BURN THE OLIVE TREE, SELL THE LEXUS ~ Free Market History 101

by Greg Palast and Oliver Shykles

[This essay grew out of Palast's remarks in a debate with Thomas Friedman before a World Economic Forum meeting in Cleveland in April, 2001.  Dated?  Yes.  Relevant?  Even more so now.  We must know the destructive history of 'free market' capitalism and bonehead economics in order to reasonably address (and get past) the complete myth of 'growth'.  We have to create a new meme for sustainable, local solutions so they can take root and thrive.  You can't know where you're headed if you don't know where you've been. ~ Gabrielle]

Globalization is really neat. Just ask Thomas Friedman. He has a column in the New York Times and he wrote a big, fat best-selling book, "The Lexus and the Olive Tree" which explains it all to us - the marvels of the New Globalization Order.

Now right there in my Lexus book it says that in this brave new world we will all have internet-enabled cell phones which will allow us to trade Amazon.com stock and, at the very same time, we can talk to Eskimos. The really exciting part is we will all be able to do this from our bedrooms in our pajamas.

When he's not in his pajamas Friedman is in fact one of a gaggle of happy-go-lucky globalizers running around chirruping the virtues of globalization in its current form. He lays out, on a level of detail never seen before, the ability of globalization to democratize three key areas: technology, finance, and information. He argues that everyone in this global New World Order will have access to the all the technology, finance and information they need to live healthy and happy lives.

And so when I finished reading his book I thought to myself, "Wow! This is a future I want to be a part of." Just imagine, every village from the Andes to Shaker Heights will be connected, empowered and enabled and that's one heck of a future. I want this and I want it now. But hold on a minute ... I just picked up the paper and it said that 100,000 people massed in Genoa to protest against the G8: that is the eight largest industrial nations driving forward globalization. And 10 months before 20,000 people had gathered in Prague to demonstrate against the World Bank and the International Monetary Fund: two of the key international agencies driving free trade expansion, a guiding force behind globalization.

So what the heck is wrong with these protesters, don't they understand? Haven't they heard about the Eskimos? Don't they understand economics? As the Prime Minister of Britain, Tony Blair, explains, "The protests and people who indulge in the protests are completely misguided. World Trade is good for peoples' jobs and peoples' living standards", "These protests are a complete outrage." But, you have to forgive youth it's lack of sophistication. They obviously haven't read the Gospel of Globalization according to Thomas, nor their daily scripture, the New York Times.

The answers were first became widely known as "Thatcherism" in Britain and "Reaganomics" in the US and then later as "The Washington Consensus". As Friedman puts it, "The Golden Straightjacket first began to be stitched together [...] by British Prime Minister Margaret Thatcher. That Thatcherite coat was soon reinforced by Ronald Reagan."

In fact, it's a very lucky thing that global capitalism happens to be such a good system because as far as Friedman is concerned it's now the only one left. Socialism, communism and fascism have all gone kaput, "The Cold War had the Mao suit, the Nehru jackets, the Russian fur. Globalization has only the Golden Straightjacket." And so all that's left in our closet is Friedman's golden straightjacket but it's okay because, as Friedman puts it, "the tighter you wear it the more gold it produces." So strap yourselves in! Everyone still breathing okay? Then I'll continue.

So there are no dissenters now, we all agree, we're all wearing the same straightjacket. As Friedman explains on page 106 of his book, it was all democratic, we all got to take part in the debate. And I thought about this and I remembered that we did have a choice, Friedman was right. We had our choice of George W. Thatcher, Reagan Clinton Bush or Al Thatcher Reagan Gore. You see, there's no room in the golden straightjacket for anyone who doesn't agree. And as Friedman himself admits, "it is increasingly difficult these days to find any real difference between ruling and opposition parties in those countries that have put on the Golden Straightjacket ... be they led by Democrats or Republicans, Conservatives or Labourites, Christian Democrats or Social Democrats."

So just when I was getting sized up for my own straightjacket, and boy was I excited, I read that there were riots in Ecuador. And I remember thinking to myself, "Oh my, why are they in the streets?" There are people in the streets and there are tanks too. And I thought to myself, "Perhaps the Internet is down, perhaps they're trying to unload their Amazon.com stock which is dropping like crazy. They can't log on. It's all jammed up. I mean, the future's on hold here. Will someone please call AOL."

Right on the front of one of them it said "restricted distribution" and "it may not otherwise be disclosed without World Bank authorization." It was a "confidential", for eyes only, document. I couldn't resist the temptation so pretend you never saw what I'm about to reveal to you - when you've finished, rip out this chapter and eat it right up. So I opened up the document. It was called The Ecuador Interim Country Assistance Strategy. I read this strategy and it included a schedule for raising the price of cooking gas. Now, they used to call these things "Structural Assistance Plans" but oops, they got a bad name, so like all the best PR firms, they did the right thing and changed the name. Now they're known as "Poverty Reduction Strategies ". Nothing like a little whitewash to keep people quiet. But the people of Ecuador weren't keeping quiet, so I read on ...

Along with the forced hike in cooking gas prices the World Bank required the elimination of 26,000 government jobs. Other poverty reduction strategies included a cut in pensions and a cut in real wages nationwide, by half no less, all this through World Bank directed macroeconomic manipulation. Part of the plan included the handing over of a license for a trans-Andes pipeline controlled by British Petroleum. I wasn't sure; perhaps I had become confused. Maybe they meant that the poverty reduction program was a poverty reduction program for British Petroleum.

In all, the World Bank and IMF helpfully "suggested" 167 strategies as part of its loan package. But Ecuador was broke, that's why it had asked for the World Bank's help in the first place. It desperately needed the wampum, so desperately in fact that it had no choice but to accept these strategies. I shall, therefore, refer to these "strategies" as conditions, which is what they are, loan conditions. No ifs, no buts, sign on the line thank-you very much.

Oddly I didn't read about Structural Assistance Plans or the 167 conditionalities for Ecuador in my Lexus nor in the Times. But just hold on a moment, what happened to democratic finance? Thomas Friedman, our new apostle, said that anyone can obtain finance capital now, it's all democratic. Hey, he said, even David Bowie can issue bonds (to the tune of $55 million no less). Maybe Ecuador's problem was that it didn't have a rock star to co-sign with them.

But there's a bigger problem here, these conditions weren't just put together especially for Ecuador. Any country in crisis receiving a loan package from the World Bank gets a neat little set of conditions along with their loans, 111 on average. Now you'd think that if they were doing all these wonderful things to reduce poverty they would want to shout it from the rooftops. Hey, perhaps they're just modest. In fact, talk about modesty - did you know they even found a cure for AIDS? Yes indeed, I kid you not.

But before I tell you how they did it you first have to understand all the conditions, all the little nuggets that can be found in the pockets of our golden straightjackets. So let's enumerate them just as Thomas Friedman does on page 105 of his book. Okay, privatization is number one. Second is deregulation: you've got to get rid of all those dull bureaucrats and their thick rule books, you know they just get in the way of things. Next is free trade: drop the borders between people and all the nice things they want. Four, free up the capital markets, let capital flow in order to generate business and jobs worldwide. Five, support those international agencies which enforce our new international order - the International Monetary Fund, the World Bank and let's not forget the good ol' World Trade Organization. In other words don't dye your hair green and go into the streets of Seattle and break the windows in a Starbucks. And finally: you must look for a market-based solution. Remember, that's the one that gives you the "win-win" situation.

Now, I can tell you that it's with the market based solution that they found a cure for AIDS in Tanzania. Now in Tanzania the silly things used to give away health care. Can you believe it? So what World Bank said was, "You've got to stop being so scatterbrained and start charging for medical care", "You've got a health care crisis and you've got to cure it with our market based solution".

In a nation with 1.4 million people with HIV/AIDS that means a lot of visits to the hospital. So when you start charging those people to visit the hospital they stop coming. In Dar Es Salaam the number of hospital visits dropped by 53%. That's quite a cure and I don't think anyone could beat that.

Now, globalization has many other "success" stories. In Britain, Margaret Thatcher took the electricity system and she privatized and deregulated it. Electricity used to cheaper in Britain than in the US but now consumers pay 70% more per unit than their American counterparts. The same process was applied to the gas system and the charges shot up to a level some 60% higher than in the US where some type of regulation still exists. Water in the US is still mostly a publicly owned system but the British, still not satisfied with the privatization and deregulation of the gas and electricity industries, went about the same process with the water industry. Now the happily straightjacketed folks there pay 250% more than we do in the US.

So tickled were they with their clever programs of privatization and deregulation they decided to spread the good news. The system spread, via a World Bank loan condition, to Brazil. There the electricity industry was targeted and the Rio Light Company of Rio de Janeiro was taken out of public hands. The new British, French and American owners came along and said, "Just look, look at this bloated and inefficient company and its huge payroll". So they immediately set to work making it lean and mean. And mean it was: they knocked off 40% of the workforce. But there was a problem; the workers knew where the transformers were. So the lights in Rio de Janeiro started flickering and Rio Light is now know as Rio Dark. But that was not all, for a flickering light system the people of Rio de Janeiro got to pay double what they had paid prior to privatization. But don't panic; it's not all doom and gloom. There was a huge increase in profits.

So after the failed attempt at privatization in Brazil they said, "well, let's try it again, we'll do it right this time. We'll go to India". And that failed, so they went to Pakistan: the attempt there became one of the reasons why they had a military coup. So they went to Chile and that didn't work there either. So they said, "Let's try, one more desperate time. We'll go to a place that understands the future. We'll go to California and they'll get it, they'll be able to deal with deregulation. They'll get the wonderful effects of reductions due to the miracles of the markets. There'll be competition and prices in California, which are too high, will plummet." In fact when the Californian legislature voted to de-regulate the price of electricity, they even changed the law to the effect that prices would fall 20%. Yet, year on year prices rose in the wholesale market in California. Actually in one year they rose 380%. So faced with a terrible problem in California they went to Cleveland instead.

While I was in Cleveland to debate Thomas Friedman I got a letter from my friendly-faced hotelier. It read: "Dear Guest, due to the current energy issue, a surcharge is being applied nightly to all guest accounts'. Well I'll tell you it's not an "energy issue". It's a crisis. And it's not a crisis of energy; it's a crisis of globalization. It's a crisis of a plan that never seems to work.

I used to work as an advisor with the utility commission of Ohio, amongst others, and we were thinking about what to do about the billions spent on nuclear plants and other wasteful projects that went nowhere. That was in the 1980s, in the bad old days before de-regulation, so the answer we came up with was simple: you put a cap on the price. You just put a cap on it. You regulate in the public's interest. But little did I know that we should have looked for the market-based solution. I am now reading Paul Krugman. Now he is the guy that appears in the New York Times with Thomas Friedman. So there it was, Friedman the globalizer and Krugman the globalizer and they agree with each other. Krugman says, "I know the solution to bring down the prices of supplies: what we should do is remove all caps and allow electricity prices to rise." And I said, "Wow!" I didn't think of it; that's really deep. If you want the prices to go down you raise them. And I thought about that. It's like a one hand clapping thing.

I have to confess I didn't understand it at all. I said, "This is beyond me. I had better go to one of the gurus of globalization. I mean one of the inventors of market-based solutions. You know: the top banana." So I went to Cambridge University with my camera crew from BBC. And I sat down, for several hours, with the man himself; the voice of globalization, Professor Joseph Stiglitz. Now Stiglitz was the chief economist of the World Bank. The guy who wrote some of these plans and conditions. The guy who came up with these market based solutions. And so I said, "You've gotta answer this for me. I'm really losing it, Professor Stiglitz. To cut electricity prices you raise the prices. To cure AIDS, you raise the price of medicine. To stop the hemorrhage of capital in Ecuador, you remove capital controls on the export of capital. I don't get it."

And so he explained it to me sort of like this, "You see, in the Middle Ages, they used to put leeches on people's bodies when they were ill and they would get sicker and sicker. And you know what they would say? They would say, "You know what? You know what's wrong? There's still blood." So they would apply more leeches. And that's how the globalisation program works. You just keep applying leeches and if a little deregulation seems to be making the system sick what you need is more deregulation to try to cure the system." And I said, "You know what? You don't sound like you're wearing your straightjacket." And he replied, "Well I'm not, not anymore". Despite the fact that there's supposedly no dissent, he was dissenting; and this is the guy who conceived the system.

So I asked him "What happened here then?", and he said, "Well, you know, economics is a science. It's a dismal science, but it's a science. And you know what the problem with globalization and the program of privatizations, deregulation, liberalisation of capital markets are? They don't work." And he told me to take a look at Latin America in the period 1960 to 1980. In the Dark Ages in which they had all kind of government regulations, controls, quasi-socialist economies and government intervention, Latin America's per capita income grew by 73%. The same went for Africa; its per-capita income grew by 34%. But it was "inefficient" and we thought we could do better with free-market solutions. And so it began in 1980, with the International Monetary Fund and then the World Bank, sending out structural assistance programs with loan conditions. They said, if we're going to give you money, you've got to change your economy.

Then came the economic miracle. Latin America, in the next 20 years in its straightjacket, went from 73% growth per capita income to just about nothing: 6%. Africa, which had grown at a pokey 34% during those 20 years, has since dropped by 23%. The privatization program became what Professor Stiglitz called the "briberization" program. What happened was that privatization became the means to sell off the country to bandits who then had no reason to operate businesses so instead they just sold off the assets. And that's what happened in Russia and there it resulted in a depression. I said to him, "You sound like a bitter man. Did it work for anyone, is it all doom and gloom?" He said, "Oh no, you look at the numbers for Asia; the World Bank always talks about how well Asia did. That's because of China and the tremendous growth it experienced." And I asked him what China's trick was and he replied, "They didn't listen to us!" China said, "We're not privatising; we're not liberalizing. Worry, keep your straightjacket."

I asked him if there were any other good stories. He said, "Yeah, Botswana." "So what did they do?" I asked. He said - no points for guessing - Botswana, it turns out, also said "Forget it." Botswana was the one nation in Africa that refused the International Monetary Fund and World Bank's help.

So it had all gone bad. The protesters were going to be out in the streets this week and there were protests going on in Ecuador. In fact, when we talk about protests we think about Seattle and Genoa and the claims that all these white college kids are just out there because they don't know what to do with themselves, and because they just don't understand economics. But what you didn't hear about was the 400 protests that took place in the Third World in 1999 alone. There they understand exactly what's going on.

But how come we never hear about these demonstrations on our televisions or in our newspapers? Well, it's because Thomas Friedman the globalizer, on the political left, writing in The New York Times, agrees with Milton Friedman the globalizer, on the political right. And the opinion in The Times matches the opinion in the Washington Post, which matches the Financial Times which matches ABC, NBC, BBC and CBC and any other mainstream media outlet you care to mention. And so it would seem that everyone agrees now. That is everyone who is doing quite well, thank you very much, out of globalization and out of the suffering of billions of people. They are not going to tell you about suffering on the streets in the First World and the Third World caused by the undemocratic international agencies and our supposedly democratically elected governments (the idea of democracy is based on a choice - a real choice, not a choice between globalistas and globalistas). They won't tell you that this system is a mess because it is not in their best interests to do so.

Currently the wealth of the world's 475 billionaires is greater than the combined income of the poorest half of humanity. But Friedman still wants to assure us that, "The answer is free-market capitalism. Other systems may be able to distribute and divide income more efficiently and equitably, but none can generate income to distribute as efficiently as free-market capitalism." I'm sure that the poorest half of humanity feels much better now Mr Friedman, thank you.

But there was nothing wrong with the international control of trade when the World Bank - that is the World Bank that John Maynard Keynes devised - came along and rebuilt the nations that had been flattened by World War II. The International Monetary Fund also helped by correcting the imbalance of trade that resulted from changes in commodity prices. But things changed in 1980 when we all climbed into our golden straightjackets with Thatcher, Reagan and Milton Friedman. The agencies were taken over by the Free-Market Believers who had plans for structural adjustment, globalizing and economies free of government.

"So where did we go wrong?" I asked myself. In my pile of confidential papers I found a General Agreement on Trade and Services (GATS) from the secretariat of the World Trade Organization. You're not supposed to see this either, but what the heck. This document contains a discussion of something called the "necessity test" and it tells you the real plan behind the several "democracies" Friedman says are the gift of globalization.

The "Necessity Test' appears within GATS article 6.4. Now I know this has nothing to do with trading stock in your pajamas, but this is what globalisation is really about. This is the plan for the establishment of a panel which will set national laws and regulations. What this innocuous looking article means is that only those regulations of a nation which are "least burdensome" to business for "legitimate policy purposes" are allowed. Legitimate policy purposes? But I thought that's what nations had Congresses and Parliaments for: it is for Congress and Parliament to decide what is legitimate and what is not. A "necessity test" already exists in the North American Free Trade Agreement (NAFTA); this will be expanded in the FTAA and this is why there were people in the streets in Quebec in April 2001.

So what happened under NAFTA with this "Necessity Test"? Well, there's an interesting story here: it's the story of the case of Metalclad, a US based company who wanted to build a toxic dump in Mexico. It was one of the new breed of globalizers following the advice of Larry Summers, who said that the Third World is under polluted from an economic point of view. Summers is the guy who was US secretary of the Treasury and Stiglitz's predecessor at the World Bank, so he must know what he's talking about. He was also the guy who demanded that Stiglitz be fired for dissent. (So now there cannot be any dissenting, because we all agree, right? There is no dissent now, because if you dissent your head is cut off and put on a spike on L Street, Washington. But I digress) So Metalclad wanted to put a toxic dump into a central Mexican state, on top of an aquifer, no less. And Mexico said, "You know, we have our rules. You can't put a toxic dump above our water supply." And Metalclad said, "Have you read NAFTA?" And so Metalclad took Mexico to court under the NAFTA "Necessity Test" rules.

But the NAFTA disputes panel is not like the courts as you know them, where things are open. The NAFTA disputes panel is secret, closed to the public. So Metalclad made their case and it turned out that Mexico was being "trade restrictive". So not only did Mexico get a toxic waste dump right on top of their aquifer but they also received a bill for millions of dollars for delaying the toxic dumping.

But it's not just Mexico that has experienced the full force of NAFTA, California now faces a bill for $976 million as punishment for not changing its anti-pollution laws. The trade restrictive hooligans there wanted to stop a Canadian company from selling them their toxic gasoline additive.

But I just couldn't get Ecuador off my mind so I went back to Stiglitz and asked him about how those pesky folks got into financial trouble in the first place. He told me the International Monetary Fund and World Bank years ago forced Ecuador to liberalize its capital markets, remove all restrictions on ownership of bonds on the movement of money across borders. This way, capital can easily flow in and flow out. But the capital flowed out and it flowed out. So the IMF said, my god, you gotta get that money back, start raising interest rates! So Ecuador raised their rates 10 ... 20 . 30 ... 40 ... 50 ... 60 ... 70 ... 80 ... 90%. But that caused the economy to go into the tank. Then the World Bank said "Well you can't raise interest rates anymore, so start selling everything that isn't nailed down." And when that money was used up to pay creditors the bank ordered a price rise on items like cooking gas.

Yet despite the World Bank's success, some people didn't want to put on their golden straightjackets. In 2000 there was a protest in Cochabamba, Bolivia. It was a protest against the privatization and deregulation of the local water company and it was led by the local Archbishop and a union leader named Oscar Olivera. The privatization and deregulation was part of the World Bank's cure because Cochabamba had problems; only 35% of the people there had good drinking water. So of course the World Bank said we have an idea: let's privatize the water company. And so they passed Cochbamba's problems to Bechtel, an American company, and International Water of London because they will know what to do, they will apply a market-based solution. And they did: they raised the price of water. That's why there were people on the streets.

Hugo Banzar, who used to be Bolivia's dictator but who had now become president, sent in the tanks. And then I got this note which told me that two days later a 17 year-old, Hugo Daza, had been killed, shot through the face. A friend of mine, who knows his family, told me that he was just in town to run an errand for his mother. In the protests that ensued four more people were shot dead. Jim Wolfensohn, president of the World Bank, was asked about the incident a couple of days later. He said, "The riots in Bolivia, I am pleased to say, are quieting down'. He then went on to warn the Bolivians that they had better start paying their water bills.

A year later the protesters won, and the price of water dropped. But then it started creeping up again. Then I got another note telling me that Oscar Olivera and the Archbishop, head of the human rights committee, had led another peaceful protest. The authorities had responded by sending in close to 1,000 heavily armed members of the Bolivian security forces to disperse the peaceful marchers with tear gas, beating them and confiscating their personal possessions. Oscar Olivera went missing.

It turned out that he had been detained by the authorities, an action which contravened Bolivian law: Article 7 of the Bolivian constitution guarantees citizens the right to protest and the freedom to meet and associate for legal ends. I understand now why Thomas Friedman, despite talking at length about the democratization of technology, of finance and of information, only once mentions the democratization of democracy and it's right there on page 167 where Friedman proudly explains democracy IMF-style: "It's one dollar, one vote."

I've gotta go now, I gotta get my cell phone, get in my pajamas and tell those Eskimos what's really goin' on.