GATT and the Mexican crisis


While he was in Sydney, internationally renowned author NOAM CHOMSKY was interviewed by the alternative media. Last week we featured his comments on the Middle East. In the same interview, Anna Pha of the Guardian asked whether, in the light of the Mexican peso crisis, the North American Free Trade Agreement (NAFTA) is in trouble and the implications for GATT. This is an edited version of Chomsky's remarks.

The bottom isn't about to fall out of NAFTA; it's too important for the US corporations. The hidden story is of rich [North] Americans' highly speculative and highly risky investment in Mexico. The trick of capitalism is supposed to be that investments are risk free, so that if you get into trouble the public bails you out. That is what is called freedom.

Propping up the peso is an indirect way for taxpayers to pay off rich US banks and financial institutions who took a chance in a highly speculative market and are now losing their pants.

It's like the savings and loans institutions, when the Reagan administration deregulated the banks that lend money for home mortgages but also raised the federal insurance for them. They were telling people, "Look, you take all the risk you want, make all the crazy loans you want; when the bottom falls out, we'll get the taxpayers to fund you", which is exactly what happened, to hundreds of billions of dollars. What's happening now is the same.

'Economic miracle'

Mexico through the '80s was called an "economic miracle". An economic miracle means that rich people did fine and everybody else suffered immensely. The Mexican growth rate during the economic miracle is very low, much lower than before. It reached that level only because of huge amounts of aid that were poured in from the World Bank.

During the economic miracle, real wages dropped around 50%. The poverty level shot up, but also the number of billionaires shot up. Around 1988 I think there was one Mexican billionaire, now there are 24. Meanwhile the population in deep poverty extended from about 13% to about 24%.

The billionaires, incidentally, got there by privatisation, which means giving away public resources to friends of the president for nothing. The population has declined into misery, the wealthy have done extremely well, and foreign investors have done very nicely. Even when they get into trouble the public in their own societies are going to bail them out.

NAFTA was supposed to be rammed through in secret. It was signed by the three executives of Canada, USA and Mexico, in secret on August 12, 1992, right in the middle of a presidential campaign. Right in the middle of a presidential campaign, it was done in secret.

There is a trade law in the United States which requires that on any trade-related issue, a union-based group called the Labour Advisory Committee is supposed to advise and consult. They are a pretty reactionary bunch, but rather than take any chances, they weren't let know about it.

They finally informed the Labour Advisory Committee in mid-September that they had to give a report the following day. They gave them the 2200 page text one day before the report to ensure that they couldn't even meet formally. The press has suppressed every bit of this. The only people who are going to know about it are those who read articles of mine.

On both sides, everyone agreed that the NAFTA agreement was going to harm the populations in the United States and Mexico. The economists supporting NAFTA were saying, "It's a terrific thing, although nothing is cost free and this may hurt some people". When you translate their gobbledygook, it turns out it's going to harm 70% of the population.

The New York Times and the press generally were very pro-NAFTA, because it's a corporate give-away. They ran their first analysis of it for the New York region, the day after it passed. It was a very up-beat analysis saying, this is going to be great. Then they described who is going to benefit, like corporate lawyers, PR firms and some big capital-intensive corporations. After this euphoria, they said there were going to be some losers too. Women, Hispanics, blacks, and unskilled workers will be the losers, but it's terrific because people are going to gain.

Fear of democracy

Again the press didn't record it, but there was a big strategy session at the Pentagon of Latin American specialists and corporate leaders beforehand. They were talking about the terrific relations with Mexico, which aren't affected by murders, torture, beatings of dissidents and destruction of unions. They said there's one problem, what they called a "potential democracy opening" which might bring into power groups which have nationalist and popular interests.

How does NAFTA fit into this? The idea is to lock in Mexico's "reforms". You lock in the system that has created billionaires while killing people, so in case we have this "democracy opening", they won't be able to do anything about it anyway.

NAFTA doesn't change anything if you look at the trade figures. Trade increased a little bit more slowly than it did before NAFTA. The point is that you are locked in the system. To disentangle yourself from that is no joke at this point, because it's a treaty.

One of the reasons why NAFTA was so popular among US corporations is that it is highly protectionist. NAFTA is a lot more popular than GATT, because it was designed to give US-based corporations a leg-up on their European and Japanese competitors by locking Mexico into the American market. It also has other protectionist features.

When you get to GATT, it's pretty much the same story but more complicated. GATT is a mixture of liberalisation and protectionism carefully crafted to ensure investor rights. It's an investor rights agreement, not a free trade agreement. There are very strong protectionist elements.


For example, intellectual property rights are a highly protectionist technique to guarantee that the technology of the future will be in the hands of totalitarian institutions, big transnational corporations. It's important, for example, to make sure that countries like Brazil, Argentina or Mexico can't produce drugs at half the price of big pharmaceutical corporations, because that would interfere with profits.

There is a whole complicated system of devices, designed to reduce technological innovation and economic advance. It has nothing to do with economic efficiency; they've instituted, for example, product patents making it illegal to figure out smarter ways to make drugs.

The same thing happened in the US-Canada agreement. Canada was producing generic drugs. That was one of the reasons why the Canadian public health system was much cheaper than the US one. That was blocked by the free trade agreement and the threat by the big pharmaceuticals to declare [generic drugs] an illegal interference with free trade. Canada caved in right away, and now drug prices have shot way up in Canada too.

The drug corporations that are making the money on this are not private enterprises — they're publicly subsidised private enterprise. The biology laboratory at my university gets plenty of public funding but when it discovers something, it goes right off to the pharmaceutical companies and the biogenetics companies — that's the way the system works. GATT tries to institutionalise all this stuff.

If the big powers don't like a GATT regulation, they just kick it in the face. About two weeks after the US signed GATT, the Clinton administration announced they were going to give $1 billion to US corporations for designing flat panel screens, something that the Japanese were ahead on. That was a public subsidy in direct violation of GATT regulations. Basically GATT is a way of transferring more power to investors and huge transnational corporations and financial institutions.

There is a kind of quasi-governmental framework developing around this. The term is not mine; it's from the business press. The Financial Times described the quasi-governmental structures developing around GATT — the World Bank, the new World Trade Organisation, the G7 meetings. That's what they've described correctly as the de facto world government, which imposes conditions that nation states have to satisfy.

Nation states are viewed as a serious defect. The population has in principle some way of influencing what they do, even if not much in practice. Corporations don't have that control; there is no threat of a "democracy opening" in a corporation.

There's another phenomenon of very great importance that's going on on the side: the huge explosion of unregulated speculative capital. It's an extraordinary phenomenon, with the quantities in the last World Bank estimate at something like $14 trillion. It absolutely overwhelms government resources, even overwhelms the European Union. What's particularly interesting is that the composition of the capital has changed very radically.

Richard Nixon dismantled the Bretton Woods system, the postwar economics system, in 1970. In 1970, about 90% of the capital in international exchanges was related to the real economy in some fashion, either investment or trade, and 10% speculation. By 1990 those figures had reversed: 90% speculation and 10% trade related. In 1994, it was about 95% speculation.

Speculative capital, for example in bonds, which is speculation against currencies, is interested in low growth. Growth tends to make currencies unstable. What you want is a low growth, low wage, high profit economy. There was a study done by a US group headed by Paul Volcker, who was the head of the Federal Reserve under Reagan, a respected economist. There's been a considerable decline in the growth rate since 1970 and they attribute about half of that decline just to speculation in the currency markets, which forces governments to back off from economic stimulus.

It has gotten to the point where you can read a front-page story in the New York Times on the fear of growth. I also saw in the Australian papers, this concern that growth is too fast, people are doing too well, there are too many jobs and too much money. That's a threat because it threatens the bond markets. To defend yourself from this, you cut down growth, preventing economic stimulation and increasing inequality.

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