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Gabriel Kolko’s Unfinished Revolution

2014/06/30 2 comments

Kolko reshaped the way we think about how the state protects and advances capitalist interests.

by Eli Cook

https://www.jacobinmag.com (June 25 2014)

Gabriel Kolko, historian and socialist, died last month in his home in Amsterdam. He was 81.

When Kolko’s The Triumph of Conservatism appeared on the scene in 1963, it was not only a book of history but heresy. This was the era in which American liberalism reigned supreme, and social commentators such as Daniel Bell confidently assured the public that the formula for sustained economic prosperity and political freedom had been uncovered in the form of a capitalist system kept in check by a powerful and centralized regulatory government.

American liberals of the era rarely challenged the basic assumption on which their worldview hinged: that the purpose of the modern state was to inhibit and constrain – not advance or sustain – corporate interests. As is evident from Bell’s contemporaneous declaration that the balance of powers between private enterprise and public policy signaled nothing short of an “end of ideology”, American liberals in the early 1960s were so utterly convinced of the diverging interests of state and capital that they could not even fathom that this assumption was ideological in itself.

To men such as Arthur Schlesinger, an archliberal in both the White House and his own historical writings, it was sheer common sense to note that “liberalism in America has been ordinarily the movement on the part of other sections to restrain the power of the business community”. In the early 1960s, American historians – led by the likes of Oscar Handlin, Louis Hartz and Richard Hofstadter – echoed Schlesinger’s sentiment. American historians, that is, save for a young Gabriel Kolko.

Any hegemonic historical narrative worth its salt must have a solid origin story. American liberalism’s lay in its self-proclaimed “Progressive Era”. The labels which have stuck to this distinct periodization of American history insure that this particular story – which still dominates textbook timelines, best-selling biographies, National Public Radio podcasts and most college history departments – practically tells itself. In the beginning, there was the “Gilded Age”, an era of rampant capitalistic greed and excess in which the fortunes of the American people were crushed by “robber barons” and the corrupt politicians these men had in their pocket.

But then, everything changed. With the new century came a dramatic turn of events as a cadre of crusading “middle-class reformers” – led by the “trust-busting” likes of Teddy Roosevelt – took control of the federal government, instituted a number of anti-business “reforms” and not only ushered in the Progressive Era but set the political, economic, and ideological foundation for post-war American affluence.

Be it the government-subsidized consumerism of fifties suburbia, state-sanctioned anti-communism, or the rise of Eisenhower’s “military-industrial complex”, Gabriel Kolko was skeptical of this liberal narrative and set out to undermine it.

In his doctoral dissertation on railroad regulation at Harvard, Kolko pulled the rug from under the origin tale of American liberalism by painstakingly uncovering a startling revelation in the archives: The men who had led the push for federal regulation of railroads were not populist farmers or wage laborers but rather the railroad capitalists themselves.

“The dominant fact of American political life of this century”, Kolko would later summarize, “was that big business led the struggle for federal regulation of the economy”.

In his dissertation, and then more broadly in The Triumph of Conservatism, Kolko presented meticulous research to offer a revisionist version of American history. “I contend that the period from approximately 1900 until the United States’ intervention in the war, labeled the ‘Progressive Era’ by virtually all historians”, he declared, “was really an era of conservatism”. Conservative, Kolko went on to explain, because it was “an effort to preserve the basic social and economic relations essential to a capitalist society”.

Kolko was not one to pull his punches or mince his words. A proud socialist and a man of the New Left, he became a leading voice and pamphleteer within the Student League for Industrial Democracy (SLID), an organization that would later become the Students for a Democratic Society (SDS). Yet like many socialists of the era, Kolko rejected the determinist positivism of earlier Marxist theory.

The consolidation of the American economy into a few giant monopolistic corporations, Kolko would repeatedly argue throughout his life, was not – as both Max Weber and Karl Marx had suggested – an inevitable event brought on by inexorable economic forces. Rather, it was a contingent and conscious transformation brought on by the very “progressive” policymakers that American liberals had been celebrating for precisely the opposite reasons.

Impersonal laws of diminishing returns didn’t make corporate capitalism, according to Kolko – people in power did. People like Theodore Roosevelt, who legitimized the corporation by dividing them into “good” and “bad” trusts, or Senator Nelson Aldrich, a close ally of JP Morgan and the architect of the Federal Reserve System that publicly ensured the much-needed stability of private finance.

To appreciate the heretical depths of Kolko’s revisionism, we must linger a bit longer on his dissertation and first book. In these works, Kolko turned liberal historiography on its head. He argued that the Gilded Age was not an era of untrammeled monopoly power and corporate dominance but rather one of cutthroat competition, chaotic instability, rising labor power, radically anti-business legislation at the local and state level, and a balkanized political system that did not fit the standardized needs of corporations aspiring to create a centralized national economy.

Corporate-minded businessmen, Kolko pointed out, desperately tried to deflect these social and economic forces through the construction of private cartels and mergers, but to no avail. By the turn of the twentieth century, corporate businessman’s profits and social standing were both dropping fast. These failures led leading corporate interests to conclude that only the federal government had the means and power to centralize, rationalize, standardize, stabilize, and regulate the chaos of Gilded Age capitalism into a predictable and consolidated corporate economy.

Only in the era historians have ironically coined “Progressive”, Kolko concluded, did economic elites finally succeed – under the aegis of government “reform” – to institutionalize corporate social relations through such business-led government initiatives as the Federal Trade Commission and the Federal Reserve System.

After deeming the Progressive Era conservative, Kolko – along with his wife Joyce – turned his eye on to American foreign policy, the Cold War, and Vietnam. Here too, Kolko sought to challenge the conventional wisdom of the field.

Until Kolko and William Appleman Williams came along, the standard argument regarding the origins of the Cold War in America fixed nearly all of the blame on the Soviet Union. George Kennan’s popular theory of “containment” portrayed the United States as a rather passive player in global politics, as it sought only to protect itself and hold back Communist aggressors. These narratives tended to downplay economic or social causes of the Cold War in favor of diplomatic explanations and high politics.

Kolko’s rewriting of the Cold War reflected these criticisms. In The Politics of War (1968), he linked domestic and foreign policy by arguing that one of the main goals of American warfare was to suppress the Left at home and preserve corporate capitalist social relations. In The Limits of Power (1972), he contended that it was American capitalism’s unquenched need for overseas markets as an outlet for corporate surplus production that forced the United States to take the offensive following World War Two.

In these and later writings on American foreign policy, Kolko once more contended that the liberal dichotomy between government and capital was a false one, and that one could only understand the Cold War by exploring the synergetic relationship between capitalists and the liberal state.

And once again, Kolko’s writings and his politics remained firmly enmeshed: He became one of the most outspoken critics of American war crimes, supported the North Vietnamese cause, and was actually in Vietnam when Saigon fell (or, as Kolko would have it, liberated). Kolko even left his position at the University of Pennsylvania after discovering that the school had participated in research on the infamous chemical weapon known as “Agent Orange”. He moved to Canada.

Postwar American liberalism was tolerant and supportive of many historical schools, even those often dominated by socialists. Thanks to its bottom-up emphasis on human agency and marginalized Americans, for example, the liberal mainstream had few qualms about the emerging field of labor history. And despite having its fair share of Marxist luminaries, the history of slavery was widely accepted into the liberal canon in these decades partly because such histories had a tendency to implicitly legitimize free labor capitalism (no matter how hard some on the Left tried to avoid such conclusions).

Celebrate the laborer and slave, or condemn the ruthless businessman and slaveholder, and you could still be a star of the historical profession in postwar America – even if you were a socialist. There was, however, one angle you decidedly could not take: the undermining of middle-class reform and the federal government by equating liberalism with capitalism. As a result, Kolko never managed to climb into the upper echelon of the profession. After leaving the University of Pennsylvania, Kolko spent the rest of his career in Canada, teaching at York University in Toronto.

Today, few graduate students, even those of American capitalism, have even heard of Gabriel Kolko. In the recent bibliographical essay in The Cambridge History of the Cold War (2012), Kolko was not even mentioned. Such labels as “the Progressive Era” or “middle-class reform”, on the other hand, don’t seem to be going anywhere.

Sadly, in researching this piece, it became abundantly clear to me that the group of scholars most active in keeping the Kolko flame alive has been the libertarian right, which has taken Kolko’s analysis of government-designed corporate capitalism as an opportunity to celebrate the wonders of the free market. As early as 1976, Kolko himself recognized this development, lamenting the fact that “with the unimportant exception of a few conservatives who ignored everything which undermined their case, no one paid much attention to my economic exposition”.

Kolko’s reaction to this libertarian lovefest, meanwhile, reveals the unapologetic radical that he was. When a free market magazine sought to list Kolko amongst its supporters, he responded with a letter:

As I made clear often and candidly to many so-called libertarians, I have been a socialist and against capitalism all of my life, my works are attacks on that system, and I have no common air of sympathy with the quaint irrelevancy called “free market” economics. There has never been such a system in historical reality, and if it ever comes into being you can count on me to favor its abolition.

Kolko’s politics, however, were not the only reason he failed in his attempt to upend the discipline of American history. Glance at the cover of The Triumph of Conservatism, and you will find a picture of a giant capitalist in a top hat towering over everyday Americans. Take a closer look, and you will see that the businessman is in fact a giant puppeteer as he has managed to harness the American people with a fistful of rope.

For Gabriel Kolko, capitalists really did pull all the strings. While Kolko’s archival research was always impressive and convincing, such a simplistic approach to history lacked a nuanced and rigorous understanding of power, class and historical change.

While other revisionist historians of the era such as James Weinstein were coming to view businessmen, social reformers, and politicians as part of a single consolidating class (and culture) of corporate technocrats, Kolko’s analysis tended to focus on either presidents and top policy makers or specific interest groups such as Wall Street bankers or Midwestern industrialists. The emphasis was often on uncovering high profile “smoking guns”, not broad, complex and tacit shifts towards a new class-driven and bureaucratic synergy between corporation and state. Despite all his emphasis on economic forces, for Kolko historical change remained mostly personal – not structural and certainly not cultural.

And yet, while Kolko’s heretical revolution clearly remains unfinished, his vast influence on the field of American history cannot be denied. Along with William Appleman Williams, Martin Sklar, and James Weinstein, Kolko became one of the founding fathers of the “corporate liberal” school which stressed that the modern liberal state aided and abetted corporate capitalism far more than it inhibited it. Corporate liberalism has remained one of the most important interventions in American historiography in part because it succeeded in denaturalizing capitalist relations and challenging both neoclassical and liberal approaches to the study of market economics by stressing the crucial role that the state and its legal system played in the very making of modern capitalism.

While more nuanced than Kolko’s somewhat crude arguments, works such as Morton Horwitz’s Transformation of American Law (1979) and Alan Brinkley’s End of Reform (1996) are but two examples of great works of history which clearly owe a great debt to Gabriel Kolko. As Alan Brinkley argued in classic Kolkian style, while New Deal reforms may not have been hand-written by businessmen, they nevertheless were committed first and foremost to “providing a healthy environment in which the corporate world could flourish”.

These important books, as well as Sven Beckert’s The Monied Metropolis (2003), Nancy Cohen’s The Reconstruction of American Liberalism (2002), William Roy’s Socializing Capital (1999), James Livingston’s Origins of the Federal Reserve (1989), and many others have Gabriel Kolko’s intellectual fingerprints all over them. Even on the foreign policy front, Kolko’s voice – albeit indirectly – seems to be emerging once more. As Paul Kramer has recently argued in what may become a transformative article in the American Historical Review, it is high time that the study of American imperialism focus not only on racism and masculinity but corporate capitalism. I hope Kolko got to read this article before he died.

I have a hunch that both the war in Iraq and the US government’s blatant bailout of Wall Street in 2008 may lead to a Kolkian renaissance in the near future. In his wildest socialist dreams, Kolko could not have made up such outrageous and perfect examples to prove his argument that the main goal of the federal government, in both its domestic and foreign policy, is not to restrain corporate capitalism but to preserve and advance it.

Let us hope scholars other than libertarians do pick up where Kolko left off, as he is no longer around to write the meticulous and definitive case study on the shady dealings of Timothy Geithner, Hank Paulson, Dick Cheney, and Donald Rumsfeld. This is a real tragedy, for I suspect that no one would have done it better.

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https://www.jacobinmag.com/2014/06/gabriel-kolkos-unfinished-revolution/

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Wikileaks brings much-needed scrutiny to secret trade talks

by Jane Kelsey, Professor of Law at University of Auckland

http://theconversation.com (June 23 2014)

Wikileaks has shone the light yet again on behind-the-scenes manoeuvres by a core of governments seeking to advance a free market agenda in the guise of “trade”. The leaked text on financial services is part of the little known Trade in Services Agreement (TISA), which has been brewing for several years in the shadows of the World Trade Organization (WTO): https://wikileaks.org/tisa-financial/.

Why in the shadows? There are three reasons. First, the majority of WTO members have rejected an aggressive strategy to expand and lock in the liberalisation and deregulation of services under the General Agreement on Trade in Services (GATS). Countries as diverse as Brazil and the Least Developed Countries argue that the benefits would accrue almost solely to transnational corporations and their patron states. Moreover, the experience of recent decades, and the global financial crisis especially, show the neoliberal agenda is in decline and needs to be reconsidered, rather than extended.

Second, the services negotiations that have been underway since 2000 have become hostage to disputes over other issues, especially agriculture. Attempts to bypass that through plurilateral services negotiations within the WTO have failed.

Third, negotiations inside the WTO would have to take place in daylight. The WTO has bowed to criticism of its democratic deficit and become a relative paragon of transparency when compared to bilateral and regional trade negotiations in recent years.

Twenty-three parties, including the European Union on behalf of 28 states, have opted to go it alone. These fellow travellers call themselves the “Really Good Friends of Services”, a play on the self-description of pro-liberalising groups in the WTO as “friends of”. Their goal is to take “trade in services” where no services agreement has gone before.

If this sounds familiar, it is. TISA is part of an interlocking web of new super-deals that are being negotiated under similar conditions of secrecy. Indeed, the leaked TISA text shows all documents other than the final text would be withheld for five years after the agreement came into force, one year longer than for the Trans Pacific Partnership Agreement (TPPA).

A trio of four-letter acronyms is now in play: the Trade in Services Agreement (TISA), the Trans-Atlantic Trade and Investment Agreement between the US and EU (TTIP), and the US-led Trans-Pacific Partnership Agreement (officially called the TPP, but dubbed the TPPA to make it clear has nothing to do with a “partnership”). They overlap in membership and, largely, in ambition.

The US and EU are the drivers. Other parties include arch-liberalisers, like Australia and New Zealand, or those with sectoral interests, such as Panama. The two superpowers are explicit about their strategy.

The US Trade Representative told the Coalition of Services Industries in 2012 that it wants to establish new negotiating rules in TISA, get enough countries to sign on to enable it to be incorporated into the WTO, and then have the same rules adopted for negotiations at the WTO. The European Commission said in 2013 that TISA would use the same concepts as the GATS so it could “be easily brought into the remits of the GATS”.

This strategy has been tried before and often failed. The ill-fated Multilateral Agreement on Investment (MAI) was promoted through the OECD in the mid 1990s. The MAI was intended as a “high quality” regime, devised by capital exporting countries to promote and protect the interests of their investors. It was then supposed to be presented as a fait accompli to reluctant Southern governments in the WTO. However, the MAI was defeated once the draft text was leaked. A mass campaign forced its proponents onto the defensive and saw some crucial players, notably France and Canada, eventually pull the plug.

A plurilateral Information Technology Agreement is currently under negotiation inside the WTO. The talks were suspended for the second time in March 2014 because the US, especially, said China had not made enough concessions.

The TPPA is currently hostage to a standoff between the US and Japan, as each tried to defend its domestic interests while insisting that the other plays by the liberalisation rules.

An underlying conundrum is also evident in TISA: expanding the participants to include other major economies would give the negotiations credibility and critical mass; but their defensive interests and leverage potentially dilutes the “quality” of the outcome. China has asked to join TISA. The EU is keen, for the former reason. The US has resisted for the latter.

TISA has some way to run. Whether the original parties can broker a deal, and then get enough sign on from others to force it back into the WTO, are imponderables. But there is no doubt that this first major leak of the text will bring unwelcome attention to the plan. Negotiating TISA in daylight, and subjecting it to public scrutiny, will enhance the prospect that they fail.

http://theconversation.com/wikileaks-brings-much-needed-scrutiny-to-secret-trade-talks-28267

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A Thought for Today

 

 

Kenneth Boulding said the only people who believe you can have compound growth in a finite world are either mad men or economists. He also said: “Mathematics has brought rigor to economics. Unfortunately, it also brought mortis”.

— Jeremy Grantham

 

 

http://www.theguardian.com/environment/blog/2013/apr/16/jeremy-grantham-food-oil-capitalism?guni=Article:in%20body%20link

 

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How Big Pharma (and others) began lobbying …

… on the Trans-Pacific Partnership before you ever heard of it

by Lee Drutman

Sunlight Foundation (March 13 2014)

In 2009, four years before the Trans-Pacific Partnership (TPP) was a widely-debated trade deal, few would have noticed a new issue popping up in a handful of lobbying reports. That year, 28 organizations filed 59 lobbying reports mentioning the then far-off trade agreement. Almost half of those organizations were pharmaceutical companies or associations.

It was an early clue as to which industry would take the most active role in trying to shape the trade agreement while it was still secret from the public. From 2009 until mid-2013 (the time during which the language of the agreement was still reasonably fluid), drug companies and associations mentioned the trade agreement in 251 separate lobbying reports – two and a half times more than the next most active industry (at least measured by lobbying reports).

It is an investment that appears to have paid off. The TPP is quite friendly to drug manufacturers, strengthening patent exclusivity and providing protections against bulk government purchasing (should it hurt profits). At the behest of the pharmaceutical industry, the US is also pushing to limit the ability of national regulatory agencies to support generic drug development. All of this suggests that the active lobbying has paid off.

But the pharmaceutical industry is not alone in lobbying to shape the trade agreement (see Figure 1 below). Next on the list are auto manufacturers (101 reports), followed by clothing & accessories (89 reports), milk and dairy products (82 reports), and textiles and fabrics (82 reports). Figure 1 visualizes the top twenty most active industries, measured by lobbying reports that mention the Trans-Pacific Partnership or TPP by name.

Looking at the top twenty organizations (Figure 2 below) tells a similar picture: PhRMA, the pharmaceutical industry’s trade association, tops the list at 44 reports mentioning the trade agreement, followed closely by drug giant Pfizer at 42. The Chamber of Commerce comes in third, with 34 reports, followed by the Dairy Farmers of America, the Generic Pharmaceutical Association and Yahoo!, all at 29 reports.

The requisite caveat is these counts are based on voluntary disclosures, and they rely on the organization to specifically mention the trade agreement by name in its lobbying disclosure forms (as opposed to something like “trade issues”). Still, the lobbying patterns shouldn’t come as a surprise: They largely reflect the interests that are most likely to be affected by the trade agreement.

Additionally, we can use Docket Wrench to see which organizations wrote the most public comment letters to the Office of the US Trade Representative (USTR) regarding the TPP. Table 1 below lists these organizations, and each organization is linked to a list of its comments on Docket Wrench. For those seeking to better understand these organizations’ positions and arguments – and the ways in which they tried to shape the TPP in its early stages – these documents are an incredible source.

Table 1. Number of USTR Comments by Organization

7 Pharmaceutical Research & Manufacturers of America
7 National Milk Producers Federation
7 National Confectioners Association
7 International Intellectual Property Alliance
7 Emergency Cmte for American Trade
7 Corn Refiners Association
7 Caterpillar Incorporated
7 AFL-CIO
6 National Potato Council
6 National Association of Manufacturers
6 General Electric
6 Express Association of America
6 California Chamber of Commerce
5 Telecommunications Industry Association
5 Retail Industry Leaders Association
5 Personal Care Products Council
5 National Cattlemen’s Beef Association
5 International Dairy Foods Association
5 Generic Pharmaceutical Association
5 Coalition of Service Industries
5 California Table Grape Commission
5 California Cling Peach Board
5 Association of Global Automakers
5 American Council of Life Insurers

More broadly, all this early-stage involvement demonstrates just how dedicated these industries and organizations have been to trying to shape the agreement. Our analysis of lobbying reports shows who was working on the issue back in 2009, when the number of players involved was small enough and public scrutiny was so minimal that it was easier to shape priorities and language. Figures 3 and 4 below show which companies and industries were most active when. The general pattern is one of increasing involvement over time, though the charts also make clear which industries were involved right from the very start.


Hollywood has been involved in shaping this agreement from the start, and the movie industry has largely gotten what it wanted – provisions that bring back some of the pieces of SOPA/PIPA that could not pass Congress, as well as extending corporate-owned copyrights to life plus 95 years. The International Intellectual Property Alliance, a trade group that represents the film and music industry, has submitted seven different comment letters to the USTR regarding TPP. Here’s an example of one demand from a November 10 2010 comment letter:

[C]oncrete obligations for strengthening copyright enforcement, including: measures to address online and other infringements generally, and specifically, including criminal remedies for significant wilful (sic) infringements of copyright regardless of whether such acts are undertaken with any direct or indirect motivation of financial gain, as well as willful infringements for purposes of commercial advantage or private financial gain.

Automakers (the second most active sector as measured by number of mentions in lobbying reports) are seeking broader protections against Japanese imports, and have major concerns about currency exchange rates. Ford Motor Company, for example, has recently stated that it will oppose the TPP unless it deals with issues of currency manipulation. It has won some key support in Congress for its position. Back in 2009, Ford listed ten specific guiding policies for the TPP in a comment letter. Here were its top three demands:

* Dismantle non-tariff barriers (NTBs), as well as tariffs.

* Promote an accelerated tariff reduction mechanism or sectoral agreement for trade for environmental goods.

* Require our partners to pursue market-based currency policies.

The textile industry has also been extremely active. As requested by the industry, US negotiators are putting forward something called a “yarn-forward” rule, which would require that all important production steps take place in a TPP country – one way to prevent China from supplying cheap textile components to other Asian countries. The textile lobbying appears to have paid off in garnering support for the industry position in Washington. Back in 2009, the American Apparel & Footwear association was laying out the case for strict Rules of Origin in a comment letter to the USTR.

The dairy sector has been working with US negotiators to try to open up the Canadian and Japanese markets to expanded dairy imports. As the chief operating officer of the National Milk Producers Federation (NMPF) put it, “Opening the Canadian dairy market is a linchpin”. Back in 2010, NMPF wrote a ten-page letter to the USTR saying it would “continue to work with USTR and USDA as part of the consultation process for this initiative”. It concluded that:

We would also be remiss not to point out that if fully open dairy trade with New Zealand is a part of the final TPP agreement, it is extremely unlikely that a total net positive benefit for US production agriculture could be arrived at given the existing agreements and the mix of countries currently involved in this endeavor.

The list goes on, but the basic theme is the same. Pick an industry with an interest at stake and lobbyists for this industry have likely been trying to shape the trade agreement for years. Not surprisingly, many of these interests have been kept in the loop by the USTR throughout the process.

By contrast, the public has been shut out of the process. The Sunlight Foundation, along with more than thirty other civil society organizations around the world, called upon the leaders of TPP countries last year to conduct future trade negotiations in “a manner consistent with the democratic principles and openness and accountability”.

While the lobbying disclosures and comments unearthed through Docket Wrench don’t prove influence, they do provide an important window into the importance of being there at the early stages of the process. And as is often the case in politics, the time to influence policy is at the agenda-setting stage. By the time an issue has become a topic of public conversation, the ability to shape it is far reduced.

Graphics by Amy Cesal. Thanks to Andrew Pendleton and Alexander Furnas for their help preparing this post.

https://sunlightfoundation.com/blog/2014/03/13/tpp-lobby/

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Why Are Food Prices so High?

Because We’re Eating Oil

by Charles Hugh Smith    

http://www.washingtonsblog.com (May 28 2014)

Regardless of what we eat, we’re actually eating oil.

Anyone who buys their own groceries (as opposed to having a full-time cook handle such mundane chores) knows that the cost of basic foods keeps rising, despite the official claims that inflation is essentially near-zero.

Common-sense causes include severe weather and droughts than reduce crop yields, rising demand from the increasingly wealthy global middle class and money printing, which devalues the purchasing power of income.

While these factors undoubtedly influence the cost of food, it turns out that food moves in virtual lockstep with the one master commodity in an industrialized global economy: oil. Courtesy of our friends at Market Daily Briefing {1}, here is a chart of a basket of basic foodstuffs and Brent Crude Oil:

In other words, regardless of what we eat, we’re actually eating oil. Not directly, of course, but indirectly, as the global production of tradable foods relies on mechanized farming, fertilizers derived from fossil fuel feedstocks, transport of the harvest to processing plants and from there, to final customers.

Even more indirectly, it took enormous quantities of fossil-fuel energy to construct the aircraft that fly delicacies halfway around the world, the ships that carry cacao beans and grain, the trucks that transport produce and the roads that enable fast, reliable delivery of perishables.

Though many observers see money-printing as the master narrative of the global economy, we don’t see much correlation between the Fed’s ballooning balance sheet and food/oil. If money-printing alone controlled oil (and thus food), prices of oil/food should have soared as the flood of QE3 (and other central bank orgies of credit-money creation) washed into the global economy from late 2012.

Instead, oil/food have traced out a wedge: prices have remained in a relatively narrow trading range during the orgy of money-printing.

While money creation is one influence on commodity prices, supply and demand matter, too; in that sense, money printing only matters if it pushes demand higher while constricting supply.

Other observers use gold as the “you can’t print this” metric of price. In other words, rather than price grain in dollars, yuan, yen or euros, we calculate the cost of grain in ounces of gold.

The gold/food ratio is around the level it reached in 2009 after spiking in 2008.

This tells us food is cheap when priced in gold compared to 2002, but it’s more expensive (priced in gold) than it was at gold’s peak in 2012.

In effect, the influences of monetary inflation and supply/demand show up in food via the price of oil. Until we stop eating oil (ten calories of fossil fuels are consumed to put one calorie of food on the table), oil is the master commodity in the cost of food.

_____

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{1} http://mdbriefing.com/food.shtml

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http://www.washingtonsblog.com/2014/05/food-prices-high-eating-oil.html

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How Big Pharma (and others) began lobbying …

… on the Trans-Pacific Partnership before you ever heard of it

by Lee Drutman

Sunlight Foundation (March 13 2014)

In 2009, four years before the Trans-Pacific Partnership (TPP) was a widely-debated trade deal, few would have noticed a new issue popping up in a handful of lobbying reports. That year, 28 organizations filed 59 lobbying reports mentioning the then far-off trade agreement. Almost half of those organizations were pharmaceutical companies or associations.

It was an early clue as to which industry would take the most active role in trying to shape the trade agreement while it was still secret from the public. From 2009 until mid-2013 (the time during which the language of the agreement was still reasonably fluid), drug companies and associations mentioned the trade agreement in 251 separate lobbying reports – two and a half times more than the next most active industry (at least measured by lobbying reports).

It is an investment that appears to have paid off. The TPP is quite friendly to drug manufacturers, strengthening patent exclusivity and providing protections against bulk government purchasing (should it hurt profits). At the behest of the pharmaceutical industry, the US is also pushing to limit the ability of national regulatory agencies to support generic drug development. All of this suggests that the active lobbying has paid off.

But the pharmaceutical industry is not alone in lobbying to shape the trade agreement (see Figure 1 below). Next on the list are auto manufacturers (101 reports), followed by clothing & accessories (89 reports), milk and dairy products (82 reports), and textiles and fabrics (82 reports). Figure 1 visualizes the top twenty most active industries, measured by lobbying reports that mention the Trans-Pacific Partnership or TPP by name.

Looking at the top twenty organizations (Figure 2 below) tells a similar picture: PhRMA, the pharmaceutical industry’s trade association, tops the list at 44 reports mentioning the trade agreement, followed closely by drug giant Pfizer at 42. The Chamber of Commerce comes in third, with 34 reports, followed by the Dairy Farmers of America, the Generic Pharmaceutical Association and Yahoo!, all at 29 reports.

The requisite caveat is these counts are based on voluntary disclosures, and they rely on the organization to specifically mention the trade agreement by name in its lobbying disclosure forms (as opposed to something like “trade issues”). Still, the lobbying patterns shouldn’t come as a surprise: They largely reflect the interests that are most likely to be affected by the trade agreement.

Additionally, we can use Docket Wrench to see which organizations wrote the most public comment letters to the Office of the US Trade Representative (USTR) regarding the TPP. Table 1 below lists these organizations, and each organization is linked to a list of its comments on Docket Wrench. For those seeking to better understand these organizations’ positions and arguments – and the ways in which they tried to shape the TPP in its early stages – these documents are an incredible source.

Table 1. USTR Comments by Organization

7 Pharmaceutical Research & Manufacturers of America
7 National Milk Producers Federation
7 National Confectioners Association
7 International Intellectual Property Alliance
7 Emergency Cmte for American Trade
7 Corn Refiners Association
7 Caterpillar Incorporated
7 AFL-CIO
6 National Potato Council
6 National Association of Manufacturers
6 General Electric
6 Express Association of America
6 California Chamber of Commerce
5 Telecommunications Industry Association
5 Retail Industry Leaders Association
5 Personal Care Products Council
5 National Cattlemen’s Beef Association
5 International Dairy Foods Association
5 Generic Pharmaceutical Association
5 Coalition of Service Industries
5 California Table Grape Commission
5 California Cling Peach Board
5 Association of Global Automakers
5 American Council of Life Insurers

More broadly, all this early-stage involvement demonstrates just how dedicated these industries and organizations have been to trying to shape the agreement. Our analysis of lobbying reports shows who was working on the issue back in 2009, when the number of players involved was small enough and public scrutiny was so minimal that it was easier to shape priorities and language. Figures 3 and 4 below show which companies and industries were most active when. The general pattern is one of increasing involvement over time, though the charts also make clear which industries were involved right from the very start.


Hollywood has been involved in shaping this agreement from the start, and the movie industry has largely gotten what it wanted – provisions that bring back some of the pieces of SOPA/PIPA that could not pass Congress, as well as extending corporate-owned copyrights to life plus 95 years. The International Intellectual Property Alliance, a trade group that represents the film and music industry, has submitted seven different comment letters to the USTR regarding TPP. Here’s an example of one demand from a November 10 2010 comment letter:

 

[C]oncrete obligations for strengthening copyright enforcement, including: measures to address online and other infringements generally, and specifically, including criminal remedies for significant wilful (sic) infringements of copyright regardless of whether such acts are undertaken with any direct or indirect motivation of financial gain, as well as willful infringements for purposes of commercial advantage or private financial gain.

 

Automakers (the second most active sector as measured by number of mentions in lobbying reports) are seeking broader protections against Japanese imports, and have major concerns about currency exchange rates. Ford Motor Company, for example, has recently stated that it will oppose the TPP unless it deals with issues of currency manipulation. It has won some key support in Congress for its position. Back in 2009, Ford listed ten specific guiding policies for the TPP in a comment letter. Here were its top three demands:

* Dismantle non-tariff barriers (NTBs), as well as tariffs.

* Promote an accelerated tariff reduction mechanism or sectoral agreement for trade for environmental goods.

* Require our partners to pursue market-based currency policies.

The textile industry has also been extremely active. As requested by the industry, US negotiators are putting forward something called a “yarn-forward” rule, which would require that all important production steps take place in a TPP country – one way to prevent China from supplying cheap textile components to other Asian countries. The textile lobbying appears to have paid off in garnering support for the industry position in Washington. Back in 2009, the American Apparel & Footwear association was laying out the case for strict Rules of Origin in a comment letter to the USTR.

The dairy sector has been working with US negotiators to try to open up the Canadian and Japanese markets to expanded dairy imports. As the chief operating officer of the National Milk Producers Federation (NMPF) put it, “Opening the Canadian dairy market is a linchpin”. Back in 2010, NMPF wrote a ten-page letter to the USTR saying it would “continue to work with USTR and USDA as part of the consultation process for this initiative”. It concluded that:

 

We would also be remiss not to point out that if fully open dairy trade with New Zealand is a part of the final TPP agreement, it is extremely unlikely that a total net positive benefit for US production agriculture could be arrived at given the existing agreements and the mix of countries currently involved in this endeavor.

 

The list goes on, but the basic theme is the same. Pick an industry with an interest at stake and lobbyists for this industry have likely been trying to shape the trade agreement for years. Not surprisingly, many of these interests have been kept in the loop by the USTR throughout the process.

By contrast, the public has been shut out of the process. The Sunlight Foundation, along with more than thirty other civil society organizations around the world, called upon the leaders of TPP countries last year to conduct future trade negotiations in “a manner consistent with the democratic principles and openness and accountability”.

While the lobbying disclosures and comments unearthed through Docket Wrench don’t prove influence, they do provide an important window into the importance of being there at the early stages of the process. And as is often the case in politics, the time to influence policy is at the agenda-setting stage. By the time an issue has become a topic of public conversation, the ability to shape it is far reduced.

Graphics by Amy Cesal. Thanks to Andrew Pendleton and Alexander Furnas for their help preparing this post.

https://sunlightfoundation.com/blog/2014/03/13/tpp-lobby/

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High Court Rules …

… that Financiers are More Sovereign than Argentina

Systemic Disorder (June 18 2014)

The victory handed to speculators by the United States Supreme Court over one of the world’s larger countries provides a lesson in where power actually lies. It is not in a government building.

Two June 16 decisions by the US Supreme Court elevates the “right” of hedge-fund speculators to massive windfall profits above all other human considerations. That ruling is consistent with rulings handed down by the secret tribunals used to arbitrate disputes between corporations and national governments that arise under “free trade” agreements that elevate “investors’ rights” above environmental and labor laws.

Between these Supreme Court decisions, most of the attention has focused on the ruling that federal courts in the US can order sovereign countries to hand over information on their assets to speculators. In other words, the US legal system has formally declared it has jurisdiction over other countries. Arrogant as that ruling is, the more dramatic development was the court refusing to hear an appeal of lower-court rulings directing Argentina to pay $1.3 billion to holdout speculators that refused to accept terms agreed to by a large majority of bond holders.

Simply put, the US legal system not only declares US law applies around the world, but that it will be applied to benefit the most aggressively greedy.

Much of the commentary on this case has attempted to reduce it to a simple morality tale of a debtor being obligated to pay back its creditors. The lead speculator in this affair, hedge-funder Paul Singer, who is trying to be paid the full value of bonds on which he paid pennies on the dollar, has tried to paint it that way.

Reality, of course, is far more complex. So first it is useful to understand the odious nature of Argentina’s debt.

Military Junta Uses Dirty War to Impose Austerity

Prior to the 1976 military seizure of power, Argentina was an industrialized country with active union and left-wing movements, a sizable middle class and large tracts of arable land. But the Argentine economic elite and the multinational corporations that operated there wanted Argentina turned into a low-wage haven. Only extreme violence would be able to achieve that goal.

Upon seizing power, the military handed over economic policy to a well-connected industrialist, Jose Alfredo Martinez de Hoz, who ruthlessly implemented a severe neoliberal program of shock therapy, backed by a savage campaign of torture, “disappearances” and killings waged by the military and two allied fascist groups. The CGT union federation was abolished, strikes outlawed, prices raised, wages tightly controlled and social programs cut. As a result, real wages fell by fifty percent within a year. Because of the collapse of internal consumption caused by this austerity, ten percent of Argentina’s workforce was laid off in 1976 alone.

Tariffs were reduced deeply, leaving the country wide open to imports and foreign speculation, causing considerable local industry to shut. High interest rates led to more foreign speculation and an overvalued currency, further hurting national production. Against this backdrop, the dirty war was intensified – initially targeting leftists, the regime quickly began to eliminate students, lawyers, journalists and trade unionists.

This was the regime of which David Rockefeller, whose loans helped finance it, famously said, “I have the impression that Argentina has a regime which understands the private enterprise system”. Further economic contraction occurred, and for the last five years of the military junta, 1978 to 1983, Argentina’s foreign debt increased to US$43 billion from $8 billion, while the share of wages in national income fell to 22 percent from 43 percent.

Civilian control and formal democracy was re-established following the collapse of the junta, but the debt did not go away.

A civilian president, Carlos Menem, imposed an austerity program in the early 1990s in conjunction with selling off state enterprises at below-market prices. This fire sale yielded $23 billion, but the proceeds went to pay foreign debt mostly accumulated by the military dictatorship – after completing these sales, Argentina’s foreign debt had actually grown. The newly privatized companies then imposed massive layoffs and raised consumer prices.

By 1997, about 85 percent of Argentines were unable to meet their basic needs with their income. During this period, Argentina’s debt steadily mounted, leading to a scheme under which the debt would be refinanced. A brief pause in the payment schedule was granted in exchange for higher interest payments – Argentina’s debt increased under the deal, but the investment bank that arranged this restructuring racked up a fee of $100 million, the latest in a series of financial maneuvers that shipped a billion dollars to investment banks in ten years.

It all finally imploded at the end of 2001, when the government froze bank accounts and the country experienced so much unrest that it had five presidents in two weeks. The last of these presidents, Nestor Kirchner, suspended debt payments. Had Argentina resumed scheduled payments in 2005, interest payment alone on the debt would have consumed 35 percent of total government spending. Kirchner announced that Argentina intended to pay only 25 percent of what was owed and any group that refused negotiations would get nothing; in the end, Argentina paid thirty percent to bondholders who agreed to talk.

Vulture Capitalist Seeks Extortionist Gains

Approximately 93 percent of bondholders agreed to accept thirty percent of the face value – thirty percent is better than zero. Argentina has repaid these on a steady schedule and Argentine law forbids giving the holdouts a better deal. Some of the bonds held by the original holdouts were bought by NML Capital, a subsidiary of Paul Singer’s Elliot Capital Management, and another hedge fund, Aurelius Capital Management. These were the two whose lawsuits reached the US Supreme Court.

Including interest, the holdouts would walk off with $1.5 billion if paid in full. NML Capital, Argentine President Cristina Fernandez said, would see a gain of 1,600 percent for bonds it bought for $48.7 million. “I don’t even think that in organized crime there is a return rate of 1,608 per cent in such a short time”, she said in a national address following the US Supreme Court decisions, in which she said Argentina would not “submit to such extortion”.

Mr Singer, the type of character for which the term “vulture capitalist” was coined, certainly has been persistent in attempting to collect the full face value of bonds for which he paid a small fraction of that value. In November 2012, he had an Argentine naval ship impounded in Ghana after earlier plotting to seize the presidential plane and artworks that were to have been shown at a Frankfurt book fair.

Among other exploits, he has demanded $400 million from the Republic of the Congo for bonds he bought for less than $10 million and compelled the government of Peru to pay him a 400 percent profit on the debt of two Peruvian banks he bought four years earlier. His specialty is buying debt at a small fraction of the face value and demanding full payment, regardless of the cost to others, and has become a billionaire through doing so.

In the Imperialist Crosshairs

A series of one-sided rulings in a federal trial court, upheld by the US Court of Appeals for the Second Circuit, favored the hedge funds over Argentina. When the appeals reached the Supreme Court, the bond holders who agreed to accept thirty percent (a “haircut” in financial parlance) backed Argentina, fearing that there would be no money for them should Argentina be forced to pay off the holdouts at full face value. The US government also sided with Argentina, fearing a precedent that could be used to enable it to be sued.

The Foreign Sovereign Immunities Act of 1976 is supposed to bar lawsuits in US courts against non-US governments, but a 7-1 bipartisan majority of the Supreme Court decided that the law is malleable when not convenient. The Argentine bonds were sold with a provision that New York law would be used to settle disputes related to them, which gave US courts the excuse needed to extend US law to Argentina.

Under New York law, investors must be treated equally. That provision could have been interpreted to mean the holdouts would get the same thirty percent payment in installments – which the Argentine government would have agreed to had they been willing to negotiate – but instead it was used as an opportunity to give more rights to speculators.

The practical effect of these rulings is that “investors” – hedge funds with the well-earned sobriquet of “vultures” – have been elevated above a national government. This is perfectly consistent with the decisions handed down by secret tribunals like the World Bank-affiliated International Centre for Settlement of Investment Disputes when “investors” sue governments under “free-trade” agreements such as the North American Free Trade Agreement.

The hedge funds can leverage the US legal system to enforce their will over Argentina in this case because the US financial system is used to make payments to the bondholders who negotiated the thirty percent agreement with the South American country. Argentina could only continue to make those payments, while simultaneously refusing to pay anything to the holdouts, by doing so completely outside the US financial system, which is possible but very difficult due to the system’s global reach. Moreover, those payees within the reach of the US legal system would be susceptible to being sued by the holdouts.

Argentina has consistently said it has does not have the money to pay the holdouts and continue to meet its continuing obligations to the bondholders it has been paying, another reason for those bondholders to side with Argentina against the holdouts. The next payment is due June 30 – on that date, Argentina would be in defiance of the US Supreme Court should it not pay the full face value of the holdouts’ bonds. But if it does so, or simply agrees to pay more than thirty percent, the holdouts would likely demand to re-negotiate to get the same deal.

Immediate Conflict Doesn’t Negate Larger Interests

What to do? One possibility is to up the ante. That is the recommendation of Argentina’s counsel at the New York corporate law firm Cleary Gottlieb Steen & Hamilton in a memorandum dated May 2 2014:

 

[T]he best option for the Republic could be to permit the Supreme Court to force a default and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts. Argentina wants to continue paying its restructured debt. The Courts, nevertheless, have placed it in a terrible position.

 

Courts do not act in a vacuum, but ultimately express the interests of the most powerful industrialists and financiers similar to any other component of a government in the capitalist system. It is certainly true that those interests are in conflict in this matter. Such a conflict is not unusual. The victory for one particular set of speculators here, however, serves to tighten the screws of austerity by further codifying the dominance of the most ruthless capitalists within the capitalist legal system.

Should the end result of this case be that all parties agree to a payment level higher than thirty percent, would the speculators on the losing side be crestfallen? Regardless of the outcome, the precedent set here provides additional leverage for speculators in future financial deals. Not even the opinion of the US government, the ultimate protector of corporate interests through its intelligence and military apparatuses and “free trade” agreements, was allowed to interfere with a bid to further tighten corporate power. That is what was at stake here, not the short-term interests of this or that speculator.

For Argentina, or any other subaltern country, to rid itself of odious debt and re-orient itself toward the greater good of its citizenry rather than the profiteering of speculators, will require entirely new structures in a different economic system.

http://systemicdisorder.wordpress.com/2014/06/18/financiers-more-sovereign-than-argentina/

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