Continuing my diary series on the history of supra-national corporations. This is the draft manuscript of a book I am working on, which I am posting as it is written.
Part One, if you missed it, can be found here:
Part Two is here:
Part Three is here:
Part Four is here:
Part Five is here:
Part Six deals with the post-war period and the 1950's.
As always, I welcome any comments or criticisms.
(c) copyright 2010 by Lenny Flank, all rights reserved, etc etc etc
Seven: The Organization Men
At the end of World War Two, the United States stood as the only world power with an intact economy that had not been bombed out or invaded. The US could, had it chosen, have exercised military domination over all of Europe. But it didn’t—it didn’t need to. Its corporations already gave the US overwhelming economic power, leaving the de facto global political position of the United States unmistaken and unchallenged. Only the Soviet Union, with its closed economy and its now-massive military to defend it, remained invulnerable to the overwhelming power of dollar diplomacy.
But the Great Depression and the war had also lead to the death of the entire laissez-faire ideology. No more would the unchecked power of the corporations be allowed to lead everyone to economic disaster. Even the corporations had now been forced to acknowledge that another great depression would be fatal for them, and that it could not be avoided in the long term without a carefully managed “mixed economy”, where corporation, state and labor were all brought together in a “welfare state”. The new consensus was called “Keynesian economics”, after the British economist John Maynard Keynes. Under Keynesian policy, the priority of the government was to prevent crippling levels of unemployment by using government spending to modify the economy. In times of overproduction, the role of the government is to increase demand by deficit spending, pumping more money into the economy. In times of inflation, the role of the government was to raise taxes and decrease demand.
In Europe, the “welfare state” created by the social democratic parties led to a wave of nationalizations and massive social programs, and one of the primary aims was to equalize the distribution of wealth. Corporate power was sharply limited.
In the United States, however, nationalization was politically impossible—the American labor movement had never had the strength that the European unions did, and it was the American corporations, not the unions, who set the agenda—and the only aim of the welfare state in the US was to provide a minimal safety net, not to equalize or redistribute wealth. A series of social programs were soon in place—Social Security gave pensions to Americans over 65; unemployment insurance protected workers who lost their jobs; workers compensation helped workers who were injured on the job.
In the US, these were basically set up as subsidized insurance programs, where people generally got out what they paid in; in Europe, however, where the labor movement was much more powerful, the social democratic “welfare state” was set up in the basic form of government-run public utilities. As a result, the European social democratic structures became so firmly entrenched that the corporations were never able to make any serious dent in them, and they remained a solid bulwark against laissez-faire corporatism for the next 50 years. In the US, the social safety net never became as well-entrenched, and always existed at the whim of powerful economic and political interests. The situation was best illustrated by a Canadian prime minister who would later point out that in the US there was no major political party that was far enough to the left to call for socialized medicine, while in Canada there was no major political party that was far enough to the right to call for dismantling it.
In the postwar period, it was also recognized that international conflict on the scale of 1939-1945 could be avoided only by an international structure in both the economic and political spheres, in which, it was assumed, the United States would play the dominant role.
As early as the Tehran Conference in 1943, the US, UK and USSR announced their intention to form a new international body to replace the ineffectual League of Nations. In 1944, the five Allies—the US, Britain, France, the Soviet Union and China—met in Washington DC to plan the structure of the United Nations. The UN was officially established in October 1945.
Despite all the postwar talk of international democracy and egalitarianism, the new United Nations was (and remains) fundamentally undemocratic. The UN General Assembly, a sort of legislative body, could pass resolutions by majority vote, with each nation, large or small, receiving one vote. The primary power in the UN, however, lay in the Security Council, and here it became readily apparent who the UN’s structure was intended to benefit. All five of the major Allies—the United States, Britain, France, Russia, and China—had permanent seats on the Security Council, with a handful of other seats to be decided by election. Further, each of the permanent members was given the right to exercise unilateral veto power over the rest of the Security Council. Despite all the democratic trappings, then, the United Nations was in reality an instrument through which international power could continue to be controlled and directed by the Allied Powers, and, particularly, by the United States.
The economic structure of the new global Pax Americana, meanwhile, was laid out at a place called Bretton Woods. In July 1944, a panel of 730 delegates from 44 nations met at Bretton Woods, a resort in New Hampshire, to plan out the economic structure of the postwar world.
International Monetary Fund (IMF)
Only two of the delegations, from the United States and Britain, actually mattered. They had already met bilaterally and drew up a plan for controlling currency fluctuations, and this plan served as the basis for the International Monetary Fund which was adopted at Bretton Woods. Prewar governments had often used currency devaluations to makes its exports more desirable and thus gain a more favorable balance of trade. In addition, much international trading tended to be done in “currency blocs”; while nations that used British currency traded easily, there tended to be limited trade between nations using British currency and nations using French francs or American dollars. The IMF system was designed to make all the world’s currencies freely interchangeable and make expanded international trade easier. This was particularly important for the American corporations, which were already beginning to saturate their home market and were now eager to move into the European and Asian markets. In particular, the US wanted access to the markets of the British empire.
The IMF set the various international currencies at fixed rates of exchange that were based on the value of gold and of the US dollar (dollars being the only currency that was convertible into gold). In order to deal with temporary imbalances, governments were give authority to alter the exchange rate of their currency by up to ten percent. The IMF, however, kept tight control over the process, to prevent the recurrence of crippling currency wars. Nations were required to adjust their fiscal policies so as to keep the value of their currency within IMF guidelines.
One of the primary causes of the World Wars, the Bretton Woods delegates concluded, was the development of trade blocs and “neo-colonies”, in which rich nations staked out exclusive claims to particular areas and defended them from encroachment. As an American delegate noted, “The absence of a high degree of economic collaboration will . . . inevitably result in economic warfare that will be but the prelude and instigator of military warfare on an even vaster scale.” To end this, the delegates decided on an international “free trade” policy, opening up all nations to trade with any other nation by eliminating, as far as possible, protectionist practices such as high tariffs or trade barriers. As nations traded with each other more and more freely, the delegates hoped, the motives for predatory wars would decrease.
It was no coincidence that the value of every nation’s currency was pegged to the value of the US dollar; at every turn, the IMF system emphasized and embraced the dominant economic position of the United States. Both England and France made vigorous efforts to maintain their own national interests, but in the end the US got virtually everything it wanted.
The next task taken up by the Bretton Woods conference was that of economic aid, first to the countries that had been devastated by the war, and later for all of the poorer and undeveloped nations. This program was called the International Bank for Reconstruction and Development. Later, the IBRD was merged with several other international programs and was renamed the World Bank.
The seed money for the World Bank came from contributions made by the original 45 members. After that, financing came by issuing its own bonds in the world financial markets, and by recycling the money from repaid loans into new lending. The IMF makes loans only to national governments or to publicly-owned utilities. It also provides a number of monetary grants. Its first loan was $250 million to the government of France for reconstruction. As the war-torn nations recovered in the post-war period, the World Bank turned its emphasis towards large-scale development products in the Third World, such as airports, seaports and infrastructure. These funds became particularly important for the newly-formed nations that began appearing during the decolonization wave of the 1950’s and 60’s.
Like the United Nations, the World Bank’s structure guaranteed American control. Member states had varying numbers of votes, depending on the size of their economy, and major decisions require a “supermajority” of 85%. Since the US held around 17% of the total votes, this guaranteed that nothing could be passed without the cooperation of the United States.
Traditionally, the president of the World Bank has always been an American, while the president of the IMF has always been a European.
General Agreement on Tariffs and Trade (GATT)
As part of its effort to remove trade barriers, the United Nations proposed an International Trade Organization (ITO) that would administrate and enforce an agreed-upon set of agreements on tariffs and trade regulations. When the United States refused to accept the ITO, however, negotiations went ahead anyway on a multilateral GATT treaty, and in 1948 agreement was reached by 23 countries to set tariff rates and trade regulations for items making up over $10 billion in trade—half of the entire world’s total. Over the years, a number of international conferences took place to revise and update the GATT agreement.
In the late 1980’s, the World Trade Organization (WTO) was formed to provide an international enforcement mechanism for the GATT—the WTO became an enormous influence on the rise of the supra-national corporation.
The initial plans made by the victorious Allies called for a harshly punitive attitude towards Germany and Japan. The Morganthau Plan, introduced by the Americans at Potsdam, would reduce German industry by half, transforming it into an agricultural country and removing its military capabilities. Some 1500 German industrial plants were to be destroyed. In Japan, the zaibatsu were to be destroyed and Japan’s industries were to severely crippled.
These plans were quickly modified, however, as the Soviet Union began grabbing up territory. Lithuania, Estonia, Latvia, and parts of Poland and Finland were incorporated directly into the USSR. The eastern European states of Czechoslovakia, Poland, Hungary, Romania, Bulgaria and the Russian-occupied areas of East Germany were turned into puppet states dominated by Moscow. The Cold War was on.
In France and Italy, the Communist Party had played a central role in the underground Resistance to Nazi occupation, and it now enjoyed a measure of influence in the postwar political landscape. In Yugoslavia, Tito’s communist partisans had actually succeeded on their own in driving the Nazis out, and now assumed total control. And in Allied-occupied Germany, the hunger and privation resulting from the war were leading to a revival of the once-strong communist movement that had been destroyed by Hitler’s secret police. Most of Europe, the Allies realized, was in serious danger of falling to the Communists.
As a result, the plans calling for the de-industrialization of Japan and Germany were shelved. Instead, they would be re-armed to play a role in the Cold War. In May 1947, the United States announced a policy, known as the Truman Doctrine, of containing Soviet expansion and of defending any state that the Russians might attempt to move into. Germany’s strategic position in the center of Europe required that it be strengthened as an American ally. A Joint Chiefs of Staff report concluded that “An orderly and prosperous Europe requires the economic contributions of a stable and productive Germany.”
The following month, the US announced the Marshall Plan. This was a massive loan program from the United States, independent of the World Bank, eventually totaling $12.4 billion, to be used for economic redevelopment. Marshall Plan money was ostensibly open to all European nations, but, predictably, the Soviet Bloc refused to participate. The underlying political purpose of the Marshall Plan is illustrated by the fact that Germany, which held a strategic position in the Cold War, got massive amounts of aid under the Plan, while Japan, which was less strategic, did not receive any. The first loans under the Plan were made to Turkey and Greece, both of which were at the time engaged in fighting Soviet-backed communist guerrillas.
Recipients of Marshall Plan money were also required to sign bilateral trade agreements with the US, restricting tariffs and trade barriers, and agreeing to political steps which would balance their budgets and produce internal financial stability. And since Marshall Plan loans were made in US currency, it helped establish the dollar as the standard exchange medium for international trade.
By 1952, European industrial production was at 35% above its prewar levels. Much of the new productive capacity was going towards military weapons. In 1949, the United States and Western Europe formed the North Atlantic Treaty Organization (NATO), a diplomatic and military alliance to defend against any Soviet invasion of Europe. Spain, which under the dictator Franco had sat out World War Two as a neutral, did not receive any Marshall Plan money, but in 1952 Franco’s staunch anti-communist stance made him welcome in NATO. And Japan, which had not received any Marshall Plan aid, suddenly, after the outbreak of the Korean War in 1950, became the recipient of large amounts of American military and economic largesse. The Toyota Corporation, in particular, was a beneficiary of several US Army contracts to produce trucks. During the Korean War, Japan received more money from the US than any European nation had under the Marshall Plan.
The Soviet Bloc
Within the empire it had seized in Eastern Europe, the Soviet Union attempted to build its own counter-institutions. Economic cooperation was imposed by the Communist Economic Council (Comecon), which functioned largely to drain industrial capacity out of Eastern Europe and send it to the USSR. East Germany, especially, was made to pay “reparations” to the USSR.
Under the Warsaw Pact military alliance, Soviet troops were placed in Eastern Europe to defend the USSR from NATO as well as to keep the satellite states in line. Anti-Soviet rebellions in East Germany in 1953, in Hungary in 1956, and in Czechoslovakia in 1968, were all put down with Russian troops.
The Cold War
The Cold War began in earnest in 1948, when the Soviet Union attempted to gain control of West Berlin (the city of Berlin lay deep inside the Russian-occupied East Germany, but the city had also been divided into Soviet and Allied zones). Stalin imposed a series of roadblocks around West Berlin, cutting off its access to West Germany and halting its shipments of food and fuel. In response, the United States organized a series of airlifts that flew supplies daily into the city, and the Russians, who did not want to start a war by forcing down the planes, watched helplessly as the Berlin Airlift kept the city alive for almost a year. Stalin gave in and allowed rail and truck shipments to resume.
The Cold War raged on for the next forty years. For the most part, it was a war of proxies, in which the two superpowers preferred not to involve themselves directly. But the United States sent its own combat troops into Korea and Vietnam, while the Soviet Union directly invaded Afghanistan. The Russians and Americans’ only direct conflict with each other was the 1962 Cuban Missile Crisis.
Essentially, the Cold War was a race to see which side could bankrupt the other first through absurdly high levels of military spending, a form of economic warfare in which neither side wanted a military confrontation but both sides were forced to spend ever-higher amounts to be prepared for it anyway. That was a race that the much weaker Soviet Union could not win, and in 1989, the Soviet empire collapsed and the Cold War ended. The US became the sole remaining military superpower. It had, of course, always been the world’s economic superpower.
The 1950’s and 60’s were the Golden Age for American corporations. They had utter dominance of the entire world economy and virtually no foreign competition. The money flowed in at stupefying rates. America’s gross national product went from $200 million in 1940 to $300 million in 1950 to $500 million in 1960. The US had only 6% of the world’s population, but consumed 33% of its wealth.
And not just the corporations were better off. Government war bonds began to mature, placing more money in the hands of the population. The union members enjoyed their most prosperous years ever, as they traded labor peace for a bigger share of the corporate pie. This also trickled over into higher wages for non-union workers. Benefits such as paid vacations, paid sick days, and private pension plans became widespread. Consumerism became an American pastime, as more pay and more leisure time led Americans to indulge in everything from TV sets to new homes in the suburbs—made possible by the extensive highway network and the booming production capacity of Ford and General Motors. And it all came from the corporations. Indeed, according to the famous legend, GM executive Charles Wilson remarked, during Congressional hearings for his nomination as Secretary of Defense, “What’s good for General Motors, is good for America.” Eight out of nine Eisenhower cabinet members were corporate millionaires—three of them from GM. The American Government was turning into a wholly-owned subsidiary of Corporate America.
In 1956, a sociologist named William H Whyte interviewed a number of leading businessmen and corporate officers, then published a book titled The Organization Man. It became a massive best-seller and is still a classic study of the business world. Whyte described a corporate world of stultifying conformity, where individual humans didn’t matter, where the lives of faceless colorless identity-less interchangeable pawns were entirely subsumed by The Organization. “This book is about the Organization Man,” Whyte wrote. “If the term is vague, it is because I can think of no other way to describe the people I am talking about. They are not the workers, nor are they the white-collar people in the usual clerk sense of the word. These people only work for The Organization. The ones I am talking about belong to it as well. They are the ones of our middle class who have left home, spiritually as well as physically, to take the vows of organization life, and it is they who are the mind and soul of our great self-perpetuating institutions.” In the America of the corporate age, Whyte noted, obedience was expected to be total, individuality was scorned, and conformity was the highest virtue. One’s only aim in life was loyalty to the greater glory of The Organization. After all, the very purpose of a corporation was to subordinate individual wills to an impersonal faceless artificial organization.
In this conservative businessman’s paradise, a puritan level of conformity was the ideal. Business owners administered “personality tests” to potential employees to weed out those who might bring “trouble”. In the entertainment industry, “standards and practices” departments scrutinized every page of text and every frame of film to insure nothing “shocking” ever appeared. In government, elections were always held between two affable middle-aged well-off white men in plain grey suits and narrow black ties who pretty much saw the world in the same way. And in the majority of cases, they were both from the corporate world.
The best reflection of the mindset of the corporate Organization Men was Joseph McCarthy. The junior Senator from Wisconsin waged a relentless campaign of fear and intimidation. His ostensible target was “communists”, but in reality, the communist movement in the US was miniscule, barely 1,500 members—and many of those were FBI informants. McCarthy’s real enemy was noncomformity of thought. It was no coincidence that the majority of his victims were authors, musicians, scientists and, above all, actors and filmmakers. McCarthy’s puritan campaign of ideological conformity was soon taken to absurd lengths. The baseball team Cincinnati Reds changed their name to the “Redlegs”. “Loyalty oaths” were required of everyone from teachers to policemen. In Illinois, local politicians banned the book Robin Hood from libraries because its message of “rob from the rich and give to the poor” was “communistic”.
But the rampant McCarthyist Red Scare of the 1950’s and the Cold War, like the earlier Red Scare in the 1920’s, served useful political and economic purposes for the corporations. The Red Scare insured that the labor movement, now safely docile and obedient, would remain that way. It gave legal and moral cover to efforts to squelch any domestic political criticism of the existing corporate social order or its effects, by labeling them as “disloyal”. For many industries, such as aviation, electronics, or mechanized vehicles, the bloated military budgets that continuously grew throughout the Cold War offered the opportunity for enormous profit (by 1960, defense expenditures made up half the US budget, and by 1970 the Defense Department’s assets were larger than the 75 richest US corporations). And, perhaps most important of all, the Cold War gave a political excuse for a militaristic and jingoistic foreign policy that allowed the corporations to crush any foreign opposition to America’s global economic dominance, and then justify it by yelling “Communist!”
One of the earliest examples of using the unity of the corporate economy and the corporate state to crush economic opposition (while justifying it with an anti-communist political excuse) was the 1954 overthrow of the elected president of Guatemala, Jacobo Arbenz.
Guatemala was one of the original “banana republics”, the mocking nickname for all the small states in South America that had become dominated, politically and economically, by the powerful American corporations, and had been turned into single-commodity economies, exporting tin, or coffee, or copper, or bananas, for the American market. In Guatemala, the corporation was the United Fruit Company (forerunner of Chiquita Banana), which had established friendly relations with the military dictator General Jorge Ubico in the 1940’s. The company had extensive ties to American political and industrial figures, and in exchange for political favor, Ubico allowed United Fruit free reign. Soon, along with a small wealthy elite of pliant Guatemalans, the company was the largest employer in Central America, controlled much of Guatemala’s arable land, and had enormous influence on its internal politics. Guatemala was a virtual colony, with 85% of its exports, mostly bananas, going to the US. Although United Fruit had huge holdings all over Central America, 25% of its profits came from Guatemala. It was estimated, meanwhile, that just 2.2% of the Guatemalan population owned 70% of all the arable land (most of it producing bananas for United Fruit). The poorest 90% of the population was trying to live on only 10% of the arable land. Worse yet, in an agrarian country where poverty and starvation was rampant among the rural population, only 12% of the elite’s land was actually being cultivated—too much supply, they reasoned, would depress the price of bananas.
In 1944, a revolt overthrew General Ubico and, in the country’s first democratic elections, Juan Jose Arevalo was elected President. Arevalo passed laws requiring better treatment of agricultural workers, and also supported democratic movements to overthrow the military dictators in Nicaragua, Costa Rica, and the Dominican Republic. In 1950, elections were held again, and Jacobo Arbenz, an Army Captain who had helped overthrow Ubico, was elected President.
In 1952, Arbenz passed a land reform program that was intended to give land to the poor rural populations, allowing them to grow their own food. And in March 1953, the Guatemalan government took possession of the uncultivated land held by the United Fruit Company, paying the company compensation for it at the value that the company had itself provided for tax purposes. United Fruit, somewhat disingenuously, complained that the land was far more valuable, and cried to the US Government. Here, they found a sympathetic ear—Allen Dulles, the head of the CIA, was a board member of the United Fruit company, and the Secretary of State, his brother John Foster Dulles, was a major stockholder and a member of the law firm that had represented United Fruit.
The US Government, convinced that Arbenz was a Communist who was acting on orders from Moscow, planned a coup. An army of 4,000 Guatemalans under Colonel Carlos Castillo Armas was trained in Florida by the CIA, and, with US Navy support, they invaded Guatemala in 1954. Arbenz fled into exile in Mexico, and the fledgling Guatemalan democracy was replaced by another military dictatorship. By the 1980’s, the US-supported military government in Guatemala had one of the worst human rights records in the world.
The “anti-communist” coup that had the longest-lasting effects on the United States, however, was the 1953 overthrow of elected Iranian Prime Minister Mohammed Mossadegh. It was one of the turning points in what would become a half-century of oil politics in the Middle East.
The history of oil in Iran goes all the way back to 1908, when the Burmah Oil Company, a Scottish corporation, struck oil in what was then called Persia, and formed the Anglo-Persian Oil Company. A refinery was built in Abaden in 1913, which would be the largest refinery in the world until the 1960’s. Renamed the Anglo-Iranian Oil Company after Persia became Iran, the orporation was the single biggest British foreign investment in the world.
By 1951, the Iranian government was demanding a larger share of the oil profits, particularly after the Arab-American Oil Company (Aramco) negotiated a 50-50 split with Saudi Arabia. Iran now demanded a 25% share of Anglo-Iranian profits, and was refused. In March 1951, the Iranian parliament, the Majlis, voted to nationalize the company and all its holdings, and elected Mohammed Mossadegh as Prime Minister. Mossadegh championed the nationalization, arguing that “With the oil revenues we could meet our entire budget and combat poverty, disease, and backwardness among our people. Another important consideration is that by the elimination of the power of the British company, we would also eliminate corruption and intrigue, by means of which the internal affairs of our country have been influenced.”
The American government decided that Mossadegh was a “communist”, and a plan was launched to overthrow him. In 1953, with help from the British government, a coup was organized under the leadership of General Fazlollah Zahedi, who rolled his tanks into Tehran and arrested Mossadegh.
After the coup, the Iranian government formed the National Iranian Oil Company as a state monopoly, then granted 50% of the oil revenues to a consortium made up of Exxon, Chevron, Gulf, Mobil, Texaco, the Anglo-Iranian company (which later changed its name to British Petroleum), the Royal Dutch Shell company, and the French Petroleum Company.
With US support, the Shah of Iran assumed total control of the country, and, with the help of his SAVAK secret police, ruled Iran as a hated dictator until he was overthrown in 1979 by the Ayatollah Khomeini’s Islamic Revolution, leading directly to the rise of fundamentalist Muslim terrorism.
By 1965, the American corporations were at the top of the world. The US government protected corporate interests as their own. The international organizations were mouthpieces for the United States. The American public, it seemed, was docile and content to live in a consumerist paradise. Fat, happy and unchallenged, it seemed that the corporate world couldn’t possibly get any better.
But the entire corporate world was about to be turned upside down—by a bunch of long-haired college kids.