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Chomsky at the University of Calgary
Calgary Herald "Scholar offers hope that financial turmoil can be fixed" By Robert Bragg
We live in a world of irrational financial markets, dominated by the herd instinct, which today seriously threatens the global economy. But we have political remedies to cure such economic ills. Those were two key points stressed this week by Prof. Noam Chomsky on his two-day visit to the University of Calgary. In his Tuesday night James S. Palmer Lecture, Chomsky delivered a stimulating, wide-ranging and devastating critique of the state of global capitalism.
Although he’s a world authority on linguistics and philosophy, Chomsky is also a controversial media analyst and outspoken left-wing critic of U.S. foreign policy. To an attentive audience of 3,400 on Tuesday, and in greater detail in an exclusive Herald interview Wednesday, Chomsky chose to focus on the escalating damage being done by unfettered finance capital. Tuesday night’s crowd was a surprising turnout to hear a man whose views veer far to the left of the mainstream and are seldom heard or seen in daily papers or on network television. Chomsky is simultaneously famous and obscure. He is celebrated but he’s definitely not a celebrity. As Institute Professor at the prestigious Massachusetts Institute of Technology, Chomsky’s academic work has had profound impact across a spectrum of social science disciplines from language philosophy to the psychology of child development. He’s the most quoted academic alive. He’s compared with the likes of Einstein, Galileo and Newton. In left-wing circles, Chomsky’s political work has also had a huge influence. He’s known through his speeches, radio talks, interviews and prolific writings but he’s seldom read, heard or seen in mainstream American media.
Despite his political brilliance he’s anything but a confidante of the president or a darling of the Republican party. In fact, his scathing critique of modern-day capitalism and his devastating and detailed analysis of the way the system works for a few at the expense of the many, has placed him permanently on the margins of what passes for acceptable political debate particularly in the United States.
None of this is surprising or unexpected to Chomsky. His status conforms to what would be expected to follow from the "propaganda model" he and co-author Edward S. Herman spelled out in their 1988 book, Manufacturing Consent—The Political Economy of the Mass Media [(Pantheon, 1988)]. That book argued that ruling classes in liberal democratic societies—Canada, the U.S., Western Europe and Japan—which do not rely on direct force and coercion to rule, rely on sophisticated systems of persuasion to win and keep the "consent" of the people for their government and corporate policies. The media are to literally "manufacture consent" by establishing the boundaries of the public debate, making sure certain agendas (mostly corporate) are followed while others never or rarely get to the table. Crudely stated, Chomsky/Herman’s propaganda model states that media—owned by a few very large organizations, financed by equally large advertisers, have the power to decide what constitutes news and to listen to selected official sources while ignoring others. Media are disciplined by well-funded corporate think-tanks and ongoing campaigns against "evil bogeymen" such as Communists, narco-traffickers or international terrorists.
This makes it very difficult for the public to engage in meaningful public policy discussions on issues of social importance. It puts tight limits on what can and cannot come into the arena of official public debate. It also means that Chomsky’s own social analysis, which is not easily summarized, does not readily fit within the established framework of news and commentary. Nevertheless, Chomsky’s historical look at the current turmoil in the stock market, as he laid it out this week, cannot be lightly dismissed.
"There are fears of a global meltdown," he told the crowd Tuesday. "It might affect privileged folks like us, instead of just the usual victims. Therefore it’s news."
He said the crisis originated in the Nixon administration’s decision in the early 1970s to remove restrictions on capital flows, breaking the post-Second World War international economic structure set in place under an agreement hammered out at Bretton Woods, New Hampshire, in 1944. Bretton Woods established the International Monetary Fund, the World Bank and pivoted on the balancing concepts of free international trade and restricted international capital flows. According to Chomsky’s argument, organizers of Bretton Woods realized that free trade and free capital flows were incompatible. Short-term capital investments and unrestricted capital flight would undermine investment and trade. "You can’t liberalize both." Bretton Woods fostered the "golden age of postwar capitalism" in the ‘50s and ‘60s but when the Nixon administration began to remove restrictions on finance capital movements it began a shift away from investment capital toward speculative capital. "That was the big change in modern world history. Since then the influence of finance capital has grown astronomically. The consequences are even hitting the rich people and that’s where we are now."
In 1977, Chomsky estimated about $ 18 billion a day was involved in foreign-exchange transactions. Today, estimates range between $ 1 trillion and $ 1.5 trillion a day. "Nobody knows exactly. These are estimates by international economists and it depends a little bit on what you count, but it’s going up very fast. There’s no doubt about that." And the volume of the transactions is only part of their significance. "Even more dramatic than the scale is the character. Back around 1970, most of the international foreign exchange transactions were economy related, 10 per cent ... were speculative. "By 1990, it was estimated to be about 90 per cent speculative; by ‘95 it’s supposed to be about 95 per cent." Speculative transactions are very short-term and they are highly leveraged—based on very high debt ratios. About 80 per cent of the transactions last less than two weeks. "A lot of it is days and minutes, which means it’s just ... playing against, guesses against, slight currency changes and interest-rate changes and so on."
"All of this is causing so much turmoil that in surprising places you’re getting strong opposition to it." He said prominent economists, free traders, the World Bank and the World Trade Organization have been criticizing the instability and negative impact on long-term investment caused by the "lunatic ideas about liberalizing financial markets." "Nobody understands (financial markets). I mean they are motivated by herd psychology. You know, one guy leaves and everybody rushes out. Their reactions are unrelated to economic fundamentals very often," Chomsky said. Even more problematic is the associated borrowing. "When all of this is highly leveraged, it can blow up in no time."
Chomsky puts this economic situation in political framework. "There have been perfectly reasonable proposals around for years as to how to control this, even in very narrow and market-friendly ways." he says, citing the idea of a small tax on short-term financial flows as proposed by Nobel Prize-winning economist James Tobin. The Financial Times of London has also proposed raising the capital requirements for banks making international loans on these high-risk speculations. But, for Chomsky, the point is political. "Governments certainly have the power to control it. These are (political) decisions. They are not like the law of gravitation."
One of the most useful political things to do, Chomsky suggests, is join the resistance to the proposed Multilateral Agreement on Investment (MAI) which, if it is passed and adopted by developed nations, "is going to accelerate all this" devastation by finance capital. "In parliamentary democracies like ours these are decisions that can be made without fear of repression. There’s not going to be a military coup in Canada."
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