Wednesday, July 08, 2009

Michael Hudson in Cuba, 2000

by Dr. Michael Hudson, New York, NY

Everyone says that globalization is inevitable. But what kind of globalization are we going to have? Whose globalization? Can we still influence what kind of globalization the world will have?


A century ago, Marx supported the globalization of his day - colonization - to the extent that it would break down the institutions of backwardness in Asia, the Near East, Latin America and the Far East.

Marx saw globalization even in its British colonialist form as a catalyst for industrialization, and an organization of the labor force along economically modern lines. But this is not what is occurring today. In retrospect, Marx was overly optimistic.

Today's globalization does not replicate the economic relations of the core. It is creating something else - something that nobody spoke of a century ago. Today's globalization is much like the Enclosure movement in England from the 16th through 18th centuries.

The enclosers carved out the land for themselves, displacing labor from the land and its traditional means of support, and herding it into the cities. The result was inequality, not equality. But the result also provided the labor for industrialization.

From the 16th to the 19th centuries, the rural exodus into cities in England, France and other countries formed the foundations for industrial capitalism. However, although today's globalization is bringing manufactures to many developing countries, and also goes hand in hand with a great rural exodus to huge overgrown cities, it is in many ways a relapse back into pre-capitalist economic forms. It is precapitalist in the sense that what the large global corporations - and the stockholders and bankers behind them - what they seek is rent and interest.

Many of you here criticize the drive for profitsmade by multinational firms. But if you look at the statistics, you will find that these firms do not make a profit - or rather, they take all their profit in a few small islands throughout the world. These islands are called offshore banking centers. They are tax havens, extra-legal and criminal havens, which do not levy any income tax. Multinational firms in the developing countries, in Europe and North America give the statistical appearance of not earning any profits at all. This means that any country that tries to make a profit-sharing agreement with a foreign investor runs the risk of ending up with half of almost nothing.

Rather, global companies pay out their would-be profits as interest to the financiers who put up the money for corporate raiders and investors and other corporations to buy out these multinational firms. They also pretend that their profits are expenses on insurance and other non-production charges.

Sometimes, high technology IS spread to the developing countries. But their labor does not benefit. Wage rates remain low, even in high-technology industries such as computers and pharmaceuticals. Part of the problem is technological. The leading core economies concentrate research and development in the United States and Europe. But most of the problem is financial. Industry throughout the world has been taken over by the financial sector, including corporate raiders.

Most of you here focus on the exploitation of cheap low-wage labor in the developing countries. But what the global corporations want from these countries is NOT primarily their labor. They are not primarily interested in exploiting surplus value. What global investors want is the land, along with other natural resources such as mineral rights, and natural monopolies, that is, public utilities.

They want the railroads and airline systems now in place, created largely by governments running deeply into foreign debt. Global investors want the telephone and communications monopolies, the TV stations - and the electromagnetic spectrum that goes with it - electrical power monopolies, oil and gas. They want the monopoly rights possessed by these industries - monopoly rights that led them to be organized as public enterprises in the first place - to buy it at distress prices, and then to privatize labor's social security savings to bid up prices for shares in these companies. They seek an outlet for savings in the United States.

Most of all, they want the land and real estate. For even in highly industrialized economies such as the United States and Japan, it is the land that is the largest asset. And the most valuable land is urban land - the value of urban real estate in New York City alone exceeds the depreciated value of all the industrial machinery and equipment in the United States.

In sum, global investors do not want to bring development to the developing countries, any more than they brought it to Russia. What they want is the capital that already is in place.

Their objective and historical role is not to create new capital. They want to levy monopoly charges on labor, not to employ it. They want to downsize their labor force, not exploit it to obtain surplus value.

Privatization thus goes hand in hand with globalization. A century ago, Marx believed that globalization and international investment would modernize host-country economies, and lead naturally to increase government co-ordination of national planning. But governments are now being forced out of the picture.

The world economy and its financial systems are being planned - but not by governments. It is being planned not by elected officials, nor by industrial engineers, but by financial engineers. The word "technocrat" no longer means industrial engineer, but financial engineering - by unelected officials in the Ministry of Finance, Treasury and Central Bank of country after country. The term "technocrat" means non-democratic, that is, oligarchic. Indeed, the word "democracy" itself has come to be abused as a synonym for "pro-American." As such, "democracy" now means "oligarchy."

Their interest is not to create new investment and employment, but to strip assets and downsize the labor force. This is a kind of exploitation that Marx did not emphasize. The global corporations want to collect rent, to pay out monopoly profits - and most of all, to get capital gains. They want a stock-market boom in the shares of hitherto government enterprises.

They can make more money out of stock-market speculation in the shares of these companies than they can make by employing the labor of these sectors. Indeed, they squeeze out more profit - and hence, increase the price of their shares - by firing workers and downsizing the labor force than they can make by employing more labor and exploiting it directly in the way described by Marx.

While they cut back wages, they force workers to place their pension funds and social security savings in the stock market, to inflate a financial bubble.

My paper addresses the topic of whether this process is reversible.

Today's corporate globalists claim that now that they have privatized public monopolies, land and mineral rights, the process is irreversible. As the Americans say, they have stolen the public domain fair and square. They have forced governments into debt, raided their currencies, and the IMF and world Bank have told governments to sell off their public domain.

I want to suggest to you a counter-move, that does not involve the political trauma of re-nationalization. There is one Achilles heel in the globalists' strategy, an option that remains open to governments. This option is a tax on the rental income - the "unearned income" - of land, natural resources and monopoly takings.

This tax is not an income tax. It is not a tax on labor and the wages it earns. It is not a tax on industrial investment, on factories or the material capital equipment that all economies want to encourage, Cuba as well. It is a tax on the "free lunch," the "free ride" that the buyers of natural resources seek to exploit. This is the "free lunch" that neoliberal economists such as Milton Friedman pretend does not exist.

Jose Marti, in one of his essays (reprinted in Vol.22 of his Collected Works in the Havana 1966 edition, p.124), endorsed this tax as put forth by his fellow New York City journalist Henry George. Marti wrote that "reform of the actual conditions of labour, transformation of land into public property and conversion of all types of taxes into a single tax on occupied land, is a doctrine that has not been well received by the powerful corporations that today control virtually all the productive wealth, or by that part of the Catholic clergy that lives close to the rich, and with their support."

This is precisely our message: a rent-tax on land, natural resources and monopoly earnings, as calculated before payment of interest, insurance and other parasitic non-production charges. This tax is legal, as long as it affects domestic and international investors equally. It will recapture for the public sector the rent - the free lunch, and hence the capital gains - that the privatizers thought they had stolen, fair and square, and irreversibly.

This recapture of the flow of rent and monopoly earnings, the income created by social progress and the public domain, is so large that governments need not tax labor, or even industry. The country that does this will give itself a great competitive advantage in international trade and investment.

My colleague, Ted Gwartney, will tell you of our work in Russia, where the American globalists have had their own way and created a model of how not to develop.

The task is not only to attack globalization, it is to show the way out, to propose a policy alternative, a counter-strategy. There is such a thing as market socialism. Governments can shape the market to encourage productive investment, and tax away what is parasitic. This is just what they were doing - or what they were supposed to be doing - prior to the Thatcher-Reagan-Pinochet revolution by the neoliberal Chicago Boys.

The kind of globalization we have seen since 1980 has been primarily parasitic. It is like a tumor, a tapeworm on the economic organism, not the organism itself.

This gives a new meaning to "host country economies"and "host country government". But host-country governments can recapture the economic rents that global financial investors seek. This will leave parasitic investors holding an empty bag. And it is all legal. It recovers for society what the global investors believe they have taken away, while leaving wages untaxed, and also the earnings of legitimate, non-parasitic industry.

In fact, an income tax will not capture real estate rents or financial interest charges. The global firms do not declare profits to tax. They have a number of stratagems. The first stratagem is to borrow against their earnings and super-profits - that is, monopoly rents and real estate rents - and to pay out these revenues as interest.

A second stratagem is for the accountants of multinational firms to levy fictitious charges for insurance, reinsurance and shipping, as well as for management and for inter-corporate supplies such as parts, machinery and so forth.


Privatization has been a voluntary pre-bankruptcy sale by governments. Most of the money was used (1) to pay foreign debt, and (2) to subsidize capital flight (as well as to pay currency speculators). To repay these debts, whose proceeds have been
wasted rather than productively invested, governments have been told to pay the price and sell off the assets that rightly belong to the people. The resulting foreign debt
leads to permanent currency depreciation by host countries.

The oligarchs that run most countries are in favor of foreign debt. First, the more money governments borrow, the less they need to tax their own real estate and large
rent-taking corporations. Second, the currency depreciation that results from repaying foreign debt has the effect of lowering the wages of labor. Let me explain why.

Capital equipment has the same price throughout the world. It is dollarized. Fuels
and raw materials have the same worldwide dollar price. Computers and transport equipment. Debt financing also is dollarized. All that is left to be affected by currency depreciation is labor's wages, and land rents. But even for real estate, in the large commercial centers land prices are now dollarized. The way to counter unionization is by running up so much foreign debt that the process of repaying it devalues labor's wages.

Third, foreign debt is a lever by which countries can be controlled, and forced to sell their public resources to foreign investors. For example, Korea and
Japan, as well as Russia. An alternative to the World Bank and IMF neo-usury
institutions are needed. Such a body was created in 1929 to deal with the reparations that defeated Germany was obliged to pay. This was the Young Plan. It limited debt
service to the capacity to pay. (I have described the details in my book Super Imperialism, which has been translated into Spanish.)

Today, debtor countries are being treated as losers in a war. It is an international class war, the final mop-up stage of the class war. But new tactics can change the outcome of this economic war. That is what revolutionary economics is all about. - - - - - -

Here’s Kris Feder’s report on Ted’s and my visit to Cuba:
From: Kris Feder
Date: 8 March 2000
Re: Cuba Report


At the request of the Executive Committee, I accompanied Ted Gwartney and Michael Hudson to Havana, Cuba for the Second International Meeting of Economists on Globalization and Development Problems, 24-29 January 2000. The conference was jointly sponsored by the Association of Latin American and Caribbean Economists (AEALC) and the National Association of Cuban Economists (ANEC).

According to my letter of invitation from Dr. Roberto Verrier Castro, Vice President of AEALC and President of ANEC, "The purpose of the Meeting is to promote discussions on current tendencies in World Economy in the context of Globalization, from the most
diverse theoretical and analytical point of view, essential requirement in creating alternatives that contribute in solving existing problems. We are inviting to this International Meeting the most distinguished personalities in the whole world in the field of Economic Science, and 50 papers will be presented, including those from International Organizations." (sic.)

It seemed to me that there was less diversity of opinion expressed than the rhetoric of Roberto Castro (and of Fidel Castro as well) suggests--see below. Also, while delegates were present from 51 countries, most participants were, not surprisingly, Latin American.

Michael and Ted gave their talks on Tuesday, the second day of the conference, going together to the podium. Well! What a stir they created! Their talk stood out among the rest, for several reasons. Of course, as US citizens, they had first of all to prove that Cuba's mighty enemy did not commission us to infiltrate the conference. At this they succeeded, on account of both the content and style of their message. Their ideas plainly resonated with the audience.

Their mood was upbeat and passionate, their arguments were clear and straightforward, and their credentials were evident to all. Michael's close knowledge of Latin American issues and of the writings of Cuban national hero Jose Marti (a follower of George ), as well as his socialist roots, gave him terrific credibility. Ted's explanation of the remarkable initiative in Russia riveted everyone's attention, too. Listeners must
have gotten the impression that RSF missionaries are experienced, activist, practical, and respected in high places. And it must have been apparent that the Georgist philosophy is at cross-purposes with the Dominant Neoliberal Ideology.

The dynamic duo stood alone in respecting the 20-minute time limit, despite the fact that two speakers were given the place of one. For this, they won an extra round of grateful applause.

Most importantly, while other speakers reiterated a dreary litany of complaints about the evils of "neoliberalism" and the painful consequences of globalization for the Third World, Ted and Michael offered a concrete solution--one that addressed all the main dimensions of the crisis under the guidance of a single principle; one that could be implemented by national governments with or without the blessing of the international community.

It seemed to me that most listeners were able to follow the main arguments promoting land value taxation, particularly with reference to the problems of debt, dependency, and maldistribution that were the focus of the conference.

In a comment from the floor during the subsequent discussion period, Professor Molinas of Cuba said, "I highly assess this proposal," not only for Cuba (which is attempting to build socialism despite the economic blockade), but also for all Third World countries. He noted that Marti had admired Henry George and called him the most important social scientist. He mentioned the Physiocratic proposal to tax rent, and urged a study of how to implement it today. Molinas said that, though it is true
that the market would play a fundamental role under a land tax system, the tax would be progressive, and we need not fear the market with the Georgist system.

Unfortunately, Fidel was not in attendance that day, distracted as he was by the Elian Gonzales mess.

After they spoke, Ted and Michael were deluged with requests for copies of their papers and other information about our ideas. They collected names and contact information from many interested economists and students. Ted gave out RSF business cards and website addresses.

Michael gave a television interview on Wednesday, with Ted present. It was fairly impromptu, and I missed it. I was listening to the talks in the conference room and didn't realize what was happening out in the hall.

On Thursday, I observed an interview with Ted and Michael by reporters from the Cuban periodical "Bohemia--Magazine of the Cuban Family." We were assured that it is the Cuban equivalent of Time magazine, and that Fidel Castro is a regular reader.

Also on Thursday, we had a breakfast meeting with four economists who would like us to join an email discussion group, with the intention of convening an international meeting in Argentina to discuss our views. Our translator was Miguel J. Alfonso Martinez, Cuba's Minister of External Relations. He hopes to arrange a meeting for Michael and associates with Cuban officials. The most talkative member of the group, Dr. Orlando Caputo of Universidad Arcis, Chile, enjoyed a fascinating conversation
with Michael, who just happened to have had extensive experience with the Chilean economy. The two others were from Mexico and Chile, respectively.

Michael was also invited to come to the University of Havana to hold seminars with their professors and to relate our ideas.

Whether our message sinks deeper or is forgotten depends largely on how vigorously these opportunities are pursued.


Roberto Verrier Castro gave the opening remarks on Monday, with Fidel in attendance. He stated the intention to continue the work of the conference with an annual forum. He set a tone that was to be continued almost without interruption: World economic policy is at a dead end.

Dollarization and all so-called "neoliberal" policies are tools for the annexation of developing countries by Western capitalist imperialists. The Elian Gonzales incident was a talking point for many participants. Roberto spoke of his "kidnapping" (Fidel would say on Friday: "brutal kidnapping") by Americans, and observed with irony that Elian would have received better medical care back in Cuba.

Esther Aguilera Morato, Secretary General of AEALC and Director of Cuba's Economic Planning Institute, was next to address the conference (and moderator of the first session). She said that the goal of the conference was to identify trends in the world economy. It was Esther who, in July 1999, had invited Michael, Ted, and Ramsey Clark to present their ideas at the January conference. Ted's report on that first trip to meet government leaders in Cuba says that Esther was "eager for us to describe how a land-charge system could serve to protect the nation's natural resources from being relinquished to foreigners."

During the conference, the evidence of oppression and maldistribution
mounted high. Many speakers dwelled on the details of the economic
situations faced historically and currently by their respective countries.
There was a great deal of chest-pounding an d anti-US rhetoric. Lofty
goals for a better future were enumerated and elaborated.

There was less in the way of useful analysis. Still less in the way of
practical policy recommendations. Probably the best speech at the plenary
session was given by Jan Kregel, senior economist at UNCTAD and one
of the Levy Institute’s favorite economists, as many of his papers are
published by them. He is a friend of Michael’s, who had just given a
joint presentation with him two weeks earlier at a Venice conference
sponsored by the Norwegian oil fund and organized by Michael’s “reality
economics” group in Oslo. A week earlier, Ted and Michael had met
with him and he and his wife had searched through Jose Marti’s works to
find appropriate quotations for their joint talk.

In his speech, Kregel pointed out that recent UN discussions have stopped
focusing on development, and have concentrated on privatization without
examining the developmental consequences of privatizing hitherto public
assets. But apart from this talk, most prescriptions were vague and
referred to institutions and policies over which a small Third World nation
has little control: more democratic international financial institutions;
internationally recognized minimum labor standards; regional cooperation
and multilateralism; Latin American integration.

Here are some of the other ideas expressed by various conference speakers:

* The distribution of the world's resources and population is vastly
unequal. There is a dual society: The privileged, and the excluded.

* Powerful, private industrial groups from Europe, Japan, and especially
the US are seeking to dominate the world, aided by powerful information
technology. They aim to plunder the natural resources of weaker nations.
They are assisted by large banks that are recycling huge sums of money.

* Capitalism corrupts. Capitalism is compatible with slavery.

* Globalization means interdependence. All must obey the dictates of the
market (this is "economicism" or "neoliberalism"). Globalization is a
social, economic, and political rupture. It condemns any difference or
resistance. It makes competition the only moving force in society.
Cultural factors are shunted aside. Thus live in an increasingly homogeneous world.

* The neoliberal philosophy is a "new obscurantism," peddling oppression
under the guise of freedom. I never heard anyone attempt to define
"neoliberalism," or to distinguish it from classical liberalism or other
liberalisms. Perhaps that was because it's a concept so widely shared
among this group that no one imagined there might be delegates unfamiliar
with it. Perhaps, too, it is intended more as an expletive than as a descriptive term.

* Neoliberalism is associated with the policies of Thatcher, Reagan,
Pinochet, and conservatism in general. It is associated with
"neocolonialism" and imperialism. An example is the NATO war against Yugoslavia.

* During the past 15 years of neoliberal globalization, Latin American
poverty and indigence has increased. Cuba intends to be an exception.

* The goals of globalization are privatization and the abolition of collective power.

* The mechanisms of globalization are mainly financial.

* The IMF, the WTO, the OECD, and the World Bank are the four major actors
pirating the earth. They are deciding the future of the earth's
inhabitants with no opposition. The recent protests at the Seattle WTO
conference are heartening.

* Capital flight in Russia, which has wiped out savings there, is due to
inflation and the devaluation of the ruble.

* The UN has dropped development from its agenda. It has come to view
development policies as impediments to globalization, which promises to
bring about wealth convergence. The debt crisis and inflation of the 1970s
are seen as evidence of the failure both of growth policies in less
developed countries and of full-employment policies in more developed
countries. The creation of the IMF at Bretton Woods reflected the
interests of northern industrial countries in perpetuating the
colonization of the Third World. (This from Johns Hopkins economist Jan Kregel.)

* Globalization has indisputable benefits, including improvement in living
standards through the dissemination of technology, the spread of new
ideas, the efficiency gains from exploiting comparative advantages, and
the pressure of competition introduced to local markets.

* But for many, the benefits of globalization are outweighed by the costs.
Costs include exposure of developing countries to external shocks; an
uncertain business environment; increase of social tension on account of
the wedge between the privileged and the marginalized; and costs imposed
on the laboring classes. With regard to the last, while highly skilled
workers are prepared to face the global economy, less skilled workers
cannot adapt well, and often suffer greatly when their jobs disappear.
Also, " everything"--financial assets, technology, capital--is mobile
except for one thing: Workers, who therefore shoulder the cost of the
economic crisis. Capital moves to tax havens and evades taxation; labor
cannot. [An obvious point of entry for Georgists, well exploited by
Michael: land is less mobile even than labor, in fact, perfectly immobile.
Land is a tax base from which no light-footed multinational corporation can escape.]

* The "Tobin tax," an international levy placing a uniform rate of 0.1% on
hard currency transactions (proposed by James Tobin), should be enacted to
dissuade short-term financial speculation. The revenues should be used to
assist the world's needy children (providing potable water, education, and
family planning).

* The globalized economy is unstable, despite the retreat of inflation in
the US. Countries raise interest rates in the attempt to stabilize their
own currencies, discouraging investment. But they cannot escape the forces
of globalization, so they resort to using US dollars as currency (Cuba,
for example). However, many countries have nothing to sell in exchange for
dollars, so their debt accumulates to impossible heights. High interest
rates further raise the cost of public debts. Neither dollarization n or
taxes on the circulation of capital will prevent external shocks. The
"free market" does not exist. For sustainable growth we need a new economic model.

* Eric Toussaint of Belgium ("Belgica") focused on the Third World debt
crisis, and proposed a debt cancellation.


I will try here to summarize some of the points made by Michael Hudson in
his conference presentation:

Marx had supported globalization because it fostered industrialization,
modernization, organization of the labor force, and government planning.
But the globalization phenomenon today is of a different character.
Economic planning is carried out by financial engineers, not governments.
Today, globalization is parasitic. It is much like the Enclosure Movement
in England, when peasants were evicted from the land and migrated to
cities, where they constituted a low-wage labor force. Then and now, the
result of land grabbing is increasing inequality. Globalization today
constitutes a relapse into pre-capitalist forms: Multinational
corporations are seeking rents, not taxable profits. They borrow against
their earnings and employ other stratagems to convert taxable income into
nontaxable cost. Any profits are taken in small island tax havens that
levy no income tax. Hence, countries that enter into profit-sharing
agreements with such corporations end up with little or nothing.

Many observers believe that what multinationals are after is low-wage
labor. But that is not what they want most. They do not want to bring
development to developing countries. Rather, they want to take over the
monopoly rights to public enterprises such as oil, gas, utilities, and
communications as they are privatized. Above all, they want the land.

The global corporations believe that privatization is irreversible. But
developing countries have one option still open to them: To tax the rental
income of land, natural resources, and monopoly privileges. This is not a
tax on labor, income, or capital formation. It is a charge on the
economic surplus. It diverts the surplus from private to public ownership.
The tax is legal if applied uniformly, and involves no traumatic
confiscation of land titles. It obviates the need to levy taxes on labor
and capita l. It was powerfully endorsed by Cuban journalist Jose Marti.

The oligarchies that control many governments favor foreign debt. It
allows them to hold down tax rates on real estate and corporate income, it
engenders currency depreciation that lowers real wages in debtor
countries, and it forces countries to sell off public assets to foreign
investors at distress prices.

New tactics are needed to change the course of the international class war.


The interview with Bohemia magazine was conducted by two journalists and a
photographer. I observed, while Michael held the floor with Ted
interjecting occasional comments. Here is my summary of what was said:

MH: Marxists have an advantage in understanding capitalism insofar as they
know there is an economic surplus. That is why Wall Street hired Michael
Hudson to analyze the economics of capitalism.

Q: It is possible to apply the Georgist proposals?

MH: In Marx's day, the economic surplus was taken primarily in the form of
profit. Today, in the age of the income tax, investors avoid taxation by
taking the surplus as interest and rent, declaring little or no net
income. But Cuba has the opportunity to capture for public uses the great
rent surplus yielded by its rich farmland, nickel mines, beaches, and
urban areas. The Cuban people, as owners of the territory of Cuba, can
collect this value with taxes levied on the rental value of land and
natural resources. They can rent or lease properties to domestic and
foreign developers. Ted and associates stand ready to assist in developing
a land value map for Cuba.

Q: This tax proposal seems antithetical to the dominant philosophy today.

MH: Milton Friedman admits that the land tax is the only efficient tax. If
you tax buildings, industry, or labor, you will have less of those things.
The land will always be there, no matter how heavily it is taxed.

Q: Governments have no capital. Rich people do.

MH: Cuba has a unique opportunity. The land of Cuba belongs to the Cuban
people. In the US and elsewhere, where land is privatized, the rent
surplus has been pledged as collateral for debt. But Cuba has retained
public ownership of the land, and it has not made the mistakes of Russia.
Cuba could become one of the lowest-cost producers in the world. Cuba
could offer international investors what no one else can. So rich are its
natural resources, it need not tax labor or industry. It can leave
investors a fair return on their capital costs while the Cuban government
collects the land rents on behalf of the Cuban people. In partnerships
with foreign investors, Cuba could contribute the land (say, a beachfront
hotel site) while the foreign company contributes the capital. Over time,
the hotel will depreciate, but the land will grow ever m ore valuable as
development proceeds nearby. Cuba need not surrender to private
corporations the free ride from rising land values.

The unlimited optimism now infecting the developed world stems from the
belief that the US has an unlimited opportunity to exploit other nations.
Cuba need not submit to foreign exploitation.

Q: What about the speculative bubble on Wall Street? Is inflation due to follow?

MH: There is no inflation in the US economy. The genius of finance
capitalism is to contain inflation within the land, stock, and bond
markets. There is deflation in real wages. Alan Greenspan has said that US
workers are insecure and are afraid to ask for higher wages. He says that
corporate managers need more stock options and higher salaries every year
to be more productive--but workers need less every year to be more
productive. Companies downsize, yet produce more. Measured employment
rates are high, but more workers are forced to work part time, and they
increasingly turn to piecework as operations are "outsourced."

We need a new world bank that will finance independence, not dependency.
International reserves should be invested in real capital in developing countries.

Decades ago, Castro urged a cancellation of Third World debt. This should
be the foundation of international reform. Meanwhile, Cuba can develop
itself without relinquishing its independence. Others will emulate it.

The 1850s - 1870s were exciting decades for the development of economic
thought. Marxist socialism evolved in Europe. In the US there developed an
economic analysis of technology, and also of the way in which America was
getting rich by land grabbing and debt creation. Henry George's "Progress
and Poverty" is one of the greatest books of that era. Jose Marti, a
journalist in New York City, said that Henry George was the Darwin of
economics. Marti popularized land tax ideas throughout Latin America. The
ideas of Marti are more important today than at any time in the past century.

Michael, Ted, and colleagues have tried to warn Russia of how the West
seeks to exploit it. But the World Bank offered money to Russia on
condition that they don't adopt our ideas. Russia took the cash.

The political environment in Cuba is very different from that of Russia.
We see honesty, not corruption, in public office. All that is needed is
the knowledge of how to retain Cuban wealth for the Cuban people.

Cuba is proud of its health care system. We want to help the Cuban
economic body also achieve robust health.

The US is becoming a dual economy, like Latin America. To acquire wealth
sufficient for independence, one must have the good fortune to inherit.
The growth of debt weakens the world economy. We hope to see industrial
capitalism overcome financial capitalism, but the prospects are poor.

Regarding dollarization, the US doesn't say so publicly, but it would love
to give Latin America paper in return for its real assets. Only a quarter
of US currency now circulates in the US; the rest circulates in Russia and
other nations, or is used to finance criminal activity.

Q: What is your current research?

MH: There are two parts: One part is archaeological research on the long
economic dynamics of civilization, with focus on land and debt. The other
is statistical research on the asset/debt structure of the US and other major economies.

RSF has funded research on land values and land value taxation.

Q: What about Schumpeter's theory of creative destruction?

MH: The idea was that technological innovation would cut costs, making
older technology obsolete. This idea was central to the thinking of Henry
Carey and others in the US during the 1850s. Marx said that if there were
any alternative to classical economics, it would be that of Carey. Marx
argued that employment in innovative, capital-creating industries would
continually expand the demand for labor. Marx controverted the
underconsumption theories of today.

The crisis of capitalism will not come from industrial capitalism as Marx
predicted, but by the stifling of the industrial sector by the rent
takers. The developed world will fall back into the pre-capitalist
problems of usury and rent.

We hope to meet with Cuban officials to develop our policy recommendations.


Ted Gwartney had initially planned to offer a general outline of Georgist
philosophy. As the three of us discussed strategy, however, we concluded
that the standard Georgist analysis of tax incidence and efficiency might
seem abstract, foreign, and incomprehensible to a Latin American audience
that is steeped in socialist philosophy. The Georgist proposal as
enunciated by George himself referred principally to the context of
industrialized market economies. But the economists attending this
conference tended to be deeply uneasy about the reliability of the price
system in the allocation of resources and distribution of the product. So
Ted chose to focus more on the Russia initiative and other practical
applications of our philosophy. Michael would speak first, and would
offer a theoretical explanation of the land tax proposal that would be
tied directly to the conference themes of dependency, debt, globalization,
and distribution. Once Michael had shown the desirability of the land tax
for Latin America, Ted would demonstrate its feasibility. Michael would
then return to the podium to drive home the central points.

Ted's comments were brief but compelling. He explained how RSF directors
and associates had worked to educate Russian leaders about the function of
rent in a market economy. He mentioned his own work as an assessor,
helping to improve the quality of land assessments here and there
throughout the world. He explained the benefits of Georgist public finance
in the briefest and simplest terms, while pre-empting any thought that our
program is mere utopian idealism.


Fidel Castro was in attendance on the morning of the first day of the
conference and again throughout the last day. Mostly he listened, rarely
interjecting a comment. On Friday evening, however, before the final
wrap-up, he addressed the delegates in an apparently spontaneous two-hour
monologue that he had undoubtedly trotted out hundreds of times before.
His central message was that Cuba would continue to go its own way in
spite of the globalization of the world economy and in spite of the
punitive economic blockade imposed by the US. The US is the very symbol
of evil and oppression. The brutal kidnapping of a little boy is
characteristic American behavior. Cuba is proud to continue the
Revolution. So long as the Cuban people manage to cling to life, no matter
how miserable life becomes, they are winning the war of good against evil.
Cuba is a last little stand of freedom in a hostile, rapacious world.
Witness the present forum: Nowhere else on earth, certainly not in the US,
could such a diverse range o f opinions be freely expressed and openly debated.

I could not resist the impression that Cuba's entire national identity is
defined by its enmity toward the US. If the US were to end the blockade
and normalize relations with Cuba, what would Cubans have left to live for? To suffer for?

Ted, Michael and I all agreed that the best chance for Cuba to adopt our
reform would occur after Castro's reign has ended. Castro's so-called
revolution has long been frozen in suspended animation. For instance,
Castro will not entertain the prospect of diversifying the sugar economy
despite the precipitous drop in world sugar prices--because sugar
agriculture has been fundamental to the cultural and social fabric of
rural Cuba for centuries, ever since the plantations were worked by
slaves. A change now would damage the sturdy Cuban character!

Regarding the possibilities of an opening to our ideas, a friend of Michael’s
(Bob Stone, a professor at Long Island University, and head of the Radical
Philosophy Association which sponsors frequent meetings in Cuba) had
put us in touch with a dissident who had
been expelled from the Communist Party and fired from his job teaching
philosophy, in retaliation for his views that agriculture should be based on
co-ops rather than on state-owned collective farms. He urged a more market-
oriented allocation of resources in place of the present exploitative
state-oriented structures. Our discussion made it clear that for the time being,
Cuban policy was set almost uniquely by Castro. The middle and lower levels
of the bureaucracy do not have much initiative left. It seems that everyone is
simply waiting for Castro to pass on for a discussion of new ideas to take
place. When it comes, it is unlikely to come from the existing party
bureaucracy. There may be the kind of intellectual vertigo that has occurred
in Russia since 1990. This is both a limitation for the time being, and an
opportunity to get our ideas into circulation for the time when a real policy
debate is possible. Our common impression was that Fortunately, there are
educators and ranking members of the political establishment who recognize
the limitations of Castro's worldview and who
are willing, even eager, to hear about the Georgist alternative.
Kris Feder

Friday, July 03, 2009

Shut Down US Bases

Empire of Bases

How many military bases does the United States have in other countries?

According to the Pentagon's own list, the answer is around 865, but if you include the new bases in Iraq and Afghanistan it is over a thousand. These thousand bases constitute 95 percent of all the military bases any country in the world maintains on any other country's territory....

The old way of doing colonialism, practiced by the Europeans, was to take over entire countries and administer them. But this was clumsy. The United States has pioneered a leaner approach to global empire. As historian Chalmers Johnson says, "America's version of the colony is the military base." The United States, says Johnson, has an "empire of bases."

Yet those foreign bases seem invisible as budget cutters squint at the Pentagon's $664 billion proposed budget....

It is also inevitable that, from time to time, U.S. soldiers--often drunk--commit crimes. The resentment these crimes cause is only exacerbated by the U.S. government's frequent insistence that such crimes not be prosecuted in local courts. In 2002, two U.S. soldiers killed two teenage girls in Korea as they walked to a birthday party. Korean campaigners claim this was one of 52,000 crimes committed by U.S. soldiers in Korea between 1967 and 2002. The two U.S. soldiers were immediately repatriated to the United States so they could escape prosecution in Korea. In 1998, a marine pilot sliced through the cable of a ski gondola in Italy, killing 20 people, but U.S. officials slapped him on the wrist and refused to allow Italian authorities to try him. These and other similar incidents injured U.S. relations with important allies.

The 9/11 attacks are arguably the most spectacular example of the kind of blowback that can be generated from local resentment against U.S. bases. In the 1990s, the presence of U.S. military bases near the holiest sites of Sunni Islam in Saudi Arabia angered Osama bin Laden and provided Al Qaeda with a potent recruitment tool. The United States wisely closed its largest bases in Saudi Arabia, but it opened additional bases in Iraq and Afghanistan that are rapidly becoming new sources of friction in the relationship between the United States and the peoples of the Middle East....

U.S. foreign bases have a double edge: they project American power across the globe, but they also inflame U.S. foreign relations, generating resentment against the prostitution, environmental damage, petty crime, and everyday ethnocentrism that are their inevitable corollaries. Such resentments have recently forced the closure of U.S. bases in Ecuador, Puerto Rico, and Kyrgyzstan, and if past is prologue, more movements against U.S. bases can be expected in the future. Over the next 50 years, I believe we will witness the emergence of a new international norm according to which foreign military bases will be as indefensible as the colonial occupation of another country has become during the last 50 years.

The Declaration of Independence criticizes the British "for quartering large bodies of armed troops among us" and "for protecting them, by a mock trial, from punishment for any murders which they should commit on the inhabitants of these States." Fine words! The United States should start taking them to heart.

No sovereign country worthy of the name would tolerate the presence of foreign troops on its own soil except in a dire emergency, ie imminent threat of invasion.

Thursday, July 02, 2009

Superannuation Bubble Bursts


Super Ratings managing director Jeff Bresnahan said yesterday median balanced superannuation investments which are the most common lost 13per cent in the just-finished financial year.

This was the largest fall since compulsory superannuation was introduced in 1992, the second consecutive annual loss after 2007-08's -6.4per cent, and just the third time annual investments have gone backwards.

These losses effectively meant ''no one has earned anything on their super since January 2006''.

The result was not pretty, but also not surprising.

It also could have been worse if the stockmarket had not begun to recover.

''Since the beginning of March, [superannuation investments] have picked up about 6 or 7per cent,'' he said.

''At one point they were down around 20per cent, so in essence, there has been a minor recovery. ... It could have been a lot uglier than it ended up.''

However, Mr Bresnahan pointed out superannuation investments had not fallen as far as the stockmarket, and said they were holding up in the longer term.

The Australian All Ordinaries suffered its biggest fall in 27years in the past financial year, and the fifth biggest on record, losing 26per cent.

''Since the inception of compulsory super the average annual return has been 6.7per cent. The average [inflation] over the same period has been 2.7[per cent]. So super funds have been quite consistent in their objective of [inflation] plus 3-3.5per cent, on a medium to long-term basis,'' he said.