Marginalizing the Masses.

• Author: Schupp, Robert A

Noam Chomsky Professor of Linguistics and Philosophy Massachusetts Institute of Technology

Interviewed on 3 March 2000 by Robert A. Schupp and Richard L. Ohlemacher for the Journal of International Affairs

JOURNAL: The Journal has approached this particular publication on Shadow Economies in an effort to explore the socioeconomic aspects of the subject. General themes have emerged that reveal instances of economic imbalances stemming from political, legislative and commercial action that enriches some and impoverishes others. These implications of shadow economies, which is in many cases a marginalization of the masses, relate to much of your work on the politics of power and justice among nations and people.

MR. CHOMSKY: In everything I have read about it, there are properties that are rather common in discussing this topic. Whether we are discussing terrorism or crime or anything else, there is a strong tendency in the literature to focus on what you might call the retail rather than the wholesale aspects. In the case of criminal activities, for example, on terrorist activities of the weak rather than terrorist activities of the strong. And I think that the same is true in discussion of the shadow economy

There are overwhelming elements of non-informal economies that are not discussed much. Tax havens for example, are probably a substantial element of the international economy. But these elements of "informal economies" are part of the world of the strong and privileged, so not very much is known about them. They are not the focus of a great deal of attention and investigation, like drugs. In fact there are major factors in the drug system that are much too little discussed, such as the reasons why peasant farmers turn to coca production. They are being driven to it by the very policies that the powerful states advocate. For example, if you try to drive peasants to agro-export and you undercut the conditions for production for local markets by massive imports, and also establish conditions under which export of major commodities undergoes sharp price fluctuations, then peasants will not have many choices. They are likely to turn to production of commodities for which there is always demand. And that has happened. Colombia is a good case. Colombia had, and has, possibilities for non-drug agricultural production, but they have very substantially been undercut by external intervention. One of the more important cases involves efforts to stabilize commodity prices. For large-scale agribusiness it is not all that important if prices oscillate. But if you are a small peasant farmer, you cannot say, "I am not going to feed my children next year because the price is too low." Prices have to be stable if you want to be a small coffee producer.

There were Third World efforts to introduce commodity stabilization, but they were simply undercut by the rich countries. The United Nations Conference on Trade and Development (UNCTAD), in a core part of what was called "the new international economic order" back in the early 1970s, tried in one of its first major efforts to introduce measures to stabilize commodity prices. This would be analogous on an international scale to the ways every rich country stabilizes agricultural prices internally--by market interventions. The rich countries would not allow it--primarily the United States. That drives peasants away from coffee production.

Take Food for Peace Aid. In Colombia back in the 1950s, it sounded like a nice idea, except that it undercut domestic wheat production. So that eliminates another possibility. Once various possibilities are cut away and massive state terror is introduced--which happened, in no small measure from US initiatives to prevent efforts to ameliorate deplorable socioeconomic conditions --you end up with the drug culture. Those are massive factors in drug production, but they are not the ones that are being addressed in policy or much discussed, outside of specialist literature. The current drug war is not aimed at stabilizing commodity prices for coffee production, just to take one example of many. In fact even support for alternative crops is a very marginal aspect. Judging by the programs that are now on the agenda, the real motives can hardly be the professed ones, for many reasons.

JOURNAL: How does the consumer and corporate power of wealthy nations contribute to shadow economies around the globe?

MR. CHOMSKY: What I just mentioned was a case in point. That is not consumer power, it is corporate power. When the United States and other rich countries undermine the efforts by the G77 group of countries to work through UNCTAD to develop commodity stabilization programs, which would allow small peasant production, that is corporate power having a huge effect on shadow economies. But it is also much bigger than that.

Take tax havens again. Nobody knows the scale of their use because it has not been studied much, but chances are that tax havens are a major factor in the international economy; probably well beyond drug money laundering, as pointed out by political economist Susan Strange in her most recent book.

In fact, even the gross statistics, which as far as I know have not been much investigated, reveal what appear to be significant effects of these devices. The Commerce Department publishes detailed quarterly reports on Foreign Direct Investment (FDI). Out of curiosity, I was reading them regularly during the recent period of enthusiasm about "new emerging markets" in Latin America. For the Western Hemisphere (excluding Canada), roughly 25 percent of FDI was regularly going to Bermuda, maybe 10 or 15 percent to the British Caribbean Islands and roughly 10 percent to Panama. This reflects one aspect of corporate power: about half of FDI was going to what a benign view might consider as tax havens. The less benign view would be that the category of FDI covers methods for laundering criminal money--drug money or something else. But it is certainly not building steel mills. They do not do that in Bermuda or the Cayman Islands.

Fifty percent is not a small number. That is a big part of the economy.

During this period of enthusiasm about emerging Latin American markets and the importance of FDI, I did not find a single paper in the professional literature that even talked about these points (although they were discussed by Doug Henwood in his invaluable journal, Left Business Observer). Perhaps there were papers--I do not know the technical literature that well--but I could not find them. Certainly there must be specialists who know a lot about it, but compared with the problems of the shadow economy that are discussed, this one seems substantial.

So, that appears to be a case in which corporate activities are having a significant effect on the international economy, within "shadow economies"--violating the rules. Of course, wherever this money is, it is redistributing wealth, income and power upward, toward the richest sectors, apart from the effects it has everywhere else. The World Trade Organization recently ruled against the United States for permitting corporate use of what amount to tax havens as a technique of export subsidy. That apparently is a small fraction of this behavior on a global scale.

JOURNAL: IS the shadow economy today the...