Corporations Are Not Humans : Not Even Close --- Episode 42

                                         MANAGED COMPETITION

    The recent leap in the ability of transnational corporations to relocate their facilities around the world in effect makes all workers, communities, and countries competitors for these corporations' favor. The consequence is "a race to the bottom" in which wages and social conditions tend to fall to the level of the most desperate. 

   On September 14, 1993, E. I. du Pont de Nemours & Company announced it would dismiss 4,500 employees in its U.S.-based chemical business by mid-1994 to cut costs. While 4,500 families struggled to adjust to the fact that the economy had labeled their breadwinner a redundant burden, the money markets cheered. This layoff was part of a larger cutback of 9,000 people from du Pont's total worldwide workforce of 133,000 --- all part of a plan intended to cut the company's costs by $3 billion a year. The price of a share of du Pont stock jumped $1.75 on the day of the announcement. Such announcements have become daily fare in the financial fare in the financial press. Clearly, important changes are occurring in the structure of industry. According to The Economist :

     The biggest change coming over the world of business is that firms are getting smaller. The trend of a century is being reversed. . . Now it is the big firms that are shrinking and small ones that are on the rise. The trend is unmistakable --- and businessmen and policy makers will ignore it at their peril. 

   It is a widespread perception that the massive corporate giants have become too large and bureaucratic to compete against the more nimble and innovative smaller firms that we are told are rapidly gaining the advantage in highly competitive global markets. Proponents of this view point to the fact that large firms are shedding employees by the hundreds of thousands. To back their claim they cite statistics showing that the new employment and technological innovations are being generated primarily by more competitive small and medium-sized firms. Although employment growth and innovation do generally come from smaller firms, to claim that smaller firms have the advantage in global markets is highly misleading. 

   INTEGRATION AND COOPERATION AT THE CENTER

   For all their praise of free-market competition, most corporations seek to avoid it for themselves at every opportunity. As Adam Smith observed in 1776, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Such cooperation need not be born of evil motives. Competition creates turbulence, which is embraced as opportunity by speculators. But for those who manage productive enterprises, the resulting uncertainty makes investment planning inherently difficult, disrupts the orderly function of the firm, and can result in serious economic inefficiency. The desire to increase control and predictability by reducing competition might be considered one of the natural laws of the market. 
   Firms trying to reduce competition in the global economy by the same means have always used, by increasing their control over capital, markets, technology, and competitors. However, the combination of a globalized economy and modern information technologies lets firms consolidate that control on a scale never before possible. The competitive tactics are also familiar . Weaker competitors are absorbed, colonized, or crushed. Accommodation is sought with stronger competitors through strategic alliances, mergers, acquisitions, and interlocking boards of directors.
   A favorite corporate libertarian argument for globalization is that operating national markets introduces greater competition and leads to increased efficiency. This neglects the larger reality that when markets are global, the forces of monopoly transcend national borders to consolidate at a global level. As soon as borders are opened, the pressure mounts to allow domestic firms to merge into ever more powerful combinations in order to be "competitive" in the global marketplace. When Philip Morris acquires a Kraft and a General Foods, as it did in the 1980s to create the United States' largest food company, it does not make U.S. markets more competitive. Rather it creates a strengthened platform from which to create and project monopoly power on a global scale. 
   As a rule of thumb, economists consider a domestic market to be monopolistic when the top four firms account for 40 percent or more of sales. Through a series of mergers and consolidations, the top four major appliance corporations in the United States { Whirlpool, General Electric, Electrolux/WCI, and Maytag } controlled 92 percent of the U.S. appliance market as of 1990, and four airlines { United, American, Delta, and Northwest } accounted for 66 percent of U.S. revenue passenger miles. Four computer software companies { Microsoft, Lotus, Novell/Digital, and WordPerfect } controlled 55 percent of the U.S. software market in 1990, and two of them { Novell and WordPerfect } merged on June 27, 1994. 
   When five firms control more than half of a global market, that market is considered to be highly monopolistic. The Economist recently reported five-firm concentration ratios for twelve global industries. The greatest concentration was found in consumer durables, where the top five firms control nearly 70 percent of the entire world market in their industry. In In the automotive, airline, aerospace, electronic components, electrical and electronics, and steel industries, the top five firms control more than 50 percent of the global market, placing them in the monopolistic category. In the oil, personal computers, and media industries, the top five firms control more than 40 percent of sales, which shows strong monopolistic tendencies. 
   The argument that globalization increases competition is simply total bullshit.  To the contrary, it strengthens tendencies toward global-scale monopoly. 

   Agriculture has been a major subject in trade negotiations, with U.S. trade negotiators making a strong appeal for reducing barriers to free trade in agricultural commodities and eliminating protection for small farmers in Europe and Japan. The story of U.S. agriculture reveals why U.S. agribusiness corporations are so enthusiastically calling for the "freeing" of agricultural markets. It is part of the process of restructuring global agriculture into a two-tiered system controlled by the agribusiness giants. 

   From 1935 to 1989, the number of small farms in the United States declined from 6.8 million to under 2.1 million ; a period during which the U.S. population roughly doubled. As farmers have gone out of business, so too have the local suppliers, implement dealers, and other small businesses that once supported them. Entire rural communities have disappeared . Meanwhile, the major U.S. agribusiness corporations have grown and consolidated their power. The top ten "farms" in the United States are now international agribusiness corporations with names like Tyson Foods, ConAgra, Gold Kist,  Continental Grain, Perdue Farms, Pilgrims Pride, and Cargill---each with annual farm products sales ranging from $310 million to $1.7 billion. 
   Two grain companies ---Cargill and ConAgra---control 50 percent of U.S. grain exports. Three companies --- Iowa Beef Processors(IBP) , Cargill, and ConAgra---slaughter nearly 80 percent of U.S. beef.  One company --- Campbell's --- controls nearly 70 percent of the U.S. soup market. Four companies --- Kellogg, General Mills, Philip Morris, and Quaker Oats --- control nearly 85 percent of the U.S  cold cereal market. Four companies --- ConAgra, ADM Milling, Cargill, and Pillsbury ---mill nearly 60 percent of U.S. flour. This concentration is in part the consequence of 4,100 food industry mergers and leveraged buyouts in the United States between 1982 and 1990 ---and the consolidation process continues. 

   

Corporations Are Not Humans : Not Even Close---Episode 41

                        PROFITING FROM MARKET VOLATILITY

   The financial resources that private speculators bring into play in the world's money markets mock governmental efforts to manage interest and exchange rates to maintain economic stability and growth. Allen Metzler, one of the world's leading authorities on central banks and monetary policy, estimated that if the world's central bankers agreed among themselves on a coordinated commitment to protect a currency from a speculative attack, they might at best be able to muster $14 billion a day, a mere drop in the bucket compared with the more than $800 billion that currency speculators trade daily. 
   The U.S. dollar fell by approximately 10 percent against both the Japanese yen and the German mark during the first half of 1994. On June 24, 1994, the U.S. Federal Reserve and sixteen other central banks mobilized a coordinated intervention and bought an estimated 3 to 5 billion U.S. dollars to slow the fall. The market scarcely noticed. 
   We have reached a point at which such interventions do little to decrease volatility. They simply transfer taxpayer dollars into the hands of speculators.
   The onset of the Mexican peso crisis in December 1994 gave new insight into how costly the financial dysfunctions have become. Although little discussed by the financial press, the backdrop of Mexico's financial crisis was very different from the picture of an economic miracle that had been presented to the public by big business and the Clinton administration during their campaign to sell the North AmericanFree Trade Agreement (NAFTA). 
   For years, Mexico increased its foreign borrowing --- and thereby its foreign debt --- to cover consumer imports, capital flight, and debt-service payments. This borrowing took many forms, including selling high risk,  high-interest bonds to foreigners ; selling public corporations to private foreign interests ; and attracting foreign money with the speculative binge that sent Mexico's stock market skyrocketing. As little as 10 percent of the $70 billion in foreign "investment" funds that flowed into Mexico over the previous five years actually went to the creation of capital goods to expand productive capacity and thereby create a capacity for repayment. Prices of many of the assets transferred to foreign ownership were based on fictitiously inflated balance sheets. Projected debt service payments alone came to exceed the country's projected export revenues. Mexico's "economic miracle" was little more than a giant Ponzi scheme. 
   Who benefited from these inflows ? A few Mexicans built huge fortunes during this period. Forbes identified fourteen Mexican billionaires in its 1993 survey of the world's billionaires. It identified twenty-four in its 1994 survey. 
   The bubble burst in December 1994. The Mexican stock market lost more than 30 percent of its money value in peso terms as speculators rushed to pull their money out. Downward pressure on the overvalued peso due to the flight of money out of Mexico pushed the Mexican government into a deep financial crisis and forced it to devalue a highly overvalued peso. This resulted in a dramatic shift in the terms of trade between the United States and Mexico and priced most U.S. imports out of reach of the Mexican market. When it appeared that the Mexican government might be forced to default on its foreign obligations, the Wall Street investors who held Mexican bonds ran to the U.S. government with cries that the sky would fall unless U.S. taxpayers financed a bailout. President Bill Clinton responded by circumventing a reluctant Congress to put together a bailout plan totaling more than $50 billion in taxpayer money to ensure that the Wall Street banks and investment houses would recover their money. Critics of the bailout noted that not a penny of this money would go to the millions of poor and middle-class Mexicans who are bearing the major burden of the crisis. 
   Neither the bailout nor the interest rates as high as 92 percent on Mexican government securities had stemmed the peso's continuing decline by mid-March 1995. Austerity measures imposed by the Mexican government were expected to put 750,000Mexicans out of work during the first four months of 1995, and interest rates of 90 percent or more on mortgages, credit cards, and car loans would push many families into insolvency. Estimates of the number of U.S. jobs that would be lost due to the related drop in exports to Mexico ran as high as 500,000. 
   Shock waves from the Mexican crisis reverberated throughout the world's interlinked financial markets as speculators scurried to move their money to safer havens. When the Mexican stock market bubble burst, speculators with holdings in other Latin American countries got nervous and quickly pulled out their money, resulting in a fall of more than 30 percent in one month in the per-share value of the leading Latin American stock funds. When the U.S. bailout linked the dollar to the falling peso, wary currency speculators sold dollars to buy German marks and Japanese yen, further weakening the dollar in international currency markets.

   How did this look to the Stratos dwellers from high above the clouds ? The March 1995 issue of the United Airlines magazine Hemispheres,  placed in every seat pocket of United Airlines passenger planes, featured an article praising the success of the NAFTA and calling for its extension to the rest of the Western hemisphere.

   The ability to move massive amounts of money instantly between markets has given speculators a weapon by which to hold public money hostage to their interests, and they are increasingly open about calling attention to this fact. Economist Paul Craig Roberts of the Cato Institute, a Washington, D.C. thinking tank devoted to the propagation of corporate libertarianism, lectured President Clinton in a Business Week op-ed piece : 

     The dollar is also under pressure because investors have realized that Clinton favors big government "solutions," while other parts of the world, especially Asia and Latin America, are curtailing the scope of government and growing rapidly as a result. Equity investors have developed a global perspective, and they prefer markets where government is downsizing and the prospects for economic growth are good . . .  It would also help if Congress were to repeal hundreds of ill-considered laws that benefit special interests at the expense of the overall performance of the economy, and if thousands of counterproductive rules in the Code of Federal Regulations were removed.

   The process is simple. If the speculators who are shuffling hundreds of billions of dollars around the world decide that the policies of a government give preference to "special interests"--- by which they mean groups such as environmentalists, working people, or the poor --- over the interests of financial speculators, they take their money elsewhere, creating havoc in the process. In their minds, the resulting economic disruption only confirms their thesis that the policies of the offending government were unsound. The view expressed to the Washington Post by a foreign exchange analyst is typical : "A lot of central banks love to blame it on the speculators. I think it's more a question of their gross incompetence in managing their monetary policy than a speculative attack." 

The financial press continues to describe what is happening in terms of global investors and international capital flows, as though we were still living in a world in which those who have savings commit them to productive uses beneficial to society with the expectation of steady, long-term returns. The reality that the Stratos dwellers are loath to acknowledge is that financial institutions once dedicated to mobilizing funds for productive investment have transmogrified into a predatory, risk-creating, speculation-driven, global financial system engaged in the unproductive extraction of wealth from taxpayers and the productive economy. This system is inherently unstable and is spiraling out of control, spreading economic, social, and environmental devastation and endangering the well-being of every person on the planet. Among its more specific sins, the transmogrified financial system is cannibalizing the corporations that once functioned as good local citizens, making socially responsible management virtually impossible and forcing the productive economy to discard people as costly impediments to economic efficiency. 

Corporations Are Not Humans: Not Even Close---Episode 40

                   CREATING UNCERTAINTY AND RISK 

   There would be little opportunity for speculative profit in a stable financial market. In most instances, the extractive investor is taking advantage of price fluctuations to claim a portion of the value created by productive investors and by people doing real work --- a private tax levied on the productive output of others. It is difficult to see, for example, how arbitraging electronically linked markets to reduce two-second differentials in price adjustments serves any public purpose. The greater the volatility of financial markets, the greater the opportunity for these forms of extraction.

   The riskier and more destabilizing forms of extractive investments have received a major boost from the formation of a new breed of mutual funds --- called hedge funds --- that specialize in high-risk, short-term speculation and require a minimum initial investment of $1 million. The biggest of these, Quantum Fund headed by George Soros, controls more than $11 billion of investor money. Since aggressive hedge funds may leverage investor money to borrow $25 or more for every investor dollar, this would give a fund with $10 billion in equity potential control over as much as $250 billion. Many of the largest hedge funds produced a return of more than 50 percent for their shareholders in 1993. The downside risks are also substantial, however. One small hedge fund lost $600 million in two months in the mortgage markets and went out of business. 
   The fact that hedge funds are generally highly leveraged greatly increases both the potential gains and the risks. It also ties up banking system funds in activities that are of questionable benefit to society when the credit needs of home buyers, farmers, and productive businesses go unmet. 
   The claim that speculators increase price stability by moving markets more quickly toward their equilibrium was recently debunked by George Soros himself in testimony before the Banking Committee of the U.S. House of Representatives. Soros told the committee that when a speculator bets that a price will rise and it falls instead, he is forced to protect himself by selling, which accelerates the price drop and increases market volatility. Soros, however, told the committee that price volatility is not a problem unless everyone rushes to sell at the same time and a "discontinuity" is created, meaning there are no buyers. In that case, those with positions in the market are unable to bail out and may suffer "catastrophic losses." His testimony clearly revealed the perspective of the professional speculator, for whom volatility is a source of profits. If he were involved in productive forms of investment, he would surely have had a different opinion about price volatility. 
   Soros speaks from experience when he claims that speculators can shape the directions of market prices and create instability. He has developed such a legendary reputation as a shaper of of financial markets that a New York Times article, "When Soros Speaks, World Markets Listen" credited him with being able to increase the price of his investment simply by revealing that he has made them. After placing bets against the German mark, he published a letter in Times (London) saying, "I would expect the mark to fall against all major currencies." According to the New York Times, it immediately did just that "as traders in the United States and Europe agreed that it was a Soros market." On November 5, 1993, the New York Times business pages included the story, "Rumors of Buying by Soros Send Gold Prices Surging." 
  In September 1992, Soros sold $10 billion worth of British pounds in a bet against the success of British Prime Minister John Major's effort to maintain the pound's value. In so doing, he was credited with a major role in forcing a devaluation of the pound that contributed to breaking up the system of fixed exchange rates that governments were trying to put into place in the European union. Fixed exchange rates are anathema for speculators because they eliminate the volatility on which speculators depend. For his role in protecting the opportunity for speculative profits, Soros extracted an estimated $1 billion from the financial system for his investment funds. The resulting gyrations in the money markets caused the British pound to fall 41 percent against the Japanese yen over eleven months. These are the kinds of volatility that speculators considered a source of opportunity. 
   There is a substantial and growing basis for the conclusion of Felix Rohatyn, a senior partner with Lazard Freres & Co., that : 

     In many cases hedge funds, and speculative activity in general, may now be more responsible for foreign exchange and interest-rate movements than interventions by the central banks.
   . . . Derivatives . . . create a chain of risks linking financial institutions and corporations throughout the world ; any weakness or break in that chain (such as the failure of a large institution heavily invested in derivatives) could create a problem of serious proportions for the international financial system.

   The fact that many major corporations, banks, and even local governments have become active players in the derivatives markets as a means of boosting their profits began to attract the attention of the business press in 1994. The The risks can be substantial, yet the institutions that have been major players generally do not disclose their financial exposure in derivatives in their public financial statements, preferring to treat them as "off-balance-sheet" transactions. This makes it impossible for investors and the public to properly assess the real risks involved. 
   The truth becomes known only as major losses are reported, as when Proctor & Gamble announced a $102 million derivatives loss after interest rates rose more sharply than anticipated, or when bad real estate loans required a federal bailout of of the Bank of New England. The bank's balance sheet showed about $33 billion in total assets. Regulators, however, found that it had off-balance-sheet commitments of $36 billion in various derivatives instruments. 
   The Paine Webber Group announced in July 1994 that it would spend $268 million to bail out one of its money market funds, which had been marketed as a safe and secure investment, when it came up short on derivatives speculation. In 1994, BankAmerica and PiperJaffray Companies took similar actions. 
   The most publicized derivatives shock of 1994 came in December when California's Orange County announced that its investment fund of $7.4 billion in public monies from 187 school districts, transportation authorities, and cities faced losses of $1.5 billion. It had borrowed $14 billion to invest in interest-sensitive derivatives and lost its bet when interest rates rose. As a result, Orange County faced a severe cutback in public services, including its schools, and the possibility of sharp tax increases. 
   

Corporations Are Not Humans : Not Even Close : Episode 39

                                                  PREDATORY FINANCE  

   As mentioned earlier, one of the ideological premises of corporate libertarianism is that investment in by nature productive in the sense that it increases the size of the economic pie, adds to the net well-being of society, and therefore is of potential benefit to everyone. In a healthy economy, most investment is productive. The global economy is not, however, a healthy economy. In all too many instances, it rewards EXTRACTIVE investors who do not create wealth but simply extract and concentrate existing wealth. The extractive investor's gain is at the expense of other individuals or the society at large. 
   In the worst case, an extractive investment actually decreases the overall wealth of the society, even though it may yield a handsome return to an individual. This occurs when an investor acquires control of a productive asset or resource --- such as land, timber, or even a corporation --- from a group that is maintaining the asset's productive potential, then liquidates it for immediate profit. The investor is extracting value, not creating it. In some instances, such as an ancient forest, the asset may be irreplaceable. An investment that simply creates money or buying power, such as through the inflation of land or stock values, without creating anything of corresponding value, is also a form of extractive investment. The investor creates nothing, yet his or her share of a society's buying power is increased. 
   Speculation is another form of extractive investment. The financial speculator is engaged in little more than a sophisticated form of gambling --- betting on the rise and fall of selected prices. When a speculator wins, he or she is simply capturing claims to wealth created by others. When a large speculator funded with borrowed money loses, the survival of major financial institutions may be placed at risk, resulting in demands for a public bailout to save the financial system from collapse. In either instance, the public loses. Rarely does a speculator's activity contribute to the wealth or well-being of society.
   Although there may be some merit to speculators' claims that their activities increase market liquidity and stability, these claims have a hollow ring in increasingly volatile, globalized, financial markets in which speculative financial movements are a major source of instability and economic disruption. Furthermore, whatever contribution speculators may make to increasing the financial markets' efficiency, it comes at a substantial cost in terms of the profits and fees they extract. The additional risks and economic distortions created by a sophisticated class of financial instruments known as derivatives are an especially important source of concern. 
   The derivatives contracts that are currently a hot topic in the financial press involve bets on movements of stock prices, currency prices, interest rates, and even entire stock market indices. Futures contracts on interest rates didn't even exist until the late 1970s. Now outstanding contracts on interest rates total more than halfthe gross national product of the United States. The total value of outstanding derivatives contracts was estimated to be about $12 trillion in mid-1994, with growth projected to $18 trillion by 1999. In 1993, The Economist estimated the value of the world's total stock of productive fixed capital to be around $20 trillion.
   What makes derivatives particularly risky is that they are commonly purchased on margin, meaning that the buyer initially puts up only a small deposit against the potential financial exposure. The largest players may not be required to put up any money at all, even though their potential financial exposure may run into hundreds of millions of dollars.
  The more sophisticated derivatives are highly complex and are often not well understood, even by those who deal in them. In the words of Fortune :

     When they are employed wisely, derivatives make the world simpler, because they give their buyers an ability to manage and transfer risk. But in the hands of speculators, bumblers, and unscrupulous peddlers, they are a powerful leveraged mechanism for creating risk.

Corporations Are Not Humans: Not Even Close ---Episode38

Corporations Are Not Humans : Not Even Close ---Episode 37

                       THE GREAT MONEY MACHINE

   There are two common ways to create money without creating value.  One is by creating debt. Another is by bidding up asset values. The global financial system is adept at using both of these devices to create money delinked from the creation of value. 

                                                  DEBT

   The way in which the banking system creates money by pyramiding debt is familiar to anyone who has taken an elementary economics course. In the United States it begins when the Federal Reserve buys government bonds in the open market. Say the Fed buys a $1,000 bond from Person A, who deposits the check in his account with Bank M. The Federal Reserve then credits the reserve account of Bank M with $1,000 to cover the purchase. As Bank M is only required to maintain a reserve of, say, ten percent of deposits, it is thus able to loan $900 against this reserve to Person B, which Person B deposits in her account in Bank N. Now Person A has a cash asset of $1,000 in Bank M, and Person B has a cash asset of $900 in Bank N. Keeping a ten percent reserve, Bank N is able to loan $810 to Person C, who deposits it in Bank O, which then loans $729 to Person D, and so on. The original purchase of $1,000 bond by the Fed ultimately allows the banking system to generate $9,000 in new deposits by issuing $9,000 in new loans ---money created without a single thing of value having necessarily been produced. 
   The total of $1,000 in new money interjected into the banking system by the Federal Reserve is thus pyramided into $10,000 in new money, of which $9,000 is in loans on which the banks involved expect to receive the going rate of interest, let us say 8 percent. This means that the banking system expects to obtain a minimum annual interest return of $720 on $9,000 that has been created simply by entering an amount in the account of a borrower and crediting themselves with a corresponding asset in the amount of the outstanding loan. Now you know why banking is such a good business.
   In this instance, we have used the classic textbook example of how banks create money, assuming an average 10 percent reserve requirement---the actual varies from zero to 14 percent depending on the size of the bank and the nature of the account ---that must be retained on deposit with the U.S. Federal Reserve system. Without such a reserve requirement, the banking system could, in theory, create money without limit. 
   As the United States has spent beyond its means abroad, a growing portion of the total supply of dollars circulating in the world has accumulated in the accounts of foreign banks or foreign branches of U.S. banks. Known as Eurodollars, they are not subject to the reserve requirement of the U.S. Federal Reserve. If banks hold accounts where governments do not impose a reserve requirement, these banks can loan out the full amount of these deposits, should they choose to do so, giving the global banking system the capacity to endlessly expand the supply of dollars.

                                         ASSET VALUES

   The price of a stock or of a tangible asset such as land or a piece of art is determined by the market's demand for it. In an economy awash with money and investors looking for quick returns, that demand is substantially influenced by speculators' expectations that other spectators will continue to push up the price. Nicholas F. Brady, who served as U.S. treasury secretary under President George Bush, observed, "If the assets were gold or oil, this phenomenon would be called inflation. In stocks, it is called wealth creation." The process tends to feed on itself. As the price of an asset rises, more speculators are drawn to the action and the price continues to increase, attracting still more speculators ---until the bubble bursts as when the crash of the overinflated Mexican stock market caused the 1995 peso crisis. 
   
   Vast changes in the buying power of people who own such assets can occur within a very short time, with no change whatever in the underlying value of the asset or in society's ability to produce real goods and services. We are so conditioned to the idea that changes in buying power are related to changes in real wealth that it is easy to overlook the fact that this relationship is often simply an illusion. Consider the following excerpt from Joel Kurtzman's book The Death of Money, describing what happened on October 19, 1987, when the New York Stock Exchange's Dow Jones Industrial Average fell by 22.6 percent in one day : 

   If measured from the height of the bull market in August 1987, investors lost a little over $1 trillion on the New York Stock Exchange in a little more than two months. That loss was equal to an eighth of the value of everything that is manmade in the United States, including all homes, factories, office buildings, roads, and improved real estate. It is a loss of such enormous magnitude that it boggles the mind. One trillion dollars could feed the entire world for two years, raise the Third World from abject poverty to the middle class. It could purchase one thousand nuclear aircraft carriers.

Those who invested in the stock market did indeed lose individual buying power. Yet the homes, factories, office buildings, roads, and improved real estate to which Kurtzman refers did not change in any way. In fact, this $1 trillion could not have fed the world for even five minutes for the simple reason that people can't eat money.  They eat food,and the collapse of the stock market values did not itself increase or decrease the world's actual supply of food by so much as a single grain of rice. Only prices at which shares in particular companies could be bought and sold changed. There was no change in the productive capacity of any of those companies or even in the cash available in their own bank accounts.
   Furthermore, although stock values represent potential purchasing power for individual investors, they do not accurately reflect the aggregate buying power of all investors in the market for the simple reason that you can't buy much with a stock certificate. You cannot, for example, give one to the checkout clerk at your local grocery store for your purchase. You first have to convert the stock to cash by selling it. Now, although any individual can sell a stock certificate at the prevailing price and spend the money to buy groceries, if everyone decided to convert their stocks into money to buy groceries at the same time, much the same thing would happen as did on October 19, 1987. The aggregate value of their stock holdings would deflate like a punctured balloon.  The "money" --- the buying power--- would instantly evaporate. WHAT WE ARE DEALING WITH IS MARKET SPECULATION THAT CREATES AN ILLUSION OF WEALTH.  IT CONVEYS REAL POWERS ON THOSE WHO HOLD IT, BUT ONLY AS LONG AS THE BALLOON REMAINS INFLATED.

The whole nature of trading these vast sums in the world's financial markets is changing dramatically. The trend is toward replacing financial analysts and traders with theoretical mathematicians, "quants," who deal in sophisticated probability analysis and chaos theory to structure portfolios on the basis of mathematical equations. Since humans cannot make the calculations and decisions with the optimal speed required by the new portfolio management strategies, trading in the world's financial markets is being done directly by computers, based on abstractions that have nothing to do with the business itself.  According ro Kurtzman : 

     These computer programs are not trading stocks, at least in the old sense, because they have no regard for the company that issues the equity . . . The computers are simply . . . trading mathematically precise descriptions of financial products (stocks, currencies, bonds, options, futures). Which exact product fits the descriptions hardly matters as long as all parameters are in line with the description contained in the computer program. For stocks, any one will do if its volatility, price, exchange rules, yield, an beta(risk coefficient) fit the computer's description. The computer hardly cares if the stock is IBM or Disney or MCI. The computer does not care whether the company makes nuclear bombs, reactors, or medicine. It does not care whether it has plants in North Carolina or South Africa. 



   

   

Corporations Are Not Humans : Not Even Close---Episode 36

                    DELINKING MONEY FROM VALUE

   To understand what has happened to the global financial system, we must begin with an understanding of the nature of money. Money is one of humanity's most important inventions, created to meet an important need. 
   The earliest market transactions were based on the direct exchange of things of equal value, which meant that a transaction could occur only when two individuals met who each possessed an item they were willing to trade for an item possessed by the other. The useful expansion of commerce was greatly constrained. The constraint was partially relieved when people began to use certain objects that had their own intrinsic value as a medium of exchange---decorative shells, blocks of salt, bits of precious metals, or precious stones. Eventually, metal coins provided standard units of exchange based on the amount of precious metal, generally silver or gold, they contained. Later the idea emerged that it was more convenient to keep the precious metal in a vault and issue paper money that could be exchanged for the metal on demand. In a sense, the paper bill was originally the equivalent of a receipt showing that the bearer owned an amount of precious metal, but the receipt was more convenient and transportable. 
   Each of these innovations was, however, a step toward delinking money from things of real value. An additional step was taken at the historic 1944 Bretton Woods conference that created the World Bank and the International Monetary Fund. The countries represented at this meeting agreed to create a new global financial system in which each participating government guaranteed to exchange its own currency on demand for U. S. dollars at a fixed rate. The U.S. government, in turn, guaranteed to exchange dollars on demand for gold at a rate of $35 per ounce. This effectively placed all of the world's currencies on the gold standard, backed by the U.S. gold stored at Ft. Knox. Many governments thus came to accept U.S. dollars as gold deposit certificates and chose to hold their international foreign exchange reserves in dollars rather than gold. 
   This system worked reasonably well for more than twenty years, until it became widely evident that the United States was creating far more dollars to finance its massive military and commercial expansion around the world than it could back with its gold. If all the countries that were holding dollars decided to redeem them for gold, the available supply would be quickly exhausted, and those who had placed their faith in the integrity of the dollar would be left holding nothing but worthless pieces of paper. 
   To preclude this eventuality, on August 15, 1971, President Richard Nixon declared that the United States would no longer redeem dollars on demand for gold. The dollar was no longer anything but other than a piece of high-grade paper with a number and some intricate artwork issued by the U.S. government. The world's currencies were no longer linked to anything of value except the shared expectation that others would accept them in exchange for real goods and services.
   Once computers came into widespread use, the next step was relatively obvious --- eliminate the paper and simply store the numbers in computers. Although coins and paper continued to circulate, more and more of the world's monetary transactions involve direct electronic transfers between computers. Money has become almost a pure abstraction delinked from anyhting of real value.
   Four developments are basic to this transformation of the financial system : 

   1. The United States financed its global expansion with dollars, many of which now show up on the balance sheets of foreign banks and foreign branches of U. S. banks. These dollars are not subject to the regulations and reserve requirements of the U.S. Federal Reserve system. 

   2. Computerization and globalization melded the world's financial markets into a single global system in which an individual at a computer terminal can maintain constant contact with price movements in all major markets and execute trades almost instantaneously in any or all of them. A computer can be programmed to do the same without human intervention, automatically executing transactions involving billions of dollars in fractions of a second.

   3. Investment decisions that were once made by many individuals are now concentrated in the hands of a relatively small number of professional investment managers. The pool of investment funds controlled by mutual funds doubled in three years to total $2 trillion at the end of June, 1994, as individual investors placed their savings in professionally managed investment pools rather than buying and holding individual stocks. Meanwhile, there has been a massive consolidation of the banking industry --- more than 500 U.S. banks merged or closed between September 1992 and September 1993 alone ---concentrating control of huge pools of funds within the major international "money center" banks. Pension funds, now estimated to total $4 trillion in assets, are managed mostly by trust departments of these giant banks, adding enormously to their financial power. The pension funds alone account for the holdings of about a third of all corporate equities and about 40 percent of corporate bonds. 

   4. Investment horizons have shortened dramatically. The managers of these investment pools compete for investors' funds based on the returns they are able to generate. Mutual fund results are published daily in the world's leading newspapers, and countless services compare fund performance monthly and yearly. Individual investors have the ability to switch money among mutual funds with the push of a button on a phone or their computer mouse, based on these results. For the mutual fund manager, the short term is a day or less and the long term is perhaps a month. Pension fund managers have a slightly longer evaluation cycle. 

   Individual savings have become consolidated in vast investment pools managed by professionals under enormous competitive pressures to yield nearly instant financial gains. The time frames involved are far too short for a productive investment to mature, the amount of money to be "invested" far exceeds the number of productive investment opportunities available, and the returns the market has come to expect exceed what most productive investments are able to yield even over a period of years. Consequently, the financial markets have largely abandoned productive investment in favor of extractive investment and are operating on autopilot without regard to human consequences. 

   The financial system increasingly functions as a world apart at a scale that dwarfs the productive sector of the global economy, which itself functions increasingly at the mercy of the massive waves of money that the money game players move around the world with split-second abandon. 
   Joel Kurtzman, formerly business editor of the New York Times and subsequently editor of the Harvard Business Review,  estimated that for every $1 circulating in the productive world economy, $20 to $50 circulates in the economy of pure finance, although no one knows the ratios for sure. In the international currency markets alone, some $800 billion to $1 trillion changes hands each day, far in excess of the $20 billion to $25 billion required to cover daily trade in goods and services.  According to Kurtzman : 

     Most of the $800 billion in currency that is traded . . . goes for very short-term speculative investments---from a few hours to a few days to a maximum of a few weeks. . . That money is mostly involved in nothing more than making money. . . It is money enough to purchase outright the nine biggest corporations in Japan ---overvalued though they are ---including Nippon Telegraph & Telephone, Japan's largest banks, and Toyota Motors. . . It goes for options trading, stock speculation, and trade in interest rates. It also goes for short-term arbitrage transactions where an investor buys a product such as bonds or currencies on one exchange in the hopes of selling it at a profit on another exchange, sometimes simultaneously by using electronics.

   This money is not associated with any real value. Yet the money managers who carry out the millions of high-speed short-term transactions stake their reputations and careers on making that money grow at a rate greater than the prevailing rate of interest. This growth depends on the system's ability to endlessly increase the market value of the financial assets being traded, irrespective of what happens to the output of real goods and services. As this growth occurs, the financial or buying power of those who control the inflated assets expands, compared with the buying power of other members of society who are actually creating value but whose real and relative compensation is declining. 

     

Corporations Are Not Humans : Not Even Close --- Episode 35

                                    THE MONEY GAME 

     In this new market. . . billions can flow in and out of an economy in seconds. So powerful has this force of money become that some observers now see the hot-money set becoming a sort of shadow world government---one that is irretrievably eroding the concept of the sovereign power of a nation state. 

                    "Hot Money,"Business Week, March 20, 1995, 46




     The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented . . . If you want to be slaves of the bankers, and pay the costs of your own slavery, then let the banks create money.

                  Lord Josiah Stamp, former director, Bank of England 
                                                  (1937) 


   Each day, half a million to a million people arise as dawn reaches their part of the world, turn on their computers, and leave the real world of people, things, and nature to immerse themselves in playing the world's most lucrative computer game : the money game. On-line they enter a cyberspace fantasy world constructed of numbers that represent money and complex rules by which the money can be converted into a seemingly infinite variety of forms, each with its own distinctive risks and reproductive qualities. Through their interactions, the players engage in competitive transactions aimed at acquiring for their own accounts the money that other players hold. Players can also pyramid the amount of money in play by borrowing from one another and bidding up prices. They can also purchase a great variety of exotic financial instruments that allow them to leverage their own funds without actually borrowing. It is played like a game. But the consequences are real. 
   The story of economic globalization is only partly a tale of the fantasy world of Stratos dwellers and the dreams of global empire builders. Another story of impersonal forces is at play, deeply embedded in our institutional systems ---a tale of money and how its evolution as an institution is transforming human societies in ways that no one intended toward ends that are inimical to the human interest. It is a tale of the pernicious side of the market's invisible hand, of the tendency of an unrestrained market to reorient itself away from the efficient PRODUCTION of wealth to the EXTRACTION and CONCENTRATION of wealth. It is a tragic tale of how good and thoughtful people have become trapped in serving, even creating, a system devoted to the unrestrained pursuit of greed, producing outcomes they neither seek nor condone.
   Although the consequences are global, our primary focus is on the United States because, since World War II, the United States has had the dominant role in shaping the global economy and its institutions. Thus, there has been a tendency for the strengths and dysfunctions of the global system to be revealed first in the United States and then spread throughout the world. 
   


     

Corporations Are Not Humans : Not Even Close---Episode 34

   PROTECTING INTELLECTUAL PROPERTY MONOPOLIES 

   Many of the WTO provisions have have been put forward as necessary to ensure the efficient functioning of competitive markets. Yet the WTO does nothing to limit the ability of transnational corporations to use their economic power to drive competition out of the market by unfair means : absorb competitors through mergers and acquisitions ; or form strategic alliances with competitors to share technology, production facilities, and markets. Indeed, one of the few areas in which the WTO calls for strengthening government regulations and standards is in its agreement on intellectual property rights  : patents, copyrights, and trademarks. Here the WTO calls for strong government intervention to protect corporate monopoly rights to information and technology. 
   Particularly ominous is the effort to use the WTO to privatize the rights to genetic materials, including seeds and natural medicinals, through patenting. U.S. companies have aggressively pursued patent protection for seeds and genetic materials in the United States, convincing the U.S. government to extend patent protection to all genetically engineered organisms, from microorganisms to plants and animals, excluding only genetically engineered humans. By patenting the processes by which genes are inserted into a species of seeds, a few companies have effectively obtained monopoly rights over genetic research on an entire species and on any useful products of that research. These companies have been pressing hard to turn such patents into worldwide monopolies under the WTO. In 1992, Agracetus, Inc., a subsidiary of W. R. Grace, was granted a U.S. patent on all genetically engineered or "transgenetic" cotton varieties and had applications pending for similar patents in other countries accounting for 60 percent of the world's cotton crop, including India, China, Brazil, and the European Union. In March 1994, it received a European patent on all transgenetic soybeans and had a similar patent pending in the United States.
         Through the ages, farmers have saved seed from one harvest to plant their next crop. Under existing U.S. patent law, a farmer who saves and replants the offspring of a patented seed violates patent law. The corporate move to create global monopolies over seeds and other life-forms through patents has been the subject of mass demonstrations by farmers in India, who realized that under the GATT--WTO agreements, they could be prohibited from growing their own seed stocks without paying a royalty to a transnational corporation.
   The industry view of what is right and proper with regard to people's rights to their means of subsistence has been clearly expressed by Hans Lenders, secretary general of the industry association of corporate seed houses and breeders :

     Even though it has been a tradition in most countries that a farmer can save seed from his own crop, it is under the changing circumstances not equitable that a farmer can use this seed and grow a commercial crop out of it without payment of a royalty. . . The seed industry will have to fight harder for a better kind of protection. 

   Vandana Shiva, a leader of the Southern opposition to the patenting of life-forms, says, "This is just another way of stating that global monopoly over agriculture and food systems should be handed over as a right to multinational corporations." What we are seeing is a blatant effort by a few corporations to establish monopoly control over the common heritage of the planet. 

Corporations Are Not Humans : Not Even Close ---Episode 33

         GOVERNANCE IN THE CORPORATE INTEREST

   The world's major transnational corporations have had a highly influential insider role in GATT negotiations and are similarly active in the WTO. They are especially well represented in the U.S. delegation, which has had a pivotal role in shaping the GATT agreements. The key to this corporate access is the U.S Trade Act of 1974, which provides for a system of trade advisory committees to bring a public perspective to U.S. trade negotiations. The trade committees are supposed to conform to the Federal Advisory Committee Act of 1972, which sets guidelines for the membership of all such federal advisory committees. These include a requirement that public representation must be "fairly balanced in terms of points of view represented ad the functions to be performed by the advisory committee." Advisory committee processes are also required to be open to public scrutiny. 
   The U.S. trade representative's office has chosen to define this requirement to mean only that the advisory committee membership must represent all of the business community with regard to "balance  among sectors, product lines, between small and large firms, among geographical areas, and among demographic groups." A study by Citizen's Congress Watch released in December 1991 found that of 111 members of the three main trade advisory committees, only two represented labor unions. An approved seat for an environmental advocacy organization had not been filled, and there were no consumer representatives. The trade panels rarely announced their meetings to the public and never allowed the public to attend.
   The corporate interest, however, was well represented. The study found that ninety-two members of the three committees represented individual companies, and sixteen represented trade industry associations, ten of them from the chemical industry. Members of the Advisory Committee for Trade Policy and Negotiations, the most important of the panels, included such corporate giants as IBM, AT & T, Bethlehem Steel, Time Warner, 3M, Corning, BankAmerica, American Express, Scott Paper, Dow Chemical, Boeing, Eastman Kodak, Mobil, Amoco, Pfizer, Hewlett Packard, Weyerhaeuser, and General Motors ---all of which were also members of the U.S. Business Roundtable. Of all the corporate members all but General Motors were represented either by the chairman of the board or the president, in most instances, whichever of these officers functioned as CEO. According to Public Citizen's Congress Watch : 

     Advisory committees are so intertwined with governmental trade negotiators that panel members require security clearances. One of the perks of membership is a special reading room filled with classified documents available for perusal by nongovernmental advisors. To enable trade advisors' opinions regarding the current GATT talks to reach negotiators more quickly, a database has been established that instantly puts an advisory committee member's words at the negotiators' fingertips. Government sponsors of the trade advisory system take enormous trouble to keep trade advisors fully informed of every twist and turn in the negotiating process. Despite their enormous influence, the corporate trade counselors work in near total obscurity. 

   A 1989 Department of Commerce document described the involvement of advisory committee members in the 1979 Tokyo round of GATT :

     The advisory members spent long hours in Washington consulting directly with negotiators on key issues and reviewing the actual texts of proposed agreements. For the most part, government negotiators followed the advice of the advisory committee. . . Whenever advice was not followed, the government informed the committees of the reasons it was not possible to utilize their recommendations. 

   Of the ninety-two corporations represented on the three trade advisory panels, twenty-seven companies or their affiliates had been assessed fines by the U.S. Environmental Protection Agency (EPA) totaling more than $12.1 million between 1980 and 1990 for failure to comply with existing environmental regulations. Five --- DuPont, Monsanto, 3M, General Motors, and Eastman Kodak---made the EPA's top ten list of hazardous waste dischargers. Twenty-nine of the member companies or their affiliates had collectively contributed more than $800,000 in a failed attempt to defeat California's Safe Drinking Water and Toxics Enforcement Act, a statewide initiative to require accurate labeling on potentially cancer-causing products and to limit toxic discharges into drinking water. Twenty-nine had put up over $2.1 million in a successful bid to defeat another California initiative called Big Green, which, among other provisions, would have set tighter standards for the discharge of toxic chemicals. 
   Clayton Yeutter, in his capacity as U.S. secretary of agriculture under George Bush, stated publicly that one of his main goals was to use GATT to overturn strict local and state food safety regulations. He rationalized, "If the rest of the world can agree on what the standard ought to be on a given product, maybe the U.S. or EC will have to admit that they were wrong when their standards differ."
   The WTO uses the global health and safety standards for food set by the Codex Alimentarius Commission, or Codex. Codex is an intergovernmental body established in 1963 and run jointly by the UN Food and Agriculture Organization (FAO) and the World Health Organization (WHO) to establish international standards on pesticide residues, additives, veterinary drug residues, and labeling. Critics of Codex observe that it is heavily influenced by industry and has tended to harmonize standards downward. For example, a Greenpeace USA study found that Codex safety levels for at least eight widely used pesticides were lower than current U.S. standards by as much as a factor of twenty-five. The Codex standards allow DDT residues up to fifty times those permitted under U.S. law.
   Governmental delegations to Codex routinely include nongovernmental representatives, but they are chosen almost exclusively from industry. One hundred forty of the world's largest multinational food and agrochemical companies participated in Codex meetings held between 1989 and 1991. Of a total of 2,587 individual participants, only twenty-six came from public-interest groups. Nestle, the world's largest food company, had thirty-eight representatives. A Nestle spokesperson explained,"It seems to me that governments are more likely to find qualified people in companies than among the self-appointed ayatollahs of the food sector." 

Corporations Are Not Humans :Not Even Close --- Episode 32

 THE WORLD'S HIGHEST JUDICIAL AND LEGISLATIVE 
                                             BODY 

                   THE WORLD TRADE ORGANIZATION

   The third institution called for by the Bretton Woods meeting ---the International Trade Organization ---was stillborn because of concerns in the U.S Congress that its powers would infringe on U.S. sovereignty. The General Agreement on Tariffs and Trade (GATT) served in its stead, with a somewhat ambiguous status, as the body through which multilateral trade agreements were fashioned for nearly fifty years, until the Uruguay round of GATT negotiations quietly gave birth to the World Trade Organization (WTO) on January 1, 1995.  It was a landmark triumph for corporate libertarianism. What the World Bank and the IMF had accomplished in institutionalizing the doctrines of corporate libertarianism in low-income countries, the WTO now had a mandate and enforcement powers to carry forward in both high-and low-income countries. 
   The key provision in the 2,000-page agreement creating the WTO is buried in paragraph 4 of Article XVI : "Each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements." The "annexed Agreements"include all the substantive multilateral agreements relating to trade in goods and services and intellectual property rights. This provision allows a WTO member country to challenge any law of another member country that it believes deprives it of benefits it expected to receive from the new trade rules. This includes virtually any law that requires imported goods to meet local or national health, safety, labor, or environmental standards that exceed WTO-accepted international standards. Unless the country against which the complaint is lodged can prove to the WTO panel that a number of restrictive provisions have been satisfied, it must bring its own laws into line with the lower international standard or be subject to perpetual fines or trade sanctions.
   The WTO's goal is to "harmonize" international standards. Regulations requiring that imported products meet local standards on such matters as recycling, use of carcinogenic food additives, auto safety, toxic substances, labeling, and meat inspection are all subject to challenge. The offending country must prove that a purely scientific justification exists for its standards. The fact that its citizens simply do not want to be exposed to the higher level of risk associated with the power WTO standard isn't acceptable. 
   
   Conservation measures that restrict the export of a country's own resources---such as forestry products, minerals, and fish products --- can be ruled unfair trade practices, as can requirements that locally harvested timber or other resources be processed locally to provide local employment. Cases can also be brought against countries that attempt to give preferential treatment to local over foreign investors or that fail to protect the intellectual property rights (patents and copyrights) of foreign companies. Local interests are no longer a valid basis for local laws under the new WTO regime. The interests of international trade, which are primarily the interests of transnational corporations, take priority. 
   Challenges may also be brought against the laws of state and local governments located within the jurisdiction of a member country, even though these governments are not signatories to the new agreement. The national government under whose jurisdiction they fall becomes obligated to take all reasonable measures to ensure the compliance of these state or local administrations. Such "reasonable measures" include preemptive legislation, litigation, and withdrawal of financial support.
   The fact that local laws are subject to challenge under the WTO does not necessarily mean that they will be. However, there are numerous cases in which these same types of laws were successfully challenged under the previous, less stringent, GATT rules. Even before the GATT-WTO was ratified , the United States, Canada, the  European Community, and Japan had each compiled extensive lists of one another's laws that they intended to target for challenge once the agreement was in place.
   Although the GATT-WTO is an agreement among countries, and challenges are brought by one country against another, the impetus for a challenge normally comes from a transnational corporation that believes itself to be disadvantaged by a particular law. For example, tobacco companies have repeatedly used trade agreements to fight health reforms intended to reduce harm from cigarette smoking. 

   When a challenge to a national or local law is brought before the WTO, the contending parties present their case in a secret hearing before a panel of three trade experts, generally lawyers who have made careers of representing corporate clients in trade issues. There is no provision for the presentation of alternative perspectives, such as amicus briefs from nongovernmental organizations, unless a given panel chooses to solicit them. Documents presented to the panels are secret, except that a government may choose to release its own documents. The identification of the panelists who supported a position or conclusion is explicitly forbidden. The burden of proof is on the defendant to prove that the law in question is not a restriction of trade as defined by the WTO. 
   When a panel decides that a domestic law violates WTO rules, it may recommend that the offending country change its law. It becomes, in effect, the world's highest court. Countries that fail to make the recommended change within a prescribed period face financial penalties, trade sanctions, or both.
   
   Under the proposed rules, the recommendations of the review panel are automatically adopted by the WTO sixty days after presentation unless there is a unanimous vote of WTO members to reject them. This means that over 100 countries, including the country that won the decision, must vote against a panel decision to overturn it --- rendering the appeals process virtually meaningless. 
   The WTO has legislative as well as judicial powers. GATT allows the WTO to change certain trade rules by a two-thirds vote of WTO member representatives. The new rules become binding on all members. The WTO becomes, in effect, an unelected global parliament of trade lawyers with the power to amend its own charter without referral to national bodies. 

Corporations Are Not Humans : Not Even Close ---Episode 31

                                                IF THE POOR MATTERED

Properly understood, development is a process by which people increase their human, institutional, and technical capacities to produce the goods and services needed to achieve sustainable improvements in their quality of life using the resources available to them. Many of us call such a process people-centered development, not only because it benefits people but also because it is centered in people. It is especially important to involve the poor and excluded, thus allowing them to meet their own needs through their own productive efforts. A small amount of help from abroad can be very useful in a people-centered development process, but too much funding can prevent real development and even break down the existing capabilities of a people to sustain themselves.
   Let's reduce the problem to its basics. Poverty --- generally defined as a lack of money is the problem --- the lack of access to adequate food, clothing, shelter, and other essentials of a decent life.  This simple fact suggests a people - centered alternative to both the import-substitution and export-led development models that were considered to be the only available choices in early development debates : pursuing policies that create opportunities for people who are experiencing deprivation to produce the things that they need to have a better life. 
   This is, in many respects, what Japan, Korea, and Taiwan did. Each made significant investments to achieve a high level of adult literacy and basic education, carried out radical land reform to create a thriving rural economy based on small-farm production, and supported the development of rural industries that produced things needed by small farm families. These became the foundation of larger industries. The development of these countries was equity-led, not export-led ---contrary to the historical revisionism of corporate libertarians. Only after these countries had developed broad-based domestic economies did they become major exporters in the international economy.
   From the standpoint of transnational corporate capital and the World Bank, a people-centered development strategy presents a major problem. Since it creates very little demand for imports, it also creates little demand for foreign loans. Furthermore, it favors local ownership of assets and thus provides few investment opportunities for global corporations.
   Foreign aid, even grant aid, becomes actively antidevelopmental when the proceeds are used to build dependence on imported technology and experts, encourage import-dependent consumer lifestyles, fund waste and corruption, displace domestically produced products with imports, and drive millions of people from the lands and waters on which they depend for their livelihoods---all of which are common outcomes of World Bank projects and structural adjustment programs.
   In addition, there is evidence that most Bank projects are failures, even by the Bank's own narrowly defined economic criteria. In 1992, an internal Bank study team headed by Willi Wapenhans published a report, "Effective Implementation : Key to Development Impact," which concluded that 38 percent of Bank-funded projects completed in 1991 were failures at the time of completion. The study found that twelve of twenty-five projects rated as successful when completed eventually turned out to be failures. If only half of the 62 percent of projects rated successful at completion in 1991 eventually achieved their projected returns, then less than a third of all bank projects will have provided sufficient economic return to justify the original investment. However, failures or not, the loan must be repaid in scarce foreign exchange. The Bank bears no liability for its own errors.

If measured by contributions to improving the lives of people or strengthening the institutions of democratic governance, the World Bank and the IMF have been disastrous failures, imposing n enormous burden on the world's poor and seriously impeding their development. In terms of fulfilling the mandates set for them by their original architects ---advancing economic globalization under the domination of the economically powerful --- they both have been resounding successes. Together, the Bank and the IMF have helped build powerful political constituencies aligned with corporate libertarianism, weakened the democratic accountability of Southern governments, usurped the functions of democratically elected official, and removed most consequential legal and institutional barriers to the recolonization of Southern economies by transnational corporations. 

Corporations Are Not Humans : Not Even Close---Episode 30

                             WHEN THE BILL COLLECTOR CALLS 

   Lending from the World Bank and its sister regional banks was a fairly orderly process until the late 1970s, when the rise in oil prices effected by the OPEC countries caused the foreign debt of Southern countries to skyrocket. From 1970 to 1980, the long-term external debt of low-income countries increased from $21 billion to $110 billion. As real interest rates soared, it became evident that the borrowing countries were so seriously overextended that default was imminent, leading potentially to a collapse of the whole system. The World Bank and the IMF, acing as overseers of the global financial system, stepped in --- much as court-appointed receivers in bankruptcy cases --- to set the terms of financial settlements between virtually bankrupt countries and the international lenders.
   In their capacity as international receivers, the World Bank and the IMF imposed packages of policy prescriptions on indebted nations under the rubric of structural adjustment. Each structural adjustment package called for sweeping economic policy reforms intended to channel more of the adjusted country's resources and productive activity toward debt repayment, privatize public assets and services,  and further open national economies to the global economy. Restrictions and tariffs on both imports and exports were reduced, and subsidies were offered to attract foreign investors. 
   Some of the reforms, such as a reduction of subsidies to the rich, were long overdue. However, others provided new subsidies for exporters and foreign investors. Government spending on social services for the poor was reduced to free more funds for loan repayment. In adjusted countries in Africa and Latin America aggregate governmental spending per person declined between 1980 and 1987, while the share of the total budget devoted to interest payments increased. The share of all other budget categories ---including defense---decreased. In Latin America, the portions of government budgets allocated to interest payments increased from 9 percent to 19.3 percent. In Africa, it rose from 7.7 percent to 12.5 percent. 
   The World Bank and the IMF proclaimed their structural adjustment programs to be a resounding success and declared the debt crisis resolved. They pointed to the fact that many of the adjusted countries subsequently experienced higher growth rates, expanded their export sectors, increased the total value of their exports, attracted new foreign investment, and became current on their debt repayments. Yet international debts and trade deficits increased and social conditions deteriorated.
   To attract foreign investors, adjusted governments suppress union organizing to hold down wages, benefits, and labor standards. They give special tax breaks and subsidies to foreign corporations and cut corners on environmental regulations. The fact that dozens of countries seek to increase foreign exchange earnings by increasing the export of natural resources and agricultural commodities drives down the prices of their export goods in international markets, creating pressures to extract and export even more to maintain foreign exchange earnings. Falling prices for export commodities, profit repatriation by foreign investors, and increased demand for manufactured imports stimulated by the reduction of tariff barriers result in continuing trade deficits for most countries. FROM 1980 ( the beginning of the World Bank -IMF decade of structural adjustment) TO 1992, THE AGGREGATE TRADE DEFICIT OF LOW-INCOME COUNTRIES INCREASED FROM $6.5 BILLION TO $34.7 BILLION.  
   The Bank and the IMF responded with more loans to cover the growing trade deficits as a reward for carrying out structural adjustment . As a result, the international indebtedness of low-income countries increased from $134 billion in 1980 to $473 billion in 1992. Annual interest payments on this debt increased from $6.4 billion to $18.3 billion. Rather than increasing their self-reliance, the world's low-income countries, under the guidance of the World Bank and the IMF, mortgage yet more of their futures to the international system each year.
   We may infer from the programs and policies of the World Bank and the IMF that they favor a world in which all goods for domestic consumption are imported from abroad and paid for with money borrowed from foreign banks. All domestic productive assets and natural resources are owned by foreign corporations and devoted to export production to repay the foreign loans. AND ALL PUBLIC SERVICES ARE OPERATED BY FOREIGN CORPORATIONS ON A FOR-PROFIT BASIS.  It makes no sense if the goal is help the poor. IT MAKES PERFECT SENSE IF THE GOAL IS TO INCREASE THE POWER AND PROFITS OF GLOBAL CORPORATIONS. 

Corporations Are Not Human Not Even Close ---Episode 29

                           ELIMINATING THE PUBLIC INTEREST 

   In the flurry of global institution building that followed World War II, the spotlight of public attention was focused on the United Nations (UN), which was to include all countries, each with an equal voice --- at least in its General Assembly. Delegates to the UN are public figures, and debates are open to public view and often heated. Yet the General Assembly has little real power. The real ability to act is vested in the Security Council, in which each of the major powers maintains the right of veto. Judging from its governance structures, it must be concluded that the UN was created primarily to function as a forum for debate. 
   In contrast, three other multilateral institutions were created with relatively little fanfare to operate outside the public eye --- the International Bank for Reconstruction and Development (commonly known as the World Bank), the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT) ---now the World Trade Organization (WTO).  These three agencies are commonly referred to as the Bretton Woods institutions, in tribute to a meeting of representatives of forty-four nations who gathered in Bretton Woods, New Hampshire, July 1--22, 1944, to reach agreement on an institutional framework for the post-World War II global economy. The public purpose of what became known as the Bretton Woods system was to unite the world in a web of economic prosperity and interdependence that would preclude nations' taking up arms. Another purpose in the eyes of its architects was to create an open world economy unified under U.S. leadership that would ensure unchallenged U.S. access to the world's markets and raw materials. Two of the Bretton Woods institutions ---the IMF and the World Bank ---were actually created at the Bretton Woods meeting. The GATT was created at a subsequent international meeting.

   Although formally designated as "special agencies" of the U.N. , the Bretton Woods institutions function autonomously from it. Their governance and administrative processes are secret,  carefully shielded from public scrutiny and are so secretive that access to many of its most important documents relating to country plans, strategies, and priorities is denied to even its own governing executive directors. In the World Bank and the IMF, the big national powers have both veto power over certain decisions and voting shares in proportion to their shares of the subscribed capital---ensuring their ability to set and control the agenda. 

   It is critical that we examine how, in playing out their roles, the World Bank and the IMF have worked in concert to deepen the dependence of low-income countries on the global system and then to open their economies to corporate colonization. We later will look at how the GATT and its successor, the World Trade Organization(WTO), are being used by the world's largest corporations to consolidate their power and place themselves beyond public accountability. 

                 CREATING A DEMAND FOR DEBT

   The primary original purpose of the World Bank was to finance European reconstruction. However, there was very little demand from the European countries for World Bank loans. What Europe needed was rapidly dispersing grants or concessional loans for balance-of-payment support and imports to temporarily meet basic needs while its own economies were being rebuilt. The U. S. Marshall Plan provided this type of assistance ; the World Bank did not. By 1953---nine years after its establishment---total Bank lending was only $1.75 billion, of which only $497 million was for European reconstruction. That amount paled in comparison to the $41.3 billion transferred to Europe under the Marshall Plan. 
   The Bank's annual report for 1947-48 acknowledged that lack of demand for its loans was not limited to Europe. As the Bank began to look to the low-income countries for customers, it ran into a similar problem. Countries were not presenting the Bank with acceptable projects. 
   THE BANK'S CLAIM THAT IT SIMPLY RESPONDS TO THE NEEDS AND REQUESTS OF BORROWING COUNTRIES IS AS FALSE AS THE CLAIM BY CORPORATE LIBERTARIANS THAT THE MARKET SIMPLY RESPONDS TO CONSUMER DEMAND. The Bank did what the big retail outlets did in the late 1800s when faced with a frugal culture that failed to produce sufficient customers. It set about to reshape values and institutions in ways that would create customers for its products. And much like the corporations that choose this course, the Bank gave scant attention to the larger consequences of actions taken primarily to meet its own needs. 

Corporations Are Not Humans : Not Even Close--Episode 28

                         CORPORATIONS IN THE CLASSROOM 

   Corporations are now moving aggressively to colonize the
 second major institution of cultural reproduction, the schools. According to Consumers Union, 20 million U.S. schoolchildren used some form of corporate-sponsored teaching materials in their 
classrooms in 1990.  Some of these are straightforward promotions of junk food, clothing, and personal-care items. For example
, the National Potato Board joined forces with Lifetime Learning Systems to present "Count Your Chips," a math-oriented program celebrating the potato chip for National Potato Lovers' Month.
NutraSweet, a sugar substitute, sponsored a "total health" program. 
   Corporations have also been aggressive in getting their junk
foods into school vending machines and school lunch programs. Trade shows and journals aimed at school food-service workers are full of appeals such as : "Bring Taco Bell products to your school 
!" "Pizza Hut makes school lunch fun." Coca-Cola launched 
a lobbying attack on proposed legislation to ban the sale of soft drinks of "minimal nutritional value" in public schools. Randal W. Donaldson, a spokesman for Coca-Cola in Atlanta, said :"Our strategy is ubiquity. We want to put soft drinks within arms' reach of desire. We strive to make soft drinks widely available, and schools are one channel we want to make them available in." 
   Other messages seek to indoctrinate young minds in the beliefs and values of corporate libertarianism. Thus Mobil Corporation, which is well known for buying op-ed space in the New York Times to promote its view of the public interest, offered a curriculum module produced by the Learning Enrichment Corporation for classroom use that claimed to help students
 evaluate the North American Free Trade Agreement (NAFTA) , mainly by touting its benefits. 
   Faced with the inevitability of an environmentally aware public, corporations have responded by painting themselves green and

 seeking to define the problem and its solutions in ways that support corporate objectives. Another Mobil contribution to public education is a video prepared for classroom use that touts plastic as the best waste to put in landfills. An Exxon module
entitled "Energy Cube" omits discussion of fuel efficiency, alternatives to fossil fuels,  and global warming. Indeed, it attempts to equate gasoline with solar energy in students' minds by 
explaining that its "energy value comes from solar energy stored in its organic energy bonds."
    Mobil and other corporations actively support the National Council on Economic Education, whose mission is to promote the teaching of economics in elementary and high schools. A paid Mobil op-ed piece in the New York Times lamented the fact that high school seniors were able to give correct answers to only 35 percent of questions on a national economic literacy survey.

Obviously Mobil has its own idea of what a correct answer is. The op-ed piece noted  :

When it comes to domestic issues, it helps to understand the impact that raising or cutting taxes will have on job security and your 
standard of living. And when it comes to environmental policy and regulations, it's necessary to comprehend basic economic principles such as supply and demand, cost versus benefit and a company's need for profits.

   General Motors mailed a video "I Need the Earth and the Earth 
Needs Me" to every public, private, and parochial el
ementary school in the country. Against a backdrop of happy children swimming in sparkling waters and ru
nning in picturesque landscapes, the GM video promotes such activities as planting trees and recycling. There
 is no mention of mass transit or the need to redesign cities to reduce transportation needs. GM recommends 
forming car pools recycling used motor oil. All the 
statements made in the video and the accompanying teacher's guide are accurate. Yet the overall picture is misleading because it omits critical facts and ideas. 





   Channel One, an advertiser-sponsored school television program, beams its news and ads for candy bars, fast food, and sneakers directly into the classroom for twelve minutes a day in more than 12,000 schools. In exchange for a satellite dish and video equipment for each classroom, the school must agree that Channel One will be shown on at least 90 percent of school days to 90 percent of the children. Teachers are not allowed to interrupt the show or turn it off.