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Neomercantilist Empire in Latin America, Part 2
The U.S. consolidates its control
Confronted by stiff competition and negative trade balances with Asia and Europe, the Bush adminis- tration has decided to consolidate and deepen its control over Latin America. Under Clinton, Washington spread the empire over the four corners of the world, U.S. multi-national corporations gained ascendancy, but the U.S. “national economy”—the exports and imports to and from the territorial U.S. economy—had suffered a relative decline as seen in its growing trade deficit. The only region where the U.S. still retained a favorable balance of payments was with Latin America. It was also the region where the U.S. had historical control over the military and secret police (intelligence agencies) apparatus and dominant influence in the economies. Yet during the 1990s, despite the establishment of client regimes and huge flows of profits, interest payments and royalties to the U.S. and privatizations of public enterprises that benefited U.S. Multinationals (MNCs), there were economic indicators, showing a relative decline in U.S. dominance. Mexico's trade with the U.S. declined from nearly 92 percent of total trade in 1994 to 70 percent in 1998. MERCOSUR's trade with the U.S. declined from 17 percent in 1994 to 14 percent of total trade in 1998.
While MERCOSUR had an annual average trade surplus of $66.6 billion between 1991-99, it's “service payments”—debt payments, profits remitted royalty payments—amounted to an annual average deficit of $89.5 billion between 1991-99, leading to an annual average deficit in the current accounts of $22.9 billion. The Bush administration's strategic goal is to increase the U.S. share of the service transfers as well as the U.S. share of MERCOSUR trade and to reverse the relative decline of the U.S. in the 1990s due to increased European competition. While Clinton was securing client regimes in Bosnia, Kosova, and Macedonia, U.S. share of trade with MERCOSUR declined nearly 18 percent. European multinational corporations and banks, especially Spanish capital, bought out privatized telecommunication systems, banks, and petroleum companies in Brazil, Argentina, and Spain.
In addition, U.S. dominance in Latin America was challenged by the growing guerrilla movements in Colombia, the independent-nationalist regime in Venezuela, and significant anti-imperialist Indian and peasant movements in Brazil, Ecuador, Bolivia, and Paraguay as well as trade union and urban movements in Uruguay and Argentina. In response to these challenges, Washington has devised a two-pronged complementary strategy: the Latin American Free Trade Area (ALCA—the Latin American's initials) and Plan Colombia-Andean Initiative, both of which are designed to increase U.S. control and deepen its capacity to extract resources and wealth to the U.S.
ALCA is a logical outgrowth of the advance of the neo-liberal doctrine imposed by U.S. policymakers and their Latin American clients since the mid-1970s. While it purports to speak of “free trade” it resembles the mercantilist system of earlier imperial systems.
A discussion of ALCA should begin with a clarification of what ALCA is not. First of all it is not a free trade agreement. The United States reserves the right to maintain $30 billion subsidies for its agriculture, its so-called “anti-dumping” legislation to protect major industries, quotas on imports in economic sectors where it is not competitive, banking legislation which permits major U.S. banks to launder funds illicitly gained in Latin America, and a host of unilaterally decided “health” restrictions to reduce imports of cattle and other products. Latin American countries on the other hand will have to eliminate all trade barriers and comply with the “free trade” doctrine. At the Quebec summit when President Cardoso of Brazil addressed the issue of U.S. “anti-dumping” restrictions on Brazilian steel exports, President Bush told him “that has nothing to do with ALCA, that should be taken up at the Organization of World Trade.”
Secondly, ALCA has no resemblance to “economic integration.” The scenario resembles the subordination of colonies to imperial countries where the latter controls strategic sectors of the economy, dominates markets and labor and dictates economic policy. Integration implies more or less equal exchange of commodities, two way flows of capital, profits and interests, joint enterprises—in a word, more or less symmetrical relations and benefits. ALCA is totally asymmetrical, with the U.S. multi-nationals accumulating Latin assets and determining the one-way flow of benefits (profits, interests, royalties) from South to North. Subordination, not integration, defines the nature of ALCA. In that sense, ALCA is very different from the European Union.
Thirdly, ALCA does not stimulate competition, it furthers monopoly. By establishing trade preferences within the trading bloc, ALCA penalizes Europe, Japan, and other non-hemispheric trading partners and increases the monopoly trading positions of the dominant powers within the hemisphere—namely, the U.S. By increasing the advantages of the U.S., it lessens the Latin American countries' capacity to secure better prices, both in sales and purchases.
Fourthly, given the above restrictions in competition and trade, in other words, ALCA's privileging a monopoly position for the U.S., it provides greater opportunity for U.S. firms to secure privatized enterprises at political rather than market prices. One of the dubious arguments of neo-liberal ideologues is that there is “no alternative to neo-liberalism,” U.S. advocates of ALCA would add, “there is no alternative to the U.S. market and investors.”
The transition from neo-liberalism to U.S.-ALCA mercantilism is a result of two factors—the deepening economic crisis of the U.S. and the increasing competition from Europe and Asia, leading to huge and unsustainable trade deficits. ALCA would establish the supremacy of U.S.-MNC over challengers from Europe by prioritizing U.S. access to markets and trade. Faced with increases in intra-regional trade, especially in MERCOSUR, ALCA will favor direct exports from the U.S. over trade via subsidiaries in regional markets. This will increase the U.S. trading surplus and undermine locally owned secondary suppliers of U.S. owned subsidiaries. ALCA is a return to asymmetric bi-lateral relations as opposed to regional trade in which local regimes had some negotiating leverage. Most likely regional trade as it exists in MERCOSUR will decline, as it is subordinated to ALCA. The result will be to favor U.S. exporters, mainly agro-business, manufacturers, services (information technologies, banking, etc.), while undercutting Argentine agro-business and Brazilian industrialists. U.S. multi-nationals in these countries will then operate according to the rules of ALCA—not their host country's regulations—particularly with regard to labor legislation, health, and education.
Probably most important, ALCA will establish U.S. dictated rules and regulations in setting conditions for trade and investment over and against neo-liberal regional regimes. This means vast changes in education, health, labor relations, the environment, as well as in the economy. For example, health and education would be privatized via the end of “subsidies,” opening the door for giant U.S. health corporations and high tuition charges for “public universities” (as is the case in the U.S.). Basically, ALCA will impose its mercantilist policies by establishing rules designed to favor U.S. protectionism and Latin American openness. ALCA means the end of the last vestiges of national sovereignty—the recolonization of Latin America. It means that U.S. MNCs do not have to transplant subsidiaries to Latin America, it can export directly from the U.S.
ALCA is the logical extension of neo-liberal policies extended from the national and regional level to the hemispheric. If neo-liberalism allowed the U.S. to share in the pillage of Latin America, particularly the privatization of public enterprises, with Latin America's rich and European and Asian capital, ALCA is designed to maximize the U.S. share of Latin American markets and resources. ALCA is designed to create “fortress North America” against Euro-Asian competition and to maximize the extraction of surplus to finance the deepening crisis in the U.S.
With so much of U.S. capital “offshore,” or in speculative or consumer activities, U.S. banks resort to laundering “dirty money,” estimated by the U.S. Senate to run over $250 billion dollars a year, thus serving to “compensate” for the negative domestic saving rate. “Criminal activity” today is what “pirate plunder” was to early capitalism: transfer of capital from the colonies to the imperial center. As Stephan Hasam argues, the plunder strategy requires a criminal economy which can generate large sums of money to be transferred to the legal side of the economy. This means that a criminal economy must be fabricated and “pump-primed.” Today the criminalization of drugs, the billion dollar people smuggling and white slavery stimulate the growth of the U.S. banking sector via dirty money laundering. It is important that Latin American elites stay corrupt and voracious and that their activity should be criminalized so that the flow of capital northward multiplies and its possession secures imperial power.
ALCA has generated widespread opposition from trade unions and peasant movements to sectors of the national bourgeoisie, particularly in Sao Paulo and Porto Alegre in Rio Grande do Sul, both in Brazil. The avariciousness of ALCA threatens the position of certain sectors of the bourgeoisie with displacement. While this bourgeoisie shares with the U.S. MNCs their common support for reversing social and labor legislation, they oppose the total takeover of the economy by the imperial power. Hence Cardoso's wavering between his economic dependence on foreign capital and banks and his political dependence on the Brazilian big industrial groups. Cardoso's complaints about U.S. mercantilism in the name of “true liberalization,” however, falls on deaf ears in Washington.
In order to implement ALCA, the Bush administration has two client regimes: President Fox in Mexico and Economic Minister Cavallo in Argentina. Both regimes act as “Trojan horses”—Argentina by lowering tariffs in MERCOSUR, favoring U.S. exports at the expense of Brazil and deepening financial dependence on U.S. banks (via the debt restructuring); Fox's by extending the maquiladora system from Puebla to Panama, thereby expanding U.S. influence southward. These two client regimes are part of a two stage policy of greater bilateral relations with the U.S. (undermining Brazilian links) in the first part, to be followed by pushing ALCA in the second stage as the only “viable alternative” to isolation from global markets, i.e., the U.S. market.
ALCA has already aroused criticism from the neo-liberal fundamentalist regime in Chile. The Lagos regime's attempt to enter NAFTA has come up against the Bush administration's protectionist measures—a quota system—affecting the importation of Chilean grapes. Washington's version of mercantilist “free trade” includes quotas on competitive Chilean agricultural products in “exchange” for free access to Chilean markets and resources.
In the north, President Fox's Plan Puebla-Panama involves the sale to U.S. banks and corporations of the last and most lucrative sectors of the Mexican economy—its leading banks, petroleum, petrochemical and energy sectors along with the “maquiladorizacion” of all of Mexico and Central America. Citibank's $12.5 billion dollar purchase of Mexico's second largest bank makes it the biggest bank in the country. In June 2000, the Spanish bank, Banco Bilbao bought Grupo Financiero Bancomer making it at the time, the leading bank in Mexico. With $47 billion in combined assets and combined deposits of $42 billion, Citigroup is in a position to control a substantial part of Mexican savings, credit, and financing, thus shaping the future of Mexican development. President Fox's basic project is to convert Mexico into the 51st state of the Union, a de facto annexation by invitation. Mexico's role is to export cheap labor to be exploited in the U.S. and to import U.S. capital to exploit savings, resources, and public enterprises in Mexico. The Mexican elite will be incorporated as minority members of the board of directors in the denationalized enterprises. Fox's annexation strategy however, conflicts with the U.S. strategy to colonize lucrative sectors of the economy, appropriate profitable enterprises, exploit cheap labor without incurring the social costs of maintaining and educating the labor force or paying for repressing discontent. In this light, Fox's Plan Puebla-Panama involves suspension of all labor regulations and social benefits (in the style of the maquiladoras) and the Mexican Government's financing of massive infrastructure (roads, ports, etc.). Fox has proposed to finance the U.S. economic colonization by extending the 15 percent value added tax to food, medicine, and other items of popular consumption.
ALCA & Plan Colombia Initiative
To defend its dominant position and to deepen and extend it via ALCA, Washington is engaged in building a vast military empire, which is militarizing Latin American politics. Plan Colombia-Andean Initiative are only the biggest and most visible aspects of the defense of empire. If the Brazilian, Mexican and Argentine markets are the centerpieces of ALCA's strategy, Colombia, Ecuador and Venezuela are the political targets of Plan Colombia-Andean Initiative.
Washington sees the Colombian guerrilla and popular movements as the major threat to its empire in Latin America. A victory of the popular forces in Colombia would establish an alternative socio-economic system to U.S. directed neo-liberal model. In addition it would encourage neighboring countries to break with U.S. tutelage by demonstrating that mass struggle can win against the empire. Furthermore, Colombia has oil, gas, agriculture, and industry in a country for 40 million—a capacity to resist U.S. economic pressures. Finally, a Colombian-Venezuelan-Cuban alliance would be a formidable economic-political-military force capable of resisting imperial aggression and aiding other countries in the region seeking to move in the direction of social transformation. For all these reasons, Washington has provided $1.3 billion and several hundred military officials and substantial logistic support as well as covert alliances with death squads (the so-called paramilitary forces) to destroy the livelihood and displace millions of peasants who are perceived to be the main base of support for the guerrillas. U.S. toxic spray of crops, paramilitary-military terror, and high tech air surveillance are key elements of Washington's military strategy to sustain the client Pastrana regime. As the U.S.-backed Colombian War Plan advances, it has spilled over into Ecuador, Peru, and Northern Brazil. Washington has extended its militarization program via the so-called Andean Initiative policy, which increases U.S. military aid and advisers to these countries to repress mass movements such as the indian peasant movement (CONAIE) in the highlands of Ecuador.
An integral part of the new military empire is the establishment of U.S. military bases in Ecuador (Manta), El Salvador, and Iquitos (Peru). Washington has colonized the airspace over most of Northern and Central South America, as well as Central America, freely flying military reconnaissance planes in clear violation of their sovereignty. Similarly, U.S. military operations routinely take place along the rivers of Peru and Colombia and along the coastline from Mexico to Peru.
In addition to Plan Colombia, Washington has engaged in joint-military exercises in Latin countries in violation of their Constitutions, training and selecting promising Latin officials who will be the mercenary forces in any ground war. The vast increase in U.S. military expenditures in Latin America, the proliferation of training programs, military bases, and the direct involvement of U.S. military officials in combat situations are indications that Washington understands that “building an empire is not a tea party.” Given the level of popular resistence that exists today against neo-liberalism, it is clear that the imposition of ALCA will lead to even greater potential for revolutions. That is why the advance of ALCA should be seen in relation to the building of the U.S. military empire. The acute polarization resulting from ALCA means greater state repression, as the opposition will increasingly combine “nationalist” and social struggles.
Limits of Empire
The mercantilist empire constructed over the past decade is under severe strain with the advent of the U.S. recession in 2000-2001. The crises of the U.S. economy has a profound impact on Latin American and Asian export economies. As the crises in the U.S. continues there is a sharp decline of imports and a slowdown in the outward flows of capital, undermining the capacity of these economies to sustain their debt payments and import essential commodities. Because the internal markets have been devastated by the countries integration into the Euro-U.S. markets the crises from the U.S. spreads and deepens in the Third World, provoking a deeper decline in their economies. Precisely, the countries most tied to the export strategy are those most seriously affected. A prolonged recession in the North will inevitably lead to the collapse of the export economies and place on the agenda the need to rebuild the domestic market and re-orient investment and trade, which can only occur if there is a profound transformation of the leading classes and the state.
For the present, it is important to note that the recession in the U.S. will heighten the mercantilist tendencies in the U.S.: the crises will heighten and extend protectionist pressures within the imperial center, while the declining profits will fan the voracious appetites of multinational capital to seize new lucrative enterprises in Latin America.
The inter-capitalist rivalries within the empire have also intensified. The military-industrial complex, which seeks to expand military spending is in conflict with the rest of the ruling class, which seeks vast tax reductions and a smaller budget. The U.S. investment in China, which totals over $40 billion is in conflict with the military-industrial complex and the ultra right-wing, which seeks to provoke a military confrontation.
Competition and mergers with European and Japanese capital have intensified. While Washington has extended NATO to the Russian borders and is preparing a new missile system in violation of international accords, the EU has signed new economic agreements with Russia and has opposed the new missile system.
Washington's unilateralist posture with regard to the Kyoto agreement on the reduction of greenhouse gases has isolated it from the rest of Europe, alienated influential domestic groups and led to the ousting of the U.S. from two major United Nations Committees. Washington's backing of the Albanian terrorist group the KLA threatens to destabilize its clients in the adjoining Republics of Macedonia, Serbia and Montenegro—undermining the consolidation of imperial power in the Balkans.
While U.S. MNCs secure lucrative multi-billion dollar contracts to exploit Saudi Arabian gas, the U.S. backed terrorist regime of Ariel Sharon in Israel heightens tensions throughout the Arab East. In the Gulf States and North Africa, the empire has suffered a series of setbacks that undermine its monopoly of influence. Iraq has been reincorporated into the Arab League, OPEC, and has broken the air and sea embargo. Iran has signed oil and other trade agreements with European and other powers. Libya has also developed economic ties with Italy and other European countries.
These “cracks” in the empire, or the New World Order, will deepen, forcing imperial policymakers to adapt to the revised power alignments or engage in new and risky military adventures. In Latin America, Washington's principle allies President Fox of Mexico and Domingo Cavallo, the Minister of Economy lack political majorities to push ALCA. Cavallo received only 10 percent of the vote before he was appointed minister and depends on an unstable party coalition in Congress. Fox, facing a major economic crises induced by the total dependance on the U.S. market, will have a hard time convincing Mexicans to deepen that dependance as employment declines, taxes increase, and incomes plummet.
Brazil, the most important country in a potential ALCA agreement, is also heading into crises and its leading capitalist sectors in Sao Paulo are deeply skeptical about entering into a mercantilist trade relation in which their exports are restricted and their home markets are opened. In addition, the growth of the social-democratic Workers' Party in the major cities, and the precipitous decline of the Cardoso regime, provide little support for an ALCA agreement, despite the powerful backing of the financial sector. The growth of the MST in Brazil, the FARC in Colombia, and the proliferation of mass movements in Bolivia, Paraguay, and Ecuador capable of challenging state power call into question the imposition of an ALCA agreement.
Bush's policy to project Fortress America via unilateral fiats has alienated allies, radicalized opponents, and isolated the U.S. on many issues. The internal recession and the Fortress America strategy is built around a concept of a mercantilist empire in which force and violence—such as Plan Colombia, the Andean Initiative and new military programs—and economic monopoly (such as ALCA) form an integral part.
The mercantilist-military definition of imperial reality and the unilateral/confrontational style of implementation heightens inter-capitalist divisions, strengthens anti-imperialist tendencies in China, Russia, Vietnam, and Cuba as well as encouraging new international alignments such as Euro-Russian trade linkages, Russian-Chinese defense pacts, Venezuelan-Russian military agreements. The Bush administration has shifted from Clinton's indiscriminate intervention to prioritizing the Gulf states, Latin America, and East Asia. The U.S. attempt to impose the neo-mercantilist ALCA policy on Latin America is strengthening the credibility of the revolutionary anti-imperialist analysis and the practice of mass mobilization of rural and urban forces against electoral parties and client neo-liberal regimes. Z
James Petras teaches sociology at SUNY Binghamton and is a writer, specializing in Latin America.