A poor treatment of complex global issues
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In this polemic Chomsky attacks `neo-liberalism' in international political economy. To that effect, he damns every supranational economic organisation and agreement that he can think of (the IMF, the World Bank, the World Trade Organisation, NAFTA, MAI etc.), charging them with being the agents or instruments of US multinational corporations intent on pillaging the Third World, despoiling the environment, and various other sins. The book is not so much an argument as an expostulation; and it is undermined at almost every turn by extravagant rhetoric and weak reasoning.
International political economy is - like all economics - a discipline about trade-offs and the assessment of costs and benefits. There are various criticisms that can plausibly be levelled at all of the bodies or treaties that Chomsky fulminates against, but it is important in formulating them to have a mind to what these institutions or agreements are designed for. To put mildly, the targets Chomsky denounces are not the same thing and do not pursue the same ends. It serves no purpose and does violence to critical inquiry merely to denounce them all as agents of US big business and of free-market fanaticism. The IMF, for example - a prime villain in Chomsky's account - has received much criticism from the school of free market economists that Chomsky believes it represents. These economists (see, for example, Money and the Nation State, edited by Kevin Dowd & Richard Timberlake, and published by the libertarian Independent Institute in 1998) charge the IMF with creating `moral hazard' in international lending, and wish to see the institution abolished. A different view, which I hold, is that the IMF performs a valuable service in allowing troubled economies a breathing space to sort out their difficulties, as was clearly the case with the `tequila crisis' in Mexico in 1994-5, and in fact ought to be more active in its prescriptions than it has been - consider the case of Argentina's ruinous currency peg, which the IMF was highly sceptical of and ought to have stood out against. There is room for discussion and disagreement about how far the IMF should loosen conditionality for its loans (and I am something of a dove in this respect), but these are inevitable debates about how to make effective a necessary and valuable part of the global economy.
Similarly, the World Trade Organisation has nothing whatever to do with free-market fundamentalism or US big business: it is neither more nor less than a commercial court that tries to eliminate discrimination on grounds of nationality. It is a thoroughly progressive institution whose effectiveness is greatly in the interests of the developing world, as evidenced by its first major ruling when it upheld Venezuela's complaint against a US levy on foreign petroleum producers. The World Bank, which under its current management - much to my regret - has veered very far from the cause of globalisation, went to immense lengths to support Third World socialist projects (such as the `ujaama' projects of President Nyerere's Tanzania), with extremely bad results for the impoverished peoples of the countries concerned.
To subsume these differing institutions, aims and approaches into a catch-all damnation of the machinations of big business is neither a profound nor a reliable guide to the modern global economy. Quite how Chomsky reaches his conclusions is of some interest, however, for it indicates quite a lot about the economic reasoning of the anti-globalisation movement. In short, Chomsky just hasn't acquainted himself with the normative arguments and positive findings of those he attacks; this is just not good enough in a book that aims to scrutinise the global economic order, for economics is a rigorously technical and empirical discipline, and not a matter of opinion. I give just two instances if the book's deficiencies in this respect, but they could be multiplied at great length.
Chomsky attacks the advocates of NAFTA, the North America Free Trade Agreement, for supposedly claiming the it would create jobs. In this, Chomsky has just not understood the point - a very fundamental one - about trade. The basic Ricardian argument for trade does not depend on its effect on aggregate employment (which is virtually unaffected by trade: what matters in the short run is the level of aggregate demand, and in the long run is the so-called NAIRU, or Non-Accelerating-Inflation Rate of Unemployment); trade raises not employment but living standards. The chronic poverty that has afflicted Third World nations like Tanzania under a policy of 'self-reliance' demonstrates the point.
My second instance of the weakness of this book's treatment of economics is Chomsky's throwaway reference to William Greider's anti-globalisation polemic One World, Ready or Not. The Greider thesis that Chomsky has latched on to is that there is excess supply in the global economy owing to workers' not receiving enough to buy the goods capitalism produces. This claim is absolutely untenable in theory and in practice: wages are not set abstractly, but are pinned to the marginal product of labour. To put it simply, an additional dollar of output must represent an additional dollar of income to someone. The only way the `excess supply' nostrum could hold is if you claim that the additional dollar of income goes to someone with a higher marginal propensity to save - and that conclusion requires a study of the facts. This book doesn't trouble with the facts, which are that savings rates in most industrial economies have been falling for years, while in the developing countries they have been growing less quickly than investment demand.
Enough already. Chomsky is not an international economist, and his book is depressingly short on empirical research and economic logic. Indeed the book is almost a logical fallacy itself, for it exemplifies the anthropomorphic fallacy that one may attribute personality - in this case a wicked and grasping avarice - to an abstraction, namely the `capitalist system'. At any rate, it is a poor book that does nothing to enhance its author's reputation in his chosen personal interest - far from his specialist field - of politics and economics.
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