Submerging Markets™

Understanding Argentina's Pseudo-Debt Crisis

 

For those who are interested in Argentina's recent troubles with the debt vultures, here is Chapter VII from my book The Blood Bankers. (New York: Basic Books, 2005).  

No important political or economic event can be understood without an historical analysis.  

This chapter provides the essential historical background  that you need to understand where Argentina's current crisis came from, and its "debt problem" is so deep-rooted. 

Download 07FINALFINALCHAPTERSEVENARGENTINA42112003.

Here are a few of my recent TV and newspaper interviews on the subject: (1),  (2), and (3). And here is the 2012 US Court of Appeals decision that upheld US Federal District Court Judge Thomas P. Griesa's 2011 rulings in favor of the vulture funds. 

 

Download USCOURTS-ca2-12-00916-0.pdf

 

More later!  Stay tuned! 

Bolivia's Growing Regional ConflictJames S. Henry and Donald K. Ranvaud

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The new year is already off to a turbulent start in Bolivia. During the week of January 7 to 15, up to six thousands supporters of President Evo Morales' MAS party-- mainly cocaleros from the Chapare coca-growing region,  campesinos, and indigenous groups --  showed up uninvited in Cochabamba,  Bolivia's third largest city of 800,000,  in the country's center. 

They had come to demand the resignation of Cochabamba's   right-wing Governor, Manfred Villa-Reyes, who has become an outspoken leader of the "autonomista" movement since his election in December 2005. This movement is seeking greater "states rights" for the country's nine provinces, especially the wealthier, whiter provinces of Beni, Pando, Santa Cruz, and Tarija in the south and east, where most of Bolivia's natural gas and richest farms are located.

As shown in the accompanying exclusive video footage from Cochabamba (Parts I, Part II). shot by Bolivian film crews working under the direction of Donald K.Ranvaud (Constant Gardener, City of God, Central Station, etc.), the MAS supporters encountered a fierce reaction from the city's middle-class residents and pro-autonomista forces.

These included a crowd of more than 1000 well-organized stick-waiving militants who attacked the cocaleros and campesinos aggressively on January 13th. In the ensuing conflict, at least two people were killed and more than 150 were injured.

By Saturday January 14th, calm had returned. Manfred came back from Santa Cruz, where he had fled out of fear for his own safety, and  Morales returned from Nicaragua, where he had been attending Daniel Ortega's Presidential inauguration. Steps were taken on all sides to pacify the situation -- including the deployment of the Bolivian Army.

However, as we'll discuss below, the potential for renewed conflict is very high.

This is not only because none of the fundamental economic and political causes of the conflict have been addressed.  It is also because Bolivia's political leaders on all sides have not exactly shown the maturity and capacity for compromise that will be essential to avoid a "lose-lose" outcome. 

ROOTS OF THE CONFLICT

Regional tensions have been building up in Boivia for several decades. The potential for conflict is explosive because it is closely aligned with many other deep-seated social fault-lines – the distribution of natural wealth; poverty and education; the concentration of organized communities like the cocaleros, indigenous groups, and obreros; and the distribution of support for parties and organizations like PODEMOS, Manfred Reyes-Vlla’s NFR, and “Nacion Camba” on the Right, and MAS, the cocaleros, the campesinos, the Central Obreros, and the social movements on the Left.

One crucial factor is that Bolivia’s most valuable natural resources, arable land and natural gas (and the refineries, pipelines and agribusiness facilities needed to exploit them), are concentrated in Bolivia’s wealthier eastern and southern states. Together Tarija, Santa Cruz, Beni, and Pando account for just 30 percent of Bolivia’s population, but more tha two-thirds of its natural wealth. While MAS has captured a third of the vote in Santa Cruz, Evo’s poorer, more indigenous (“Kolla”) base is much stronger in the five western states. In the state of Cochabamba, a key battleground in the recent crisis, Evo’s party controls 12 out of 14 provinces, and has been pressing hard to oust Manfred.

PRECIPITATING FACTORS

The regional conflict has recently come to a head for several reasons.

First, since Evo's election in December 2005,  he has been asserting greater federal control over land, natural gas, and tax revenues.

He has also renegotiated Bolivia’s gas export contracts with Brazil and Argentina, tripling the revenue that the country realizes from its gas exports. Under Bolivia’s current federal system, at least 40 percent of this increased revenue will go to the states.

Ironically enough, the “Camba” states –- which were heavily subsidized by the “Kolla” ones before gas and soybeans took off in the 1970s and 1980s -- have benefited greatly from MAS’ new economic policies. But this has not led them Camba states to support Evo – if anything, it has increased their desire for secession.

Evo has also launched a tough new anti-corruption campaign – one of the most aggressive in Latin America. Focused on increased transparency and accountability for government spending, this is intended to address the long-standing popular conviction that a large share of Bolivia's Treasury ends up benefiting powerful private interests. It is also designed to insure that any increased gas revenues will be used wisely.

The program is very popular with ordinary Bolivians, but it has not won Evo many friends among the state bureaucracies, the diplomatic corps, and politicians – for example, Governors like Manfred, who has often been accused of corruption, and of being a lackey of former President Goni Sanchez de Losada -- whose extradition from the US on "genocide" charges is about to be requested by Evo's government.

Third, in August 2006, Evo convened a “Constituent Assembly” to rewrite Bolivia’s constitution – a key MAS promise to its followers. But when the delegates to the CA were elected, MAS failed to win the 2/3rds needed to control it. So the CA has bogged down in procedural fights, with PODEMOS and other center-right parties blocking efforts to permit majority rule.

Finally,  in response to these MAS initiatives, the autonomistas have recently become much more aggressive and well-organized – some say, with outside support. Key politicians on the Right (especially “Colonel” Manfred) have seized the opportunity to make a national name for themselves.

In July 2006, Bolivia held a national referendum on whether to grant more power over revenues and spending to the country’s nine departments. The autonomistas lost by a wide margin.

Despite this, in December 2006, six of the country’s nine governors -- including Manfred, the four Camba state governors, and Jose Luis Paredes, La Paz’ non-MAS Governor -- met in La Paz and demanded yet another (very costly) referendum on autonomy.

This triggered the massive confrontation noted above. Encouraged by Evo -- and perhaps also aided by support and organization from Venezuela -- more than 6000 of Evo’s supporters assembled in Cochabamba to demand Governor Manfred’s resignation. Many of his middle-class supporters stayed behind and engaged in sharp street battles with the cocaleros. Their included a band of more than a thousand stick-wavers militants who attacked the cocaleros with paramilitary-like discipline. At least three of those arrested were carrying guns and long knives. 

SHARED RESPONSIBILITY

No one emerges from this conflict with clean hands. On the Left, key leaders like Oscar Olivares and Edgar Patano have supported the use of mass demonstrations almost as if the MAS could not rely on normal legal and electoral processes. Evo failed to discourage his supporters from occupying Cochabamba, despite the fact that Manfred had also been legally elected in 2005, and that while his call for a second referendum was provocative, it was not illegal.

Once the conflict started, Evo also took his time returning from Ortega’s inauguration. He didn’t arrive in Cochabamba until January 14, after the violence had subsided. Once there, he didn’t advise his followers to disband or retract their demands for Manfred’s resignation.

On the Right, the autonomistas and their political allies, especially Manfred, Paredes, and the four Camba governors, have also been provocative. Their demands for separatism and another regional referendum, as well as their refusal to compromise on CA voting procedures have been incendiary. Even more disturbing, the willingness of autonomistas to organize armed groups to attack MAS demonstrators indicates the potential for escalation.

WAYS FORWARD?

There are now signs that both sides in this conflict are attempting to step back from the precipice, at least for the moment. With the Bolivian Army’s help, peace has returned to Cochabamba. Manfred has withdrawn his call for a second referendum.

As a way of defusing the demand for his resignation, MAS has introduced an emergency bill in Congress calling for a referendum revocatorio. This would require Bolivia’s elected officials -- mayors, governors, ministers, and even the President himself – to submit to referenda on their performance if they are accused of corruption, mishandling cash, human rights violations, or the failure to fulfill electoral promises. Evo’s Vice President, Alvaro Garcia Linares, has reaffirmed Manfred’s authority and offered to guarantee his safety.

Still, demands for the resignations of Manfred and Paredes have continued. Paredes has threatened that he and all the Camba state governors would all resign if Manfred were ousted. While peace has been restored, thousands of social movement activists are still very agitated.

Overall, the situation remains a power keg, with social peace owning a great deal to the continued presence and neutrality of the Army.  While a full-scale civil war has been averted for the time being, this could easily turn out to be a classic “lose-lose” situation -- especially if extremists on the Right and Left abandon their commitments to democratic procedures. The sharp escalation of this conflict in early January underscored the immaturity of Bolivia’s political leadership and the precarious state of its democracy.

On the other hand, as is often the case when decisive historical turning points are reached, this crisis might just possibly turn out to be constructive.

Bolivia’s leaders can seize the moment and achieve breakthroughs on key issues  like revenue-sharing, corruption, the Constituent Assembly, and the role of popular referendums, they may be able to achieve political innovations that will be of great interest to other Latin America democracies -- and the rest of us.

After all, despite centuries of oppression and brutal class conflict, Bolivia is  one of the few countries in the Americas that did not kill off its indigenous majority. Unlike other Latin American countries like Peru, Colombia, El Salvador, and Guatemala, Bolivia has  also  managed to avoid extreme social violence and civil war. We are hopeful that Bolivia's exceptionalism in this regard will be maintained.  But  it  could be sorely tested in the weeks and months to come.

(c) SubmergingMarkets, BuenaOnda Films, 2007

REMEMBERING THE GENERALPart I: OverviewJames S. Henry

---

I was born a Chilean,  I am a Chilean,
I will die a Chilean.
They, the fascists, were born traitors,
live as traitors, and will be remembered forever as fascist traitors.

-- Orlando Letelier, 1932-76

---

Both Chile's General Augusto Pinochet and Saddam Hussein, two formerly US-backed dictators, have at last had to confront Higher Authorities that they were unable to intimidate, compromise, or evade.

However, unlike Saddam, who was hanged in the middle of a night on December 30, 2006, by a nervous Iraqi Government tribunal,  Pinochet managed to escape human justice for his crimes, and died of natural causes at the age of 91. 

How does the General deserve to be remembered? Did he not richly deserve the same fate as Saddam? And how did he manage to avoid it? 

Was he simply a ruthless, corrupt right-wing tyrant, the puppet of foreign interests and their handmaidens, like ITT,  Nixon, Kissinger, the CIA, George H.W. Bush, Margaret Thatcher, and Reagan?   

Or was he, as many of his defenders still maintain,  an essential bulwark against the Leftist Horde in Latin America?

If perhaps not exactly the world's staunchest defender of political liberalism, was he at least -- as Thatcher, some neoliberal  economists, The Wall Street Journal, and even supposedly "liberal" newspapers like The Washington Post now maintain --  a staunch defender of  "free markets" who deserves much of the credit for Chile's economic performance since the 1970s?

As we'll see,  most conventional portraits of General Pinochet are flat-out wrong, not only with respect to his alleged role in combating Soviet expansionism, but also with respect to his regime's alleged beneficial influence on Chile's economy.

First,  Pinochet was at best only a non-essential bit player in the anti-Soviet struggle.  Allende's broad-based social democratic "revolution" was never taken seriously by Moscow or Havana. Nor was it strong enough to mount a Cuban-style revolution, or even to precipitate a civil war. Left to its own devices, Allende's "leftish" alliance would probably have burned itself out by the next election or plebiscite in 1974.

Furthermore, even if Chile's leftists had somehow managed to create a "Soviet Republic of Patagonia," tiny Chile was already completely surrounded by other countries that had much greater strategic importance to the West.

By 1973, they either already had their own right-wing dictatorships (Brazil, Paraguay, and Bolivia), or were well on the way (Argentina and Uruguay).

In short,  killing off Chile's long-standing democracy was gratuitous -- the political equivalent of exaggeratinging Iraq's "slam dunk" WMD threat.

All the repression was for nothing.

On the economic front, Pinochet's interregnum was also a costly, needless detour. 

Indeed, one key reason why Chile's so-called "economic miracle" has proved to be so successful in the long run -- with great help from human capital finally brought back home by many well-educated returning "Leftists" who were  driven out of country in 1973-90 -- was precisely because Pinochet's first decade of experiments with "Los Chicago economics" proved to be so disastrous. Giving Pinochet credit for the subsequent corrective reforms is like crediting Leonid Brezhnev with last decade's revival of economic growth in Eastern Europe.

(For more details, see Parts II and III...)

 

   

EVO'S HISTORIC VICTORYBolivia's Democratic RevolutionJames S. Henry LaPaz, Bolivia

The mood at Tuto Quiroga's well-appointed campaign headquarters at the Hotel Radisson in downtown LaPaz was funereal, while across town at MAS Party headquarters in the former Brazilian Embassy, and later on in the impoverished township of El Alto,  people were chanting and singing in the streets late into the night. Not long after the polls in Bolivia closed late this Sunday afternoonn,  it was already clear that the country's impoverished majority had finally elected one of their own as the country´s next President -- and by a much larger margin than any foreign policy expert, journalist, or Latin America political pundit had expected.

This is easily one of the most surprising and important elections in the history of Latin American democracy. For fans of the "neoliberal," free-market approach to development, as well as coca eradication, it is also a time for soul-searching.

Evo Morales, the 46-year old working-class meztizo, cocalero organizer, and leader of the neo-left "Movement Toward Socialism" party, has soundly defeated the seven other Presidential candidates in the race, capturing close to 50 percent of the nationwide vote.

While the final vote tally still has to be certifed by Bolivia's Electoral Court,  this clearly puts Evo within reach of becoming the first Bolivian President ever to have won a first-round victory outright -- without having the choice default to Bolivia`s fractious, "rent-seeking" Congress.

From an historical perspective, Evo's performance is an all-time record for a Bolivian Presidential candidate, far surpassing the 31 percent received by the second-place candidate, the free-market oriented-former President, Tuto Quiroga. It also surpasses the previous all-time high registered by Hernan Solis in 1982, as well as the 34 percent captured by neoliberal businessman "Goni" Sanchez de Lozada in 1993.

For that matter, relative to other recent elections in the Western Hemisphere, Evo has also outperformed the victory margins achieved by the US´President Bush, Brazil´s Lula, and Argentina's Kirchner. Whatever one thinks of Evo's economic platform -- and it certainly contains more than a little wishful thinking-- there is no doubt that, at least for the moment, he has far more credibility with the Bolivian people than his opponents.

A DEMOCRATIC REVOLUTION?

Even more important than the historical records,  Bolivians have clearly voted en masse in favor of at least three fundamental changes in Bolivia`s social and political landscape -- all of them supported by MAS.

 

• Reasserting public control over Bolivia`s natural resources, especially its huge natural gas reserves -- already, in official terms, the second largest in Latin America, and quite possibly much more.

  Evo's vague, rhetorical shorthand for this is "nationalization," but there is a whole range of policy options that MAS is considering to increase the public`s share of the income generated by its natural resources, and add more value, and generate more jobs by using these resources at home. Whether or not any of these will make practical economic sense is far from clear. But it is hard to argue that this program will  necessarily be any more disappointing for ordinary people than the last two decades of neoliberal policies.

 

• Rejecting (US-backed) coca eradication programs. This supply-side approach to cocaine trade has been pursued by Bolivia since at least the mid-1980s, especially under the Banzer-Quiroga administration from 1997 to 2002.

  Unfortunately, as most observers outside the "drug enforcement complex" now agree -- including good solid conservatives like Milton Friedman and Steve Forbes --  the impact on ultimate cocaine supplies have been limited at best.

  At the same time,  the social, political, and economic impacts on countries like Bolivia, Columbia, and Peru have been disastrous.

  Oddly enough, with respect to drug enforcement, Evo is the true "neoliberal."  He believes that a poor country like Bolivia has a right to grow crops like coca if it makes economic sense, that punishing them for doing so is like punishing Dupont because some of its chemicals end up in illicit drugs, and that Bolivian farms should not be made to pay for the fact that  Americans and Brazilians can't control their bad habits.

  From this angle, his election is just one in a growing series of "corrective interviews" that Andean countries are giving to Washington on the huge costs of the failed supply-side drug control strategy. To summarize the matter quickly -- wouldn't the American people really have preferred to be buying several million cubit feet per day of LNG from Bolivia this winter, rather than pursue coca eradication policies in Bolivia that have had little impact on drug supplies while fostering a hostile political movement?

• Much greater effective representation for Bolivia´s impoverished, excluded, indigenous and meztizo majority. In this case the cliche happens to be true -- for centuries, the Bolivian people have stood by and watched the country´s incredible raw materials -- silver, tin, iron ore, guano, rubber, and now natural gas -- being expropriated by private interests or elite-controlled state companies, while the vast majority have remained dirt poor.

  Futhermore, since the 1990s, Bolivia has been a virtual laboratory for neoliberal economics, as well as coca eradication. The country ended up with its most valuable assets in private hands, while more than half the population remained poor and inequality increased dramatically. Evo´s election sends a message, loud and clear, that Bolivians have had enough. Indeed, from this standpoint, their voting behavior is not particularly radical -- in capitalist terms, they are  simply a group of shareholders who have finally decided to show incompetent managers the door.

This  is a message that will reverbrate throughout the region -- in next year's elections in Peru, Colombia, and even Mexico, for example. This is a message that the US, in particular -- so obsessed with implanting "democracy" in the Middle East, and recently so careless about paying attention to Latin America's troubled democracies closer to home -- ignores at its peril.    

EVO'S ALLIES?

There is an old Russian proverb that says, "Keep an eye on your friends -- your enemies will take care of themselves."

Of course it is to be expected that hard-line America haters like Venezuela's Hugo Chavez and Cuba's Fidel Castro, as well as leading Latin leftlists like Lula and Kirchner,  will take pleasure in Evo's victory, just as many simple-minded American neoconservatives will regard it as an unmitigated setback. 

But Evo's erstwhile left-wing allies should be careful not to celebrate too soon.

In Fidel's case, the key question is, how soon is he prepared to give Cubans the same democratic rights that Bolivians have just exercized?   

In Hugo's case, the question is, is he prepared to make up all for the economic aid, debt relief, and lost exports that Bolivia will lose if it alienates the US and the international community by adopting policies like coca legalization and gas nationalization?  Isn't it just possible that he may well prefer for Bolivia's gas to stay in the ground, where it can't compete with Venezuela's proposed pipeline to Brazil and its proposed LNG exports to the US? 

In the case of Lula's Brazil and Kirchner's Argentina, the question is, are they really willing to renegotiate the lucrative gas export contracts they now have with Bolivia, helping Evo by sharply increasing the prices that they pay, while increasing their Bolivian investments?  Assuming that Bolivia is going to export at least part of its gas, shouldn't it consider competitors to Brazil and Argentina, rather than continue to be a captive supplier to these monopsonists?

Overall, therefore, it is easy for Latin America's kneejerk Left to celebrate Evo's rise as yet another defeat for Yankee imperialism -- and, indeed, there is just enough truth in that story to keep the brew bubbling. 

But every day that  Evo wakes up, he needs to remind himself that it was not the Yankees who are responsible for the fact that his country is one-half the size that it was 150 years ago;  that it is not Yankees who consumed most of his country's silver and other resources; that it is not Yankees that are consuming up to 30 million cubic feet per day of Bolivian gas at prices less than a fifth of US market levels (but Brazil and Argentina -- and Chile, by way of Argentina);  that it not Yankees who are content to keep Bolivia landlocked. On the other hand, it IS Yankees who have provided Bolivia with more foreign aid per capita than almost any other Third World country since 1948 -- much of which was admittedly wasted, but much of which undoubtedly did some good. 

In short, now that Evo is President, and not just an angry outside critic of the system, he will have to take responsibility for governing, and admit that Venezuelan, Brazilian, Argentine, and Chilean imperialism -- or, indeed, Chinese imperialism --  are no better than gringo imperialism.

As I`ll argue in Part II, none of these changes will be easy for Evo to implement within the bounds of Bolivia's existing political system, with its increasing regional polarities.   

Indeed, he faces an extraordinary list of challenges -- the least of which will be to become an effective head of government.  He will need a great deal of help. The US could usefully start by lifting its ban on holding discussions with him, and by granting him a visa. 

Despite all the obstacles, it is not too early to pronounce the strong, unified outpouring in favor of this program a ¨democratic revolution.¨

And what is perhaps most striking about this particular one is that Bolivia's people have made it on their own -- without the costly outside intervention that has been required to construct Lego-democracy in other well-known energy-rich developing countries.

(c)SubmergingMarkets, 2005

BUSH HEADS SOUTHReceives Rousing Welcome In Argentina...Fox News Analysis

President Bush received an incredibly warm welcome at the 34-nation Summit of the Americas in Mar de la Plata, as thousands of ordinary people from all over the Continent turned out to hail his presence.

The effervescent US President was clearly buoyed by polls that showed that he still commands the support of an incredible 80 percent of Republicans -- otherwise known as his "base."

True, "non-base" support is reportedly a little less certain. Overall, in this week's latest polls, 59 percent expressed "disapproval," while 42 percent expressed "strong" disapproval." A quarter of the US population surveyed reported "violent morning sickness...."

However, knowledgeable insiders have called this a "temporary setback" that will be easily corrected if and when Presidential advisor Karl Rove, recently distracted by the Pflame investigation, starts covering the bases again.

The President, speaking through an interpreter, voiced optimism that "Free trade and liberal investment policies, plus a few billion dollars on defense, corn subsidiies, and our brand new military base in Paraguay" would completely change the lifestyles of the estimated 100 million Latin Americans who remain below the $1 per day world poverty line.

Said Bush, "These policies have only been tried for a decade or two. They need to be given a chance. Right here in Argentina, you've seen how well they've worked, right?"

Bush's sentiments were echoed by Vincente Fox, Mexico's amazingly popular lame-duck President, and Paul Martin, the astonishing Canadian PM, whose own popularity ratings have recently been taken to record levels by the Gomery Report, which documented the disappearance of $250 million of government funds, mainly by way of Mr. Martin's own party.

Said Martin: "We are quite pleased to have become a wholly-owned subsidiary of US multinationals. We didn't think we'd like the sensation, but it has become an experience that we really look forward to every night. You will also learn to enjoy it. Now if only the US would pay us that $3.5 billion...."

Said Fox: "Yes, it is true, millions of Mexican small farmers have been wiped out by free trade. But this criticism is baseless. Just look at all the remittances they are sending back home from the US !"

Meanwhile, the US President had an especially warm greeting from Diego Maradona, the famous Argentine soccer star, now in recovery. Maradona used a colloquial Argentine expression to describe just how delighted he is to finally have this particular American President visit his country.

Elsewhere, Cuba's Fidel Castro, who was not permitted to attend the summit, was reported to have decided to remove all restrictions on US trade and investment with Cuba, after having listened to President Bush's persuasive arguments.

Said the aging inveterate leftist leader, "I knew we were doing something wrong. Now I finally know what it was. We were way off base!"

After a prolonged negotiating session on Saturday, in which Summit delegates basically agreed to continue to debate the merits of free trade for a long time to come, Bush departed for a Sunday meeting in Brasiia with yet another embattled President, Luis Ignacio da Silva ("Lula.")

Brasilia is a pretty lonely, desolate, and distinctly un-Brazilian place on a Saturday night, because all the whores and politicians have flown back to Rio or Sao Paulo for the weekend, and one is just left with all these 1950s-vintage monuments to Brazil's cement industry. But perhaps President Bush will find a little solace taking a moonlit walk on the empty esplanades, wandering through the otherwise flat, lifeless landscape that Robert Campos once called "the revenge of a Communist architect against capitalist society."

(c)SubmergingMarkets, 2005

MOTH MADNESS!The Latest Crazy Scheme in the Hapless "War on Drugs"James S. Henry and Jeremy Bigwood

In the midst of the faltering war in Iraq, the war on terror, and the Bush Adminstration’s war on Social Security, Americans may perhaps be forgiven for having forgotten that their government is still waging a "global war on drugs" that costs at least $30-$40 billion per year, and also causes a great deal of other political, social, and environmental damage at home and abroad.

Indeed, just this week, the UN announced that the latest results in this global drug war have not been encouraging -- with a $320 billion worldwide market, 15 million new drug users, and 200 million  total drug users -- more than ever.

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PAY-OFF?

As indicated in the adjacent chart, after more than three decades of this hallowed effort, drug enforcers have failed to produce any increase whatsoever in the real retail street price of illegal drugs.

Retail cocaine prices, for example, are much lower than when the drug war started. Similar charts could be also drawn for opium, marijuana, and the bevy of other new "designer drugs" that have been introduced in the last decades – a rational economic response to prohibition.

Of course, hard-core defenders of the anti-drug campaign may argue - just as Prohibitionist moralizers did about booze prices in the 1920s - that retail drug prices would be even lower, except for the war on drugs.

But it seems more likely that supply-side interdiction has failed to have any consistent impact, partly because of improvements in drug dealer productivity – as many economists on all sides of the political specrum have predicted.

The collapse in retail drug prices is also consistent with the embarrassing fact that opium production has recently exploded in US-occupied Afghanistan.

The decrease in prices is also exactly what one would expect from a successful "decartelization" program, like the one that the US Government pursued with such fervor against Pablo Escobar, "Gacha" Orejuela-Rodriguez, and Manuel Noriega.

In the 1980s and 1990s that effort employed quite a few "drug busters," and provided endless material for TV and film scripts. But at the end of the day, it basically just helped to increase supply.

Now, after five years of saturating Colombia with chemical herbicides, the US government and their allies in Colombia have also failed to reduce the number of hectares under coca cultivation.

Indeed, the total area under cultivation in Colombia at the end of 2004 was slightly greater than at yearend 2003. Coca cultivation in Peru and Bolivia, have also recently been expanding. All this is consistent with a the "balloon" model, in which destroying coca in one place only increases the incentives to plant elsewhere.

It also appears likely that – like every other profit-motivated farmer on the planet – coca farmers, as well as cocaine laboratories and distributors, are not sitting still, but are working hard to improve per-hectare productivity.

This means they don’t require nearly as many hectares to produce a given amount of coca as they used to. In calculating its estimates of "potential output," the US DEA assumes a constant 4.26 kilos of potential cocaine output per hectare of coca cultivation; UN "drug experts" assume a constant 3.56.

Even if we give the DEA the benefit of the doubt, however, it estimates that in 2004, Bolivia, Peru, and Colombia produced enough coca to make more than 640,000 kilos of pure cocaine. While this is 28 percent lower than the average potential output in 1996-2001, it is still enough coca to produce more than 2.5 billion grams per year of retail street-cut cocaine.

At today’s New York City street price for an "eight-ball" – $150 for an eighth of an ounce, or $43 a gram – even if just 20 percent of this potential output made it through, that’s a $22 billion annual market. Those who are waiting for supply-side interdiction to "win the war on drugs" will have to wait a long time.

Indeed, if one operative definition of insanity is to "do the same thing over and over again, expecting a different result," by this definition, US drug enforcement policy is barking bonkers, 'round the bloody twist, and bouncing off the walls.

SOCIAL COSTS

Whatever the "benefits" of this policy, it is clear by now that it has had huge social and political costs, especially for our neighbors south of the border.

After two decades of "drug wars," Colombia, Peru, and Bolivia, as well as major distribution centers like Mexico and urban Brazil, are rife with violence, civil unrest, and drug-financed corruption.

Colombia, in particular, has the world’s highest homicide rate, and large parts of the country have descended into a drug–fueled civil war -- a significant militarization of the drug wars, courtesy in part of the US Government.  There is also mounting evidence that coca eradication has caused serious environmental damage, displaced poor campesinos and destroyed valuable legal crops.

Finally, here at home, punitive drug laws have also been a raging disaster -- except perhaps for the moralizing, knuckle-dragging politicians and religious leaders who support them.  They contribute to a great deal of violence and property crime. They have distracted law enforcement from more important tasks like protecting homeland security. And they’ve created the world’s largest prison population, with more than 2.1 million current US prison inmates, and another 4.8 million prisoners on parole or probation,  fifty-five percent of whom have been convicted on drug charges.

Since a majority of all these past and present convicts are black males, and  many of them  have been stripped of their rights to vote by virtue of felony drug convictions, here at last we may have finally discovered at one "rational reason" for US drug laws -- at least among this plutocracy's "demoratically elected" conservative representatives.

BRING ON THE MOTHS!

The "theater of the absurd" just described provides a suitable context for the latest half-crazed proposal from drug war enthusiasts.

Desperate to find some magic bullet that will somehow provide a supply-side solution, Colombian authorities have recently proposed the wholesale release of a special breed of moths, Eloria noyesi – known locally as "Malumbia" – that is supposed to feed only on coca leaves.

The notion is that if enough of these moths can be distributed widely enough at the larval – caterpillar – stage, they may gorge on enough coca to undermine coca production once and for all.

Other recent press reports by CNN and AP have already called attention to this proposal. But SubmergingMarkets has done more homework. We've determined that this is not the first time that this moth plan has been proposed. We've also determined that it was previously considered and rejected for very good reasons. 

Indeed, during early 1990s, the US Government actually proposed a similar experiment using "biological control agents."

According to a Senior International Coordinator at the USDA Agricultural Research Service, Eric Rosenquist, the program was not implemented because of the potential negative side-effects on local agriculture.

In particular, the "malumbia" moth is a relative of the "gypsy moth," which is a non-specific consumer. There is no guarantee that the moth would only eat the coca plants, and may in fact consume other legal crops.

The other problem with this "bio control agent" is that the increase in the moth population might produce a dramatic increase in the population of the moths’ natural predators – parasitic wasps.

After eating all of the moths, the wasps might then attack beneficial pollinators like honey bees.

Both scenarios would be unmitigated disasters for local farmers. Not only are bees invaluable for honey production, but they also play a vital role in pollinating valuable crops like flowers and coffee.

So, at the end of the day, according to this leading US government expert, increasing the moth population might just destroy several of the most viable – and legal – local alternatives to producing illegal drugs!

NEW, IMPROVED COCA MUNCHERS

The most recent reincarnation of this mad scheme comes from two Colombian scientists. Dr. Alberto Gómez Mejía, is President of the "Network of Botanical Gardens of Colombia," and the "Network of Botanical Gardens of Latin America." His colleague, Dr. Gonzalo Andrade, an entomologist, directs the "Bogotá Institute of Sciences." Their proposal calls for the Colombian Government to fund the gathering, propagation, and distribution of coca-munching moths by way of the Colombian Drug Czar’s office.

In a recent telephone interview, Dr. Gomez provided more details about the idea.

"This is an old idea that was first proposed by Professors at the National University fifteen or more years ago. We revisited this idea to provide an alternative to the present push by the Government to fumigate our national parks with chemical herbicides. You capture the original breeding moths in coca fields – both males and females. They’re placed in a cage and fed on coca. As soon as the first moth’s eggs hatch, we drop these small caterpillars, or the pupae (chrysalises) that they produce, over target coca fields."

Asked if the proposal might actually require the government to cultivate some coca to raise enough moths, he admitted that it might. Depending on the number of moths raised and their per-capital coca consumption, therefore, this could put Dr. Gomez & Co. into a big-time coca growing business – strictly for moth breeding, of course.

Dr. Ricardo Vargas, Director of Andean Action, a local NGO that monitors the drug war, is much less sanguine about the moth concept. He says that while the "Malumbia" moths may be native, there's nothing at all natural about releasing them by the millions in concentrated areas. Despite assurances that the moths will only attack coca, he wonders what they will eat next.

As he says, the moth idea is "just another silver bullet approach." And that "with a plan like this, the chance for ecological mischief is very high."

Dr. Gomez, disagrees with the notion that the moths could be dangerous – much less the very latest innovation in bio-warfare.

This moth scheme is hardly the most adventurous kind of biological drug warfare ever proposed. In 2000, the US government terminated a plan to use a killer fungus, Fusarium oxysporum, to eradicate coca. The Andean Community of Nations feared that the fungus might mutatate and have unpredictable side-effects.

This historical record suggests that the moth initiative may be motivated by more than just selfless science. With US agencies under increasing pressure to show results – any results! – from Plan Colombia, and coca farmers showing their innovation and resilience, scientists are taking advantage of this desperation in an attempt to win grant money.

Meanwhile, the guerilla war between the Revolutionary Armed Forces of Colombia (FARC) and the Colombian government continues, with the US spending more than $3 billion since 2000 in military aid, including training up to 13,000 Colombian Army troops.

In their time, of course, Colombians entrepreneurs have had a long, successful history of successfully breeding coffee, cattle, bananas, flowers, rice, cotton, sugar, and cacao, as well as coca, opium, and marijuana. It is only fair that they be given a shot at breeding world-class coca-munching moths!

On the other hand, this being Colombia, we should not ignore the possibility that some savvy coca growers and their wealthy supporters in the downstream sectors of the drug trade might respond by funding bio-terror experiments of their own – perhaps of the moth-munching wasp variety.

Down that path, we fear, lies a bee-less, flowerless world filled with coked-up moths, overstuffed wasps, guerilla entomologists, and drug gangs that have long since moved on to focus on even more addictive man-made illegal substances - ones that, like Ecstasy and Crystal Meth, can be produced in basement labs and have no natural predators.

But hey! At least we will still be fighting "the drug war!"

(c) SubmergingMarkets.Com, 2005

Confronting Venezuela Jeremy Bigwood and James S. Henry

Download venezuela_article.pdf 

In recent months there have been mounting tensions between the Bush Administration and Venezuela’s popularly-elected, if left-leaning, President, Hugo Chavez -- culminating in a series of heated confrontations over the past two weeks, and Condi Rice's interventionist rhetoric at the OAS summit in Miami this weekend. 

If this were the mid-20^th century, Latin America watchers might fear that they were witnessing the early stages of yet another US-backed coup, like those that ousted other popularly-elected, if left-leaning, governments in Guatemala (1954, 1963), Argentina (1962, 1976), Brazil (1964), the Dominican Republic (1965), Bolivia (1971), Chile (1973), and indeed Venezuela itself (1948).

Today, 15 years into the “post-dictatorship” era, Latin America is still struggling to recover from  the disastrous long-term effects of these US-backed regime changes.

These efforts may or may not have warded off socialist revolutions, but they undoubtedly produced a hit parade of corrupt, repressive dictatorships. They also persuaded a whole generation of progressive young Latin Americans that the only route to social justice was by way of violent revolution, and contributed mightily to the entire region’s excessive debts and economic regression -- and a surfeit of hostility  toward the US. 

Fortunately, those Cold War days are long gone – or are they?

 

The latest developments in the Bush-Chavez joropo came this week, with the release of a strongly-worded protest letter from PROVEA, an otherwise highly-regarded Venezuelan human rights organization that has often criticized President Hugo Chavez.

Addressed to US Ambassador William Brownfield in Caracas, PROVEA’s letter expresses grave concern about a steady stream of increasingly menacing statements that have been emanating from senior members of the Bush Administration. PROVEA believes that, taken together, these statements are creating a climate of fear, and threatening Venezuela’s sovereignty and self-determination:

“We wish to express to you and your government our concern about the tone, the frequency and the possible implications of the declarations of high-level officials of the present U.S. administration regarding Venezuela.”

PROVEA’s letter singles out recent statements by US Secretary of State Condoleeza Rice, Roger Noriega, the Assistant Secretary of State for Western Hemisphere Affairs, and several right-wing members of Congress. It also takes note of a fiction-filled white paper on Venezuela by the Center for Security Policy, an obscure right-wing think tank that apparently just cannot get its fill of aggressive US foreign policy.

According to PROVEA, these aggressive statements have grossly misrepresented Venezuela’s situation by using terms like “dictatorship” to describe the Chavez government, and by implying that he is on the verge of establishing some kind of refuge for FARC rebels and al-Qaeda terrorists just across the Caribbean from us – worst of all, paid for by our own oil purchases.

PROVEA has also reminded US Ambassador Brownfield that, for what it is worth, the US and Venezuela have both signed the Articles of the Organization of American States (OAS) Charter, which is supposed to its member countries' rights of self-determination. Of course in this Boltonian Era, with an international treaty and a few bolivars you can buy a café Negro.

The comments by PROVEA (the Venezuelan Program for Education and Action in Human Rights) are interesting because this organization is no mere Chavez mouthpiece. It is a 17-year old NGO funded mainly by Protestant and Catholic churches, whose work has often been cited by international human rights monitoring organizations like Human Rights Watch and Amnesty International. Indeed, the US State Department has often relied on PROVEA’s assessments in its annual “Country Reports of Human Rights Practices,” and has described the organization as “a highly respected human rights NGO.”

PROVEA's comments also reflect a growing concern among independent observers that Washington and Caracas may be on the road to an even sharper confrontation. Several other recent events have also contributed to this perception.

WILL THE REAL TERRORIST HAVEN PLEASE STAND UP?

To begin with, there is the recent dispute over the fate of the 77-year old Cuban-Venezuelan terror suspect Luis Posada Carriles. In late May, he was arrested by the Department of Homeland Security in Miami. He’d sought refuge there after winning an early release from a Panamanian prison, where he had served 3 years for allegedly plotting to kill Cuba’s President Fidel Castro.

At first the Bush Adminstration claimed that it couldn’t find Posada Carriles, but after he turned up on a Miami TV station, a former FBI agent tracked him down and elided that excuse. Needless to say, the fact that a notorious, convicted international terrorist was able to enter the US at will and then disappear into hiding hasn’t done much for Homeland Security’s image. The fact that he also apparently  still had a US passport  in his own name was also something of a puzzle.

As international terrorists go, Sr. Posada Carriles certainly is a poster boy. Venezuela has requested his extradition to try him again for his alleged role in the 1976 bombing of a Cuban airplane that killed 73 people, including several Venezuelan citizens. The Bush Administration is jumping through hoops trying to dodge this request, which appears to be perfectly normal under international law – it is, in fact, a right that the US itself exercises frequently. At last glance, an El Salvador judge had suddenly expressed interest in extradicting Posada Carriles for unspecified charges in that country, where he reportedly worked with the CIA during the contra wars and hid out in the 1990s.

Separately, Castro would also like to try Posada Carriles  for his alleged role in a Havana bombing that killed an Italian tourist, plus several others assination attempts.  Sr. Posada Carriles, who has a long history of involvement with both the CIA and anti-Castro Miami exiles, claims that he is innocent. So far the U.S. government has refused to hand him over, asserting that the Venezuelan extradition request is not detailed enough. Both the Castro and Chavez governments have organized massive street protests over this episode, and Venezuela has threatened to sever diplomatic ties.

President Bush has resisted the temptation to invite Posada Carriles to the White House and award him the Medal of Freedom. But just last week, Bush did meet another indicted Venezuelan for 15 minutes in the White House -- María Corina Machado, an elitista opposition leader who is facing charges of “conspiracy” to overthrow Chavez. Her organization, Súmate, has received grants from the US Government to help organize the 2004 anti-Chavez recall referendum – which he won handily anyway. Sumate has also received donations from wealthy Venezuelans and Cuban-Americans who are opposed to Chavez. Ms. Corina Machado's head must be spinning with all the attention suddenly lavished upon her -- Condi Rice is also expected to meet with her in Miami. this week.

Since the Chavez Government has often been accused – to date, at least, without proof – of harboring international terrorists from groups like Spain’s ETA, Colombia’s FARC, and even some leading members of al-Qaeda, this is an especially interesting development. Interestingly, Spain, which also has a huge stake in fighting these groups,  maintains warm relations with Hugo.

From Chavez’ standpoint, if there are any terrorists who just happen to have been hiding out in Venezuela’s vast reaches, this would be a perfect time to do the right thing and make the trade -- by turning them over to  the International Criminal Court, for example.

COLOMBIA/PERU TENSIONS

As the guerilla war in neighboring Colombia has escalated, with US military aid to the Colombian government approaching $3 billion, there have also been several incidents that have convinced the US,  at least, that Chavez is aiding Colombia's left-wing guerillas. This issue was highlighted in December 2004, when Rodrigo Granda, a senior spokesman for the FARC, was seized while attending a conference in Caracas.  Two years earlier,  Caracas had also played host to former Peruvian spymaster  and arms dealer Vladimiro Montesinos -- though it is  still not clear  precisely who was protecting him there.

FREE TRADE ZONE

With left-leaning, democratically-elected governments now in place all over Latin America, and Hugo’s position at home more secure than ever, he has seized the opportunity to barnstorm across the continent to support increased Latin American integration, and – to Washington’s immense displeasure – to oppose one of the Bush Administration favorite neoliberal proposals, the “Free Trade Zone of the Americas.” Chavez alone is not responsible for stalling the treaty – Brazil’s Lula has also said that it is off the agenda for now. But Hugo’s vocal opposition has not earned him any reward miles in Washington.

OIL SQUEEZE

With  oil prices at record levels, and the US relying on Venezuela for supplying more than 1.2 million barrels per day of oil, up to 15 percent of all US oil imports, Venezuela has been feeling its oats. The surge in oil revenues has permitted Chavez to increase domestic spending, shore up his political base, and “strut his stuff” all over the continent. The US still accounts for more than 60 percent of Venezuela’s oil exports. To reduce this dependency, Chavez has started to negotiate new long-term contracts with other hungry markets, especially China. This has also not been popular with the Bush Administration, whose own popularity has been hurt at least as much as Hugo’s has been helped by soaring energy prices.

OTHER IRRITANTS

Chavez’s close relationship with Cuba in general and Fidel in particular is another thumb-in-the-eye for US policymakers. Chavez has agreed to provide the island with oil at subsidized prices – partly in exchange for several thousand Cuban doctors. Meanwhile, he is also upgrading Venezuela’s ill-equipped military, ordering 100,000 AK-103s and 10 helicopters from Russia to replace his army’s 50-year old FAL rifles.

Meanwhile, Colombia, one of the few remaining US allies in the region, makes all the Galils that it wants under license from Israel, without any protests from Washington.

It is not as if Chavez has only been dealing with Russia and Cuba. Spain is also selling him fast boats for drug control, and Brazil is selling him Super Tucano airplanes for border patrol. The US DEA is privately delighted with these acquisitions, and with Hugo’s cooperation on the anti-drug front in general, but it is unlikely to come to his defense in public.

At a news conference in Brazil last March, Donald Rumsfeld, the peripatetic US Secretary of Defense, commented that “I can’t imagine why Venezuela needs 100,000 AK-47s.’ Perhaps Rumsfeld should get a briefing on the difference between AK-103s and AK-47s. He should also read the PROVEA letter.

SUMMARY

The stark reality is that, despite its vaunted “superpower” status, the US really doesn’t have much leverage with Venezuela -- unless Chavez does something incredibly stupid, a possibility that we cannot entirely rule out if tensions continue to escalate. 

Apart from that possibility, it appears that Venezuela is the true “superpower” in this situation. With oil markets tight, the US economy slowing, and the Chinese market waiting in the wings, this is hardly the time to mess with a major oil supplier.

Chavez’ popularity has also increased sharply since last year’s referendum, and this is not just because of the surge in petrodollars. After fumbling the April 2002 coup and punting last year’s referendum, the hapless Venezuelan opposition has demonstrated conclusively that it is far better at schmoozing in Miami, Houston, and Washington than at organizing an effective grassroots political movement. It should return home, end its  financial ties to gringos and right-wing Cuban exiles, and work harder.

As for US military options,  so long as Chavez keeps his own Army happy,  observes international law, and also maintains popular support, there aren’t any. Cold War triumphaliists and national security experts who think otherwise are advised to take a crash course in Caribbean tanker routes, US refinery economics, and the capabilities of the latest generation of Russian anti-ship missiles.

More fundamentally, the real reason that a self-educated populist blowhard like Chavez has managed to win at least four nationwide electoral contests since 1998 is neither because he is a ruthless thug or a brilliant demagogue.

Rather, it is because the avaricious, short-sighted Venezuelan elite that dominated the country’s economy, executive branch, legislature, judiciary, military, press, and church for four decades, with close support from the USG and Wall Street, left the country a debt-laden, corruption-ridden mess. (See The Blood Bankers for all the gory details.)

Every time the US government lectures Hugo, muscles him, or tries to artificially inseminate its friends and hirelings in the “Venezuelan opposition” into Venezuelan history, it merely reminds people of this unfortunate fact.

(C) SubmergingMarkets.Com, 2005

Democracy in America and Elsewhere:Part IIIB. Campaigns, Voting, and Representation

James S. Henry and Caleb Kleppner** Download PDF Version

As we began to explore in Part IIIA of this election-season series, contrary to the conventional wisdom, the United States of America actually has a great deal to learn from other countries – especially several young democracies -- about designing and operating electoral institutions that are truly democratic. This part of the series continues our comparison with one of those countries, Brazil.

There was perhaps a time when much of the rest of the world viewed the United States of America not just as a militaristic crusader, but as a role model for advocates of liberal democracy everywhere.

These days, however, as former President Carter’s recent caustic comments about the likelihood of continued rigged voting in Florida this year have underscored, the American beacon of liberty is flickering in the wind.

Increasingly the US is viewed by the rest of the world -- and by some of its most astute internal critics -- as an arrogant, hypocritical, sclerotic plutocracy, whose own electoral institutions, as former President Carter correctly observes, are at risk of no longer meeting even minimal international standards for democratic elections.

Meanwhile, the US has the temerity to lecture other countries (as it did, for example, just this week with respect to Hong Kong) about the meaning of “democracy,” and to selectively intervene in the affairs of other countries in the name of democracy, whenever it suits perceived US interests.

As shown in Table A, this concern with democratizing the world may be a preoccupation of US policy elites, or it may just be pure rhetoric.

A recent poll by the Chicago Center on Foreign Relations shows that for the American public at large, the goal of bringing democracy to other nations ranks last on a list of fourteen major US foreign policy goals, with only 14 percent believing it to be “very important.” This made it less than one fifth as as important as securing energy supplies, protecting US jobs, or fighting terrorism. Even among policy elites, “democratization” ranked 12th on the list.

Once again, our aim here is to help Americans understand why their own electoral system has become so anachronistic and dysfunctional. We also hope to encourage them to take more interest in the rest of the world, be a little more modest, and understand that they too live in a “developing country” – one whose own particular version of “democracy” is in dire need of rejuvenation.

CAMPAIGN PROCESSES

Campaign Duration/ Candidate Selection

Brazil. Like the UK and many other democracies, Brazil’s process for selecting Presidential candidates and the political campaigns that follow are relatively abbreviated, with most candidates selected by national parties caucuses, and campaign advertising and other electioneering activities limited to 60 days before the general election. (This is far from the shortest period. Indonesia just held a Presidential election, with 150 million registered voters, about 10 million more than in the US. It limits public campaigning to just 3 days in order to curb political violence, a long-standing Indonesian problem.)

The US. The US primary process for selecting Presidential candidates is a costly and tedious. It begins up to two-and-a-half years before the general election, wends its way through more than 37 state primaries and party caucuses by mid-March of the election year, and concludes with the main candidates already selected at least 6 months before their party conventions, and 8 months before election day.

The US primary process also gives extraordinary influence to a tiny fraction of voters who turn out for caucuses or primaries in “white bread,” states like Iowa (total primary turnout = just 9 percent of VAP) and New Hampshire (total primary turnout= 29 percent of VAP) that happen to have early primaries.


Several of these states also follow primary procedures that are only remotely democratic. In Iowa’s bizarre “house party” caucuses, for example, there is no secret ballot, so that one’s corporate bosses or fellow union members can easily observe whether one follows instructions.


The primary process also has a dramatic impact on campaign costs. With so many primaries bunched together, candidates are compelled to run national campaigns in multiple states. On the other hand, since the order of primaries has nothing to do with each primary’s weight in national totals, the country as a whole is compelled to sit through 9-sided “debates” between pseudo-candidates, over and over again.

All this probably reduces the supply of first-rate candidates who are willing to endure this grueling march. By the time the November election finally rolls around, most Americans are also probably sick and tired of the whole affair. On the other hand, campaign advisors, advertisers, and the news media like the current system -- it generates a prolonged “horse race” and recurrent employment.

Campaign Finance

While most leading democracies, like Germany, France, and Japan, have experienced serious campaign finance abuses, finance has much more leverage in systems like Brazil and the US, where Presidents are selected through expensive direct elections, not parliamentary polls. So far, despite numerous efforts, neither Brazil nor the US has been able to contain the excessive influence of campaign finance directly, but Brazil has made progress indirectly, by providing media access and some public financing.

In Brazil’s case, the campaign finance issue was highlighted by a recent series of scandals, including the 1992 impeachment and removal of President Fernando Collor, the 1994 “Budgetgate” scandal, the 1997 “Precartorios” scandal in Sao Paulo, the 2002 scandals involving illicit funds raised by Roseanna Sarney and Jose Serra, and the 2004 scandals involving senior Workers Party official Diniz and the “Blood Mafia.”

In the US, this year’s Presidential election will be by far the most expensive in history, nearly twice as expensive as the 2000 election, despite new legislation like the Bipartisan Campaign Finance Reform Act of 2002 (McCain-Feingold), which tried to limit the use of “soft money.”

“Supply-Side” Limits. Both the US and Brazil have repeatedly tried to legislate against the corrosive influence of money on elections by establishing such “supply-side” limits. In the US these efforts date back more than a century. Since the 1980s there have been a string of “reforms of reforms” in both countries to require disclosure of contributions by individual and corporate donors (Brazil), disclose receipts by candidates and parties (Brazil, US), limit the size of individual, union, and corporate contributions (Brazil, US), ban anonymous donations (Brazil, US) limit campaign expenditures (Brazil), and limit the amount that parties can raise (Brazil).

In the US, virtually all elections at all levels of government are privately funded, with no spending limits unless candidates opt for matched public funding. In federal races, contributions limits are now quite high -- $4,000 per election cycle. And these may be increased if opponents spend their own money. Corporations and unions are prohibited from making campaign contributions, but they have found ways to make huge indirect contributions, by way of Political Action Committees (PACs), state and national political parties, unregulated “in-kind” contributions (like Cisco’s $5 million of free networking services to each party convention) and most recently, virtually-unregulated “527” committees and 501-C4s.

So far, these “supply side” efforts to limit campaign contributions have proved unsuccessful in both countries. Donors and recipients are simply too creative, laundering contributions through “independent” fronts, providing in-kind contributions, spreading contributions across multiple family members, and so forth. Ultimately the reality is that in advanced capitalist societies that have very powerful private interest groups, highly unequal income distributions, sophisticated lawyers, and important government policies up for grabs, the most one can hope for from supply-side regulation is window-dressing – and that the insiders occasionally cancel each other out.

Demand-Side Limits. A much more effective approach is to limit the demand for private campaign funds with a combination of free media, direct controls on campaign spending, and public funding.

In the US, efforts to limit campaign expenditures directly have been throttled by the 1976 Supreme Court decision in Buckley vs. Valeo, which determined that “money is speech” – e.g., that any direct limits on campaign spending by candidates or parties violate the First Amendment.

US law does allow limits to be imposed on candidates who accept matched public funds, which have been available since 1974. But public funding has been limited, and is getting scarcer – the US matched public funding system is now on the brink of insolvency, partly because voluntary taxpayer contributions on tax returns have plummeted. (Among other reasons, the $3 check-off limits has not recently been increased.)

So while lesser candidates like Ralph Nader and Al Sharpton relied heavily on public funding for their campaigns, well-funded candidates like Bill Clinton in 1996, George W. Bush in 2000 and 2004, and John Kerry in 2004 have either refused public funding completely, or have limited their use of it to the final few months of the campaign. A few states – Maine, Minnesota, and Arizona, for example – have experimented with providing public funds for state candidates, with positive results, including a sharp reduction in the amount of time politicians devote to fund-raising. But these programs are not expanding, partly because of state budget crises.

As noted, no US-like constitutional limits on campaign spending controls exist in Brazil, or for that matter, in most other democracies, like the UK or Canada, for example. Brazil has adopted some spending limits for political parties and individual candidates, which seem to have been somewhat effective. Brazil has also provided some public funds for all registered political parties to defray campaign and administrative costs.

Free Media

Brazil. By far the most effective measure that Brazil has introduced to level the campaign finance playing field, however, has been the provision of free access to TV and radio for political candidates. TV advertising, in particular, is otherwise by far the most important ingredient in campaign costs. Furthermore, at least in principle, the airwaves are owned by the public. So it is not surprising that Brazil and more than 70 other democracies around the world have adopted such provisions, including most Western European countries, South Africa, India, Russia, and Israel. (Among First World countries that provide free political airtime: the UK, France, Germany, Spain, Italy, Sweden, and Japan.)

In Brazil’s case, ironically, the early adoption of this provision is partly due to the fact that the ownership of radio and TV broadcasting networks in Brazil are even more concentrated than they are in the US, dominated by the Marinho family’s Globo empire and 2-3 other private owners. On the other hand, a majority of Brazilians are poor and semi-literate, and depend heavily on TV and radio for all their news.

Under Brazil’s free media law, the only forms of paid political advertising permitted are newspaper advertising, direct mail, and outdoor events. Sixty days before an election, 1.5 hours of programming per day - the “horário eleitoral gratuito” - are requisitioned from broadcasters and divided up among political parties in proportion to their seats in the Camara, with a minimum allocation for parties that have no seats. Newscasters and debate broadcasters are required to give equal time to all candidates during this period, punishable by fines. Brazil’s political parties are also entitled to free public transportation, the free use of schools for meetings, and special tax status.

Some broadcasters have complained that these provisions are very costly (to them), that they may reduce news coverage for controversial subjects, and that the viewing public will simply tune out. However, it appears that most Brazilians continue to tune in as usual, and that they actually welcome the concentrated dose of campaigning, as compared with prolonged agony of the US approach.

The US. The US is one of a minority of leading democracies that still provides no free radio or TV access for political candidates. (In addition to Brazil, others that do include the UK, France, Italy, Israel, Hungary, India, Germany, Spain, and Sweden.)

This is especially important, because in many ways, TV advertising is the key factor underlying the whole campaign finance issue. From 1970 to 2000, US campaign spending on TV ads increased more than 10-fold, faster than any other campaign cost element. This year, the political ad revenues of US broadcasters will exceed $1.4 billion. This makes political advertising second only to automotive advertising as a revenue generator for TV networks. This year, most of this revenue will flow to broadcasting conglomerates like ClearChannel, Cox, and Viacom that are especially well-positioned in the battleground states.

In theory, since 1971 the Federal Communications Commission – now chaired by Michael Powell, son of the Secretary of State Powell -- has required US broadcasters to sell airtime to political candidates at the “lowest unit rates” available, but in practice this requirement has not been very effective. The 2002 BCRA also tried to limit corporate and labor funding for broadcast advertising to the last 30 days before primaries, but it did nothing about so-called “Section 527” or 501-C4 advertising by issue-oriented groups that are theoretically independent of campaigns.

Among its many other impacts, this policy compels incumbent US politicians to spend a huge portion of their time – at least 28 percent, in one recent study -- raising campaign funds. It also invites incumbents to be unduly empathetic to the media conglomerates that now dominate the US cable, satellite, broadcasting, and publishing markets.

Its key beneficiaries include:

ClearChannel(1200 radio stations, 37 local TV stations, 103 mm listeners);

Cox Enterprises(43 newspapers in Florida, Ohio, Texas, North Carolina, Georgia, Colorado; 9 TV stations; 75 radio stations;

Disney (ABC, E!, A&E, History Channel, Lifetime, Tivo (partial), Miramax, ESPN, 10 local TV stations, 66 radio stations);

GE(NBC, PAX TV Network, MSNBC, CNBC, Universal Pictures, Telemundo, Bravo, Sci-Fi, Vivendi Entertainment, 28 local TV stations);

News Corp/Rupert Murdoch (Fox Network, 20th Century Fox, National Geographic, HarperCollins, The NY Post, Sunday Times (UK), The Times(UK), multiple other Australian and UK newspapers, Avon Books, TV Guide (part), The Weekly Standard, BSkyB, 34 local TV stations);

Tribune Company(27 TV stations, Newsday, Chicago Tribune, Baltimore Sun, LA Times, 11 other newspapers, 1 radio station, etc.)

Time Warner(CNN, HBO, Warner Bros., Court TV, TNT, New Line Cinema, AOL, Netscape, Time Inc. (People, Time, Fortune, Sports Illustrated, Bus 2.0, Life, Popular Science, etc.) Mapquest, Little,Brown);

Viacom(CBS, BET, MTV, Comedy Central, 13 other cable channels, Paramount, Simon & Schuster, Free Press, Scribners, Infinity Radio (185 radio stations), 39 TV stations, 5 other radio stations).

Not surprisingly, under the influence of this tidy little interest group, federal regulation has become more and more lax on a wide range of broadcast- and cable-related issues in the last twenty years, including acquisitions, “lowest unit rate” regulations, “equal time,” digital spectrum, and pricing guidelines for cable network franchise agreements.

Meanwhile, the detente established between incumbent politicians and this “Sun Valley” alliance has stymied proposals for free political media in the US – and helped to perpetuate the role of money in American politics.

Vote Fraud/ Absentee Ballot Abuse/ Missing Ballots

Brazil. Outright vote fraud and vote buying are long-standing problems in Brazil, as in many other developing countries. One recent survey indicated that up to 3 percent of voters – almost 2 million people - may have sold their votes in Brazil’s 2002 election. A new law was adopted in 1999 to increase penalties for buying votes, but evidently there is still much work to do.

On the other hand, one beneficial side-effect of Brazil’s particular approach to electronic voting – which only provides printed copies for a sub-sample of voters – is that most voters aren’t able to prove that they have voted as instructed.

Absentee ballots are also not a problem in Brazil or other countries with centralized voter registration, because they don’t exist – people can vote anywhere, once. Those who happen to be outside the country on Election Day are permitted to cast ballots at Brazilian consulates.

The US. Outright vote buying is also an ancient American tradition – at least since George Washington bought a quart of booze for every voter in his district when he first ran for the Virginia legislature in 1757. Vote buying still occasionally turns up in the US today, and the Internet has added a new dimension to traditional vote buying, with the appearance in 2000 of sites like www.voter-auction.net and www.winwin.org that permitted voters to swap or even sell their votes in online auctions.

As one of these site’s authors rationalized it, this approach is much more efficient and direct than the standard practice, in which political middlemen like campaign consultants and advertising gurus routinely take 10-15 percent off the top of a campaign’s media spending in exchange for delivering votes.

However, the main areas that are ripe for massive abuse in the US now are probably absentee ballots and “missing/ faulty votes.”

Absentee Ballot Problems. The liberalization of absentee ballot laws since the late 1970s, combined with increasingly lax voter registration laws, and the absence of a national identity system or central voter registration list, have made this a growing problem in the US.

This year, absentee ballots may account for as much as 20 percent of the total US vote, up from 14 percent in 2000. This enables a panoply of specific malpractices, including (1) fraudulent registration and voting in the names of phantom, relocated, or deceased voters; (2) voting by the same individuals in multiple states; (3) gross violations of voter secrecy, including pressuring senior citizens to fill out their absentee ballots in a specific way; and (4) fraudulent voting by Americans civilians or military personnel who are located offshore – that also played a key role in the 2000 Presidential election.

It is not clear which major party has benefited the most from such practices. Bogus registration may have had its finest hour in the notorious 1960 “Chicago miracle,” when thousands of dead people allegedly voted for President Kennedy. This year, however, with the Republican Party in control of all three branches of the US federal government, 28 out of 50 state governorships (including 5 BG states), and 17 state legislatures (including 9 BG states), the Republicans may bear the most watching.

Missing/ Faulty Ballots. Of course the recent US track record with respect to mechanical vote processing is also not encouraging. During the 2000 US Presidential election, the whole country was forced to agonize for months over Florida’s mechanical voting machines, until a highly-politicized US Supreme Court awarded the election to President Bush by a 5-4 vote. CNN and other mainstream media organizations later hired the National Opinion Research Center to conduct a six-month audit of the 2000 Florida vote. Amazingly, when it was concluded, they declared that it showed that “Bush would have won anyway.” In fact a careful reading of the report shows that precisely the opposite was the case.

Furthermore, subsequent analysis of the 2000 Florida outcome shows that the balloting problems that figured in the Supreme Court decision were just the tip of the iceberg – compared with other glaring problems, like the bogus exclusion of thousands of black “pseudo-felons” from Florida’s voter rolls, and the intentional spoiling of thousands of black ballots.

According to the nonpartisan election monitoring group Votewatch, in the 2000 election Florida’s “hanging chad” problem was dwarfed by other counting problems. An estimated 4 to 6 million voters simply had their votes wasted because of faulty equipment and confusing ballots (1.5- 2 million), registration mix-ups (1.5 – 3 million), and screw-ups at polling places (up to 1 million).

This year, the US State Department has responded to concerns about a repetition of such behavior by inviting international observers from Vienna’s Organization for Security and Cooperation in Europe to monitor the US Presidential election – for the first time ever.

Other Measures

To prevent public officials in the Executive Branch from abusing their powers to manipulate voters, Brazil’s Constitution also requires them to resign six months before elections if they or their immediate family members intend to run. The US has no such disqualification period for political candidates who have worked in the executive branch.

VOTING SYSTEMS

National Administration of Elections

Brazil. Like many other emerging democracies, Brazil has an entire separate judicial branch, the Justicia Eleitoral, that is responsible for implementing all campaign finance and voting procedures all levels of government. (1988 Constitution, Articles 118-121).

This system is by no means perfect, but it is far more objective and “party-neutral” than the US system, which is heavily influenced by state and local politics. Brazil’s approach has also contributed to the rapid nation-wide adoption of reforms, like electronic voting.

The US. Since 1974, campaign finance for US federal elections has been administered by an independent regulatory body, the Federal Election Commission. But US voting procedures remain under the control of state and local authorities, even in the case of federal elections. While the National Institute of Standards and Technology makes recommendations concerning voting machines and registration procedures, these are voluntary.

The result is a hodge podge of inconsistent, incompatible and often out-dated paper ballot, machine, and electronic recording procedures that vary enormously among states, and often even within the same states.

Direct Elections/Run-Offs/”Electoral College”

Brazil. In the case of Brazil’s Presidential elections, there is no “electoral college” that stands in the way of the popular will. Article 77 of Brazil’s 1988 Constitution explicitly provides that Brazil’s President is that political party candidate who obtains an absolute majority of bona fide votes. If no candidate emerges from the first round of voting with an absolute majority, a run-off election is to be held within 20 days – as it was in October 2002. Elections for Brazil’s 26 state governors and the mayors of its large cities are also subject to similar runoffs.

The US. Presidential elections are decided by the notorious “electoral college.” As discussed below, this is really just a throwback to the protection of Southern slavery. Currently it serves mainly to protect the influence of “strategic minorities” in a handful of smaller so-called battleground states. (See the discussion in Part I of this series. ) In today’s highly partisan environment, it also (temporarily) gives minority candidates like Nader tremendous destructive power – without, however, affording them any representation at all between elections.

Indeed, the US’ “winner-take-all” system systematically discourages third party power and minority representation. In a more democratic system with proportional representation, preference voting, or even Presidential run offs (see below), voters could freely vote for candidates like Nader without fear of electing their “third choice.” It is no accident that parties like the Green Party, the Libertarian Party, and the Reform Party are in deep crisis, even as Nader’s stubborn crusade continues. Would that more of his spite were directed at “winner take all” and the electoral college, which has helped to institutionalize a political duopoly.

Technically, under the US Constitution (Article II), Americans don’t even have the right to vote for their President or Vice President. This right is delegated to Presidential electors, who may be selected by state legislatures any way they see fit. Indeed, popular vote totals for President and Vice President were not even recorded until 1824, and most state legislatures chose the electors directly. Since then, most states have chosen them according to the plurality of the popular vote in each state. But South Carolina – always a hotbed of reaction, with the highest ratio of slaves to whites -- continued to ignore the popular vote until the end of the Civil War.

Nor is the number of Presidential electors per state even determined by the relative population or voters per state. It is fixed at the number of Senators and Congressmen per state, with a minimum of 3 for each state and the District of Columbia. This guarantees that small rural states are over-represented. Because of the winner-take-all system, it also effectively disenfranchises everyone in a state who votes for candidates who lose that state, and partly disenfranchises all those in large states. At least four times in US history – 1804, 1824, 1876, 1888, and 2000 – this anti-democratic system produced Presidents who failed to win a plurality of the popular vote.

In the context of other democracies around the world, the electoral college is a very peculiar institution indeed. Kenya’s former dictator, Daniel Arap Moi, adopted something similar to control the influence of the country’s dominant tribe, the Kikuyu. The Vatican’s College of Cardinals has something similar.

There have been many calls for the electoral college’s abolition, most recently by the New York Times in August 2004. But this would require a Constitutional amendment that would have to be ratified by three-fourths of the states – at least a quarter of whom have disproportionate power under the existing system.

It is course possible for a state to provide that its own electors are awarded to Presidential candidates in proportion to the popular vote within a state -- as Colorado is considering this year. However, unless all battleground states go along with this, which is unlikely, it is unlikely to gain national momentum.

Electronic Voting/ Registration

Brazil. To the surprise of many, Brazil has recently become the world pioneer in electronic voting and registration. When it held national elections in October 2002, 91 million out of its 115 million registered voters turned out – more than 70 percent of those of voting age, and 3 million more than voted in the US elections that same fall. In terms of global electoral history, the number of votes received by the winner, Luis Ignacio de Silva (“Lula”), was second only to Ronald Reagan’s total in 1980.

To handle this heavy turnout, Brazil relied heavily on electronic voting. The Tribunal Superior Eleitoral (TSE) had been experimenting with electronic voting systems since the early 1990s, becoming a real pioneer in the use of “DREs” (“direct recording electronic”) voting machines. Brazil first used DREs on a large scale in its 1996 elections, with 354,000 in place by 2002. For that election, it deployed another 52,000 “Urnas Eletronica 2002,” a state-of-the-art DRE that had been designed by Brazilian technicians with the help of three private companies – Unisys and National Semiconductor, two US companies, and ProComp, a Brazilian assembler that has since been acquired by Diebold Systems, the controversial American leader in electronic voting systems.

Because Brazil has been willing to commit to such a large-scale deployment, each Urna costs just $420, less than 15 percent of the cost of the $3000 touch-screen systems that Diebold features in the US. The Brazilian system lacks a touch screen; voters punch in specific numbers for each candidate, calling up his name and image, and then confirm their selections. The numerical system was intended to overcome the problem of illiteracy, which is still a problem in parts of the country. To handle operations in remote areas like the Amazon, the machine runs on batteries up to 12 hours. Initially there were no printed records, but the Electoral Commission decided to retrofit 3 percent with printers, to provide auditable records.

Like any new technology, Brazil’s approach to electronic voting is by no means perfect. Indeed, significant concerns have been voiced about the system’s verifiability and privacy – especially about the TSE’s recent move to eliminate the printers, supposedly because they slowed voting.

Among the most important proposed improvements are a requirement that all voting machines produce both electronic and paper records, in order to leave an audit trail and increase voter confidence in the system; that system software be based on “open” standards and available for audit; and that the system for identifying eligible voters be separated from voting, to insure privacy.

Despite these concerns, most observers agree that Brazil’s system performed very well in 2002. In Brazil’s case, within a couple days, winners were announced almost entirely without dispute, not only for the Presidential race, but also for the 54 Senate races, 513 Congressional races, 27 state governorships, 5500 mayors, 57,316 councilmen, and many other local contests – all told, races involving more than 315,000 candidates.

Given this success story, many other countries that have traditionally had serious problems with paper ballot fraud are also considering its use, including Mexico, Argentina, the Dominican Republic, India, the Ukraine, and Paraguay.

The US. This country, where the choice of voting technology is localized and highly political, still relies very heavily on paper ballot-based and mechanical voting system – while 42 states will have new voting machines in 2004, only about 29 percent of US voters (at most) will cast electronic ballots this year. And with each state free to adopt its own local variant on the technology, it is not surprising that implementation has been problematic -- recent experiments with electronic voting in New Mexico, California and Florida have all been riddled with problems.

In 2002, the US Congress passed the “Help America Vote Act” (HAVA), which authorized $3.9 billion to be spent by 2006 to help state and local governments upgrade their election equipment. Given the fragmented nature of US election administration, however, this has produced a competitive scramble for government contracts among 3-4 leading US electronic voting firms, including Diebold Election Systems, ES&S, and Smartmatic, the Florida-based company whose 20,000 electronic voting machines successfully handled Venezuela’s Presidential Recall referendum this summer.

But with no mandatory national standards and the numerous operating problems that we’ve already seen at state and local levels, it is not surprising that there is widespread, perhaps exaggerated, concern about the potential for hacking and manipulation. In this highly-politicized context, with no adequate checks and balances over the procedures, some observers have argued that computerizing US voter registration and electronic voting will actually make things worse.

Relative to more basic problems like absentee ballots, phony registration, malapportionment, and misrepresentation, we believe that these concerns are exaggerated. However, like many other elements of our “pseudo-democratic” political system, it is very hard to argue that the US track record with respect to electronic voting is an achievement.

REPRESENTATION

Proportional Representation

Brazil. Brazil’s 81 Senators are elected by simple plurality for eight-year terms. But Article 45 of Brazil’s Constitution provides that the 513 members of Brazil’s House of Deputies are elected for four year terms according to a voting system called “proportional representation” (PR). Brazil also uses PR to elect city councils and state legislatures.

Unlike the “plurality/single member district/ “first past the post” system that is used in most US federal and state elections, this approach insures that the overall mix of elected representatives more accurately reflects voter preferences. It also represents a wider range of opinions, since party candidates compete with each other. Indeed, various forms of PR are now used for the election of “lower houses” by all other countries in Latin America, almost all European countries, all the world’s largest democracies, the new democracies in Iraq and Afghanistan, and, indeed, the vast majority of democracies in the world today -- except for the US, Canada, the UK, and former British Caribbean colonies like Jamaica and the Bahamas.

Indeed, many of the world’s leading corporations have also turned to proportional representation, cumulative voting, or other forms of preference voting for purposes of electing their corporate boards.

Brazil uses what’s known as the "open list d’Hondt” version of PR. Here, political parties or coalitions register proposed lists of congressional candidates with the Electoral Court. There are no single-member congressional districts – rival candidate lists are drawn up by each party for each of Brazil’s 26 federal states, with the number of representatives per state determined by population, subject to minimums and maximums. Voters can opt for a party’s entire list, or select among individual candidates – unlike a “closed list” PR system, where candidates don’t compete with each other.

Of course Brazil’s proportional representation system is by no means perfect. Some have argued, for example, that using its 26 states as electoral districts has made Brazil’s legislators too remote from voters, and that smaller districts, or even a “mixed” PR system like that used in Mexico, Germany, or Venezuela may be preferable. Some voters may also find it too difficult to choose among so many different candidates, leading them to opt for party slates.

However, when it comes to buying shampoo or automobiles, most consumers believe that increased variety is a good thing – why should politics be any different? And it is hard to imagine an elected official who is more remote from minority voters than one who is elected – as more than 95 percent of US Congressmen now are – in a district that predictably goes either Democrat or Republican, year after year. This system, in turn, encourages the country to divide into polarized sectarian camps, where even majority voters feel less well-represented because incumbents can take them for granted.

Some have argued that the Brazil’s open list version of the PR system has contributed to a weaker party system, and to competition among a party’s own candidates. For example, any political party in Brazil can put forth candidates without having to obtain a minimum of the national vote. Party weakness may also be encouraged by the fact that incumbents can change parties without losing their spots on the ballot, one of several measures that favors candidates over parties. This may indeed have encouraged a proliferation of political parties – in Brazil’s 2004 Camara dos Deputados and Senado Federal, for example, 16 different ones are represented. Even with stable coalitions among the top 3-4 parties, the concern is that all this can substantially increase the negotiation costs of legislation, block Presidential initiatives, and lead to deadlock.

On the other hand, such negotiations may also produce outcomes that are more reflective of the popular will. And recent studies of the actual operation of Brazil’s Congress suggest that the concerns about fragmentation and policy deadlock have been overstated. Furthermore, the fact that delegate turnover in Brazilian elections since democracy has averaged more than 50 percent may be viewed as a good thing – especially compared with the “dynastic legislature” that the US has acquired.

The US. There is actually a long history of preference voting and proportional representation in the US at the state and local level. For example, a majority of the original 13 colonies’ legislatures were elected using multi-member candidate slates, and more than 60 percent of city councils in the US are still elected with at-large slates. There have also been numerous proposals to expand their use at the federal level, especially for the US House, which could be done without a Constitutional amendment.

However, currently, delegates to the House and Senate and almost all state legislatures are chosen in single-member-district “first one past the post” contests, where voters each district choose just one candidate for each office. Those voters whose candidate wins a plurality of counted votes (e.g., less than or equal to 50.1%) are awarded 100 percent of a district’s seats; all other voters get zero representation. This implies two kinds of inefficiency – “over-represented votes,” those that a winning candidate didn’t need in order to prevail, and “under-represented votes,” those cast for losing candidates.

Compared with a PR system like Brazil’s, the US is monumentally inefficient – in two-way races, 49.9 % of all votes in “winner take all” races are always wasted, in the sense that they are either more than winners need to prevail, or are votes for the loser that receive no representation.

There is a huge literature on the merits and demerits of proportional representation, which contrast its increased representation for minority interests with its alleged tendency to produce unstable coalition governments (the classic cases being Italy and Israel.) At the end of the day, there are undoubtedly some empirical trade-offs to be made. But the fact is that the vast majority of the world’s democracies, as well as many of the world’s leading private companies, have opted for various forms of PR systems for representation – with the exceptions of the US, Canada, and the UK. And among those that have opted for PR systems are all of the world’s newest democracies, including Brazil, South Africa, Indonesia, East Timor -- and even our own favorite new Middle Eastern democracies, Afghanistan and Iraq. Is there no content in this signal?

Apportionment/Gerrymandering/ “Safe Seats”

Like other countries with federal systems, Brazil and the US have struggled to (1) provide representation that is proportional to the actual number of voter-aged residents in all regions of the country, while at the same time (2) providing at least a minimum degree of representation for all regions, no matter how heavily populated.

In Brazil’s case, significant “malapportionment” – departures from representation that is strictly proportional to population -- continues exist, mainly in the form of overrepresentation for rural states in the National Camara and Senate. This is because Brazil’s Constitution guarantees each of its 26 states, plus the Federal District, at least 3 Senators regardless of population, and because representation in Brazil’s Camara is a truncated function of population, with each state guaranteed a minimum of 8 representatives and a maximum of 70, regardless of population.

However, as shown in Table 6,the overall degree of “mal-apportionment” -- defined as the median ratio of a state’s share of representatives to its share of VAP – is only slightly higher for Brazil’s Camara than in the US House, while the degree of mal-apportionment for Brazil’s Senate is much lower.

Furthermore, unlike the US, Brazil permits its federal district – Brasilia – to elect both Senators and Congressmen. In contrast, the US has stubbornly refused to permit the 563,000 residents of the District of Columbia to have any voting representation in either the House or Senate.

Finally, the total number of elected national representatives in Brazil – 513 deputies for the Camara and 81 Senators – is more than twice as high per voting age resident in Brazil than the US. Since the US has been slow to adjust the total number of House and Senate members in response to increases in population, it now has one of the lowest ratios of members to voters among leading democracies – more than six times the ratios in the UK, Canada, and South Africa.

Compared with countries like Brazil that elect their Congressmen from multi-candidate lists for fixed states, the US political system’s focus on “single-member districts” is also far more open to partisan gerrymandering. There is a long history of dominant parties drawing district lines to favor their own candidates or create safe seats. Traditionally, every ten years, state legislatures in the US redraw their district boundaries to the fit the latest Census data.

Several other factors have also exacerbated this trend toward the creation of careerist legislators in the US. As one recent analysis concluded,

…(T)he incidence and extremism of partisan redistricting have escalated. Voting patterns have become more consistently partisan, enabling political mapmakers to better predict how voters will vote. And advances in computer technology and political databases allow cartographers to fine- tune district boundaries to maximize partisan advantage.

In addition, in its recent decisions, the US Supreme Court has relaxed its constraints on gerrymandering. So state legislatures that are dominated by single parties have recently become much more aggressive. In the last decade, for example, Republican-dominated legislatures in Pennsylvania, Colorado, and Texas decided not to wait for a new Census, but to exert their muscles during the middle of the decade. The results were extraordinary power grabs, especially in Texas, where 5 new Congressional seats were created by the Republican-dominated legislature. And this aggressive redistricting, it now turns out, was also fueled by campaign finance abuses –- completing the circle.

More generally, districting isn’t an issue that necessarily favors either main party. But one consequence of it is a clear trend toward more safe seats for incumbents of both parties, fewer competitive races, and a growing geographic polarization into “red” and “blue” districts – the so-called “Retro-Metro” divide.

In this fall’s US Congressional races, for example, out of 435 US House races, only about 30 will be decided by margins of less than 10 percent, and just 5-6 percent, or 20-25, that will be “effectively contested,” with a serious possibility that seats may change party hands. Many of these involve seats where incumbents are voluntarily retiring. For the US Senate, where redistricting is not an issue, the incumbency advantage is only slightly lower -- only 4-5, or 10-12 percent, of this year’s 34 Senate races will be effectively contested.

So regardless of who wins the Presidency this year, the reality is that the US House and Senate are both likely to remain under Republican control.

This is consistent with a trend toward increased advantages for incumbents in US elections. In 2002, for example, just 4 out of 383 US House incumbents lost their seats to non-incumbent challengers. This was the highest rate of incumbent reelection since 1954. Of 435 races in 2002-04 (including special elections), 81 percent were won by incumbents with margins of more than 20 percent. Of the 379 incumbents who were reelected in 2002, the median margin of victory was 39 percent. (See Table 7.)

Among the 56 non-incumbents who were elected, 11 won in newly created “safe” districts, by a median margin of 19 percent. Thirty-two were elected from the same parties that had represented their districts before, by a median margin of 15 percent. Just 13 were new non-incumbents who managed to oust the prevailing party in their districts, mostly by defeating other new non-incumbents. In fact, in 2002, more US Congressmen were elected in uncontested races, with 100 percent of the vote (n=31), than in “close” races where the winning margin was 10 percent or less.

Given these trends, it is not surprising that the average lifespan of Congressmen has been increasing -- apart from voluntary resignations. As of 2004, the median Congressman had served 8 years, and 20 percent had served at least 16 years or more. The main source of turnover in this increasingly entrenched, carefully-districted, careerist “people’s house” is now retirement, death, or incarceration, not voter decisions.

Similar trends are evident for the US Senate and the Presidency, although the advantages of incumbency are less than for House races. In the case of 2002 Senate races, 16 of 33 races (48%) were won by more than 20 percent, and 67 percent were won by more than 10 percent. Incumbents were reelected in 23 (88 percent) out of 26 races where they decided to run. As in the House, the main source of turnover was retirement or death. As of 2004, the median Senator had been in office 10 years, and the top 20 percent had median tenures of 28 years.

As for the Presidency, out of 42 Presidents through Clinton, 25 ran for reelection, and 16 (64 percent) were reelected. Whether or not President Bush can take comfort in these odds is less clear, however – among the ten post-War Presidents that preceded him, just four (Eisenhower, Nixon, Reagan, and Clinton) were reelected.

At least at the Congressional level, there appear to be strong interdependencies between incumbent advantage and the existing systems for financing campaigns, conducting elections, representing voters, and defining districts. Finance not only strengthens incumbent advantage; it also follows from it, in the sense that incumbency makes it much easier to raise money.

Having once established this interdependent system of interests, it is very hard to unravel. Is it any wonder that more and more Americans have simply decided that they have better things to do with their time than vote – even though the issues at stake have never been more important, not only for Americans, but for the world at our mercy?

SUMMARY - BRAZIL V. US, DEMOCRACY 101

As we’ve argued here and in Part IIIA, compared with the Unite States, Brazil’s new developing democracy has a much fairer, more efficient, more trustworthy system for administering elections, qualifying voters, conducting campaigns, curbing the influence of private money on campaign outcomes, making sure votes count, providing representation in proportion to voter sentiments at both the Presidential and legislative levels, and defining geographical boundaries for election districts.

All this adds up to an electoral system that is, on the whole, much more democratic than that in the United States.

OTHER THIRD WORLD ROLE MODELS?

Nor is Brazil alone in providing a potential role model for those in the US who are serious about revitalizing democracy at home:

In April 2004, South Africa held its third national election, with 15.9 million South Africans, or 76.7 percent of registered voters, turning out. While the ANC won a commanding 69.7 percent of the vote, 20 other parties also participated, and 11 of them won seats in Parliament. Compared with 1994, when South Africa held its first post-apartheid election, public confidence in the political system and the future have both risen substantially.

This 2004 turnout, while impressive, was below the record level set in 1994, when more than 19 million South Africans voted in the country’s first democratic elections ever. However, the difference may be explained by the fact that in that first election, no formal registration was required -- South Africa wisely considered it far more important to hold national elections as soon as possible, rather than worry too much about registration niceties. In subsequent elections, as it implemented formal registration, voter turnout has declined somewhat. (The new US-backed regime in Iraq and Afghanistan, which have devoted an inordinate amount of time to preparing for national elections and registering voters, might well have learned from this example.)

To reinforce confidence in its electoral processes, South Africa has adopted special procedures to insure that independent international observers are present at its elections; in 1999 its elections were attended by more than 11,000 observers, including representatives from the OAU and the Commonwealth.

India, the world’s largest constitutional democracy, also held a successful parliamentary election in April-May 2004. More than 387 million people, or 56 percent of registered voters, voted, choosing among 220 parties and 5400 candidates, using more than 1 million electronic voting machines to register their preferences.

Indonesia, the world’s largest Muslim country, and its second largest democracy, held its first-ever Presidential election, as well as parliamentary and local elections, in May-September 2004. More than 155 million people, or 75 percent of registered voters,turned out to choose among six different Presidential candidates, for the most part by driving nails through the pictures of their favorite candidates on paper ballots. With few exceptions, the voting proceeded peacefully, and although there was substantial vote-buying on all sides, about 9 percent invalid votes, and some intimidation, independent monitors like the Carter Center and the LP3ES-NDI found the election generally fair.

Venezuela’s President Chavez is undoubtedly a very divisive leader – not unlike some recent US Presidents that we have known. But at least his opponents have been able to make use of a right that no Americans have – the constitutional right to initiate a recall petition half-way through a President’s term, and if 20 percent of registered voters agree, to demand a recall referendum.

After a prolonged efforts by the opposition to gather the necessary signatures, in May 2004 Venezuela’s Supreme Court – albeit, like the US Supreme Court, populated with supporters of the President -- certified that there were indeed enough signatures to require a referendum on whether Chavez could serve out his current term until 2007.

In August 2004, in a national referendum that was conducted with electronic voting machines, Chavez won by an overwhelming 59-41 percent margin. While diehard opposition leaders, as well as the Wall Street Journal and the US Government -- which had supported a 2002 coup attempt against Chavez -- expressed doubts about the margin, the referendum was validated by independent observers like President Carter, the OAS, and a team of Johns Hopkins/Princeton political scientists.

This means that Chavez has now held five free elections and referenda in seven years, more than any other Venezuelan President. He won them all by commanding margins.

We recall the fact that in 2000, the hapless Al Gore captured a plurality of the US popular vote (48.4 percent), despite all the games played with ex-felons, absentee vote abuses, and lost ballots discussed above, and even with third- party candidates taking another 3.7 percent of the vote.

Since it is hard to believe that President Bush’s absolute popularity has increased very much since then, one wonders what the results might have been if only the US were as democratic as Venezuela – e.g., if only Americans had been able to initiate such a Presidential recall referendum, and like our good Latin neighbor to the south, determine the outcome by popular vote of the nation as a whole, under the watchful eyes of international observers.

Instead, as we've argued here, the US is still captive to age-old anti-democratic contraptions, superstitions, and subterfuges, and its particular version of "democracy" still labors in the long dark shadows cast by venerable institutions like states rights, felon disenfranchisement, and white supremacy.

We can try to impose our self-image on to the world if we like, but we should not be surprised if the world asks us to hold up a mirror.

*** (Next: Democracy in American and Elsewhere, Part IV: Four Years Later, Four More Years?)

**

Credos to Inter-Brasil's Lourival Baptista Pereira Jr. for the inspiration for this piece.

©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

Democracy in America and Elsewhere:Part III: How the US Stacks Up: - A. Qualifying Voters

James S. Henry and Caleb Kleppner

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These are curious times, with President George W. Bush, long an outspoken critic of “nation-building” and the UN, now become a radical Wilsonian, declaring to the General Assembly this week his intention to establish a “UN Democracy Fund” to propagate democracy around the world.

We certainly wish President Bush much greater success than President Woodrow Wilson, who saw his own favorite proposal to “make the world safe for democracy,” the Versailles Treaty, throttled by Republican Senators who opposed the League of Nations, and suffered a stroke in the ensuing battle.

Knowing President Bush, he will probably not be dissuaded from his mission by this unhappy history, or by the fact that many other world leaders, like France's Chirac and Brazil's Lula, are now much more concerned about fighting global poverty and taxing "global bads" like arms traffic, anonymous capital in offshore havens -- an idea we first proposed in the early 1990s -- and environmental pollution than they are about neo-Wilsonian evangelism.

But of course any suggestion by the US that democracy can actually be propagated by multilateral consensus rather than by unilateral military aggression is always to be welcomed.

Before proceeding any farther with this latest American crusade to sow democracy abroad, however, it may be helpful to examine how the US itself really stacks up as a “democracy," relative to "best democratic practices" around the world.

One approach to this subject would be to start off with a comparison with other leading First World democracies like the UK or France. After all, at the outset, one might think that only such countries have the well-educated, politically-engaged citizenry, political traditions, affluence, and technical know-how needed to implement truly state-of-the-art democratic processes.

However, following the lead of former President Jimmy Carter’s brief comparative analysis of Peru in 2001, we find it more interesting to see how the US compares with younger developing democracies that lack all these advantages – much less access to the yet-to-be-created UN Democracy Fund.

In our case, we’ve chosen Brazil, the world’s sixth most populous country, with 180 million inhabitants, two-thirds of South America’s economic activity, a federal system and a long history of slavery (like the US).

As we’ll see, our overall finding is that while Brazil’s democracy has plenty of room for improvement, it already boasts a much more democratic electoral system than the United States of America.

BRAZIL VS. THE US -- AND THE WINNER IS.....

From 1937 to 1945, and again from April 1964 until early 1985, Brazil was ruled by (US-backed) military dictatorships. Since then, however, Brazilians have freely voted to elect their President three times. They’ve also elected their bicameral National Congress, 26 state governors and legislatures, and thousands of city mayors and councilmen every two years.

While Brazil’s electoral institutions are by no means perfect, and its campaign finance laws and federal structure have many of the same drawbacks as the US, it has recently been working very hard to improve these institutions. I

Indeed, it turns out that Brazil is making remarkable progress toward effective representative democracy, especially for a country with enormous social problems, a high degree of economic and social inequality, and a per capita income just one third of the US level

Brazil’s new democracy provides a striking contrast along many dimensions – in particular, the processes and structures by which it (1) qualifies voters, (2) conducts campaigns, (3) administers voting, and (4) provides fair representation of voter preferences. The following essay focuses in on the first of these elements; the sequel will deal with the others.

QUALIFYING VOTERS

1. Mandatory Voting/Registration

To begin with, Brazil treats voting as a civic duty, like military service (which is obligatory, with alternative service available) and paying taxes. Voting is mandatory for all citizens age 18 to 70, except for illiterates.

Actually “mandatory voting” is a misnomer – people are just required to show up at a polling station or consular office and submit a vote, which can be blank. There are fines for violators who lack valid excuses, like illness.

Brazil adopted mandatory voting in part to overcome the apathy induced by more than two decades of military rule. It is just one of many countries that have mandatory voting, including Australia, Belgium, Cyprus, Greece, Luxembourg, Liechtenstein, one Swiss canton, Egypt, Fiji, Singapore, Thailand, Argentina, Bolivia, Costa Rica, the Dominican Republic, Ecuador, Uruguay, and Venezuela.

Mandatory voting in Brazil is facilitated by the fact that, as in 82 other countries, all Brazilians age 18 or over are required to obtain a national identity card, with their photo, fingerprint, signature, place and date of birth, and parents’ names.

These cards, which are now becoming digital, are needed to qualify for government services and to conduct financial and legal transactions. They also enable cardholders to vote at polling booths anywhere in the country, eliminating the need for a separate, costly voter registration process.

To encourage voter turnout, Brazil also makes Election Day a national holiday, and often holds its elections on Sundays. Any eligible voter may be required to assist for free at the polls.

Mandatory voting, plus Brazil’s proportional representation system (See Part IIIB), have yielded voter turnouts in recent national elections that have routinely exceeded 75 percent of the voting-age population (VAP).

By comparison, US voter turnouts have recently averaged less than 45 percent of the VAP.

Brazil’s mandatory system has also had many other benefits. It has probably increased turnout the most among social groups that have much less access to education and income, thereby boosting their “voice” in the political system. It has also placed pressure on public authorities to implement efficient voting procedures, and shifted responsibility for registration and turnout away from Brazil’s political parties, allowing them to focus on campaigning.

As one might expect, mandatory voting does produce slightly more blank votes as a proportion of all votes than we see in US elections. But the system also seems to have made voting more habitual.

Some countries, like Austria and the Netherlands, have recently abandoned the practice, and Brazil is also considering this, now that the population has re-acquired the voting habit. As Brazil matures, especially given its use of proportional representation, it may well be able to follow in the footsteps of these other countries and eliminate mandatory voting without sacrificing high turnout.

The US. Voting is entirely voluntary in the US, and there are no national identity cards or centralized voter registration systems. Originally, many states viewed voter registration as undemocratic. But in the course of the 19th century, growing concerns over vote fraud, combined with the desire in some states to curb voting by blacks and the lower classes, led to the widespread adoption of stricter voter registration laws. By now, every state but North Dakota requires voters to “register” before they can “vote.” US elections are also never held on Sundays, nor is Election Day a national holiday.

As we’ll examine closer in Part IIIB, the US’ “winner-take-all” electoral system is also highly inefficient, with more than 95 percent of all Congressional incumbents now re-elected, and almost all US House and Senate races now a foregone conclusion. So US voters are naturally not eager to participate in such “Potemkin” elections, which are approaching Soviet-like party reelection rates (though the US does have TWO Soviet-like parties.)

None of this has helped to encourage voter turnout. Not surprisingly, therefore, for the entire period 1948-1998, US voter turnout averaged just 48.3 percent as a share of VAP, and ranked 114th in the world. This was the lowest level among all OECD countries -- forty percent lower than the average turnouts recorded in First World countries like Germany, Italy, Sweden, and New Zealand. Even if we omit the 17 countries like Brazil with mandatory voting, it is hard to make this track record look like an achievement.

One can argue that relatively low turnout is precisely the point. Indeed, participation by ordinary Americans in their political system has always been a bit trifle unwelcome. For example, just 6 percent of all American citizens – 20 percent of whom were slaves -- participated in George Washington’s election in 1789. This was mainly because most state legislatures at the time had decreed that voters had to be white, propertied, male, Protestant and at least 21 years old. Studies of 19th century voter turnout in the South also show that turnout, which once exceeded 60 percent in the 1880s, plummeted sharply in the next 30 years under the impact of tougher registration laws that targeted black voters. To this day, the Neo-Republican South still boasts the lowest turnout rates and highest black population shares in the country.

Some cynics argue that low US turnout rates are just a sign of how deeply “satisfied” American voters are with the way things are. However, these turnout rates have declined sharply over the last three decades, at a time when it is hard to believe that Americans have become more and more satisfied with their political system.

In 1968, for example, 73.2 million Americans voted, a 61 percent turnout level. Thirty years later, in 1998, the number of Americans who voted was still just 73 million -- despite the fact that US population had increased by 40 percent.

Beyond voting, as of 2002, one US citizen in three (33.6 percent) did not even bother to register to vote. And that proportion was higher than it was in 1993, when Congress passed the National Voter Registration Act, which was intended to facilitate voter registration.

Evidently a majority of American voters have now become so “satisfied” that they no longer choose to participate in it at all. According to this bogus "apathy" theory of non-registration, the most “satisfied” groups of all must be blacks, other minorities, youth, the poor, and residents of Southern states, whose turnout rates are all miserably low.

In 2002, in four states (Texas, West Virginia, Indiana, and Virginia), less than 40 percent of all eligible citizens of voting age voted. Of 24 million Americans between the ages of 18 and 24, 38 percent registered, and 4.7 million, or 19.3 percent, voted. Just 27 percent of unemployed citizens, 30 percent of Hispanic citizens, 30 percent of Asian American citizens, 30 percent of the 35 million disabled Americans, 35 percent of all women ages 18 to 44, 37 percent of high school graduates, and 42 percent of all black citizens voted.

In fact, as we’ll examine later, there are very important structural reasons that help to explain why these groups fail to register or vote.

In the case of black males, for example, prisoner and ex-felon disenfranchisement may account for a substantial fraction of their relatively low participation rates. And 70 percent of those who registered and didn’t bother to vote in 2002 blamed logistical problems – transportation, schedule conflicts, absence from home, registration problems, homelessness (2.3-3.5 million adult Americans, depending on the year), the failure to get an absentee ballot on time, inconvenient polling places, or illness (including 44% of non-voting registrants age 65 or older).

All these obstacles affect poorer, less educated, older voters more than others. Most of them might easily be addressed with improved voting technology, if this country’s leaders, despite their putative concern for democratization around the world, were really serious about implementing democracy at home.

Meanwhile, in 1998, some 83 million Brazilians voted – 5 million more than in the entire US, which has about 100 million more citizens. Brazil’s voter turnout increased dramatically since the 1960s, from 37 percent of VAP in 1962 to an average of more than 80 percent in 1994-2002. In 2002, while 88 million Americans were proudly exercised their right to vote, so were 91 million Brazilians – for an 81 percent turnout. On the “satisfaction” theory, all these Brazilians must be nostalgic for the dictatorship.

After the 2002 Congressional elections, some US political pundits were impressed because voter turnout had increased slightly, from 41.2 percent in 1998 to 42.3 percent (46.1 percent of all citizens).

From an international perspective, however, that merely put the US on a par with Haiti and Pakistan –- just half of Brazil’s level.

Overall, the US trends described here are hardly indicative of “voter satisfaction.” Rather, they are a very disturbing sign that there are deep structural impediments to voting in America. Furthermore, the grass roots organizing power that has always been essential for getting out the vote in this country, much of it supplied by parties and unions, may have been waning.

From this angle, it will be very interesting to see whether this November’s contest, and the elaborate new organizing drives that have been mounted to increase US voter turnout and registration, will reverse these trends. No doubt turnout will be higher than it was in the dismal 2002 off-year election, but that's not saying very much. A more telling indicator will be to see whether turnout surpasses the (relatively modest) 59 percent median VAP turnout rate that the US recorded in nine Presidential elections over the whole period 1968-2000. We would love to see it happen, but since that would amount to a 10 percent improvement over the turnouts recorded in 1996 and 2000, we doubt it will happen.



2. Voting Rights for Prisoners and Ex-Felons

Brazil. Disenfranchising prisoners and ex-felons is unfortunately a longstanding, widespread departure from “one person, one vote” -- a legacy of the age-old practice of ex-communicating social outcasts. Worldwide, there is a growing trend toward discarding this medieval practice, with 32 countries now allowing all prisoners to vote and 23 more that allow certain classes of them to do so.

Brazil is one of 54 countries that prohibit prisoners from voting while they are in jail, but it permits them to vote after they are released, or are on parole or probation.

The US. The American approach to prisoner voting is much more restrictive than Brazil's. All but 2 (Vermont and Maine) of the 50 states disenfranchise all incarcerated prisoners, including those awaiting trial. Thirty-four states disenfranchise all felons on parole, while thirty disenfranchise those on probation.

Furthermore, the US is one of only 8 countries where ex-felons are temporarily or permanently disenfranchised even after they have completed their sentences, unless they successfully petition the authorities to have their voting rights restored. In 7 US states, felons are disenfranchised for several years after serving their sentences – for example, 5 years in Delaware, or 3 years in Maryland. In 3 states – Arizona, Maryland, and Nevada -- recidivists are permanently disenfranchised. And in 7 other states – Alabama, Nebraska, Kentucky, Mississippi, and the “battleground states” of Iowa, Florida, and Virginia – all ex-felons are permanently disenfranchised.

Many of these rules date back to the Ante-Bellum period of the 1880s, when they were enacted by Southern and border states to maintain control over the newly-freed blacks -- contrary to the spirit of the 15th Amendment.

The impact of prisoner and ex-felon disenfranchisement on electoral outcomes is much greater in the US than Brazil, because of the electoral college system and the size, composition and location of the US convict population. Indeed, while Brazil's prison system is horribly overcrowded, its entire prison population is just 285,000 inmates -- .2% of Brazil’s voting-age population.

The US, in contrast, now has the world’s highest proportion of its population in prisons, jail, on probation or parole, or under correctional supervision, outside jail. As of August 2004, this “correctional population” totaled 7.2 million adults, 3.3% of the US VAP. Relative to population, as well as in absolute terms, this is the largest US prison population ever. It is also by far the largest prison population in the world, well ahead of the US’ closest competitors, China and Russia.

There are also another 3.2 million American citizens – 1.4% of the US VAP -- who have served time in state or federal prison for felonies and are no longer in correctional programs. Depending on their states of residence, they may be subject to the voting restrictions imposed on former felons in the US.

Both these totals have soared since 1980 because of stiffer drug laws and sentencing laws -- the “correctional” population as share of VAP has almost tripled, from 1.17% to 3.3%. (See Figure 3A-1.) (See Figure 3A-1.)

Furthermore, compared with 1980, when a majority of state and federal prison inmates were serving time for violent crimes, a majority are now either awaiting trial because they cannot afford bail, or are serving time for non-violent offenses, more than a quarter of which were relatively minor drug-related offenses.

Drug Offenses and Disenfranchisement. As other analysts have recently noted, such drug offenses rarely involve “victims,” and there is a high degree of prosecutorial discretion. This makes them especially vulnerable to racially-discriminatory arrest practices. For example, recent studies of drug arrest rates show that black arrest and conviction rates for drug-related offenses are way out of proportion to drug use in the black community, and that the disparity between black and white arrest rates for drug use has been soaring because of policing practices, not because of greater underlying criminality.

The resulting steep rise in the US prison population since the 1980s provides a strong contrast with European countries and leading developing countries, where per capita prison populations have been stable or even declining. Not surprisingly, the disparity is also consistent with the fact that Europe’s drug laws are much less punitive.

Unemployment Impacts.The increase in the US correctional population as a share of the population since 1980 has not only reduced the ranks of poorer voters. It has also reduced the size of the “observed” civilian labor force and the official US unemployment rate by 18-20 percent. In other words, the US unemployment rate in July 2004, for example, would have been 6.43 percent, not the official 5.43 percent reported by the Bureau of Labor Statistics. So without this swollen prison population, there would now be more than 10 million unemployed in the US – at least 2.2 million more than the official statistics show, and more than enough to swamp any alleged “job growth” in the last year.

So US penal policies have not only removed a huge number of prisoners from the ranks of potential voters. They have also helped to disguise the seriousness of the US economy’s rather tepid recovery.

And some of us thought the point of the US’ punitive drug laws was to reduce drug trafficking! (Note to reader: US real retail cocaine prices have plummeted since the 1980s. See Figure 3A-2.)

While it is not easy to measure the impact that US prisoner disenfranchisement has had on recent elections, it may have been substantial, as several analysts have recently noted. For example, one recent study estimated that in 2000, more than 3.0 million prisoners, parolees, and probationers, plus 1.5- 1.7 million ex-felons, were formally disenfranchised – 2.1% of the US voting age population. Another recent study of prisoner disenfranchisement in the state of Georgia found that 13% of adult black males were disenfranchised by this policy, and that it explained nearly half the voter registration gap between black males and non-black males.

There were also another 358,000 who had been jailed awaiting trial, and 218,000 more who had been jailed on misdemeanor charges. All these people were also effectively disenfranchised.

All told, during the 2000 Presidential race, the total number of potential American citizen/voters who were disenfranchised because of the US penal system and its archaic laws was about 5 million. Since the numbers have continued to grow since then, by now they have reached 5.5 – 5.8 million.

As other commentators have noted, this policy is also practically unique -- no other putative “democracy” comes anywhere close to this kind of systematic vote deprivation.

No doubt there are some determined ex-felons, parolees, and probationers who manage to slip through and vote even in states that prohibit them from doing so. Many others would not vote even if given the chance. However, even apart from the question of whether such harsh treatment encourages better behavior, this disenfranchisement policy is far from politically neutral:

• About 45 percent of the 4.9 million convicts on probation and parole, and 67 percent of the current US prison population, are black or Hispanic, and more than ninety percent are from poor families. So the impact of these prisoner voting rules falls disproportionately upon groups whose real “crime” is to be black, Hispanic, or poor. These laws currently disenfranchise at least 13 to 18 percent of all adult black males and 4-6 percent of all adult Hispanic males in the US.
• These disenfranchisements are the modern equivalent of white supremacist Jim Crow laws.Their impacts are concentrated in a handful of mainly Southern states – including half the “battleground states” -- that have an unusual combination of large black or Hispanic populations, relatively punitive criminal justice and penal systems, a long history of racist practices, and disproportionate influence on the US electoral college.
• While US incarceration rates have increased dramatically in almost all states since the 1980s, the 15 original Southern “slave states,” for example, have consistently maintained rates of incarceration at least 25 to 98 percent higher than the US median, and 45 percent higher than those in the original 18 “Union” States.

Texas alone has at least 500,000 ex-felons and more than 200,000 prisoners and other inmates who have been disenfranchised, the overwhelming majority of whom are black or Hispanic.

Of Florida’s 13.4 million people of voting age, at least 600,000 to 850,000 prisoners, parolee/probationers, and ex-felons, have been disenfranchised by such voter registration laws, including at least one-fifth of all adult black males who reside there. Other battleground states, including New Mexico, Virginia, Iowa and Washington, have also used such laws to disenfranchise 15-25 of their adult black male populations.

All told, the top 15 battleground states account for at least 1.4 to 1.6 million excluded potential prison/ ex-felon votes this year. Combined with US’ knife-edged “winner take all” electoral system, this is clearly a very important policy choice.

Furthermore, in states like Florida, Texas, Mississippi, and Virginia, the opportunity to purge thousands of minority voter from the polls in the search for “ex-felons” has opened the doors to many other abuses.

For example, in 2000, there was the notorious purge by Florida’s Republican Secretary of State of 94,000 supposed “felons.” It later turned out that this number included more than 50,000 blacks and Hispanics, but just 3,000 actual ex-felons.

One might have hoped that one such flagrant anti-democratic maneuver would have been enough. But that was followed attempts by Florida’s Republican state administration to do the very same thing again in 2002 and again this year, when Florida tried to use another “bogus felons” list with another 40,000 names.

From this angle, all of the many arguments over Nader’s candidacy, “hanging chads,” and the narrow 537 vote margin by which Bush carried that state in 2000, were side-shows.

We are reminded of the Reconstruction period from 1867 to 1877, when Florida and 8 other Southern states had to be put under military occupation by the US Government, to prevent the white elites’ systematic attempts to deprive freed slaves of their voting and other civil rights. By the late 1870s, Northern passions toward the South had cooled, the Union troops left, and white-supremacist governments reacquired power. Unfortunately, unlike the 1860s, the “Radical Republicans” in Congress now side with the closet supremacists.

Counting Prisoners for Apportionment.The punitive US policy toward current and former prisoners appears even more bizarre, once we take into account the fact that for purposes of redistricting, the US Census – unlike Brazil – counts prison and jail inmates as residents of the counties where the prisoners are incarcerated, rather than the inmates’ home towns.

In general, this approach to counting prisoners for districting purposes tilts strongly in favor of rural Southern and Western states – areas that also now happen to vote Republican. (See Figure 3A-3), It has an important impact on the apportionment of Congressional seats and seats in state legislatures, the allocation of federal funds to Congressional districts, and the total number of electoral college votes that each state receives. It also creates a huge, influential, coalition of interests -- construction companies, prison administrators and guards, and politicians -- that mounts to a “politician-prison-industrial complex,” with powerful selfish motives to support tough sentencing laws and the construction of new prisons and jails.

The resulting combination of disenfranchisement and malapportionment recalls the “three-fifths compromise” that was built into the US Constitution in 1787, to accommodate the original six Southern slave states, where slaves constituted more than forty percent of the population. Under this provision, even though slaves could not vote, they were counted as three-fifths of a person, for purposes of determining each state’s Congressmen and Presidential electors.

Given this provision, it was no accident that 7 of the first 8 US Presidents were Virginian slave owners. This exaggerated Southern political power, entrenched by the anti-democratic electoral college, had disastrous consequences – it made resolving the problem of slavery without a regional civil war almost impossible. (Contrast Brazil’s relatively peaceful abolition of slavery.) From this perspective, the electoral college and prisoner disenfranchisement are both just throwbacks to America’s “peculiar institution,” slavery. As John Adams wrote in 1775,

All our misfortune arise(s) from a single source, the reluctance of the Southern colonies to republican government….The difficulties lie in forming constitutions for particular colonies and a continental constitution for the whole…This can only be done on popular principles and maxims which are so abhorrent to the inclinations of the barons of the South and the proprietary interests of the middle colonies…..

In a sense, the modern analog is even worse: prisoners can’t vote either, but they count as one whole person in the districts where they are imprisoned, for purposes of redistricting. In general, this approach to counting prisoners for districting purposes tilts strongly in favor of rural Southern and Western states – areas which also now happen to vote Republican.

Surprisingly, illegal immigrants are also included in the US Census count for redistricting purposes. Depending on where immigrants locate, this may reinforce the prisoner effect in some key states. The US illegal immigrant population has also been growing rapidly, with a Census-estimated 7.7 - 8.9 million illegals in the US by 2000, compared with about 3.5 million in 1990. According to the INS, two-thirds are concentrated in just five states – California, Texas, New York, Illinois, and Florida. However, unlike prisoners, estimating where illegal immigrants are located is much more uncertain. So the US policy of including non-voting illegals in the Census for purposes of drawing voting districts is also very peculiar.

3.Teen Voting

Brazil. To encourage young people to get involved in politics, Brazil gives those who are 16 or 17 the right (but not the duty) to vote. This measure increases Brazil’s VAP by abou 6 percent. Brazil argues that a relatively low voting age is consistent with the spirit of the UN’s Convention on the Rights of the Child. It also argue that this youth vote acknowledges the basic fact that a majority of 16-17 year olds (in both Brazil and the US) pay taxes and can marry, drive, and be tried as adults, so they ought to be able to vote. So far Brazil has only been joined in this experiment by a handful of other countries, including Indonesia (age 17), Cuba (16), Iran (15), and Nicaragua (16). But the UK is now also seriously considering teen voting.

The US. The minimum voting age in the US has been 18 since 1971, when the 26th Amendment was adopted. A few states (Maine, California) have recently considered reducing the voting age below 18, but so far voting rights for 16-17 year-olds, much less the more radical proposal to let children of all ages vote, has not taken off. Obviously this cause has not been strengthened by abysmal voter turnout levels by 18-24 year old Americans in recent elections.

*** (Next: Democracy in American and Elsewhere, Part IIIB: Campaigns, Voting, and Representation) ©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

September 22, 2004 at 02:50 PM | Permalink | Comments (1) | TrackBack

Thursday, September 16, 2004

Democracy in America and Elsewhere:Part II: Recent Global Trends Toward Democracy

James S. Henry and Caleb Kleppner

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Most Americans are probably used to thinking about their own political system as a shining example of “representative democracy” – not only one of modern democracy’s original pioneers, but also a contemporary role model for other emerging democracies around the globe.

Of course we are also very proud of our free markets, our relative affluence, and our occasional ambitions -- at the moment perhaps a bit muted -- to provide equal opportunities for all our citizens.

However, when we try to market our country’s best features to the rest of the world, or teach our children to be proud of their country, it is not the economy that we brag about.

Even self-styled “conservatives” usually lead, not with glowing descriptions of perfect markets and opportunities for unlimited private gain, but with our supposedly distinctive commitment to defending and expanding political democracy and human rights at home and abroad.

Indeed, one of the most important official justifications for recent US forays into the Middle East, as well as our many other foreign interventions, has been to help bring “democracy” to supposedly backward, undemocratic societies like Iraq and Afghanistan (…and before that, Haiti, Colombia, Panama, Nicaragua, Grenada, Panama, the Dominican Republic, Cuba, Guyana, Guatemala, Iran, Laos, Vietnam, the Philippines, etc. etc. etc.)

Even though, time and again, this noble commitment has turned out to be pure rhetoric, it provides such an elastic cover story for all our many transgressions that it keeps on being recycled, over and over and over again.

THE EMERGING DEMOCRACY GAP

Whatever the truth about US motives for such interventions, it may come as a surprise to learn that in the last two decades, the United States itself has actually fallen behind the rest of the democratic world in terms of “best democratic practices” and the overall representativeness of our own domestic political institutions.

Meanwhile, many developing countries have recently been making very strong progress toward representative democracy, without much help from us.

Indeed, in some cases, like South Africa, this progress was made in the face of opposition from many of the very same neoimperialists who have lately voiced so much concern about transplanting democracy to the Middle East.

While we have been resting on our democratic laurels, or even slipping backwards, the fact is that emerging democracies like Brazil, India, and South Africa, as well as many of our First World peers, have been adopting procedures for electing governments that are much more democratic at almost every stage of the electoral process than those found in the US.

The institutions they have been developing include such bedrock elements of electoral democracy as the rules for:

• (1) Apportioning geographic boundaries for congressional districts;


• (2) Selecting candidates and conducting campaigns;


• (3) Qualifying and registering voters;


• (4) Establishing effective controls over campaign finance;


• (5) Providing equitable access to the public airwaves for campaign advertising;


• (6) Encouraging voter turnout;


• (7) Preventing outright vote fraud;


• (8) Insuring that votes are accurately and quickly counted – and, if necessary, recounted;


• (9) Insuring that voter preferences are fairly and proportionately represented in the legislative and executive branches of government; and


• (10) Enforcing other helpful provisions, like run-off and recall provisions.

Of course effective democracy has many other crucial elements beside electoral processes alone. These include (1) the relative influence of legislative, executive, and judicial branches; (2) the concrete opportunities that ordinary citizens have -- as compared with highly-organized special interests and professional lobbyists -- to influence government decisions between elections; (3) the respective influence of private interests, religious groups, and the state; (4) the degree to which the rule of law prevails over corruption and "insider" interests; and (5) the overall degree of political consciousness and know-how.

However, fair and open electoral processes are clearly a necessary, if not sufficient, condition for effective democracy -- all these other elements simply cannot make up for their absence.

We hope that increasing the recognition of this “electoral democracy gap” between the US and the rest of the democratic world will be helpful in several ways:

• It may make Americans more modest about our own accomplishments, and less patronizing toward other countries;
• It may spur us to consider that we may actually have something to learn about democracy from other countries.
• It may provide an antidote for the recent revival of anti-democratic doctrines in the US, some of have acquired a disturbing level of influence among our political elites.
• It may help to show how our own idiosyncratic version of democracy is exerting a profound influence on this year’s profoundly dissatisfying Presidential race.

DEMOCRATIC PRAXIS - WHAT CAN WE LEARN FROM THE THIRD WORLD?

One useful place to start is with an assessment of best practices among the growing number of democracies around the globe.

This used to be much easier than it is now. As of the early 1970s, there were only about 40 countries that qualified as “representative democracies,” and most were First World countries.

Since then, however, there has been a real flowering of democratic institutions in the developing world. This was partly due to the collapse of the Soviet Empire in the late 1980s. But many more people were in fact “liberated” by the Third World debt crisis, which undermined corrupt, dictatorial regimes all over the globe, from Argentina, Brazil, and Chile to Indonesia, the Philippines, South Africa, and Zaire.
Voting in the Philippines, 2004

Assessments of the degree of “freedom” of individual regimes by organizations like Freedom House or the UN Development Program’s Human Development Indicators, are notoriously subjective. However, while there is plenty of room for disagreement about specific countries, there is little disagreement on the overall trend. (See Table 3.)

By 2004, about 60 percent, or 119, of the nearly 200 countries on the planet could be described as “electoral democracies,” compared with less than one-third in the early 1970s. Another 25-30 percent have made significant progress toward political freedom.

Voting in South Africa, 1994

Indeed, notwithstanding our present challenges in Iraq and Afghanistan, from the standpoint of global democracy, this has been a banner year. As of September 2004, 32 countries had already held nationwide elections or referenda, with 886 million people voting. (See Table 4.) By the end of 2004, another 33 countries will join the US in doing so – nearly three times as many national elections as were held each year, on average, in the 1970s.

All told, this year, more than 1.7 billion adults – 42 percent of the world’s voter-age population -- will be eligible to vote in national elections, and more than 1.1 billion will probably vote. That that will make American voters less than 10 percent of the global electorate.

Of course, some of these elections will be held in countries where democratic institutions and civil liberties are still highly imperfect. And some developing countries like Russia and Venezuela have recently been struggling to find a balance between democracy and national leadership, partly to undo the effects of neoliberal policies in the 1990s, or in response to terrorist threats.

But the good news is that democracy is clearly not a “luxury good.” The demand for it is very strong even in low-income countries like Bolivia, Bangladesh, Mozambique, Guatemala, and Botswana. And while self-anointed dictators, military rulers, and one-party elites or theocracies are still clinging to power in 50-60 countries that have more than 2.4 billion residents, such regimes are more and more anachronistic. (See Table 5.)

Interestingly, Asian dictatorships, especially China and Vietnam, now account for more than three-fifths of the portion of the world’s population that still lives under authoritarian rule. While several Islamic countries appear on the list of authoritarian countries, they account for just one fifth of the total. Furthermore, by far the most important ones happen to be close US “allies” like Pakistan, Egypt, Morocco and Saudi Arabia.

Evidently the simple-minded neoconservative “clash of cultures” model, which pits supposedly democratic, pluralist societies against an imaginary Islamic bloc, doesn’t have much explanatory power.

Furthermore, the US also clearly faces some very tough choices, if it is really serious about promoting non-discriminatory, secular democratic states that honor the separation between church and state among its Islamic allies, as well as in Palestine, and, for that matter, Israel.
Voting in East Timor. 2001

A more encouraging point is that many developing countries are already providing useful lessons in democratization. Indeed, as we will see in Part III of this series, there is much to learn from the experiences of new democracies like Brazil and South Africa.

These countries are undertaking bold experiments with measures like free air time for candidates, “registration-free” voting, direct Presidential elections, electronic voting, proportional representation, and the public finance of campaigns. While not all these experiments have worked out perfectly, the fact these countries have already demonstrated a capacity to innovate in “democratic design” is very encouraging.

Of course there is a long-standing tension between the US dedication to Third World democracy and its tolerance for the independence that democratic nationalism often brings. By renewing and deepening our own commitment to democracy at home, we will also protect it abroad -- even though (as in Venezuela, Russia, Iran, and perhaps eventually also Iraq) it does not always produce governments that we agree with.

(Next: Part III: "Brazil Vs. the US -- And the Winner Is....")

***

©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

September 16, 2004 at 09:08 PM | Permalink | Comments (2) | TrackBack

Wednesday, September 15, 2004

Democracy in America and Elsewhere:Part I: Does It Really Have to Be This Way?

James S. Henry and Caleb Kleppner

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After more than a year of intense primary coverage, pre-convention foreplay, and two carefully-scripted, almost protest-proof party conventions, the US Presidential marathon has finally entered the backstretch, with the overall contest still too close to call –- despite President Bush’s brief post-convention surge in the polls.

Although many pundits and politicians have hailed this contest as the “most important election of our lives," and talked about the “striking difference” between the two top candidates, most opinion polls show that a majority of ordinary Americans are profoundly dissatisfied with the limited choices available on this year's Presidential menu, with a majority of undecided voters disapproving of both Bush and Kerry in this week's polls.

They correctly sense that the prolonged, torturous process by which we choose the Leader of the Free World is deeply flawed. Many are asking, “Am I the only one who is unhappy with having to choose between these two Yale-bred prima donnas?......the only one who feels that this year's campaigns and the mass media have systematically avoided most of the critical issues that confront our country??”

If so many Americans prefer a different type of politics, however, why can’t they have it?

It turns out that this year’s unsatisfying campaign isn’t just an aberration. Rather, many of its less attractive features are a direct byproduct of deep-seated structural flaws in our electoral system, most of which are decades- or even centuries-old.

Unless we undertake the fundamental reforms required to fix these problems, our version of "democracy" is likely to become less and less attractive as a role model.

These structural flaws come into sharp relief is when we compare the US to other democracies, especially several younger ones that have proved to be much more innovative than we are when it comes to "designing democracy."

When we do so, we arrive at a disturbing conclusion: in many respects, American democracy is falling behind the rest of the democratic world.

As we will explore in this series, the fact is that many other countries – including several developing countries as well as our First World peers – have adopted electoral processes that are much more democratic than our own.

Rather than bemoan this year’s Presidential campaign, therefore, we propose to explore the root causes of our political malaise. We will tackle this problem with the help of a comparative approach, examining "best practices" in other leading democracies that are working hard to insure that national elections are more than just the costly, high-carb biennial beauty pageants that they have become in the US.

Politics As Usual

When this race is finally over, most Americans will probably breathe a sigh of relief regardless of the outcome -- at least until the next election cycle begins again in just 1.5 years. But for conventional political reporters it has turned out to be a classic horserace, which promises to capture audience “eyeballs” right down to the final flag. The race’s essential unpredictability has been determined by several factors. There is exceptional animosity between the dominant parties and lasting scars from Bush’s controversial road to the White House. To the surprise of many, the Democrats have fielded a centrist, if somewhat vacillating, candidate – the only genuine war veteran on either ticket, a gun-owning, church-going Catholic who basically supports both the Iraq War and a balanced budget, and, as liberals go, has been a devoted husband. Except for the fact that Kerry is from Massachusetts and wants somewhat higher taxes on the top 1%, this has made it hard to paint him into the “McGovern/Mondale/Dukakis/Dean” corner. Of course this has not suspended the rules of Politics 101 for Republicans – (1) when you have nothing much to brag about, go negative, and (2) if people are scarred enough, they will vote for Alfred E. Newman, so long as he promises to keep them safe.

Another factor that has made the race close is the record level of campaign spending on both sides – more than $795 million for the Presidential race alone, plus at least $272 million of “527” money, including $20 million from the National Rifle Association and $2.6 million from the Swift Boat Veterans group. Contrary to expectations, both parties have stayed about even in the money rush, despite President Bush’s renowned fund-raising abilities.

Finally, there have also been an unusual number of wild-cards – putative terrorist threats, oil price shocks, North Korean nukes, job growth, Ralph Nader’s quixotic quest, and the continuing ups and downs of the Iraq and Afghan Wars, plus all the typically American quasi-religious disputes over gay marriage, the Vietnam War, assault rifles, stem cell research, and late-term abortions.

Along the way, we've had a floodtide of small-bore reporting, encouraged by instant polling, “rapid response,” and the army of several thousand reporters who have nothing better to do than cover the campaign 24/7 and 31/12.

Much of the resulting reportage reads like a kluge of the Daily Racing Form and the National Enquirer, with far less attention paid to hard policy issues than to campaign tactics, polls, and candidate “features" -- values, personal histories, eating habits, wives, children, appearances, misquotes, and mood swings. (For a good example, witness, for example, today's cover stories on "where's Edwards?" in both the San Francisco Chronicle and the New York Times.)

So far the candidates, their campaigns, and their advertising have reinforced this pattern, spending far more time on their own values and competence than on fundamental issues -- or on the real benefits that voters would derive from electing them. Even when they do get down to issues and actual benefits, the focus is on just a handful that won't offend undecided voters in key states. (See Box A.) Given the electoral college, they are also spending almost all their time and resources in the same 15-16 “battleground states,” where the polls show a gap between Kerry and Bush of 3 percent or less. (See Table 1.) Within these states, they are also focusing on the same 6-10 percent of voters who have somehow managed to remain “undecided” even at this late date.

As a result, this year's election will be decided by just a sliver of potential voters in a handful of states. The battleground states account for less than a third of all US “voter-age” residents or “potentially-eligible voters” -- after deducting non-citizens, convicts, and others not eligible to vote. If these states repeat the modest turnouts that prevailed in 2000, less than 57 percent of their voting age populations will vote. And since a winning candidate only needs a plurality, which can be less than 50%, this implies that in a country with more than 293 million people and 223 million of voting age, the outcome of this "critical" election will be determined by at most 18.3 million “undecided” voters – just 6 percent of the country's population.

Given the way our particular version of democracy is structured, therefore, the rest of us face the fact that the chances that we will die in an accident on the way to the voting booth are infinitely greater than that our votes will have any impact whatsoever on this election. As we will see below, the chances are also slim to nilthat we will exert any influence on the vast majority of Senate or Congressional races.

All this might not matter so much if undecided voters in battleground states were good proxies for the rest of us. But they are not.
As indicated in Table 2, they differ from the rest of the country in many important respects. Most of these states are relatively backward, in the bottom half of all 50 states in terms of per capita incomes and education levels, with a much higher-than-average share of poor residents. Nearly a quarter of their populations live in rural areas, twice the average share for non-BG states.

Compared with non-BG states, the residents of these states are also more likely to own guns, and much less likely to have lost factory jobs in the recent recession. They are also more religious -- Catholic voters account for 40 percent and 35 percent, respectively, of all potential voters in New Mexico and New Hampshire, while conservative Christians account for more than a third of the population in 10 of the 15 BG states, and orthodox Jews are a key voting bloc in Florida. Hispanics account for more than 15 percent of potential voters in Florida, Arizona, Nevada, and New Mexico. Illegal immigrants constitute a critical part of the work force and Census headcount (for apportionment purposes) in half the BG states.

Furthermore, as shown in Table 1, almost half of the BG states have harsh “felon disenfranchisement” laws. Most of these permanently deprive anyone ever convicted of a felony within their states of the right to vote, even after their sentences have been served. These laws could play a decisive role in battleground states like Florida, Virginia, Arizona, Tennessee, and Iowa, just as they did in 2000.

All told, given the “winner take all” nature of the US electoral college system (see below) and the strategic role of so-called “undecided voters” will play in battleground states, it is not surprising that there is a long list of important issues where both Bush and Kerry have either both been completely silent, or have adopted straddling positions, many of which can only be distinguished from the President's under an electron microscope.

So far, at least, Kerry appears to have bet heavily that the American people will choose him mainly because he's brighter, more competent and more trustworthy than Bush, not because his foreign and domestic policy alternatives are wildly different and exciting. This is a bet that the far more well-liked, if quasi-competent and semi-literate Bush has been delighted to accept.

As a result, as discussed in Box A, even though a majority of US voters may well be open to far less timid new approaches to issues like the Iraq War, farm subsidies, illegal immigration, gun control, energy conservation, corporate crime, our relationships with “allies” like Israel and Saudi Arabia and “enemies” like Cuba, Iran, and Venezuela, not to mention the Patriot Act, balancing the budget, global warming, reforming Social Security, and revising drug laws, from the standpoint of capturing marginal voters in battleground states, many of these issues have been deemed “no win” and too-hot-to-handle.

Furthermore, when other candidates – independents and third party candidates – try to raise such issues, they are either ignored or tagged as “spoilers” whose presence only serves to help those voters’ least preferred candidates. Since such candidates are marginalized by the mainstream media and excluded from US Presidential debates, the major party candidates can easily skip over any special issues that they seek to raise.

Despite all the hoopla, therefore, many American voters justifiably feel like they've been invited to dinner and served pictures of food. In effect, discourse on fundamental issues has been stifled by the rules of the American electoral game.

E.g., it is not only the felons who have been disenfranchised by this US Presidential election process.

Does it really have to be this way? To get a handle on this question, it will be helpful for us to step back and take stock of how the US stacks up against other democratic countries, especially those in the developing world -- not in terms of economic performance, but in terms of effective electoral democracy. Interestingly, it turns out that we actually have quite a few things to learn from them.

***

©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

"Farmingville"A New Film About Agro-Business, Globalization, and Poor Mexican Farmers

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This week marks the television premier of Farmingville, an outstanding documentary on the devastating impact that a really quite lethal combination of globalization plus First World farm subsidies is having on developing countries like Mexico.

Produced and directed by fellow Long Islanders Carlos Sandoval (Amagansett, NY) and Catherine Tambini (Hampton Bays, NY), Farmingville won this year’s “Special Award for Documentary” at the Sundance Festival, and it has also received many other prestigious awards. (For those of you in Long Island, it will also be shown on Thursday June 24 on Ch. 21, accompanied by a discussion with Sandoval and several of the film’s participants, moderated by OLA’s outstanding local leader, Isabel Spevedula de Scanlon.)

The social crisis described by Farmingville is a striking example of one of neoliberalism’s more disturbing patterns – the combination of “socialism for the rich” with “free trade for the poor.” Each year the US government provides more than $10 billion in subsidies to American corn farmers in politically-influential states like Iowa, Minnesota, Nebraska, and Kansas. From a political standpoint, these subsidies are usually justified in the name of preserving the “American family farm.” In fact the vast bulk of the subsidies goes to a handful of incredibly rich US agro-conglomerates, such as Cargill and Archer Daniels, Midlands (“ADM”).Together, these corporate giants now account for more than 70 percent of domestic US corn production.

These subsidies have not saved America’s family farmers, who continue to disappear at a rapid rate. But the $10 billion a year in subsidies has the giants to overproduce, resulting in surpluses that have been dumped onto world markets at artificially-low prices.

As documented in Farmingville, combined with the “free trade” policies adopted by the US and Mexico in the last decade, these surpluses have devastated family farmers throughout Mexico.

Of course Mexican farmers were the original source of “corn” – they’ve been growing it for at least 10,000 years. Until recently, corn accounted for at least half of the acreage they planted. In fact corn is not just a product in Mexico; it is also at the core of a whole cuisine and culture.

Since the adoption of the North American Free Trade Treaty (NAFTA) in 1993, however, the real price of corn has dropped more than 70% in Mexico. even as domestic non-labor production costs have risen dramatically.

Most of the price declines are due to escalating US corn imports. Recent estimates by an Oxfam study of “The Mexican Corn Crisis,” for example, show that US corn is dumped in Mexico at between $105m to $145m a year less than the cost of US production.

As a result, many campesinos are being forced out of business -- the country has lost the majority of its corn farmers in just the last 10 years. This has caused havoc in the entire rural economy, produced mass unemployment and forcing a mass migration to Mexico’s already overstuffed cities. And that, in turn, has accelerated emigration, with thousands of desperate, hungry people trying to leave Mexico every day, and dozens of them literally dying in the desert wastelands along the border, trying to get to
“El Norte.”

Indeed, according to the latest statistics from the US Bureau of Immigration and Naturalization, illegal immigration along the Mexican border is now at an all-time high.

Meanwhile, US agricultural conglomerates like ADM and Cargill have become more profitable than ever. They are using their fat profits to extend their dominance abroad. For example, Cargill now owns 30 percent of Maseca, the giant Mexican food distributor that dominates the Mexican tortilla market.

As Oxfam’s recent report on this neoliberal debacle concludes,

"The Mexican corn crisis is yet another example of world trade rules that are rigged to help the rich and powerful, while destroying the livelihood of millions of poor people.”

Indeed, the story that Farmingville relates is an especially graphic example of the perverse consequences that neoliberal policies can have once powerful interests get hold of them -- when US corporate giants are able to have their way with free trade, wide-open capital markets, lavish government subsidies, political leaders on both sides of the border, and poor farmers all at once.

Obviously this is tough time for leading US politicians to take on the powerful farm lobby, much less propose policies that might trim US exports at a time of massive trade deficits. But are there no US or Mexican political leaders with longer-term vision, willing to tackle this grossly-inequitable, morally-reprehensible situation?

***

© James S. Henry, Michael O'Neill, SubmergingMarkets™, 2004

The "Reagan Revolution," Part Two:The View from Developing Countries

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"Man wants to forget the bad stuff and believe in the made-up good stuff. Its easier that way."

--Rashomon, Kurosawa

"He (Reagan) may have forgotten us. But we have not forgotten him."

-- Angolan refugee and landmine victim

"Folly is a more dangerous enemy to the good than evil. One can protest against evil; it can be unmasked and, if need be, prevented by force....Against folly we have no defense. Neither protests nor force can touch it; reasoning is no use; acts that contradict personal prejudices can simply be disbelieved. Indeed, the fool can counter by criticizing them, and if they are undeniable, they can just be pushed aside.... So the fool, as distinct from the scoundrel, is completely self-satisfied. In fact, he can easily become dangerous, as it does not take much to make him aggressive...."

--Dietrich Bonhoeffer

Following last week's prolonged national memorial to President Reagan, the most elaborate in US history, most Americans have turned their attention back to the troubled present. But we cannot resist continuing down the revisionist path that we started on in Part One of this series.

Contrary to Henry Ford, history is not "bunk," nor is it "just one damn thing after another." In fact, it is one of our most valuable possessions. But unless we take the time to learn from it, it can easily come back to haunt us -- as it is doing right now. At the very least this exercise will prepare us to evaluate President Clinton's new autobiography, which is due out next week.

As noted in Part One, most recent discussions of Ronald Reagan's foreign policy legacy have focused almost entirely on the Cold War. Even there, as we argued, his legacy is decidedly mixed. While he may have helped to pressure the Soviets to reform, he also took incredible risks with the balance of nuclear forces, including some risks that we are still living with to this day.

When we turn from superpower relations to Reagan's impact on developing countries, the legacy is even starker. In The Blood Bankers, we've detailed how the Reagan Administration's lax policies toward country lending and bank regulation exacerbated the 1982-83 Third World debt crisis. And then the administration did very little to help developing countries fundamentally restructure their debt burdens and recover. By the end of the 1980s, most country debt burdens were higher than ever.

Here we will focus on another long-term legacy of Reagan's relations with the developing world -- the consequences of his support for a plethora of reactionary dictatorships and contra armies all over the globe.

Most Americans are probably not aware of it, but this bloody-minded policy fostered several nasty wars in developing countries that have cost literally millions of lives -- and are still producing fatalities every day, by way of wounds, continuing conflicts, unexploded ordnance, and landmines.

Furthermore, as described below, the Reagan Administration was also responsible for several of the clearest examples in history of state-sponsored terrorism.

Unfortunately, it turns out that very little of this was really necessary, either from the standpoint of defeating the Soviets, pushing the world toward democracy and free markets, or enhancing US security.

Indeed, in the long run, Reagan's policies basically destabilized a long list of developing countries and increased their antagonism towards the US. Combined with the policies of "benign neglect," stop-go intervention, and ineffective neoliberal reforms that characterized the Clinton Administration's policies toward developing countries, and the neoconservative policies pursued by both Bushes, it is no accident that America's reputation in the developing world is now at a record low.

Unfortunately, like some of the risks that Reagan's policies introduced into the nuclear balance, these effects may have a very long half-life. Surely they will be with us long after Ronald Reagan has met his Maker. We just hope for the Gipper's sake that his Maker does not read this article before pronouncing judgment upon him.

THE INDICTMENT

There is an abundance of examples of the Reagan Administration's strong negative impacts on developing countries. To cite just a few:

In the case of the Philippines, the Reagan Administration was a staunch ally of Ferdinand and Imelda Marcos right up to their last helicopter ride to Hawaii in February 1986. Vice President George H.W. Bush visited Manila in March 1981, soon after Reagan was elected, to thank him for his generous support. He toasted Marcos in glowing terms: "We love your adherence to democratic principles and democratic process....." The thousands of political opponents who were tortured, imprisoned, or died fighting this corrupt conjugal dictatorship and the millions of Filipinos who have spent the last twenty-five years servicing the couples' unproductive foreign and domestic debts would probably disagree.

In the case of Iran and Iraq, Reagan helped arm and finance Saddam Hussein throughout the 1980s, encouraged the Saudis and Kuwaitis to finance his invasion of Iran when it bogged down, helped to equip him with chemical and biological weapons, sent Donald Rumsfeld to Baghdad to assure close relations and propose a new pipeline to Saddam to help him export his oil, and even provided a team of 60 Pentagon analysts who sat in Baghdad, using US satellite imagery to target Saddam's chemical weapons against the Iranians.

At the same time, as the Iran-Contra arms scandal later disclosed, Reagan also helped Iran buy spare parts and advanced weapons for use against Iraq. He also looked the other way when Saddam decided to turn his US-supplied Bell Helicopters and French-supplied Mirage jets and chemical weapons on the defenseless Kurds at Halabja. Of course, the fact that the UN, under strong US pressure, did nothing at the time to condemn Saddam for this behavior did not exactly discourage further aggression.

This bipolar policy contributed to prolonging the 1980-88 Iran-Iraq War, one of the largest and bloodiest land wars since World War II. It cost 500,000 to 1 million lives and 1-2 million wounded, and created more than 2.5 million refugees. It also caused a huge amount of damage to both countries' economies, and left Iraq, in particular, broke and heavily indebted. As we've argued in The Blood Bankers, that destabilization, in turn, contributed significantly to Saddam's 1991 decision to invade Kuwait in 1991 -- and ultimately, our current Iraq fiasco.

In the case of South Africa, the Reagan Administration steadfastly opposed any US or UN sanctions on international trade and investment. Indeed, it continued to work closely with the apartheid regime on many different fronts, including the civil wars in Angola (see below), Namibia, and Mozambique.

It also now appears that both Carter and Reagan turned a blind eye to South Africa's development of nuclear weapons and ballistic missiles, in collaboration with Israel, which purchased its uranium from the Pretoria regime. Fortunately, no thanks to Reagan, Bush I, or for that matter, Bill Clinton, apartheid came to an end in the early 1990s, and South Africa became the first nuclear power ever to dismantle its nuclear weapons.

Rios Montt

In the case of Guatemala, Reagan gave a warm embrace to the brutal dictatorship of General Efrain Rios Montt in the early 1980s. Rios Montt, a graduate of Fort Benning's School for the Americas, was also an ordained "born-again" minister in California-based Gospel Outreach's Guatemala Verbo evangelical church. Evidently that combination endeared him to the Reagan Administration -- US Assistant Secretary of State Thomas Enders praised him for his "effective counter-insurgency," and President Reagan called him "a man of great personal integrity," "totally dedicated to democracy," someone who Amnesty International had given "a bum rap."

This cleared the way for hundreds of $millions in World Bank loans and US aid that helped to make Rios Montt and his generals rich. Meanwhile, the junta implemented a genocide that a UN-backed Truth Commission later found was responsible for the deaths of 200,000 Guatemalan peasants, mainly Mayan Indians.

General Galtieri

In the case of Argentina, Reagan turned a blind eye to the "dirty war" waged by the military junta against its opponents, at a cost of 30,000 lives and many more destroyed families.

When this junta launched the April 1982 invasion of the Falkland Islands to deflect public attention from its political and economic woes, Reagan and Secretary of State Al Haig ultimately decided to side with the UK's Margaret Thatcher, a fellow neoconservative. However, key Reagan aids Jeane Kirkpatrick and Michael Deaver worked behind the scenes to support the fascist junta, encouraging it to believe that the US might stay neutral. The very evening that the invasion was launched, Kirkpatrick was the guest of honor at an elaborate Washington D.C. banquet that was sponsored by the junta.

In the case of Panama, Reagan's CIA subsidized and promoted the rise of General Manual Noriega, another graduate of the notorious US School of the Americas. The US made extensive use of Noriega's intelligence gathering capabilities during the contra war with Nicaragua (see below).

This encouraged Noriega to believe that he could get away with anything. For a while he did: in the early 1980s, he became one of the most important cocaine wholesalers in the region, shipping a ton of coke per month to Miami on INAIR, a Panama airline that he co-owned, literally under the US Customs' nose. By 1989, even George H.W. Bush was embarrassed, and he had the dictator forcibly removed -- at a cost of the lives of 23 US troops, 314 Panamanian Defense Forces, and several hundred Panamanian civilians.

In the case of tiny Honduras, the poorest country in Central America, the Reagan administration turned another of its many blind eyes to the rise of death squads in the early 1980s. John Negroponte, the former US Ambassador to the UN and our new "proconsul" in Iraq, served as Ambassador to Honduras from 1981 to 1985. As this author knows from first-hand experience, reports of human rights abuses in Honduras were rampant during this period. It is hard to believe that Negroponte, who cultivated close relations with the Honduran military, was simply unaware of all these reports.

One of the key offenders was Battalion 3-16, the CIA-trained and funded Honduran military unit that was responsible for hundreds of disappearances and torture cases, including several that involved Americans.

One US embassy official later reported that in 1982, Negroponte had ordered any mention of such abuses removed from his annual Human Rights reports to Congress. Negroponte has denied any knowledge of this, and has skated through several confirmation hearings to arrive at the very top of the US diplomatic corps, where he will soon be running the world's largest US embassy.

In the case of El Salvador, the Reagan Administration also sharply increased economic and military support to a brutal oligarchical regime that was also deeply involved in death squads. President Carter had also provided military aid to the regime -- indeed, Archbishop Oscar Romero's condemnation of that aid was one key factor in his assassination in March 1980. After Reagan's November 1980 election, the Salvadoran military felt it had a "green light" to become even more aggressive with its opponents in the Church and unions, as well as the FMLN rebels.

One immediate byproduct of the "green light" was the murder of four US Maryknoll nuns in December 1980. Reagan's first Secretary of State, Al Haig, later suggested that the nuns might have been killed in a "crossfire" when they "ran a roadblock. " But their murders were later attributed to five Salvador National Guard members, who, in turn, appear to have acted on orders from senior members of the Salvador military.

A law suit was eventually brought on behalf of the nuns against the commanders to whom these guardsmen ultimately reported -- Jose Guillermo Garcia, El Salvador's Minister of Defense from 1979-1983, and Carlos Eugenio Vides Casanova, the former head of the National Guard. These were the Reagan Administration's key Salvadoran allies in the early 1980s, and they'd been rewarded with retirement in Florida.

In 2000 a jury ruled that even though they had given the orders, they did not have "effective control" over their subordinates, given the instability in the country. However, in July 2002, another jury in West Palm Beach found the duo liable for torture and other human rights abuses against three other victims, and ordered them to pay $54.6 million in damages.

Meanwhile, their paymasters and other collaborators in the Reagan Administration have gotten off scot free. Reagan's insistence on a military solution to the conflict in El Salvador helped to perpetuate the civil war throughout the 1980s, at a cost of more than 75,000 lives. Ultimately, under Bush I and Clinton, the long-delayed negotiated solution was achieved.

As for Archbishop Romero's assassin, he has never been found. There are credible reports, however, that the actual triggerman now lives -- naturally enough -- in Honduras.

In the case of Lebanon, Reagan was responsible for a broken promise to the Palestinians that ultimately contributed to the 1982 massacres at the Sabra/ Shatila refugee camps. To get the PLO to withdraw from Beirut, Reagan promised to protect Palestinian non-combatant refugees in those camps. Indeed, the PLO fighters left on August 24, 1982, and US Marines landed on August 25. But they were withdrawn just three weeks later, on September 10, after the PLO fighters left. Ariel Sharon,Israel's Defense Minister at the time, promptly ordered the Israeli Defense Forces to surround the camps. They refused to let anyone leave, and then permitted his Lebanese allies, the rightist Christian Phalangists, to move in.

The result was the slaughter of at least 900 to 3000 unarmed Palestinians, including many women and children, on September 16-18, 1982. As former Secretary of State George Schultze later commented, "The brutal fact is, we are partially responsible." Israeli's own Kahan Commission later found Sharon "indirectly responsible" for the massacre, but imposed no penalties, other than forcing him to resign as Defense Minister.

In the case of Angola, Reagan, in cooperation with South Africa's apartheid regime and Zaire's dictator Mobutu, helped to sponsor UNITA, Joseph Savimbi's rebel band, against the left-leaning MPLA, which also happened to have far stronger support from the Angolan people. Reagan hailed the power-hungry Savimbi as a "freedom fighter," and enlisted wealthy arch-conservatives like beer merchant Joseph Coors and Rite-Aid owner Lewis E.Lehrman to organize assistance and lobby Congress for millions in aid.

In fact Savimbi turned out to be one of the world's most lethal terrorists. Even after UNITA lost UN-supervised elections in September 1992, he continued the war, financing his operations by trafficking in "blood diamonds."

The resulting guerilla war cost the Angolan people up to 1 million dead, turned a quarter of Angola's 12 million people into refugees, and devastated health and education programs and the domestic economy. It also left an estimated 6 to 20,000,000 land mines scattered all across the country, one of the world's most heavily mined countries, with more than 80,000 amputees as a byproduct. Only with Savimbi was finally killed in May 2002 was the country finally restored to peace.

Savimbi

In the case of Afghanistan, Reagan considerably expanded aid to the Afghan rebels in the early 1980s, providing them more than $1 billion in arms and sophisticated weapons like Stinger missiles to fight the Soviets. The resulting battle ultimately cost the Soviets 15,000 lives. But the price to Afghanistan was much higher -- the Afghan people lost more than 1 million dead and wounded, plus millions of refugees. Furthermore, after the Soviets finally left in the 1989, the country became a stomping ground for opium-dealing warlords, religious fanatics like the Taliban, and al-Qaeda's global terrorists.

Furthermore, we now know that Gorbachev had offered to pull Soviet troops out of Afghanistan in 1987, in exchange for reduced US arm shipments to the rebels. However, he was rebuffed by the Reagan Administration, which wanted to prolong the Soviets' agony. This not only cost a great many more Afghan (and Soviet) lives, but also helped turn Osama Bin Laden from a nobody into a folk hero. All this helped to pave the way to 9/11, the continuing war in Afghanistan, and the even more dangerous global terrorist war.

All told, then, the Reagan Administration clearly has a lot to answer for with respect to the developing world. And this is even apart from one of the most perfidious examples of Reagan's brutilitarian policies, that of Nicaragua -- as the following excerpt from The Blood Bankers makes clear.

NICARAGUA'S COUNTERREVOLUTION

By the end of 1980, with Nicaragua's civil war concluded, General Anastasio Somoza deBayle dead in Paraguay, and the country''s debt settlement with its foreign banks concluded, many Nicaraguans were looking forward to rebuilding their economy and finally achieving a more peaceful society. Alas, it was not to be.

Undoubtedly the Sandinistas deserve some of the blame for the way things turned out, though, as we will see, the odds were clearly stacked against them. As the strongest faction in the winning coalition, and “the boys with the guns,” at first they commanded overwhelming popular support for having rid the country of the world’s oldest family dictatorship outside of Saudi Arabia and Paraguay. However, like Venezuela’s Hugo Chavez in the 1990s, they were torn between leading a social revolution and building a multi-party democracy.

Their hero, Augusto “Cesar” Sandino, “the general of free men,” had fought the US military and the Nicaraguan army for six years to a standstill, before he was betrayed and murdered by General Anastasio Somoza Garcia in 1934. After a decade of insurgency in the 1970s, the Sandinistas’ most important experiences to prepare them for the job of running the country were limited to armed struggle, clandestine organizing, and some very rough times in Somoza’s jails. Unhappily, one of their most accomplished political leaders, Carlos Fonseca, had been murdered by the National Guard in 1976.

Sandino

On the other hand, as South Africa demonstrates, it is not impossible for committed revolutionaries to lead a fairly peaceful transition to a multi-party democracy. After all, the ANC had waged just as long a struggle against a state that was no less repressive as Somoza’s. Many of the ANC’s supporters were also just as radical as the Sandinistas, and it also sourced most of its weapons and advisors from radical watering holes like the Soviet Union, East Germany and Libya.

However, ironically, South Africa was not as easy for the US to push around as Nicaragua. South Africa accounted for two-thirds of sub-Saharan Africa’s economy and most of the world’s gold, diamonds, platinum, and vanadium. By 1982, with some help from the UK and Israel, it had acquired nuclear weapons. Compared with Nicaragua, South Africa’s economy was actually in pretty good shape when the ANC came to power. While there had been a protracted low-intensity war against apartheid, South Africa managed to avoid the full-blown civil war that Nicaragua was forced to undertake in the 1970s to rid itself of the Somoza dictatorship.

Nicaragua was also objectively a far less strategically important target. To Washington’s national security planners, however, that made it an ideal opportunity for a relatively low-cost “demonstration." Its population was the same as Iowa’s. Its entire economy was smaller than Des Moines’s. It had few distinctive natural resources. Its only “weapons of mass destruction” were volcanoes, earthquakes, and hurricanes. It was surrounded by other countries that were also of modest strategic value – except for whatever symbolic value was associated with repeatedly crushing the aspirations of impoverished peasants into the dirt.

During the late 19th century, Nicaragua had been selected several times over by US Canal Commissions for a canal across Central America, until Teddy Roosevelt finally opted to create Panama and build a canal across it in 1902, for reasons that had more to do with Wall Street than engineering. After that, Nicaragua’s canal plans went nowhere, especially after the US Marines landed in 1910 to collect debts owed to British and US banks and to depose a nationalist leader who, among other things, made the fatal mistake of seeking European funding for an alternative to the Panama canal.

The ANC also had one other weapon that the Sandinistas clearly lacked. This was the extraordinary wisdom and good fortune of 72-year old Nelson Mandela, who had earned everyone’s respect during his 27 years in prison. He had also learned survival skills like patience, diplomacy, and the capacity for making adroit compromises with bitter enemies. Under his influence, the ANC set out to build a mass party. It agreed to hold new elections within two years of his release. It went out of its way to commit itself publicly to multi-party democracy, a market economy, civil liberties, and peaceful reconciliation.

Most of the Sandinistas’ top leaders – the so-called cupola -- were not really interested in building a mass party, much less a multi-party democracy, at least not initially. They saw themselves as a vanguard party, leading the masses toward a social revolution. As Sergio Ramirez, a leading FSLN member who served as Nicaragua’s Vice President under Daniel Ortega from 1984 to 1990, wrote in his 1999 book, Adios Muchachos,

The FSLN was not prepared...to assume its role of party of opposition inside a democratic system, because it had never been designed for this. Its vertical structure was the inspiration of Leninist manuals, of the impositions of the war and of caudillismo, our oldest cultural heritage.

To be fair, the FSLN leadership also believed that the first priority was to attack the country’s dire health, literacy, land ownership, and education problems, and to build “direct democracy” through civic organizations, not through party politics and national elections. Given the country’s emergency and the need to recover from the civil war, this was entirely understandable. But it did provide cheap shots for the FSLN’s opponents and the mainstream US media, which basically wrote Nicaragua off very early as a reprise of Castro’s Cuba.

The Sandinistas were also widely criticized for lacking the soft touch when it came to domestic politics. Among their many ham-handed moves was their May 1980 decision to expand the Council of State to include “mass organizations,” the August 1980 decision to postpone elections until 1984, the rough way they dealt with the Miskito Indians, the 1986 decision to shut down the (by then, CIA-subsidized) La Prensa, and Daniel Ortega’s various high-visibility trips to Havana, Moscow, Libya and Gucci’s eyeglass counter in New York They were also criticized for implementing a compulsory draft, detaining alleged contra sympathizers without trial after the contra war heated up, permitting the FSLN’s National Directorate (Daniel Ortega, Tomas Borge, Victor Tirado, Henry Ruiz, and Bayardo Arce) to remain an unelected (all-male) body until 1991, and seizing a huge amount of property from ex-Somocistas, even middle-class ones, for their own use during the “pinata” period after Ortega lost the 1990 election -- including more than a few beach houses.

At the same time, they were not given much credit for preserving a mixed economy, reforming the health and education systems, pursuing aid from numerous non-Communist countries in Latin America and Europe, implementing a badly-needed land reform, tolerating the virulent La Prensa, which supported the contras and called for their overthrow, until they finally reached the limit and shut it down in 1986, ultimately holding free elections in November 1984 and February 1990, and respecting the outcome of those elections even when, as in 1990 (...and 1996, and 2001..) they lost.

The basic reality is that from at least 1981 on, Nicaragua’s new government was operating in an increasingly hostile international environment, where the Western media and the USG, as well as the Miami-based Somocistas, were predisposed to seize upon the slightest departures from Roberts’ Rules of Orders to consign them to hell – and if no such departures were readily at hand, to invent them out of whole cloth. These hostile attitudes had much less to do with the FSLN’s behavior than with the USG’s new aggressive stance with respect to the Soviet Union – actually dating back at least to President Carter’s initiation of a contra-like war against the Soviet-backed government in Afghanistan in July 1979.

STATE-FUNDED TERRORISM - REAGAN STYLE

So, despite all the FSLN’s undeniable missteps, it would probably have taken divine intervention to save Nicaragua from the wrath of Ronald Reagan, who decided almost immediately upon taking office to single tiny Nicaragua out for a replay of the Carter/ Brzezinski strategy in Afghanistan.

As former CIA analyst David MacMichael testified at the International Court of the Hague’s hearings on a lawsuit brought by Nicaragua against the US in 1986, from early 1981 on, the US Government set out to create a “proxy army” that would “provoke cross-border attacks by Nicaraguan forces and demonstrate Nicaragua’s aggressive nature,” forcing the Sandinistas to “clamp down on civil liberties.....arresting its opposition, (and) demonstrate its allegedly inherent totalitarian nature.”

In other words, if they were not totalitarian enough to begin with, we would see to it that they became totalitarian – and then blame them for making the switch.

President Reagan offered several different justifications for this ultimately rather bloody-minded policy. In March 1983, in a speech to Congress, he presented his subversion theory, Congress, warning that the Sandinistas had already “imposed a new dictatorship…supported by weapons and military resources provided by the Communist bloc, (that) represses its own people, refuses to make peace, and sponsors a guerrilla war against El Salvador. (emphasis added).”

At other times, he emphasized the beachhead theory, according to which the Sandinistas provided a “Soviet beachhead… only two hours flying time away from our borders…with thousands of Cuban advisors…camped on our own doorstep…close to vital sea-lanes.” He offered similar characterizations of the threat posed by left-wing guerillas in El Salvador, Honduras, and Guatemala. In 1982, Jeane Kirkpatrick, Reagan's hawkish UN Ambassador, also promoted this beachhead theory with her own profound geographical analysis:

I believe this area is colossally important to the US national interest. I think we are dealing here not...with some sort of remote problem in some far-flung part of the world. We are dealing with our own border when we talk about the Caribbean and Central America and we are dealing with our own vital national interest.

Other elements were also sometimes thrown into the mix. On November 6, 1984, just two days after the Sandinistas won a decisive 67-percent victory in the country’s freest elections in history, there was a huge media flap in the US press over their alleged attempt – later proved false – to buy Soviet MiGs for air defense. This story later turned out to be a wholesale concoction of the State Department’s “Office of Public Diplomacy,” and of Oliver North, Otto Reich, and Robert McFarlane in particular, just one of many US propaganda efforts that were designed to distract attention from the FSLN’s victory in those elections.

Together, the subversion theory and the beachhead theory added up to a revival of the time-worn domino theory, transposed from Southeast Asia to Central America. Apparently, the notion was that since Nicaragua bordered on Honduras and El Salvador, which bordered on Guatemala and Belize, which bordered on Mexico, the Red Army might soon be drinking margaritas on the banks of the Rio Grande. Or the Reds might just jet in to El Paso in their MiGs from Managua, “only two hours away.” The fact that “they” were already 90 miles away in Havana, armed with brand new MiG 23 Flogger bombers and MiG 29s, did not get much mention from the Gipper. After all, Cuba had already demonstrated that it could stand up to a US invasion, and the Bay of Pigs was not a happy memory.

This rather strained analysis of Nicaragua’s purported threat to US national security was later endorsed, with only slight variations, by the January 1984 Bipartisan National Commission on Central America chaired by Dr. Henry Kissinger. One might have expected Kissinger to reach a different conclusion, given his long personal experience with Vietnam, Laos, Cambodia, and China, whose leftist regimes spent most of the 1970s fighting with each other, demonstrating conclusively the power of nationalism over solidarity. But he was performing the assignment to ingratiate himself with the Republican Party’s conservative wing. And unlike the National Commission on Terrorist Attacks, which he resigned from in December 2002, it did not require him to identify his consulting firms’ private clients.

In any case, well into the 1990s, long after there were peace settlements in Nicaragua, El Salvador, and Guatemala, and long after the Sandinistas had handed over political power to their opponents, hawkish Republicans like Senators John McCain and Jesse Helms were still seeing ghosts in Nicaragua, trying to make hay out of the Sandinistas’ potential subversive threat. Indeed, as we’ll see, these charges even played a role in Daniel Ortega’s defeat in Nicaragua’s Presidential elections in 2001, even when his running mate was Violeta Chamorro’s son-in-law!

AUC paramilitary

Eventually, in fact, all the stockpiles of AK47s, landmines, rocket launchers, and surface-to-air missiles acquired by the Sandinistas to defend Nicaragua against the contras did end up posing a security threat to the US. But it was not precisely the one that that the Sandinistas' right-wing critics had predicted. In November 2001, Colombia’s 11,000-strong nasty, right-wing, drug-dealing paramilitary group, the AUC, procured 3,500 AK47’s from Nicaragua’s military stockpiles, by way of Israeli arms merchants based in Panama and Guatemala. The arms were part of a five-shipment package that included 13,000 assault rifles, millions of bullets, grenade and rocket launchers, machine guns, and explosives. The AUC, which was on the G.W. Bush’s administration’s official list of terrorist groups, was supported by landlords who wanted to combat Colombia’s leftist guerillas, the ELN and the FARC. The AUC was also supposedly fighting Colombia’s Army. From 2000 to 2003, Colombia received $2.5 billion of US military aid, plus more than 400 Special Forces troops, making it the world’s third largest recipient of US aid. The AUC also reportedly purchased arms from army stockpiles in El Salvador and Guatemala. In 2002, a OAS study also revealed that a Lebanese arms broker with al Qaeda links had tried to purchase 20 SA-7 missiles from Nicaragua’s stockpiles. The US starting pressuring Nicaragua’s President Bolanõs, a neoliberal businessman, to reduce these stockpiles – but hopefully not by selling more of them to the AUC.

In the long run, therefore, by forcing the comparatively-harmless Sandinistas to stockpile all these weapons to defend themselves, and by also arming the right-wing militaries of El Salvador and Guatemala to the teeth, the US had set a trap for itself.

In reality, of course, Nicaragua’s leftists, even if they had been so inclined, were neither necessary nor sufficient to “subvert” their neighbors. Those neighbors with the most serious liberation movements, like El Salvador, Guatemala, and Colombia, had long since done a perfectly good job of subverting themselves. Their rebel movements developed over many decades from within, on the basis of incredibly-unbalanced social structures. For example, El Salvador’s catorce, its top 14 families, controlled 90-95 percent of that country’s land and finance capital, while in Guatemala, just 2 percent of the population controlled more than 70 percent of arable land. These situations were only a slightly more anonymous version of Nicaragua, where the Somoza family alone had laid claim to a quarter of the country’s arable land. And the resulting social conflicts were similar -- in the 1980s, El Salvador’s class war claimed more than 80,000 lives, while Guatemala’s claimed 200,000, with the vast majority due to their own brutal armed forces and paramilitaries.

On the other hand, Costa Rica, Nicaragua’s good neighbor to the south, had long since inoculated itself against revolution by developing an old-fashioned middle-class democracy, with lots of small farms and more teachers than police, having completely abolished its military in 1948.

Furthermore, while the Reagan Administration asserted over and over again in the early 1980s that the Sandinistas had shipped arms to leftist guerillas in El Salvador, two decades later, these allegations have been shown to be as spurious as the MiG purchases. In fact, the Sandinistas’ aid to El Salvador’s rebels, the FLMN, was miniscule, and it was terminated in 1981, as the World Court concluded in 1986. The claim that El Salvador’s FLMN had acquired several hundred tons of weapons from the East Bloc, Arafat and Libya (!), had also been pulled out of thin air. In fact, the rebel armies in El Salvador and Guatemala were poorly armed, except for Galil rifles and rocket launchers they managed to steal or purchase from corrupt army officers. Leading Sandinistas like Tomas Borge also explicitly rejected the notion of “exporting revolution,” except by way of the FSLN’s own example. After all, the FSLN had not needed Soviet or Cuban backing for their own revolution. They also had their hands full rebuilding Nicaragua. The last thing they needed was another war with El Salvador or Guatemala, in addition to the contra war.

Finally, while the Sandinistas were not liberal democrats, and, as noted, committed many political blunders, they were scarcely in a position to run a “dictatorship,” even within Managua’s city limits. To their credit, they had greatly increased the amount of popular involvement in the country’s governance. In November 1984, they held national elections that most international observers, including Latin American scholars and Western European parliaments, agreed were reasonably clean, despite the Reagan Administration’s provision of $17 million to opposition candidates, its systematic efforts to discredit the elections, and the fact that by then Nicaragua was already under steady assault from US-backed contras. Certainly by comparison with the Somozas’ rigged elections, other countries in post-war situations, and El Salvador and Guatemala in particular, Nicaragua’s degree of political freedom was tolerable, if not beyond reproach.

Yet when 75 percent of registered voters turned out for the November 1984 elections, and the FSLN received a commanding 67 percent of the vote, capturing the Presidency and 61 of 96 seats in the new National Assembly, Nicaragua was again accused by the Reaganites of being a “dictatorship.” As former New York Times Editor John Oakes remarked at the time, “The most fraudulent thing about the Nicaraguan election was the part the Reagan Administration played in it.”

The other troubling fact for Reagan’s Nicaraguan policy was that, objectively, the Soviet Union really did not have much interest in acquiring yet another dependent, state-socialist backwater like Vietnam, Afghanistan, or Cuba -- which by the early 1980s was already costing the USSR about $3 billion a year in aid. In hindsight, we now know that, far from being an expansionist Evil Empire, at this point, the USSR was really just hanging on for dear life -- a wounded giant, obsessed with its own serious economic problems, which were even forcing it to import grain from Argentina’s fascist junta! Internationally, it had its hands full just trying to stave off an embarrassing defeat in Afghanistan on its own southern border. It was also pressing existing client states in Eastern Europe and Southeast Asia hard to practice self-reliance.

Finally, in 1980-81, before the US made it absolutely clear that it was seeking “regime change” in Nicaragua, the Sandinistas tried to restore good economic relations, plus access to World Bank and IDB loans. But for the US intervention, this access would have been maintained. And that, in turn, would have significantly reduced Nicaragua’s dependence on East-Bloc aid. After all, as a senior World Bank official noted in 1982, “Project implementation has been extraordinarily successful in Nicaragua, perhaps better than anywhere else in the world.”

About that time, Nicaragua also sought aid from many non-Soviet countries, including Venezuela, Mexico, and France. It was most successful with Mexico, which resisted US pressure and became Nicaragua’s largest aid provider until 1985. Nor did Nicaragua turn immediately to the Soviet Bloc for aid. When it tried to buy $16 million of arms from France in early 1982, however, President Reagan got the French President, Francois Mitterand, to delay the sale “indefinitely.” Only then – under increasing attack from the contras -- did Nicaragua turn to the Soviet Union and Cuba for significant quantities of arms and advisors.

Of course, as noted, many Sandinistas were undoubtedly committed radicals, dedicated to policies like land reform, free health and education, and the seizure of Somocista-owned properties. But these policies were entirely defensible, given Nicaragua’s economic conditions and its need to play catch-up with basic social justice. These are, after all, policies that the US has itself supported, or at least tolerated, in other times and places, when they happened to serve its interests.

The Sandinistas may have been mulish and full of radical bravado, but they were far from anyone’s pawns. These characterizations were 1950-vintage hobgoblins, left over from the days when Ronnie ran the Commies out of the Actors Guild in LA. At best, they reflected a desire to show the Evil Empire who was boss, by making an example of some weak little pinko regime.

On this view, then, in the early 1980s, the USG basically succeeded in pushing tiny Nicaragua into relying heavily on Soviet and Cuban arms and economic aid for its own survival– as, indeed, the USG may have also done with Fidel’s Cuba back in 1959-60. The USG then used that reliance as an excuse to expand its own provocations into a full-scale war that ultimately claimed 30,000 lives. In the historical record books, this is surely one of the clearest examples of state-funded terrorism ever.

SAYING "UNCLE"?

All these inconvenient little details were brushed aside by the Reaganites when they took office in January 1981, raring, in President Reagan’s words, to make the Sandinistas “say uncle.” Say uncle they never did -- in fact, by 1988, they’d “whupped” Olly North’s contras pretty good. But that was not for want of US efforts.

In March 1981, President Reagan signed an Executive Order that mandated the CIA to undertake covert operations in Central America, to interdict arms shipments “by Marxist guerillas.” By November 1981, the US focus had shifted from arms interdiction to regime change. That month, the Administration provided an initial $19 million to mount a pretty transparent “covert” effort to destabilize Nicaragua. The strategy, implemented by the now-famous gang of Presidential pardonees, was the classic scissors tactic that had been employed by the US and its allies in many other 20th century counterrevolutionary interventions, notably Russia (1918), Guatemala (1954), Cuba (1959-60), and Chile(1973).

On the one hand, the USG tried to cut off Nicaragua’s cash flow, reducing access to new loans from the IMF, the World Bank, and the IDB, as well as all EXIM Bank funding and OPIC risk insurance. In September 1983, the US slashed Nicaragua’s sugar quota. In November 1985, it added a total embargo on all trade with the US, Nicaragua’s main trading partner and foreign investor up to then. Given the country’s dire economic straits, this had the practical effect of cutting off all US private investment and bank lending.

At the same time, the Reagan Administration was stubbornly opposing all efforts to embargo trade or investment with respect to South Africa’s racist apartheid regime. In September 1983, for example, the State Department approved a Westinghouse application to bid on a $50 million ten-year contract to maintain and supply South Africa's two nuclear power stations. The US also continued to support World Bank and IDB loans to the right-wing regimes in Guatemala and El Salvador throughout the 1980s.

The other half of the scissors strategy was the USG’s effort to create, finance, arm, and determine strategy and tactics for an 18,000-person contra army, financed with $300 million of taxpayer money, in-kind military assistance, another $100-$200 million raised from private donors like the Sultan of Brunei, and an untold amount of cocaine proceeds. The main faction, the Frente Democrático Nacional (FDN), consisted of 3,000 ex-Somocista National Guard members and another 12-13,000 assorted mercenaries, anti-Castro Cubans, Israeli trainers, Argentine interrogators, and cocaine traffickers of several different nationalities. The Reaganites knew they were not dealing with angels here. As the CIA’s Inspector General later admitted in 1998, the agency made sure to get a statement from the US Department of Justice in 1982, waiving the CIA’s duty to report drug trafficking by any contra contractors.

From 1982 to 1989, this murderous scalawag army stoked a war that ultimately took about 30,000 lives, including those of 3,346 children and more than 250 public school teachers. Another 30,000 people were wounded, and 11,000 were kidnapped, according to the National Commission for the Protection and Promotion of Human Rights. Another half million fled the country to avoid the chaos. With the help of Harvard Law School Professor Abram Chayes, Nicaragua later successfully sued the US for launching these and other terrorist attacks and causing all this damage. In November 1986, the International Court at the Hague found the US liable for several clear violations of international law – notably, for launching an unprovoked war that was not justified by any “right of self defense.” The Court suggested that appropriate damages for the resulting property damage were on the order of $17 billion. But the Reagan Administration declined to appear in court, and refused to recognize the judgment.

THE WORLD'S HEAVIEST DEBT BURDEN

The detailed history of Nicaragua’s contra war has been told elsewhere, at least those parts of it that are not still classified, like much of the record of US knowledge about the contras’ extensive cocaine trafficking activities, and President Reagan’s confidential discussions with his aides, kept off limits for an indefinite period by a Executive Order signed in 2001 by President G.W. Bush.

Our main interest here is in the war’s devastating impact on Nicaragua’s economy and its crushing foreign debt burden. Ultimately, the FSLN soundly defeated the contras with a combination of adroit military tactics – for example, heavily-mined “free-fire” zones along its northern border with Honduras – and a large standing army, raised by draft. To pay for all this, however, the FSLN had to boost military spending, from 5 percent of national income in 1980 to 18 percent in 1988, when the first in a series of armistices was finally signed. By then, more than half of Nicaragua’s government budget was devoted to paying for an army that numbered 119,000 regular soldiers and militia – 7 percent of all Nicaraguans between the ages of 18 and 65.

Early on, the Sandinistas had made a strong commitment to building new health clinics and schools in the county. These social programs, plus land reform, were among their most important accomplishments. Even in the midst of the war, with the help of 2500 Cuban doctors, they managed to increase spending on health and education, open hundreds of new medical clinics, and sharply reduce infant mortality, malnutrition, disease, and illiteracy. They also implemented a land reform that redistributed more than 49 percent of Nicaragua’s arable land to small farmers.

But the war made it very hard to sustain these undeniable social accomplishments Despite the FSLN’s military “victory,” Nicaragua’s regular economy took a direct hit. Trade and investment plummeted, unemployment soared to 25 percent, and inflation reached more than 36,000 percent by 1988-89. From 1980 to 1990, Nicaragua’s average real per capita income fell 35 percent, and the incidence of poverty rose to 44 percent. To deal with shortages in the face of soaring inflation, the FSLN had to implement a rationing system for food and other basic commodities. As the Nixon Administration had done to the Allende regime in Chile a decade earlier, so the Reaganites did to Nicaragua – they made the economy “scream.”

All told, by 1990, Nicaragua had displaced Honduras as the poorest country in Central America. It had also become the world’s most heavily indebted country. To fund the defense budget and their other commitments in the face of declining tax revenues, trade, investment, and multilateral funding, the FSLN partly relied on inflationary finance, by having the Central Bank just print more cordobas. But for vital foreign purchases, including oil and weapons, it required dollar loans from sympathetic countries, mainly the Soviet Union ($3.3 billion), Mexico ($1.1 billion), Costa Rica, Germany, Spain, Venezuela, Brazil, and Guatemala (!), plus more than $500 million from the Central American Bank for Economic Integration, one multilateral institution that the US did not control.

When the newly-elected government of Violeta Barrios de Chamorro took office in April 1990, the debt stood at $10.74 billion – more than 10 times its level in 1980, and nearly 11 times Nicaragua’s national income.

This was by far the highest foreign debt burden in the world, thirty times the average debt-income ratio for all developing countries. And it was not derived from “technical policy errors,” “economic accidents,” or “geographic misfortune. ” Part of it was the $1.5 billion of dirty debt left over from the Somoza years. The rest derived from the ruthless persecution by world’s most powerful country of a tiny, stubborn Central American nation that was determined to finally make its own history.

CONCLUSION - REAGAN'S IMPACT ON NICARAGUA

In the 1980s, against all odds, and woefully ignorant of economics, politics, business, and diplomacy, a handful of rather foolhardy Nicaraguans dared to challenge the Reagan Administration's attempt to prevent them from controlling their own destiny.

They made many mistakes, and they required much on-the-job training. But at least they tried to stand up.

When they did so, they were attacked, and when they defended themselves, they were portrayed as the aggressors. Ultimately they won a victory of sorts, but it left their country a shambles.

Then their successors, worshipers of the latest fashions in neoliberal economic theology, came to power promising reform and freedom, and ended up turning the country into a bantustan.

Perhaps Nicaragua will need another revolution.

***

(c) James S. Henry, SubmergingMarkets.com(tm) 2004. Not for reproduction or other use without express consent from the author. All rights reserved.

June 17, 2004 at 08:05 PM | Permalink | Comments (2) | TrackBack

Sunday, April 11, 2004

412.The Coffee Connection:Globalization's Long Reach, From Vietnam To Nicaragua To Starbucks

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INTRODUCTION – THE "G" WORD

I remember the first time I heard the “G” word - “globalization.” It was 1985, and I was interviewing a new McKinsey recruit, a former assistant Harvard Business School professor who had decided to exchange the classroom lectern for a larger bank balance. He was about as excited as business intellectuals ever get about the latest HBS paradigm. This was the notion that, in the wake of the 1980s debt crisis, countries would soon be forced to “globalize.” According to him, this meant that they would soon dramatically reduce all barriers to trade, investment, and labor migration, so that, over time, the world would become one great big happy marketplace.

I reacted with the economist’s usual disdain for business school paradigms. While “globalization” might be a new term, surely the basic concept was not new. For example, the world had also experienced a dramatic rise in trade and investment in the late 19th and early 20th centuries. Nor was it nirvana. As I recalled, this earlier period of free trade been marked by numerous speculative bubbles, debt crises, and even some devastating famines in India, China, and Ireland. Then, during the 1930s, many countries had retreated from the winds of global competition behind tariff barriers, import controls, exchange controls, and fixed exchange rates. At the time these “beggar thy neighbor” policies were damaging to the world recovery. But after the world economy was revived by World War II, it did pretty well during the period from 1950 to 1973. Indeed, many economic historians now refer to that distinctly “un-global” period as the 20th century’s “Golden Era,” the only prolonged period in the 20th century when global growth and income equality have both improved dramatically at the same time.

So I could not help but tweak the young professor's nose a bit about the fact that “globalization,” as he called it, was not new, and was evidently neither necessary nor sufficient for strong performance by the world economy.

TWENTY YEARS LATER…

I t is now twenty years later, and many neoliberal pundits are still discussing “globalization” as if it were something strange and new – and as if it did not already have a very long and really quite problematic track record, including its very mixed record since the early 1990s.

What should by now be clear to any careful student of the subject is that in fact there really is no such thing as “globalization” per se. Its effects cannot be assessed or even measured apart from specific historical contexts. In other words, the liberalization of trade and investment is never implemented across all markets or trading partners at once. Its impact depends crucially on the precise sequence of deregulation, initial conditions, and on complex interactions with all the other market and regulatory imperfections that remain after specific barriers have been removed.

EXAMPLE - MEXICO Vs. CHINA

Just to take one specific example – in 1993, Mexico signed the NAFTA, giving its export sector much more access to the US market. However, the gains reaped by Mexican exports have been somewhat disappointing, because it discovered that just as NAFTA was being implemented, China was also dramatically expanding its exports to the US. This was partly just a reflection of China’s lower labor costs. However, for capital intensive sectors, it also reflected China’s artificially lower cost of capital. Unlike Mexico, where the banking sector had been privatized, China’s banking sector remained entirely in state hands, and it provided $billions in subsidized credit to the export companies that Mexico had to compete with. Having liberalized its capital market at the same time that it liberalized trade, Mexico had essentially given up one of its main weapons in its competitive battle with China.

The following case study of the global coffee market provides another example of “globalization’s” complex side effects. In the early 1990s, the World Bank and the IMF, which have been two of the most fanatical sponsors and promoters of “globalization” around the world, decided to encourage the Socialist Republic of Vietnam to boost its exports and growth rate by aggressively entering the world coffee market. Millions of poor coffee farmers around the world are still suffering from the effects of this grand strategy.

THE COFFEE BARRONS

If one is looking for a good example of the unintended impacts of “globalization,” a good place to start is with the world’s second most globalized commodity -- coffee, which is consumed almost everywhere, produced in 70 countries by more than 25 million farmers, and second only to oil as a share of world trade.

Coffee has certainly has had its ups and downs in the health literature, although the latest scientific evidence is apparently that, at least in moderation, it can do some good, at least if one is prone to gallstones, asthma attacks, cirrhosis of the liver, headaches, or heart trouble. But it has been undeniably beneficial to the shareholders of leading First-World companies like Nestle, Kraft, Sara Lee, P&G, and Germany’ Tchibo, the giant conglomerates that dominate the international business of roasting, processing, wholesaling, and at least in Starbucks’ case, retailing gourmet coffee to millions of First World customers.

In the last decade, all these coffee conglomerates have prospered, and Starbucks, in particular, has struck a veritable gold-mine. Founded in 1985, since its 1992 IPO, Starbuck’s share price has risen at an astounding average rate of 28 percent a year, with four 2-1 stock splits along the way. In February 2004 its market value reached a 12-year high of almost $15 billion, and its revenues now exceed $4.4 billion, growing at 32 percent a year. Entering the vaunted ranks of truly global brands like IBM or Coca-Cola, Starbucks now has more than 74,000 “partners” (actually, employees) and more than 6000 stores in over 30 countries, and it expects to add another 1300 stores this year. Indeed, it is even opening stories in markets that one might have thought would be difficult to crack, like Paris, Saudi Arabia, Mexico, the Philippines, Indonesia, and Lima, Peru, where a cup of Starbucks java reportedly two-thirds of the minimum wage.

One might have hoped that the folks at the other end of the pipeline who actually grow all the coffee might have benefited a bit from all this downstream prosperity. But in fact it would actually come as a something of surprise to the world’s 25 million coffee farmers around the globe, most of whom exist at the very bottom of the income distribution in developing countries like Vietnam, Brazil, Nicaragua, Kenya, and Ghana. Even as the processors, roasters, and retailers were cashing in, conditions for these farmers became more fiercely competitive than ever before. Indeed, from 1997 to 2001, composite world coffee prices fell by two-thirds, reaching the lowest levels in 30 years. Since then, average prices have recovered slightly, but they still remain at just half their (real) 1997 levels.

Since the demand for coffee beans is price-inelastic, the result was that coffee bean exports and the incomes of coffee farmers all over the world just collapsed. The result was one of the most socially -devastating commodity market crashes in modern history, with millions of poor coffee growers from Mexico’s Chiapas region, Guatemala, and Nicaragua to Kenya and Ghana to Indonesia and Vietnam all suffering the effects.

"FAIR TRADE" - MORE OR LESS

As one of the younger, less diversified companies in the industry with a retail brand to protect, Starbucks was perhaps more sensitive to the growing contrast between its own prosperity and the farmers’ desperate situation. In the late 1990s it responded with a new emphasis on “corporate responsibility.” This included support for “fair trade-certified” and “organic” farming, the implementation of sourcing guidelines that emphasized “sustainable” farming practices, paying premium “fair trade-like” prices above market averages, providing a certain amount of credit to coffee farmers and financial aid to poor farming communities, and other measures. In 2003, for example, Starbucks’ paid an average of $1.20 per pound for its Arabica beans, at a time when the open market price was less than half that much.

True, this amounted to just 4-5 cents per cup at most for the farmers, compared with a “vente” coffee based drink that might go for $2.50 to $4.50, depending on what’s in it. True, much of the $1.20 per pound did not get through to the farmers, but was digested by middlemen – even in 2003, at least half of Starbucks’ coffee was purchased through brokers and short-term contracts.

True, the 2.1 million pounds of “fair-trade certified” coffee that Starbucks purchased in 2003 amounted to less than 1% of its bean purchases. And true, the social programs and credit that Starbucks distributed to poor coffee farming communities in 2003 amounted to just $1 million and $2.5 million, respectively, scattered across nine countries – less than 1 percent of its operating income that year. But at least Starbucks deserves credit for making an effort, which the other giants in the industry have failed to do.

However, if Starbucks had really wanted to assist poor coffee farmers around the world, it would not have wasted time with all the “fair trade” and “green farming” activity, as valuable as these symbolic gestures might be in the abstract.

As the following tale explains, Starbucks and the fair traders would have had far more social impact if they had simply persuaded the World Bank to keep its mitts off coffee production.

GLOBALIZING COFFEE PRODUCTION

In 2000-2002, an acute coffee market crisis hit poor countries like Nicaragua, Guatemala, and Kenya broadside. The tale of this fiasco is worth telling just because of its dire impact on such countries, which depend on coffee for 25 to 30 percent of their exports. But it is also a striking example of the unintended side-effects of globalization, and of neoliberal development banking at its worst. After all, as noted, coffee is grown by more than 25 million small farmers in more than 50 developing countries, including several of the world’s most heavily-indebted nations. Indeed, it is second only to crude oil as a developing country export. So if you wanted to pick one global commodity market not to screw up, this would be it. But that did not stop the World Bank, the IMF, and the Asian Development Bank from doing so.

As this story also demonstrates, even in the 21st century, countries like Nicaragua not only remain at the mercy of intransigent rightists, corrupt elites, and egomaniacal leftists. They are also at the mercy of massive screw-ups by half-baked neoliberal experiments located half-way around the globe – and by fellow “former socialist countries!”

In 1986, the Socialist Republic of Vietnam’s Communist Party leadership decided to switch from central planning to a liberalization policy called “doi moi” – “change and newness.” This was partly just because, like Cuba, Vietnam could no longer depend on the (crumbling) USSR for huge subsidies. It was also because senior economists at the IMF, UNDP, World Bank, and ADB were preaching the glories of free markets, and holding out the prospect of billions in aid.

The resulting program, designed with extensive assistance from the world’s leading development banks, was a controlled version of a standard orthodox adjustment program. It set out a 10-year plan – oops, “strategy” - for export-led growth, based on opening up Vietnam’s heretofore-closed economy to trade and investment, allowing state-owned banks freedom to lend to individual borrowers, decollectivizing the farm sector, and – in particular -- encouraging small farmers and state-owned companies to develop new cash crops for export.

At the same time, political power was to be kept firmly in the hands of the Communist Party’s Politburo. Despite that slightly-illiberal grace note, from 1993 on, this doi moi economic liberalization package was generously supported with plenty of advice and more than $2 billion a year of foreign loans and grants from the Asian Development Bank, the UNDP, Japan’s JIBC, the France’s Development Fund (AFD), the World Bank, the IMF, and the aid agencies of the US, Sweden, France, and several other Western governments.

Nicaragua’s 44,000 small coffee farmers, the 6 million small farmers in 49 other countries who collectively produced more than 80 percent of the world’s coffee beans, and the more than 100 million people whose jobs and livelihoods depended on coffee beans, had probably never heard of doi moi. But they became one of its first targets. Right from the start, evidently without much thought about collateral damage, Vietnam and its neoliberal wizards decided to embark on a brave new coffee export business.

While coffee had been grown in Vietnam ever since the 1850s, production and exports had been limited. The domestic market was small, and there were few facilities to process the raw beans. As of 1990, green bean exports were a mere 1.2 million 60-kilo bags per year. But Vietnam’s central highlands did have rich hilly, lots of rainfall, and low labor costs, which were ideal conditions for achieving high yields and low prices.

This was especially true for low-grade, easy-to-grow robusta beans. From a consumer’s standpoint, this species was inferior to the Arabica beans grown by Nicaragua and most other Central American producers, as well as big producers like Brazil and Colombia. Arabica had traditionally accounted for more than three-fourths of the world’s coffee production. But robusta had twice the caffeine content of Arabica at half the price, and it could also be used as a cheap filler and blending ingredient.

By the 1990s, bean quality was no longer an absolute barrier to entry in coffee farming. The global market was increasingly dominated by a handful of giant First World coffee processors, roasters, and grinders, including Nestle, Kraft, Sara Lee, P&G, and the German company Tchibo, as well as retail store owners like Starbucks, which generated their own blends. Increasingly, these companies sourced coffee beans from all over the planet, mixing and matching them to produce blends that not only satisfied customer tastes, but also minimized costs. These global buyers had been working overtime on new technologies that took the edge off the cheaper robusta beans and allowed them to be used for extra punch and fill. With the help of commodity exchanges, the giants had also defined standardized forward and futures contracts that allowed them to hedge against price fluctuations – making for a much more “perfect” global coffee market.

From the standpoint of small farmers, most of whom did not have easy access to such hedging devices, “market perfection” was in the eyes of the beholder. The changes introduced by the giant buyers amounted to a radical commoditization of the market that they depended upon for their livelihoods, a sharp increase in direct competition. Accordingly, even as downstream market power became more and more concentrated in the hands of the First World giants, the farmers’ share of value-added plummeted. In 1984, for example, raw coffee beans accounted for more than 64 percent of value-added in the US retail coffee market. By 2000, this share had dropped to 18 percent. From 1990 to 2000, while global retail coffee revenues increased from $30 billion to $60 billion, the revenues earned by bean-growing countries dropped from $10 billion to $6 billion. By then, for every $3.50 café latte sold by Starbucks, the farmers earned just 3.5 cents.

The farmers’ shrinking role was due in part to the basic structure of the global coffee industry. On the supply side, as noted, by the 1990s, raw beans were being exported by more than fifty countries, who were competing head-to-head. But while a few growers like Brazil and Colombia had tried to break into foreign markets with their own processed brands, a handful of global First World buyers still dominated processing and marketing. Indeed, many of the world’s leading exporters of processed coffee, like Germany and Italy, grew no coffee at all.

This long-standing First World control over global coffee processing is partly due to technical factors. There are economies of scale in processing, but not in coffee farming. Unlike petroleum or natural gas, which can be warehoused for free in the ground, coffee beans are costly to store. Unlike wine, aged beans also have no incremental value. Furthermore, most small coffee farmers depend on coffee sales for their current incomes. Global coffee demand is actually not very price-sensitive, and it is only growing at a modest 1 percent per year. All this means that prices tend to fluctuate wildly with current production, so there is an incentive for processors to stay out of farming, shifting market risks to millions of poorly-diversified producers. The fact that coffee beans be stored 1-2 years, while roasted or ground products have a much shorter shelf-life, also favors locating processing facilities close to the final consumer markets. And anyone who has been to France, Italy, or Brazil knows that tastes for particular kinds of coffee vary significantly across countries.

But the coffee industry’s international division of labor is not only based on such technical factors, many of which are actually declining in importance. It is also based on long-standing trading patterns and colonial relations – for example, the 16th century role of the Dutch in smuggling coffee plants out of Yemen to their colony in Java, which fostered Indonesia’s entire coffee industry; the role of French, British, Portuguese, and Japanese trading companies in Africa, Jamaica, Guyana, Brazil, and Asia, and the role of American companies in Colombia, Central America, and Southeast Asia. The First World’s dominance has been reinforced by trade barriers that favor the importation of raw beans over processed coffee.

The net result of all this is as if France, Italy and California were compelled to export all their grapes to Managua, Nairobi, and Jakarta, in order to have them processed into wine.

Along these lines, given the importance of small coffee farmers to debtor countries, and the World Bank’s supposed commitment to “poverty alleviation,” it may seem surprising that the World Bank, the IMF, and other development lenders devoted zero energy in the 1990s to designing a monopsony-breaking strategy for coffee growing countries, to help them break down this division of labor its supporting trade barriers.

Instead, the development bankers did just the opposite, helping Vietnam implement an anti-producer-cartel strategy that ultimately helped to drive the coffee- countries’ association, a rather pale imitation of OPEC, completely out of business in 2001. Could it be that these First World development banks were not influenced by the fact that the world’s leading coffee conglomerates also happen to be based in countries like the US, Japan, France, Switzerland, and Germany, not far from the development banks’ headquarters?

COFFEE CONTRAS

Vietnam’s decision to push coffee bean exports as a cash generator in the 1990s was not just based on rational economics. Like most critical decisions in economic development, it also had a crucial political motive. Vietnam’s best region for growing coffee turns out to be the Central Highlands, along the border with Cambodia and Laos. This region is inhabited by about 4 million people, including 500,000 to 1 million members of non-Buddhist ethnic minorities who are known collectively as the Montagnard/Dega hill tribes. These fiercely independent peoples have battled the Communist Party, and, in fact, most other central authorities, for as long as anyone can remember. In the 1960s, 18,000 of them joined the CIA’s Village Defense Units and fought hard against the NLF. They had many run-ins with South Vietnam’s various dictators. After the war ended in 1975, some Montagnard tribes continued armed resistance at least until the late 1980s.

To shore up control over this volatile region, in the early 1980s Vietnam’s government embarked on its own version of ethnic cleansing – or at least dilution. It actively encouraged millions of ethnic Kinh – Vietnam’s largest ethnic group – plus some other non-Montagnard minorities, to migrate from the more crowded lowlands to the Central Highlands. At first, these migrations were organized directly by the government. But by the 1990s, they were being driven by a combination of market forces and government subsidies. On the one hand, the migrants sought to escape the poverty and resource exhaustion of the lowlands. On the other, they were attracted by the prospect of obtaining cheap land and credit to grow coffee, the exciting new cash crop, which became known to the peasants as “the dollar tree.”

The result was an influx of up to 3 million people to the Central Highlands provinces in less than two decades. In 1990-94 alone, some 300,000 new migrants arrived in the provinces of Dak Lak, Lam Dong, Gia Lai, and Kontum, looking for land. By 2000, these four provinces alone accounted for 85 percent of Vietnam’s coffee production. This reduced the Montagnard tribes to the status of a minority group in their own homelands. They watched in anguish as their ancestral lands were reassigned to outsiders, including state-owned companies, controlled by influential Party members in Hanoi who had close ties with leading Japanese, American, and Singaporean coffee trading companies. Many Montagnards were forced to resettle on smaller plots, without compensation. Over time, as the local economy became more vulnerable to fluctuations in world coffee prices, this contributed to explosive social conflicts.

From the standpoint of Nicaragua’s campesinos, the key impact of all this was on world coffee prices. In Vietnam, the migrants and Montagnards alike turned to coffee for support on increasingly-crowded plots. At the time, in the early 1990s, coffee still offered greater revenue per unit of land, compared with other cash crops like rice or peppers, and it was also being actively promoted as a cash crop by state banks, trading companies, and the government.

It took three to four years for a new coffee bush to mature, so the real surge in exports did not occur until 1996-2000. Then, in just a four-year period, Vietnamese exports flooded the market. From 1990 to 2002, they increased more than ten-fold, from 1.2 million 60-kilo bags to more than 13.5 million bags. By 2000, Vietnam had become the world’s second largest coffee producer, second only to Brazil and ahead of Colombia. In the crucial market segment of cut-rate green robusta beans, the blenders’ choice, Vietnam had become the world leader. While other producers like Brazil also increased their robusta exports during this period, Vietnam alone accounted for more than half of all the increased exports. This helped to boost robusta’s share of all coffee exports to 40 percent.

In pursuing this strategy, Vietnam did not bother to join coffee’s OPEC, the Association of Coffee Producing Counties. Indeed, it acted rather like a scab, providing an incremental 800,000 metric tons of low-priced coffee by 2000, roughly equal to the world market’s overall surplus. The giant coffee buyers were quite happy to buy up all this low-priced coffee and swap it into blended products like “Maxwell House” and “Tasters’ Choice,” using it to discipline other leading supplier-countries. At the same time, foreign debt-ridden countries like Indonesia, Brazil, Uganda, Peru and Guatemala also boosted their coffee sales, in order to generate more exports. In September 2001, partly because of this beggar-thy-neighbor strategy, the ACPC completely collapsed and was disbanded.

The resulting export glut caused world coffee prices to tumble to a 33-year low by 2002. According to the World Bank’s own estimates, this caused the loss of at least 600,000 jobs in Central America alone, and left more than 700,000 people in the region near starvation.

Worldwide, the effects of the coffee glut were even more catastrophic, because the world’s fifty-odd coffee producing countries included many of the world’s poorest, most debt-ridden nations. Ironically, just as they were supporting Vietnam’s rapid expansion into exports like coffee, in 1996 the World Bank and the IMF had launched a new program to provide debt relief to the world’s most “heavily-indebted poor countries” -- the so-called HIPC program. By 2001, indeed, the HIPC program had made some progress in debt reduction, cutting the “present value” of the foreign debts for those countries that completed the program by a median of thirty percent. However, of the 28 heavily-indebted poor countries that had signed up for the World Bank’s HIPC program by 2003, no less than 18 of them were coffee growing countries – including not only Nicaragua, but also desperately poor places like Bolivia, Honduras, Uganda, the Congo, Cameroon, Rwanda, the Ivory Coast, and Tanzania.

Indeed, for the larger coffee exporters in this group, even when they managed to wend their way through HIPC’s complex program and qualify for debt relief, they found that most of its benefits had been offset by the coffee crisis! For example, Uganda, the very first country to qualify for HIPC relief, discovered that by 2001, just one year after qualifying for HIPC, its foreign debt was higher than ever -- mainly because it had to borrow abroad to offset the impact of the coffee crisis on exports!

Furthermore, many other “not-quite-so-heavily indebted” developing countries that produced coffee, like India, Indonesia, Peru, Guatemala, Kenya, Mexico, and El Salvador, were also hurt badly. Overall, if one had set out to create destitution and suffering in as many of the world’s developing countries as possible at one fell swoop, one could hardly have devised a better strategy than to encourage Vietnam to thoughtlessly expand its commodity exports in general, and coffee in particular – free markets be blessed, all other developing countries be damned.

In Nicaragua’s case, the average wholesale price for its Arabica beans fell from $1.44 a pound in 1999 to $.51 cents a pound in 2001 and less than $.40 a year later, compared with typical production costs of $.83 a pound.

Among the hardest hit were Nicaragua’s 44,000 small producers, who accounted for two-thirds of Nicaragua’s production and provided jobs that supported another 400,0000 Nicaraguans, most of them landless campesinos in the rural northwest around Matagalpa, north of Managua. They depended upon Nicaragua’s annual coffee harvests for most of their employment and income. The resulting crisis in the countryside set off a migration to Managua and other cities, with thousands of hungry, landless people crowding into makeshift shacks on the edge of town.

Obviously all these developments begged many questions so far as the role of the World Bank and Vietnams’ other international lenders and advisors was concerned. After all, Vietnam was just a very poor state-socialist country that was undertaking all these free-market reforms for the first time – after fighting and winning a thirty-years war of its own with the US. The World Bank, IMF, and the ADB, on the other hand, were supposed to be the experts – they had implemented such reforms all over the world, backed by billions in loans and boatloads of Ivy-League economists. And Vietnam was intended to be one of their poster stories for de-socialization, and for the claim that growth, free markets, and “poverty alleviation” could go hand-in-hand.

In April 2002, sensitive to NGO charges that the World Bank and the other development lenders might actually bear some responsibility for this fiasco, the World Bank went out of its way to issue a press release denying any responsibility for the crisis whatsoever. Or more precisely, it denied having directly provided any financing to expand coffee production in Vietnam. It also maintained that its $1.1 billion of lending to Vietnam since 1996 had tried – though evidently without much success – to diversify farmers away from cyclical crops like coffee. It also argued that, after all, its lending to Vietnam’s rural sector had only started up after 1996, while coffee production had increased since 1994, and that none of its investments had been “designed to promote coffee production. (emphasis added) ” It did identify two World Bank projects that “could be linked” to coffee production – a 1996 Rural Finance Project that helped Vietnamese banks lend money to farmers, and a Agricultural Diversification Project. But for these projects, the Bank simply observed that it didn’t dictate how Vietnamese banks re-loaned the funds that it had loaned to them.

Overall, then, World Bank basically washed its hands of the coffee crisis -- one of the worst disasters to strike small farmers, their dependents, and debtor countries in modern times. The World Bank did assure the public that it was extremely concerned about the plight of these farmers, and promised to address their woes.

On closer inspection, this defense had more than a few holes. First, whether or not the Bank financed any new coffee farms, clearly the World Bank and its cousins at the IMF, the UNDP, and the ADB were up to their elbows in designing, managing, and financing Vietnam’s economic liberalization program. In the first place, they played a key role in pushing Vietnam to liberalize trade, exchange rates, and banking quickly. To set targets for Vietnam’s macroeconomic plans, they had to have known which export markets the government planned to go after. After all, coffee was not just another export. After the removal of Vietnam’s quotas on coffee and other exports in 1990, partly at the request of IMF, coffee quickly became the country’s number-two export, second only to oil. It continued to be one of the top ten exports even after prices cratered. The ADB and the World Bank also worked closely with Vietnam’s Rural Development Bank, the country’s largest rural lender, to improve management and structure new lending programs. They also advised Vietnam on how to set up a Land Registry, so that rival land claims could be settled and farms – at least the non-Montagnard claimants who found it easier to get titles -- could borrow to finance their new crops more easily.

At the same time, far from encouraging Vietnam to work with other coffee producers to stabilize the market, or design an overall long-term strategy to break up the buy-side power in the market, the development banks bitterly opposed any such interference with “free markets” – no matter how concentrated the buyers were, or how many artificial restrictions had been placed by First World countries on the importation of processed coffee. As one senior World Bank economist remarked in 2001, at the very depths of the coffee glut:

Vietnam has become a successful (coffee) producer. In general, we consider it to be a huge success...It is a continuous process. It occurs in all countries - the more efficient, lower cost producers expand their production, and the higher cost, less efficient producers decide that it is no longer what they want to do.

So, despite its 2002 press release, the World Bank’s true attitude about this whole fiasco appears to have been a combination of “not my problem,” sauve qui peut, and Social Darwinism.

Meanwhile, back in Vietnam, the small farmers in the Central Highlands learned the hard way about the glories of global capitalism – thousands of them had decided that it was “no longer what they wanted to do,” but were finding few easy ways out. After the 1999-2002 plunge in coffee prices, Vietnam’s export earnings from coffee fell by 75 percent from their level in 1998-99, to just $260 million in 2001-02. In 2002-03, they fell another 30 percent. In the Central Highlands, thousands of the small farmers – low-lenders and Montagnards alike -- had gone deeply into debt to finance their growth, and were struggling to feed their families and send their children to school, because market prices now covered just 60 percent of their production costs.

In short, ten thousand miles from Managua, on the opposite side of the globe, these highland farmers were facing the same bitter truths that Nicaraguan campesinos were facing -- that they had more in common with each other than with the stone-hearted elites who governed their respective societies, and designed futures that did not necessarily include them.

In Vietnam, the resulting economic crisis severely aggravated social and political conflicts in the Central Highlands. In February 2001, several thousand Montagnards held mass demonstrations in Dak Lak, demanding the return of their ancestral lands, an end to evictions for indebtedness, a homeland of their own, and religious freedom ( since many Degas are evangelical Christians). Vietnam responded with a harsh crackdown, sending thousands of elite military troops and riot police to break up their protests. They arrested several hundred of them, and then used torture to elicit confessions and statements of remorse. They also destroyed several local churches where the protestors had been meeting. Those protest leaders who did not manage to escape to Cambodia were given prison sentences up to 12 years.

From one angle, this repressive response was the typical handiwork of a Communist dictatorship. From another angle, however, it was just another example of the repressive tactics that neoliberalism required to implement free-market “reforms” by non-Communist regimes, in countries like Venezuela, Ecuador, Bolivia, Egypt, Indonesia, the Philippines, Argentina, and post-FSLN Nicaragua.

In Vietnam’s case, far from helping to solved its political problems in the Central Highlands, the Politburo discovered that their neoliberal reforms had inadvertently helped to revive the Dega separatist movement. Evidently, economic and political liberty did not always go hand in hand.

At least the Politburo and their foreign advisors did have something to show for the coffee strategy, however. In 2000-2002, the profit margins earned by the five giant companies that dominated the global coffee market were higher than ever. Furthermore, cocaine producers in the Andean region no longer had to worry about small farmers substituting coffee for coca. In Colombia’s traditional coffee-growing regions, just the opposite started to happen in the late 1990s, as many farmers converted coffee fields to coca, in the wake of the coffee glut.

Indeed, from 1995 to 2001, coca cultivation more than tripled in Colombia, including a 20 percent increase in 2000-01 alone. This occurred despite hundreds of millions of dollars spent by the USG on coca eradication efforts, the so-called “centerpiece” of its “Plan Colombia.” In 2000-01, coca production started to increase again in Peru, Bolivia, Ecuador and Venezuela. There were also reports that farmers were even turning away from coffee and towards coca in areas that had never before seen coca, like the slopes of Kenya’s Mount Kilimanjaro. Cocaine production from the Andean countries also rose sharply from 1998 to 2002.

After all, unlike coffee, at least coca and cocaine were products for which both the farming and the processing could be done at home.

EXAMPLE - THE IMPACT ON NICARAGUA

Overall, by 2003, Nicaragua’s real per capita income had fallen to $400 (in real $1995), roughly its 1951 level. With population growth averaging 2.4 percent a year in this overwhelmingly Catholic country, the economy would have to grow at 5 percent a year for 30 years just to recover the 1977 per capita income level – compared with the actual average growth rate of 1.3 percent during the 1990s. By now, the country’s entire national income is just $11.2 billion, less than three Starbuck’s annual revenues.

By 2003, underemployment levels exceeded 60-70 percent in many parts of the country, and the overall proportion of people living in poverty was 67 percent, second only to Honduras in Latin America. This means that there were some 1.6 million more Nicaraguans living on the borderline of existence than in 1990, at the end of the contra war.

Earlier, in the 1980s, the Sandinistas had been justifiably proud of their health, education, and literacy programs. Even in the depths of the contra war, rates of infant and maternal mortality, malnutrition, and illiteracy had declined. Infant mortality fell sharply from 120 per 1000 live births in 1979, immunization coverage rose, and the share of the population with access to health care increased from 43 percent to 80 percent.

In the 1990s, however, there were sharp increases in all these maladies, aided a 75 percent cut in public health and education spending by 1994. By 2000, Nicaragua was spending four times as much on debt service as on education, and a third more than on public health. The infant mortality rate was still 37 per 1000, and the under-age-five mortality rate was 45 per thousand, among the highest in Latin America. (Cuba’s equivalent rates, for comparison, were 7 and 9 per thousand.) As of 2000, 12 percent of Nicaraguan children were underweight, and 25 percent were under height. More than 22 percent of children under the age of 9 – 300,000 children -- were malnourished. By 2000, 37 percent of school-age children were not enrolled in classes, and illiteracy, which an intense campaign by the Sandinistas in 1980-81 had reduced to 15 percent, had climbed back up to 34 percent, and was even higher in rural areas. Women’s rights also suffered, as the Church conspired with the new conservative governments to drive abortion underground, even at the cost of higher maternal mortality rates because of botched illegal abortions.

Coincidently, Nicaragua’s $400 per capita income was almost exactly the same as that of the Socialist Republic of Vietnam, its new direct competitor on the other side of the planet. Indeed, in one of history’s many ironies, these two formerly “leftist” countries were now passing each other on the globalization escalator, heading in opposite directions. By 1998, if we believe the statistics published by the UNDP, Vietnam’s poverty rate had dropped to 37 percent, below Nicaragua’s, while adult literacy had reached 94 percent, above Nicaragua’s (declining) rate of 63 percent. Vietnam’s average life expectancy had also matched Nicaragua’s 68.3 years. And far from having a chronic foreign debt crisis, which Nicaragua has had since 1979, Vietnam became one of the development banks’ darlings, as we saw earlier, drawing down $2 billion a year in concessional finance throughout the decade, plus more than $30 billion in foreign investment. Yet Vietnam’s ratio of debt to national income was just 35 percent – not exactly low, but only one-tenth that of Nicaragua’s.

Furthermore, with all the outside help, on top of its entry into the coffee export market, Vietnam’s growth rate averaged more than 9 percent a year in the 1990s, even as Nicaragua’s growth stagnated. In 2001, when Vietnam’s Ninth Communist Party Congress adopted its “Tenth Ten Year Strategy” for the period 2001-10, the World Bank and the IMF were both on hand in Hanoi to celebrate with yet another generous structural adjustment loan program – carefully shielded, of course, from any angry Montagnards who might wish to complain.

All told, by the New Millennium, out of 173 nations ranked by the UNDP according to their “human development” metrics, by the year 2000, Nicaragua had dropped from 68th in 1980 to 118th. It passed Vietnam on the way down, which was in 101st place and rising. The responsibility for Nicaragua’s decline appears to have been almost evenly divided between the contra war of the 1980s and the neoliberal war of the 1990s. Relative to more prosperous (haven) neighbors like Panama and Costa Rica, as well as to the pro-US, military-dominated abattoirs to the north, Guatemala and El Salvador, Nicaragua’s relative decline has been even more striking.

So evidently it wasn’t enough to pull off a revolution and defeat a US-backed puppet army, as both Vietnam and Nicaragua had succeeded in doing. Daniel Ortega and his comrades must have occasionally wondered a little wistfully, “If only we had managed to install a full-fledged, centrally-planned Communist dictatorship, as we were accused of trying to do! Maybe the world would have been as generous to us as it has been to the Socialist Republic of Vietnam!”

***

© James S. Henry, SubmergingMarkets™, 2004. All rights reserved. No reproduction without express consent of the author.

April 11, 2004 at 08:46 PM | Permalink | Comments (0) | TrackBack

Thursday, April 01, 2004

"The Worst April Fool's Joke Ever:" Brazil's 1964 Coup The Foundations of Regressive Development

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April 1, 2004 is not only April Fools Day in the US and Europe. It is also the fortieth anniversary of “the worst April Fools’ joke ever,” as many Brazilians called it, the 1964 US-backed military coup in Brazil that overthrew the constitutional, democratically-mandated government of its populist President, João Goulart.

This coup led directly to 21 years of disastrous rule by Brazil’s military. During that period, the military cracked down sharply on all political opposition, independent trade unions, and critical media. It also piled up one of the world’s largest foreign debts, tried to develop nuclear weapons and intercontinental missiles, and pursued a national development strategy that favored the construction of huge, poorly-planned but highly lucrative hydro dams, Amazonian highways, and nuclear plants over investment in education and other basic human needs.

As described in more detail in the following excerpt from The Blood Bankers, all this proved to be very profitable for the officials, generals, and foreign and domestic bankers that catered to the regime’s needs.

But it also created a legacy of distorted development, poverty, concentrated land and media ownership, deforestation, environmental pollution, high-level corruption, and inequality, as well as a culture of violence and disregard for human rights.

Fortunately, Brazil, a country with 182 million people that accounts for more than two-thirds of South America's entire economy, returned to civilian rule in 1985. But it still struggles with most of these problems to this day.

As the following account makes clear, the US Government was deeply involved in encouraging the coup at the highest levels -- n.b. recently-declassified White House tapes and documents. Once in power, Brazil’s military also played a crucial role in the empowerment of right-wing regimes in several other Latin American countries, including Bolivia and Uruguay. Indeed, top US policymakers viewed Brazil’s military as a very useful agent, which could be used to impart a hard right spin to political development all over the Southern Hemisphere.

The standard apology for all this is that it was the price that had to be paid to contain the global Communist menace. When examined carefully in the bright light of day, this excuse turns out to be a canard. The fact is that Brazil never faced a serious revolutionary threat from the Left; that Goulart and his supporters were at worst populist, nationalistic land-reformers and union supporters; that the generals and their friends in Brazil's elite systematically exaggerated the leftist threat in order to justify their appetite for power, which gave many of them offshore bank accounts; that Presidents Kennedy, Johnson, and, later on, Nixon, were completely spooked by the Castro fiasco into overreacting to such populists all over the Third World; that the Brazilian coup completely undermined the rule of law, labor unions, human rights, and political freedoms for many years; and that it also led to decades of short-sighted economic policies that damaged millions of lives.

In short, if we really want to understand the roots of Latin America's comparative poverty, inequality, violent culture, and distorted development, as well as why many Latin Americans do not necessarily share the gringos' high esteem for their own role in history, the story of Brazil's 1964 military coup is a good place to start.

FOUNDATIONS

One long-time Brazilian banker recalled that at that time (the early 1960s) JPMorgan's position in Latin America was “essentially nowhere.” Years earlier, of course, it had been one of the first U.S. banks to do international banking. In the l880s, J.P. Morgan Sr. acquired Morgan et Cie in France and a third of London’s Morgan Grenfell, and in l908 the bank added Guaranty Trust Company, which had French, Belgian, and UK branches. From l890 to l930 Morgan floated more Latin American bonds than any other bank. But from the Depression until the l950s it had largely neglected Latin America. By l964, its entire Mexican exposure was only $15 million, and its Brazilian exposure just $50 million, and Morgan’s Latin American group was run by people who were ”not very aggressive....bright but not out-going.....(the head) would show up in Rio and wait at his hotel for clients to call on him.” Of the group’s five bankers, only Fred Vinton, the son of a long-time Citibank rep in Buenos Aires, had ever lived in Latin America. Citibank, Chase, and Bank of Boston all had local branches in Rio and São Paulo, but not Morgan.

Kubitschek

Of course, at the time, Brazil was viewed as quite a risky place to do banking. Juscelino Kubitschek, the country's President from l955 to l961, had embarked on an ambitious ”Fifty Years in Five” program, promoting industrialization and huge projects like Brasilia, the new federal capital in the remote state of Goiás, that was aptly described as “the revenge of a Communist architect against bourgeois society.” Kubitschek’s program produced five years of 7 percent growth, unprecedented corruption, and the Third World's largest debt, $2.54 billion by l960. That may not sound like much now, but it consumed forty percent of Brazil’s export earnings. In l961, Janio da Silva Quadros, Kubitschek's successor condemned this debt in terms that later generations would fully understand:

All this money, spent with so much publicity, we must now raise bitterly, patiently, dollar by dollar and cruzeiro by cruzeiro. We have spent, drawing on our future to a greater extent than the imagination dares to contemplate.

Kubitschek’s excesses provoked a conservative reaction. In 1960, Quadros, a former Governor of São Paulo, ran for President on an anti-corruption platform with a broom as his symbol. He was elected, and took office in January 1961. His Finance Minister, a wealthy banker, quickly signed a tough IMF agreement that agreed to devalue the currency, slash subsidies, and repay the debt.

Janio Quadros

But Janio Quadros soon proved to be one of Brazil’s weirdest leaders. He also tried to ban horse racing, boxing matches, and bikinis on the beach, and when the U.S. pressured him to embargo Castro, he defiantly journeyed to Havana and awarded Che Guevara the Ordem do Cruzeiro do Sul, Brazil's equivalent of the Legion d'Honeur. At one point early in his term he had been visited by Adolfe Berle, Jr., President Kennedy’s special assistant on Latin America. Kennedy was quietly seeking Quadros’ support for the upcoming Bay of Pigs invasion. According to John M. Cabot, the US Ambassador to Brazil at the time, Berle effectively offered “Brazil” a $300 million bribe in return for cooperation. But Quadros became “visibly irritated” after Berle ignored his third rejection, and sent Berle off to the airport unaccompanied. A few months later, in August 1961, Quadros resigned, complaining of being surrounded by ”terrible forces,” and blamed his downfall on a cabal that included “reactionaries” Berle, Cabot, and US Treasury Secretary C. Douglas Dillon.

Goulart and Kennedy

This allowed the succession of João Goulart, Janio’s Vice President, a wealthy populist cattle farmer from Rio Grande do Sul. Goulart visited the US in April 1962, addressed a joint session of Congress, and received a ticker tape parade in New York City. But he immediately proceeded to alienate every key interest group at once, launching an aggressive land reform, boosting taxes on foreign investors, nationalizing utilities and oil refineries, and even encouraging enlisted men in the Army to organize a union. Inflation soared to the unheard-of level of 100 percent, exhausting four Finance Ministers in two years. All this was a splendid recipe for counterrevolution -- Brazil’s usually fractitious military leaders banded together and organized a coup, was supported by business, most of the “middle class,” and the U.S., which spent tens of millions of dollars on a covert ant-Goulart media campaign. In l963, Goulart's second Finance Minister visited Washington and asserted that the left-leaning regime’s social reforms had been inspired by President Kennedy’s so-called "Alliance for Progress" But he received a cold shoulder -- the US aid window closed down until April 1964, after the coup. As early as l962 U.S. intelligence had warned of coup preparations, and was more than sympathetic. As David Rockefeller, who was at that point the President of his family’s bank, Chase Manhattan, told a closed-door conference at West Point in the fall of l964, ”It was decided very early that Goulart was unacceptable....and would have to go.”

Amb. Gordon

Ball and Johnson

A newly-declassified audio tape, recorded by the White House taping system on March 31, 1964, just as the coup was just beginning to unfold, shows President Lyndon Johnson personally involved in reviewing US support for the coup, and monitoring the latest developments. In a phone conversation with Undersecretary of State George Ball, who was coordinating US activities, Johnson expressed support for aggressive action: "I think we ought to take every step that we can, be prepared to do everything that we need to do, just as we were in Panama if that is at all feasible. I’d put everybody who had any imagination or ingenuity in (Ambassador) Gordon’s outfit or (CIA Director) McCone’s or yours or (Secretary of Defense) McNamara’s. We just can’t take this one, and I’d get right on top of it and stick my neck out a little.” US Undersecretary of State George Ball: That’s our own feeling about it, and we’ve gotten it well organized.”

The April 1, 1964, coup that followed -- ”the worst April Fool's joke ever” -- was led by General Humberto de Alencar Castello Branco, commander of the Fourth Army in Recife. During World War II, he had served with Brazil’s Expeditionary Force, which fought with the Allies in Italy. His “trench buddy” there was Colonel Vernon A. Walters, the U.S. “military attaché” from September 20, l962 to l967, who would later be promoted to Lt. General for his accomplishments in Brazil, and then move on to serve as senior CIA officer, the CIA’s Deputy Director from March 1972 to 1976, and Ronald Reagan’s UN Ambassador in the 1980s. Colonel Walters spoke fluent Portuguese and also very close to General Emílio Garrastazu Médici, head of Brazil’s Black Eagles military school during the 1964 coup, then military attaché to Washington (64-65), head of Brazil’s CIA, the “Serviço Nacional de Informaçoes (SNI)” from 1967 to 1969, and then Brazil’s President, courtesy of the junta.
Castello Branco

General Walters

During the coup, Castello kept both General Walters and U.S. Ambassador Lincoln Gordon “very well-informed of pre-coup deliberations,” a US Navy “fast” Carrier Task Group was standing by offshore, and six US Air Force C-135 transport plants with 110 tons of arms and ammunition were standing by, in case there was any resistance. Fortunately, the coup was almost bloodless, although there would be many disappearances, deaths, and cases of political torture during the 21 years that followed.

Castello Branco was supposed to step down after a short period of housecleaning, but Brazil’s military proved to be a better master than a maid -- it stayed in power from l964 to l985. At first, Castello turned the economy over to Octavio Bulhões, an academic-cum-Finance Minister, and Roberto Campos, a U.S.-educated ex-Jesuit and former head of Brazil’s powerful National Development Bank (BNDES), who became Planning Minister. Their reign from April l964 to March l967 was the first in a series of rather disappointing Latin American experiments with monetarism, the notion that controlling the money supply was the sine qua non of economic policy. To fight inflation, they reigned in credit, slashed spending (which they viewed as driving money growth, because the government was financing by selling bonds to the banking system) , and opened the door to imports. They also eased restrictions on foreign investment, eliminated taxes on foreign profits, and outlawed strikes. Dozens of labor leaders were jailed, and wages were frozen, although inflation was still raging at forty percent a year. But the regime was careful to protect investors against inflation by indexing bonds and bank deposits. A new capital markets law also created Brazil’s first investment banks and provided “the most sophisticated company law in Latin America.” In l965, in an attempt to control the money supply, Campos also created Brazil’s first Central Bank and a National Monetary Authority.

All these conservative measures went down rather well with bankers and the U.S. government. Regardless of who staged the coup, it soon became quite clear who would pay for it. From l964 to l970, Brazil got more than $2 billion of U.S. aid, which made it the third largest aid recipient in the world. About $900 million of this arrived in the first six months after the coup -- in l964, after the coup, the U.S. Treasury paid seventy percent of the interest due on Brazil's debt. In July 1964, Brazil also signed another IMF agreement, and in the next three years it got $214 million of IMF loans, which had been zero from l959 to l964. Brazil also suddenly became the World Bank’s largest customer, after getting no loans at all from 1950 to l965, as well as the largest borrower the IDB and from our old friends, the US EX-IM Bank. From l964 to 1970, direct investment by American companies increased fifty percent. In January l967, the IMF held its 22nd convention in Rio, presided over by General Artur Costa e Silva, a former War Minister and Castello Branco's successor.

General Golbery

Unfortunately for the majority of Brazilians living in poverty, most of this aid went to pay for budget deficits, planning exercises, and capital-intensive projects -- original Alliance for Progress objectives like “eliminating illiteracy from Latin America by l970” and “income redistribution” got short shrift. The real value of the minimum wage dropped by one-fourth from l964 to l967, and malnutrition and infant mortality rose dramatically. Domestic industry was hit by foreign competition and a recession at once, even as multinationals were getting cheap finance and lower taxes. Many foreign investors also got ”sweetheart” deals -- Campos was especially generous to Amforp, an American-owned utility, and in l965 the American billionaire Donald Ludwig was allowed to buy an Amazon forest tract twenty percent larger than Connecticut for $3 million. General Artur Golbery Couto e Silva, the military’s “gray eminence,” later became President of Dow Chemical do Brasil and a representative of Dow’s Banco Cidade. A top professor at the Escola Superior de Guerra, Brazil’s version of the National War College, and the author of the seminal Geopolitica do Brasil, in the early 1960s Golbery had used CIA funding to launch the Institute for Research and Social Studies (Instituto de Pesquisas e Estudos Sociais--IPES), the SNI’s precursor. Over the next two decades, the SNI would employ more than 50,000 people to spy on and otherwise deal with “subversives” at home and abroad. Golbery later served as head of the Casa Civil, a key aid to President Ernesto Geisel. Not surprisingly, along the way, Dow Chemical got special permission for a new plant in Bahia.

Roberto Campos

Ernesto Geisel

Soon, even nationalist critics started attacking Roberto Campos' program as a ”pastoral plan” designed by Americans to eliminate domestic industry -- he became widely known as ”Bob Fields,” “a full-time entreguista.” In l964, a popular Rio bumper sticker said, “Enough of intermediaries! -- (U.S. Ambassador) Lincoln Gordon for President!” In l966, the U.S. Ambassador complained that American advisors were implicated in ”almost every unpopular decision concerning taxes, salaries and prices.”

In October 1965, in the last free elections until l982, the military’s candidates for state governorships in Rio de Janeiro and Minas Gerais were defeated. Workers, students, and church organizers turned radical, and several civilian leaders who had supported the coup, including Magalhães Pinto and Carlos Lacerda, also pressed for new elections. There was a sharp increase in capital flight -- in 1966 Brazilians sent more money abroad than all the new foreign investment and foreign aid brought in. The nationalists in the military also began to treat the “internationalist” segments of the upper classes harshly -- they unleashed a spy operation to catch wealthy Brazilians who had foreign accounts. In November 1966 the police, assisted by Brazil’s intelligence service, the SNI, under the command of General Fiuza de Castro, raided the offices of Bernie Cornfeld's Swiss-based I.O.S. flight capital operation in seven cities, arrested 13 salesmen, and seized files on 10,000 clients.

Costa e Silva

All this set the stage for a hard-line backlash, led by members of the military who believed that the castellistas were selling out to foreigners and were not tough enough on subversivos. In late l966, Castello Branco gave way to the IMF’s favorite, General Costa e Silva. Political parties were consolidated into a ”majority” party, ARENA, and an official ”opposition” party, the PMB -- as they soon came to be known in the underground, the parties of ”yes” and ”yes sir.” Many opposition politicians, union leaders, and students were stripped of their civil rights. In December 1968, when a federal deputy asked Brazilian women to stop having sex with military officers until political repression ceased, the Army demanded that Congress lift the fellow’s immunity so he could be prosecuted for “insulting the Armed Forces.” When the Congress refused, Costa e Silva closed it, disbanded state assemblies and city councils, suspended habeas corpus, and imposed press censorship. Dictatorial niceties like arrests without warrant and torture now became common, while elections were reduced to ratifications of the military’s “bionic” candidates.

As for Roberto Campos, in March l967 he moved over to the private sector, giving way to a more dirigiste economic team. He never again exercised much power, although he served as Ambassador to England in the mid-1970s. His l982 diary reads like a “Who’s Who” of prominent Brazilians and Americans. Tony Gebauer was one of the friends listed there. But unlike some of his successors, apparently Roberto Campos didn’t do his private banking at Morgan -- the diary lists accounts at Geneva’s Pictet et Cie and Trade Development Bank, whose founder, Edmond Safra, also founded Republic Bank of New York and Safra Bank, and was an old Campos acquaintance.

So by 1967, Brazil was thus well on its way to becoming a marshal law state. With the support and guidance of the US government, a left-leaning, if democratically-elected, government had been vanquished, and a right-wing dictatorship put in its place. Especially after 1968, until the mid 1970s, the level of repression increased, and the number of political opponents who were murdered or “disappeared” reached into the low thousands. This was modest, compared with what went on in Argentina, Chile, and Paraguay, , but Brazil made up for the body count by sharing its early experiences with these countries. (See below.)

DICTATORSHIP OF THE IMAGINATION

While Brazil’s military deserved much of the credit for this new system, the US national security apparatus also played a key role. One of its crucial long-term influences was a variation on the “Mighty Wurlitzer” concept that it had pioneered with great success in France, Italy, Germany, and Japan in the 1940s and 1950s, and continues to use right up to the present in places like post-Soviet Eastern Europe, Southeast Asia, Lebanon, Pakistan, Iraq, and the Philippines.

This was to develop a nation-wide media network that could be used to shape public opinion. In 1964, an energetic, personable young Time-Life executive named Joe Wallach went to work with Roberto Marinho, a Brazilian businessman who at that point was running a newspaper and a local TV station in Rio. Wallach, didn’t speak any Portuguese at the time, but he had a background in TV production and accounting in California. Suddenly he became O Globo’s Executive Director. “Time-Life” also invested $4 million -$6 million in a joint venture with Globo, a great deal of money for that time, which helped Globo buy up concessions and steal a march on its competitors. “Time-Life” and its friends also encouraged multinationals to direct advertising to Globo, which soon came to run a kind of advertising cartel. Meanwhile, Globo also was careful to take a pro-government line in its reporting – cynics came to refer to it as “The Ministry of Information.”

All this, plus the special licenses for satellite broadcasting, radio, and local stations that it received again and again from the government, made Globo prosper. Over the next twenty-five years, under Wallach’s leadership, TV Globo became the world’s fourth largest TV network. The deal was rather simple – Globo provided favorable coverage to its political allies, and they helped it get the TV, satellite broadcasting, radio, and cable concessions that it needed to keep growing. In special cases, the politicians and their families also shared in the ownership of these “goodies,” as we’ll see below.

Over the next three decades, Globo became one of the most politically-influential media empires in the developing world – by 1990 it owned 78 stations in Brazil, with more than 50 million viewers in Brazil alone, ad revenue of $600 million a year, 8,000 employees, more than 30 subsidiaries in Italy, Portugal, Cuba, Japan, and other countries, and it was producing and exporting TV programming to 112 countries. Furthermore, even after Brazil returned to democracy in 1985, Globo continued to exert strong influence over political selection of many key political leaders, including several Presidents. All along, it was a consistent opponent of candidates that it perceived as threats to the system, often using blatant propaganda to influence elections, as in the hard-fought 1989 Presidential race between Lula and Fernando Collor.

Only in 2001-2002, long after Wallach had retired and Roberto Marinho had passed the empire on to his evidently less-able sons, would Globo’s disappointments in Internet and cable investments and crushing foreign debts finally bring it down to earth – not unlike the similar fate that befell its original partners at “Time-Life,” now part of the hapless AOL Time Warner conglomerate. The Marinho family’s estimated wealth on the Forbes’ annual billionaire survey peaked at $6.4 billion in 2000, with the Internet’s peak. By 2002 they were down to their last $1 billion, barely eligible for a mention on the Forbes list.

Even then, however, Globo still would try to use its political influence as currency. In the 2002 Presidential race, in a move that must have made its original partners turn circles in their graves, Globo for the first time threw its support to Lula, the left-wing candidate, who ended up finally winning on this fourth try for office. Evidently, having backed the “system” that, as we’ll soon see, ultimately made Brazil the world’s largest debtor, Globo was hoping for some government relief from its own crushing foreign debts.

BANKING ON THE STATE

In any case, in addition to military action and media support, the top-down development strategy adopted by Brazil’s military and its foreign allies in the 1960s also had a crucial economic component. At first glance – and indeed, at second – this strategy was a little hard to reconcile with free-market principles and democratic rule. But it cleared the way for bankers like Tony to earn huge fortunes. As Auden says, “When there was peace, he was for peace. When there was war, he went.” These bankers joined forces with a corrupt coalition of officials, industrialists, and agro-exporters to support a new debt-intensive strategy that was designed and implemented by a powerful new Minister also named Antonio, who became one of JPMorgan's Tony Gebauer’s closest friends of all.

Antonio Delfim Neto was an extremely fat academic-cum-bureaucrat from a middle-class Italian family in São Paulo. In the l950s, he wrote a brilliant Ph.D. dissertation on the coffee industry and taught macroeconomics at the University of São Paulo (U.S.P.). In the l960s he was a consultant to Ralph Rosenberg, whose Ultra Group was the largest private investor in Petrobras, as well as Antonio Carlos de Almeida Braga, the owner of Bradesco, Brazil's largest bank, and Pedro Conde, another bank owner. From 1963 to l967, Delfim, in his late thirties, advised São Paulo governors Carvalho Pinto and Lauro Natel, who was on leave from Bradesco. Then, from l967 to 1985, Delfim came to wield more influence over the economy than anyone before or since.

He was as quick-witted as Campos, but most of his success was due to a lack of ideology. As Delfim said in l969, “I am not going to sacrifice development only to pass into history as someone who defeated inflation at any cost.” He was the grand master of bureaucratic infighting, inserting his “Delfim boys,” mostly U.S.P.-trained economists, into key positions all over the government, where they operated a kind of Florentine patronage system, keeping a running tally of favors owed to important people. “I was in the office of (an important banker) when Delfim called. He needed $5 million right away,” one banker recalled. “The only argument was how to get it to him. We knew he'd make it up to us.” In a country where most ministers rotated quickly, this network of favors and influence earned Delfim unusual longetivity. He was Finance Minister in l969-74, Ambassador to France in l974-78, Minister of Agriculture in l979, Planning Minister in l979-85, and even after civilian rule returned in l985, an important behind-the-scenes leader in Congress, where he also enjoyed immunity from prosecution. Among those responsible for Brazil's massive debt burden in the 1980s, only Tony Gebauer enjoyed similar continuity.

In August 1969, General Costa e Silva died of a stroke, after learning that his wife had helped deliver Brasilia’s telephone exchange contract to Ericsson, a Swedish company that bribed its way all over Latin America. Vernon Walter’s friend, the even-more hawkish General Emilio Medici (1969-74), then took over, and some of Delfim’s critics seized the opportunity to accuse Delfim of corruption. But he was so popular with all his other “clients” that Delfim was soon reappointed. He promised Medici, echoing the grandiose Kubitschek in the 1950s, “Give me a year and I will give you a decade.”

General Medici

Meanwhile, from a national security standpoint, Medici was exactly what Brazil’s US allies were looking for – he visited Nixon, Henry Kissinger, and General Walters in December 1971. In the meeting just two weeks later with Secretary of State William Rogers, recorded in a transcript only just released by the National Archives in 2002, Nixon described Medici in glowing terms:

• Rogers: “Yeah, I think this Médici thing is a good idea. I had a very good time with him at lunch and he…”
• Nixon: “He’s quite a fellow, isn’t he?”
• Rogers: “He is. God, I’m glad he’s on our side.”
• Nixon: “Strong and, uh, you know…(laughs)…you know, I wish he were running the whole continent.”
• Rogers: “I do, too. We got to help Bolivia. He’s concerned about that. We got to be sure to…”
• Nixon: “Incidentally, the Uruguayan thing, apparently he helped a bit there…”

The “Uruguayan thing” was clarified in another transcript, recently released, of a Nixon conversation with Britain’s Prime Minister Edward Heath that same month. According to Nixon, “The Brazilians helped rig the Uruguayan election…Our position is supported by Brazil, which is after all the key to the future. ”(emphasis added.) He was referring to the November 28, 1971, elections, in which Uruguay’s Frente Amplio, a coalition of left-leaning political parties not unlike Allende’s Unidad Popular in Chile, had been defeated by the right-wing Colorado Party. The result was indeed unexpected, and evidently Medici had had a key role in it.

In March, 1972, the Colorado’s new right-wing President Bordaberry, gave Uruguay’s security forces a green light to go not only after the Tupamaros, Uruguay’s urban guerillas, but also against its labor unions, student associations, and political opponents. In June 1973 the military made Bordaberry a puppet, and in 1976 took complete power, following in Brazil’s footsteps. The result was a bloodbath that anticipated the thousands of political murders that later occurred in Chile, after Allende’s demise in September 1973, and in Argentina after its military seized power in 1976. By then, Uruguay, a country with just 3 million people that had once been known as “the Switzerland of Latin America,” had become its torture chamber, with more political prisoners per capita than any other country in the world. Like Brazil, once gone, civilian government did not return to Uruguay until 1985.

According to other newly-released documents, General Medici had also assisted with the right-wing in Bolivia in August 1971. More generally, it has recently become clear that Brazil’s military, with US support and coordination from the US, played a key role in training and guiding the repression that went on in Chile, Argentina, Paraguay, and Bolivia in the late 1960s and 1970s. As one scholar noted, “Brazil had a head-start on terror.” Even prominent journalists, like Waldimoro Herzog, who was murdered by the Brazilian regime in 1975, were not safe.

Indeed, one of the victims may even have been former President João “Jango” Goulart himself, who died in 1976 of a curious “heart attack” at the age of 58, at his ranch in Parana. Goulart’s family had long suspected that he’d been murdered by the military. In 2000, Brazil’s Congress finally got around to starting an official investigation of the death. Of course Brazilian Presidents have a history of unfortunate endings – Juscelino Kubitschek, Quadros’ predecessor, also died in 1976, in a car accident, and Tancredo Neves, the first civilian President after military rule ended in 1985, died after three months in office.

In any case, whether or not the “domino theory” really ever applied to Communist revolutions, clearly it worked quite well with respect to these Latin American right-wing regimes. And their US patrons discovered that with only a little nudge, one big domino – “the key to the future” – could wield extraordinary influence.

***

© James S. Henry, SubmergingMarkets™, 2004

1 The above is an excerpt from James S. Henry, The Blood Bankers. Tales from the Global Underground Economy. (New York: Four Walls, Eight Windows, December 2003, 417 pp.)

April 1, 2004 at 02:30 AM | Permalink | Comments (2) | TrackBack

Wednesday, March 10, 2004

The Theft of Mexico: How the 1988 Mexican Presidential Election Was Rigged

"De la Madrid Finallly Confirms: "Salinas Stole the 1988 Election!"
US Media: "How Did We Miss This STORY?"
WSJ: "NAFTA! - Another Triumph for Electronic Voting!""
Al Gore Comments:"Not Another Stolen Election!""

Printable PDF Version

De la Madrid

Carlos Salinas

The following story is not one that leading US investigative media like The New York Times and The Wall Street Journal should be proud of, because for reasons that are unclear, they basically dropped the ball on covering it back in the 1980s. But it certainly still deserves their attention now. As former Mexican President Miguel de la Madrid has now confirmed in his autobiography, published this week in Mexico City, former Michoacán State Governor and Mexico City Mayor Cuauhtemoc Cardenas would have won Mexico's 1988 Presidential election, if not for the systematic fraud committed by the PRI, de la Madrid's party.

The following article examines this 1988 Mexican electoral fraud, one of the first "computer-assisted" electoral frauds that we know of, in detail. It considers how the fraud was perpetrated, the interests that it served, the corporate and government collaborators who knew about it at the time but kept still, and its far-reaching consequences for Mexico and the rest of Latin America.

Of course Mexico's electoral rigging was not unique. While this case had unusually far-reaching results, similar frauds have occurred in many other developing countries, as well as some "developed" ones. As the technology for organizing and conducting elections becomes more and more digital, some have hoped that we'd able to build in automatic checks and balances that would make traditional "paper ballot-stuffing" more difficult, if not impossible. As we've recently seen in the initial US experiments with electronic voting, however, and as this Mexican case also demonstrates, even sophisticated computer technology is not sufficient to avoid determined fraudsters -- especially high-level ones -- when the stakes are this high.

From the standpoint of First World foreign policy, this is yet another example of the fundamental ambivalence that First World powers like the US, France, and the UK continue to display toward popular movements and democratic choice in developing countries.

Where popular choice favors policies and interests that the First World supports -- as in Iran, Syria, Belarus, North Korea, and perhaps Iraq today -- the First World is all in favor of "democracy." Where popular choice favors policies and interests that it opposes, however -- as in this 1988 Mexican case, Chile in 1973, Venezuela in 2002, South Africa until the fall of apartheid, Nicaragua in 1984, China in 1989 and since, Indonesia until the fall of Suharto, the Philippines under Ferdinand Marcos, Mobutu's Congo, the West Bank/Gaza, Morocco, Haiti in 1991 and perhaps today, and Pakistan -- the First World has little compunction about supporting authoritarian regimes.

We might have hoped that this schizophrenia about authoritarianism was just a Cold War relic, which would have faded along with it. But it continues to this day, and seems to express a much more fundamental, unresolved tension between the First World's desire for "stable conditions and free markets" in these countries, and its desire to see them develop representative political systems.

THE "DEDAZO"

President Miguel De la Madrid’s anointed successor in 1988 was Carlos Salinas de Gortari, a fortyish Harvard technocrat. Like his mentor, Salinas was a member of the PRI’s quasi-hereditary revolutionary family. His grandfather was a prominent Monterrey businessman, and his father, Raul Salinas Lozano, also a Harvard graduate, had been a minister of commerce in the l960s. Salinas was not only wellborn, but also precocious: At age four, he had picked up a pistol and shot his maid dead. He finished his Harvard Ph.D. in political science in l978 (his dissertation was on the “impact of government spending on elections”), and by l982, he was already minister of planning—the youngest Cabinet member ever at thirty-five.

Like de la Madrid and many other U.S.-educated elite/technocrats in the PRI’s “reform” wing, Salinas believed that Mexico’s main problem was its own bloated government. He favored downsizing the state, deregulating the economy, and actually increasing the role of foreign banks and investors. Despite a complete dearth of new loans, he and de la Madrid continued to pay all of Mexico’s foreign interest bills on time, repeatedly restructured the debt, and experimented with almost every idea on the bankers’ wish list, including debt swaps, securitization, debt conversions, and privatization. Mexico’s debt emissaries spent a fortune on innumerable junkets to Paris, London, Washington, D.C., and New York. Meanwhile, the country staunchly refused to be drawn into a debtors’ coalition with Brazil, Argentina, and Peru.

By the end of de la Madrid’s term in l988, there was precious little to show for his deference to foreign bankers. The debt cost more to service than Mexico earned from oil exports—tantamount to Pemex being handed over lock, stock, and barrel to the banks. From 1982 to l988, Mexico paid over $40 billion in interest and got back only $14 billion in new loans, half of them from the IMF and the World Bank.The country transferred more than a third of its savings abroad each year. In fact, taking flight capital into account, Mexico was a net lender to the outside world—more than $50 billion throughout the l980s. By 1985, the market value of its flight assets already exceeded the value of its entire foreign debt. And most of these flight capital outflows were actually captured by its major “creditors.” One Citibank private banker—operating surreptitiously out of the fourteenth floor of Citi’s office tower in Mexico City—bragged,“We could easily repay our loans to Mexico with the flight capital that we’ve collected here—you know, there really are quite a few fabulously rich Mexicans!”

Given the banks’ unwillingness to provide Mexico’s government with any more loans, the skepticism that foreign investors had toward the country, and the government’s reluctance to get tougher with foreign banks and its own domestic elites, Mexico had little choice but to rely on its own resources to finance investment. Since Salinas and de la Madrid wanted to shrink public spending and budget deficits and were unwilling to tax the elite, they raised interest rates to stimulate private savings. That reduced growth and unemployment, which was anathema to workers, campesinos, and “protected” business sectors. But the de la Madrid-Salinas program was supported enthusiastically by Mexico’s top families, bankers, the bureaucratic elite, union bosses, oil workers, police chiefs, and Army officers. Given the one-party system, these were the only constituencies that really counted. The economic program turned out to be very unpopular, and Salinas’s detractors in the PRI worried that it might be a mistake to bet on an uncharismatic technocrat in a period of rising political ferment. But this argument carried little weight with de la Madrid, who’d once been an uncharismatic planning minister himself. So in September 1987, Salinas was nominated the PRI’s candidate for president.

Almost immediately, the regime’s policies began to misfire. The global stock crash that took place in October 1987 actually started in Mexico City when the Central Bank suddenly lifted restrictions on investments in debt instruments, causing the Mexican stock market to lose three-fourths of its value in one week. Capital flight resumed, the government missed its budget targets, the peso sank like a stone, and by year’s end, inflation was at fifteen percent a month and rising. De la Madrid was forced to implement yet another round of “belt tightening,” squeezing credit and freezing wages and prices. Since 1981, Mexico had experienced seven years of negative growth. Real incomes for everyone but the elite had fallen by a quarter, and there were incipient signs of social unrest all over the country.The country stagnated under the weight of its foreign debt, which totaled $101 billion by l988.

THE 1988 “ELECTION”

Cuauhtemoc Cardenas

The July l988 presidential elections were the greatest challenge to the PRI’s hegemony in its history—at least until Vicente Fox won in 2000. In the party’s first deep split since 1929, Cuauhtemoc Cardenas, the PRI’s governor of Michoacan State and the son of President Lazaro Cardenas, who nationalized the oil industry in the l930s, joined forces with disenchanted leftists and nationalists to form the “National Democratic Front.” The Front’s radical rhetoric gave voice to widespread discontent. It also claimed to support democracy, but had a few strange bedfellows of its own, including Luis Echeverria Alvarez—Mexico’s president in the 1970s and one of Mexico’s wealth- iest men—and Hernandez Galicia, head of the powerful PEMEX oil workers' union. But at least it supported a popular job creation program, which it intended to pay for with a repudiation, or radical restructuring, of Mexico’s foreign debt.

Just a few weeks before the 1988 election, Cuauhtemoc Cardenas had been doing very well in the polls. Salinas, on the other hand, would have nothing to do with such irresponsible policies. The consummate planning bureaucrat-turned-free marketeer, he saw himself as continuing the tradition of authoritarian top-down reforms begun by Porfirio Diaz—the tough nineteenth- century dictator who ruled Mexico for thirty-five years with the support of the landowning elite—foreign bankers and investors, and his own well-heeled entourage.

Evidently, many Mexicans did not share Salinas’s enthusiasm for Porfirio Diaz or for the neoliberal agenda.To them, he was still just another in a long series of little-known, remote members of the Priista (pertaining to the PRI party), priestlike technocracy who came down from the temple every six years and went through the motions of seeking their mandate. Despite massive advertising on his behalf by the PRI’s machine (with help from Hill and Knowlton, the renowned PR firm whose clients had also included Duvalier and BCCI), as of election eve, non-government polls found that he and Cardenas were still running neck and neck. Of course many voters viewed all Mexican elections with skepticism, because of the PRI’s long history of election fraud. But Salinas and his predecessor, Miguel de la Madrid, had sworn this time it would be different.

Manuel Bartlett

On July 6, 1988, when the polls closed and the government started tallying the count at its central computing office in Mexico City, the country eagerly awaited the results. There was much disappointment when Manual Bartlett, the PRI’s interior minister in charge of administering the vote, announced the next morning that the Federal Election Commission’s computer system, supplied by UNISYS, had crashed and that the results would be delayed. When they finally emerged a week later, Salinas was declared the victor by a wide margin. Officially, the PRI received fifty-two percent of the vote, compared with the PRD’s thirty-one percent, and the business party PAN’s seventeen percent. Opposition leaders have claimed that the computer crash was contrived to buy time for rigging the vote once it became clear that Cardenas was winning. Despite widespread rumors, these claims were not easily confirmed. Many of those on the inside were too scared to talk, and, as noted above, Salinas’s foreign supporters, including leading newspapers like The Wall Street Journal (whose parent company, Dow Jones, added Salinas to its corporate board, and The New York Times did not investigate too deeply. Evidently a compliant, Harvard-educated, technically-competent neoliberal was expected to serve the mutual interests of Mexico and its trading partners better than Cardenas.

In June 1994, before Mexico’s August 1994 Presidential election, Computing, a UK magazine that focuses on technology, became interested in the computer failure aspect of the 1988 elections. It tracked down several data entry operators who had worked on the election and obtained the following eyewitness account of what had actually happened:

We arrived at work on the morning of July 6, election day, at the central computer and statistic official.When we got there we discovered that the rooms were empty and our computers weren’t there. We were ordered into a minibus and taken to the Government House (in Mexico City), to a room with blacked-out windows. Our computers had been set up there, complete with the voter database.We started to enter the data. As the supervisors saw that Salinas was losing, they ordered us to leave aside votes for the PRI and only enter opposition votes. Then, at about 3 A.M. on July 7, the supervisor called a halt, and with tears in his eyes, he told us: ”If you care for your families, your jobs, and your lives, enter all votes from now on in favor of the PRI. I went back to work and did as I was told. I wanted to cry, but I had to do it. They kept us there until five or six in the evening the following day. When I’d finished my work, I called up the voting record for my uncle, and to my astonishment the computer record showed that he, an opposition supporter, had voted for Salinas.That was when I realized why we had been told only to enter opposition votes in the beginning. While we were away from the computers, they had reversed all the data from the first session of data capture so all those votes showed up as Salinas votes.

To the consternation of the Salinas government, these details were confirmed in July 1994 by a former director of Mexico’s Federal Electoral Institute. But when Computing tried to verify them with UNISYS, the U.S.multinational that had supplied the computers used in the election, it responded that the 1988 “fault reports” for its Mexico subsidiary had been destroyed and that Unisys had “not been involved in the electoral process.”

In December 1994, Adolfo Onofre, the courageous computer consultant who had cooperated with the investigation of the Unisys computer “failure,” was arrested and badly beaten by Mexico’s Federal Police when he returned to Mexico City from Britain, where he had sought political asylum.

THE CONSEQUENCES

In the first instance, the 1988 electoral fraud made de la Madrid's successor, Carlos Salinas de Gortari, the President of Mexico, and also made him a very wealthy man. It also supplied him with many honors, including a Wall Street Journal board seat (from the early 1990s until April 1997), a near-nomination by President Bill Clinton in 1995 to head the World Trade Organization, and numerous speaking engagements at leading US universities like Stanford and Harvard, his alma mater.

More important, as discussed in more detail in our new book The Blood Bankers, it also cleared the way for Mexico's neoliberal "reforms" of the early 1990s, which set the pace for the entire rest of Latin America. These measures included the North American Free Trade Agreement (NAFTA); the privatization of Telmex, Mexico's state-owned telephone monopoly, Mexico's entire banking sector, and many other state-owned companies; and the rapid opening and deregulation of Mexico's capital markets that ultimately led to the catastrophic 1995 "Tequila" debt crisis.

At the time, these measures delighted Mexico's elite, foreign banks, and leading multinationals, as well as multilateral financial institutions. Even before his “election,” Salinas was already the favorite son not only of Mexico’s oligarchs and party bosses, but also of leading multinational investors like GE, Allied Signal, Alcoa, and GM, commercial banks like Citibank and JP Morgan, investment banks like Goldman Sachs and Morgan Stanley, and, unofficially, the US Government and its financial acolytes, the IMF and the World Bank. In two years before the l988 elections, these two government institutions alone provided Mexico with $4 billion of new credits, while private banks had helped out by by rescheduling $43 billion of Mexico’s outstanding debt -- huge amounts at the time. Before and after the election, a parade of First World leaders, including George H.W. Bush (who was good friends with Salinas’ father, Raul Sr.), Paul Volcker, Citibank Chairman John Reed, newly-elected World Bank President Lewis B. Preston (formerly of JP Morgan), IMF Director Michel Camdessus, and many lesser officials and bankers descended on Mexico to encourage its new-found passion for free markets. They praised the quality of the PRI’s Ivy-League-trained economists and touted Mexico as a model of stability and growth -- much as they had done with Ferdinand Marcos in the Philippines two decades earlier.

Then, at about 3 A.M. on July 7, the supervisor called a halt, and with tears in his eyes, he told us: ”If you care for your families, your jobs, and your lives, enter all votes from now on in favor of the PRI. I went back to work and did as I was told. I wanted to cry, but I had to do it. Computer worker, 1988 Mexican elections

After the 1988 election, foreign investors also stepped forward to ratify Salinas’ agenda. From 1988 to l994, Mexico became the darling of the international investment community, attracting more foreign investment than any other developing country except China. It accounted for nearly half of the $175 billion of new foreign direct and portfolio investment that poured into Latin America in this period. In the wake of the debt crisis, “foreign” investors -- including members of the domestic elite who secretly repatriated flight capital to avoid taxes and conceal their investments -- replaced foreign bankers as the leading suppliers of finance to Mexico and other “emerging markets, ” providing more than three-fourths of Mexico’s entire capital budget.

Much of this capital was attracted by Salinas’ privatization program, one of the most aggressive in Latin America. This involved selling off public assets in key sectors like telecommunications, steel, airlines, and banking, including the re-privatization of all the banks that President Lopez Portillo had nationalized in the early 1980s, and using the proceeds to finance the budget. By l994 this firesale had raised $24 billion, more revenue than in any other Latin American country.

As discussed in our book, in late 1994-95, this balloon was punctured -- Mexico experienced a sharp currency devaluation and a foreign debt crisis, with rising unemployment, declining real wages, and growing inequality. By the year 2000, relative to US per capita income levels, Mexico had fallen below where it stood when Salinas took power in 1988. (World Bank data - 2004).

Neoliberal economists have tended to compartmentalize the analysis of these "reforms," and also consider them apart from their political and social effects, including increased corruption and greater regional tensions within Mexico. Even the World Bank now concedes that NAFTA was "not a substitute for a development strategy," that real wages declined, overall unemployment rose, and poverty and inequality remained huge during the 1990s, and that NAFTA's maximum benefit to Mexico was "a rather small one" of +4-5% of GDP over 10 years -- a rounding error, compared with the -6% impact of the Tequila Crisis in 1995-96 alone. Other analysts, such as Carnegie, are even less enthusiastic.
"El Tigre"

Salinas' fraudulent election also helped to facilitate the growth of narco-trafficking and high-level political corruption. The connections included Carlos Salinas' own brother Raul, who is now serving 27.5 years for murder. All told, the concentration of wealth and power produced during Salinas' term from 1989 to 1994 amounted to one of the most regressive wealth transfers in Mexico's history. As Don Emilio Azcarraga ("El Tigre"), one of Salinas' wealthiest supporters, told an audience of the PRI's wealthiest backers at a 1994 fundraiser for Ernesto Zedillo, Salinas' own hand-picked successor,

I, and all of you, have earned so much money over the past six years that I think we have a big debt of gratitude to this government. I'm ready to more than double what has been pledged so far, and I hope that most in this room will join me. We owe it to the president, and to the country.

The Mexican magnates responded to this challenge -- that night the PRI reportedly collected $25 million from each of them for a grand total of $750 million. That established a world record for a single evening’s fund-raising. (President Bush, restrain your envy!) Zedillo, a Ph.D. economist who has subsequently returned to Yale as a professor of international economics and Director of the new “Yale Center for the Study of Globalization,” must have been grateful for this incredible act of selfless generosity.

Padre Zedillo

In 1988, with the complicity of powerful interests at home and abroad, as well as many cheerleaders for the neoliberal orthodoxy in the US Government, multilateral financial institutions, and the Establishment Press alike, the Mexican people simply got robbed.

CONCLUSION

As we approach the US' own 2004 Presidential elections, with all the debate about "electronic voting," it is also interesting to note that computer fraud played a central role in Mexico's 1988 rigged election. UNISYS, the leading US company that supervised that election, has long refused to comment on what happened. But as we'll see below, its Mexico City employees apparently knew all about what was going on.

All told, the consequences of Mexico's 1988 stolen election have been very far-reaching indeed. Some will argue that the gains may have been "worth it" -- that, like Russia's neoliberal reforms in the 1990s, Mexico's ultimately left the country better off, even though they were very imperfect; furthermore, that Cardenas proved to be a disappointment in Mexico City, and if Salinas is to be believed, perhaps even a bit fallible himself.

But all this is really beside the basic point -- ordinary Mexicans were supposed to be allowed to make such judgments for themselves. In 1988, with the complicity of powerful interests at home and abroad, as well as many cheerleaders for the neoliberal orthodoxy in the US Government, multilateral financial institutions, and the Establishment Press alike, the Mexican people simply got robbed again. But perhaps that was such an old story that the US media did not consider it newsworthy.

***
(c) James S. Henry, Submerging Markets, 2004. All rights reserved. Not for quotation or other use without express consent.

March 10, 2004 at 03:05 AM | Permalink | Comments (1) | TrackBack

Saturday, March 06, 2004

Regime Change Comes to Haiti - Part II: French Hospitality

"Where's Jean-Bertrand? I Hear He's Locked Himself in his CAR!!!"
"France Exchanges Baby Doc for Titid!"
"Aristide Takes Lessons From Bongo, Bokassa, and Bozize in Bangui!"

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Pres. for Life Bongo

Pres. for Life Bozize

Prresident Aristide, ousted from power just a week ago on February 29, has been desperately seeking asylum from his friend Thabo Mbeki, South Africa's President, who probably wishes the whole issue would just go away, but will no doubt grant it -- at least after the upcoming national RSA elections, on April 14. Several other countries in the Caribbean, like Panama and Costa Rica, were also willing to offer asylum. That seems only fair. After all, in the mid-1990s, Panama provided refuge to former Haitian general Raoul Cedras, the instigator of the first coup against Aristide, with his ocean-front apartment paid for by the US Government. In Aristide's case, US asylum was never offered; after all, he had never served in the FRAPH.

Apparently, however, someone decided that it would be more convenient to park Aristide in West Africa, 6200 miles away, rather than in Panama, a country that has regularly scheduled airline flights and is just 800 miles from Port-au-Prince.

Pending South African asylum, then, Aristide was compelled to accept temporary quasi-house arrest in the Central African Republic ("CAR"), a pathetic little submerging market that is even poorer than Haiti. This first-class hospitality was arranged for him by Dominique de Villepin, France's Ministry of Foreign Affairs, and France's favorite West African dictator, Gabon’s Omar Bongo.

As we'll see here, France has a long history of making such "special arrangements" for friends and foes alike -- including, in Haiti's case, a safe haven for "Baby Doc" Duvalier, who ran Haiti from 1971 to 1986, and a nasty, ultimately fatal imprisonment for Toussaint L'Ouverture, Haitii's George Washington, at the hands of a disgruntled Napoleon, who evidently never quite forgave the Haitian for beating his vaunted Army several times over. As Aristide contemplates Bangui's lakes and gardens, at least he can be grateful that he is not freezing to death in a prison cell in the Jura Mountains.

FRENCH HOSPITALITY

One of those who reportedly helped with Aristide's hastily arranged accomodations in the CAR, Omar Bongo, 67, is Africa's second longest serving "President for Life," and one of France's oldest and closest allies in Francophone Africa. He has ruled his impoverished-though-oil-rich country with an iron hand since 1967, with the help of Moroccan body guards and French security experts. As described in SubmergingMarkets™’ recent article on the Elf scandal, in the process, he developed an incestuous, mutually-lucrative relationship with top officials at Elf-Aquitaine, (formerly France’s leading oil company and now part of Total SA), as well as with leading French politicians like Jacque “The Crook.” He also developed private banking relationshpis with leading French and US banks -- including Citibank-NY, where he has reportedly secreted more than $180 million. No sentimental democrat or populist, Bongo has also arranged his country's political system so that he can remain in power until at least 2012 -- assuming that he lives that long, and that the fickle French don't turn on him.

In Aristides' case, according to one report, Bongo was able to prevail on his good friend Francois Bozize, CAR’s former Army Chief and current dictator, to open the door at least temporarily. According to another report, French Foreign Minister Dominique de Villepin called Bozize directly, with just 20 minutes notice, when the plane was already close to landing in CAR, to tell him that Aristide was about to arrive! France and Bongo had helped Bozize seize power from CAR's previous (elected) leader, Ange-Félix Patassé, in a March 2003 coup. That was CAR’s ninth coup since it became “independent” of France in 1960. Bozize remains utterly dependent on French aid, and is undoubtedly very concerned about his own stability, so the CAR is probably one of the few countries in the world where the arrangements for such a "hot guest" could be made so quickly. He and Aristide may have much to talk about. Minding their masters' voice, however, Aristide’s new hosts in CAR have already cautioned Aristide to curb his criticisms of the US and France.

Between his own stints in power, the CAR’s General Bozize was permitted to take up refuge in France-proper. So was Zaire’s Mobutu Sese Seko. So, too, from 1983 to 1986, in Haudricourt, northwest of Paris, was Jean-Bedel Bokassa, CAR's "Emperor" from 1965 to 1979, who also seized power in a French-backed coup. Bokassa, a French Army veteran and the recipient of the Legion d'Honneur and the Croix de Guerre, was famous not only for his 17 wives, for crowning himself Emperor, and for presenting former French President Giscard d'Estaing frequent gifts of diamonds and hunting trips, but also for slaughtering at least 100 school children who had refused to wear the school uniforms that one of his companies had made for them. He then dined on their flesh. (He was later tried for cannibalism.) This proved too much even for France, which in a rare display of progressive interventionism, removed him from power in September 1979.

While in the CAR’s capital, Bangui, Aristide might ask to visit the prison where the slaughter of these children took place in May 1979, as well as Bokassa's huge refrigerator.

Emperor Bokassa

France also welcomed former Haitian dictator Jean-Claude “Baby” Duvalier with open arms after his 1986 ouster. He and his father had ruled disastrously from 1957 on, helping themselves to a great deal of the country's wealth. So they clearly met France's rigorous admissions standards.

The warm welcome was also facilitated by the expensive villa Baby Doc purchased at Grasse, in the south of France, and the several hundred millions dollars that he diverted to leading French and Swiss banks. After Aristide’s sudden exit, Duvalier, 53, lost no time in voicing interest in returning to Haiti. This led some to suspect that he may have helped to finance the “Haitian contras.” But "Baby Doc" has also gone through an expensive divorce, and may be in poor health, so we will just have to see.

In any case, France has certainly made quite a distinctive contribution to Third World development over the years, by helping to make the world safe for dictators like the Bozizes, Bongos, Bokassas, Mobutus, and Duvaliers -- giving them refuge in continental France until they are ready to return home and, at least in several cases, establish new Life Presidencies. Aristide and his family may never qualify for the kind of hospitality that France reserves for dictators, however. If one is a relatively poor, democratically-elected, populist leader, with no bank accounts and no chateau, but with powerful enemies, one is not welcome in France. After all, what would be the profit in it?......

In Haiti’s case there is also another great French tradtion. This was established by Napoleon's memorable betrayal, seizure, imprisonment, and ultimate murder-by-neglect of Haiti’s national liberator Toussaint L’Ouverture in 1803, in violation of a promise of safe conduct. When questioned about this years later, when Napoleon himself had been imprisoned on St. Helena, he remarked, "What could the death of one wretched Negro mean to me?"

Even now, there is a faint whiff of similar French disdain toward Aristide, as expressed by Foreign Minister de Villepin's haughty criticisms last week. Few Haitians were even aware that France was still so interested in their affairs. We noted the opportunity that this situation affords to Paris for an inexpensive rapprochement with the US. In addition, however, one senses that to this day, there is a special French animus reserved for rebellious Haitian blacks -- the kind who dare to contort the French language beyond recognition, demand reparations for injustices that "Old Europe" can no longer can even remember, and once or twice even soundly trounced its greatest general's army!

Of course, we cannot forget that Colin Powell, Condoleeza Rice, and "Grand Master of the Order of the Sun" Roger Noriega, a Cuban-American, were also involved in these decisions. So there could not possibly be any question of racial prejudice here, at least on the part of the Americans....except perhaps for the mutual contempt that "house Negroes" and "field Negroes" often have for each other.

CONCLUSION

Aristide now claims that the US, which leased the 757 jet that took him to Africa, never informed him that he would be dropped off in the CAR. There are also reports that on his arrival in the CAR, he was accompanied by a detachment of 60 US Marines. This seems a little excessive for a "voluntary departure." Aristide also claims – like Hugo Chavez did after the attempted April 2002 coup in Venezuela -- that he never resigned voluntarily, but was pressured to flee – or even effectively “kidnapped” -- by US officials.

ProConsul Powell

The US Government and Colin Powell were evidently quite embarrassed by these charges, and annoyed that Aristide's wardens in the CAR did not make it more difficult for him to procure an international phone line. They have dismissed these accusations as “complete nonsense,” and blamed Aristide for the entire crisis.

But Colin and the USG are having more than a few credibility problems these days. What do we expect them to say? Even an outside observer with no particular brief for Aristide may be forgiven for having a few doubts. CARICOM has called for an independent international inquiry to establish just what happened -- but don't hold your breath. However, it may not really matter. Even on the face of it, as we've seen, the US' unwlllingness to defend Aristide was more than pressure enough.

Did the US really have an obligation to save Aristide from the wolves around him? After all, Haiti is not the 51st US state, and many Americans no doubt believe that he got what he deserved, after years of antagonizing his opponents. From this angle, he should be grateful for the rescue and the free ride to to the CAR.

However, this perspective is far too narrow. It is not as if the US has been a neutral bystander with respect to Haiti's development. The US embargoed the country from 1804 to 1862, at first to placate France, and then Southern slave owners, who feared the successful example of an independent nation of blacks. The US intervened repeatedly in Haiti's affairs, including the continuous occupation from 1915 to 1934, when, among other things, Citibank actually exercised complete and very profitable control over Haiti's money supply, national bank and customs house. The US established and trained the Haitian Army, which subsequently caused the country so much grief. We tolerated and supported the Duvaliers during their 29 years in power, as well as the military juntas that held power after they left. As noted above, The CIA was deeply involved with the people who organized the 1991 coup and created the FRAPH.

Only at the end of all this, partly just to contain Haitian immigration but partly out of a justifiable sense of responsibility, did we intervene in 1994 and restore the duly-elected Aristide to the Presidency. Taking this one step toward democratization, however, was not enough to insure democracy's success. And just because we don't like the particular choices that Haitians have made for their leaders, does not justify our walking away from the duty -- in this specific situation -- to see those choices through.

Instead, it now appears that the Bush Administration has decided to put this annoying populist Aristide behind us once and for all. At the same time, it probably also hopes that a quick US intervention, followed up quickly by UN surrogates, will avoid yet another messy immigration crisis in the middle of a US election year. Many Bush I Adminstration veterans no doubt still have nightmares about those troubling days in 1991-92, when Pappy just wanted to win Florida and 40,000 determined Haitian boat people started showing up on Miami's beaches, fleeing the nasty Cedras dictatorship.

The new approach does present an opportunity for self-important-but-increasingly-insecure countries like France, Canada, and Chile, which just volunteered more tha 120 troops, to come skulking back to the “coalition of the willing." I also permit recipients of USAID, IDB and World Bank funding – a high fraction of which actually gets spent in the First World, or on locals who have above-average incomes – to tap these sources again. There will also be many other benefits to the business elites, security forces, local politicians on the "right," "free trade zone" sweat shop employers, and perhaps even M-16 salesmen.

Indeed, the only beneficiaries who may be left out of this picture are ordinary Haitians – the seventy percent that still survives on less than $1 per day, and constitutes the core of Aristide’s supporters. Many of them have suffered directly from all the upheavals, and Aristide as well as his high-minded opponents share responsibility for their inability to settle their differences peaceably.

But it is also clear is that these millions of ordinary Haitians have just been disenfranchised again. However imperfect Aristide was, however discomforting to First World interests, he was their voice, a voice they've now lot. This is a form of political decapitalization that no amount of "economic assistance" can compensate for.

Did I remember to say that, for all its woes, Haiti is a remarkable place, with millions of people eking out a living on the very borders of existence, but also quite often managing to have a good time, creating the most wonderful art, music, humor, and community spirit? Unfortunately, for all its "independence," Haiti's fate has always been heavily influenced by outside forces.

Haitians of all political persuasians now eagerly await the next installment of neoimperialism's grand design for their tiny, impoverished, heart-breaking, "independent" republic.

***

© James S. Henry, Submerging Markets™2004. Not for quotation or attribution without express consent.

March 6, 2004 at 05:16 PM | Permalink | Comments (0) | TrackBack

Thursday, March 04, 2004

Regime Change Comes to Haiti - Part I: --- Criminal Contras and The Offers That You Can't Refuse

"130 Dead and Counting - Was It Worth It? "200 Years of Liberty! -- 33 Coups, 5 US Military Interventions, and the Worst Poverty in the Americas!""

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Dye mon, gen mon. (Over the mountains, more mountains) Byen mal ne pas la mo. Very bad isn’t dead (“Things can get worse.”) --Haitian Proverbs A man who stands for nothing will fall for anything. -- Malcolm X

On January 1, 2004, Haitian President Jean-Bertrand Aristide welcomed South Africa’s Thabo Mbeki to Port-au-Prince, the only significant world leader who joined him to celebrate Haiti’s two hundred years of “independence” from France (as one of its formerly most lucrative colonies), and Haiti’s status as the world’s oldest surviving black republic – complete with 32 coup d’etats, 5 US military interventions, 10-15 percent of US-inbound cocaine traffic, and the lowest per capita income level, the most poverty, and the highest rate of HIV/AIDs infection in the Western Hemisphere. Thabo experienced the side-effects of such conditions first-hand; during a visit to the northern city of Gonaives, one of his helicopters was reportedly fired upon, and, even though he wasn't in it at the time, his security guards evacuated the area and cancelled further trips to that region. Just three months later, it was Aristide and his family that had to be evacuated. Escorted by US Marines and an indeterminate number of French troops, they were unceremoniously spirited out of Port-au-Prince in the wee hours of a Sunday morning, effectively deposed for the second time in thirteen years. Aristede now has the dubious distinction of having been removed from power under, and perhaps by, two different Bush Administrations – the first time in September 1991, by way of a Haitian military coup that is widely believed to have been CIA-supported, and this time, on February 29, 2004, by way of a “resign or die” safe conduct offer that was abetted by two prodigal US allies, France and Canada. Of course Aristide has many shortcomings, including his divisive leadership style, his dubious former associates, his appetite for bizarre proposals like the “French colonial reparations” scheme, his tolerance of armed thugs in the Lavalas Family party, and the “fundamentally flawed” May 2000 elections (according to the OAS and Human Rights Watch) that gave Lavalas temporary control of Haiti’s parliament, but also contributed significantly to the current crisis. Most important, over time, it has become less and less clear even to his followers what he actually stands for, beyond populist rhetoric. Regardless of what we may think of Aristide and his followers, however, the recent behavior of the US, France, Canada, and indeed, the UN, with respect to Haiti has been inexcusable, from the standpoint of strengthening Haitian democracy. As discussed below, rather than intervene quickly in early February with a limited show of force that would have easily deterred further violence, the US and its allies temporized. Ultimately this gave the Haitian “opposition,” whose own track record of support for democracy is very mixed, the power to dictate Aristide's resignation letter. That is a power that the opposition, even now, would almost certainly not command at the ballot box. The US and France also conditioned safe passage on Aristide's signing this letter, and then dumped him in central Africa, 6200 miles from home, in a destination he only learned of 20 minutes before landing. All told, as Jamaica Prime Minister P.J. Patterson, chairman of CARICOM (the Caribbean Community), said this week, all this has created a very “dangerous precedent” for all the other fledgling democracies. In Haiti's case, the next time around, we should expect Aristide's still-numerous followers to bring a few more heavy weapons of their own to the party. As if we needed one, this episode also provide yet another example of American (and French) neo-imperialism, as well as "first-the-US, then-the-UN" diplomacy."

ARISTIDE'S LEGITIMACY Aristide is not the only elected leader who is divisive, has an imperfect electoral past, or has a few corrupt friends and associates in his closet. There may even be a few in George W. Bush's America, Jacque ("the Crook") Chirac's France, and Paul Martin's Canada. But let’s be clear – for all his flaws, Aristide is undeniablythe most “democratically elected” President in modern Haitian history. For this reason alone, his non-democratic denouement should concern us.

• The first time that Aristide was elected in December 1990, he won the country’s first free Presidential elections in history with 67.5 percent of the vote. The runner-up, who was supported by the US, was former World Bank Vice President and Duvalier finance minister Marc Bazin. He got 14.2 percent. Aristide only served 7 months of his first five-year term before the 1991 coup. When he was finally restored to power by the Clinton Administration in September 1994, not only were all the brutes in the Haitian military given amnesty, but he was only permitted to serve another 16 months before being sidelined for five more years.
• The second time, in November 2000, Aristide was elected President with an even greater majority. True, turnout in that Presidential election was just 15-20 percent. Facing certain defeat, without a compelling candidate of its own, Haiti’s opposition cynically boycotted the contest entirely, citing irregularities in the May 2000 parliamentary election.
• There were many irregularities in that parliamentary election, and, in retrospect, Aristide should have made amends sooner. But no one believes that would have changed the outcome of the Presidential election. There are also grave doubts that the US, the World Bank, and the IDB should have held up more than $500 million of aid to Haiti's people, because of these irregularities. But Aristide's long-standing foes in Washington and the EU leaped at these electoral infractions as an excuse for cutting off most foreign aid. (For the interested reader, the election irregularities are discussed here, here, and here.) Curiously, the OAS standards for that election were evidently altered after the May 2000 race was run. Suffice it to say that by OAS standards, Florida’s balloting in 2000 -- which did determine a Presidential election -- was even more “fundamentally flawed.”

BARGAINING IN GOOD FAITH – OR JUST BUYING TIME? The other key fact to understand is that Aristide had agreed by late January 2004 to accept the “"Kingston Accord" proposed by the 15 CARICOM countries, which called for power-sharing and new elections. This would have allowed him to serve just two more years in office, and could have produced new elections, perhaps even sooner than they will occur now.

The Other Noriega

Unfortunately, Haiti’s “peaceful” opposition was, in the words of one foreign policy analyst, “ out for the kill.” The Bush Administration, which is top-heavy with long-time Aristide detractors like Assistant Secretary of State Roger Noriega (a former Senate staffer to Senator Jesse Helms, and one of the people who popularized the bogus CIA "psychotic" analysis of Aristide in 1994), permitted the Haitian opposition to stone-wall these CARICOM proposals to death. The opposition knew full well that the armed rebels were on their way, and it received strong signals from its friends in Washington that it had nothing to fear from refusal.

Commander Guy Philippe

The US, France, and Canada, as well as the UN, had plenty of advance warning about the few hundred well-armed anti-Aristide “Haitian contras” who started moving in from the Dominican Republic as early as March 2003. They were presided over by such notorious ex-Haitian Army convicted criminals and drug traffickers as Louis Jodel Chamblain, Jean Tatoune, and Guy Philippe. Even though they were few in number, they were surprisingly well-organized, financed, and equipped, dressed in new combat suits and brandishing new M-16s and M-60s. Meanwhile, the poorly-trained, ill-led, and under-equipped Haitian Police had for the most part skeedattled, leaving Aristide with only the “chimere,” his street militias, and a small group of bodyguards hired from the Steele Foundation, a San Francisco security firm. Unless the US or the UN were willing to defend Aristide against these “Haitian contras,” therefore, they must have realized that they were effectively giving the opposition the power to mandate Aristide's ouster. As we’ve seen, it has been relatively easy for the 1000 or so US troops that have landed to disarm the contras. The question is why this could not have been done before? The US claims that it didn’t want its troops to be seen supporting Aristide. But this begs the question – couldn't their role have been positioned as supporting power-sharing and a constitutional transition? Yet The US, France, and Canada failed to support the February 23rd Caribbean Community (CARICOM) proposal for an immediate UN peacekeeping force that would have disarmed all sides. The US also blocked Aristide’s last-minute attempts to import new bodyguards from the Steel Foundation. On the other hand, once Aristide had left, the UN moved with astonishing speed to establish a peace-keeping force, compared with other situations that happened to be less important to the US, like Rwanda, DR Congo, or Liberia. Prime Minister P.J. Patterson In 2002, while maintaining the boycott on economic aid to Haiti, the US had also sanctioned the sale of 20,000 new M-16s to the Dominican Republic’s Army. Why the Dominican Republic’s Army, which has a horrific human rights and drug-trafficking record of its own, needs so many M-16s is not obvious. Perhaps, in addition to defending the DR elite against their own people, turning back starving Haitian immigrants, and arming the Haitian contras, it expected it might have to deal with a newly-reconstituted Haitian Army. Even earlier, the US and the Multilateral Interim Force that brought Aristide back to power in 1994 had also failed to adequately disarm the Haitian military and FRAPH paramilitary. That, in turn, only encouraged Aristide's followers to form militias of their own. Not surprisingly, some of them also turned to drug traffic, given the plummeting regular economy, the continuing US aid cutoff, the strong US demand for cocaine, and their own ideal location on the trade route. The US and the MIF also failed to provide adequate resources and training for the National Police. New York City, with a population comparable to Haiti’s 8 million people, has nearly 40,000 police; Haiti’s entire police force, only founded in July 1995, numbered 4,000 at its peak. (True, more than a million of Haiti's 8 million people may be working in the US, at any one time, but the point remains.)

Former Pres-for-Life "Baby Doc" Duvalier

The US and the MIF also failed to bring any significant human rights violators to justice. As noted, several have recently turned up among the “Haitian contras.” Apparently the US and the Dominican Republic preferred to concentrate their prosecutorial resources on Haitian immigrants and drug smugglers. Indeed, while they refused to provide Aristide asylum themselves, the US and France, as well as the Dominican Republic, all provided refuge to top human rights violators like “Baby “Doc” Duvalier and Emmanuel “Toto” Constant, a CIA “grantee” and close associate of Chamblain’s who led the coup against Aristide in 1991, and helped to found the FRAPH, the right-wing death squad that was responsible for several thousand deaths in 1992-94. (The US refused to extradite him to be tried in Haiti, and he’s reportedly been living in Queens.) At least 15 other former top FRAPH leaders have also reportedly found refuge in the US. Philippe, one of the leaders of the "contras," was reportedly convicted in Haiti of several previous coup attempts, and has been living in the Dominican Republic. But the DR refused to extradite him, or even sign an extradition treaty with Haiti, its next-door neighbor. Perhaps the DR just valued his leadership skills. STANDING ASIDE The failure of the US and the increasingly feckless UN to move quickly against the Haitian contras meant that at least 130 Haitians lost their lives in the violence leading up to Aristide’s ouster, and thousands more suffered increased hunger and disease as a result of the uprising. It also meant that a band of a few hundred armed hooligans effectively undermined the position that Secretary of State Colin Powell took before the US Senate Foreign Relations Committee on February 12, when he said, “The policy of the Administration is not regime change. President Aristide is the elected President of Haiti.” Whether or not the US held a gun to Aristide’s head and forced him to sign his “resignation” letter, therefore, is irrelevant. It might as well have. If this was not “regime change,” then the 1968 Soviet invasion of Czechoslovakia was a “peacekeeping mission." In fact, cynics say that all the talk about a “negotiated settlement” by the US during the two weeks before Aristide's departure was just a smokescreen -- buying time for the contras until they gained enough ground to force Aristide out. Moreover,as P.J. Patterson noted above, for the other young democracies in the region -- especially those whose armies have a history of misbehaving, like Venezuela, Panama, the Dominican Republic, El Salvador, Nicaragua, and Guatemala -- Aristide’s removal without a constitutional transition is not unhelpful. The main lesson that “future Aristides” may draw is that they cannot rely on the international community for even-handed protection against even a tiny band of well-armed “contra” free-lancers with influential First World supporters. Instead, they will have to deploy their own heavily-armed defenders -- something that Aristide, to his credit, never really did. But Venezuela’s Hugo Chavez is already digging in. For him, unlike Aristide, one coup attempt by US-backed opponents was enough.

*** © James S. Henry, Submerging Markets™2004. Not for quotation or attribution without express consent.

March 4, 2004 at 04:40 AM | Permalink | Comments (1) | TrackBack

Monday, March 01, 2004

Pentagon Strategy Crisis? "New "Secret" (Actually, NOT! Report:" "Global Warming a Greater Threat Than Terrorism!!"

"U.K. Climate Becomes"Siberian" in 17 Years"
"Neth. Floods by 2007"
"Massive Droughts, Famines, Water Shortages in Asia, Africa, Middle East"

Printable PDF Version-This Article
Download PDF -"Unthinkable" Schwartz/Randall Report

As if the world did not already have enough problems, the last few months have raised the ugly specter of global warming once again, perhaps more forcefully than ever. As we'll see below, there are indeed many recent indications that this problem is -- beg your pardon -- now "heating up." Moreover, one of the more interesting developments comes from the belly of the beast itself, the Pentagon's Office of the Secretary of Defense (OSD), by way of a so-called "secret report" ( according to The Guardian/Observer) that the Pentagon reportedly solicited from two prominent California "futurists" and part-time Hollywood war/disaster-film consultants.

In fact, it turns out that the The Guardian/Observer reporters didn't do their homework. While their February 22 story claimed that this Pentagon report on global warming by California futurists Peter Schwartz and Doug Randall was "secret," Fortune Magazine had obtained and released a copy from the Pentagon on January 26, and SubmergingMarkets has obtained a copy of the so-called "secret" report's Executive Summary, which may be downloaded above or below.

The report, entitled "Imagining the Unthinkable: An Abrupt Change Scenario and Its Implications for US National Security," does make for interesting reading. The authors, private consultants who work for Monitor Group/GBN in California and specialize in "long-run scenario planning," have generated a provocative scenario for the effects of an abrupt, discontinuous change in the world's climate. It involves a hefty diet of chaos, famine, drought, and war, as well as a whole new ice age. The melodrama is perhaps not surprising -- after all, one of the two consultants, Peter Schwartz, has also advised on plot development for films like Minority Report , War Games, and Deep Impact. And, of course, scenario designers, like script writers, don't get paid very well for imagining minor variations on the status quo.

As the Pentagon report itself acknowledges, it is not a "forecast," but a "what if?" exercise in "thinking about the unthinkable,"in the great tradition of Dr. Edward Teller and DOD's "wintry doom" scenarios of the late 1950s and the 1980s. The aim was to construct a "plausible," if not necessarily probable, scenario, in order (in the authors' words) to "dramatize" the possible consequences of "an abrupt slowing" of the ocean's "thermohaline circulation" (TC), the deep ocean currents that have a profound influence on subsidiary ones like the Gulf Stream and the Humboldt Current.

The possible link between global warming and TC is not a new idea. Most of us probably imagine, and certainly hope, that the effects of global warming will be gradual, leaving us -- and our trusted technologists -- plenty of time to react. But in fact there is a growing body of evidence that global climate change can occur quite fast and be very destabilizing. The notion of "abrupt change" has been gaining ground in the world's scientific community since at least the 1980s. And many scientistshave expressed concern about the potential impacts of global warming on TC.

As the authors of the Pentagon report acknowledge, at this point most leading scientists probably believe that the impacts of a TC shift would be "considerably smaller" and more localized than their report assumes. However, what is perhaps most frightening is just how limited our understanding of the potential for "abrupt change" apparently is. Just this month, the US's National Science Foundation and the UK's National Environmental Research Council launched a new four-year project aimed precisely at understanding the TC-global warming relationship.

By dramatizing the importance of this relationship, this "pseudo-secret" report has served a useful purpose. Of course its release is unlikely to please the Bush Adminstration, which has so far adopted a head-in-the-sand attitude toward global warming, including its refusal (together with Russia and Australia)to sign the Kyoto Treaty.

The hapless Guardian/Observer also erred in its claim that the report was "suppressed by US defense chiefs." It also claimed that the report's release "will prove humiliating to the Bush Administration..." So far the report has only clearly proved 'humiliating" to The Guardian/Observer.

However, SubmergingMarket's review of the global warming issue suggests that -- well, my goodness, as Donald Rumsfeld might say, someone in the Bush Administration really should take these matters more seriously! Evidently we have someone in the Pentagon OSD, or at least Monitor/GBN, to thank for underscoring this fundamental point.

We just hope that the task is not just left up to folks like Andrew Marshall, the 82-year old waspish Dr. Strangelove who has been in charge of the Pentagon's "long-range strategic planning" since 1973. He may have contracted for this doomsday report, but he also recently raved about giving our troops "bio-engineering" drugs to make them fight harder. Clearly he has too much time and money on his hands. (See below). Nor should it be left in the hands of his two hip California futurists, neither of whom has any scientific credentials, and one of whom (see below) predicted in 1999 that the US was on the verge of 25 years of uninterrupted economic growth(..just a year before the 2000-2003 global recession)! As the Secretary might say, My golly! Can't we do better than this? Is this why we're spending $401 billion this year alone on non-Iraqi "defense?"

BACKDROP - SINKING ISLANDS, TARDY ICE, MISSING BEARS

Before we turn to the Pentagon report, let's examine the context -- a growing body of evidence that we may indeed have to pay a very high price for our inactions on global warming. Among the recent indicators:

• In December 2003, Russia followed in the footsteps of the US and Australia, and refused to ratify the Kyoto Treaty. This was probably more of a short-run bargaining tactic than a Bush-like idee fixe. Absent US support for the Treaty, Russia's vote is needed to make it an international law, which requires its signature by countries responsible for at least 55 percent of all greenhouse gas emissions. Without US participation, Russia lost a huge market for the "pollution credits" that it hoped to sell to over-polluting American companies. It also has its own oil and gas industry to protect, and is bargaining with the EU for more favorable terms, as it enters the WTO.

In any case, further consideration of the issue will now be deferred until another conference in 2004. The EU and Russia had wanted to hold off until after the US elections, but a coalition of 40 small island countries blocked the delay -- several of them, including the Marshall Islands, Kiribati, and Tuvalu in the South Pacific, are already sinking into the sea, literally becoming "submerging markets."



• In late December, the prestigious American GeoPhysical Union reported that carbon dioxide emissions are now growing faster than ever, and concluded that "It is virtually certain that increasing atmospheric concentrations of carbon dioxide and other greenhouse gases will cause the global surface climate to become warmer."
• Meanwhile, in December, representatives of Alaska's 155,000 Inuit tribespeople filed a human rights complaint against the Bush Administration with the Inter-American Commission on Human Rights in Washington, D.C., on the grounds that they face virtual extinction because of global warming. According to them, the oceans that surround them are now warmer than ever, the permafrost that supports their homes and roads is melting, the ice arrives later and leaves earlier every year, and polar bears and seals are disappearing.



• In early January 2004, Nature, the influential peer-reviewed science journal, published a study that predicted that by 2050, 15% to 37% -- up to 1 million in all-- of all animal and plant species on the planet may be made extinct by climate changes.
• Also in January, in a vivid demonstration of just how concerned many scientists are about this issue, a conference of leading experts from the UK and the US met at Cambridge University, and considered a variety of rather extreme technical solutions to global warming, including the deployment of "tens of billions of wafer-thin metal plates... into the Earth's low orbit," the growth of huge algae beds in the oceans, and the construction of massive cloud-generating machines that would shield the earth from the sun.
• Just this month, in a warning that captured the attention of everyone who enjoys scuba diving, a study by scientists at Queensland's University concluded that Australia's Great Barrier Reef will completely disappear by year 2050, if ocean temperatures continue to rise at current rates. This is significant because, as noted, Australia, like the US and Russia, had refused to sign the Kyoto Treaty.



• In January, Scottish fishing experts also reported a decline in wild salmon stocks, just as the fishing season was opening. They attributed the decline to global warming.

BACKGROUND - THE PENTAGON'S GLOBAL WARMING STUDY

On top of all this, we now have this week's dramatic leak of a new Pentagon analysis of the national security implications of global warming. According to this report, which The Guardian described as "secret," the implications would be nothing short of catastrophic. Indeed, according to The Guardian, "The few experts privy to its contents.....(say) (T)he threat to global stability vastly eclipses that of terrorism.."

Since this report collides head on with the White House's antipathy toward the whole concept of global warming, and also undermines its case for the primacy of fighting terrorism, the Pentagon has a few strategic challenges to sort out. It will be helpful for us to understand the origins of the report.

INVISIBLE MAN

According to The Guardian, the Pentagon global warming study was undertaken at the instance of its 82-year old in-house futurist, Andrew W.Marshall . Marshall is a life-long military strategist, one of the few who worked with such legendary war-hawks as Dr. Edward Teller and Albert J. Wohlstetter. Throughout the 1950s, Marshall worked at The Rand Corporation in Santa Monica as a cold war gamer. In 1969, he succeeded Dr. James Schlesinger as Rand's Director of Strategic Studies, when Schlesinger joined the first Nixon Administration.

During the next four years, Marshall authored what turned out to be one of the seminal works on US-Soviet strategy -- "Long-Term Competition with the Soviets: A Framework for Strategic Analysis," published in 1972. This report basically ported the whole concept of competitive strategy to the world of military planning. At the Pentagon, which had heretofore evaluated programs and budgets in terms of narrow, technical criteria rather than their contributions to strategic value, this approach was considered revolutionary. In May 1973, Schlesinger, who had just become Nixon's Secretary of Defense, appointed Marshall to be the Director of the Office of Net Assessment a new post in the Office of the Secretary of Defense that assumed responsibility for long-run military strategy. Marshall has held this post more or less continuously ever since.

In this capacity, Marshall has reportedly exerted enormous influence, as a kind of eminence gris -- the equivalent of George F. Kennan, the State Department's resident intellectual and policy planner during the 1950s -- only with twice the tenure. Marshall based his longetivity not only on strategic insights, but also on political skills -- he was content to stay in the shadows, bringing others along and helping them to succeed. Over time, he cultivated a loyal group of increasingly influential Pentagon officials, many of whom later converged on the second Bush Adminstration.

This group is often referred to collectively as "neoconservatives." This is really a misnomer -- there is nothing at all about their policies that is "conservative." A more accurate term is "ultra-imperialists," or simply, ultras. Among the best known are Rumsfeld, Paul Wolfowitz, Richard Perle, Eliot Cohen, and James Roche, the Secretary of the Air Force.

Partly through Marshall's influence, this group came to share several strong beliefs about national security.

• They have all regarded 'long-term competitive military strategy" as a serious, high-minded intellectual enterprise -- a rational endeavor that one could count on for useful results.
• They have all generally believed that the demise of the Soviet Union, their old long-term "enemy," owed a great deal precisely to this kind of rational military and economic competitive strategy -- as implemented by Ronald Reagan during the 1980s. It was no longer just a theory; its value had been proven in combat.
• Most of the ultras have also shared Marshall's boundless technological optimism -- his confidence in the capacity of the US economy and technology to provide a continuing, even growing competitive advantage over potential rivals.
• They saw the US as a largely innocent "democracy," with clean hands and high principles. In their view, the US has never had a desire to possess or occupy other countries -- well, not at least since 1946, that is, when the US occupation of the Philippines formally ended. It only wished for other countries to develop "free market" economies, which it saw as a guarantor of peace, development, and prosperous trade for all concerned. As such, they believed that the US had every moral right to leverage its superior powers to its advantage, regardless of what the rest of the world might think. It had, first of all, the absolute right to act in its own (perceived) defensive interests. It had, moreover, the right to act on behalf of other important interests that it might deem necessary, even unilaterally.

  As the novelist Graham Greene once said, "No country has had better motives for all the damage that it does."

• The ultras also were traditionally quite proud of the fact that, unlike many of its enemies (especially the Soviets, the Chinese Communists, the Cubans, and so forth), the US has always maintained a relatively open society, with relatively free and open borders, a long history of welcoming immigrants regardless of financial means, or (with notable exceptions) even national and ethnic origins, and relatively modest police controls on ordinary citizens that were in case subject to a very strong bill of rights.

These shared values are important for us to understand, because every single one of them is now being called into question, not through abstract disputations, but by the new harsh realities that the US faces on the ground. This is evident, not only in the Pentagon's recent experiences in Iraq, Afghanistan, and the "global war on terrorism." It is also evident in the recent immigration crisis, occasioned by the growing tide of immigrants, mainly from Mexico and Central America, that has recently crossed our borders. And it is also evident in the challenges noted in the Pentagon's recent global warming study, which has profound implications for all these other problems.

OTHER PROPENSITIES

Along the way, there were also many other Marshall sympathizers whose motives were perhaps a little less high-minded than those who had been his intellectual comrades and proteges. These included many leading US defense contractors and their Congressional allies. Over time, Marshall's ONA developed strong, mutually beneficial ties to such key constituencies, and provided on-the-job training to a steady flow of future top industry executives and Congressional staffers.

In his procurement recommendations, Marshall also tended to err on the side of (a) perceiving huge threats that -- quite coincidentally, of course -- almost always required extremely costly, technology-intensive weapons systems, from anti-ballistic missiles systems, precision-guided missiles, remote sensing, and meteorological manipulation to unmanned combat vehicles, holographic projectors, sea-bed robotics, and particle beam weapons. As the Batman's Joker once said, "Where do they get all those FABULOUS TOYS?"

Of course, most of Marshall's activities took place behind closed doors. (See the recent Submerging Markets white paper on Intelligence Failures).So we only have a few snippets in the public record to help us assess his performance, like his reported exaggeration of the continued Soviet threat in the early 1990s, and his agonizing search for a worthy successor to the Soviet Empire, for which he ranged from China to North Korea, and finally, with the help of fellow ultras like Bernard Lewis and Samuel P. Huntington, ended up with (the somewhat confusing blend of ) the "Islamic fundamentalist horde" and the "Axis of Evil."

But there is at least one good publicly accessible example of Marshall's appetite for expensive, hair-brained technologies -- one of his most recent fetishes, "bio-engineered soldiers." This involves the use of behavior-modifying drugs to achieve specific battlefield conduct. (I am not making this up.) As he observed in a rare public appearance at the University of Kentucky in August 2002,

“The drugs would affect specific receptors and would act just like the internal chemistry (of the brain). We could create fearless soldiers, soldiers that would stay awake longer or be quicker and more alert... These new types of drugs or biochemical agents could create a new model of man."

For Mr. Marshall, apparently "the war on drugs" meant "(DOING) the war on drugs"! One would of course suppose that he must have discussed this loony idea -- which would open the door to all sorts of misbehavior -- with Rumsfeld,,his immediate boss, who, after all, had in the late 1970s served as the CEO of GD Searle, one of the nation's largest drug companies. Evidently the boss did not discourage him from these meditations. The mind boggles at the prospect of thousands of young men and women, no longer consciously serving their country as proud citizens, with honor and dignity, but "doped up," marching fearlessly slavishly into battle, doing whatever they're told......

Of course, if Marshall was willing to ponder this kind of policy in public, just imagine the other flights of fantasy that might be available to those with the security clearances to see them! (Admiral Poindexter, where is thy sting!) Given what we do know, it is not really surprising that Marshall was almost ousted in the late 1990s by President Clinton's Defense Secretary, William Cohen -- a sober Maine Republican. The dismissal was reportedly avoidedat the last minute by way of Marshall's many friends in Congress and the defense industry, plus the neocon press, which portrayed him as lying awake nights, worrying about defending our freedoms, not about how to induce killing sprees by the infantry with pharmaceuticals.

After President George W. Bush took office in 2001, Rumsfeld became Marshall's boss again, and soon placed him in charge of a strategic panel that was one key part of a fundamental rethink that Rumsfeld described, with typical modesty, as a "Revolution in Military Affairs." (RMA)

One might have thought that, even apart from his age and eccentricities, Andrew Marshall might not have been the best choice to lead such a strategy validation, especially after 9/11. After all. he'd spent thirty years designing strategies for a very different kind of adversary. The contrasts between the Soviets and the new global threat environment were many:

• "Competitive strategy" was much easier to define when the conflict was among more or less symmetrical "hegemons" like the US, China, and the Soviet Union. When opponents are not battling for nations, but for the vindication of ideas, movements or deeply-felt antipathies, and are disbursed across the globe rather than concentrated in a few countries, notions like "competition," "wartime," "combatant," "preemption," "deterrence," "victory," and "power" are no longer well-defined.
• Arsenals of conventional "anti-state" weapons, like jets, aircraft carriers, missiles, and tanks, are designed to destroy fixed positions, attack large groups of mobile forces, or wipe out concentrations of troops and seize territory. These may no longer be decisive against the latest post 9/11 generation of adversaries. At the same time, they can easily become resource sinkholes, because of their "semi-custom" production economics and very high maintenance and logistics costs.



• "High technology," can easily become a narcotic, while "low technology" can be surprisingly effective -- partly just because relying on it "enforces" creativity. The limiting case here is of course the box cutter and the hijacked plane. But once an enemy has defined "victory"as simply being able to disrupt civilian society, the list of potential "weapons of massive-enough destruction" becomes endless. Yhe cost of defending against all the endless possibilities also becomes prohibitive, so that even "successful" defense is bittersweet.



• In this context, Marshall's conventional "competitive strategy/scenario planning" apparatus of the Cold War period had became a clear disability, probably as early as the mid-1990s, and certainly by the end of the 1990s. Similarly, "strategic planning" in the private sector also went the way of all flesh in the 1990s, for most large companies. In the private sector, when such practices ceased to be productive, there were at least some natural forces that encouraged them to disappear -- though even there, many companies failed to move quickly enough. (Viz. AT&T, Polaroid, Xerox, etc.) In the context of the massive Pentagon bureaucracy, with its hundreds of thousands of staff, government regulations, security procedures, restrictions on hiring, limited performance bonuses, restrictions on firings and transfers, and endless red tape, casting such entrenched practices aside in favor of greater focus on creativity, rapid adaptation, and innovation is almost impossible.

  In effect, these bureaucratic "diseconomies of scale" go a long way toward evening the odds between the "1-bullet guerilla" and the entire US military. One imagines poor Marshall, sitting in his Pentagon bastion, ruing the day that the enemy stopped being the mighty Red Army. He had met the enemy, Pogo, and he recognized the face.

Despite all these disabilities, Rumsfeld decided to rely on Marshall for the strategic panel of his RMA assessment. Marshall, in turn, must have realized that when it came to analyzing non-conventional threats like state-less terrorism or global warming, he needed to pull in some outside resources who were perhaps not so captive of traditional approaches. That set tthe stage for the production of the confrontational global warming analysis that has just now reached the light of day.

BACK TO THE FUTURISTS

To get a handle on such non-traditional issues, Marshall reached out to Peter Schwartz, a well-known "futurist," and the co-founder and Chairman of California's Global Business Network,, now part of Cambridge-based Monitor Group. GBN's other co-founder and fellow futurist, Stewart Brand, was the author of the "Whole Earth Catalogue," and founder of the "Long Now Foundation," an organization devoted to extremely long-term thinking, including the construction of a 10,000 year clock. Schwartz, the elder of the Pentagon report's two authors, is not trained in environmental science, but he does have a B.S. in Aeronautical Engineering from Troy's Rensselaer Polytechnic. He also served as director of the Stanford Research Institute's "Strategic Environment Center," and a "Scenario Planner" for Royal Dutch Shell from 1982 to 1986, during the heyday of corporate planning, before GBN's creation in 1987. In addition to the Pentagon, Schwartz has also consulted to the CIA, Darpa, and many Fortune 500 companies. He's also advised Hollywood film-makers on the plots of several successful war/action films, including Deep Impact, War Games, Sneakers, and Tom Cruise's Minority Report.

Schwarz

Schwartz has also authored several books, including a 1991 best seller on "scenario planning," "The Art of the Long View." In 1999 he published a less fortunate book The Long Boom (1999),co-authored with Peter Leyden and Joel Hyatt, in which they predicted "25 years of uninterrupted economic growth and prosperity." Of course, as we now know, this prediction was undermined by the global recession that started just one year later.

However, this did not deter Schwartz from continuing to pursue long-range planning and analysis. In an interview associated with the publication of his latest book, Inevitable Surprises (June 2003), he still maintains that his "long term boom scenario" will hold up, at least over the next half century. And while there will always be shocks and surprises, he still sees great value in scenario planning -- according to him, "September 11 was the most predicted event in history."

For purposes of the Pentagon report on global warming, Schwartz teamed up with Doug Randall, a Wharton graduate and a GBN "senior practitioner," who also had no environmental science training. This was not their first collaboration. In an April 2003 article in Wired Magazine, they argued that the US Government should undertake a massive 10-year, $100 billion program to develop hydrogen power as a substitute for imported oil.

That timetable is much more aggressive than the "several decades" that many other experts regard as necessary to develop the economical fuel-cell technology and hydrogen distribution systems required for basing mass transportation on hydrogen. But this difference of opinion may really just derive from the fact that, unlike Peter Schwartz, most of the other experts have not invested "in two companies that are now developing hydrogen power." Apparently in this instance, President Bush agrees with Schwartz, because he has also recently advocated the development of fuel-cell-based "Freedom Cars" as an alternative to requiring any better fuel efficiency from car manufacturers now.

DIRE STRAITS

The "secret" Pentagon report produced by the two GBN futurists is nothing if not dramatic. According to them, the world may now be headed for a period of profound, sudden, discontinuous changes in climate, with a possible reversal of the gradual recent trends toward warming, followed by rapid cooling and perhaps even a new ice age in much of the world. Among the many side-effects that all this might have:

• Flooding of the Dutch seacoast and the Hague as early as 2007;
• By 2010, the US experiences a third more days per year with peak temperatures above 90F.
• The imminent prospect of historically low mean temperatures in Western Europe, including "Siberia-like" conditions in the UK by 2020;
• Large-scale famines in southern Africa, India, and China;
• Acute water shortages in the Middle East, the Amazon Basin, and the Nile Delta;
• The likelihood that the US and Europe may become "virtual fortresses," to prevent inundation by millions of destitute immigrants from the increasingly-uninhabitable Third World, where the lives of more than 400 million people become at risk.
• Low-lying countries like Bangladesh become virtually uninhabitable.
• As international tensions over food and water increase, there are much greater incentives for countries like Japan, Germany, and South Korea to acquire nuclear weapons, and to use them.

Not surprisingly, this scenario lines up almost exactly with the pro-hydrogen logic that Schwartz has recently been propounding around the country and in his recent book. But it does appear to be a bit too choppy to reconcile with his other favorite scenario, the vintage 1999/03 "long-growth boom. "

In any case, the disturbing portrait provided by Schwartz and Randall of the possible downsides of global warming is not likely to curry much favor with the Bush White House, or with other persistent critics of global warming theory. After all, the "secret" Pentagon report on global warming has appeared just five months after the Environmental Protection Agency, at the instruction of the White House, deleted the entire chapter on global climate change from its annual report on air pollution, and for the first time in six years made no reference at all to the problem in that report. Perhaps the Adminstration's insouciance explains why the Pentagon report was leaked in the first place -- certainly it would have done little good, locked up forever in some classified vault. The leak probably would also not have harmed the stock prices of certain hydrogen-related investments - assuming there are any.

All told, the report does offer a pretty nightmarish set of scenarios. Less polite commentators might also apply words like "pseudo-scientific." Evidently there's no real effort here to build a complex forecasting model, and no way to the scenarios that were constructed, other than to double-check their internal consistency. Even if there had been an effort to construct a full simultaneous-equation system, our actual knowledge of underlying natural and economic relationships is often so weak that the game is often not worth the candle. One is reminded of the disparity in forecasting performance between the huge, complicated, multi-equation econometric models that try to specify detailed relationships about what is really going on, and simple one-line autoregressive models -- the latter routinely outperform the former. So "theory" is neither necessary nor sufficient for prediction. And the Pentagon report, as Schwartz is wont to say, is happy just to provide "scenarios," not forecasts.

Despite this limitation, a good hard-hitting, logical scenario can be very useful as a way of galvanizing pubic attention. At this point, pending the declassification and release of the full study, it is impossible to judge its real quality. Still, perhaps Andrew Marshall really just wanted enough "meat on the bone" to make his underlings think, call attention to the wide range of potential outcomes, or -- who knows -- perhaps even to toss a bone to the President's opponents, for reasons of their own. I suspect that what the Pentagon planners really got for their money was not much more than a wild-eyed Hollywood script and a few days of media attention for their long-run thinking. Beyond that, they almost certainly did obtain a release from the straightjacket of "competitive strategy" and their really quite restrictive ultra assumptions.

CONCLUSION

So what do we conclude from all this? Stepping back from the Pentagon report's apocalyptics, it does concur, in broad strokes, with the growing sense of urgency among many professional scientists about global warming, and our own sense that the case for taking action is now stronger than ever.

For example, the UK's chief science advisor, Professor Sir David King also stated just last monththat he now sees global warming as a much larger threat than terrorism, and he condemned the Bush Administration for "failing to take up the challenge of global warming."

Whether we really needed the "graphic arts" of Schwartz and Randall's detailed scenarios to drive this home is not clear. The point is that the time for preventive action is here.

Unfortunately, this being a US election year, with many people still preoccupied with jobs, health insurance, Social Security, and the costs of education, let along Iraq and terrorism, we are unlikely to find many politicians who are willing to give this issue top billing. After all, they'd have start with the basic fact that, with just 4 percent of the world's population, the US still generates at least 20-25 percent of the world's greenhouse gas emissions. And then they'd have to move on to discuss the purgative diet of tax increases, emissions controls, other regulations and new investments that would be required to cut this fraction significantly. Having failed to tackle this issue for so long, through Democratic and Republican Administrations alike, by the time we get around to it, the solution will be no doubt very costly. The only consolation is that if there is anything to the Pentagon scenarios, the alternatives could be even worse.

***

©James S. Henry, SubmergingMarkets.Com, 2004. All rights reserved. Not for reproduction or other use with express consent.

March 1, 2004 at 07:00 AM | Permalink | Comments (2) | TrackBack

Tuesday, February 10, 2004

The Drug Wars. Part One: The CIA Finally Gets One Right! September 2000 Intelligence Report: "PLAN COLOMBIA May Not Work!"

ByJeremy Bigwood and James S. Henry

Printable PDF File

Uribe and Bush
As noted in Submerging Markets™' recent piece on Intelligence Failures, these are tough times indeed for the CIA and the other 13-14 members of the US intelligence community. Lest the CIA perceive that it gets no respect, however, we have recently surfaced one case where it may have done a much better job -- at least with respect to the Colombian cocaine trade, an arena where some cynics have occasionally accused the Agency of having first-hand experience. Even in this case, however, the Agency's foresight appears to have been largely wasted on its political bosses. Instead, the US Government has embarked on a really quite radical policy of increased intervention that is having profound consequences throughout Latin America.

The case in point is a September 2000 CIA Intelligence Report on "Plan Colombia," the multi-billion dollar drug eradication, counter-narcotics, and counterinsurgency program that was established since then by the Colombian Government, with the help of more than $3.13 billion of US military and economic aid – including $743 million this year alone, and up to $688 million for 2004, more than half of all US total aid to Latin America. Indeed, Colombia now ranks third in world among all US foreign aid recipients, behind only Israel and Egypt.

Clinton and Pastrana

This report, recently obtained by Submerging Markets™' Contributing Editor Jeremy Bigwood under a US Freedom of Information Act (FOIA) request, was prepared by the CIA’s DCI Crime and Narcotics Center for top members of the US government, including President Clinton’s National Security Council, the Secretary of Defense, and the US Drug Czar’s office. These officials and their successors under President Bush have always expressed great confidence in Plan Colombia’s ability to reduce coca production and curb cocaine trafficking, and also to help defeat narco-terrorism and bring peace, economic development, and social justice to Colombia, where an increasing proportion of the population -- up to 60 percent -- dwells in poverty.

This CIA document, "Plan Colombia’s Potential Impact on the Andean Cocaine Trade: An Examination
of Two Scenarios," raises serious doubts about all these expectations. It suggests that, even apart from its other harmful side-effects, Plan Colombia may actually just spread coca production and cocaine trafficking, as well as political instability and even guerilla activity, to other parts of Colombia, and to other Andean countries like Ecuador, Peru, Bolivia, and Venezuela.

That conclusion supports those critics who have long maintained that the supply of coca is very elastic, so that it defies any simple “supply-side” cures like eradication or interdiction. As the conservative magazine The Economist noted recently, there may well be a "balloon effect," with increased eradication in one area just expanding production elsewhere – especially in more remote, mountainous, and cloudier regions where crop spraying is harder, or in nearby countries where the police and military are weaker or even more corrupt.

Moreover, as this CIA study notes, wholesale coca eradication may just destroy large amounts of ordinary food crops like cassava, which are much less robust than coca. That, in turn, would alienate thousands of local farmers, creating new recruits for radical movements like the FARC, and helping to spread their influence to new regions of Colombia and other countries.

All told, the study indicates, it is hard to make Plan Colombia out to be anything less than a high-risk gamble with the future of the entire Andean region.

THE CIA’S PROGNOSIS

After decades of traditional law enforcement efforts, in the mid-1990s, partly because of US pressure, Colombia began experimenting with eradicating coca by spraying chemicals like Monsanto's "Round-Up" from small, US-provided OV-10 and Turbo Thrush" crop-duster" airplanes, protected by heavily-armed helicopters. The aerial spraying program has been the subject of law suits in both the US and Colombia because of its destruction of food crops, and its potential harm to the environment.

The CIA report examined two alternative scenarios for the effects of this eradication program. In the first scenario, it assumed that 50 percent of southern Colombia’s coca acreage would be eradicated by the year 2005. According to the report, this degree of eradication:

"(W)ould simply encourage substantial new cultivation elsewhere in Colombia. Farmers probably would be able to compensate for their losses by growing elsewhere in Colombia; therefore, only a limited number of growers in border areas would cross international boundaries to plant new fields."

The second scenario looked at the effects of a 80 percent reduction in coca acreage in southern Colombia:

"…(T)he 80-percent scenario would almost certainly lead to increased cultivation in neighboring countries as traffickers in Colombia faced the prospect of declines in potential cocaine production…..While Colombian traffickers likely will try to make up for declines in domestic production by increasing their importation of cocaine base from neighboring countries, especially Peru, they may choose instead to increase cocaine production outside of Colombia. Successful eradication and interdiction programs combined with Bogota’s aggressive extradition policy would create an increasingly hostile environment for the drug trade and induce many traffickers to take their business into neighboring countries. This would result in a further decentralization of the Andean cocaine trade, with multiple centers of cocaine production and an increasingly complex web of trafficking networks. [REDACTED WORD]

….Significant spillover of coca cultivation and drug trafficking from Colombia into neighboring countries is likely if Plan Colombia achieves levels of eradication approaching our 80-percent scenario…..Peru, and to some extent Bolivia, would face increased market pressures that probably would fuel a resurgence in coca cultivation. Already, Peru’s cocaine trade - dealt a significant blow by a potent combination of interdiction, eradication, and alternative development successes in the late 1990s - is showing signs of recovery; and Colombian traffickers are making increased use of Ecuadorian, Venezuelan, Brazilian, and Panamanian territory to reach the US and European cocaine markets. Although less likely, rising coca prices resulting from Colombian supply shortages could put at risk Bolivia’s significant accomplishment in dramatically reducing its illegal coca supply.”

IN RETROSPECT

This September 2000 CIA analysis appears to have been astonishingly accurate. Strictly speaking, of course, it was not really a “forecast” at all – it merely laid out two plausible “what if” scenarios, and didn’t choose between them. However, the potential negatives associated with the spillover effects in both cases should have been enough to put any policy maker on notice that they were playing with fire. Unfortunately, both the Clinton and Bush administrations ignored apparently overlooked, or ran roughshod over, this possiblity.

Indeed, as argued in more detail in our upcoming analysis of overall drug war history, over the long run, the long-run effects of US “supply-side” policies toward drug enforcement and coca eradication have been nothing short of disastrous, especially for the "producer" countries. There have already been several profoundly negative effects:

First, the dismantling of the Colombian cocaine cartel in the 1990s opened up coca farming and the entire cocaine industry to thousands of new independent coca growers, dozens of new cocaine producers and many new distributors. Ironically, this “success,” combined with a long-term exogenous reduction in the demand for cocaine that little to do with increased drug enforcement, combined to produce to a dramatic long-term fall in cocaine “street” prices in the US and Europe since the 1980s. This may be good news for cocaine users. But it is just the opposite of the effect we’d like to see, if the aim were really to discourage drug use.

Second, US policies helped to actually stimulate coca farming, diverting it from Peru and Bolivia to Colombia, which traditionally had focused on cocaine laboratories and left the production of leaves or “base” to its neighbors. In the late 1990s, this surge in coca farming, in turn, provided an enormous new source of income – by way of the taxes they levied on the farms, as well as direct trafficking -- for Colombia’s armed guerillas, led by the FARC on the left and the AUC on the right.

As the CIA predicted, Plan Colombia, backed by US funding and direct military assistance, is indeed encouraging coca farming to spread to other areas inside Colombia, as well as to neighboring countries like Ecuador, Venezuela, and Brazil, as well as back to Bolivia and Peru.

Even more important, the resulting militarization of the cocaine trade meant that what had formerly been mainly a law enforcement problem has now became a serious political and national security problem, involving not only for Colombia but all its neighbors. This is having a destabilizing political effects on the whole region. Among the key side-effects:

• A growing civil war throughout Colombia over coca eradication, and ahumanitarian crisis that has already produced more than 2.6 million refugees.

• A new populist government in Bolivia that derives a great deal of its momentum from the anti-eradication movement, and mounting pressures on Ecuador’s new populist government, led by Lucio Gutierrez;
• The revival of left-wing guerillas and the reported appearance of the FARC in Peru; the internationalization of FARC activities in other Andean countries;
• Growing tensions between Venezuela’s populist leader Chavez, the US, and Colombia, with several clashes recently reported between Venezuela's National Guard and Colombian forces.

Given all this instability, it now appears likely that Plan Colombia’s “success” will depend on whether it is quickly folowed up by a Plan Ecuador, a Plan Peru, and a Plan Venezuela, and a Plan Bolivia. This is a recipe for endless civil wars, not for peace and the kind of economic development that is the only real solution to the "coca farming problem."

Would that the senior national security advisors and drug czar bosses who are designed these cleve policy initiatives had paid a little more attention to their long-run effects, as well as to the lowly CIA analysts who seem to understand them. Where is "worst case" analysis when we really need it?

***

©SubmergingMarkets.Com, 2004. All rights reserved. Not for reproduction or other use with express consent.

February 10, 2004 at 02:30 AM | Permalink | Comments (0) | TrackBack

Monday, November 17, 2003

First World Criminals, Third World Crimes - Part 2: France's Heart of Darkness: The ELF Story.

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Loik Le Floch-Prigent

On November 13-14, 2003, the former CEO Loik Le Floch-Prigent and 22 other former executives of France’s Elf Aquitaine, plus seven other accessories, were sentenced by a French court to a few €millions in fines and no more than 5 years apiece in jail –- 14 of the accused got suspended sentences -- on charges that they had embezzled €300 million ($346.8 million) from the company from 1989 to 1993. These sentences, the culmination of an investigation that started in August 1994, determined that most of these thefts had been skimmed from secret slush funds managed out of Switzerland, Luxembourg, and Liechtenstein.

From our standpoint, the key fact is that these secret funds had originally been created in order to pay up to $130 million of bribes a year to senior officials in African countries like Gabon, Congo-Brazzaville, Cameroon, Angola, Guinea, and the Congo, as well as in Venezuela, Russia, Taiwan, Central Asia, China, Uzbekistan, and Kazakhstan.

Significantly, this extraordinary global corruption eventually “blew back” to France itself, where, according to Le Floch-Prigent, Elf paid at least €5 -€20 million in bribes per year to France’s leading politicians, ministers, and political parties -- not only Gaullist parties like Chirac’s RPR/UMP party, and former Interior Minister Charles Pasqua’s RPF, but also the Socialists and other parties.

Even after this extraordinary 9-year trial, we still lack much of the detail on precisely where all this payola went. However, as usual, some things can be said.

de Gaulle and Chiraq

To begin with, it appears that most of Elf's transgressions were committed with the knowledge and tacit or active approval of every French President from Charles de Gaulle on down to Chirac, after de Gaulle created Elf and the original “black box” system in the 1960s.

In addition to these domestic political subsidies, Elf also paid out an extraordinary amount of personal payola to France’s political elite – including free airfare, sweetheart deals and payoffs for ex-wives and girlfriends, and fancy apartments. For example, when President Mitterrand's weekly golfing partner was threatened with losing his house near their favorite golf course, Elf bought the house and let him continue living there, all expenses paid.

Francois Mitterand

Many of the key figures involved with these funds turned out to have top-level connections in the French government. After his stint at Elf ended in 1993, its former CEO, Le Floch-Prigent, was appointed by Mitterand and Jacques Chirac to serve as head of the state-owned utility Gaz de France and SCNF, the French National Railroad. Roland Dumas, President Francois Mitterand’s close friend and Foreign Minister in the 1980s, was convicted in 2001 of receiving Elf bribes in connection with an arms sales to Taiwan – though the conviction was overturned on a technicality in 2003.
Andre Tarallo was a close friend and former classmate of French President Jacques Chirac (Ecole Nationale d'Administration, class of ’59), and an Elf employee since 1967.

From our standpoint, Tarallo is an especially important figure. During the course of his long career, he became known as Elf’s “Monsieur Afrique,” the “real boss of Elf-Afrique,” in charge of the company’s relationships with corrupt regimes all over Africa. Meanwhile, he also helped himself to $27 million worth of property, including a mansion in Corsica and one of the largest apartments in Paris. For all these efforts, 74-year old Tarallo received a four-year sentence and a €2 million fine.

This huge case has been nine years in the making. As it slowly wended its way to a conclusion, many cynics predicted that because the case is one of France’s most sensational corruption scandal ever,few convictions would ever be seen. However, mainly because of the perseverance of a handful of courageous judges and magistrates in France and Switzerland, the embezzlement charges ultimately stuck. But for evidentiary reasons as well as “pour raison d’Etat,” the French court limited the investigation to personal enrichment by Elf’s own officials. When it came to exposing the details of the many bribes paid in the Third World and the First, they drew a complete blank.

Alfred Sirven

As noted, because of the sensitive nature of Elf’s payoffs, we are unlikely to ever learn the full story. Nevertheless, it is already clear from many other sources that Elf – France’s largest multinational company at the time, with owned refineries and gas stations throughout Europe, Africa and the West Indies -- became a cornucopia of global corruption. As Alfred Sirven, Elf’s second-in-command in the early 1990s, and the former head of Elf’s Geneva office, said at the trial this year, “I know enough to eliminate the whole French political class.” Or as the former CEO, Loik Le Floch-Prigent, said, “If the money sometimes ended up in an orphanage then I am very happy - but let's say it didn't always end up in an orphanage.”

Gabon's Bongo

Among Elf’s many unsavory activities around the globe: (1) Elf developed incestuous, mutually profitable relationships with key African autocrats like Omar Bongo, Gabon’s ruler, the Congo-Brazzaville’s Sassou Nguesso, the Cameroon’s Paul Biya, >

Cameroon's Biya

Jonas Savimbi, the Angolan rebel leader; Jose Eduardo dos Santos, Angola’s “Marxist” President; and Nigeria’s Sani Abacha.

Congo's Nguesso

Angola's dos Santos

For example, according to an investigating magistrate, $30-$50 million a year was placed in a secret bank account belonging jointly to Bongo and Tarallo, his close friend, and Bongo’s Presidential Guard was partly paid for by Elf. In Congo-Brazzaville, where Elf has lucrative refineries and other concessions, it supplied helicopters and financed arms supplies for rival leaders. In Nigeria, it reportedly paid bribes to secure a lucrative oil concession in 1995. All told, according to the French magistrate, Elf ran "a vast and opaque system aimed at paying commissions, via intermediaries, to certain African personalities.”

Kofi and Sani

Carlos Andres Perez

(2) Elf allegedly paid $2.5 million in bribes to Venezuela’s President Carlos Andres Perez and other Venezuelan politicians in 1991-92, part of some $20 million in commissions that Elf was alleged to have spent in Venezuela.

(3) Elf allegedly made still more payoffs in China and Taiwan in connection with a 1991 arms deal – including millions of dollars that were allegedly paid to Zhu Rongii, the former Mayor of Shanghai who served as China’s Premier from 1998 to 2003, and to Foreign Minister Dumas, to secure their tacit approval for the deal.

Zhu Rongii and Clinton

These payments were reportedly made by Elf’s network in connection with the sale of six frigates to Taiwan by Thompson-CSF, another French company, in 1991. On this deal alone, the commissions reportedly totaled more than 30 percent of the $2.5 billion purchase price.

(4) Elf also allegedly made huge payoffs to Nadhmi Auchi, an obscure Iraqi-British billionaire who is reputedly Britain’s seventh wealthiest man, the largest shareholder in BNP Paribas, and – according to some – one of Saddam Hussein’s oldest cronies and private bankers. (They both took part in the attempted assassination of Iraqi leader Abdul Karim Qasim in October 1959.).

Nadhmi Auchi

The Elf payoffs to Auchi, which he reportedly passed on to Spanish politicians and partly kicked back to Elf officials, were made in connection with its 1991 purchase of Ertoil, a Kuwaiti-owned oil refinery in Spain. Auchi, one of the 37 people charged by the French court, was given a two-year suspended sentence and fined £1.4 million, after having been found guilty of accepting illegal commissions from Elf worth $84 million.

(5) Meanwhile, back in the First World, Elf also allegedly paid at least €47 million ($54.8 million) in commissions to senior German ministers and a slush fund for former German Chancellor Helmut Kohl’s Christian Democratic (CDU) Party.

"Kohl and Liechtenstein Money Man"

These payments were made in connection with a corrupt privatization deal, Elf’s purchase of a chain of gas stations and the Leuna oil refinery in eastern Germany in the early 1990s. Elf received more than €1 billion in German subsidies to help it finance €2.4 billion cost of modernization costs for the refinery. Former Chancellor Kohl denied any involvement in the scandal, and German prosecutors were unable to make a case against him – especially after Kohl’s government destroyed millions of documents and two-thirds of its computer files during the three weeks after the CDU lost the 1998 German elections. However, one of those recently convicted in the November 2003 case in France was Dieter Holzer, a German lobbyist who had handled the refinery. He got 15 months in prison and was ordered to pay a €1.5 million fine and return at least €24 million in commissions.

• A TOTAL REFORM?

Most of the alleged behavior listed above pertained to the period before Elf was privatized in 1994, and then merged with Total/Fina in 2000. So some have argued that the core problem here was that Elf was simply a corrupt state-owned bureaucracy, at the mercy of French politicians, and that privatization would fix the problem.

However, it turns out that this “neoliberal” view of reform is extraordinarily naive. First, it usually take a long time to change corporate culture and interests. Second, as this recent 9-year Elf prosecution showed, even if senior executives are caught and convicted, the initial “loot” is so large, the investigations are so lengthy and complex, and the ultimate jail sentences and fines for such white collar crimes are so modest under present laws, on a “net present value” basis, crime really does pay quite handsomely.

So it should not be surprising that misbehavior by Elf and its new parent Total S.A. appears to have continued long after privatization. For example:

Nazarbaev and Clinton<

(6) Total S.A. has recently been implicated by the US with participaitng with five other leading oil companies – including ExxonMobil, BP, and Royal Dutch Shell – in a consortium that allegedly paid millions in illegal bribes to Kazahkstan’s President Nazarbaev and former Prime Minister Balgimbaev in the late 1990s, to secure oil concessions.

(7) Elf and Total S.A. have also compiled an unsavory record of dealing with Burma’s SLORC/SPDC, one of the world’s most repressive military regimes. Together with Unocal and Thailand’s National Oil Company, in July 1992 Total struck a deal with the regime to exploit the Yadana offshore gas field, and to build a $1.4 billion gas pipeline across rebel territory to Thailand – with the help of forced labor. Throughout the 1990s, Total S.A. and Unocal were Burma’s largest foreign investors, with the pipeline and a related railroad accounting for more than a third of all foreign investment in Burma, and will provide the military its largest source of foreign exchange other than heroin. The “clean currency” provided by Total and Unocal to the regime helped Burma source mortars in Portugal and helicopters in Poland.

All told, then, what we have here is a clear demonstration of just how contagious corporate corruption can be -- and how it interacts with the power of the state to generate a long-term venal alliance that is extremely hard to unravel, once it is in place. From one standpoint, French justice worked -- after all, all these former Elf senior managers have at least been jailed and fined. But it took almost a decade to catch up with them, and apart from social disgrace, the actual fines and sentences they will suffer are relatively minor, compared with all the hundreds of millions still missing. Moreover, out of all the senior French officials who knew about Elf's behavior and tolerated or encouraged it, only one saw any jail time -- and his conviction was overturned on appeal.

Finally, perhaps the worst damage from this scandal has been suffered by the scores of developing countries where Elf/ Total has long used bribery to wield undue influence. While the names of those Elf bribed are still in many cases secret, we can be sure that this not only tilted public policy unfairly in Elf's favor; it also helped to spread corruption from the First World to the Third, and helped undermine the rule of law in these fragile environments.

So those who blithely criticize developing countries for having "corrupt governments" -- which many of them no doubt do -- might do well to remember the case of Elf. As this tale indicates, the fact is that for more than forty years -- and quite possibly still to this day -- the Government of France joined together with leading French corporations and banks, plus quite a few friendly bankers in Europe's top havens, and made it national policy to foster corruption throughout the developing world, in order to serve its own perceived national interests, and pocket a few bucks for influential insiders on the side. If this does not constitute "crime against humanity," the term has little meaning.

***

(c) James S. Henry 2003. Not for reproduction or other use without express consent from the author.

November 17, 2003 at 02:42 AM | Permalink | Comments (1) | TrackBack

Tuesday, November 04, 2003

Guatemala's Upcoming Elections - "Democracy in the Americas?"

Gen. Efrain Rios Montt It is election time again, and as millions of Americans commemorate our own more or less imperfect democratic institutions at the polls this week, it is appropriate for us to reflect on the tiny, long-suffering Central American country of Guatemala -- one of several neighbors where, for better or worse, the United States has exerted profound influence for decades on political and economic development.

This Sunday, on November 9, 2003, the roughly 4.5 million out of 13.9 million Guatemalans who are of voting age and have bothered to register will have an opportunity to chose a new President and Vice President, a Congress, the mayors of 300 villages, and 3500 local officials, not to mention Guatemala’s delegates to the (superfluous?) Central American Parliament.

This should be a cause for celebration. After all, this will be Guatemala’s fifth “peaceful, free” election in a row, after the 32 years of military rule that ended in 1986, and the third election since the December 1996 UN-mediated “Peace Accord” that was supposed to conclude the country’s civil war, alleviate poverty, increase spending on health and education, reduce discrimination against indigenous peoples, and bolster democracy.

In fact this latest election, like the Peace Accord, has also turned out to be somewhat disappointing -- an occasion for serious violence, intimidation, outright fraud, and the discriminatory use of government and press power. Because of all the intimidation, and the absence of candidates who dare to present serious alternatives to the status quo, many -- including this writer -- feared that Guatemala would maintain its record as having one of the lowest voter turnout rates among developing countries, with just one out of every three people of voting age bothering to vote in the last two Presidential elections. (In fact, this time around, Guatemalas swarmed to the polls in record numbers, with preliminary figures indicating that 80 precent of registered voters turned out to vote -- see below.)

At this point the outcome remains uncertain, and a run-off between the top two Presidential candidates may well be needed in late December. But it now appears likely that Guatemala will at least avoid the worst case scenario -- the return to power of one of its most reprehensible military leaders ever, General Efrain Rios Montt.

According to the latest polls, the 77-year old former general is likely to get trounced by “safer” candidates from the center-right’s “ladino/ oligarchy” parties, like former Guatemala City mayor Oscar Berger, or civil engineer and long-time bureaucrat Alvaro Colom. (In fact this forecast, at least, made last week, turns out to have been correct -- in contrast to previous national elections, Guatemalans turned out in record numbers to reject Rios Montt's bid.)

For the vast majority of Guatemalans, which of these white faces presides over the next four years of government matters little, so long as it is not Rios Montt’s.

Given Rios Montt’s track record, of course the real question is not whether he has a chance at the Presidency, but why he is not sitting alongside Slobodan Milosevic or some Tutsi army commander in the dock at an international war crimes tribunal. In this respect he has already joined the hallowed ranks of such big-league war criminals as Radovan Karadzic, Augusto Pinochet, Indonesia’s General Wiranto, Liberia’s Charles Taylor, and our own Dr. Henry Kissinger, who have so far managed to escape the scales of justice for reasons that have little to do with their innocence or the scale of their transgressions.

Yet even if Rios Montt loses the election on Sunday, recent events have demonstrated that he and his reactionary supporters, plus the country’s largely unreconstructed military and national police, remain a potent force in this beleaguered, semi-feudal country, where the average per capita income is just $1700, more than half the population lives in poverty, and 70 percent of the land is owned by just the top 2 percent. To understand why his country remains in this situation, and why he and his genocidal henchmen are still lurking around in the 21st century, only two hours from South Beach, we have to take a brief look at his roots.

Ecumenical Genocide. From 1978 to 1986 Guatemala was ruled by a blood-thirsty junta that was directed, in turn, by Fernando Romeo Lucas Garcia (1978-82), General Rios Montt (March 1982–August 1983), and Oscar Mejia Victores (September 1983–1985) -- perhaps best known for describing the high level of violence in his country as “folkloric.” Beginning in the late 1970s, this group of US-trained uniformed savages began to systematically annihilate Mayan villages, which they feared might be sympathetic to left-wing guerillas.

The result was a lop-sided “civil war” that a 1999 UN-backed Truth Commission concluded had claimed more than 200,000 civilian lives, 2 percent of the country’s entire population. About 83 percent of these victims were Mayan Indians. While 3 percent of the victims were attributable to left-wing guerillas, the Commission estimated that 93 percent had been murdered by the Army and its death squads, which conducted massacres against some 626 Mayan villages. In addition, more than 1.5 million people were forced to emigrate. The Commission aptly described this entire policy as “genocide.”

In particular, for 17 months in 1982-83, General Rios Montt, a proud graduate of the US military’s School of the Americas (since renamed the “Western Hemisphere Institute for Security Cooperation”) and a self-styled “born-again Christian” who had become an ordained minister in California-based Gospel Outreach’s Guatemala Verbo evangelical church, presided over an especially harsh period of repression, which saw the expansion of the PAC (Las Patrullas de Autodefensa Civil vigilante groups that were responsible for wiping out most of the Mayan villages. A former investigator for the American Association for the Advancement of Sciences’ Guatemala exhumations project told me about one typical incident, near the central highlands village of Rio Negro in March 1982:

"

I organized the technical team that exhumed the gravesite at Rio Negro. We located the bodies of 177 women and children on a mountain side near the village, an hour by foot up the mountain from the dam. According to an eyewitness who was located by human rights investigators accompanying the team, the killings were done by the Patrullas, who were part of Rios Montt’s “Frijolles e Fulsilles” “(beans and bullets) strategy. The investigators located one old woman, a survivor who had managed to get away and witnessed the whole thing. According to her, the Patrullas marched these people up the mountain. The patrol was drinking. They put a tape on a cassette player and ordered the women to dance, “Just like you dance the guerillas.” They started shooting at their feet, then some of the Patrullas took some of the younger women off into the bushes and raped them. When the women fought back, they were hit in the face with rifle butts and knocked unconscious. This was consistent with the mandible fractures we found on a handful of bodies. We also found several infants who had skull fractures. The men of the village had escaped to the mountains, and did not expect the PAC to harm the women or children. They were wrong. They watched the whole thing from another mountain,,,,"

The origins of such policies go back at least to the June 1954 CIA-orchestrated coup against the duly-elected (with 65 percent of the vote!) government of Guatemalan President Jacobo Arbenz Guzman.

A Swiss immigrant and a reform-minded Army captain, but certainly no Communist, Arbenz had the temerity to contemplate polices like land reform, an income tax, a hydro dam that would compete with the US-owned electrical monopoly, and the nationalization (with compensation) of the United Fruit Company/Chiquita’s 600,000 acres in the early 1950s.

Of course variations on all of these “radical” measures had also been widely introduced in the US itself, with results that were generally beneficial to the public at large, if not the landed elite. But in the Guatemalan context, given the cold war passions of the day, not to mention the fact that United Fruit’s former corporate counselors, the Dulles brothers, were influential members of the Eisenhower Administration, it was easy for local elites and multinationals whose oxen were being gored to characterize all these measures as part of some Great Transnational Communist Conspiracy.

The result was the ’54 coup, and the elevation of Colonel Carlos Castillo Armas – who had previously been working as a furniture salesman in Honduras – to become the first in a long series of thugs with a really quite unusual combination of banality, venality, and brutality.

Fast forward now to the Carter Administration (1976-80), the one exception to the rule that saw US administration after administration cultivate and abet its two key local partners, Guatemala’s military and its land-owning elite. To his credit, Carter condemned the Guatemalan junta and cut off arms shipments, although the CIA quietly maintained its connections.

But when Ronald Reagan took office in January 1981, the old public policy of mutual understanding and back-scratching returned. Indeed, Deputy White House Chief of Staff Michael Deaver’s LA/DC- based PR firm, Deaver and Hannaford, was hired by the junta’s cronies, a substantial amount of Guatemalan money reportedly found its way to the Reagan war chest, and sanctions against US arms purchases disappeared. With encouragement from officials like Secretary of State Al Haig, military aid and advice to the junta was also promoted through Israel, which provided more than 300 security advisors, built an entire factory in the northern province of Alta Verapaz to manufacture Galil rifles, the Guatemalan Army’s weapon of choice against the Mayan peoples, and also supplied a computer system for tracking “subversives.”

Meanwhile, on the political front, there was a systematic attempt to erase the bloodstains from Guatemala’s image. US Assistant Secretary of State Thomas Enders praised Rios Montt for his “effective counterinsurgency,” and Ronald Reagan called him “a man of great personal integrity,” “totally dedicated to democracy,” and someone who had supposedly been given “a bum rap” by Amnesty International.

Rios Montt’s Personal Pacification Program. Fast forward once more to the late 1980s, skipping over the abattoir of the Reagan years. After leaving power, General Lucas Garcia discretely retired to Venezuela and contracted Alzheimers, while Mejia Victores quietly divided his time between Miami and Guatemala City. But Rios Montt, who had actually run for President unsuccessfully way back in 1974, still thirsted for power. He remained in Guatemala, adopting a shameless, “in-your-face” stance, and founding a new conservative party, the Republican Front (Frente Republica Guatemalteco, or FRG).

Unfortunately for his Presidential aspirations, the newly empowered Constitutional Court ruled twice, in 1990 and 1995, that Rios Montt was barred from running for President by Article 186, because of his role in the 1982 coup. So for the time being he contented himself with being the FRG’s Secretary General, key financier, and a member of Congress -- which, among other benefits, gave him immunity from prosecution. Meanwhile, he tried to govern through stand-ins.

In December 1999, FRG swept both the Congressional elections and the Presidency, with a great deal from help from Angel Gonzalez, a curious Miami-based Mexican media mogul who, after 1981, quietly managed to gain control of more than 20 Guatemalan radio stations and seven TV channels – including all four private TV channels (#3 and #7, the most popular, plus #11 and #13) that have national coverage. (This was by no means Angel Gonzalez’s only Latin American TV venture, or his oddest acquaintance – in Peru he also reportedly collaborated with ex-Fujimori spy master Vladimoro Montesinos in an effort to buy a TV channel.)
With this kind of help, Rios Montt’s protégé, Alfonso Portillo,a former university professor and self-confessed killer who had to flee from Mexico in the 1980s because he was wanted for murdering two people, became President in January 2000, and Rios Montt became the President of the National Congress.

Portillo’s Debacle. Rios Montt should have known -- what can one expect from a murderer? In the following three years, Portillo’s self-proclaimed neoliberal FRG administration went from commanding a 65-percent electoral majority to earning the dubious distinction, as one Guatemalan newspaper put it, of being “one the most corrupt in the history of this Central American country”— given the country’s history, no mean achievement. As early as January 2001, according to investigations by two leading Guatemalan newspapers, Portillo and his cronies had already started diverting Interior Ministry funds to Panamanian bank accounts. Portillo also reportedly appointed Angel Gonzalez’ brother-in-law, Luis Rabbe, as Minister of Communications, in charge of the country’s only public TV station. A flurry of other corruption, arms and drug dealing charges followed. By January 2002, 92% of Guatemalans had lost all confidence in Portillo’s administration. By the fall of 2003, the vast majority rated Portillo Guatemala’s worst elected head of state ever.

In January 2003, even the usually hard-shelled US Ambassador refused to attend Portillo’s annual speech to the National Congress, and the Bush Administration informed the US Congress that it intended to decertify Portillo’s drug enforcement program, which had gone through nine directors of its anti-drug unit in three years and was riddled with corruption. As one senior State Department official said, “Narcotics, trafficking, alien smuggling, money laundering, and organized crime in general are on the increase in Guatemala. Some of the leaders have very close ties to (President Portillo) and regularly influence his decisions.”

Even Rios Montt discovered that he was not entirely beyond the reach of the law. Guatemalan courts may not take human rights seriously, but it is very serious about liquor laws. In March 2001, its Supreme Court determined that Rios Montt and 23 other FRG legislators had participated in a conspiracy to reduce the country’s sales taxes on liquor without following proper parliamentary procedures. So his Congressional immunity was lifted against civil liability. That did not affect his immunity from criminal proceedings or military crimes, but it was one tiny crack in the wall of impunity.

In the event, however, the General bounced back again, determined to try once more to run for President. At first the Constitutional Court suspended his campaign for the same reason it had done so in 1990 and 1995. But in July 2003 he summoned thousands of his supporters to Guatemala City on what became known as “Black Thursday,” and literally held the country hostage until the CC relented, allowing him to be listed on the November ballet.

So now we wait for the final outcome. As indicated above, we have reasons to hope for the best – Rios Montt has discovered that he is being dragged under by the abysmal reputation of his fellow efrregista, Portillo. Absent another round of outrageous intimidation and violence by the General’s supporters – many of whom are former PAC members, recalled to action in the rural areas -- this Sunday should bring a least a little good news for the forces of democracy.

But contrary to Ronald Reagan’s hoary characterizations long ago, Rios Montt and his supporters are neither of men “great personal integrity” or “dedicated to democracy.” They are determined, unpredictable, dangerous, and evil. And they were largely of our creation.

After decades of intimate relations with the US and its various corporate interests and governmental agents, therefore, Guatemala today remains one of the bloodiest open sores on the pock-marked face of global capitalism. Not for nothing did Bill Clinton, in one of the finer, more humble moments of his Presidency -- for which he was roundly criticized by Republicans -- travel to Guatemala in March 1999 and apologize publicly to the Guatemalan people for the horrific impact that generations of US polices have had on their social and political well-being.

It is all very well for Americans to celebrate our undeniable achievements as a democratic society. It is also important for us to occasionally remind ourselves the incredible price that some of our poorest neighbors have paid for these achievements. As Rios Montt’s Gospel Outreach church likes to put it, “Eternity is a very long time to be wrong.”

***

© James S. Henry, 2003. Not for reproduction or other use without express consent of the author.

November 4, 2003 at 05:24 PM | Permalink | Comments (2) | TrackBack

Thursday, October 23, 2003

Microsoft's Getting FLOSSED - The Growing Spector of Open Source Software in the Third World

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What do the following events have in common? First, Microsoft's shares traded down sharply this week, despite the fact that its quarterly earnings report, released after the bell on October 23, generally exceeded analysts' expectations.

Second, Lula (Luis Ignacio da Silva), Brazil's feisty left-leaning President, suddenly got invited this month by Bill Gates to visit him in Seattle. And on October 10, 2003, the Government of Brazil released a letter of intent that it had recently signed with IBM, declaring "a common interest in concentrating their efforts and resources to develop technology based on open standards, such as Linux."

The fact is that a new spector is stalking Microsoft. This is not some Halloween ghoul, or even First World antitrust laws, though these continue to provide a few scary moments and hefty legal bills for Redmond. Rather, it is "FLOSS" -- the European Commission's acronym for for "Free/Libre Open Source Software," especially the freeware operating system Linux -- that has lately been giving Microsoft nightmares. (See the EC-sponsored report on FLOSS. See also the June 2003 study of the benefits of FLOSS for developing countries published by the Foreign Ministry of Finland, the original home of Linux kernal developer Linus Torvalds.).

Indeed, as Microsoft's top managers admitted this week - spooking investors, and causing a sell-off in the whole US technology sector -- they face a growing markeplace threat from such "Open Source" alternatives, especially Linux.

Of course Linux was originally the 1990s invention of independent, not-for-private-profit software developers like Torwalds and MIT's Richard Stallings, plus a global army of unpaid coders around the globe. But in the last five years it has gained momentum in the "real business" world, winning support from First World IT vendors like IBM, HP, and (begrudgingly) Sun Microsystems, and also making inroads among First World business and government customers. For them, the value proposition was not just cost but security. Microsoft's proprietary operating systems like Windows 98, NT, and XP, developed behind closed doors with no public access to the "source code," have all turned out to be full of glaring security bugs, as anyone who uses them and is inundated with MS "security fix updates" can testify. Indeed, several US government agencies that are most concerned about security, like the National Security Agency, have adopted Linux as their de facto standard. And many financially-strapped states, like Massachusetts, California, Texas, and Oregon, have lately also been debating whether or not FLOSS software might not only enhance security but save them money.

However, the real news is in the developing world, especially in leading "mid-level" like South Korea, Taiwan, and Malaysia, and emerging "markets of the future" (knock wood) like Brazil, China, South Africa, and India, and more troubled markets like Peru, Colombia, and Argentina. Here there is a growing movement, not only to adopt Linux for government applications, but also to use it for commercial services as well, and even to develop home-grown software applications that run on top of Linux and substitute for Microsoft's suite of Office applications.

Of course, as this post indicates, Bill Gates is not taking this lying down. Indeed, one of his many tactics has apparently to use his foundations to offer donations to schools projects in countries like Peru and South Africa, on the condition -- of course -- that they play ball. This is not a story that we expect to see covered in Slate Magazine , but we will continue to follow it here with great interest.

(c) James S. Henry, 2003. Not for reproduction or other use with express consent of the author.

October 23, 2003 at 01:35 AM | Permalink | Comments (0) | TrackBack

Saturday, October 18, 2003

Uzbekistan -- Our Own Little Cuba, Minus the Mambo and the Beaches

Karimov and Bush, 2002

The UK's courageous, outspoken Ambassador to the Central Asian "Republic" of Uzbekistan, Craig Murray, has raised quite a ruckus over his complaints about that country's repressive dictatorship. More to the point, he appears to have offended the USG by inconveniently reminding a few too many people in public that President Islam Karimov, (see http://www.uzbekistanembassy.uk.net/main/President/biography.htm for a glowing official bio), the former Soviet Politburo member who has ruled Uzbekistan with an iron fist and innumerable offshore banking relationships since 1989, has recently received more than $160 million a year of US economic and military aid, apparently without many scruples attached. All told, this has made the US by far the largest bilateral aid donor to Uzbekistan, althought the ADB, the EBRD, and the World Bank have also been very generous. Wherever that aid is going, evidently not much of it is reaching Uzbekistan's 7-10,000 political prisoners. (For more about their plight, including torture and murder, see http://www.csce.gov/press_csce.cfm?press_id=305). Many of them are probably in much greater need of health care than Ambassador Murray, when and if they emerge from Karimov's jails, but he has now been recalled to the UK on "sick leave." The beleagured Blair Government has been compelled to reject nasty insinuations that the recall might have anything to do with Washington's pique. (See the following report: http://observer.guardian.co.uk/politics/story/0,6903,1066291,00.html)

Meanwhile, US Secretary of State Colin Powell has twice certified that Uzbekistan is making "substantial and continuing progress" toward meeting its human rights obligations -- thereby permitting the aid dollars to continue flowing. Compare that with the Bush Administration's October 2003 decision to tighten the screws again on Castro's evil dictatorship in Cuba. (See http://usinfo.state.gov/xarchives/display.html?p=washfile english&y=2003&m=October&x=20031010181621relhcie0.3876459&t=usinfo/wf-latest.html)

This neatly puts in play the question of precisely which traditional American values, if any, are influencing our foreign policy priorities these days.

Obviously it would have helped if Cuba had anything like Uzbekistan's strategic location, or at least its natural gas reserves, which are at least 10 times the size of Cuba's. Clearly our tilt toward Karimov has nothing to do with comparative rates of political and religious repression, net rates of out-migration (Uzbekis are fleeing their country at a rate almost twice that of Cuba's), the degree to which the regime's top leader has "paid his dues" in Soviet service, or even the degree of state ownership in the economy. Perhaps it made a slight difference that there are some 500,000 Cuban emigres living in south Florida -- probably a few more than their Uzbeki refugee neighbors. For the interested reader, the following table provides a convenient side-by-side summary of these two submerging markets, and invites you to explain these contrasting US attitudes -- and also see which place you'd prefer to visit! (As a diver, I have to admit a slight bias -- Uzbekistan's Aral Sea, once the world's fourth largest lake, and one of the planet's worst environmental disasters, is well on its way to becoming the world's eighth largest lake, basically an undivable, dessicated flatland. But at least the Soviet Union dominated cotton exports! ( See Download file.)

(c) James S. Henry, October 2003. All rights reserved. No reproduction or other use without express consent from the author.

October 18, 2003 at 10:17 PM | Permalink | Comments (1) | TrackBack

Tuesday, October 14, 2003

Bolivia's Neoliberal Reckoning - Another Submerging Market

Evo and Goni

For those who have followed Bolivia's sorely troubled development path over the last thirty years, this week's sharp escalation of political violence is a tragic, but by no means surprising, conclusion to this tiny country's many failed experiments with both state-led development and neoliberal dogmatism. (For the recent conflict, which has already claimed at least 53 lives, see http://story.news.yahoo.com/news?tmpl=story&cid=586&e=5&u=/nm/20031014/wl_nm/bolivia_protests_dc.) Unfortunately, the US and several other Latin American countries bear a heavy responsibility for this fiasco. And Bolivia's failed policy experiments go a long way to explain why its citizens now have the lowest per capita incomes in South America, with 70 percent of the population living below the poverty line -- despite the fact that Bolivians are extraordinarily resourceful, and that their country is so rich in resources, like natural gas, zinc, gold, tin, spectacular scenery, culture, and history.

Bolivia has long suffered from exploitation at the hands of foreign and domestic elites. But the proximate cause of the current crisis is much more recent. In the 1960s and 1970s, desperate to prevent the country from moving to the left, the US and its "Condor Project" partners in the juntas of Brazil, Argentina, and Chile sponsored several coups in Bolivia that installed a series of military dictatorships and civilian governments that were "democratic" in name only.

The resulting rulers not only turned out to be corrupt, murderous thugs, but also fairly talented drug lords and arms merchants. For example, in the 1980s, the Bolivian Air Force was allowed to buy ten C-130 cargo planes from the US military, more than any other Latin American country. At the height of the cocaine trade, these planes made a great many unregistered flights to Miami, not only providing illicit arms for the Nicaraguan contras, but also laying the foundation for the direct supply routes around Colombian and Peruvian drug lords that the US has recently been complaining about so vociferously.

Another consequence of this development path was an extraordinary increase in corruption and inequality. Often these were directly subsidized by the Bolivian elites' foreign sponsors. To cite one notorious example -- the lavish four-lane, 6.2 mile, $140 million highway that connects downtown La Paz to its international airport. Funded by the InterAmerican Development Bank, a proxy for US support, this became one of the world’s most expensive roads per mile. As usual, most of the funds quickly disappeared into the pockets of well-connected "blancos."

Fast forward to the 1980s, by which time Bolivia had accumulated one of Latin America's heaviest foreign debt burdens -- again, with the encouragement of the USG, multilateral banks, and a bevy of foreign banks. So much of this debt was wasted that the country completely lost track of just how much debt it owed. In June 1979, Lloyds Bank estimated Bolivia's foreign debt at $1.9 billion. But in November 1982, Bolivia's new Finance Minister summoned a UN debt expert and a New York investment banker to measure it again. These experts spent a month pouring through reams of loan agreements at Bolivia's Central Bank that no one had bothered to tally, and located $3.6 billion. A year later, a more complete survey raised this to $3.8 billion, nearly twice the initial estimates -- all told, the highest per capita foreign debt in Latin America, owed by a country with just 8 million people. One of the UN auditors joked that he had singlehandedly doubled Bolivia's debt! But he was still not sure that all the debt had been found -- he only located $168 million of “ deuda reservado,” a proxy for the military's debts, including the funding for the C-130s. Other than the C-130s and the the IADB highway, there was little to show for all the debt, which was of course owed by the public. As in many other Latin American countries, the "cream" had long since been siphoned off to private bank accounts in Miami and New York.

By the mid-1980s, because of this debt overhang, Bolivia was flat broke, reduced to minting more and more of its own depreciating currency to pay its bills. That kicked off a Weimar-like hyperinflation. It also led the local elite and foreign bankers to seek outside help. One might have thought that they would have at least turned to someone familiar with the country's economy, region, industries, or at least a local languages. But instead they turned to Harvard's Prof. Richard Musgrave, who had worked on their tax system. He was by then a bit too old to leave Cambridge, so he introduced them to the youthful Prof. Jeffrey Sachs, by all accounts a brilliant young macroeconomist. Unfortunately, at that point he had no background whatsoever in any of these arenas, much less developing countries. What he did have was a strong conviction in the orthodox neoclassical economist's prescriptions about free markets, deregulation, and disinflation -- with an added twist of Ivy League presumption and noblesse oblige.

For Jeffrey, Bolivia (1985-86) turned out to be a bonanza, the first in a series of advisory roles for some of the world's most important submerging markets. From Bolivia he proceeded directly to Poland -- which, like Bolivia, also appeared to need anti-inflation shock therapy. From there he moved on to the rest of eastern European, and finally to Yeltsin's Russia in the early 1990s. Unfortunately, Russia proved to be a bit more complicated than these smaller countries, and he and his colleagues at Harvard's (since-abolished) "Institute for International Development," emerged from the experience with something less than an unblemished reputation. To this day, however, they remain more or less unapologetic about their role in Russia's "primitive accumulation," blaming most shortcomings on indigenous corruption, the lack of funds from the US government, and other anomalies.

In any case, for the hapless Bolivians, Sachsian liberalization proved to be the first in a series of very costly neoliberal experiments with their very lives. There is not enough space to tell the full story here, but the gist is that this neoliberal path and its political side-effects-- combined with a hefty dose of countervailing influence from the profoundly illiberal drug wars --- led almost inexorably, step by step, to the recent crisis.

Fortunately, we now have every reason to expect that thecorrupt, neoliberal, US-backed regime of President/ multimillionaire Gonzalo Sanchez de Lozada Bustamante, is on its last legs, and that this failed route to development has seen its last hurrah, at least in Bolivia. Senior Sanchez de Lozada became President in a dubious, heavily sedated vote by the Bolivian Congress, after he and the populist leader Evo Morales deadlocked in the June 2002 Presidential elections. Then Sanchez de Lozada sailed completely out of control, trying to privatize the country's natural gas reserves, which he offered on inexplicably favorable terms to former business cronies in Chile and the US. He also supported a dubious US-backed scheme to train a 1500-person paramilitary force to eradicate the country's coca crops by force. Even before this month's disturbances, that group had already been implicated in numerous acts of repression against campesinos and union leaders. By October 2003, most of Sr. Sanchez de Lozada's supporters had abandoned him -- his approval rating fell to 8 percent, and even his own hand-picked Vice President deserted when Sanchez called out the military to suppress popular demonstrations, at a cost of more than fifty lives.

So let us now take a moment of silence to honor these victims -- ultimately, of the neoliberal pipedream. And take note as well of the latest notch on the handle of the once-bright-eyed, bushy-tailed neoliberal policy advisors, now increasingly long in the tooth and short of success stories, and yet another "submerging market" that now seeths with animosity toward gringos, as all its political, social, legal, cultural, and economic institutions crumble into the dust. We can add Bolivia to the growing list of Latin America countries that are seeking another way -- Venezuela, Argentina, Ecuador, Nicaragua, Peru, Brazil. No wonder there are so many inter-South trade pacts and so many treaties with far-away places in Europe, China, and Russia under discussion; so many illegal immigrants streaming northward towards our border. Oh, by the way -- Bolivia's foreign debt now stands at $6.6 billion, about the same "real" per capita level as at the peak of the "1980s Third World debt crisis." Evidently that "crisis" was a rather prolonged one. Evidently there is more to economic development than controlling hyperinflation.

But Bolivia, the rest of Latin America, and Russia be damned! Who needs them? The neoliberal experts have decamped for Iraq, where they are busy preaching the same old nostrums about liberalization, privatization, and unfettered free markets -- except perhaps for drugs and arms. Perhaps fast therapy will work this time! See the enemy, Pogo? He's that well-meaning fellow over there in the corner, working quietly behind closed doors, outsmarting himself again.........

(c) James S. Henry October 2003. Not for reproduction or other use without express consent from the author.

October 14, 2003 at 06:42 PM | Permalink | Comments (0)

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