This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
March/April 2019 issue.
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Does U.S. Prosperity Depend on Exploitation?
Dear Dr. Dollar:
I regularly hear the claim that U.S. prosperity *depends* on exploiting poorer countries, but I have never once seen an actual argument for it. What is the support for this claim?
—Ryan Cooper, via Twitter
Let’s start with the two congenital blood stains on the cheek of U.S. economic development—slavery and the genocide/taking-of-lands of Native American peoples. Certainly, the prosperity of the United States has depended to a substantial degree on the labor of slaves, based on stealing people from poor societies, disrupting the social order, and depleting the labor force of those societies. In the decade leading up to the Civil War, for example, the value of raw cotton exports accounted for over half of the value of all U.S. exports. Then there were the direct profits from the slave trade, which built the fortunes of several northern U.S. and European families. And the initial phase of U.S. industrialization, the cotton textile industry, was based on low-cost slave-produced cotton.
As to the economic role of lands taken from Native Americans, the value, though incalculable, was immense. Indeed, some historians have argued that a major pillar of U.S. economic success was the availability of “open land”—the so-called “frontier thesis.” Not to mention that a large part of that “frontier” was the huge tract of land taken from Mexico after the Mexican-American War.
U.S. economic success—from slavery, “open land,” and other aspects of exploiting people of low-income societies—meant different things for different groups. Clearly, for example, southern plantation owners, financiers of the slave trade, and owners of northern cotton mills reaped major gains. Yet, the economic growth that these activities generated seeped down to a broad spectrum of society, benefiting others less than the elites, but benefiting many nonetheless—of course, not including the slaves themselves. Likewise, while large-scale ranchers and land speculators gained disproportionately from stealing the lands of Native Americans, many homesteaders also benefited from “opening” the west. The Native Americans themselves, like the slaves, did not share in the prosperity.
Dependence on Government Support
As with slavery and the decimation of the Native American nations, economic activity beyond the current boundaries of the United States depended on government support, importantly including military support. This was especially evident in the “Gunboat Diplomacy” era in the early decades of the 20th century, when military action abroad was explicitly tied to economic interests, as was famously described and denounced by retired Marine Corp Major General Smedley Butler (see box).
U.S. Economic Interests
and Military Action
Excerpt from a speech delivered in 1933 by retired Major General Smedley Butler, USMC
“I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902–1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.”
As Butler’s statement makes clear, the activities being protected were often those of particular U.S. firms, not the prosperity of the U.S. economy in general. Indeed, in many cases, though the firms benefited, the military costs of the actions outweighed the direct benefits to the U.S. economy. Yet, by protecting the activities of particular firms, the U.S. government was protecting the access of U.S. firms to global markets and resources—that is, protecting the firms’ ability to exploit the people and resources in many parts of the world. This access was driven by U.S. firms’ search for profits and the firms’ owners were the primary beneficiaries. Access, however, also provided low-cost goods—everything from bananas to oil—and markets for U.S. products to the benefit of the U.S. population generally.
At the outset of World War II in late 1939, working with the private, elite Council on Foreign Relations, the U.S. government began planning for the post-war era. According to Laurence H. Shoup and William Minter, in their 1977 book Imperial Brain Trust,
The main issue for consideration [in this planning] was whether America could be self-sufficient and do without the markets and raw materials of the British Empire, Western hemisphere, and Asia. The Council thought that the answer was no and that, therefore, the United States had to enter the war and organize a new world order satisfactory to the United States. For the United States, the outcome of the war was successful, of course, not only in its immediate military goal of defeating the Axis Powers, but also in establishing U.S. dominance and relatively unfettered access to the markets and raw materials of what the planning referred to as the “Grand Area.”
Among the concerns of the planners’ efforts to secure the “Grand Area” was Southeast Asia. In one of their memoranda, they wrote, “The Philippine Islands, the Dutch East Indies, and British Malaya are prime sources of raw materials very important to the United States in peace and war; control of these lands by a potentially hostile power would greatly limit our freedom of action.” Vietnam would later become the focal point of securing this area from a “hostile power.”
The Issue Is Access
The issue in all of this is not the value of some particular resource or raw material. The issue is always access—access that is unfettered by a hostile local government or by costly regulations designed to promote local economic expansion. Since early in the 20th century, access to oil has been a dominant factor in the foundation of U.S. prosperity, and access to oil has often meant political-military dominance of lower-income countries. Access to oil, however, has not meant simply that the United States would be able to purchase the oil produced in other countries, but that U.S. oil companies would be able to play the central role in controlling that oil and reaping the associated profits. Whatever other motivations were involved in the U.S. invasion of Iraq and the more recent actions against Venezuela, oil was certainly a major factor. (See Arthur MacEwan, “Is It Oil?” D&S, May/June 2003 and “Is It Oil?—The Issue Revisited,” D&S, March/April 2017.)
The dominance by U.S. companies of the global oil industry certainly brought profits to the companies. Yet, as the economy became increasingly oil-dependent, oil was relatively inexpensive, providing a major element in the foundation of U.S. prosperity. And much of this oil came from low-income countries. The formation of the Organization of Petroleum Exporting Countries (OPEC) in 1960 did bring about some change, forcing up the price of oil.
Varied Impacts: Countries or Classes?
However, the major oil companies have been able to maintain a great deal of power through sharing more with the elites of some of the oil-source countries. This “sharing” experience with oil, which is common in much of the relation between U.S. firms and the low-income countries in which they operated, underscores the point that it is not quite accurate to say that countries are exploited by U.S. operations. Different social groups—different classes—in the countries are affected quite differently by these operations, some are thoroughly exploited while others benefit.
In the 21st century, the focus of U.S. economic connections to poor countries has shifted somewhat. Markets and raw materials remain important, but low-cost labor and lax (or lack of) environmental regulations have become important as well. All along, financial activity has played a role (see the Smedley Butler box). Access to low-cost labor and avoidance of environmental regulations have often been obtained indirectly, through reliance on local contractors supplying goods to U.S. firms (subcontracting). Walmart is a prime example, but many other firms that have been able to provide to U.S. consumers the inexpensive items produced by low-wage labor.
It is true that many of the workers supplying goods to the United States have better jobs than they had had prior to engagement with the U.S. market. And, on a broader level, some countries have attained economic growth (though its benefits often go disproportionally to elites) from the connection to the U.S. economy. Nonetheless, U.S. prosperity at least in part depends on those workers receiving low wages, often working in unsafe or unclean environments, and denied basic rights. (See John Miller, “After Horror, Apologetics: Sweatshop apologists cover for intransigent U.S. retail giants,” D&S, September/October 2013.)
Moreover, in examining the impact of U.S. firms’ operations in low-income countries, a distinction needs to be made between the immediate and direct impact and the longer run more general impact. The former may carry benefits, as the trade and investment created by these operations can generate some economic expansion and much needed jobs in the low-income countries. Over the longer run, however, U.S. engagement tends to support unequal social structures and a weakening of an internal foundation for long-run prosperity in the countries. Furthermore, the U.S. government, in its role as supporter of U.S. firms’ operations around the world, has often intervened to prevent social change that might have led to real improvements in the lives of people in low-income countries. (The list of interventions that Smedley Butler gives only begins to tell the story.)
Pillars of Prosperity
In addition to the international economic relations between the United States and low-low income countries, there are also extensive economic relations with other high-income countries. Indeed, the majority of U.S. global trade and the majority of foreign investment by U.S. firms is with other high-income countries. This activity does not generally have the same exploitive characteristics as does U.S. firms’ penetration of low-income parts of the world. Both are pillars on which U.S. prosperity has depended.
There are other pillars as well. For example, the relative high degree of education of the U.S. population and the skills that many immigrants brought with them to this country are also pillars of prosperity. But, surely, the exploitation of people in low-income countries has been an important pillar.
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