It Could Happen Here - Neoliberalism Part 3: Where is Paul Volker

Episode Date: December 13, 2021

In part 3 of our series on Neoliberalism we look at the coup in Chile, the Volker shock, the collapse of the G77, Venezuela's failed industrialization campaign and the conversion of the Third World into debt colonies. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

You should probably keep your lights on for Nocturnal Tales from the Shadowbride. Join me, Danny Trejo, and step into the flames of fright. An anthology podcast of modern-day horror stories inspired by the most terrifying legends and lore of Latin America. Listen to Nocturnal on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Welcome to It Could Happen Here, a podcast about things falling apart and how they came to be that way. I'm your host, Christopher Wong, and today we're doing part three of our series on neoliberalism. We're going to start today with one of the most famous episodes in the history of neoliberalism,

the September 11th, 1973 coup against Salvador Allende. Allende was a democratic socialist of a type that has broadly ceased to exist today, a committed Marxist who believed that a class of society could be created by means of electoral democracy. He embarked on a campaign drastically more radical than any modern socialist politician has done more to dream of, mass nationalizations in an attempt to develop a technical system that would allow the government to democratically plan as much of the economy as humanly possible. In part, his hand was forced by Chile's workers, who had embarked on their own unsanctioned campaign of takeovers of mines and factories, which Allende disapproved of and now sought to bring under the national planning scheme. and to collect and coordinate information between various factories and allow democratic planning at the ground level in a way that would allow instantaneous reaction to crises and immediate changes in production levels and conditions inside the factories themselves to deal with them.

Allende, for all of Sparks' credentials, was fiercely critical of the bureaucratization of the USSR, and in particular, in the economic sphere, the way its planning systems were essentially unable to react to local changes quickly in a context where plans were only are, and in particular, in the economic sphere, the way its planning systems were essentially unable to react to local changes quickly in a context where plans were only created every five years. Cybersyn would solve these problems by workers' participation at the factory level and constant updated data flows to the planning office. As the project went on, Beer became progressively more radical.

A strike by right-wing truck workers backed by capitalists in the CIA in 1972 threatened to grind the nation to a halt. In response, workers formed enormous coedones industriales, or industrial belts, to help self-organize production and bypass the striking right-wing workers. In coordination with Allende's government and a new Cybersyn control room, they were able to outmaneuver the strike and maintain production and distribution at nearly full capacity by tracking where goods were going and where they needed to go along what routes. Beer rapidly became convinced that, quote, The basic answer of cybernetics to the question of how the system should be organized is that it ought to organize itself. In essence, that Cybersyn should be used to eliminate the bureaucracy in the state entirely

and allow workers to directly organize production themselves. Now, Cybersyn, in theory, is what the neoliberalists claim, at least in public, to want. It's an anti-bureaucratic system that uses decentralized control over the means of production to combat totalitarianism and ensure that the state respects individual rights and liberties. In fact, as Evangie Monaroz put it, Beer and Hayek knew each other, as Beer noted in his diary. Hayek even complimented him on his vision for the cybernetic factory after Beer presented it at a conference in 1960 in Illinois. So naturally, when the system was actually implemented, at least in part, Chile, the neoliberal position was that every single person involved in the entire economic experiment needed to be killed.

Chile was put under economic blockade by the U.S. and multinational corporations with full neoliberal support, an ironic position given Milton Friedman, Hayek, and Roebke's pure and absolute opposition to economic blockades of South Africa or Rhodesia. economic blockades of South Africa or Rhodesia. To its eternal shame, the AFL-CIO's American Institute for Free Labor Development provided training and funds to the right-wing unions that opposed the leftist government and others across Latin America. In Chile, working directly with the CIA, the AFL-CIO's organizations trained the right-wing truckers whose 1972 strike we've already discussed and whose 1973 strike would pave the way for Pinochet's coup. In many cases, organized labor, especially in the US but also in places like Italy, spent the 70s battling their own left flank in defensive capital. Their reward for their services was capital turning around and gutting them like a fish in the 80s.

Allende too fought a series of battles with his left flank, disarming the mass workers' assemblies that had formed in 1972 that could have saved him from the coup. The result was the other 9-11, on which day, in 1973, the military overthrew Allende in a coup, and Allende shot himself in the presidential palace. The man who would emerge on the top of the power struggle in the military at the end of the coup was one Augusto Pinochet. at the end of the coup was one Augusto Pinochet. Now, Pinochet from the beginning had the support of Chile's own domestic neoliberals, of which there were a fairly large number. Upon taking power, he carried out what would become the standard neoliberal program, returning nationalized industries to the capitalists, eliminating price controls, and increasing interest rates. But full-scale neoliberalism didn't come immediately. Inflation, which Pinochet had

nominally in large part taken power to control, continued unabated, and in 1974 Milton Friedman arrived in Chile to argue for neoliberal shock therapy. But it wasn't until Pinochet's desperation for money drove him to the IMF that he would fully embrace neoliberalism. Most of the world had refused to do business with the new dictatorial regime, with the exception of the US, and oddly enough Mao's China, which poured money into the regime and Pinochet's personal pockets. But that money was insufficient, and the IMF was the only remaining body who would actually lend money to Pinochet without any requirements on improving Chile's, at this point, abysmal human rights record. on improving Chile's, at this point, abysmal human rights record. Much of the full neoliberal turn that hit Chile in 1975 came from demands from the IMF itself, who demanded draconian

measures to control inflation. Here, Pinochet was aided by the support of the neoliberals, whose legitimacy and academic standing allowed them to negotiate and secure favor from the IMF, which they had already begun to infiltrate. At this point, the infamous Chicago Boys, economists trained at the University of Chicago by Milton Friedman, were put in charge of the economy. University of Chicago-trained economist Sergio de Castro, known as the Pinochet of the economy, was put in charge of the Ministry of Economics. De Castro privatized an enormous portion of the remaining profitable state industries, eliminated tariffs and implemented free trade policies, deregulated the finance sector, and eliminated any remaining price controls. Chicago boys would go on to do things like privatizing the entire Chilean pension system, with the exception of the military, which is as good an indication of any as to what the regime thought the actual effects of privatization would be.

as to what the regime thought the actual effects of privatization would be. In 1978, Pinochet declared something called the Seven Modernizations, with, quote, reforms in labor, education, health, regional decentralization, agriculture, and justice policy. The goal of these reforms was to introduce the market into literally every aspect of society. Now, in episode one, I very briefly mentioned the Virginia School as one of the major schools of neoliberalism. The Virginia School are the people behind public choice theory. Their thing is essentially taking the absolutely absurd set of beliefs Chicago School holds about people,

that humans are all-knowing, rational, calculating gods, optimizing their behavior to get the most out of every single interaction to maximize the utility, and then applying it to political science and then literally every other field. If you've ever heard someone say there's no rational reason to vote because if you're a rational, self-interested person, the cost of voting outweighs the benefit because your vote only matters if it's deciding one, and therefore it's against your interest to vote, that's the Virginia School and their public choice theory bullshit at work. Pinochet's Seven Modernizations was an application of Virginia School doctrine

to the entire Chilean state and as much of society as humanly possible with the goal of transforming it into a market. I'm going to read a section from The Road to Mount Pellion describing Virginia School titan James M. Buchanan's work. Quote, Ineffectual consequences in the political marketplace were blamed solely on the fallacies of political decision-making. Quote,

We can summarize public choice as a theory of government failure. End quote. Buchanan delivered a highly abstract paper titled Limited or Untitled Democracy to the Montpellion Society in Viña del Mar in Chile in 1981, which some constructed as a critique of the host country's mobilization for action history. Buchanan stated that if limited democracy was a polity predisposed to disable a political market that would otherwise promote the most efficient allocation of resources, the only meaningful task of the government would be to deprive the polity of its ability to do so. Public choice theory thus sought to limit democracy

and depoliticize the state in order to enable uncontraded market forces to guide human interaction. Since the Pinochet regime was committed to using its governmental powers in precisely this manner, Buchanan's paper provided theoretical support for the regime, even if it did not openly endorse any authoritarian rule. Nocturnum, Tales from the Shadows, presented by iHeart and Sonora. An anthology of modern-day horror stories inspired by the legends of Latin America. From ghastly encounters with shapeshifters to bone-chilling brushes with supernatural creatures.

I know you. Take a trip and experience the horrors that have haunted Latin America since the beginning of time. Listen to Nocturnal Tales from the Shadows as part

of My Cultura podcast network available on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Buchanan, of course, would spend a bunch of time doing lectures in Chile throughout Pinochet's dictatorship, but he was not that regime's most vociferous neoliberal supporter. Chile throughout Pinochet's dictatorship, but he was not that regime's most vociferous neoliberal supporter. That award goes to Frederick Hayek. Here's Hayek when asked about Chile, which he'd been to in 1978 and had blessed with his approval. Quote, a dictatorship can restrict itself and a dictatorship which deliberately is restricting itself can be more liberal in its politics than a democratic assembly which has no limits. Chile's 1980 constitution was drafted in part by one of Hayek's friends. Here's Road to Mount Pellion again. The constitution was not only named after Hayek's

book The Constitution of Liberty, but also incorporates significant elements of Hayek's thinking. Above all, the constitution placed a strong emphasis on a neoliberal understanding of freedom. Guzman's version of freedom is intrinsically connected to private property, free enterprise, and individual rights. Individual freedom, in his interpretation, can only evolve in a radical market order. The Constitution was dedicated to guarantee such an order without constraining any economic activities. In order to protect free market conditions and individual freedoms against totalitarian attacks or democratic interventions, the Constitution stipulated the necessity of a strong central state authority to guarantee the established rule of law and thus, above all else, is hampered in the application of discretionary government power. measures to uphold the status quo inasmuch as Guzman aggressively supported continuing the state of emergency, which legalized the use of whatever discretionary powers were deemed necessary to quell opposition. That, folks, is a Hayekian constitution, used to state to murder

anyone who wants democracy or, God help them, wants to control the production they're forced to serve every day. Chile is neoliberalism's Voltron. By combining the power of all four major schools of neoliberalism, Chicago School of Monetary and Economic Policy, Austrian School of Constitutional Order, Order Liberal Reliance on the International Bureaucracy and Legal Institutions like the IMF in order to promote a market economy, and Virginia School of Public Choice Theory running the state, you get a neoliberal right-wing military dictatorship. Now, most conventional accounts of neoliberalism will move from Chile to Reagan and Thatcher. And next episode, we'll cover the neoliberal counter-revolution in the Anglosphere.

But focusing on purely national events gives a skewed perception of how neoliberalism actually spreads. And in order to correct that, we're going to look at Venezuela. I'm going to be drawing heavily here from the work of the legendary Venezuelan anthropologist Fernando Coronil in his book The Magical State, which I highly recommend as one of the best things ever written about oil and the Venezuelan state. Though, readers be warned, chapter one is an absolute slog that on the one hand is one of the most interesting explanations of what oil rents are I've ever encountered, but also features Coroneal inventing a new tri-electic and then stubbornly refusing to explain what it is or literally anything about how it works. So read The Magical State, skip Chapter 1. The guiding principles of the new mass capitalist democratic parties and post-dictatorship Venezuela since the 1960s had been developing sovereignty by economic independence.

The keystone of this project was an attempt to use the power of the state and new oil rents to develop an automotive industry. The project had sort of stalled out from its origins in the 60s until the rise of the G77-OPEC alliance in 1973 and 1974 that we discussed last episode. In 1975, Venezuela's assembly passed a law that granted the president special powers to speed up the developments of the auto industry in Venezuela. Coraniel described it thus, The central goal was to have 90% of the vehicle's value, including the drivetrain, produced locally by 1985. Major components would be produced by enterprises having at least 51% of their capital from local private sources. Existing foreign companies would have to become mixed or national firms in accord with end-day impact regulations if they wanted to benefit from the common market. Now, this plan is what's called industrial import substitution. Developing countries would

attempt to develop industries, in this case auto manufacturers, inside of a country to produce cars for internal consumption instead of importing them from other countries. The other key of this plan is the Andean Pact, an association of Bolivia, Colombia, Ecuador, Peru, and Chile that was collaborating to develop a regional industrial economy that would use local resources to build a local industrial economy, producing industrial goods made entirely inside of the countries themselves from their resources. Now, Venezuela joins the PAC in 1973, and Pinochet notably leaves in 1977. The key sticking point in this joint-end day and PAC-Venezuelan attempt to build an auto industry was that Venezuela needed technology held by multinational corporations in order to actually produce the vehicles.

Multinational car companies were willing to go ahead with the project to build cars in Venezuela in the short term because they were hurting from the oil shock and thus were willing to help national plants develop cars as long as they could use the parts to build their own cars with parts sourced from around the world. develop cars, as long as they could use the parts to build their own cars with parts sourced from around the world. And this is where the neoliberal defense of intellectual property rights becomes extremely important, because the companies who held the patents for the drivetrains essentially had a technological stranglehold over car development. Welcome. I'm Danny Thrill. Won't you join me at the fire and dare enter Nocturnal Tales from the Shadows presented by iHeart and Sonora. An anthology of modern day horror stories inspired by the legends of Latin America.

From ghastly encounters with shapeshifters to bone-chilling brushes with supernatural creatures. I know you. Take a trip and experience the horrors that have haunted Latin America since the beginning of time. Listen to Nocturnal Tales from the Shadows Latin America since the beginning of time. Listen to Nocturnal Tales from the Shadows as part of my Cultura podcast network available on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

Now, Venezuela conducted an extensive bidding process for companies to make cars in Venezuela. But the car companies essentially sabotaged it by submitting designs to failed specs. The result was a kind of political war inside Venezuela, and particularly inside the Venezuelan ruling class, between national developments and international profits. The Venezuelan developmentalists needed a breakthrough. What they needed, in essence, was a new international economic order and its corporate regulations, debt relief, and technology transfers. Without them, even a third-world country like Venezuela, flush with oil money, was incapable of developing an industrial economy.

But the new international economic order never came. All the G7 had to do in order to stop it was stall the G77 out until commodity power faded. The G77 had to fundamentally change the structure of the economy in order to allow them to industrialize before the sordid Damocles hanging over all their heads, the mounting third world debt, fell and decapitated them. The G7's strategy to outlast the G77 was to pull the various factions of the G77 apart, in particular, pulling the moderate governments away from the radical wing of OPEC and the African socialists. They attacked OPEC by using Saudi Arabia to undermine its unity and attempted to peel the so-called less developed countries away from their alliance with OPEC by using Saudi Arabia to undermine its unity and attempted to peel the so-called less-developed countries away from their alliance with OPEC, with the promise of aid to patch up the damage dealt by increased oil prices.

Neither worked incredibly well, but when combined with the US essentially shutting the UN down by refusing to let any business get done or refusing to vote for or even vetoing routine matters, the stalling worked. No new international economic order was forthcoming. Instead, the world would get neoliberalism. Neoliberalism arrived on the world stage in the form of the Volcker shock. In 1979, Jimmy Carter appointed Paul Volcker as the chairman of the Federal Reserve with a broad mandate to do whatever he wanted to reduce inflation. Volcker had become a disciple of monetarism, a Friedmanite Chicago school belief about the role of the money supply in the economy considered to be absolutely crank,

even by modern neoliberals. His solution, which became known as the Volcker Shock, was to increase interest rates to 20%. This essentially blew a crater in the American economy and immediately sent it into recession, and we'll get to Volcker and Reagan's efforts to destroy American labor in the next episode, but the damage to the third world was even worse. The G77 governments had, for decades, taken on adjustable-rate loans pegged to something called the LIWR rate. When they took the loans out, interest rates were virtually negative, but when the Volcker shock hit, they skyrocketed.

Now, as we talked about last episode, a major part of the crisis of the 70s was enormous piles of oil money, mostly from the Gulf states, floating around that nobody could actually get returns on because of declining manufacturing profit rates. This money wound up flowing back into the American finance system when capital controls were lifted in 1975. The banks threw the money at loans in the third world. Now, some of that money had been put into industrial development that had yet to pay off. Some of the money had simply been put directly into dictators' bank accounts. But the banks essentially didn't care for the loans they were making, had little to no chance of being repaid without some kind of structural reform. Because in 1978, control of the IMF fell to an arch-neoliberal named

Jacques de la Russie. I really don't know if that's how you pronounce his name, but he is evil, so neoliberals further took control of the World Bank in 1981. From the IMF and the World Bank, a secession of neoliberals enshrined the key principle of the new neoliberal order. Debtors must always pay back their debts. Creditors would no longer assume risk for their loans. Instead, loans would be repaid at gunpoint. This was no mere rhetorical slogan. As the G77 imploded as a political body under the weight of hundreds of billions of dollars of debt, now with 20% interest, Thomas Sankara, the socialist president of Burkina Faso, attempted to rally its remains to collectively negotiate debt relief. Sankara, the socialist president of Burkina Faso, attempted to rally its remains to collectively

negotiate debt relief. Sankara was promptly shot by a former ally who accused him of threatening Burkina Faso's relationship with France. With all resistance slaughtered, entire nations were reduced to debt servicing machines as tax dollars were directed from health, education, and social security programs into the coffers of international banks, which use the newly neoliberal-controlled International Monetary Fund as their enforcer. The anthropologist David Graeber described the consequence of one such IMF austerity program in debt the first 5,000 years. For almost two years, I had lived in the highlands of Madagascar. Shortly before I arrived, there had been an outbreak of malaria. It was a particularly virulent outbreak because malaria

had been wiped out in highland Madagascar many years before, so that, after a couple of generations, most people had lost their immunity. The problem was, it took money to maintain those mosquito eradication programs, since there had to be periodic tests to make sure mosquitoes weren't starting to breed again, and spraying campaigns if it was discovered that they were. Not a lot of money. But owing to IMF and post-austerity programs, the government had to cut the monitoring program. 10,000 people died. I met young mothers grieving for lost children.

One might think it would be hard to make a case that the loss of 10,000 human lives is really justified in order to ensure that Citibank wouldn't have to cut its losses on one irresponsible loan that wasn't particularly important to its balance sheet anyways. Following the old older liberal dream of a legal framework to ensure neoliberal market economies, the new generation of neoliberals used the IMF, World Bank, and other bureaucratic institutions to act as debt enforcers and impose neoliberal policies from above without anything so petty as democracy interfering with it. In fact, one of the first neoliberal structural adjustments, one of a bewildering new array of terms for IMF-enforced austerity programs, was implemented by the Jamaican socialist Michael Manley in 1977, which in a single year wiped out every gain in education and public health that

Manley had spent his first term building up. Similar fates would befall health, education, and justice programs across the world. The death toll remains unknown. Venezuela would fall victim to a similar fate. Without the new international economic order, Venezuela's industrial policy imploded as post-Volkschok government debt skyrocketed. In the 1980s, the government began to impose IMF structural adjustments. Carlos Andres Perez, the man who led the industrial push in the 1970s, was elected a second time in 1989, running a campaign that I've seen euphemistically described as, quote, against liberalization policy. It was somewhat more extreme than that, featuring lines such as calling the IMF, quote,

a bomb that only kills people. But Perez was negotiating with the IMF behind the scenes and imposed even harsher IMF austerity measures upon winning the election, leading to a mass uprising in 1989 that was suppressed in a bath of blood, with hundreds killed by the army. But even more structural adjustments were imposed after Perez was deposed for corruption in 1992, implemented, ironically, by the founder of the movement towards socialism, Teodoro Petkoff, the head of Venezuela's planning agency in 1996.

All of Venezuela's economic crises from the 1980s until now stem from the failures of 1970s industrialization. Without any kind of industrial economy, even the socialists that took power in the 1999 international level were reduced to shuffling oil rents around. And with the market economy still in place, the economy simply imploded again when oil prices fell. This is how neoliberalism comes to most countries. Not as policies implemented by anything even remotely resembling the will of the people, but enforced by the international economic system itself and the bureaucrats

at the IMF, the World Bank, and the World Trade Organization. It is imposed by enormous states at gunpoint, constituted by the mass looting of the population in order to pay corporate debtmasters. Neolibals have effectively achieved their goal and transcended democratic politics entirely. From their perches in the international bureaucracy, they can dictate policy to even hostile leaders. But tomorrow, we'll see what happens when they take power domestically as we conclude our neoliberalism series with a man rotting in hell with Paul Volcker, Ronald Reagan.

It Could Happen Here is a production of Cool Zone Media. For more podcasts from Cool Zone Media, Ronald Reagan. It Could Happen Here is a production of Cool Zone Media. For more podcasts from Cool Zone Media, visit our website, coolzonemedia.com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts. You can find sources for It Could Happen Here updated monthly at coolzonemedia.com slash sources. Thanks for listening.

You should probably keep your lights on for Nocturnal Tales from the Shadow. Join me, Danny Trejo, and step into the flames of right. An anthology podcast of modern day horror stories inspired by the most terrifying legends and lore of Latin America. Listen to Nocturno on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.