"In this interview Noam Chomsky talks about the current economic crisis unfolds and states:" There is much mythology that we need to dismount there, including what it says about the great growth and reducing poverty. "Chomsky highlights the new role that Latin America has played in the world and points to open a window of opportunity to change the current political-economic context. Interview by Simone Bruno
* (by agency Prensa Humanist Alternative "Sur" (APAHs), available at Largest Charter
How to explain that although many people have seen the crisis coming, those who were in leadership governments and economies were not prepared to face it?
Noam Chomsky: The basis for the crisis was predictable. A constitutive element of financial liberalization is that there will be frequent and deep crises. In fact, since financial liberalization was established some 35 years, established a trend of increasing regularity of crises and crisis ever deeper. The reasons are intrinsic and understood: they have to do fundamentally with well-known inefficiencies of the markets. Thus, for example, if you and I make a transaction, say you sell me a car, we can make a good deal for ourselves, but we do not consider the effect on others.
If I buy a car, increase the use of gas, increases pollution, congestion, etc.. But do not take these effects into account. This is what economists call externalities, which are not considered in the calculations of the market. These externalities can be enormous. In the case of financial institutions, are particularly great. The task of a financial institution is to take risks. If it is a well managed financial institution, say Goldman Sachs, it will consider the risks to itself, but the crucial phrase here is "for itself." It does not take into account systemic risks, risks to the whole system if Goldman Sachs takes a substantial loss. This means that these risks are underestimated. It is assumed more risk than you should take an efficient system that takes into account all the implications. Thus, this mispricing is simply integrates as part of the market system and the liberalization of finance.
As a result of underpricing of risk, these become more frequent and when there are failures the costs are higher than expected. Crises become more frequent and more severe as the scope and volume of financial transactions increases. All of this is increased still further by the fanaticism of the market fundamentalists who dismantled the regulatory apparatus and permitted the creation of exotic and opaque financial instruments.
is a kind of irrational fundamentalism because it is clear that weakening regulatory mechanisms in a market system incorporates a risk of crisis disastrous. These are senseless acts except for short-term interest of the lords of the economy and society. The financial corporations can and did make tremendous short term profits from pursuing extremely adventurous activities, including especially deregulation, which harm the economy generally, but not for them, at least in the short run that is what guides your planning.
In the U.S., real wages remained virtually stagnant for the majority for thirty years.
Chomsky: No one could predict the exact timing of a severe crisis, you could not predict the exact scope of the crisis, but it was obvious she would. In fact, were serious and repeated crises during this period of increasing deregulation. Except that until now had not hit so hard at the center of wealth and power, but above all the countries of the third world. Take the case of the United States. It is a rich country, but for a substantial majority of the population, the last thirty years have probably been among the worst in American economic history. There have been no massive crises, large wars, depressions, etc.. However, real wages remained virtually stagnant for the majority for thirty years.
In the international economy, the effect of liberalization income was quite harmful. We read in the press that the last thirty years, neoliberalism, showed the greatest decrease in poverty in world history and tremendous growth, etc.. There is some truth in this, but what's left to say is that poverty reduction and growth occurred in countries which ignored the neoliberal rules, as occurred in East Asia. And countries that observe such rules have suffered severely, as occurred in Latin America.
Joseph Stiglitz recently wrote that the recent crisis marks the end of neoliberalism. Chavez in a collective press, said the crisis could be the end of capitalism. Which one is closer to the truth?
Chomsky: First, we should be clear that capitalism can not end because it never started. The system we live in should be called state capitalism, not just capitalism. In the case of the United States, the economy relies very heavily on the state sector. Currently, there are a lot of anguish about the socialization of the economy, but that's a big joke. The advanced economy, high technology and the like have always relied extensively on the dynamic sector of the state economy. It's true of computers, the Internet, aviation, biotechnology, just about everything in sight.
We have a system socialization of the costs and risks and privatize profits.
Chomsky: The Massachusetts Institute of Technology (MIT), where I'm talking about, is a kind of funnel in which the public pours money and where it comes the technology of the future, which will be handed over to private power for sack the profits. So we have a system of socialization of cost and risk and privatization of profits. This occurs not only in the financial system, but in all advanced economies.
So, for the financial system, probably the result will be more or less as described by Stiglitz. It's the end of a certain era of financial liberalization driven by market fundamentalism. The Wall Street Journal laments that Wall Street as we know it, has disappeared with the collapse of investment banking. Some steps will be taken in the direction of regulation. That's right. However, proposals that are being made, more extensive and severe as they are, do not change the structure of the underlying basic institutions. There is no threat to state capitalism. Its core institutions will continue to be the same, perhaps even without major jolts. They may rearrange themselves in various ways. Some conglomerates taking over others and some may be semi-nationalized a weak sense, without this strongly affects the private monopoly of decision making.
However, the way things are going, property relations and distribution of power and wealth will not alter much though the era of neoliberalism operative for roughly thirty five years will surely be significantly modified. Tell the way, nobody knows how serious this crisis will become. Each day brings new surprises. Some economists are predicting real catastrophe. Others think that it can be patched together with modest disruption and a recession, likely worse in Europe than in America. But nobody knows for sure.
In its evaluation, we will see something like depression, with people doing work without the long queues for food in the United States and Europe? And if that happens, a big war to replenish the savings on foot, a shock therapy or something like?
Chomsky: I do not think the situation is comparable with the period of great depression, although there are some similarities to that era. The 20s were also a period of wild speculation and vast expansion of credit and loans, with the creation of an enormous concentration of wealth in a very small sector of the population and the destruction of the union movement. From this point of view, there are similarities with the current period. But there are also many differences. There is a much more stable apparatus of control and regulation of the New Deal, and although it was weakened, much of it remains intact.
Moreover, it is understood that the types of policies that seemed extremely radical in the New Deal period, are more or less normal. Thus, for example, in the recent presidential debate, John McCain, the candidate of the right, proposed the New Deal measures taken to address the housing crisis. Then there is the understanding that the government must assume an important role in managing the economy and, in fact, the advanced sectors of the economy are already living this experience for nearly 50 years.
There is much mythology that we need to disassemble: Reagan was the most protectionist president in U.S. economic history of the postwar period.
Chomsky: Much of what you read about this is pure mythology. For example, we read that Reagan's passionate belief in the miracle of markets is now being attacked. Attributed to the former president of the High Priest role of faith in markets. In fact, Reagan was the most protectionist president of the economic history of the United States after the war. He increased the barriers more protectionist than all his predecessors combined. He called on the Pentagon to develop projects to train American managers in Japanese advanced production methods. He carried one of the largest bank bailouts in American history, and formed a conglomerate based in the state to try to revitalize the semiconductor industry. In fact, he believed in a powerful government, intervening radically in the economy. When I say "Reagan" I refer to his administration. What he thought about all this, if they believed in something, really do not know and that's not very important. There is much mythology
we need to disassemble, there including what it says about the great growth and poverty reduction. In the United States, when the neoliberal rules were applied, the results were quite harmful to the majority population. Looking beyond the mythology, we can see that a state capitalist economy that, particularly since the Second World War, relied very heavily on the state sector, now is back to depend on the state to manage the financial system that is falling apart. So far, no signs that it will produce something like what happened in 1929.
So you do not think we are heading for a change in the order world?
Chomsky: Well, there are very significant changes in world order and maybe this crisis will contribute to them. But they have been for some time. One of the main changes in world order is being experienced now in Latin America. It is often said that Latin America is the backyard of the U.S. and that, long ago, is a region controlled by the U.S.. But that is changing. In mid-September had a dramatic illustration of this.
On September 15, there was a meeting of UNASUR, the Union of South American Nations, attended by all South American governments, including Colombia, the current U.S. favorite in the region. The meeting was held in Santiago, Chile, another U.S. favorite. Came out with a very strong declaration supporting Evo Morales of Bolivia, and reject the quasi-secessionist areas of this country who have the support of the United States.
Evo Morales responded, correctly, that this was the first time in 500 years that Latin America had taken its destiny into their own hands.
Chomsky: There is a struggle going on in Bolivia. Elites are being mobilized for autonomy and even secession, strong levels of violence with apparent U.S. agreement. But the South American republics took a strong stand in support of democratic government. The statement was read by President Bachelet of Chile, a favorite of the West. Evo Morales responded by thanking the presidents for their support and noted, correctly, that this was the first time in 500 years that Latin America had taken its destiny into their own hands without the interference of Europe, particularly the United States. This is a very significant symbol of change that is underway, sometimes called "pink tide". It was so important that it was not reported by the U.S. press. There is a phrase here and there, which notes that something happened, but completely suppressing the content and importance of what happened.
This is part of a long-term process, in which South America is beginning to overcome its tremendous internal problems and also its subordination to the West, especially in relation to the United States. South America is also diversifying its relations with the world. Brazil has growing relations with South Africa, India and particularly China, which increasingly involved in investments and exchange with Latin American countries. These are extremely important, which are now starting to spread to Central America. Honduras, for example, is the classic banana republic. It was the base for the wars of terror perpetrated by Reagan in the region and is completely subordinated to the U.S.. But Honduras has only added to the ALBA, the Bolivarian Alternative for the Peoples of America, proposed by Venezuela. It's a small step, but it is still very significant.
You think these trends in South America like ALBA, UNASUR and the major events in Venezuela, Bolivia and other countries may be affected by an economic crisis of the dimension we are facing now?
Chomsky: Well, these countries will be affected by the crisis but, at the time, not so much as being Europe and the United States. If we look at the case of the stock market in Brazil, it collapsed very quickly, but Brazilian banks are not breaking. Similarly, in Asia the stock markets are declining sharply, but governments are not taking control of banks, as in England, the United States and much of Europe. These regions, South America and Asia, somehow managed to separate themselves from the ravages of the financial markets. What set off the current crisis was the subprime lending for assets built on sand, and these of course are in the hands of U.S. and European banks. Possession of a toxic mortgage-based assets involved them very quickly in these events. Moreover, Europeans have their own crises of housing, particularly Britain and Spain.
Asia and Latin America were much less exposed, having kept more cautious lending strategies, particularly since the neoliberal meltdown of 1997-1998. A major Japanese bank, Mitsubishi UFG, has just bought a substantial part of Morgan Stanley, USA. So, it seems so far that Asia and Latin America will be affected as badly as the U.S. and Europe.
you believe there is a big difference between Obama and McCain with regard to issues such as the Free Trade and Plan Colombia? In Colombia, one can feel that the president and his supporters are scared about an election of Obama. I know you have the feeling that Obama is like a blank sheet, but thinks she will make a difference?
Chomsky: In fact, Obama has presented himself more or less like a blank sheet. But there is no reason why the Colombian government is scared of his election. Plan Colombia is Clinton's policy and there are many reasons to expect that Obama will be another Clinton. He is very inaccurate, for that matter. Even when explicit policies, they seem to be very centrist policies, as Clinton, who fashioned Plan Colombia and militarized the conflict.
I sometimes feel that the two terms of Bush were in the changing world order, trying to maintain power using force and, in return, Obama could be good for the face renegotiate the world order. What is your opinion on this?
Chomsky: It is important to remember that the U.S. political spectrum is pretty narrow. It is a company controlled by business, basically, is a one-party state, with two factions, Democrats and Republicans. The factions are somewhat different, and sometimes are significant. But the spectrum is quite narrow. The Bush administration, however, stood well beyond the end of the spectrum, extreme radical nationalists, extreme believers in state power, in violence overseas and a high government spending. In fact, they were so off the spectrum that have been harshly criticized even by power, from the earliest times.
Whoever assumes the office is likely to move things back towards the center of the spectrum. Obama may do so to a greater extent. I would expect in Obama's case, there will be something like a revival of the Clinton years, of course adapted to changing circumstances.
Now we are reaching the end of neoliberal globalization, there is the possibility of something really new, a good globalization?
Chomsky: I think the prospects are much better than they were before. Power is still incredibly concentrated, but there are changes as the world economy becomes more diverse and complex. The South is becoming more independent. But if you look at the U.S., despite all the damage Bush has done, remains the largest economy in uniform, with the largest market, the strongest military and most technologically advanced, with annual expenses comparable to the rest of the world combined, and an archipelago of military bases throughout the world. These are sources of continuity even though the neoliberal order is being eroded in the U.S., Europe and internationally with a growing opposition to it. So there are opportunities for real change. How far this change can come, it depends on people, what are we willing to undertake. "
07-Dec-2008
Translation: Katarina Peixoto
* Simone Bruno, an Italian journalist based in Colombia.
in. ESQUERDA.NET
* (by agency Prensa Humanist Alternative "Sur" (APAHs), available at Largest Charter
How to explain that although many people have seen the crisis coming, those who were in leadership governments and economies were not prepared to face it?
Noam Chomsky: The basis for the crisis was predictable. A constitutive element of financial liberalization is that there will be frequent and deep crises. In fact, since financial liberalization was established some 35 years, established a trend of increasing regularity of crises and crisis ever deeper. The reasons are intrinsic and understood: they have to do fundamentally with well-known inefficiencies of the markets. Thus, for example, if you and I make a transaction, say you sell me a car, we can make a good deal for ourselves, but we do not consider the effect on others.
If I buy a car, increase the use of gas, increases pollution, congestion, etc.. But do not take these effects into account. This is what economists call externalities, which are not considered in the calculations of the market. These externalities can be enormous. In the case of financial institutions, are particularly great. The task of a financial institution is to take risks. If it is a well managed financial institution, say Goldman Sachs, it will consider the risks to itself, but the crucial phrase here is "for itself." It does not take into account systemic risks, risks to the whole system if Goldman Sachs takes a substantial loss. This means that these risks are underestimated. It is assumed more risk than you should take an efficient system that takes into account all the implications. Thus, this mispricing is simply integrates as part of the market system and the liberalization of finance.
As a result of underpricing of risk, these become more frequent and when there are failures the costs are higher than expected. Crises become more frequent and more severe as the scope and volume of financial transactions increases. All of this is increased still further by the fanaticism of the market fundamentalists who dismantled the regulatory apparatus and permitted the creation of exotic and opaque financial instruments.
is a kind of irrational fundamentalism because it is clear that weakening regulatory mechanisms in a market system incorporates a risk of crisis disastrous. These are senseless acts except for short-term interest of the lords of the economy and society. The financial corporations can and did make tremendous short term profits from pursuing extremely adventurous activities, including especially deregulation, which harm the economy generally, but not for them, at least in the short run that is what guides your planning.
In the U.S., real wages remained virtually stagnant for the majority for thirty years.
Chomsky: No one could predict the exact timing of a severe crisis, you could not predict the exact scope of the crisis, but it was obvious she would. In fact, were serious and repeated crises during this period of increasing deregulation. Except that until now had not hit so hard at the center of wealth and power, but above all the countries of the third world. Take the case of the United States. It is a rich country, but for a substantial majority of the population, the last thirty years have probably been among the worst in American economic history. There have been no massive crises, large wars, depressions, etc.. However, real wages remained virtually stagnant for the majority for thirty years.
In the international economy, the effect of liberalization income was quite harmful. We read in the press that the last thirty years, neoliberalism, showed the greatest decrease in poverty in world history and tremendous growth, etc.. There is some truth in this, but what's left to say is that poverty reduction and growth occurred in countries which ignored the neoliberal rules, as occurred in East Asia. And countries that observe such rules have suffered severely, as occurred in Latin America.
Joseph Stiglitz recently wrote that the recent crisis marks the end of neoliberalism. Chavez in a collective press, said the crisis could be the end of capitalism. Which one is closer to the truth?
Chomsky: First, we should be clear that capitalism can not end because it never started. The system we live in should be called state capitalism, not just capitalism. In the case of the United States, the economy relies very heavily on the state sector. Currently, there are a lot of anguish about the socialization of the economy, but that's a big joke. The advanced economy, high technology and the like have always relied extensively on the dynamic sector of the state economy. It's true of computers, the Internet, aviation, biotechnology, just about everything in sight.
We have a system socialization of the costs and risks and privatize profits.
Chomsky: The Massachusetts Institute of Technology (MIT), where I'm talking about, is a kind of funnel in which the public pours money and where it comes the technology of the future, which will be handed over to private power for sack the profits. So we have a system of socialization of cost and risk and privatization of profits. This occurs not only in the financial system, but in all advanced economies.
So, for the financial system, probably the result will be more or less as described by Stiglitz. It's the end of a certain era of financial liberalization driven by market fundamentalism. The Wall Street Journal laments that Wall Street as we know it, has disappeared with the collapse of investment banking. Some steps will be taken in the direction of regulation. That's right. However, proposals that are being made, more extensive and severe as they are, do not change the structure of the underlying basic institutions. There is no threat to state capitalism. Its core institutions will continue to be the same, perhaps even without major jolts. They may rearrange themselves in various ways. Some conglomerates taking over others and some may be semi-nationalized a weak sense, without this strongly affects the private monopoly of decision making.
However, the way things are going, property relations and distribution of power and wealth will not alter much though the era of neoliberalism operative for roughly thirty five years will surely be significantly modified. Tell the way, nobody knows how serious this crisis will become. Each day brings new surprises. Some economists are predicting real catastrophe. Others think that it can be patched together with modest disruption and a recession, likely worse in Europe than in America. But nobody knows for sure.
In its evaluation, we will see something like depression, with people doing work without the long queues for food in the United States and Europe? And if that happens, a big war to replenish the savings on foot, a shock therapy or something like?
Chomsky: I do not think the situation is comparable with the period of great depression, although there are some similarities to that era. The 20s were also a period of wild speculation and vast expansion of credit and loans, with the creation of an enormous concentration of wealth in a very small sector of the population and the destruction of the union movement. From this point of view, there are similarities with the current period. But there are also many differences. There is a much more stable apparatus of control and regulation of the New Deal, and although it was weakened, much of it remains intact.
Moreover, it is understood that the types of policies that seemed extremely radical in the New Deal period, are more or less normal. Thus, for example, in the recent presidential debate, John McCain, the candidate of the right, proposed the New Deal measures taken to address the housing crisis. Then there is the understanding that the government must assume an important role in managing the economy and, in fact, the advanced sectors of the economy are already living this experience for nearly 50 years.
There is much mythology that we need to disassemble: Reagan was the most protectionist president in U.S. economic history of the postwar period.
Chomsky: Much of what you read about this is pure mythology. For example, we read that Reagan's passionate belief in the miracle of markets is now being attacked. Attributed to the former president of the High Priest role of faith in markets. In fact, Reagan was the most protectionist president of the economic history of the United States after the war. He increased the barriers more protectionist than all his predecessors combined. He called on the Pentagon to develop projects to train American managers in Japanese advanced production methods. He carried one of the largest bank bailouts in American history, and formed a conglomerate based in the state to try to revitalize the semiconductor industry. In fact, he believed in a powerful government, intervening radically in the economy. When I say "Reagan" I refer to his administration. What he thought about all this, if they believed in something, really do not know and that's not very important. There is much mythology
we need to disassemble, there including what it says about the great growth and poverty reduction. In the United States, when the neoliberal rules were applied, the results were quite harmful to the majority population. Looking beyond the mythology, we can see that a state capitalist economy that, particularly since the Second World War, relied very heavily on the state sector, now is back to depend on the state to manage the financial system that is falling apart. So far, no signs that it will produce something like what happened in 1929.
So you do not think we are heading for a change in the order world?
Chomsky: Well, there are very significant changes in world order and maybe this crisis will contribute to them. But they have been for some time. One of the main changes in world order is being experienced now in Latin America. It is often said that Latin America is the backyard of the U.S. and that, long ago, is a region controlled by the U.S.. But that is changing. In mid-September had a dramatic illustration of this.
On September 15, there was a meeting of UNASUR, the Union of South American Nations, attended by all South American governments, including Colombia, the current U.S. favorite in the region. The meeting was held in Santiago, Chile, another U.S. favorite. Came out with a very strong declaration supporting Evo Morales of Bolivia, and reject the quasi-secessionist areas of this country who have the support of the United States.
Evo Morales responded, correctly, that this was the first time in 500 years that Latin America had taken its destiny into their own hands.
Chomsky: There is a struggle going on in Bolivia. Elites are being mobilized for autonomy and even secession, strong levels of violence with apparent U.S. agreement. But the South American republics took a strong stand in support of democratic government. The statement was read by President Bachelet of Chile, a favorite of the West. Evo Morales responded by thanking the presidents for their support and noted, correctly, that this was the first time in 500 years that Latin America had taken its destiny into their own hands without the interference of Europe, particularly the United States. This is a very significant symbol of change that is underway, sometimes called "pink tide". It was so important that it was not reported by the U.S. press. There is a phrase here and there, which notes that something happened, but completely suppressing the content and importance of what happened.
This is part of a long-term process, in which South America is beginning to overcome its tremendous internal problems and also its subordination to the West, especially in relation to the United States. South America is also diversifying its relations with the world. Brazil has growing relations with South Africa, India and particularly China, which increasingly involved in investments and exchange with Latin American countries. These are extremely important, which are now starting to spread to Central America. Honduras, for example, is the classic banana republic. It was the base for the wars of terror perpetrated by Reagan in the region and is completely subordinated to the U.S.. But Honduras has only added to the ALBA, the Bolivarian Alternative for the Peoples of America, proposed by Venezuela. It's a small step, but it is still very significant.
You think these trends in South America like ALBA, UNASUR and the major events in Venezuela, Bolivia and other countries may be affected by an economic crisis of the dimension we are facing now?
Chomsky: Well, these countries will be affected by the crisis but, at the time, not so much as being Europe and the United States. If we look at the case of the stock market in Brazil, it collapsed very quickly, but Brazilian banks are not breaking. Similarly, in Asia the stock markets are declining sharply, but governments are not taking control of banks, as in England, the United States and much of Europe. These regions, South America and Asia, somehow managed to separate themselves from the ravages of the financial markets. What set off the current crisis was the subprime lending for assets built on sand, and these of course are in the hands of U.S. and European banks. Possession of a toxic mortgage-based assets involved them very quickly in these events. Moreover, Europeans have their own crises of housing, particularly Britain and Spain.
Asia and Latin America were much less exposed, having kept more cautious lending strategies, particularly since the neoliberal meltdown of 1997-1998. A major Japanese bank, Mitsubishi UFG, has just bought a substantial part of Morgan Stanley, USA. So, it seems so far that Asia and Latin America will be affected as badly as the U.S. and Europe.
you believe there is a big difference between Obama and McCain with regard to issues such as the Free Trade and Plan Colombia? In Colombia, one can feel that the president and his supporters are scared about an election of Obama. I know you have the feeling that Obama is like a blank sheet, but thinks she will make a difference?
Chomsky: In fact, Obama has presented himself more or less like a blank sheet. But there is no reason why the Colombian government is scared of his election. Plan Colombia is Clinton's policy and there are many reasons to expect that Obama will be another Clinton. He is very inaccurate, for that matter. Even when explicit policies, they seem to be very centrist policies, as Clinton, who fashioned Plan Colombia and militarized the conflict.
I sometimes feel that the two terms of Bush were in the changing world order, trying to maintain power using force and, in return, Obama could be good for the face renegotiate the world order. What is your opinion on this?
Chomsky: It is important to remember that the U.S. political spectrum is pretty narrow. It is a company controlled by business, basically, is a one-party state, with two factions, Democrats and Republicans. The factions are somewhat different, and sometimes are significant. But the spectrum is quite narrow. The Bush administration, however, stood well beyond the end of the spectrum, extreme radical nationalists, extreme believers in state power, in violence overseas and a high government spending. In fact, they were so off the spectrum that have been harshly criticized even by power, from the earliest times.
Whoever assumes the office is likely to move things back towards the center of the spectrum. Obama may do so to a greater extent. I would expect in Obama's case, there will be something like a revival of the Clinton years, of course adapted to changing circumstances.
Now we are reaching the end of neoliberal globalization, there is the possibility of something really new, a good globalization?
Chomsky: I think the prospects are much better than they were before. Power is still incredibly concentrated, but there are changes as the world economy becomes more diverse and complex. The South is becoming more independent. But if you look at the U.S., despite all the damage Bush has done, remains the largest economy in uniform, with the largest market, the strongest military and most technologically advanced, with annual expenses comparable to the rest of the world combined, and an archipelago of military bases throughout the world. These are sources of continuity even though the neoliberal order is being eroded in the U.S., Europe and internationally with a growing opposition to it. So there are opportunities for real change. How far this change can come, it depends on people, what are we willing to undertake. "
07-Dec-2008
Translation: Katarina Peixoto
* Simone Bruno, an Italian journalist based in Colombia.
in. ESQUERDA.NET
