Economic Democracy: The Political Struggle for the 21st Century (4th Edition, 2005)
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The economic system [neo-mercantilism] we are now creating in [Adam] Smith’s name bears a far greater resemblance to the monopolistic market system he condemned ... [and] opposed as inefficient and contrary to the public’s interest ... than it does to the theoretical competitive market system he hypothesized would result in optimal allocation of a society’s resources. –
David C. Korten, When Corporations Rule the World
That unique historian of the Middle Ages, Petr Kropotkin, also recognized a "resemblance" in societies as they evolved towards modern times. At first glance, cities of different cultures may appear different and quaint but the basic structure was the same:
The medieval cities ... [were] a natural growth in the full sense of the word.... Each one, taken separately, varies from century to century. And yet, when we cast a broad glance upon all the cities of Europe, the local and national unlikeness disappear, and we are struck to find among them a wonderful resemblance, although each has developed for itself, independently from the others, and in different conditions.... The leading lines of their organization, and the spirit which animates them, are imbued with a strong family likeness. Everywhere we see the same federations of small communities and guilds, the same "sub-towns" round the mother city, the same folkmote, and the same insigns of its independence.... Food supplies, labour and commerce are organized on closely similar lines [and] inner and outer struggles are fought with the same ambitions.1
The "wonderful resemblance" Kropotkin spotted as such a social positive had a dark side that went on to become a "resemblance to the monopolistic system" that David C. Korten observed in today's world economy. Monopolization through violence and economic warfare is with us today just as in the commerce of the Middle Ages. We will be following those common threads of plunder-by-trade through history, demonstrating that it is the foundation of today's world trade and the cause of immense wealth for the few and impoverishment for the many.
Just as their predecessors fought to appropriate their neighbors’ wealth through raids, the cities of the Middle Ages used their military superiority to monopolize the tools of production, control trade, and make the outlying societies dependent upon their commerce. They were learning to plunder-by-trade. Henri Pirenne and Eli F. Heckscher in their classics on the Middle Ages, and Immanuel Wallerstein in The Origin of the Modern World System, describe the birth of the modern market economy through the monopolization of the tools of production and proto-mercantilist trade imposed and controlled through violence:
Up to and during the course of the fifteenth century the towns were the sole centers of commerce and industry to such an extent that none of it was allowed to escape into the open country.... The struggle against rural trading and against rural handicrafts lasted at least seven or eight hundred years.... The severity of these measures increased with the growth of ‘democratic government.’.... All through the fourteenth century regular armed expeditions were sent out against all the villages in the neighborhood and looms and fulling-vats were broken or carried away.2 The problem of the towns collectively was to control their own markets, that is, be able to reduce the cost of items purchased from the countryside and to minimize the role of stranger merchants. Two techniques were used. On the one hand, towns sought to obtain not only legal rights to tax market operations but also the right to regulate the trading operation (who should trade, when it should take place, what should be traded). Furthermore, they sought to restrict the possibilities of their countryside engaging in trade other than via their town. Over time, these various mechanisms shifted their terms of trade in favor of the townsmen, in favor thus of the urban commercial classes against both the landowning and peasant classes.3
Those simple looms and fulling vats were primitive industrial capital. With this primitive technology the cities could produce cheaper and better cloth and trade these commodities to the countryside for wool, timber, ore, and food. When the serfs came to town and looked at the simple looms and fulling vats it did not take them long to build their own tools and produce their own cloth, leather goods, metal tools, et al.
The loss of the city’s markets for both raw material and manufactured products due to the comparative advantage of the countryside meant impoverishment and possibly even starvation for those in the city who formerly produced that cloth. The same loss of monopoly through increased technological knowledge of the countryside and its natural comparative advantage held true for other products and other cities. The comparative advantages of the outlying villages were eliminated by force to maintain dependency upon the city and lay claim to both the natural wealth of the countryside and the wealth produced by technology.
Obtaining raw material from the countryside cheap and selling their manufactured products high—through a legal system of feudal rights of their own creation—the powerful and crafty of the city transferred manufactured and monetized (capitalized) wealth within their trading region to themselves. These same powerful and crafty groups throughout history continually structured laws to protect property rights because monopoly property rights “entitled” them to all wealth (above labor and other costs) produced on, or with, that property. As an assured producer of wealth, privately-owned income-producing property developed value that could be capitalized and bought and sold.
Immanuel Wallerstein’s phrase, “they sought to restrict the possibilities of their countryside engaging in trade in other than via their town”4 describes the same problem facing the powerful today. To maintain their wealth and power and the standard of living their citizens now feel is normal the powerful maintain their monopolies and unequal trades.
To permit the countryside to utilize its natural comparative advantage would mean a drastic drop in living standards for both the established and the forming imperial-centers-of-capital and open revolt of their citizenry as they become poorer. Thus the emergence of conscientious leaders in powerful imperial-centers-of-capital, with a sincere interest in the well-being of people in dependent societies providing their crucial resources, is a rare occurrence. Reality requires leaders to care for their own even as millions—or even billions—of people on the periphery are impoverished by leaders’ Grand Strategies of containments, through economic, financial, diplomatic, covert, and overt warfare.5
To protect their access to crucial resources, powerful imperial cities of the Middle Ages used military power to eliminate the comparative advantage of the countryside and that of other cities. Power struggles between city-states had intrigues, alliances, balances of power, and preponderance of power foreign policies identical to, and for the same purpose as, modern nations and empires—control of resources and trade to maintain their security:
The leading mercantile cities [of Europe] resorted to armed force in order to destroy rival economic power in other cities and to establish [a more complete] economic monopoly. These conflicts were more costly, destructive, and ultimately even more futile than those between the merchant classes and the feudal orders. Cities like Florence, which wantonly attacked other prosperous communities like Lucca and Siena, undermined both their productivity and their own relative freedom from such atrocious attacks. When capitalism spread overseas, its agents treated the natives they encountered in the same savage fashion that it treated their own nearer rivals.6
Title to industrial capital (the tools of production) and control of trade were the primary mechanisms for claiming the wealth of the countryside, of another city, of the weak within an empire, or of the weak on the periphery of empire. The destruction of another society's capital to protect markets substituted plunder-by-trade for plunder by raids. Instead of appropriating another's wealth directly, societies learned to accomplish this through the proto-mercantilist policies of making others dependent and laying claim to their wealth through unequal trades.
Thus evolved the foundation philosophy of mercantilism. The quote below describing British mercantilism is from Adam Smith's The Wealth of Nations but the origin of that trade philosophy in the 20th-Century can be traced to the free cities of Europe in the Middle Ages. Adam Smith’s philosophical work was the result of studying world trade patterns that had been in force for centuries:
[Mercantilism’s] ultimate object ... is always the same, to enrich the country [city] by an advantageous balance of trade. It discourages the exportation of the materials of manufacture [tools and raw material], and the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations [cities] in all foreign markets: and by restraining, in this manner, the exportation of a few commodities of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture, in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities.7
With the cities battling over the wealth of the countryside, the aristocracy and the Church reorganized and, while consolidating the first modern states, defeated the free cities of Europe. As those people’s livelihoods were dependent upon control of their coveted wealth-producing resources, convincing them that their well-being should be entrusted to others controlling these resources went against all instinct and common sense. The masses wished to maintain control of their resources and retain their community support structures. “Only wholesale massacres by the thousand could put a stop to this widely spread popular movement, and it was by the sword, the fire, and the rack that the young states secured their first and decisive victory over the masses of the people.”8
As the formation of the states overwhelmed the free cities of Europe and their communal ways, the 14th-Century saw the beginning of a 300-year-effort to erase all trace of community support structures and community ownership of social wealth. The process to individualize the masses to limit their power had begun:
For the next three centuries the states ... systematically weeded out all institutions in which the mutual-aid tendency had formerly found its expression. The village communities were bereft of their folkmotes [community meetings], their courts and independent administration; their lands were confiscated. The guilds were spoliated of their possessions and liberties, and placed under the control, the fancy, and the bribery of the State’s official. The cities were divested of their sovereignty, and the very springs of their inner life—the folkmote, the elected justices and administration, the sovereign parish and the sovereign guild—-were annihilated; the State’s functionary took possession of every link of what formerly was an organic whole. Under that fatal policy and the wars it engendered, whole regions, once populous and wealthy, were laid bare; rich cities became insignificant boroughs; the very roads which connected them with other cities became impracticable. Industry, art, and knowledge fell into decay.... For the next three centuries the states, both on the Continent and in these islands [Great Britain], systematically weeded out all institutions in which the mutual-aid tendency had formerly found its expression. It was taught in the universities and from the pulpit that the institutions in which men formerly used to embody their needs of mutual support could not be tolerated in a properly organized State.9
Having gained control of the masses through the power of the state, those with power could safely concentrate on gaining control of the wealth-producing mechanisms of world trade:
The problem of the towns collectively was to control their market, that is, be able to reduce the cost of items purchased from the countryside and to minimize the role of stranger merchants.... But the profits [in controlling the trade of the countryside], while important, were small by what might be earned in long-distance trade, especially colonial or semicolonial trade. Henri Sée estimates the profit margins of the early commercial operations as being very high: “Sometimes in excess of 200 or 300 percent from dealings that were little more than piracy.10
The raiders of the Middle Ages did not need to keep what they were doing secret; that it was for their survival was obvious. But, as soon as imperial cities evolved into imperial states, the connection between the traders who would lose business and those who would have to fight was broken. Managers-of-state cannot teach their citizens to be kind and just and then send them out to destroy the industries of peaceful neighbors.
The excuses used are those we read in history which have become so ingrained we accept them as the biological imperative of humankind. They are not biological imperatives. Humans are far more peaceful and cooperative than they are aggressive. Expose the real reason for these wars and suppressions, provide the world with a peaceful option for its “national interest” and “national security,” establish a modest security force whose mission is everybody’s security, and the world will be peaceful.
While cities fought back and forth, those with timber for boats, with access to the sea, and with seafaring skills had a unique advantage. Dominance on the seas ensured they could move commodities much more cheaply than their competitors. Thus, the great trading and seafaring city state of Amalfi was destroyed by the sea power of Pisa. Pisa was then defeated by Genoa, which was later overwhelmed by Venice. Through naval power, Venice was able to enforce the rules of trade for centuries. However, along with the loss of the silk and spice trade through Muslim control of those trade routes, the Venetians slowly succumbed to the combined power of competing sister states and European powers.11
The battles between Italian city-states prevented a consolidation of wealth and power. It was now the turn of Western European cities. The Hanseatic League formed in the late 13th-Century and, within 100 years, 85-to-100 cities were cooperating to quell pirates, foster safe navigation with lighthouses and train pilots, import raw material and export manufactured goods (by agreement only in Hanseatic boats). They established navigation laws and custom duties with trading enclaves on foreign soil—the forerunner of today’s duty-free ports and industrial enclaves (“Free trade zones where normal labor laws are suspended in deference to capital).
Having copied the principles of monopolization of trade practiced by the Venetian Empire, the Hansa dominated the trade of Western and Middle Europe for 300 years. With treaties between cooperating cities, this powerful league avoided most, but not all, of the pitched battles typical of Southeastern and Eastern European city-states. However, like those sister city-states, it was weakened by principalities and ruling families within its geographical area demanding tributes within their jurisdictions. This league lacked the power, cohesiveness, and coordination of a unified nation, and was overwhelmed by united national powers (Denmark, Sweden, Norway, Lithuania, Poland, the principality of Moscow, and Holland) in a replay of the unified coalitions which defeated Venice.12 As the Hanseatic League’s trade declined, nations with unique advantages of coastline, timber for building ships, and skilled seamen (Spain, Portugal, France, England, Holland, and Italy) spread across the world, overwhelming primitive cultures, and creating their colonial trading empires.
With the development of ships that carried many more tons of cargo, thus greatly reduced shipping costs, tiny Holland’s trade blossomed. Out of 20,000 ships in world trade in the middle of the 17th-Century, 16,000 were Dutch. In James Buchan’s Frozen Desire, 1997, Nouvelle Edition, 1768, Vol 1: Picador, quotes the Siecle de Louis XIV, “One day, when a French consul was telling the King of Persia that Louis XIV had conquered nearly the whole of Holland, that monarch replied, ‘How can that be there are always twenty Dutch ships to one French in the Port of Ormuz.’”? But other imperial nations were continually studying the process of gaining wealth and power through control of trade and Holland's expanding trade monopoly would soon be overwhelmed by the English, who were slowly building a base for economic and military power.
Britain created enormous advantages for her industry through tariffs, support for industries, and other protectionist measures. But its primary advantage was rich beds of coal and iron ore only 15 miles apart. That was a favorable circumstance that, early in the industrial revolution, no other nation could match.
The shortage of labor created by the Black Death of the 14th-Century and the wool market created by Hanseatic traders provided the impetus for English sheep farming (in the 15th-Century, 90% of English exports were wool). The greater wool profits triggered the English Enclosure Acts of the 15th, 16th, and 17th Centuries.
Skilled artisans were encouraged to emigrate from countries where they suffered religious persecution and declining economic fortunes, such as France after the revocation of the Edict of Nantes. This was quite the opposite of today’s industry fleeing high-priced skilled labor and moving to cheap labor. During Britain's early industrial development, from virtually every country in Europe and as far away as Persia, India, and China, the technology and skilled labor to produce almost every product in world commerce were brought to England. English labor was trained in those productive skills, custom duties were enacted to protect those new industries, and bounties were given to promote exports of manufactures.13
The cornerstone of British control of trade was the Navigation Acts (1651-1847), copying Hanseatic and Venetian trade rules, which required British trade to be handled on British ships. England and Scotland peacefully forming into one nation in 1707 provided a cohesive government under which all industry could be nurtured and protected.
The Navigation Acts, economic warfare aimed directly at Dutch dominance of commercial trade, triggered a military war. English warships attacked Dutch shipping. English exports and imports—now produced and transported largely by English fishermen, manufacturers, and shippers—increased rapidly. The Methuen treaty of 1703 between Britain and Portugal, shutting the Dutch off from trade with the Portuguese empire, was a deadly blow to Holland. Suddenly-idled Dutch capital and skilled labor emigrated to the protective trade structure of England.
Take note that Britain developed under the yet-unwritten protection principles of Friedrich List, not under the yet-unwritten principles of Adam Smith free trade as interpreted by neo-mercantilists. Britain becoming the wealthiest nation in the world for over 100 years is powerful evidence in favor of Friedrich List’s philosophy of protecting a nation’s tender industries and markets. Past error has been, and still is, that protection is always for one selfish nation or bloc of nations. Weaker nations—which need even more protection—were at Britain’s mercy:
[Britain’s Navigation Acts] became the fundamental basis for the Old Colonial System. According to this Act the colonies could send their most important products, the so-called Enumerated Commodities, only to the mother country. By an important law passed three years later, actually called the Staple Act, the same was ordered with regard to the export of European goods to the colonies, with the express purpose of “making this Kingdom a staple not only of the commodities of those plantations but also of the commodities of other countries and places for the supplying of them.”14
Starting out more industrially and culturally advanced, the Spanish concentrated their labors on confiscating shiploads of gold and silver booty from their colonies. They did not produce consumer products for the elite, they imported them instead.15 In 1593, an advisor explained the problem to King Philip II:
The Cortes of Valladolid in the year 1586 petitioned Your Majesty not to allow the further importation into the kingdom of candles, glassware, jewelry, knives and similar articles; these things useless to human life come from abroad to be exchanged for gold, as though Spaniards were Indians.... The general remote cause of our want of money is the great excess of this Kingdom in consuming the commodities of foreign countries, which prove to us discommodities, in hindering us of so much treasure, which otherwise would be brought in, in lieu of those toys.16
Holland, Britain and France supplied these “toys” and Spain’s wealth ended up in their vaults. Britain's First Earl of Shaftesbury (1621-83) was the primary promoter of the mercantilist plan to lay claim to Spain’s wealth through trade. Shaftesbury explained, “If you will therein follow our directions we shall lay a way open to you to get all the Spanish riches in that country with their consent and without any hazard to yourselves.”17
Wealth accumulated by Britain and the simultaneous impoverishment of Spain (its major rival), the eventual dominance of Britain in world trade for over 100 years, and the immense wealth this produced for the small nation of Britain, proved the validity of Shaftesbury’s economic warfare plans. Although Spain was immensely wealthy, its riches and power were sapped by unnecessary purchases of other societies’ labor and British economic warfare, backed and enforced by superior sea power, overwhelming other nations.
This book follows the two threads of plunder-by-trade that have been consistent through the last 800 years of history and are still fundamental in world trade in the 21st-Century: (1) Control of nations and resources on the periphery of empire through financial, economic, covert, and overt warfare to maintain control of resources and the wealth-producing-process, and (2) the imposition of social-control-paradigms (belief systems, “frameworks of orientation”) to protect that power-structure and the wealth accumulated through those unequal trades. Any world trade thesis or formula is irrelevant if it does not take into account these two threads through history: the exponential gain or loss from unequal pay as outlined in Chapter one and powerful nations’ imposing those unequal trades as addressed throughout this book.
In Confessions of an Economic Hit Man (2004) John Perkins identifies the National Security Administration as the managers of state overseeing the control of resources outside America’s borders; the same job as those overseeing the security of those Free Cities of Europe 800 to 1,000 years ago.
1. The Secret of Free Enterprise Capital Accumulation
2. The Violent Accumulation of Capital is Rooted in History
3. The Unwitting Hand Their Wealth to the Cunning
4. The Historical Struggle for Dominance in World Trade
5. World Wars, Trade Wars: Battles over Who Decides the Rules of Unequal Trade
6. Suppressing Freedom of Thought in a Democracy
7. The World Breaking Free Frightened the Security Councils of Every Western Nation
8. Suppressing the World's Break for Economic Freedom
9. "Frameworks of Orientation": Creating Enemies for the Masses
10. The Enforcers of Unequal Trades
11. Emerging Corporate Imperialism
12. Impoverishing Labor and eventually Capital
13. Unequal Trades in Agriculture
14. Developing World Loans, Capital Flight, Debt Traps, and Unjust Debt
16. Japan's Post-World War II Defensive, Mercantilist, Economic Warfare Plan
17. Southeast Asian Development: An Accident of History
18. Capital Destroying Capital
20. The Earth's Capacity to Sustain Developed Economies
21. The Political Structure of Sustainable World Development
22. Equal Free Trade as Opposed to Unequal Free Trade
25. Restructuring Residual-Feudal Exclusive Patent Laws Produces a Modern Technology Commons
27. A Modern Information Commons
28. Wi-Fi Empowering the Powerless
Conclusion: Guidelines for World Development
Appendix 1: Expansion and Contraction of Cultures
Appendix 2: A Practical Approach for Developing Poor Nations and Regions