a level of surveillance that would have been impossible under Mao. There was just an article in the New York Times about how Shenzhen -- the port city where the export processing zone model was born -- is now this testing ground for biometric identification cards that have everything from your landlord's phone number to your reproductive history to your credit history to your police record. They are leading the way in terms of networking CCTV cameras -- there are 200,000 of them in one city -- and all the police are equipped with GPS. I mean, it is totally sci-fi what is going on there. So, to say there's an opening up at the same time as you have this extraordinary level of surveillance with, interestingly, the full complicity of some of the largest technology companies in the world -- this system was built by Microsoft ...

And everyone from Google to Yahoo! is playing along.

In 1989 the discourse of these big communications companies was that television -- satellite television -- was going to bring freedom and democracy to China. And now it's almost like that technology, with the full complicity of these same companies, has been flipped, and rather than being tools for communication and freedom, they are now tools for intense hyper-surveillance. So I don't think we've even begun to come to terms with what's going on in China, but it supports my thesis pretty strongly because what neither you nor I would contest is that China is an extraordinarily profitable country.

What I think China shows is this idea that there was a natural correlation between capitalism, between free markets and free people -- it's simply not the case. China's either undergoing a very slow transition or they've skipped the democratic phase completely, just sidestepped it, and ended up with this thing that, I think, should be described as corporatism. But that is the trend not just in China but also in Russia, in the United States, in Chile under Pinochet. It was the same patterns of heavily indebted states, actually quite interventionist governments but intervening on behalf of corporations, against workers.

With reference to the United States, tell me what you see.

Well, what I see -- if we bring it back to Friedman -- is a very explicit political campaign against the New Deal. You know, he wrote that history took a wrong turn after the 1930s. There was a consensus, after the market crash, that what had gone wrong was that the market had been left to regulate itself and that was simply too brutal. The New Deal came to embody another kind of capitalism, which did much more redistribution. And it wasn't because people were nice; there was a battle of ideas between Communism and capitalism, and in the 1930s and '40s and '50s and '60s it was capitalism in a seductive phase. And so elements of socialism were inserted into this model so that a more radical version of socialism would be less attractive. I'm quoting FDR and Keynes. And that model actually was the period where you had the most rapid economic growth, but it was more fairly distributed. This was the period where the middle class really grew, not just in the United States but in countries like Chile and Argentina. And then kind of a class war was waged -- a right-wing class war.

At what period?

In the U.S. it starts with Reagan. I've talked about the University of Chicago as an ideological and an intellectual movement but it wasn't purely an intellectual movement, it was very heavily funded by Wall Street. And the decision to wage what was a counter-revolution against Keynesianism was about the elites of the United States being sick and tired of sharing so much of the wealth with the workers of the United States. In 1980 the gap between CEOs and the workers who worked for them was 43:1 and now it's 422:1.

But there's also lots of evidence that the counter-revolutionaries haven't had much success. The United States is still very much a mixed economy, and if you look at spending on entitlement programs and Medicare and medicaid and government spending as a percentage of GDP, it's higher than it was at the start of the counter-revolution ...

But the money doesn't go to the people. The U.S. health care system gets the money to the HMOs. Look, I don't believe these guys are ideologues. Ideology serves as sort of a cover story to rationalize massive personal enrichment. If you look at what I call the disaster capitalism complex, the seventh most successful company on the Forbes list is an HMO that has gotten rich off treating traumatized soldiers coming back from Iraq, because Rumsfeld privatized health care for soldiers. Tamiflu -- we're talking about harmonizing disaster response with the U.S. Well, that's a pretty scary idea because I consider the Bush administration to be an administration of disaster capitalists who make their money selling drugs for flu outbreaks and pandemics, AIDS drugs, hurricane response, like Bechtel and Halliburton. These are people who very directly become wealthy when things go really badly. I don't think Canadians should be working with them. Whether the counter-revolution has succeeded, I think it has succeeded in opening up this incredible inequality. The situation for workers is weaker than pre-New Deal.

No, in the U.S. the great mass of working-class people are better off than they were pre-New Deal. I don't think anyone would want to go back to the subsistence levels that they were at at the time.

Minimum wage in the U.S. doesn't even come close to meeting the poverty ...

I'm not saying it couldn't be higher, just on the whole. We're talking aggregates of working-class people.

Well, it is a story in inequality, so aggregates are misleading. Whenever we add it all together and divide it we end up with figures that gloss over the past 30 years, which is a story of an opening up of a gulf. And when you add to that the ideological campaign's successful attack on the public sphere then you have a situation like in New Orleans after hurricane Katrina where the state has been so decimated that the public transit doesn't work, the disaster response consists of handing out DVDs and telling people to run for their lives.

Do you see significant differences between how the Clinton administration behaved in these regards and the Bush administration?

There's something uniquely naked about the Bush administration. The Clinton administration did everything it could to advance this agenda. They lopped off the arms of the state and all that was left was the core, and the Bush administration has devoured the core and turned the government into an empty shell. They've privatized the army and given it to Blackwater! It's what we're seeing now with bridges collapsing and the can't-do state, as Paul Krugman calls it. You knock on the door of the Department of Homeland Security and the entire thing is outsourced.

Okay, let's talk about Iraq. You don't see U.S. involvement in Iraq as a misguided attempt to bring peace and democracy to the Middle East, or even a wild goose chase for the weapons of mass destruction, you see it as a wholly illegitimate exercise to find new markets and new profits for corporatism.

I think it's complex, I think it was a combination of teaching the world a lesson -- "This is what happens when you mess with the U.S." -- wanting to re-fight the Gulf War, the fact that the military had been playing war games with Iraq for the previous 12 years. All of that contributed, and oil. I also think there are people who really did believe that they were going to build a model in the Middle East, but I have to tell you that I think that is the scariest rationale of them all. Sometimes this is described as idealistic, this idea that we could just turn Iraq into a model free-market democracy and it would spread throughout the region. That idea is manifest destiny, and the violence that has engulfed Iraq is inherent in the violence of that idea.

You acknowledge in the book that it's not unusual for new ideas -- whether they be pro-market or anti-market or any other kind -- to be opportunistic, to seize openings brought by disasters, or even promote disasters in order to make opportunities, and you see revolutionary Marxism as paving the way for this ...

I've always hated this idea. At leftie talks there's always somebody who goes up to the mike and says, "But don't things have to get worse before anything happens?" and I slam those people down because the values that I would hope we represent are human values, and that is such a profoundly anti-human idea -- of desiring a descent so there can be some shock that will wake people up.

That's just how politics works, isn't it?

It may well. You know, I wrote the book because I think we should know our history a little better. I do think more disasters will come. All of the statistics would indicate we are going to be seeing more intense natural disasters, more category 5 hurricanes, more terrorist attacks. It brings me no joy to say this but we are in shocking times and I wrote the book because I want people to be more shock-resistant. I don't see it as a game, I actually think that when we know our history and know how these tactics work we are less exploitable, by the left or the right.

But why wouldn't you be ready? As somebody who believes in a different set of ideas why wouldn't you seize the opportunity?

We don't have to give everything up just because we get shocked. I'll use this phrase from Frederico Allodi, a founder of the Canadian Centre for the Victims of Torture. He says, "In Spain people have metabolized their history." Countries that have gone through this process of metabolizing their terror become more shock-resistant when the next shock hits. When Spain was hit with the terrorist attack you immediately had Aznar going on television blaming the Basques, saying this is why we're in Iraq, engaging in sort of fearmonger tactics, and he got voted out of office. People said, "It reminded us of something. It reminded us of how Franco used to keep us afraid." So, to me, it's less about whose ideas are going to win the next shock and more we don't actually have to give up our brains if we get hit by a terrorist attack. It doesn't have to be the excuse to let the Bush agenda come into Canada, for instance. Because people will be ready when that happens, and we can be resistant, we can be ready too, not to push through our dream world, because that is anti-democratic, but to just keep our heads.

Do you see no successes for capitalism in particular countries ... Ireland, for example? If you look at the human population over the last 10 or 20 years there are a lot fewer people living in extreme poverty than there were.

I disagree. Most of those statistics are about China and India, countries that are undergoing rapid urbanization, and what a dollar means if you're living on a farm and growing your own food and have access to water and what it now means in a slum on the outskirts of Delhi, is completely different. But of course there have been successes, and there are wonderful things about living in a capitalist country -- I benefit from it, you benefit from it. We've been forced into believing we can't have the benefits of a market system unless we destroy the bridges that'll allow more people to have that access. And when we do things like, in this country, triple tuition fees over the course of the '90s, and privatize health care, and take out these bridges between classes, we have a very brutal economic law.

We haven't privatized health care.

No, but that is the agenda, and it's certainly been deeply eroded.

So would you be happy with a market economy if it distributed wealth better?

Absolutely

I've been trying to figure out your politics and I can't.

Look, I think there's going to be a lot of radical leftists who would be disappointed by how Keynesian this book is.

Are you a Keynesian advocate of a mixed economy?

I think I'm a realist.

Have you ever been active in politics?

No. I vote NDP.

But you are a leader to a lot of people, and you do believe in democracy and in elections, and it would seem a natural step.

Thanks for the career advice.

It's not advice, I was asking!

Maybe it's just selfishness, because I enjoy the research process so much -- I love it -- and politics is so different. But I'm not ... I think there could be a political moment where if there was sort of a political project that engaged me ...

Would you do it in Canada?

Yeah, that's the only place I would do it. But probably what I would do would be more on the sort of policy wonk side.

You mean get involved with the government?

Yeah, or like a ... I don't even think of it as a government, Ken, because I just think we'd lose! I won't get past the campaign!