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“Human Beings Have No Right to Water” and other Words of Wisdom from Your Friendly Neighborhood Global Oligarch
“Human Beings Have No Right to Water” and other Words of Wisdom from Your Friendly Neighborhood Global Oligarch
By: Andrew Gavin Marshall
In the 2005 documentary, We Feed the World, then-CEO of Nestlé, the world’s largest foodstuff corporation, Peter Brabeck-Letmathe, shared some of his own views and ‘wisdom’ about the world and humanity. Brabeck believes that nature is not “good,” that there is nothing to worry about with GMO foods, that profits matter above all else, that people should work more, and that human beings do not have a right to water.
Today, he explained, “people believe that everything that comes from Nature is good,” marking a large change in perception, as previously, “we always learnt that Nature could be pitiless.” Humanity, Brabeck stated, “is now in the position of being able to provide some balance to Nature, but in spite of this we have something approaching a shibboleth that everything that comes from Nature is good.” He then referenced the “organic movement” as an example of this thinking, premising that “organic is best.” But rest assured, he corrected, “organic is not best.” In 15 years of GMO food consumption in the United States, “not one single case of illness has occurred.” In spite of this, he noted, “we’re all so uneasy about it in Europe, that something might happen to us.” This view, according to Brabeck, is “hypocrisy more than anything else.”
Water, Brabeck correctly pointed out, “is of course the most important raw material we have today in the world,” but added: “It’s a question of whether we should privatize the normal water supply for the population. And there are two different opinions on the matter. The one opinion, which I think is extreme, is represented by the NGOs, who bang on about declaring water a public right.” Brabeck elaborated on this “extreme” view: “That means that as a human being you should have a right to water. That’s an extreme solution.” The other view, and thus, the “less extreme” view, he explained, “says that water is a foodstuff like any other, and like any other foodstuff it should have a market value. Personally I believe it’s better to give a foodstuff a value so that we’re all aware that it has its price, and then that one should take specific measures for the part of the population that has no access to this water, and there are many different possibilities there.” The biggest social responsibility of any CEO, Brabeck explained:
is to maintain and ensure the successful and profitable future of his enterprise. For only if we can ensure our continued, long term existence will we be in the position to actively participate in the solution of the problems that exist in the world. We’re in the position of being able to create jobs… If you want to create work, you have to work yourself, not as it was in the past where existing work was distributed. If you remember the main argument for the 35-hour week was that there was a certain amount of work and it would be better if we worked less and distributed the work amongst more people. That has proved quite clearly to be wrong. If you want to create more work you have to work more yourself. And with that we’ve got to create a positive image of the world for people, and I see absolutely no reason why we shouldn’t be positive about the future. We’ve never had it so good, we’ve never had so much money, we’ve never been so healthy, we’ve never lived as long as we do today. We have everything we want and we still go around as if we were in mourning for something.
While watching a promotional video of a Nestlé factory in Japan, Brabeck commented, “You can see how modern these factories are; highly robotized, almost no people.” And of course, for someone claiming to be interested in creating jobs, there appears to be no glaring hypocrisy in praising factories with “almost no people.”
It’s important to note that this is not simply the personal view of some random corporate executive, but rather, that it reflects an institutional reality of corporations: the primary objective of a corporation – above all else – is to maximize short-term profits for shareholders. By definition, then, workers should work more and be paid less, the environment is only a concern so much as corporations have unhindered access to control and exploit the resources of the environment, and ultimately, it’s ‘good’ to replace workers with automation and robotics so that you don’t have to pay fewer or any workers, and thus, maximize profits. With this institutional – and ideological – structure (which was legally constructed by the state), concern for the environment, for water, for the world and for humanity can only be promoted if it can be used to advance corporate profits, or if it can be used for public relations purposes. Ultimately, it has to be hypocritical. A corporate executive cannot take an earnest concern in promoting the general welfare of the world, the environment, or humanity, because that it not the institutional function of a corporation, and no CEO that did such would be allowed to remain as CEO.
This is why it matters what Peter Brabeck thinks: he represents the type of individual – and the type of thinking – that is a product of and a requirement for running a successful multinational corporation, of the corporate culture itself. To the average person viewing his interview, it might come across as some sort of absurd tirade you’d expect from a Nightline interview with some infamous serial killer, if that killer had been put in charge of a multinational corporation:
People have a ‘right’ to water? What an absurd notion! Next thing you’ll say is that child labour is bad, polluting the environment is bad, or that people have some sort of ‘right’ to… life! Imagine the audacity! All that matters is ‘profits,’ and what a wonderful thing it would be to have less people and more profits! Water isn’t a right, it’s only a necessity, so naturally, it makes sense to privatize it so that large multinational corporations like Nestlé can own the world’s water and ensure that only those who can pay can drink. Problem solved!
Sadly, though intentionally satirical, this is the essential view of Brabeck and others like him. And disturbingly, Brabeck’s influence is not confined to the board of Nestlé. Brabeck became the CEO of Nestlé in 1997, a position he served until 2008, at which time he resigned as CEO but remained as chairman of the board of directors of Nestlé. Apart from Nestlé, Brabeck serves as vice chairman of the board of directors of L’Oréal, the world’s largest cosmetics and ‘beauty’ company; vice chairman of the board of Credit Suisse Group, one of the world’s largest banks; and is a member of the board of directors of Exxon Mobil, one of the world’s largest oil and energy conglomerates.
He was also a former board member of one of the world’s largest pharmaceutical conglomerates, Roche. Brabeck also serves as a member of the Foundation Board for the World Economic Forum (WEF), “the guardian of [the WEF’s] mission, values and brand… responsible for inspiring business and public confidence through an exemplary standard of governance.” Brabeck is also a member of the European Round Table of Industrialists (ERT), a group of European corporate CEOs which directly advise and help steer policy for the European Union and its member countries. He has also attended meetings of the Bilderberg group, an annual forum of 130 corporate, banking, media, political and military elites from Western Europe and North America.
Thus, through his multiple board memberships on some of the largest corporations on earth, as well as his leadership and participation in some of the leading international think tanks, forums and business associations, Brabeck has unhindered access to political and other elites around the world. When he speaks, powerful people listen.
Brabeck has become an influential voice on issues of food and water, and not surprisingly so, considering he is chairman of the largest food service corporation on earth. Brabeck’s career goes back to when he was working for Nestlé in Chile in the early 1970s, when the left-leaning democratically-elected president Salvador Allende was “threatening to nationalize milk production, and Nestlé’s Chilean operations along with it.” A 1973 Chilean military coup – with the support of the CIA – put an end to that “threat” by bringing in the military dictatorship of Augusto Pinochet, who murdered thousands of Chileans and established a ‘national security state’, imposing harsh economic measures to promote the interests of elite corporate and financial interests (what later became known as ‘neoliberalism’).
In a 2009 article for Foreign Policy magazine, Brabeck declared: “Water is the new gold, and a few savvy countries and companies are already banking on it.” In a 2010 article for the Guardian, Brabeck wrote that, “[w]hile our collective attention has been focused on depleting supplies of fossil fuels, we have been largely ignoring the simple fact that, unless radical changes are made, we will run out of water first, and soon.” What the world needs, according to Brabeck, is “to set a price that more accurately values our most precious commodity,” and that, [t]he era of water at throwaway prices is coming to an end.” In other words, water should become increasingly expensive, according to Brabeck. Countries, he wrote, should recognize “that not all water use should be regarded as equal.”
In a discussion with the Wall Street Journal in 2011, Brabeck spoke against the use of biofuels – converting food into fuel – and suggested that this was the primary cause of increased food prices (though in reality, food price increases are primarily the result of speculation by major banks like Goldman Sachs and JPMorgan Chase). Brabeck noted the relationship between his business – food – and major geopolitical issues, stating: “What we call today the Arab Spring… really started as a protest against ever-increasing food prices.” One “solution,” he suggested, was to provide a “market” for water as “the best guidance that you can have.” If water was a ‘market’ product, it wouldn’t be wasted on growing food for fuel, but focus on food for consumption – and preferably (in his view), genetically modified foods. After all, he said, “if the market forces are there the investments are going to be made.” Brabeck suggested that the world could “feed nine billion people,” providing them with water and fuel, but only on the condition that “we let the market do its thing.”
Brabeck co-authored a 2011 article for the Wall Street Journal in which he stated that in order to provide “universal access to clean water, there is simply no other choice but to price water at a reasonable rate,” and that roughly 1.8 billion people on earth lack access to clean drinking water “because of poor water management and governance practices, and the lack of political will.” Brabeck’s job then, as chairman of Nestlé, is to help create the “political will” to make water into a modern “market” product.
Now before praising Brabeck for his ‘enlightened’ activism on the issue of water scarcity and providing the world’s poor with access to clean drinking water (which are very real and urgent issues needing attention), Brabeck himself has stressed that his interest in the issue of water has nothing to do with actually addressing these issues in a meaningful way, or for the benefit of the earth and humanity. No, his motivation is much more simple than this.
In a 2010 interview for BigThink, Brabeck noted: “If Nestlé and myself have become very vocal in the area of water, it was not because of any philanthropic idea, it was very simple: by analyzing… what is the single most important factor for the sustainability of Nestlé, water came as [the] number one subject.” This is what led Brabeck and Nestlé into the issue of water “sustainability,” he explained. “I think this is part of a company’s responsibility,” and added: “Now, if I was in a different industry, I would have a different subject, certainly, that I would be focusing on.”
Brabeck was asked if industries should “have a role in finding solutions to environmental issues that affect their business,” to which he replied: “Yes, because it is in the interest of our shareholders… If I want to convince my shareholders that this industry is a long-term sustainable industry, I have to ensure that all aspects that are vital for this company are sustainable… When I see, like in our case, that one of the aspects – which is water, which is needed in order to produce the raw materials for our company – if this is not sustainable, then my enterprise is not sustainable. So therefore I have to do something about it. So shareholder interest and societal interest are common.”
Thus, when Brabeck and Nestlé promote “water sustainability,” what they are really promoting is the sustainability of Nestlé’s access to and control over water resources. How is that best achieved? Well, since Nestlé is a large multinational corporation, the natural solution is to promote ‘market’ control of water, which means privatization and monopolization of the world’s water supply into a few corporate hands.
In a 2011 conversation with the editor of Time Magazine at the Council on Foreign Relations, Brabeck referred to a recent World Economic Forum meeting where the issue of “corporate social responsibility” was the main subject of discussion, when corporate executives “started to talk about [how] we have to give back to society,” Brabeck spoke up and stated: “I don’t feel that we have to give back to society, because we have not been stealing from society.” Brabeck explained to the Council on Foreign Relations that he felt such a concept was the purview of philanthropy, and “this was a problem for the CEO of any public company, because I personally believe that no CEO of a public company should be allowed to make philanthropy… I think anybody who does philanthropy should do it with his own money and not the money of the shareholders.” Engaging in corporate social responsibility, Brabeck explained, “was an additional cost.”
At the 2008 World Economic Forum, a consortium of corporations and international organizations formed the 2030 Water Resources Group, chaired by Peter Brabeck. It was established in order to “shape the agenda” for the discussion of water resources, and to create “new models for collaboration” between public and private enterprises. The governing council of the 2030 WRG is chaired by Brabeck and includes the executive vice president and CEO of the International Finance Corporation (IFC), the investment arm of the World Bank, the administrator of the United Nations Development Programme (UNDP), the chief business officer and managing director of the World Economic Forum, the president of the African Development Bank, the chairman and CEO of The Coca-Cola Company, the president of the Asian Development Bank, the director-general of the World Wildlife Fund (WWF), the president of the Inter-American Development Bank, and the chairman and CEO of PepsiCo, among others.
At the World Water Forum in 2012 – an event largely attended by the global proponents of water privatization, Nestlé among their most enthusiastic supporters – Brabeck suggested that the 2030 Water Resources Group represents a “global public-private initiative” which could help in “providing tools and information on best practice” as well as “guidance and new policy ideas on water resource scarcity.”
Brabeck and Nestlé had been in talks with the Canadian provincial government of Alberta in planning for a potential “water exchange,” to – in the words of Maclean’s magazine – “turn water into money.” In 2012, the University of Alberta bestowed an honorary degree upon Peter Brabeck “for his work as a responsible steward for water around the world.” Protests were organized at the university to oppose the ‘honor,’ with a representative from the public interest group, the Council of Canadians, noting: “I’m afraid that the university is positioning themselves on the side of the commodifiers, the people who want to say that water is not a human right that everyone has the right to, but is just a product that can be bought and sold.” A professor at the university stated: “I’m ashamed at this point, about what the university is doing and I’m also very concerned about the way the president of the university has been demonizing people who oppose this.” As another U of A professor stated: “What Nestlé does is take what clean water there is in which poor people are relying on, bottle it and then sell it to wealthier people at an exorbitant profit.”
The Global Water Privatization Agenda
Water privatization is an extremely vicious operation, where the quality of – and access to – water resources diminishes or even vanishes, while the costs explode. When it comes to the privatization of water, there is no such thing as “competition” in how the word is generally interpreted: there are only a handful of global corporations that undertake massive water privatizations. The two most prominent are the French-based Suez Environment and Veolia Environment, but also include Thames Water, Nestlé, PepsiCo and Coca-Cola, among others. For a world in which food has already been turned into a “market commodity” and has been “financialized,” leading to massive food price increases, hunger riots, and immense profits for a few corporations and banks, the prospect of water privatization is even more disturbing.
The agenda of water privatization is organized at the international level, largely promoted through the World Water Forum and the World Water Council. The World Water Council (WWC) was established in 1996 as a French-based non-profit organization with over 400 members from intergovernmental organizations, government agencies, corporations, corporate-dominated NGOs and environmental organizations, water companies, international organizations and academic institutions.
Every three years, the WWC hosts a World Water Forum, the first of which took place in 1997, and the 6th conference in 2012 was attended by thousands of participants from countries and institutions all over the world get together to decide the future of water, and of course, promote the privatization of this essential resource to human life. The 6th World Water Forum, hosted in Marseilles, France, was primarily sponsored by the French government and the World Water Council, but included a number of other contributors, including: the African Development Bank, African Union Commission, Arab Water Council, Asian Development Bank, the Council of Europe, the European Commission, the European Investment Bank, the European Parliament, the European Water Association, the Food and Agricultural Organization, the Global Environment Facility, Inter-American Development Bank, Nature Conservancy, Organisation for Economic Co-operation and Development (OECD), Organization of American States (OAS), Oxfam, the World Bank, the World Business Council for Sustainable Development, the World Health Organization, the World Wildlife Fund; and a number of corporate sponsors, including: RioTinto Alcan, EDF, Suez Environment, Veolia, and HSBC. Clearly, they have human and environmental interests at heart.
The World Bank is a major promoter of water privatization, as much of its aid to ‘developing’ countries was earmarked for water privatization schemes which inevitably benefit major corporations, in co-operation with the International Monetary Fund (IMF), and the U.S. Treasury. One of the first major water privatization schemed funded by the World Bank was in Argentina, for which the Bank “advised” the government of Argentina in 1991 on the bidding and contracting of the water concession, setting a model for what would be promoted around the world. The World Bank’s investment arm, the International Finance Corporation (IFC), loaned roughly $1 billion to the Argentine government for three water and sewage projects in the country, and even bought a 5% stake in the concession, thus becoming a part owner. When the concession for Buenos Aires was opened up, the French sent representatives from Veolia and Suez, which formed the consortium Aguas Argentinas, and of course, the costs for water services went up. Between 1993, when the contract with the French companies was signed, and 1997, the Aguas Argentinas consortium gained more influence with Argentine President Carlos Menem and his Economy Minister Domingo Cavallo, who would hold meetings with the president of Suez as well as the President of France, Jacques Chirac. By 2002, the water rates (cost of water) in Buenos Aires had increased by 177% since the beginning of the concession.
In the 1990s, the amount of World Bank water privatization projects increased ten-fold, with 31% of World Bank water supply and sanitation projects between 1990 and 2001 including conditions of private-sector involvement, despite the fact that the projects consistently failed in terms of providing cheaper and better water to larger areas. But of course, they were highly profitable for large corporations, so naturally, they continued to be promoted and supported (and subsidized).
One of the most notable examples of water privatization schemes was in Bolivia, the poorest country in South America. In 1998, an IMF loan to Bolivia demanded conditions of “structural reform,” the selling off of “all remaining public enterprises,” including water. In 1999, the World Bank told the Bolivian government to end its subsidies for water services, and that same year, the government leased the Cochabamba Water System to a consortium of multinational corporations, Aguas del Tunari, which included the American corporation Bechtel. After granting the consortium a 40-year lease, the government passed a law which would make residents pay the full cost of water services. In January of 2000, protests in Cochabamba shut down the city for four days, striking and establishing roadblocks, mobilizing against the water price increases which doubled or tripled their water bills. Protests continued in February, met with riot police and tear gas, injuring 175 people.
By April, the protests began to spread to other Bolivian cities and rural communities, and during a “state of siege” (essentially martial law) declared by Bolivian president Hugo Banzer, a 17-year old boy, Victor Hugo Daza, was shot and killed by a Bolivian Army captain, who was trained as the U.S. military academy, the School of the Americas. As riot police continued to meet protesters with tear gas and live ammunition, more people were killed, and dozens more injured. On April 10, the government conceded to the people, ending the contract with the corporate consortium and granting the people to control their water system through a grassroots coalition led by the protest organizers.
Two days later, World Bank President James Wolfensohn stated that the people of Bolivia should pay for their water services. On August 6, 2001, the president of Bolivia resigned, and the Vice President Jorge Quiroga, a former IBM executive, was sworn in as the new president to serve the remainder of the term until August of 2002. Meanwhile, the water consortium, deeply offended at the prospect of people taking control of their own resources, attempted to take legal action against the government of Bolivia for violating the contract. Bechtel was seeking $25 million in compensation for its “losses,” while recording a yearly profit of $14 billion, whereas the national budget of Bolivia was a mere $2.7 billion. The situation ultimately led to a type of social revolution which brought to power the first indigenous Bolivian leader in the country’s history, Evo Morales.
This, of course, has not stopped the World Bank and IMF – and the imperial governments which finance them – from promoting water privatization around the world for the exclusive benefit of a handful of multinational corporations. The World Bank promotes water privatization across Africa in order to “ease the continent’s water crisis,” by making water more expensive and less accessible.
As the communications director of the World Bank in 2003, Paul Mitchell, explained, “Water is crucial to life – we have to get water to poor people,” adding: “There are a lot of myths about privatization.” I would agree. Though the myth that it ‘works’ is what I would propose, but Mitchell instead suggested that, “[p]rivate sector participation is simply to manage the asset to make it function for the people in the country.” Except that it doesn’t. But don’t worry, decreasing water standards, dismantling water distribution, and rapidly increasing the costs of water to the poorest regions on earth is good, according to Mitchell and the World Bank. He told the BBC that what the World Bank is most interested in is the “best way to get water to poor people.” Perhaps he misspoke and meant to say, “the best way to take water from poor people,” because that’s what actually happens.
In 2003, the World Bank funded a water privatization scheme in the country of Tanzania, supported by the British government, and granting the concession to a consortium called City Water, owned by the British company Biwater, which worked with a German engineering firm, Gauff, to provide water to the city of Dar es Salaam and the surrounding region. It was one of the most ambitious water privatization schemes in Africa, with $140 million in World Bank funding, and, wrote John Vidal in the Guardian, it “was intended to be a model for how the world’s poorest communities could be lifted out of poverty.”
The agreement included conditions for the consortium to install new pipelines for water distribution. The British government’s Department for International Development gave a 440,000-pound contract to the British neoliberal think tank, Adam Smith International, “to do public-relations work for the project.” Tanzania’s best-known gospel singer was hired to perform a pop song about the benefits of privatization, mentioning electricity, telephones, the ports, railways, and of course, water. Both the IMF and World Bank made the water scheme a condition for “aid” they gave to the country. Less than one year into the ten-year contract, the private consortium, City Water, stopped paying its monthly fee for leasing the government’s pipes and infrastructure provided by the public water company, Dawasa, while simultaneously insisting that its own fees be raised. An unpublished World Bank report even noted: “The primary assumption on the part of almost all involved, particularly on the donor side, was that it would be very hard, if not impossible, for the private operator [City Water] to perform worse than Dawasa. But that is what happened.” The World Bank as a whole, however, endorsed the program as “highly satisfactory,” and rightly so, because it was doing what it was intended to do: provide profits for private corporations at the expense of poor people.
By 2005, the company had not built any new pipes, it had not spent the meager investments it promised, and the water quality declined. As British government “aid” money was poured into privatization propaganda, a video was produced which included the phrase: “Our old industries are dry like crops and privatization brings the rain.” Actually, privatization attaches a price-tag to rain. Thus, in 2005, the government of Tanzania ended the contract with City Water, and arrested the three company executives, deporting them back to Britain. As is typical, the British company, Biwater, then began to file a lawsuit against the Tanzanian government for breach of contract, wanting to collect $20-25 million. A press release from Biwater at the time wrote: “We have been left with no choice… If a signal goes out that governments are free to expropriate foreign investments with impunity,” investors would flee, and this would, of course, “deal a massive blow to the development goals of Tanzania and other countries in Africa.”
The sixth World Water Forum in Marseilles in 2012 brought together some 19,000 participants, where the French Development Minister Henri de Raincourt proposed a “global water and environment management scheme,” adding: “The French government is not alone in its conviction that a global environment agency is needed more than ever.” A parallel conference was held – the Alternative World Water Forum – which featured critics of water privatization. Gustave Massiah, a representative of the anti-globalization group Attac, stated, “Should a global water fund be in control, giving concessions to multinational companies, then that’s not a solution for us. On the contrary, that would only add to the problems of the current system.”
Another member of Attac, Jacques Cambon, used to be the head of SAFEGE’s Africa branch, a subsidiary of the water conglomerate Suez. Cambon was critical of the idea of a global water fund, warning against centralization, and further explained that the World Bank “has almost always financed large-scale projects that were not in tune with local conditions.” Maria Theresa Lauron, a Philippine activist, shared the story of water privatization in the Philippines, saying, “Since 1997, prices went up by 450 to 800 percent… At the same time, the water quality has gone down. Many people get ill because of bad water; a year ago some 600 people died as a result of bacteria in the water because the private company didn’t do proper water checks.” But then, why would the company do such a thing? It’s not like it’s particularly profitable to be concerned with human welfare.
In Europe, the European Commission had been pushing water privatization as a condition for development funds between 2002 and 2010, specifically in several central and eastern European countries which were dependent upon EU grants. Since the European debt crisis, the European Commission had made water privatization a condition for Greece, Portugal, and Italy. Greece is privatizing its water companies, Portugal is being pressured to sell its national water company, Aguas do Portugal, and in Italy, the European Central Bank (ECB) and the Commission were pushing water privatization, even though a national referendum in July of 2011 saw the people of Italy reject such a scheme by 95%.
In this context, among the global institutions and corporations of power and influence, it is perhaps less surprising to imagine the chairman of Nestlé suggesting that human beings having a “right” to water is rather “extreme.” And for a very simple reason: that’s not profitable for Nestlé, even though it might be good for humanity and the earth. It’s about priorities, and in our world, priorities are set by multinational corporations, banks, and global oligarchs. As Nestlé would have us think, corporate and social interests are not opposed, as corporations – through their ‘enlightened’ self-interest and profit-seeking motives – will almost accidentally make the world a better place. Now, while neoliberal orthodoxy functions on the basis of people simply accepting this premise without investigation (like any religious belief), perhaps it would be worth looking at Nestlé as an example for corporate benefaction for the world and humanity.
Nestlé’s Corporate Social Responsibility: Making the World Safe for Nestlé… and Incidentally Destroying the World
As a major multinational corporation, Nestlé has a proven track record of exploiting labour, destroying the environment, engaging in human rights violations, but of course – and most importantly – it makes big profits. In 2012, Nestlé was taking in major profits from ‘emerging markets’ in Asia, Africa, and Latin America. However, some emerging market profits began to slow down in 2013. This was partly the result of a horsemeat scandal which required companies like Nestlé to intensify the screening of their food products.
Less than a year prior, Nestlé was complaining that “over-regulation” of the food industry was “undermining individual responsibility,” which is another way of saying that responsibility for products and their safety should be passed from the producer to the consumer. In other words, if you’re stupid enough to buy Nestlé products, it’s your fault if you get diabetes or eat horsemeat, and therefore, it’s your responsibility, not the responsibility of Nestlé. Fair enough! We’re stupid enough to accept corporations ruling over us, therefore, what right do we have to complain about all the horrendous crimes and destruction they cause? A cynic could perhaps argue such a point.
One of Nestlé’s most famous PR problems was that of marketing artificial baby milk, which sprung to headlines in the 1970s following the publication of “The Baby Killer,” accusing the company of getting Third World mothers hooked on formula. As research was proving that breastfeeding was healthier, Nestlé marketed its baby formula as a way for women to ‘Westernize’ and join the modern world, handing out pamphlets and promotional samples, with companies hiring “sales girls in nurses’ uniforms (sometimes qualified, sometimes not)” in order to drop by homes and sell formula. Women tried to save money on the formula by diluting it, often times with contaminated water. As the London-based organization War on Want noted: “The results can be seen in the clinics and hospitals, the slums and graveyards of the Third World… Children whose bodies have wasted away until all that is left is a big head on top of the shriveled body of an old man.” An official with the United States Agency for International Development (USAID) blamed baby formula for “a million infant deaths every year through malnutrition and diarrheal diseases.”
Mike Muller, the author of “The Baby Killer” back in 1974, wrote an article for the Guardian in 2013 in which he mentioned that he gave Peter Brabeck a “present” at the World Economic Forum, a signed copy of the report. The report had sparked a global boycott of Nestlé and the company responded with lawsuits.
Nestlé has also been implicated for its support of palm-oil plantations, which have led to increased deforestation and the destruction of orangutan habitats in Indonesia. A Greenpeace publication noted that, “at least 1500 orangutans died in 2006 as a result of deliberate attacks by plantation workers and loss of habitat due to the expansion of oil palm plantations.” A social media campaign was launched against Nestlé for its role in supporting palm oil plantations, deforestation, and the destruction of orangutan habitats and lives. The campaign pressured Nestlé to decrease its “deforestation footprint.”
As Nestlé has been expanding its presence in Africa, it has also aroused more controversy in its operations on the continent. Nestlé purchases one-tenth of the world’s cocoa, most of which comes from the Ivory Coast, where the company has been implicated in the use of child labour. In 2001, U.S. legislation required companies to engage in “self-regulation” which called for “slave free” labeling on all cocoa products. This “self regulation,” however, “failed to deliver” – imagine that! – as one study carried out by Tulane University with funding from the U.S. government revealed that roughly 2 million children were working on cocoa-related activities in both Ghana and the Ivory Coast. Even an internal audit carried out by the company found that Nestlé was guilty of “numerous” violations of child labour laws. Nestlé’s head of operations stated, “The use of child labor in our cocoa supply goes against everything we stand for.” So naturally, they will continue to use child labour.
Peter Brabeck stated that it’s “nearly impossible” to end the practice, and he compared the practice to that of farming in Switzerland: “You go to Switzerland… still today, in the month of September, schools have one week holiday so students can help in the wine harvesting… In those developing countries, this also happens,” he told the Council on Foreign Relations. While acknowledging that this “is basically child labor and slave labor in some African markets,” it is “a challenge which is not very easy to tackle,” noting that there is “a very fine edge” of what is acceptable regarding “child labor in [the] agricultural environment.” He added: “It’s almost natural.” Thus, Brabeck explained, “you have to look at it differently,” and that it was not the job of Nestlé to tell parents that their children can’t work on cocoa plantations/farms, “which is ridiculous,” he suggested: “But what we are saying is we will help you that your child has access for schooling.” So clearly there is no problem with using child slavery, just so long as the children get some schooling… presumably, in their ‘off-hours’ from slavery. Problem solved!
While Brabeck and Nestlé have made a big issue of water scarcity, which again, is an incredibly important issue, their solutions revolve around “pricing” water at a market value, and thus encouraging privatization. Indeed, a global water grab has been a defining feature of the past several years (coupled with a great global land grab), in which investors, countries, banks and corporations have been buying up vast tracts of land (primarily in sub-Saharan Africa) for virtually nothing, pushing off the populations which live off the land, taking all the resources, water, and clearing the land of towns and villages, to convert them into industrial agricultural plantations to develop food and other crops for export, while domestic populations are pushed deeper into poverty, hunger, and are deprived of access to water. Peter Brabeck has referred to the land grabs as really being about water: “For with the land comes the right to withdraw the water linked to it, in most countries essentially a freebie that increasingly could be seen as the most valuable part of the deal.” This, noted Brabeck, is “the great water grab.”
And of course, Nestlé would know something about water grabs, as it has become very good at implementing them. In past years, the company has been increasingly buying land where it is taking the fresh water resources, bottling them in plastic bottles and selling them to the public at exorbitant prices. In 2008, as Nestlé was planning to build a bottling water plant in McCloud, California, the Attorney General opposed the plan, noting: “It takes massive quantities of oil to produce plastic water bottles and to ship them in diesel trucks across the United States… Nestlé will face swift legal challenge if it does not fully evaluate the environmental impact of diverting millions of gallons of spring water from the McCloud River into billions of plastic water bottles.” Nestlé already operated roughly 50 springs across the country, and was acquiring more, such as a plan to draw roughly 65 million gallons of water from a spring in Colorado, despite fierce opposition to the deal.
Years of opposition to the plans of Nestlé in McCloud finally resulted in the company giving up on its efforts there. However, the company quickly moved on to finding new locations to take water and make a profit while destroying the environment (just an added bonus, of course). The corporation controls one-third of the U.S. market in bottled water, selling it as 70 different brand names, including Perrier, Arrowhead, Deer Park and Poland Spring. The two other large bottled water companies are Coca-Cola and PepsiCo, though Nestlé had earned a reputation “in targeting rural communities for spring water, a move that has earned it fierce opposition across the U.S. from towns worried about losing their precious water resources.” And water grabs by Nestlé as well as opposition continue to engulf towns and states and cities across the country, with one more recent case in Oregon.
Nestlé has aroused controversy for its relations with labour, exploiting farmers, pollution, and human rights violations, among many other things. Nestlé has been implicated in the kidnapping and murder of a union activist and employee of the company’s subsidiary in Colombia, with a judge demanding the prosecutor to “investigate leading managers of Nestle-Cicolac to clarify their likely involvement and/or planning of the murder of union leader Luciano Enrique Romero Molina.” In 2012, a Colombian trade union and a human rights group filed charges against Nestlé for negligence over the murder of their former employee Romero.
More recently, Nestlé has been found liable over spying on NGOs, with the company hiring a private security company to infiltrate an anti-globalization group, and while a judge ordered the company to pay compensation, a Nestlé spokesperson stated that, “incitement to infiltration is against Nestlé’s corporate business principles.” Just like child slavery, presumably. But not to worry, the spokesman said, “we will take appropriate action.”
Peter Brabeck, who it should be noted, also sits on the boards of Exxon, L’Oréal, and the banking giant Credit Suisse, warned in 2009 that the global economic crisis would be “very deep” and that, “this crisis will go on for a long period.” On top of that, the food crisis would be “getting worse” over time, hitting poor people the hardest. However, propping up the financial sector through massive bailouts was, in his view, “absolutely essential.” But not to worry, as banks are bailed out by governments, who hand the bill to the population, which pays for the crisis through reduced standards of living and exploitation (which we call “austerity” and “structural reform” measures), Nestlé has been able to adapt to a new market of impoverished people, selling cheaper products to more people who now have less money. And better yet, it’s been making massive profits. And remember, according to Brabeck, isn’t that all that really matters?
This is the world according to corporations. Unfortunately, while it creates enormous wealth, it is also leading to the inevitable extinction of our species, and possibly all life on earth. But that’s not a concern of corporations, so it doesn’t concern those who run corporations, who make the important decisions, and pressure and purchase our politicians.
I wonder… what would the world be like if people were able to make decisions?
There’s only one way to know.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, with a focus on studying the ideas, institutions, and individuals of power and resistance across a wide spectrum of social, political, economic, and historical spheres. He has been published in AlterNet, CounterPunch, Occupy.com, Truth-Out, RoarMag, and a number of other alternative media groups, and regularly does radio, Internet, and television interviews with both alternative and mainstream news outlets. He is Project Manager of The People’s Book Project, Research Director of Occupy.com’s Global Power Project, and has a weekly podcast show with BoilingFrogsPost.
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The Global Banking ‘Super-Entity’ Drug Cartel: The “Free Market” of Finance Capital
By: Andrew Gavin Marshall
This essay is the product of research undertaken for the first volume of The People’s Book Project. Please donate to help the first volume come to completion: a study of the institutions, ideas, and individuals of power and resistance in a snap-shot of the world today, looking at the global economic crisis, war and empire, repression and the global spread of anti-austerity and resistance movements.
I would like to introduce you, the reader, to some realities of our global banking system, resting on the rhetoric of free markets, but functioning, in actuality, as a global cartel, a “super-entity” in which the world’s major banks all own each other and own the controlling shares in the world’s largest multinational corporations, influence governments and policy with politicians in their back pockets, routinely engaging in fraud and bribery, and launder hundreds of billions of dollars in drug money, not to mention arms dealing and terrorist financing. These are the “too big to fail” and “too big to jail” banks, the centre of our global economy, what we call a “free market,” implying that the global banks – and corporations – have “free reign” to do anything they please, engage in blatantly criminal activities, steal trillions in wealth which is hidden offshore, and never get more than a slap on the wrist. This is the real “free market,” a highly profitable global banking cartel, functioning as a worldwide financial Mafia.
Scientific Research Proves the Existence of a Global Financial “Super-Entity”
In October of 2011, New Scientist reported that a scientific study on the global financial system was undertaken by three complex systems theorists at the Swiss Federal Institute of Technology in Zurich, Switzerland. The conclusion of the study revealed what many theorists and observers have noted for years, decades, and indeed, even centuries: “An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.” As one of the researchers stated, “Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market… Our analysis is reality-based.” Using a database which listed 37 million companies and investors worldwide, the researchers studied all 43,060 trans-national corporations (TNCs), including the share ownerships linking them.
The mapping of ‘power’ was through the construction of a model showing which companies controlled which other companies through shareholdings. The web of ownership revealed a core of 1,318 companies with ties to two or more other companies. This ‘core’ was found to own roughly 80% of global revenues for the entire set of 43,000 TNCs. And then came what the researchers referred to as the “super-entity” of 147 tightly-knit companies, which all own each other, and collectively own 40% of the total wealth in the entire network. One of the researchers noted, “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network.” This network poses a huge risk to the global economy, as, “If one [company] suffers distress… this propagates.” The study was undertaken with a data set established prior to the economic crisis, thus, as the financial crisis forced some banks to die (Lehman Bros.) and others to merge, the “super-entity” would now be even more connected, concentrated, and problematic for the economy.
The top 50 companies on the list of the “super-entity” included (as of 2007): Barclays Plc (1), Capital Group Companies Inc (2), FMR Corporation (3), AXA (4), State Street Corporation (5), JP Morgan Chase & Co. (6), UBS AG (9), Merrill Lynch & Co Inc (10), Deutsche Bank (12), Credit Suisse Group (14), Bank of New York Mellon Corp (16), Goldman Sachs Group (18), Morgan Stanley (21), Société Générale (24), Bank of America Corporation (25), Lloyds TSB Group (26), Lehman Brothers Holdings (34), Sun Life Financial (35), ING Groep (41), BNP Paribas (46), and several others.
In the United States, five banks control half the economy: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs Group collectively held $8.5 trillion in assets at the end of 2011, which equals roughly 56% of the U.S. economy. This data was according to central bankers at the Federal Reserve. In 2007, the assets of the largest banks amounted to 43% of the U.S. economy. Thus, the crisis has made the banks bigger and more powerful than ever. Because the government invoked “too big to fail,” meaning that the big banks will be saved because they are very important, the big banks have incentive to make continued and bigger risks, because they will be bailed out in the end. Essentially, it’s an insurance policy for criminal risk-taking behaviour. The former president of the Federal Reserve Bank of Minneapolis stated, “Market participants believe that nothing has changed, that too-big-to-fail is fully intact.” Remember, “market” means the banking cartel (or “super-entity” if you prefer). Thus, they build new bubbles and buy government bonds (sovereign debt), making the global financial system increasingly insecure and at risk of a larger collapse than took place in 2008.
When politicians, economists, and other refer to “financial markets,” they are in actuality referring to the “super-entity” of corporate-financial institutions which dominate, collectively, the global economy. For example, the role of financial markets in the debt crisis ravaging Europe over the past two years is often referred to as “market discipline,” with financial markets speculating against the ability of nations to repay their debt or interest, of credit ratings agencies downgrading the credit-worthiness of nations, of higher yields on sovereign bonds (higher interest on government debt), and plunging the country deeper into crisis, thus forcing its political class to impose austerity and structural adjustment measures in order to restore “market confidence.” This process is called “market discipline,” but is more accurately, “financial terrorism” or “market warfare,” with the term “market” referring specifically to the “super-entity.” Whatever you call it, market discipline is ultimately a euphemism for class war.
The Global Supra-Government and the “Free Market”
In December of 2011, Roger Altman, the former Deputy Secretary of the Treasury under the Clinton administration wrote an article for the Financial Times in which he explained that financial markets were “acting like a global supra-government,” noting:
They oust entrenched regimes where normal political processes could not do so. They force austerity, banking bail-outs and other major policy changes. Their influence dwarfs multilateral institutions such as the International Monetary Fund. Indeed, leaving aside unusable nuclear weapons, they have become the most powerful force on earth.
Altman continued, explaining that when the power of this “global supra-government” is flexed, “the immediate impact on society can be painful – wider unemployment, for example, frequently results and governments fail.” But of course, being a former top Treasury Department official, he went on to endorse the global supra-government, writing, “the longer-term effects can be often transformative and positive.” Ominously, Altman concluded: “Whether this power is healthy or not is beside the point. It is permanent,” and “there is no stopping the new policing role of the financial markets.” In other words, the ‘super-entity’ global ‘supra-government’ of financial markets carries out financial extortion, overthrows governments and impoverishes populations, but this is ultimately “positive” and “permanent,” at least from the view of a former Treasury Department official. From the point of view of those who are being impoverished, the actual populations, “positive” is not necessarily the word that comes to mind.
In the age of globalization, money – or capital – flows easily across borders, with banks, hedge funds and other financial institutions acting as the vanguards of a new international order of global governance. Where finance goes, corporations follow; where corporations venture, powerful states stand guard of their interests. Our global system is one of state-capitalism, where the state and corporate interests are interdependent and mutually beneficial, at least for those in power. Today, financial institutions – with banks at the helm – have reached unprecedented power and influence in state capitalist societies. The banks are bigger than ever before in history, guarded by an insurance policy that we call “too big to fail,” which means that despite their criminal and reckless behaviour, the government will step in to bail them out, as it always has. Financial markets also include credit ratings agencies, which determine the supposed “credit-worthiness” of other banks, corporations, and entire nations. The lower the credit rating, the riskier the investment, and thus, the higher the interest is for that entity to borrow money. Countries that do not follow the dictates of the “financial market” are punished with lower credit ratings, higher interest, speculative attacks, and in the cases of Greece and Italy in November of 2011, their democratically-elected governments are simply removed and replaced with technocratic administrations made up of bankers and economists who then push through austerity and adjustment policies that impoverish and exploit their populations. In the age of the “super-entity” global “supra-government,” there is no time to rattle around with the pesky process of formal liberal democracy; they mean business, and if your elected governments do not succumb to “market discipline,” they will be removed and replaced in what – under any other circumstances – is referred to as a ‘coup.’
Banks and financial institutions provide the liquidity – or funds – for what we call “free markets.” Free markets in principle would allow for free competition between companies and countries, each producing their own comparative advantage – producing what they are best at – and trading with others in the international market, so that all parties rise in living standards and wealth together. The “free market” is, of course, pure mythology. In practice, what we call “free markets” are actually highly protectionist, regimented, regulated, and designed to undermine competition and enforce monopolization. The “free markets” serve this purpose for the benefit of large multinational corporations and banks.
When we use the term “free markets” we are generally referring to the “real” economy, legitimate and legal. When it comes to illegitimate markets, for example, the global drug trade, we do not tend to refer to them as “free markets” but rather, “illegal” and run by “cartels.” Cartels, like corporations, are hierarchically organized totalitarian institutions, where decisions and power and exercised from the top-down, with essentially no input going from the bottom-up. Large multinational corporations, like large international cartels, seek to control their particular market throughout entire nations, regions, and beyond. Often, co-operation between corporations allow them to function in an oligopolistic manner, where the collectively dominate the entire market, carving it up between them. Major oil companies, agro-industrial firms, telecommunications, pharmaceutical, military contractors and water management corporations are well-known for these types of activities.
Cartels have often been known to engage in a similar practice, though typically they are more competitive with each other. When interests are threatened – which is defined as when a corporation or cartel is at risk of losing its total dominance of its market in a particular region – conflict arises, and often violently so, with the potential for coups, assassinations, terror campaigns, and war. This is when the state intervenes to protect the market for the cartel or corporate interests. Thus, a market like the global drug trade functions relatively similar to those of the “legitimate” economy, pharmaceuticals, energy, technology, etc. The illicit trade in drugs is as much a “free market” as is the trade in automobiles or oil. And of course, the money ends up in the same place: the global supra-government of “financial markets.”
Banking Cartel or Drug Cartel… or What’s the Difference?
In 2009, the United Nations Office on Drugs and Crime reported that billions of dollars in drug money saved the major banks during the financial crisis, providing much-needed liquidity. Antonio Maria Costa, the head of the UN Office on Drugs and Crime stated that drug money was “the only liquid investment capital” available to banks on the brink of collapse, with roughly $325 billion in drug money absorbed by the financial system. Without identifying specific countries or banks, Costa stated that, “Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.”
In 2010, Wachovia Bank (now owned by Wells Fargo) settled the largest action ever under the U.S. bank secrecy act, paying a fine of $50 million plus forfeiting $110 million of drug money, of which the bank laundered roughly $378.4 billion out of Mexico. The federal prosecutor in the case stated, “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.” The fine that the bank paid for laundering hundreds of billions of dollars in drug money was less than 2% of the bank’s 2009 profit, and on the same week of the settlement, Wells Fargo’s stock actually went up. The bank admitted in a statement of settlement that, “As early as 2004, Wachovia understood the risk” of holding such an account, but “despite these warnings, Wachovia remained in the business.” The leading investigator into the money laundering operations, Martin Woods, based out of London, had discovered that Wachovia had received roughly six or seven thousand subpoenas for information about its Mexican operation from the federal government, of which Woods commented: “An absurd number. So at what point does someone at the highest level not get the feeling that something is very, very wrong?” Woods had been hired by Wachovia’s London branch as a senior anti-money laundering officer in 2005, and when in 2007 an official investigation was opened into Wachovia’s Mexican operations, Woods was informed by the bank that he failed “to perform at an acceptable standard.” In other words, he was actually doing his job. In regards to the settlement, Woods stated:
The regulatory authorities do not have to spend any more time on it, and they don’t have to push it as far as a criminal trial. They just issue criminal proceedings, and settle. The law enforcement people do what they are supposed to do, but what’s the point? All those people dealing with all that money from drug-trafficking and murder, and no one goes to jail?
As the former UN Office of Drugs and Crime czar Antonio Maria Costa said, “The connection between organized crime and financial institutions started in the late 1970s, early 1980s… when the mafia became globalized,” just like other major markets. Martin Woods added that, “These are the proceeds of murder and misery in Mexico, and of drugs sold around the world,” yet no one went to jail, asking, “What does the settlement do to fight the cartels? Nothing – it doesn’t make the job of law enforcement easier and it encourages the cartels and anyone who wants to make money by laundering their blood dollars. Where’s the risk? There is none.” He added: “Is it in the interest of the American people to encourage both the drug cartels and the banks in this way? Is it in the interest of the Mexican people? It’s simple: if you don’t see the correlation between the money laundering by banks and the 30,000 people killed in Mexico, you’re missing the point.” Woods, who now runs his own consultancy, told the Observer in 2011 that, “New York and London… have become the world’s two biggest laundries of criminal and drug money, and offshore tax havens. Not the Cayman Islands, not the Isle of Man or Jersey. The big laundering is right through the City of London and Wall Street.”
Just as the “too big to fail” program acts as an insurance policy for the big banks to engage in constant criminal activity, taking ever-larger financial risks with the guarantee that they will be bailed out, the settlements and lack of criminal prosecutions for banks laundering drug money provides the incentive to continue laundering hundreds of billions in drug money, because so long as the fine is smaller than the profit accrued from such a practice, it comes down to a simple cost-benefit analysis: if the cost of laundering drug money is less than the benefit, continue with the policy. The same cost-benefit analysis goes for all forms of criminal activity by banks and corporations, whether bribery, fraud, or violating environmental, labour and other regulations. So long as the penalty is less than the profit, the problem continues.
An article in the Observer from July of 2012 referred to global banks as “the financial services wing of the drug cartels,” noting that HSBC, Britain’s biggest bank, had been called before the U.S. Senate to testify about laundering drug money from Mexican cartels, holding one “suspicious account” for four years on behalf of the largest drug cartel in the world, the Sinaloa cartel in Mexico. In fact, a multi-year investigation into HSBC revealed that the bank was not only a major international drug money-laundering conduit, but also laundered money for clients with ties to terrorism. In July of 2012, as the Senate was publicly investigating HSBC, Antonio Maria Costa stated, “Today I cannot think of one bank in the world that has not been penetrated by mafia money.” The global drug trade is estimated to be worth roughly $380 billion annually, with most of the money made in the consumer markets of North America and Europe. Using the example of the $35 billion per year cocaine market in the United States, only about 1.5% of these profits make their way to the coca-leaf producers (mostly poor peasants) in South America (who became the target of our bombing and chemical warfare campaigns in the “war on drugs”), while the international traffickers get roughly 13% of the profits, with the remaining 85% earned by the distributors in the U.S. HSBC was accused of laundering the profits of the distributors.
The U.S. Senate report concluded that HSBC had exposed the U.S. financial system to “a wide array of money laundering, drug trafficking, and terrorist financing,” including billions in “proceeds from illegal drug sales in the United States.” HSBC acknowledged, in an official statement, that, “in the past, we have sometimes failed to meet the standards that regulators and customers expect.” Among those “standards” that HSBC “sometimes failed to meet,” according to the Senate investigation, were financing provided to banks in Saudi Arabia and Bangladesh which were tied to terrorist organizations, while the bank’s regulator failed to take a single enforcement action against HSBC. Among the terrorist organizations which potentially received financial assistance from HSBC through Saudi banks was al-Qaeda. HSBC put aside $700 million to cover any potential fines for such activities, which is not uncommon for banks to do. Banks like ABN Amro, Barclays, Credit Suisse, Lloyds and ING had all reached major settlements for admitting to facilitating transactions and engaging in money laundering for clients in Cuba, Iran, Libya, Myanmar and Sudan.
As executives from HSBC appeared in the U.S. Senate, the bank’s head of compliance since 2002, David Bagley, resigned as he testified before the committee, commenting, “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.” As Ed Vulliamy reported in the Observer, in May of 2012, a poor black man named Edward Dorsey Sr. was convicted of peddling 5.5 grams of crack cocaine in Washington D.C. and was given 10 years in jail. Meanwhile, just across the river from where Dorsey had committed his crime, executives from HSBC admitted before the U.S. Senate that they laundered billions in drug money, just as Wachovia had admitted to the previous year, with no one going to prison. The lesson from this is clear: if you are poor, black, and are caught with a couple grams of crack-cocaine, you can expect to go to prison for several years (or in this case, a decade); but if you are rich, white, own a bank, and are caught laundering billions of dollars (or hundreds of billions of dollars) in drug money, you will be fined (but not enough to make such practices unprofitable), and may have to resign. Too big to fail is simply another way of saying “too big to jail.”
Of course, it’s not fair to put all the blame for international drug money-laundering on the shoulders of HSBC and Wachovia, as Bloomberg reported, Mexican drug cartels also funneled money through the Bank of America and even the banking branch of American Express, Banco Santander, and Citigroup. Even the FBI has accused Bank of America of laundering Mexican drug cartel funds. But it’s not just drug money that banks launder; all sorts of illicit funds are laundered through major banks, many of which have been fined or are now being investigated for their criminal activities, including JPMorgan, Standard Chartered, Credit Suisse, Lloyds, Barclays, ING, and the Royal Bank of Scotland, among others. Another major Swiss bank, UBS, has been very consistent in committing fraud and engaging in various conspiracies, a great deal of which was committed against Americans, though the bank was given “conditional immunity” from the U.S. Department of Justice.
Financial Fraud and the ‘Get Out of Jail Free Card’
The major banks of the world have been caught in conspiracies of ripping off small towns and cities across the United States, which allowed banks like JPMorgan Chase, GE Capital, UBS, Bank of America, Lehman Brothers, Wachovia, Bear Stearns, and others, to steal billions of dollars from schools, hospitals, libraries, and nursing homes from “virtually every state, district and territory in the United States,” according to a court settlement on the issue. The theft was done through the manipulation of the public bidding process, something that the Mafia has become experts in with regards to garbage and construction industry contracts. In short, the banking system actually functions like a Mafia cartel system, not to mention, taking money from the Mafia and cartels themselves. Banks like JP Morgan Chase and Goldman Sachs engaged in bribery, fraud, and conspiracies which resulted in the bankruptcy of counties all across the United States. Still, they continue to be ‘respected’ by the political class which refuses to punish them for their criminal activity, and instead, rewards them with bailouts and follows their instructions for policy.
Over the summer of 2012, another major banking scandal hit the headlines, regarding the manipulation of the London inter-bank lending rate known as the Libor. The Libor rate, explained the Economist, “determines the prices that people and corporations around the world pay for loans or receive for their savings,” as it is used as a benchmark for establishing payments on an $800 trillion derivatives market, covering everything from interest rate derivatives to mortgages. Essentially, the Libor is the interest rate at which banks lend to each other on the short term, and is established through an “honour system” of where 18 major banks report their daily rates, from which an average is calculated. That average becomes the Libor rate, and reverberates throughout the entire global economy, setting a benchmark for a massive amount of transactions in the global derivatives market. Whereas the derivatives market is a massive casino of unregulated speculation, the Libor scandal revealed the cartel that owns the casino.
The scandal began with Barclays, a 300-year old bank in Britain, revealing that several employees had been involved in rigging the Libor to suit their own needs. More banks quickly became implemented, and countries all over the world began opening investigations into this scandal and the role their own banks may have played in it. By early July, as many as 20 major banks were named in various investigations or lawsuits related to the rigging of the Libor.
Among the major global banks which are being investigated by U.S. prosecutors are Barclays, Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, HSBC, UBS, Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds Banking Group, Rabobank, Royal Bank of Canada, Société Générale, and others. Prosecutors in the U.S., U.K., Canada and Japan were investigating collusion between the major banks on the manipulation of the Libor. In June of 2012, Barclays paid a fine to US and UK authorities, admitting its culpability in the rigging with a $450 million settlement. With information and documents pouring out, implicating further banks and institutions in the scandal, a general consensus was emerging that the Libor had been manipulated since at least 2005, though, as one former Morgan Stanley trader wrote in the Financial Times, the rigging had began as early as 1991, if not before. The British Banker’s Association was responsible for setting the Libor rate by polling roughly 18 major banks on their highest and lowest rates daily. Thus, rigging by one bank would require the co-operating of at least nine other banks in purposely manipulating their rates in order to have any effect upon the Libor. Douglas Keenan, the former Morgan Stanley trader, wrote that, “it seems the misreporting of Libor rates may have been common practice since at least 1991.”
Rolf Majcen, the head of a hedge fund called FTC Capital told Der Spiegel that, “the Libor manipulation is presumably the biggest financial scandal ever.” As regulators were using words like “organized fraud” and “banksters” to describe the growing scandal, it was becoming common to refer to the major banks as functioning like a “cartel” or “mafia.” The CEO of Barclays, Bob Diamond, resigned in disgrace, as did Marcus Agius, the Chairman of Barclays (who also serves as a director on the board of BBC, and is married into the Rothschild banking dynasty). The “cartel” manipulated the Libor for a great number of reasons, among them, to appear to be in better health by rigging their credit ratings upwards. The Business Insider referred to the Libor rigging as a “criminal conspiracy” from the start, essentially designed to promote manipulation as the Libor was determined by an “honor system” for banks to properly report their rates. Imagine giving a pile of credit cards to a group of credit card fraud convicts and establishing an “honour system.” Could one truly be surprised if it didn’t work out? Well, the Libor scandal is effectively based upon the same logic, except that the repercussions are global in scope.
Traders at the Royal Bank of Scotland referenced, in internal emails, to their participation in operating a “cartel” that made “amazing” amounts of money through the manipulation of interest rates, with a former senior trader at RBS writing that managers at the bank had “condoned collusion.” The same trader, who was later hung out to dry by RBS as a scapegoat, wrote in an email to a trader at Deutsche Bank that, “It is a cartel now in London,” where the Libor is established.
The cartel, however, did not simply include the major banks, but also required the cooperation or at least negligence of regulators and central banks. Documents released by the Federal Reserve Bank of New York and the Bank of England show correspondence between then-President of the NY Fed Timothy Geithner (who is now Obama’s Treasury Secretary) and Bank of England Governor Mervyn King discussing how Barclays was manipulating the Libor rates during the 2008 financial crisis. While the NY Fed corresponded with both the Bank of England and Barclays itself on the acknowledgment of interest rate manipulation, it never told the bank to stop the rigging practice. An official at Barclays even informed the NYFed in 2008 that the bank was under-reporting the rate at which it could borrow from other banks so that Barclays could “avoid the stigma” of appearing to be weaker than its peers, adding that “other participating banks were also under-reporting their Libor submissions.”
A Barclays employee told the New York Fed in an April 2008 phone call that, “We know that we’re not posting um, an honest Libor… and yet we are doing it, because, um, if we didn’t do it, it draws, um, unwanted attention on ourselves.” The New York Fed official replied: “You have to accept it… I understand. Despite it’s against what you would like to do. I understand completely.” Several months later, a Barclays employee told a New York Fed official that the Libor rates were still “absolute rubbish.”
While the New York Fed expressed sympathy for the poor and helpless global banks need to engage in fraud and interest rate manipulation in order to lie and appear to be healthier than it was, the Bank of England went a step further, when Paul Tucker, the head of markets at the BoE wrote a note to Barclays CEO Bob Diamond in 2008 suggesting that Barclays lower its Libor rate, thus encouraging the rigging itself, instead of just expressing sympathy for the “need” to commit fraud.
The main British banking lobby group, the British Banker’s Association (BBA), which was responsible for overseeing the Libor rate process (no conflict of interest there, right?), was, in late September of 2012, stripped of its right to oversee the Libor, to be replaced with a formal regulator. The BBA’s “oversight” of Libor dates back to 1984, when the City of London (Britain’s Wall Street) had begun an experiment to establish a new way of setting interest rates, asking the banking lobby group to set the rate in 1986 when the Libor began. The BBA’s Foreign Exchange and Money Markets Committee is responsible for setting the Libor, and they meet every two months to review the process in secret without any minutes being published, and even the membership of the Committee is kept a secret. Spokespersons at Credit Suisse, Royal Bank of Scotland, and UBS refused to comment on whether they had any representatives on the committee, while Barclays, Deutsche Bank, HSBC, Bank of America and Citigroup didn’t even respond to emailed inquiries about their involvement with the committee, as Bloomberg reported. A British regulator, in the understatement of the century, stated, “There is an apparent lack of transparency,” adding that the BBA’s committee “doesn’t appear to be sufficiently open and transparent to provide the necessary degree of accountability to firms and markets with a direct interest in being assured of the integrity of Libor.” When the fox guards the henhouse, it takes a great deal of stupidity to be “surprised” when some hens go missing.
In an April 2008 meeting with officials at the Bank of England, Angela Knight, the head of the British Banker’s Association, suggested that the BBA perhaps should no longer be responsible for oversight of “the world’s most important number,” which had become too big for the BBA to manage. No one at the meeting cared enough to do anything about it, however, and so nothing changed. Where was the incentive to change the system, after all? Yes, massive fraud was taking place, and this was well understood by the banks committing it, as well as the regulators and central banks overseeing it. But on the plus side, everyone was getting away with it. So indeed, there was no incentive to change the system. From the point of view of those managing it, the Libor was functioning as it should. A cartel was established because a cartel was desired. The fact that it was all highly illegal, fraudulent, and immoral was – and is – beside the point. Mexican drug cartels do not worry about the legality of their operations because they are, by definition, illegal. They worry simply about getting away with their illegal operations. The same can be said for the global banking cartel. So long as they get away with criminal cartel operations, there is no incentive to change the system, and instead, there is only an incentive to expand and further entrench the cartel’s operations.
Canada’s antitrust regulator began an investigation into the “international cartel” of banks rigging the Libor, focusing on the role played by banks such as JP Morgan Chase, Royal bank of Scotland, Deutsche Bank, HSBC, and Citigroup, among others. A law professor at the University of Toronto who was hired by the regulator to study the case commented that, “international cartels are of a significant concern for the Canadian economy.” We have truly reached an impressive circumstance when the actual regulators of the banks refer to the banking system as an “international cartel.”
A lawsuit was being filed by several homeowners in the U.S. who were attempting to sue some of the world’s largest banks for fraud, as the Libor manipulation sparked increases on their mortgages, resulting in illegal profits for banks. The class action lawsuit filed in New York in October of 2012 accused banks such as Bank of America, Citigroup, Barclays, UBS, JPMorgan Chase, Deutsche Bank and others of fraud over a period of ten years. For U.S. states and municipalities that bought interest-rate swaps before the financial crisis, the Libor rigging was poised to more than double their losses. Banks had sold roughly $500 billion of interest-rate swaps (in the derivatives market) to municipalities before the financial crisis, with roughly $200 billion of those swaps tied to the Libor. As one legal expert who studies derivatives told Bloomberg, “Almost all interest-rate swaps begin with Libor.” This prompted several states in the U.S. to begin their own investigations into how the Libor-rigging may have negatively affected them.
Punishing the World’s Population into Poverty: Life Under the Global Cartel
While the global cartel of criminal banks rig rates, launder drug money, fund terrorists, engage in bribery, fraud and demand multi-trillion dollar bailouts from our governments (effectively selling their bad debts to the public), and then give themselves massive bonuses, they are also demanding – through what is called “market discipline” – that our governments deal with our debts by undertaking policies of “austerity” and “structural reform,” which are euphemisms for impoverishment and exploitation. Thus, after the cartel helped create a massive financial crisis, and after our governments rewarded them for their criminal activity, the cartel now demands that our governments punish their populations into poverty and open their economies, resources and labour up for cheap and easy exploitation by banks and multinational corporations. This is referred to as the “solution” for getting out of the ‘Great Recession,’ and which is sure to great a Great Depression. Greece is now two and a half years into its “austerity” and “adjustment” reforms, with its debt growing as a result, poverty exploding, misery spreading, health, education, welfare rapidly declining, suicide rates and hunger increasing, as the Greek people are subjected to a program of “social genocide.” Market discipline demands austerity and adjustment, or in other words, class warfare creates poverty and exploitation.
Countries that refuse to implement programs of austerity and adjustment are subjected to financial terrorism by the “international cartel,” as financial markets engage in “market discipline” by using the derivatives market to speculate against that particular country’s ability to pay its interest or debt, thus making its credit ratings decrease and borrowing rates increase, plunging the country into a deeper crisis. In any other scenario, this is called terrorism or in the very least, extortion: do what I say or I will punish you and destroy you. This is what former U.S. Treasury official Roger Altman referred to in the Financial Times as the new “global supra-government” who can “force austerity, banking bail-outs and other major policy changes,” and thus, “have become the most powerful force on earth.” Countries, regional, and international organizations all bow down to the dictates of the “international cartel” of the “global supra-government,” and so countries like Greece, Spain, Ireland, Italy, and Portugal, organizations like the European Union, European Central Bank, powerful states like Germany, France, Britain, and the U.S., and other international organizations like the IMF, Bank for International Settlements, and the OECD all demand and implement austerity measures and structural “reforms.” Either they follow the orders of the “cartel” – which we commonly refer to as the “invisible hand” of the “free market – or they directly challenge “the most powerful force on earth.” In the global economy, a small country like Greece standing up to the “global supra-government” is much like a small Greek restaurant trying to stand up to the city Mafia.
In the U.S., states that were defrauded in the billions of dollars by the cartel, and took on major debts as a result, are now the harbingers of austerity in America. Beginning in 2010, roughly 20 states across the U.S. began implementing austerity measures, and have been doing much worse economically as a result (the predicted effect of austerity). Even the institutions which are the most militant in demanding austerity measures, such as the European Union and the IMF, have acknowledged in recent reports that countries which pursue austerity to supposedly reduce their debts end up getting much larger debts as a result, and that such measures are actually extremely damaging to economies. This is not news, of course, since there is a rather large sample of data from the past 30 years of forced austerity and adjustment measures across Africa, Asia, and Latin America (at the behest of the IMF, World Bank, western governments, and of course, the “cartel”), which show quite clearly the effect that austerity and adjustment have in rapidly expanding poverty and facilitating exploitation. As austerity is hitting several U.S. states, jobs are lost and poverty increases with debt, standards of living decline and the recession deepens into a depression. The population is essentially punished for the crimes of the global cartel, while public employees, pensioners, welfare recipients, teachers and workers get the blame.
In late October of 2012, the CEOs of 80 major corporations and banks in the United States banded together (as any well functioning cartel does) in order to pressure Congress, regardless of who the next President is, to pursue an agenda of harsh austerity measures and structural reforms. In a statement to Congress signed by the 80 CEOs, the American branch of the global cartel (its most significant branch), demanded that policies be enacted immediately, though implemented gradually, “to give Americans time to prepare for the changes in the federal budget.” Among the demands are to reform Medicare and Medicaid, healthcare, Social Security, increase taxes, and generally reduce spending. All of this amounts to a large federal program of austerity, to cut social spending and increase taxes on the population, thus impoverishing the population. This, in the words of the letter to Congress, “must be bipartisan and reforms to all areas of the budget should be included.” Among the signatories to the letter were the CEOs of AT&T, Bank of America, BlackRock, Boeing, Caterpillar, Dow Chemical Company, General Electric, Goldman Sachs, JPMorgan Chase, Merck, Microsoft, Motorola, Time Warner, and Verizon, among many others.
This followed roughly one week after a group of 15 major global bank CEOs sent a letter to President Obama and the U.S. Congress lecturing the U.S. political class on “moral authority,” giving their formal orders to the U.S. political establishment, that regardless of Democratic or Republican administrations, they are losing patience with the democratic apparatus of the state, and warned: “The solvency, productive capacity, and stability of the United States, as well as its moral authority as a global leader, require that its fiscal challenges be credibly met.” Among the signatories to the letter were the CEOs of Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The Wall Street Journal, reporting on this letter, commented that even for “a dying democracy, it’s embarrassing enough to see bankers telling our government what to do,” but in this letter, “we even see foreign bankers telling our government what to do,” as other CEOs of the global cartel signed the letter, from banks such as UBS, Credit Suisse, and Deutsche Bank. The “consequences of inaction” on the U.S. debt, read the letter, “would be very grave.” In other words, the U.S. political class has received a threat from the global cartel that it is now time to implement austerity and adjustment measures, or to face the consequences of financial terrorism.
Hiding the Loot: The Offshore Economy in the Age of the Global Plutonomy
While people are being forced into poverty to pay off the bad debts of the “super-entity” global banking cartel of drug-money laundering banks which make up the “global supra-government,” the richest people in the world have been hiding their wealth in offshore tax havens, and of course, with the help of those same banks. James Henry, a former chief economist at McKinsey, a major global consultancy, published a major report on tax havens in July of 2012 for the Tax Justice Network, compiling data from the Bank for International Settlements (BIS), the IMF and other private sector entities which revealed that the world’s superrich have hidden between $21 and $32 trillion offshore to avoid taxation. Henry stated: “This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries.” John Christensen of the Tax Justice Network commented that, “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people… This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.” Roughly 92,000 of the super-rich, globally, hold at least $10 trillion in offshore wealth. In many cases, the worth of these offshore assets far exceeds the debts of the countries that they flow from, the same debts that are used to keep these countries and their populations in poverty and a constant state of exploitation.
The estimated total of hidden offshore wealth amounts to more than the combined GDP of the United States and Japan, hidden in secretive financial jurisdictions like Switzerland and the Cayman Islands. The process of hiding this wealth is largely facilitated by the major global banks, which compete with one another to attract the assets of the world’s super-rich. James Henry explained that the wealth of the world’s super-rich is “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy;” more of that “free market” magic. The top ten banks in the world, which include UBS and Credit Suisse (based in Switzerland) as well as Goldman Sachs in the United States, collectively managed roughly $6.4 trillion in offshore accounts for 2010 alone. As the report revealed, “for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world,” debts which are largely illegitimate as it stands. This trend is exacerbated in the oil-rich states of the world such as Nigeria, Russia, and Saudi Arabia. The report stated: “The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments.” With roughly half of the world’s offshore wealth belonging to the top 92,000 richest individuals, they represent the top 0.001%, a far more extreme global disparity than that which is invoked by the Occupy movement’s 1% paradigm. Henry commented: “The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy.” Remember, “free market” means that those who own the market (the global cartel), and free to do anything they please.
A 2005 report from Citigroup coined the term “plutonomy,” to describe countries “where economic growth is powered by and largely consumed by the wealthy few,” and specifically identified the U.K., Canada, Australia, and the United States as four plutonomies. Keeping in mind that the report was published three years before the onset of the financial crisis in 2008, the Citigroup report stated: “Asset booms, a rising profit share and favourable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries,” and that, “the rich are in great shape, financially.” It’s only everyone else that is suffering, which by definition, is a “well functioning” economy. As the Federal Reserve reported, “the nation’s top 1% of households own more than half the nation’s stocks,” and “they also control more than $16 trillion in wealth — more than the bottom 90%.” The term ‘Plutonomy’ is specifically used to “describe a country that is defined by massive income and wealth inequality,” and that they have three basic characteristics, according to the Citigroup report:
1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”
2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” [Citigroup strategist Ajay] Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.
3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.
Kapur, who authored the Citigroup report, stated that there were also risks to the Plutonomy, “including war, inflation, financial crises, the end of the technological revolution and populist political pressure,” yet, “the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.”
In February of 2011, Ajay Kapur, the author of the Citigroup report who is now with Deutsche Bank, gave an interview in which he explained that, “the world economy is even more dependent on the spending and consumption of the rich,” and that, “Plutonomist consumption is almost 10 times as volatile that of the average consumer.” He further explained that increased debt levels are a sign of plutonomies:
We have an economy today where a large fraction of the population doesn’t pay federal income taxes and, because of demand for entitlements, we have a system of massive representation without taxation. On the other hand, you have plutonomists who protect their turf and the taxation amounts are not enough to pay for everyone’s demand. So I’ve come to the conclusion that budget deficits are biased toward getting bigger and bigger. Budget deficits are going to become a manifestation of a plutonomy.
The plutonomy is largely characterized by a lack of a consuming and vibrant middle class. This is a trend that has been accelerating for several decades, particularly in North America and Britain, where the middle class population is heavily indebted. The middle class has existed as a consumer class, keeping the lower class submissive, and keeping the upper class secure and wealthy by consuming their products, produced with the labour of the lower class.
The most advanced plutonomies in the world are the most advanced industrial and technological nations, where the major corporations and banks are highly subsidized and protected by the state, as is typical for a state-capitalist society. While the industrial and rich northern state-capitalist societies were able to industrialize and grow rich through highly protectionist measures, the poor south of the world (Africa, Asia, Latin America) were subjected to “free market” policies which opened up their economies to be exploited and plundered by the rich northern nations. No country has ever become an industrial power by implementing free market policies, but rather, by doing the exact opposite: heavy subsidies and state protection for key industries, technologies, and corporate entities.
While the ‘Third World’ was forced to implement “free market” policies in order to get loans, the predictable result took place: mass impoverishment and exploitation. The ‘Third World’ states were run by tiny elites who dominated the countries politically and economically, and who hid their stolen wealth in foreign banks and offshore tax havens. Now, in the midst of the global economic crisis which has been ravaging the world for the past four years, the rich northern countries are themselves implementing the same “free market” policies, though designed to subject their populations to “market discipline” while maintaining – and in fact increasing – the protectionist and subsidized policies for the multinational corporations and banks. It is important to note that “market discipline” and actual “free market” policies are exclusively designed for the general population, not the elite. Workers, students, the elderly, the poor and the many are to be subjected to “market discipline” while the banks and multinational corporations continue to be heavily subsidized (as the largest national welfare recipients) and protected by the state. Thus, just as our banks and corporations have plundered the Third World with rapacious delight over the past three decades, now they will be able to do the same to the populations of the rich nations themselves. The state will transform, as it did in the ‘Third World’, into a typically totalitarian institution which is responsible for protecting the super-rich and controlling, oppressing, or, in extreme cases of resistance, eliminating the ‘problem populations’ (i.e., the people).
Welcome to the global plutonomy in the age of austerity, the result of living under – and tolerating – a global “super-entity” corporate-financial cartel. Truly, one must pause and, if only for a moment, appreciate the ability of this global cartel to function so effectively in spite of its blatant criminal activities, and face almost absolutely no repercussions. Something truly is wrong with a society when a poor black man caught with 5 grams of crack-cocaine goes to prison for ten years, while rich white bank executives admit to laundering billions of dollars in drug money and receive only a fine and a slap on the wrist (maybe).
The lesson is clear: if you are a thief, steal by the billions or trillions, and then no one can do anything about it. If you are in the drug trade: handle only billions (or hundreds of billions) in drug money, and then you will get away with it. If you don’t want to pay taxes, be a member of the top o.oo1% of the world’s super-rich and hide your billions in offshore tax-free accounts. If you want more, create a global economic crisis, demand to be saved by the state to the tune of tens of trillions of dollars, and then, tell the state to punish their populations into poverty in order to pay for your mistakes.
In other words, if you want to indulge your criminal fantasies, lie and steal, profit from death and drugs, dominate and demand, be king and command, become the highly-functioning socially-acceptable sociopath you always knew you could be… think big. Think BANK. Serial killers, bank robbers and drug dealers go to jail; bankers get bailouts and get an unlimited insurance policy called “too big to fail.”
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
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