Forum Post: chomsky on todays economic problems

One of the main goals of the Occupy movement is fighting inequality in the US, but also worldwide. What is your assessment of the US and European answer to the financial and the so-called Euro-crisis?

Chomsky: The US reaction has been somewhat better than the European reaction. The European reaction is a suicide, class based suicide. It’s pretty hard to interpret the Troika Policies, mostly German backed, as something else than class warfare. In fact ECB president Mario Draghi pretty much said we are going to get rid of the social contract.

But he also said that the fiscal pact has to be backed by a growth pact.

Chomsky: Finally they are talking about what should have been done in the first place. There is plenty of resources in Europe to carry out stimulation of demand and so on. But the idea of imposing austerity under recession is a recipe for suicide. Even the IMF has come out with studies showing that that’s the case. The effect, and presumably the intention, is to dismantle the welfare state and the social contract.

Why do you think that this is the intention?

Chomsky: Just look at the people who are designing the policies. They never liked the welfare state, they never liked the power of labor. Europe was a relatively civilized place by comparative standards. But that helps the population, that doesn’t help the corporate sectors, the super rich and so on. So sure, if they can dismantle that, fine. It’s hard to think of any other rationale for the policy that’s been pursued. But as you said now it is the cracking off slightly.

The rationale that German chancellor Angela Merkel puts forward is that we have a debt crisis, and in times of debt, you’ve got to cut spending.

Chomsky: In times of debt, what you do is get the economies to grow so that they can overcome the debts. If you impose austerity, it gets worse. It was obvious in the beginning and that’s exactly what happened.

Do you think that countries like Greece should have defaulted?

Chomsky: Greece has some serious internal problems. They just didn’t collect tax, the rich were undisciplined, and there’s too much bureaucracy. But the debt is a dual responsibility. If you believed in capitalism the problem would be a problem of the lenders. I lend you money, I make some profit, you can’t pay, tough for me.

But there always has to be some enforcement or guarantee that the debts are paid back….

Chomsky: Not in capitalism. But in real life it’s your neighbor’s problem. They have to subject themselves to austerity. These are just systems for supporting the wealth and power. So should Greece have defaulted? Well, it should have had a way to extract itself from debts that they weren’t incurred by the population. It’s true that they used the fake money, fake wealth to overconsume. But that’s pretty much the faults of the banks. They were smart enough o figure out that there is gong to be unplayable debt. But the question is, could Greece restructure so that the debt would not be imposed on the population. There are countries that have done it, like Iceland or Argentina.

People in the richer European countries fear that by increasing spending this will lead to higher debts…

Chomsky: Not, if the money is used the way it was used in East Asia. They used it for capital investment and industrial policy programs. So, Taiwan and South Korea, Japan earlier, they moved from quite poor peasant societies to richer and developed societies. In fact the entire history of state capitalist development has been like that. That’s the way the United States developed. In the 1770’s, the newly liberated colonies did get economic advice from respectable figures like Adam Smith. He advised the colonies to do what are called the Principles of Sound Economics; the ones that the IMF and the World Bank were instructing the poor countries to do today. So, concentrate on your comparative advantage, export primary products, import superior manufacturers from Britain. Well, the colonies were free. So they did the exact opposite. They raised tariff barriers, developed industry, tried to monopolize cotton. That’s how the US developed.

Would protectionism make sense in the industrialized countries today? Because if you walk around in a supermarket, you´ll see products that have been produced under conditions that the societies in the industrialized countries wouldn´t tolerate. The T-Shirt from Bangladesh, the TV from China, the toy from Taiwan: all produced without interference from the welfare-state, labor unions or environmental protections. ‘There is nothing more neoliberal than the consumer“, Swiss author Adolf Muschg once noted. But shouldn´t we protect the consumer?

Chomsky: There’s two approaches. One approach is protectionism, but notice that in the case that I’ve mentioned the protectionism was against the richer societies. You are talking about something different; tariffs against poor countries. And there is another approach, namely the approach that the European Union in fact took. Help them raise their levels so they don’t undermine the living standards of northern workers.

But what happens if it´s impossible to raise standards in China?

Chomsky: Sure you can. In fact it’s being done. When there were massive protests against Foxconn (a Taiwanese corporation that produces electronic devices for Apple in China) this year, China reacted by making some changes, allowing some degree of independent unions that have been permitted to slightly reduce the owners’ conditions that sort of forced workers into this slave labor. If we impose tariffs against exports from China we are imposing costs on western corporations. It’s basically an assembly plant for parts and components that come from the more advanced industrial countries and it’s periphery.

So why not tax them for exploiting workers and the environment in those countries?

Chomsky: Yes, make them pay to raise the standards. I mean corporate profits have gone through the roof. Now, there’s study by the University of Massachusetts, that just unused corporate banking and corporation profits, it’s about a trillion and a half dollars that’s just sitting there because they see no advantage for them to spend it. Well, there are all kind of ways to spent that, as the study points to specific measures which would virtually eliminate unemployment, lead to economic growth and so on.