Neoliberalism Part 3: Where is Paul Volker

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.

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Episode Transcript

Speaker 1 (00:04):
Welcomed it could happen here a podcast about things falling apart,
how they came to be that way. I'm your host,
Christopher Wong, and today we're to impart three of our
series of Neoliberalism. We're gonna start today with one of
the most famous episodes in his history of neoliberalism, September eleventh,
three coup against Salvador Allende. Allende was a democratic socialist

(00:26):
of a type that has broadly ceased to exist today.
A committed Marxist to believe that 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 than 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

(00:48):
humanly possible. In part, his hand was forced by Chile's workers,
who had embarked on their own unsancitioned campaign of takeovers
of minds and factories, which I Andy disapproved of, and
now ought to bring under the national planning scheme. To
do this, he brought in British cybernetics theorists Stanford Beer,
who embarked on an operation called Project Cybersen to collect

(01:10):
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.
All End, for all of Bark's credentials, was fiercely critical
of the bureaucratization of the USSR, and in particular in

(01:31):
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. Cybersen 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. Strike

(01:53):
by right wing truck workers backed by capitalists in the
CIA in nine two threatened to grind the nation to
a halt. In response, workers formed enormous coodonas industrialities or
industrial belts to help self organized production and bypass the
striking right wing workers. In coordination with the Andia's government
and a new cybers In control room, they were able

(02:13):
to outmaneuver the strike and maintain production and distribution and
nearly full capacity by tracking where goods were going and
where they needed to go along what roots. Beer rapidly
became convinced that quote, the basic answer of cybermntics to
the question of how the system should be organized is
that it ought to organize itself, in essence, that cybersen

(02:34):
should be used to eliminate the bureaucracy in the state
entirely and allow workers to directly organize production themselves. Now,
cyberson in theory is what the near leribals claim, at
least in public, to want, is an anti bureaucratic system
that uses the centralized control over the means of production
to combat totalitarianism and ensure that the state respects individual
rights and liberties. In fact, as if Vengie Monro's put it,

(02:58):
Pierre and hiek knew each other. As Beer noted in
his diary, Hayek even complimented him on his vision for
the cybernetic factory after Beer presented at a conference in
the nineteen sixty in Illinois. So, naturally, when the system
was actually implemented, at least in part in Chile, the
new liberal position was that every single person involved in
the entire economic exparment needed to be killed. Chile was

(03:19):
put under economic blockade by the U S and multinational
corporations with full and neleable support, an ironic position given
Milton Friedman Hyak and Rope case, pure and absolute opposition
to economic blockades of South Africa Rhodesia to its eternal shame.
The a f L C i O S American Institute
for Free Labor Development provided training and funds to the
right wing unions that opposed the leftist government and others

(03:42):
across Latin America. In Chile, working directly with the CIA,
the a f L C i OS organizations to train
the right wing truckers. Here's nineteen seventy two strike we've
already discussed, and he was nineteen seventy three 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 seventies battling their own left flank in defensive capital.

(04:05):
The reward for their services was capital turning around and
dutting them like a fish. In the eighties, two fought
a series of battles with his left flank. Disarming the
mass workers assemblies that had formed in nineteen seventy two
could have saved him from the coup. The results was
the other nine eleven, on which day in nineteen seventy three,
the military overthrew Allende and a coup, and Allende shot
himself in the presidential palace. The man who would emerge

(04:28):
on the top of the power struggle in the military
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 they 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

(04:48):
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 debated, and in nineteen
seventy four Milton Friedman arrived in Chile to argue for
neoliberal shock therapy. But it wasn't until Pinochet's desperation from

(05:08):
money drove him to the I m F that he
would fully embrace neoliberalism. Most of the world had refused
to do business with new dictatorial regime, with the exception
of the U S and oddly enough Mao's China, which
poured money into the regime and Pinochet's personal pockets. But
that money was insufficient, and the i m F was
the only remaining body who would actually lend money to

(05:28):
Pinochet without any requirements on improving Chile's at this point
a bismo human rights record. Much of the full neoliberal
turn that hit Chile in nineteen seventy five came from
demands from the i m F itself, who Demandedconian measures
to control inflation. Here, Pinochet was aided by the supporter
of the neoliberals, whose legitimacy and academic standing allowed them

(05:50):
to negotiate and secure favor from the I m F,
which they had already begun to infiltrate. At this point,
the infamous Chicago Boys, economist trains at the University of
Chicago by Milton Friedman, were put in charge of the economy.
University of Chicago trained economists. Sergio di Castro, known as
the Pinochet of the Economy, was put in charge of
the ministry of economics. The Castro privatized an enormous portion

(06:12):
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 dele and pension system with
the exception of the military, which is a good education
of any as to what the regime thought the actual
effects of privatization would be. In nineteen Pinochet declared something

(06:37):
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 deliberalism.

(07:00):
The Virginia School the people behind public choice theory. Their
thing is essentially taking the absolutely absurd set of beliefs
Chicago School holds about people humans are all knowing, rational,
calculating gods, optimizing their behavior to get the most 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

(07:23):
to vote, because if you're a rational, self interested person,
the cost of voting outweighs that benefit because your vote
only matters if a deciding one. 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 as the society is humanly possible, with

(07:45):
the goal of transforming it into a market I'm going
to read a section from the Road to Mount Pelion
describing Virginia School titan James M. Buchanan's work. Quote Ineffectual
consequences in the political market place were blamed solely the
fallacies of political decision making. Quote. We can summarize public
choice as a theory of government failure end quote. Buchanan

(08:08):
delivered a highly abstract paper titled limited or Untitled Democracy
to the Montpellion Society in Vina del Mar in Chile,
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

(08:31):
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 deep politicize the
state in order to enable unconstrained 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

(08:52):
theoretical support for the regime even if it did not
openly endorsed the authoritarian rule. Jucanan, of course, would spend
a bunch of time doing lectures in Chile throughout pinochet icatorship,
but he was not that regime's most vociferous neoliberal supporter.

(09:15):
That award goes to Frederick Hyak. Chris Hiek, when asked
about Chile, which had been to Night that blessed with
his approval quote, A dicatorship can restrict itself in A
dicatorship which deliberately is restricting itself can be more liberal
in its politics than a democratic assembly which has due limits.
Chile's eighty Constitution was drafted in part by one of
Yek's friends, Chars wrote Road about Pelion Again, the Constitution

(09:40):
was not only named after hys book The Constitution of Liberty,
but also incorporated significant elements of hias 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

(10:00):
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 a necessity of a strong central state

(10:20):
authority to guarantee the established rule of law, and thus,
above all else is hampered in the application of discretionary
government power. Exempted were measures to uphold the status quo,
inasmuch as Goosebon aggressively supported continuing the state of emergency,
which legalized the use of whatever discretionary powers were deemed necessary.
Quial opposition that Folks is a high achi in Constitution

(10:44):
used the state to murder any one once democracy or
God help them, wants to control the production their forced
to serve every day. Chile is near liberal lousitions vultron
by com binding the power of all four major schools
of neoliberalism Chicago School and Monetary and Economic policy, Austrian
School Constitutional order order, liberal reliance on the international bureaucracy

(11:05):
and legal institutions like the i m F in order
to promote a market economy, and Virginia School 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 will
cover the neoliberal kind of revolution in the angle sphere.

(11:27):
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 Coren Neil in his book The Magical State,
which I highly recommend as one of the best things
that are written about oil and the Venezuelan state. So

(11:50):
readers be warned. Chapter one is an absolute slog that,
on the one hand, is one of the most interesting
explanations of what oiler rents are have ever encountered, but
also features Coreneal 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 one now the guiding principles of the new mass capitalists,

(12:12):
democratic parties and posted statorship. Venezuela since the nineties sixties
had been developing sovereignty by economic independence. The keystone of
this project was an attempt to use the power of
the state in new oil rents to develop an automotive industry.
The project has sort of stalled out from its origins
in the sixties until the rise of the G seventy
seven Opeque Alliance in nineteen nineteen seventy four that we

(12:35):
discussed last episode. In nineteen seventy five, Venezuela's Assembly passed
a law that granted the president's special powers to speed
up the developments of the Auto Industry CORP. The Auto
Industry in Venezuela Corinial described it thus quote, The central
goal was to have the vehicle's value, including the drive train,
produced locally. Nive major components would be produced by enterprises

(12:59):
having at LEAs fifty of their capital from local private sources.
Existing foreign companies would have to become mixed or national
firms in accord within 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

(13:20):
country to produce cars for internal consumption instead of importing
them from other countries. The other key of this plan
is Danda Impact, an association of Bolivia, Columbia, Ecuador, Peru
and Chile that was collaborating to develop a regional industrial economy.
That we use local resources to build a local industrial
economy producing industrial goods made entirely inside of the countries

(13:41):
themselves from their resources. Now, Venezuela joins the pact in
nineteen seventy three and Pinochet notably leaves in ninety seven.
The key sticking points in this joint and day Impact
Venezuela attempt to build an auto industry was that Venezuela
needed technology held by multinational corporations in order to act
produced the vehicles. Multinational car companies were willing to go

(14:03):
ahead with the project to build cars in Venezuela in
the short term because they were hurting from the oil shock,
and thus we're willing to help national plans 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 defensive intellectual property rights
becomes extremely important, because the companies who held the patents
for the drive trains essentially had a technological strangleholder for

(14:24):
car developments. Now, Venezuela conducted an extensive bidding process for
companies to make cars in Venezuela, but the car companies
essentially sabotaged it by submitting designs that failed specs. The

(14:46):
result was a kind of political war inside Venezuela and
particularly inside the Venezuela and ruling class, between national developments
and international profits. The Venezuelan developmentalists needed a breakthrough. What
they needed, and that's was new international economic order and
its corporate regulations, debt relief, and technology transfers. Without them,

(15:09):
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 G seven
had to do in order to stop it was stalled
the G seventy seven out until commodity power faded. The
G seventy seven had to fundamentally change the structure of
the economy in order to allow them to industrialize before

(15:30):
the sort of damocles hanging over all their heads the
mounting Third World debt fell and decapitated them. The G
seven strategy to outlast the G seventy seven was to
pull the various factions to the seventy seven 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

(15:53):
peel the so called less developed countries away from their
alliance with OPEC with a 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 U N down by refusing to let any business
get done, refusing to vote for or even vetoing routine matters.

(16:13):
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 Vulcar Shock. In ninety nine,
Jimmy Carter appointed Paul Vulcar as the Chairman of the
Federal Reserve for the broad mandate to do whatever he
wanted to reduce inflation. Vulcar had become a disciple of monitorism,

(16:37):
a Freedman Night 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 Vulcar Shock, was to increase interest rate. This
essentially blew a crater in the American economy and immediately
sent it into recession. And we'll get to Vulcar at
Reagan's efforts to destroy American labor in the next episode.

(16:58):
But the damage to the Third World was even worse.
G seventy seven governments had for decades taking on adjustable
rate loans pecked to something called the libor rate. When
they took the loans out, interest rates were virtually negative,
but when the vulgar shock hit, they skyrocketed. Now, as
we talked about last episode, a major part of the

(17:18):
crisis of the seventies 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 are lifted nineteen seventy, the banks through
the money at loans in the Third World. Now, some
of that money had been put into industrial development that

(17:38):
had yet to pay off. Some of the money had
simply been put directly into dictators bank accounts, but the
bank's essentially didn't care if the loans they were making
had little to no chance of being repaid without some
kind of structure reformed. Because in control of the I
m F fell to an arch neo liberal name Jacquis
de la Rosier. I really don't know if that's how

(17:59):
to pronounced his name, but he is evil. So neo
liberals further took control of the World Bank in nine.
From the I m F and the World Bank, a
secession of new liberals 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

(18:20):
rhetorical slogan, as the G seventy seven imploded as a
political body under the weight of hundreds of billions of
dollars of debt now with interest. Thomas Sankara, the socialist
president of Burkina Fosso, attempted to rally its remains to
collectively negotiate debt relief. Sakara was promptly shot by a
former ally who accused him of threatening Burkina Fossils relationship

(18:42):
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 used the newly neo liberal controlled International Monetary Fund
as their enforcer. The anthropologist David graeber Is write the
consequence of one such IMF austerity program in debt the

(19:03):
first five thousand years quote. 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
Highlight 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 radication programs,

(19:25):
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. Ten thousand people died.
I met young mothers grieving for lost children. One might
think it would be hard to make a case that

(19:46):
the loss of ten thou human lives is really justified
in order to ensure that City Bank wouldn't have to
cut his 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 I m F,
World Bank and other bureaucratic institutions to act as dead

(20:07):
enforcers and the imposed 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 I M F and forced
austerity programs, was implemented by the Jamaican socialist Michael Manly
in nineteen seventy seven, which in a single year wiped

(20:28):
out every gain in education of public health that Madly
had spent his first term building up. Similar faith would
be fall 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 VOLCRA shock government debt skyrocketed

(20:53):
in the nineteen eighties, the government began to impose ims
structural adjustments. Carlos Andres Perez, the man who led the
industrial pushing in the nineteen seventies, was elected a second
time in nineteen eighty nine, 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

(21:15):
the I M f quote a bomb that only kills people,
But Perez was negotiating with the I M F behind
the scenes and imposed even harsher I m F Asteria
measures upon winning the election, leading to a mass uprising
in nineteen eighty nine 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

(21:35):
corruption nineteen, implemented ironically by the founder of the Movement
towards Socialism, Teodoro Petkoff, the head of Venezuela's planning agency
in nineteen ninety six. All of Venezuela's economic crisis from
the nineteen eighties until now stem from the failures of
nineteen seventies industrialization. Without any kind of industrial economy, even

(21:56):
the socialists that took power in the nine on national
level were reduced to shuffling oil rents around, and with
the market economy still in place, the economy is simply
imploded again when the loyal 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

(22:16):
enforced by the international economic system itself and the bureaucrats
the I m F, the World Bank, and the World
Trade Organization. It is imposed by enormous states at gunpoints,
constituted by the mass looting of the population in order
to pay corporate debt. Masters new liberals have effectively achieved
their goal and transcendent democratic politics entirely from their purchase

(22:37):
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 would conclude our Neoliberalism series
with a man rotting in Hell with Paul Bulger Ronald Reagan.
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(22:57):
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