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Cracks showing in US consensus

This article is over 20 years, 8 months old
Alex Callinicos says top economists are turning against the system
Issue 1865

Whatever the outcome of the Hutton inquiry, it’s clear that the Iraq war is putting not just the Blair government, but also its more powerful partner across the Atlantic increasingly on the defensive.

It’s also contributing to the broader crisis of legitimacy of neo-liberal capitalism. This crisis was illustrated by a piece in the Financial Times on Wednesday last week by a well known American economist, Jeffrey Sachs. He dismissed the official justifications for the Iraq war, arguing that ‘it seems increasingly likely that Iraq was attacked because Saudi Arabia was deeply implicated in the terrorist attacks.

‘Two truths have long governed US energy security. The first is that Saudi Arabia is the key to world oil stability, the accommodating supplier when markets get too tight. The second truth is that Saudi Arabia has been a spigot of private wealth for key US figures, and for the Bush extended family in particular. The Saudi royal family lacks political legitimacy at home, so it buys US protection from abroad. Saudi business has helped to make multimillionaires of Henry Kissinger, Frank Carlucci, James Baker, George W Bush, [vice-president Dick] Cheney and dozens of other insiders.’

The attacks on New York and Washington on 11 September 2001 threw the US-Saudi relationship into crisis. Osama Bin Laden was a product of the Saudi ruling class and 15 of the 19 suicide hijackers were Saudis. Sachs identifies four possible ways in which Saudi Arabia was involved in the decision to attack Iraq.

First, and most obviously, seizing Iraq’s oil fields and reserves provided an insurance policy against a hostile regime coming to power in Saudi Arabia.

‘Second, a substitute had to be found for the US military bases in Saudi Arabia. Paul Wolfowitz, deputy defence secretary, has already explained during an interview with Vanity Fair that Iraq’s weapons of mass destruction were but a bureaucratic pretext that hid other core motives for war, including the reduction of the US military presence in Saudi Arabia.

‘Third, the Bush White House needed to issue a powerful threat to the Saudi leadership: one more false step and you’re finished. Finally, there was a strong hope that the public could be diverted from the true roots of 11 September 2001. The Bush administration needed to turn the public’s eyes away from the intelligence failures and head off the danger, however slight, that Saudi associates of the Bush family and friends would be implicated in the attacks.’

There is probably a significant element of truth in this analysis. Certainly, the US-Saudi relationship is in crisis. The latest development was the White House’s suppression last month of sections of a Congressional report into 11 September that implicated the Saudi authorities in the attacks.

But the most remarkable thing about the analysis isn’t its content. Plenty of other radical (and even some conservative) critics of the Iraq war have argued along similar lines. It’s the identity of the author that is surprising.

As a young Harvard economist, Sachs was one of the pioneers of the neo-liberal Washington Consensus. In the early 1980s he developed for Bolivia one of the first ‘structural adjustment’ programmes that have devastated so many economies by opening them up to the world market, privatising key industries, and slashing public provision.

In 1990 Sachs became world famous as the leading advocate of ‘shock therapy’ for the Stalinist countries in Eastern Europe and the Soviet Union that were then moving from state capitalism to Western-style market capitalism. The brutal and abrupt dismantling of state controls produced economic disaster and human misery on a scale that hadn’t been seen since the Great Depression of the 1930s.

But then the Asian financial crisis of 1997-8 led Sachs to develop second thoughts. He denounced the International Monetary Fund for forcing on countries like South Korea yet more of the pro-market measures that had helped produce the crisis in the first place.

Sachs now heads the Earth Institute at Columbia University, where he studies how to remedy the effects of the policies he once advocated. He recently argued that the $200 billion that he estimates the Iraq war cost would have saved 48 million lives over the next six years if spent on healthcare in the Third World. Sachs isn’t the only mainstream economist who has broken with the Washington Consensus.

Other examples are Joseph Stiglitz and Paul Krugman (another critic of the Iraq war). None of them have broken with capitalism itself. All still defend market economics.

But the fact that they have become such vehement critics of the American establishment and the policies it pursues is a sign that the would-be masters of the universe in Washington and London aren’t as powerful as they seem.


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