In school and in the media, we are taught lies, half-truths and simplifications about how the world works. History is generally presented as a series of unrelated events. Foreighn world leaders are presented as good or evil, and terms like 'rebels', 'terrorists', 'drug lords', and 'guerrillas' are used to describe various groups without a true understanding of how these groups come about and what drives them to do the things they do. The U.S. and Western Europe is always presented as a force for good, while 'terrorists' are cast as comic book cartoon 'enemies of freedom'.
We are encouraged to view America's role in foreign policy as one of a benevolent police force, standing up for basic human rights and abstract concepts of democracy and freedom. This is a role that gained legitimacy from America's heroic role in defending human rights and sovereignity from the clutches of war, empire, and social Darwinism during World War I and World War II. It is a view that has been peddled by every president since that time, even as it has become less and less true. Today, it is increasingly difficult for U.S. leaders to maintain this facade. Iraq and Afghanistan have formed gaping cracks in this facade. Americans, for the first time since Vietnam are starting to see the ugliness and inconsistencies behind their country's foreign policy. Much like an iceberg, however, the visible part is only the tip. The real story goes much deeper. John Perkins' 'Confessions of an Economic Hitman (EHM)' goes a long way to illuminating the whole structure beneath.
John Perkins, through family ties to the National Security Administration was recruited into the ranks of an international consulting company called 'Chas T. Main' or MAIN for short, in the early 1960s. MAIN played a bridging role between the business and government in what Perkins refers to as the 'corporatocracy', an unholy cabal between industrialized governments, big corporations, and banks. The corporatocracy is a predatory entity that drives a new global empire. Contrary to popular notions of 'free trade' and ideals of poverty reduction and development of third world countries, the corporatocracy enforces exploitation, desperation, modern forms of enslavement, and vast transfers of real wealth from resource-rich 'developing' countries to resource-poor (in relation to demands for those resources) 'developed' countries. At heart, the reason for this exploitation is easily explained. There simply aren't enough natural resources to support first-world standards of living across the rest of the world. Our way of life relies on too much energy, mineral, and material wealth. This essentially zero-sum relationship describes the driving force behind empire-building, going back into ancient history. If one country is to prosper, it means it must co-opt the resources of other countries. In pre-industrial days, these resources were mostly in the form of human labor,food and precious metals. Today, the resources are expanded to also include oil, natural gas, water, and other minerals. In the past, the exploitation was impossible to hide, was obvious, and out in the open. Today, the exploitation is exceedingly subtle and insidious. As John Perkins describes,
"The subtelty of htis modern empire puts the Roman centurions, the Spanish conquistadors, and the eighteenth- and nineteenth- century European colonial powers to shame. We EHM's are crafty; we learned from history. Today, we do not carry swords. We do not wear armor or clothes that set us apart. In countries like Ecuador, Nigeria, and Indonesia, we dress like local schoolteachers and shop owners. In Washington and Pairs, we look like government bureaucrats and bankers. We appear humble, normal. W visit project sites and stroll through impoverished villages. We profess altruism, talk with local papers about the wonderful humanitarian things we are doing. We cover the conference tables of government committees with our spreadsheets and financial projections, and we lecture at Harvard Business School about the miracles of macroeconomics. we are on the record, in the open. Or so we portray ourselves and so are we accepted. It is how the system works. We seldom resort to anything illegal because the system itself is built on subterfuge, and the system is by definition legitimate."
Perkins was hired by Main, and due to his specific skills and vulnerabilities, he was recruited into an elite group at the firm, who understood the true machinations of the firm and its relationship the broader corporatocracy, which it supported, and which supported it. Despite only having a B.S. in business administration, Perkins soon became head economist at MAIN. Perkins' role was to come up with intentionally inflated economic projections for third world economies, should they choose to accept large loans for infrastructure projects from U.S. or international development banks, like the IMF and World Bank. As Perkins describes: "Like our counterparts in the mafia, EHMs provide favors. These take the form of loans to develop infrastructure - electric generating plants, highways, ports, airports, or industrial parks. A condition of such loans is that engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco. Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creditor), the recipient country is required to pay it all back, principal plus interest. If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years. When this happens, then like the Mafia, we demand our pound of flesh. This often includes one or more of the following: control over United Nations votes, the installation of military bases, or access to precious resources such as oil or the Panama Canal. Of course, the debtor still owes us the money, and another country is added to the global empire."
So the point is that these loans form the basis for permanent economic enslavement of the debtor nations to the creditor nation, and form the basis of negotiations for more obvious forms of imperial conquest. This doesn't mean, however, that the decision to partake in these projects (based on false premises, as they are) is subject solely to the sovereign decisions of the debtor countries. If the subject country refuses to accept such loans, the corporate global empire resorts to progressively subversive tactics. First, a coup or assassination is attempted against the 'stubborn' government. The model for first-world-directed modern coups was based on a model developed in Mossadegh's Iran in the 1950's. Basically, CIA operatives and corporations find groups within the country who are opposed to the current government, supply them with weapons, and pursue other means to foment uprisings, overthrow the 'stubborn' government, and install their own corrupt puppet government who then capitulates to the demands of the empire. If this is not an option, the same thing can be accomplished through assassinations. The more plausible deniability in these assassinations, the better. The preferred method is to have the foreign president die in a mysterious plane crash. If all this fails, the last resort is traditional war, as was the case in Panama, under the first Bush administration, and Iraq, under the second Bush administration.
Today, we can see the inevitable results of these more obvious forms of subjugation. Iraq's oil reserves were recently split up, and new oil fields are being developed all over the country by Shell, BP, Exxon and Chevron. In Afghanistan, geologists
recently announced that Afghanistan has a trillion dollars worth of mineral resources (including rare-earth metals needed for renewable energy and high-tech industries) that are newly ripe for the picking. This new wave of obvious exploitation, however, belies a truth about foreign policy today: The subtle, cheap, and effective tactics of John Perkin's EHMs are becoming increasingly ineffective. There are simply not enough new, easily exploitable countries left to maintain the increasing flows of third-world wealth into the first-world. Continuation of 'growth' in the U.S. demands ever greater amounts of military spending on new wars, and continued maintenance of older, more reliable sources of subjugation. This is why, even under the new Obama administration, which promised the end to the hawkishness of the Bush Administration, military spending has continued to increase. To cut the spending, would be to forfeit these exploitive relationships and condemn the U.S. to economic contraction. The trap is set for the U.S., however, because to maintain the flows requires an ever growing slice of the nation's income be devoted to its military. This is a classic case of declining marginal returns on empire, as outlined in Part 1 of this series for the case of the Roman Empire. The hyperbolic nature of the continued drive to maintain empire is painfully obvious. The U.S. spends as much on military as the rest of the world combined. The next largest military spending (China's), is 8 times smaller than the U.S.'s.
The latter stages of empire here, represent a form of Ponzi dynamics - those that underly fraudulent pyramid schemes. Ponzi dynamics occur when the continuation of a financial or administrative structure is dependent upon the continued buy-in of larger numbers of new entrants. At first this relationship appears to be stable, but as the supply of new entrants into the scheme is finite, these structures always end in collapse. The Automatic Earth has a wonderful essay on the ponzi dynamics of empire from 2008, titled
'From the top of the Great Pyramid'. Quoting from that essay:
"Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.
What allows a more complex pyramid to last for longer than a simple one is a supplementary source of funds to pay members, besides merely the buy-in of newer members. The more such sources there are, legitimate and otherwise, the more complex the pyramid can become and the longer it will last, as the apparent on-going success of early entrants will attract many more new ones. There's nothing like seeing one's friends and neighbours seemingly making a lot of easy money for a long time to eventually overcome the mental defenses of even the most skeptical.
Following the collapse of communism in Eastern Europe, there was a spate of such schemes - notably MMM in Russia, Caritas in Romania, Jugoskandic and Dafiment Bank in Serbia, TAT in Macedonia, and VEFA Holdings, Xhafferi, Populli, Gjallica and several others in Albania. They were the topic of my academic research at the time. All of these lasted for quite a long time, and some paid out spectacular returns for much of that time. For instance, the Albanian funds , or quasi-banks, began by paying out 3-5% per month over a 6 month term and were eventually paying out 10% per month (and briefly much more as an interest rate war ensued very late in the game).
They were able to do this temporarily because the income from the buy-in of new entrants was supplemented by revenue from drug smuggling, oil sanctions busting, money laundering, gun running, human trafficking and a thriving trade in car theft from across Europe. There was some revenue from legitimate business interests, but not much in a country that survived mainly on a combination of remittances and politically supported criminal activity. Ironically, Albania was the darling of the IMF at the time.
Over time, approximately 80% of the Albanian population was drawn into the pyramids, often selling their only real property in order to invest and then depending on the pyramids for all their income. When the inevitable happened, the vast majority of the population was completely dispossessed. Although many had realized that there was something too-good-to-be-true about their 'investments' they had succumbed to greed "in the belief that they were in the hands of properly structured criminality", as The Guardian newspaper put it in February 1997. The population believed, erroneously, that there was an implicit guarantee from the government, which was conspicuously and intimately entwined with the activities of the various funds.
In the developed world, there are many examples of pyramid dynamics where there is no intent to defraud at all - where even the founders really don't understand the underlying logic of their business model taken to its logical conclusion. Direct marketing, for instance, is essentially pyramid-based - depending on an ever-increasing network of sales people, each of whom receives a percentage of their income from those they can attract into the business. If these businesses can no longer grow by attracting new salespeople, then they are ultimately finished, but as they cannot grow perpetually (or eventually everyone in the country would end up making a living selling these products to each other), they are inherently self-limiting. They can last for many years thanks to legitimate business revenues, but not forever. Early entrants will always do very well, at the expense of later ones, and the last tiers will certainly lose their stake.
Large economic bubbles, typically formed in dominant economies during periods of manic optimism (see McKay's Extraordinary Public Delusions and the Madness of Crowds), have the same underlying dynamic. Without continual buy-in from new money - new investors or more money from existing investors - they cannot grow, and when they can no longer grow, they will collapse. Although grounded initially in legitimate business activity, they morph into structures where one has to question the motives and understanding of key individuals. In some cases there may be intent to defraud, but what is far more common is a characteristic recklessness as to the risks those in control are prepared to take with other people's money.
In their latter stages, such structures hollow out, feeding on their own internal substance as they lose the ability to attract new investment. In the terminal phase, there is the appearance of great wealth, but it is virtual, and therefore extremely ephemeral. The next step is implosion, as the virtual wealth disappears - where the claims to wealth generated through leverage that exceed the amount of underlying real wealth are extinguished en masse. Enron was a prime example, and on a much larger scale, so is the derivatives market. Bubbles, like all Ponzi structures, are inherently self-limiting and will always collapse in the end.
At the largest scale, empires are also grounded in pyramid dynamics, which is why they too have a limited lifespan. They grow by assuming control, either politically or economically, of new territories, positioning themselves to cream off surpluses from an ever-expanding geographical area in a form of involuntary buy-in. In the past political control through invasion or physical colonization was more common, but latterly globalization has enabled the development of a sophisticated system of economic control based on international debt slavery, supplemented with economic colonization for the purpose of resource extraction. Both resources and financial surpluses, in the form of perpetual interest payments, could be efficiently extracted from the periphery and accumulated at the centre, where they led to the development of an unprecedented level of socioeconomic complexity.
Such wealth conveyors in favour of the economic centre, at the expense of the hinterland, are the very heart of empire, but without continual expansion to feed rapidly developing central complexity, they eventually fail, leaving the centre unable to sustain its existing complexity level. As with economic bubbles, empires hollow out in the latter stages, consuming their own substance in a catabolic manner in order to compensate for the inability to strengthen wealth conveyors sufficiently quickly to keep pace with the expanding requirements of the centre.
As the hinterland is increasingly stripped of wealth and resources, and burdened with the increasing environmental impact of its own exploitation, an increasing fraction of it is left too impoverished to sustain a minimum level of internal order. In modern times we speak of failed states without realizing why many of these states are failing, or the impact that an increasing number of failed states will ultimately have on our own standard of living.
Wealth conveyors are breaking down, and no amount of financially squeezing the population in the central economies can compensate for the loss of that ability to accumulate wealth from virtually the whole world. The vast majority of the central population will be brutally squeezed as the elites try to hang on to their own privileged position, but this can only sustain a very small, and rapidly shrinking, fraction of the population, and at great cost.
We are living through the collapse of the final - and all-consuming - economic bubble at the end of the American empire."
What is the catabolic consumption, described in this essay? The global corporate empire does not explicitly serve the interests of the citizens of any given county. It is only the case, that we, in the U.S., in good times for the empire, are subject to a process whereby a rising tide lifts all boats. We benefit indirectly from the massive flows of resources to the first world from the third world. As the global corporate empire becomes stretched increasingly thin, and is more and more hard pressed to find new sources of wealth abroad, it responds by using predatory tactics to make up for the lost wealth within its own country of origin - essentially consuming itself, as it goes after the very sources of wealth that sustain its power. This takes the form of things like sub-prime mortgages and other predatory loans, other deceptive forms of business practices and marketing, bailouts, and other free sources of unearned income from the federal reserve, running the Wall Street casino that systematically funnels wealth from unwitting institutional investors to the high frequency trading arms of big banks - all transparent forms of continuing the illusion of growth, and making up, at least on paper, for the loss of other income streams. Why are these subprime mortgages and unearned income catabolic, you may ask? Well, right now, the U.S. government finds itself squarely in the very same debt trap that the third world was forced into in the past. Its debt levels have reached a point where they are unserviceable. The interest on the national debt alone will make up such an enormous chunk of the government's income stream, that it will become a ludicrous proposition to ever pay off that interest. Right now, old debt is being paid off by new debt, because that's the only way to continue the system. As more and more new debt is required, at some point, there will be no willing sources of new debt. Right now, the current big funder of our debt (besides China, as the media is so apt to point out) are our very own banks. They are sucking money out of the government to maintain their balance sheets at the cost of throwing the government into deeper and deeper stages of Ponzi-collapse. When the banks' sub-prime mortgages fail, the government steps in and bails out those same banks, and to do it requires ever more debt. We are watching the end-game of this process play out, and no amount of government insistence on things as laughable as 'sustainable recoveries' is going to change the inevitable outcome of this process.
