THE ECONOMICS OF THE WAR ON TERROR: PROSPERITY THE AMERICAN WAY

Since it was clear that we were headed in that direction, plaintive comments from the "peace" movement have asserted that the second Iraq war is, like the first one, a power grab aimed at assuring continued American access to Middle Eastern oil. This position continues to be articulated today and, to many, is simply acknowledged fact.

Many dispute these assertions, espousing instead the idea that the war is about freedom and democracy. However, the most meaningful critique of the assertion that Middle Eastern wars are about oil is not the they go too far in asserting connection to the West's addiction to oil, but that they do not go far enough. In the end, all war is about economics, but it is overly simplistic to attribute the US strategy in the Middle East to a single cause, or more to the point, a single commodity.

In these times of shifting justification for the war, it is difficult to ascertain the true rationale for it. This difficulty is compounded by the fact that we have not actually heard, in all of the various justifications, anything that could actually be accepted as a "real" rationale. This is because the real reasons are at the same time more complex and nuanced and more mundane than the general public is willing to attend to.

This war is not about security, democracy, or the ending of tyranny or even terrorism; the war in Iraq is the first salvo of a trade war. It is the first in what will eventually be a series of wars whose purpose is to establish the security necessary for the United States to dominate the agenda and process of globalization. It is the first step toward bringing all nations into what Thomas P. M. Barnett, in the March 2003 issue of Esquire Magazine described as "the globalizing world … its rule sets, its norms, and all the ties that bind countries together in mutually assured dependence."

Barnett (author of The Pentagon's New Map: War and Peace in the Twenty-first Century, he served in the Office of Secretary of Defense From November 2001 until June 2003.) is disarmingly candid in his advocacy of a military strategy aimed at reconciling what he refers to as the "Non-Integrating Gap" nations, which he characterizes as "regions plagued by politically repressive regimes, widespread poverty and disease, routine mass murder, and--most important--the chronic conflicts that incubate the next generation of global terrorists," with the "Functioning Core" or regions where "network connectivity, financial transactions, liberal media flows, and collective security" engender "stable governments, rising standards of living, and more deaths by suicide than murder." (This last providing an interesting, perhaps unconscious, commentary on the effect of globalization on personal life quality.)

Barnett divides the countries of the world into three distinct categories:

1. The Core – those nations who get it: North America, much of South America, the European Union, Putin's Russia, Japan and Asia's emerging economies (most notably China and India), Australia, New Zealand, and South Africa.
   
2. The Gap – the guys who don't get it – among them, Sudan, Afghanistan, northwestern Pakistan, Somalia, Yemen.
   
3. And last, but not least, the Seam; those nations that function – sometimes unwittingly and involuntarily – as borders or buffers between the Core and the Gap – such as Mexico, Brazil, Morocco, Algeria, Greece, Turkey, Thailand, Malaysia, the Philippines, and Indonesia
   

Ostensibly the United States favors the emergence of "democracy," in the world – that is governments put into place by a universally enfranchised people. In fact, this is not at all what we seek, or at least what we seek as a primary outcome. Despite President Bush's recent acknowledgement that an Islamic theocracy may be the choice of the Iraqi people, what we seek in Iraq – in the end all that we will accept in that or any other "Gap" country such as Afghanistan, Myanmar, Indonesia and numerous other Asian and Middle Eastern countries - is the exportation of a variant of what Fareed Zakaria, in his book The Future of Freedom refers to as "constitutional liberalism," a form of government consistent with Barnett's vision: "free and fair elections, but also ... the rule of law, a separation of powers and the protection of basic liberties of speech, assembly, religion and property." Our efforts express a prejudice so ingrained in our thinking that Ira Chernus – Professor of Religious Studies University of Colorado at Boulder – concluded that: "…every word of this mainstream debate reinforces the basic view both sides share: the Iraqis must choose between order, American-style, and the endless misery of chaotic savagery."

Even in the most generous of assumptions, it is not "democracy" that we seek to export to these countries, but American democracy, which Zakaria makes clear, is – by design – quite undemocratic. Our constitution limits specifically and generally the actions that can be taken by any branch of government, including "the people." In Zakaria's interesting analysis of the evolution of Western liberal (using here the older, original connotation of the word) democracy, it is not voting that has been of importance, but the emergence of a non-governmental elite whose interests gave it a vested interest in how the government was run. The rule of law for instance is only coincidentally directed at the "common man." For the most part the rule of law is in place to protect the interests – and property - of the elite. This elite was originally a landed aristocracy, but since the late 17^th century it has increasingly been a capitalist elite – those who own the means of production. Today it is the corporati – the CEO's, board members and major equity partners of US multinational corporations.

Zakaria makes clear that the capitalist democracy that is unique to America took several hundred years to develop and did so in a crucible that is not likely to be reproduced in the Middle East, Asia or Africa, or at least not be reproduced in the period of time necessary to secure those regions for the incursion of global capitalism. But that is okay, because the agenda is not really to make these countries democratic; to hell with making the world safer for democracy – what we seek is to make the world safer for capitalism.

Capitalism First

Zakaria traces a specific and well defined path to freedom and liberty for the people of any country: capitalism and the rule of law first, then democracy. His view is that capitalism, with its inherent capacity to facilitate the accumulation of wealth and power independent of some ruling body, facilitates the development of an independent judiciary and the rule of law. It does this, according to Zakaria, because governments need money to run – to press their policies – and to get this money from an independent bourgeoisie, it must bargain for it. In the bargain come the protections for the interests of the capitalists, who in turn facilitate the growth of the economy.

In the course of his treatise Zakaria, actually delineates order as a third precursor for democracy. That is, capitalism, though somewhat dependent on the chaos of open markets, cannot thrive in anarchy, and order does not arise from anarchy; it must be imposed. This point is made in numerous examples by Zakaria but the most illuminating is this rather convoluted quote from political scientist Myron Weiner who stated that "every single country in the Third World that emerged from colonial rule since the Second World War with a population of at least one million (and almost all the smaller colonies as well) with a continuous democratic experience is a former British colony." The meaning here is clear. Order, whether imposed by imperial or dictatorial means, is a necessary precursor to liberty. Zakaria, illustrates the counterpoint to this assertion by using numerous examples of countries who attempted democracy in the first blush of liberation and failed miserably – in fact are still failing.

Lest one think that the agenda ascribed here is based only the philosophical musings of Zakaria or Barnett consider these words from the Bush administration's National Security Strategy (NSS) (http://www.whitehouse.gov/nsc/nss.pdf). "In the twenty-first century, only nations that share a commitment to protecting basic human rights and guaranteeing political and economic freedom will be able to unleash the potential of their people and assure their future prosperity." Freedom equals economic prosperity, and who is to assure that freedom? Consider further, "…the United States will use this moment of opportunity to extend the benefits of freedom across the globe. We will actively work to bring the hope of democracy, development, free markets, and free trade to every corner of the world."

Thus we arrive at the raison d'etra of the war on terror. It is the dream to impose democracy – the imposition of which, in this twisted way of thinking, constitutes not a violation of freedom, but the advocacy of it – on the world, but in order to do that, the ground must be prepared, so to speak. We make the world safe for democracy by first making it exploitable by capitalists, and to make it exploitable by capitalists we must first impose order.

And it is here that American arrogance moves from merely frightening to terrifying. In a national security policy memorandum, developed by current Deputy Defense Secretary Paul Wolfowitz under the supervision of then Secretary of Defense Dick Cheney, one finds the following: "Our first objective is to prevent the re-emergence of a new rival. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power. These regions include Western Europe, East Asia, the territory of the former Soviet Union, and Southwest Asia."

While Cheney was later forced to retract this document after it was leaked, its basic tenets live on in the NSS, viz "The U.S. national security strategy will be based on a distinctly American internationalism that reflects the union of our values and our national interests."

"In essence," explained Jay Bookman of The Atlanta Journal-Constitution, "(the National Security Strategy) lays out a plan for permanent U.S. military and economic domination of every region on the globe, unfettered by international treaty or concern. And to make that plan a reality, it envisions a stark expansion of our global military presence."

The "war on terror" is, of course, not the first time that a nation or government has used its military to impose its policies on a diverse set of once sovereign states. And, like the Pax Britannica or Pax Romana before it, this effort at establishing a Pax Americana arises from a realization that American prosperity, like that of Ancient Rome or 19th Century Britain is dependent on our capacity to control events outside of our borders. The trouble is, in this effort the "value" of democracy is for sale, as it is US prosperity that is sought, not the prosperity of the world at large. In fact, what is sought is prosperity for the US multinational corporations, who, according to this perspective, are the engine of economic prosperity.

Barnett points out that "Iraq is but the first step in this process. The real reason I support a war like this is that the resulting long-term military commitment will finally force America to deal with the entire Gap as a strategic threat environment." Terrorism has become heir apparent as the new engine for the Pax Americana. In this it has replaced Communism as the best excuse to use the American military as a tool for forwarding its foreign and economic policy.

Using the war on terror as a device, the US now has reason to intervene, unilaterally if it sees fit, into any society it deems as a haven for terrorists. The situation in Sudan makes it clear however, that intervention is based on something other than the needs and interests of the citizens of the country. Whereas the suffering of the people in Sudan is readily comparable to that of the people of Iraq under Saddam, the US has no plan for military intervention into Sudan. The reason is straightforward: Sudan has no information and financial infrastructure, no products of interest to the US and has no strategic position in the global marketplace.

We seek to establish in the "Gap" in months, years or even decades, what has taken centuries to evolve in the West. And, despite the rhetoric about the establishment of democracy, the history of US foreign policy demonstrates a rather clear bias toward dictatorship as it has viewed that as the fastest path to "stability" which can be functionally defined as access to the economic assets of the country.

Examples abound of US tacit acceptance or outright support of dictatorships in the Middle East – examples include Egypt, Jordan and Saudi Arabia – while maintaining significant level of hostility to a government in Iran, which supports a basic concept of the rule of law (though not English Common Law). In fact an argument could be made that Iran is a far more stable government than that of Russia, which is in the process of deterioration to the domain of a KGB strongman. The difference between Russia and Iran of course is that the US has access to Russian assets and does not have access to those of Iran.

It's the Stupid Economy

It is not only the means of the Pax Americana that presents problems for the world, it is the goal itself: the outcome of globalization.

There are more than 60,000 multinational corporations worldwide. Prior to the late 70's and early 80's most of the direct investment in foreign countries took place through lending institutions. Following the 1983 Mexican default and the domino effect throughout Latin America, foreign investment shifted from a focus on debt to a new structure, Foreign Direct Investment (FDI), a process directed mainly by multinational corporations. FDI is technically defined as a 10% holding or greater by foreign interests in assets located within a nation's borders, although today FDI usually means 100% ownership by a multinational corporation.

Foreign Direct Investment, has many advantageous features, particularly as compared to debt. As FDI amounts to direct control of assets by the multinational, default by a borrower, which in the past was most likely a government, is far less of a likelihood. At the same time there are opportunities for real growth in the county, with improved infrastructure, improved wages and technology and skills transfers that contribute to the overall well being of the local economy, as well as the quality of life in the community. Although historical experience makes it clear that these improvements are by no means guaranteed.

In fact, despite the potential for trickle down of these benefits, the down sides associated with FDI are as problematic as the upsides are potentially beneficial. When issues such as "repatriation" of earnings (i.e. the return of profits of FDI to the home country of the multinational) resulting in decapitalization of the local economy, damage to competition for local companies and resulting market dominance by the multinational, and environmental damage resulting from the off-loading of highly polluting processes to countries where environmental laws are not strong, and one is left with a lukewarm feeling about FDI, at best. At worst, in countries like Bolivia and Venezuela, FDI has been seen as a tool for robbing the people of those countries of their national assets.

After an exhaustive review of the literature Andrew Charlton and Joseph E. Stiglitz made this conclusion in a preliminary draft for Initiative for Policy Dialogue Capital Market Task Force (http://www0.gsb.columbia.edu/ipd/pub/CharltonCML_Poverty.pdf): "In general, this literature establishes a compelling case for caution: capital market liberalization is not robustly associated with economic growth in developing countries, but it does appear to exacerbate macroeconomic volatility and increase the incidence of financial crises." In short, despite assertions to the contrary, a rational view of cross-border capitalization is that it is generally better for the multinational than it is for countries and their populations in the "Gap."

As Western financial markets are liberalized (i.e. deregulated) the resulting competition sends financial institutions into the global market place. Concomitant deregulation of local economies has supported that development. But this inflow of foreign capital, generally sucked up by multinationals to expand production, is far from a boon. If a country becomes dependent on foreign capital, sudden shifts in foreign capital flows can create financing difficulties and economic downturns.

These financial crises are very costly. In 1973-1997, researchers studied 44 crises in developed countries and 95 in emerging markets and found that average output losses were 6.25 and 9.21 percent of GDP respectively. These crises have a disproportionate impact on people, particularly hurting the poor through loss of wages and employment shocks, but also through high inflation, relative price changes, and cutbacks in public spending. (For an in depth discussion financial market liberalization see http://www.worldbank.org/research/bios/schmuklerpdfs/schmukler_stiglitz_october31_2003.pdf - much of the discussion below is taken from this work)

One of the main consequences of globalization is that, when the domestic financial system integrates with the rest of the world, it becomes harder for countries to oversee the transactions outside its borders. While it may be possible for the local authorities to regulate the activities of the local subsidiary of an international bank, it is more difficult to regulate the international operations that are linked to the local bank.

Sergio L. Schmukler, Senior Economist for the Development Research Group of the World Bank notes that "As economies become more integrated, governments have less policy instruments and have to rely more on international financial policies. For example, governments tend to have fewer options about their monetary policy and exchange rate policy… bank regulation and supervision by one government is more difficult when liabilities and prices are denominated in foreign currency… in the midst of contagious crises, governments tend to lack sufficient resources to stop a currency attack and an individual government can do little to stop crises being originated in foreign countries."

In fact, what the research on financial liberalization (code for cross border financial services) and globalization indicates is that economic growth is associated with improvements in indicators of well-being; that is when the people are better off, the economy improves. There is no research that supports the idea that an economy can be forcefully "grown" from outside and that it will then run on its own and provide improvements to the local people of that economy.

Indeed, when Alex Cobham, Supernumerary Fellow in Economics at St Anne's College, University of Oxford, and Director of the Political Economy section of the Oxford Council for Good Governance, surveyed the linkages between capital account liberalization and poverty and he found "a number of potential mechanisms by which liberalization can contribute to monetary inequality and undermine government attempts to address other elements of poverty including the provision of health and education." Leading him to conclude that "Given the now-broad acceptance that growth benefits have thus far been inconsequential, the implied net poverty impact of liberalization is negative." (http://www.brettonwoodsproject.org/topic/financial/f22gowithflowspt2.pdf)

Confused by the Facts

What has all of this to do with the "war on terror"? As both Zakaria and Barnett note, in order for capitalism (usually in the form of FDI by multinationals) to succeed certain things must be in place. One is "the rule of law." Another is that local markets need to be effectively secured. In part, this is accomplished through the "liberalization" of the finance sector across borders, but more importantly, securing local markets requires the elimination of forces resistant to American influence.

In effect, what we have in American foreign policy is a rational for moving forward with a process that has limited demonstrable benefit for the local economy and in fact has a marked tendency to destabilize it, deprive the local government of the regulatory capacity to protect itself, and leave the local people subject to forces originating in other countries or, more to the point, within the operations of US multinational corporations.

Undaunted, the neocons move inexorably forward. Never one to be confused by the facts, once its mind is made up, the Bush administration presses forward its military agenda of globalization and will brook no resistance. The United States' plays on the international stage are characterized by the startling arrogance of Barnett's assumptions: "The international system today lacks any sort of recognized institutional rule set for processing a politically bankrupt state… The UN is at best a legislative branch for the global community, whereas the U. S. is clearly the closest thing we have to an executive Leviathan able to prosecute criminal actors across the system."

His rational for the war on terror is clear "Bin Laden and Al Qaeda are pure products of the Gap—in effect, its most violent feedback to the Core. They tell us how we are doing in exporting security to these lawless areas (not very well) and which states they would like to take 'offline' from globalization and return to some seventh-century definition of the good life."

The "war on terror" is the perfect storm. Having established an international policy based on corporate imperialism, the United States has instituted a military response to the resulting pan-nationalistic guerilla war that is guaranteed to engender more terror, enhancing both the status and market share of the "military-industrial complex", the US multinational corporations and legions of "contractors" who feed off of the continuous need for administration of and reconstruction following military intervention. The United States is the only body extant that can provide that security, but in so doing it creates the conditions from which the rebellious strike out, thus justifying the arguments for greater security and more "preemptive" intervention.

This new war a warmer version of the Cold War; or better - Cold War: the Sequel. As Bush states in the preface to the NSS "The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive victory for the forces of freedom—and a single sustainable model for national success: freedom, democracy, and free enterprise." In essence the NSS outlines the strategy for extending US hegemony and imposing its model of prosperity on the world.

This war will be fought in fits and starts and result ultimately in an overextension of United States' resources, leading to the same kinds of mistakes that the Cold War did – such as the classic one of outfitting Osama bin Laden during Afghanistan's occupation by the Soviet Union, or supporting Saddam (and his use of WMD's) in a proxy war against Iran (at the time, believed to be in the Soviet sphere). The engine driving this new war is the same as the old – pressing the message of capitalism and "prosperity" forward in the name of democracy. However, as pointed out by Charles V. Peña, director of defense policy studies at the Cato Institute, the NSS "…prescribes a global security strategy based on the false belief that the best and only way to achieve U.S. security is by forcibly creating a better and safer world in America's image." (http://www.cato.org/pubs/pas/pa-496es.html)

Wolfowitz, Cheney, et al envisioned themselves as this generation's George Marshall and Dean Acheson. Sadly, in the end, the only real beneficiaries of their work will be the people who can offload their assets to offshore accounts.