Thursday, February 26, 2009

Economic Hit Man - Ch.14

Entering a New and Sinister Period in Economic History

As chief economist, I not only was in charge of a department at MAIN and responsible for the studies we carried out around the globe, but I also was expected to be conversant with current economic trends and theories. The early 1970s were a time of major shifts in international economics.

During the 1960s, a group of countries had formed OPEC, the cartel of oil-producing nations, largely in response to the power of the big refining companies . Iran was also a major factor. Even though the shah owed his position and possibly his life to the United States ' clandestine intervention during the Mossadegh struggle—or perhaps because of that fact — the shah was acutely aware that the tables could be turned on him at any time . The heads of state of other petroleum-rich nations shared this awareness and the paranoia that accompanied it . They also knew that the major international oil companies, known as "The Seven Sisters," were collaborating to hold down petroleum prices — and thus the revenues they paid to the producing countries — as a means of reaping their own windfall profits . OPEC was organized in order to strike back.

This all came to a head in the early 1970s, when OPEC brought the industrial giants to their knees . A series of concerted actions , ending with a 1973 oil embargo symbolized by long lines at U.S . gas stations, threatened to bring on an economic catastrophe rivaling the Great Depression. It was a systemic shock to the developed world economy, and of a magnitude that few people could begin to comprehend.

The oil crisis could not have come at a worse time for the United States . It was a confused nation, full of fear and self-doubt, reeling from a humiliating war in Vietnam and a president who was about to resign . Nixon's problems were not limited to Southeast Asia and Watergate . He had stepped up to the plate during an era that, in retrospect, would be understood as the threshold of a new epoch in world politics and economics . In those days, it seemed that the `little guys," including the OPEC countries, were getting the upper hand.

I was fascinated by world events. My bread was buttered by the corporatocracy, yet some secret side of me enjoyed watching my masters being put in their places. I suppose it assuaged my guilt a bit. I saw the shadow of Thomas Paine standing on the sidelines, cheering OPEC on.

None of us could have been aware of the full impact of the embargo at the time it was happening. We certainly had our theories , but we could not understand what has since become clear. In hindsight, we know that economic growth rates after the oil crisis were about half those prevailing in the 1950s and 1960s, and that they have taken place against much greater inflationary pressure . The growth that did occur was structurally different and did not create nearly as many jobs, so unemployment soared . To top it all off, the international monetary system took a blow; the network of fixed exchange rates, which had prevailed since the end of World War II, essentially collapsed.

During that time, I frequently got together with friends to discuss these matters over lunch or over beers after work . Some of these people worked for me — my staff included very smart men and women, mostly young, who for the most part were freethinkers, at least by conventional standards. Others were executives at Boston think tanks or professors at local colleges, and one was an assistant to a state congressman . These were informal meetings, sometimes attended by as few as two of us, while others might include a dozen participants. The sessions were always lively and raucous.

When I look back at those discussions, I am embarrassed by the sense of superiority I often felt . I knew things I could not share. My friends sometimes flaunted their credentials — connections on Beacon Hill or in Washington, professorships and PhDs — and I would answer this in my role as chief economist of a major consulting firm, who traveled around the world first class . Yet, I could not discuss my private meetings with men like Torrijos, or the things I knew about the ways we were manipulating countries on every continent . It was both a source of inner arrogance and a frustration.

When we talked about the power of the little guys, I had to exercise a great deal of restraint . I knew what none of them could possibly know, that the corporatocracy, its band of EHMs, and the jackals waiting in the background would never allow the little guys to gain control. I only had to draw upon the examples of Arbenz and Mossadegh—and more recently, upon the 1973 CIA overthrow of Chile's democratically elected president, Salvador Allende . In fact, I understood that the stranglehold of global empire was growing stronger, despite OPEC — or, as I suspected at the time but did not confirm until later, with OPEC's help.

Our conversations often focused on the similarities between the early 1970s and the 1930s. The latter represented a major watershed in the international economy and in the way it was studied, analyzed, and perceived . That decade opened the door to Keynesian economics and to the idea that government should play a major role in managing markets and providing services such as health, unemployment compensation, and other forms of welfare . We were moving away from old assumptions that markets were self-regulating and that the state's intervention should be minimal.

The Depression resulted in the New Deal and in policies that promoted economic regulation, governmental financial manipulation, and the extensive application of fiscal policy. In addition, both the Depression and World War II led to the creation of organizations like the World Bank, the IMF, and the General Agreement on Tariffs and Trade (GATT) . The 1960s was a pivotal decade in this period and in the shift from neoclassic to Keynesian economics . It happened under the Kennedy and Johnson administrations, and perhaps the most important single influence was one man, Robert McNamara.

McNamara was a frequent visitor to our discussion groups — in absentia, of course . We all knew about his meteoric rise to fame , from manager of planning and financial analysis at Ford Motor Company in 1949 to Ford's president in 1960, the first company head selected from outside the Ford family. Shortly after that, Kennedy appointed him secretary of defense.

McNamara became a strong advocate of a Keynesian approach to government, using mathematical models and statistical approaches to determine troop levels, allocation of funds, and other strategies in Vietnam. His advocacy of "aggressive leadership" became a hallmark not only of government managers but also of corporate executives . It formed the basis of a new philosophical approach to teaching management at the nation's top business schools, and it ultimately led to a new breed of CEOs who would spearhead the rush to global empire.'

As we sat around the table discussing world events, we were especially fascinated by McNamara's role as president of the World Bank, a job he accepted soon after leaving his post as secretary of defense. Most of my friends focused on the fact that he symbolized what was popularly known as the military-industrial complex . He had held the top position in a major corporation, in a government cabinet , and now at the most powerful bank in the world . Such an apparent breach in the separation of powers horrified many of them ; I may have been the only one among us who was not in the least surprised.

I see now that Robert McNamara's greatest and most sinister contribution to history was to jockey the World Bank into becoming an agent of global empire on a scale never before witnessed . He also set a precedent. His ability to bridge the gaps between the primary components of the corporatocracy would be fine-tuned by his successors . For instance, George Shultz was secretary of the treasury and chairman of the Council on Economic Policy under Nixon, served as Bechtel president, and then became secretary of state under Reagan. Caspar Weinberger was a Bechtel vice president and general council, and later the secretary of defense under Reagan . Richard Helms was Johnson's CIA director and then became ambassador to Iran under Nixon . Richard Cheney served as secretary of defense under George H . W. Bush, as Halliburton president, and as U .S . vice president to George W. Bush . Even a president of the United States , George H. W. Bush, began as founder of Zapata Petroleum Corp , served as U.S. ambassador to the U.N. under presidents Nixon and Ford, and was Ford's CIA director.

Looking back, I am struck by the innocence of those days . In many respects, we were still caught up in the old approaches to empire building. Kermit Roosevelt had shown us a better way when he overthrew an Iranian democrat and replaced him with a despotic king . We EHMs were accomplishing many of our objectives in places like Indonesia and Ecuador, and yet Vietnam was a stunning example of how easily we could slip back into old patterns.

It would take the leading member of OPEC, Saudi Arabia, to change that.

- pages 76-80, Confessions of an Economic Hit Man, by John Perkins

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