As the weary titan stumbles, stealing Latin America becomes more difficult

By Glenn Stehle

Correa’s four foundational policies are expanded health care, expanded education, improved infrastructure, and encouraging entrepreneurs by reducing the time and cost of starting a business in Ecuador.

[….]

Ecuador needs the money that producing the Yasuni oil can provide.

–WILLIAM K. BLACK, “Why is the economist chortling over the prospect of oil pollution in Ecuador?”

That Ecuador’s President Rafael Correa proposes extracting primary materials to pay for his ambitious policies should come as no surprise.

What he is doing, after all, is a result of something which has plagued Latin America for the last five centuries:  the lack of industrial development and an over-reliance on primary materials.  It is a phenomenon sometimes known as the resource curse.  And furthermore, as Marcos Roitman Rosenmann pointed out last week, “Latin America has not ceased to live off of primary materials”  (  “Latin America:  The cost of living off of primary materials”  ):

During the Spanish empire, gold, silver and sugar.  In the 19th and first part of the 20th centuries, coffee, rubber, tobacco, cocoa, bananas, wheat, precious stones and minerals like copper, tin, saltpeter and iron.  The era — the scientific-technological Industrial Revolution — was dominated by the productive process and the demand for primary materials increased exponentially, but left in evidence the unequal and predatory character of capitalism.

Roitman is referring to the fact that those countries which are over-reliant on primary materials have historically received little for their products.  And lamentably, as Routman adds,

Nothing seems to have changed.  In the 21st century, the much touted Chilean neoliberal miracle is little more than an exporter of grapes, apples, pears, peaches, salmon, paper pulp, and the eternal copper, together with new minerals for nanotechnology.

Roitman asserts that Chile has not broken free of the chains of the resource curse. It receives very little for the primary materials it produces, evidenced by a study published in 1993 by Gonzalo Martner, Chile’s ex-Minister of Planning under Salvador Allende:

In the commerce of many basic products, all the way from the phase of production to the phases of distribution, transport and commercialization, stands out the presence of multinational corporations which define all these processes as “inter-firm” transactions between a matrix of subsidiaries.  Multinational corporations control between 70 and 75 per cent of the commerce in bananas, rice, rubber and crude oil; between 75 and 80 per cent of that in tin; between 85 and 90 percent of cocoa, tobacco, wheat, cotton, jute, wood and copper; and between 90 and 95 percent of iron and bauxite.  Inter-firm transactions are done with “transfer” prices that do not reflect the prices of the market, and by this means the transnational corporations under report profits, export capital and evade paying taxes.

Of the final sales price to the consumer in the industrial country, the producing country receives 11 percent in the case of bananas, 14 in the case of coffee, 15 in the case of cocoa, 30 per cent in the case of citrus fruits and 10 per cent in the case of iron ore.

–GONZALO MARTNER, América Latina: El precio de vivir de las materia primas

Zambia finds itself in similar circumstances as Chile.  As is explained in the documentary film Stealing Africa, because of all the “inter-firm” trading that goes on between a “matrix of subsidiaries” of transnational corporations, the government of Zambia receives a pittance for the copper Zambia produces.  One study conducted by the Norwegian embassy found that the Zambian government received a mere $50 million for $3 billion worth of copper produced.  As if this were not bad enough, Zambia is then obligated to subsidize electrical power to the copper mines, which costs the government $150 million.  All this leaves the country greatly impoverished.

One reaction to this sort of maneuvering by transnational corporations has been a wave of nationalizations.  One of the first to do this was Mexico.  In 1938 President Lazaro Cardenas, with a rather masterful head fake to the Nazis, was able to nationalize the nation’s oil industry.  He formed the state-owned national oil company known as PEMEX.   And this has made a vast difference in the percentage of the revenues from oil production which accrues to the nation.  In 2010, PEMEX paid the Mexican government 70.4% of the firm’s total gross sales, a sum of 649,494,900 pesos (approx. $54 billion usd) which represented 51.1% of the Mexican government’s  total gross revenues that year.

Many other countries have followed suit.  According to the World Bank, state-owned national oil companies accounted for 75% global oil production and controlled 90% of proven oil reserves in 2010.   In 2007 Ecuador’s new government, although it did not nationalize the nation’s oil industry, nevertheless renegotiated its contracts with the various privately-owned transnational corporations which operate in Ecuador.  Oil revenues now make up about 14% of Ecuador’s total state budget.

Growing challenges to U.S. hegemony around the world have made it easier for popular, democratic sovereigns in places like Ecuador to defy the U.S. and Europe and freeze out the transnational corporations.  This allows them to grab a bigger piece of the primary materials pie.

Immanuel Wallerstein recently had this to say about the declining power of United States:

I have long argued that U.S. decline as a hegemonic power began circa 1970 and that a slow decline became a precipitate one during the presidency of George W. Bush. I first started writing about this in 1980 or so. At that time the reaction to this argument, from all political camps, was to reject it as absurd. In the 1990s, quite to the contrary, it was widely believed, again on all sides of the political spectrum, that the United States had reached the height of unipolar dominance.

However, after the burst bubble of 2008, opinion of politicians, pundits, and the general public began to change. Today, a large percentage of people (albeit not everyone) accepts the reality of at least some relative decline of U.S. power, prestige, and influence. In the United States this is accepted quite reluctantly….

The real question is what the consequences of this decline are. The first is the manifest reduction of U.S. ability to control the world situation….

[….]

The United States does remain a giant, but a giant with clay feet. It continues for the moment to have the strongest military force, but it finds itself unable to make much good use of it….

Whatever the United States tries to do in the Middle East today, it loses. At present none of the strong actors in the Middle East (and I do mean none) take their cues from the United States any longer. This includes Egypt, Israel, Turkey, Syria, Saudi Arabia, Iraq, Iran, and Pakistan (not to mention Russia and China).

But much more significant than Wallerstein’s claim was a similar claim Zbigniew Brzezinski made a few weeks ago at a conference at the Johns Hopkins School of Advanced International Studies. You can view the videos here, here and here.

Brzezinski is extremely hawkish, but not oneiric like the neocons.  He was the intellectual father of the Carter Doctrine, of the idea to finance the mujahedeen in Afghanistan, as well as the idea of the arms buildup and the development of the Rapid Deployment Forces – policies that are more generally associated with Ronald Reagan now.

The Carter Doctrine was originally articulated by Carter as follows:  “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

Reagan would change and expand the Carter doctrine to the following:  Only by enjoying unquestioned primacy in a region encompassing all of the Persian Gulf, the Caucasus, and Central Asia could the government of the United States “assure the unimpeded flow of oil” (General Robert Kingston) and guarantee American prosperity and therefore American freedom.

But remarkably, we now find even super-hawk Brzezinski acknowledging that the days of US world hegemony, and even hegemony in that region of the world, are over.

The importance of this is that it is not as easy for the U.S. to engineer the overthrow of a popularly elected leader, such as Correa, as it was, for instance, back in 1973 with the ouster of Salvador Allende. In 1971 Allende had nationalized Chile’s copper industry, as Wikipedia explains:

In the 1970 presidential election, the outright nationalization without compensation (known as the Chilenization of copper) became one of the basic campaign issues. Two out of the three presidential candidates incorporated the idea into their political platforms, while the third opted for a faster version of the “negotiated nationalization”.

After socialist candidate Salvador Allende won the election, he promised to deal with the issue head-on. In fact, at the beginning of 1971, he sent Congress a project for a constitutional amendment that would allow him to nationalize outright all mines, and to transfer all present and future copper fields to the state. Congress passed this amendment on July 11, 1971, by a unanimous vote, and based on it, on July 16, 1971 law 17.450 was promulgated, and became effective immediately. The event was celebrated as the Day of National Dignity (Spanish: Día de la Dignidad Nacional).

In principle, there was complete agreement about the process of nationalization of the mines among all political parties represented in the Chilean Congress, as indicated by the unanimous vote that approved law 17.450. When it came down to the particulars, however, there was much concern about the political use that the Allende administration would make of it. Even so, the bigger concern was for the expected reaction of the U.S. government.

The reaction of the U.S. government was swift and violent.  “Make the Economy Scream”: Secret Documents Show Nixon, Kissinger Role Backing 1973 Chile Coup discusses the lengths to which Nixon and Kissinger went to in order to oust Allende.  “In a savage action, Allende partisans were rounded up, gathered in a stadium, and murdered en masse,” Carlos Fuentes writes in The Buried Mirror.  “Others were sent to concentration camps, and still others were exiled and sometimes murdered abroad.”  Pinochet did all this in the name of democracy and Milton Friedman’s “capitalism and freedom.”

 

3 responses to “As the weary titan stumbles, stealing Latin America becomes more difficult

  1. This post lacks coherence. Is the point that the United States is a declining power, or that we have acted as a world bully for many years. Both accounts are accurate, but they seem unrelated by the post. Perhaps a paragraph or two tying these themes together is what’s lacking.

  2. Thomas Bergbusch

    Corrected text. Excellent piece. May I also recommend the series of posts by various economists on the 50th anniversary of the publication of Mel Watkins’ classic article, “A Staple Theory of Economic Growth,” at the progressive economics forum. See http://www.progressive-economics.ca/2013/09/24/the-staple-theory-50-introduction-to-a-special-blog-series/