Category Archives: The economic pillar

Hillary Laughed ‘I Came He Died’

U.S. and EU Sanctions Are Punishing Ordinary Syrians and Crippling Aid Work, U.N. Report Reveals

U.S. and EU Sanctions Are Punishing Ordinary Syrians and Crippling Aid Work, U.N. Report Reveals

Dania Khalek,  The Intercept,  28 September 2016

Internal United Nations assessments obtained by The Intercept reveal that U.S. and European sanctions are punishing ordinary Syrians and crippling aid work during the largest humanitarian emergency since World War II.

The sanctions and war have destabilized every sector of Syria’s economy, transforming a once self-sufficient country into an aid-dependent nation. But aid is hard to come by, with sanctions blocking access to blood safety equipment, medicines, medical devices, food, fuel, water pumps, spare parts for power plants, and more.

In a 40-page internal assessment commissioned to analyze the humanitarian impact of the sanctions, the U.N. describes the U.S. and EU measures as “some of the most complicated and far-reaching sanctions regimes ever imposed.” Detailing a complex system of “unpredictable and time-consuming” financial restrictions and licensing requirements, the report finds that U.S. sanctions are exceptionally harsh “regarding provision of humanitarian aid.”

U.S. sanctions on Syrian banks have made the transfer of funds into the country nearly impossible. Even when a transaction is legal, banks are reluctant to process funds related to Syria for risk of incurring violation fees. This has given rise to an unofficial and unregulated network of money exchanges that lacks transparency, making it easier for extremist groups like ISIS and al Qaeda to divert funds undetected. The difficulty of transferring money is also preventing aid groups from paying local staff and suppliers, which has “delayed or prevented the delivery of development assistance in both government and besieged areas,” according to the report.

Trade restrictions on Syria are even more convoluted. Items that contain 10 percent or more of U.S. content, including medical devices, are banned from export to Syria. Aid groups wishing to bypass this rule have to apply for a special license, but the licensing bureaucracy is a nightmare to navigate, often requiring expensive lawyers that cost far more than the items being exported.

Syria was first subjected to sanctions in 1979, after the U.S. designated the Syrian government as a state sponsor of terrorism. More sanctions were added in subsequent years, though none more extreme than the restrictions imposed in 2011 in response to the Syrian government’s deadly crackdown on protesters.

In 2013 the sanctions were eased but only in opposition areas. Around the same time, the CIA began directly shipping weapons to armed insurgents at a colossal cost of nearly $1 billion a year, effectively adding fuel to the conflict while U.S. sanctions obstructed emergency assistance to civilians caught in the crossfire.

TO GO WITH AFP STORY BY SAMMY KETZA banker stacks packed Syrian lira bills at the Central Bank in Damascus on August 25, 2011. US sanctions have forced Syria to stop all transactions in US dollars, with the country turning completely to euro deals, the governor of the Central Bank Adib Mayaleh told the AFP during an interview. AFP PHOTO/JOSEPH EID (Photo credit should read JOSEPH EID/AFP/Getty Images)

A man stacks packed Syrian lira bills at the Central Bank in Damascus on Aug. 25, 2011.

Photo: Joseph Eid/AFP/Getty Images

An internal U.N. email obtained by The Intercept also faults U.S. and EU sanctions for contributing to food shortages and deteriorations in health care. The August email from a key U.N. official warned that sanctions had contributed to a doubling in fuel prices in 18 months and a 40 percent drop in wheat production since 2010, causing the price of wheat flour to soar by 300 percent and rice by 650 percent. The email went on to cite sanctions as a “principal factor” in the erosion of Syria’s health care system. Medicine-producing factories that haven’t been completely destroyed by the fighting have been forced to close because of sanctions-related restrictions on raw materials and foreign currency, the email said.As one NGO worker in Damascus told The Intercept, there are cars, buses, water systems, and power stations that are in serious need of repair all across the country, but it takes months to procure spare parts and there’s no time to wait. So aid groups opt for cheap Chinese options or big suppliers that have the proper licensing, but the big suppliers can charge as much as they want. If the price is unaffordable, systems break down and more and more people die from dirty water, preventable diseases, and a reduced quality of life.

Such conditions would be devastating for any country. In war-torn Syria, where an estimated 13 million people are dependent on humanitarian assistance, the sanctions are compounding the chaos.

In an emailed statement to The Intercept, the State Department denied that the sanctions are hurting civilians.

“U.S. sanctions against [Syrian President Bashar al-Assad], his backers, and the regime deprive these actors of resources that could be used to further the bloody campaign Assad continues to wage against his own people,” said the statement, which recycled talking points that justified sanctions against Iraq in 1990s. The U.S. continued to rationalize the Iraq sanctions even after a report was released by UNICEF in 1999 that showed a doubling in mortality rates for children under the age of 5 after sanctions were imposed in the wake of the Gulf War, and the death of 500,000 children.

“The true responsibility for the dire humanitarian situation lies squarely with Assad, who has repeatedly denied access and attacked aid workers,” the U.S. statement on Syria continued. “He has the ability to relieve this suffering at any time, should he meet his commitment to provide full, sustained access for delivery of humanitarian assistance in areas that the U.N. has determined need it.”

Meanwhile, in cities controlled by ISIS, the U.S. has employed some of the same tactics it condemns. For example, U.S.-backed ground forces laid siege to Manbij, a city in northern Syria not far from Aleppo that is home to tens of thousands of civilians. U.S. airstrikes pounded the city over the summer, killing up to 125 civilians in a single attack. The U.S. also used airstrikes to drive ISIS out of KobaneRamadi, and Fallujah, leaving behind flattened neighborhoods. In Fallujah, residents resorted to eating soup made from grass and 140 people reportedly died from lack of food and medicine during the siege.

A Syrian man walks past an empty vegetable market in Aleppo on July 10, 2016, after the regime closed the only remaining supply route into the city.

A Syrian man walks past an empty vegetable market in Aleppo on July 10, 2016, after the regime closed the only remaining supply route into the city.

Photo: Karam Al-Masri/AFP/Getty Images

Humanitarian concerns aside, the sanctions are not achieving their objectives. Five years of devastating civil war and strict economic sanctions have plunged over 80 percent of Syrians into poverty, up from 28 percent in 2010. Ferdinand Arslanian, a scholar at the Center for Syrian Studies at the University of St. Andrews, says that reduction in living standards and aid dependency is empowering the regime.“Aid is now an essential part of the Syrian economy and sanctions give regime cronies in Syria the ability to monopolize access to goods. It makes everyone reliant on the government. This was the case in Iraq, with the food-for-oil system,” explained Arslanian.

“Sanctions have a terrible effect on the people more than the regime and Washington knows this from Iraq,” argues Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma. “But there’s pressure in Washington to do something and sanctions look like you’re doing something,” he added.

Despite the failure of sanctions, opposition advocates are agitating for even harsher measures that would extend sanctions to anyone who does business with the Syrian government. This, of course, would translate into sanctions against Russia.

“The opposition likes sanctions,” says Landis. “They were the people who advocated them in the beginning because they want to put any pressure they can on the regime. But it’s very clear that the regime is not going to fall, that the sanctions are not working. They’re only immiserating a population that’s already suffered terrible declines in their per capita GDP,” he added.

Read the report:

Hum Impact of Syria Related Res Eco Measures 26 May 2016, 40 pages

Top photo: A Syrian Red Crescent truck, part of a convoy carrying humanitarian aid, is seen in Kafr Batna on the outskirts of Damascus on Feb. 23, 2016, during an operation in cooperation with the U.N. to deliver aid to thousands of besieged Syrians.

Update: September 30, 2016

The wording of a paragraph about U.S. tactics in Syria and Iraq has been altered to clarify that the U.S. used a strategy of airstrikes against Kobane, Ramadi, and Fallujah when they were controlled by ISIS forces

Israel: Tax haven for Jews

Lyin’ to Zion: Israel Is Haven for Fraudsters From France
Efforts to attract Diaspora Jews have made Israel a haven for a few who are trying to escape the long arm of the law.

Hagai Amit

Jun 24, 2016 9:40 AM

In a recent article on the connections between alleged French fraudster Arnaud Mimran, currently on trial in France, and Prime Minister Benjamin Netanyahu, the French newspaper Liberation featured a headline calling Israel a “paradise” for French swindlers.

“Six of the 12 junior defendants in the Arnaud Mimran case were not in court, because they were in Israel, including Eddie Abittan, Michael Haik, Gabriel Cohen, Jeremy Grinholz and Frederic Sebag,” the French daily reported.

“Others involved in the ‘sting of the century’ also found sanctuary in Israel before being extradited to France. That’s the case with Cyril Astruc, alias Alex Khan … who found sanctuary in Israel and was arrested in January 2014. If the vast majority of French Jews who emigrate to Israel are honest, hundreds of others choose to immigrate to Israel to evade legal proceedings in France or use Israel as a base for fraud that they plan to carry out abroad,” the newspaper wrote.

The coverage was prompted by a series of fraud cases that have surfaced involving French Jews. And that is even before Haaretz reported that the star witness in the “sting of the century,” Eithan Liron, is hiding in an apartment on Tel Aviv’s Nordau Boulevard.

In early May, seven Netanya residents with French citizenship were arrested on suspicion of committing massive fraud against several foreign companies. They allegedly hacked the email accounts of senior executives at the targeted multinationals in order to impersonate them and persuade company employees to transfer large sums into bank accounts under their control, ostensibly in order to pay suppliers.

In April, French media outlets reported that five Israeli foreign currency firms were at the center of a French investigation of a 105-million-euro ($118 million) alleged fraud against investors. Fifteen suspects were detained on suspicion of involvement in the case. And in January, five suspects of French origin were arrested for allegedly impersonated corporate executives for the purpose of fraud.

Liberation reported that the instigator of the alleged scheme was Gilbert Chikli, who it said was living in a home with a pool and Jacuzzi in Ashdod, protected by armed guards, “even though he had been sentenced [abroad] to seven years in prison and a fine of a million euros.”

Reports from recent months also allege connections with other cases from the last two years, including one reported at the beginning of last year involving two Jewish suspects of French origin who are accused of systematically collecting information about executives at hundreds of French companies that they were said to be seeking to defraud.

The reports claimed that the two, who live in Tel Aviv and Herzliya, impersonated lawyers and business people and approached the companies demanding that funds be transferred to the pairs’ bank accounts.

If international investigators in Israel perceive crime from Central and South American as relating to drugs, and crime from Russia and Ukraine as fraud-related, in recent years, crime from France has related more and more to sophisticated technology-related crime, in their view.

Bilateral cooperation

Some 7,500 Jews immigrated to Israel last year, compared to 6,700 in 2014 and 3,300 in 2013.

Most are at least middle- class individuals and families who come to Israel in order to escape religious tensions and anti-Semitism in France, and because they want to live in the Jewish state. But for a small minority of these immigrants, Israel is a haven of another sort.

The criminal ties between the two countries have for some years accounted for a significant amount of the workload in the international investigation units of the Israel Justice Ministry and its French counterpart. Cooperation between agencies is close and includes annual meetings to review outstanding cases. The number of extraditions from Israel to France rises every year.

It’s not only legitimate Jewish immigration from France that worries Israeli officials. The Law of Return, which gives Jews and their extended families the right to immigrate to Israel and become citizens, has also been a subject of the authorities’ attention. When there is a new wave of immigrants from a particular country, there is frequently also a rise in the number of people who try to “hitch a ride” at their expense, in order to settle in Israel and exploit their knowledge of the language and customs of their country of origin to engage in criminal activity from their new Israeli base.

The French immigrant community is not thrilled about the reports of criminal links between Israel and France.

“There are a few French Jews who have done things that are not good in France and Israel has taken them in,” says Ouriel Boubli, a lawyer who works with French immigrants. “Apparently that was a mistake. It causes problems and the French community in Israel is angry at these people who have tainted it.” The recent cases have also made it difficult for “good folks” who want to come to Israel to invest, he added.

People of means are choosing to immigrate, Moti Morad, the CEO of the Rishon Letzion branch of Mati, which works with French immigrants, confirms. “People who used to come here just on visits and would count the number of days that they could remain without paying taxes have become citizens, but I don’t see a trend involving the transfer of black [market] money to Israel. There is always a certain percentage.”

An article in Newsweek in late March reported data from the group New World Wealth, which seeks to estimate the flow of capital around the world. The data included an effort to survey international migration by people of means and it reported that a quarter of the 10,000 millionaires who left France in 2015 were Jewish.

This year, the report claims, 4,000 new immigrant millionaires have come to Israel, half of whom have settled in Tel Aviv, but Herzliya, Netanya and Jerusalem were also mentioned as cities that have attracted new immigrant millionaires. The figures reflect the fact that in recent years, Israel has become a magnet for wealthy Jews from around the world and not just from France.

Italy, too

“There is an extensive Italian community that is currently transferring a lot of money to Israel out of concern over steps that the government there would take, but we know that there are also a lot of French people coming and buying property in Israel,“ says Arik Gruber, a lawyer.

One possible reason for Israel’s attractiveness for some is the fact that in 2008, the law was amended to give new immigrants and returning Israelis who had left the country a 10-year tax exemption on income produced outside of Israel or generated from assets outside the country. The amendment also exempted them from reporting overseas income and assets. That’s no small attraction for someone seeking to bring black market assets into the country, but Israeli government authorities have no data on the extent to which such assets have been transferred here.

Avichai Snir of the Netanya Academic College, who conducts research on the subject of black market capital in Israel, says: “The phenomenon exists of money laundering by Jews from around the world in Israel. Historically, the Israeli view was that Jews were to be pitied even under those circumstances and that we needed to help them smuggle their capital. That’s a view from the early years of the country, that persisted for a long time.”

Gruber says a lot of black-market money has come into the country through a variety of means. And a former senior staffer in the Israel Tax Authority’s investigation department added: “Israel has always supported Jews bringing their money here. As a result of legislation, they come here, and for their first ten years here, they have almost no contact with law enforcement authorities.”

Suspicion over money laundering is sometimes the only grounds on which the Israeli police can deal with crime committed abroad. To open a money-laundering investigation in connection with activity committed abroad, the activity has to be significant not only from an Israeli standpoint, but also where it is committed, Israel Police sources say.

If it involves gambling money that is sent to Israel, in a place like the Czech Republic, for example, gambling is legal. If the law is broken in the country of origin, when the property comes into Israel, it is coming in as part of an effort to remove it from where the offense was committed. In such a situation, the money laundering is a separate offense that is divorced from the original offense, according to law enforcement officials.

The officials add that if the profits from fraud are brought into Israel, Israeli law enforcement addresses only the economic aspects of the case, attempting to prosecute the alleged offender for money laundering.

That still requires the cooperation of officials in the country where the initial offense was committed to prove that the motive was to hide the assets in Israel.

“The moment that parties with illegal funds enter Israel, they look for cash-rich transactions through which in one fell swoop they can launder a lot of money,” said a knowledgeable source.

“Investment in real estate is the last stage in the process, after I’ve put the money into the system. Leaving the money in the bank is more problematic, because it’s much more exposed. In real estate, you can register the property in the name of an aunt or sister or a straw man, whereas an account with several million euros in it is something that is usually reported and that could arouse suspicions,” said the source, who asked to remain anonymous.

A Peaceful, Silent, Deadly Remedy: The Ethics of Economic Sanctions

A Peaceful, Silent, Deadly Remedy: The Ethics of Economic Sanctions

by Joy Gordon

in Ethics and International Affairs 04/2006

Joy Gordon is Assistant Professor of Philosophy at Fairfield University. She received a Ph.D. in philosophy from Yale and a J.D. from Boston University. Prior research interests include Latin American political thought. Her recent work is in Third World and leftist critiques of Western theories of human rights. Currently, she is writing a book on economic sanctions and their role within the larger context of international governance.


Economic sanctions are emerging as one of the major tools of international governance in the post-Cold War era. Sanctions have long been seen as a form of political intervention that does not cause serious human damage, and therefore does not raise pressing ethical questions. However, the nature of sanctions is that they effectively target the most vulnerable and least political sectors of society, and for this reason they must be subject to ethical scrutiny.This essay looks at sanctions in the context of three ethical frameworks: just war doctrine, deontological ethics, and utilitarianism. It argues that sanctions are inconsistent with the principle of discrimination from just war doctrine; that sanctions reduce individuals to nothing more than means to an end by using the suffering of innocents as a means of persuasion, thereby violating the Kantian principle that human beings are “ends in themselves”; and that sanctions are unacceptable from a utilitarian perspective because their economic effectiveness necessarily entails considerable human damage, while their likelihood of achieving political objectives is low
A Peaceful, Silent, Deadly Remedy: The Ethics of Economic Sanctions (PDF Download Available). Available from: [accessed Jul 23, 2015].

Greek Truth Committee on Public Debt – Preliminary Report (Executive Summary)

Truth Committee on Public Debt

Preliminary report

The Truth Committee on Public Debt (Debt Truth Committee) was established on April 4, 2015, by a decision of the President of the Hellenic Parliament, Ms Zoe Konstantopoulou, who confided the Scientific Coordination of its work to Dr. Eric Toussaint and the cooperation of the Committee with the European Parliament and
other Parliaments and international organizations to MEP Ms Sofia Sakorafa.

Members of the Committee have convened in public and closed sessions, to produce this preliminary report, under the supervision of the scientific coordinator and with the cooperation and input of other members of the Committee, as well as experts and contributors.

The preliminary report chapters were coordinated by:

Bantekas Ilias
Contargyris Thanos
Fattorelli Maria Lucia
Husson Michel
Laskaridis Christina
Marchetos Spyros
Onaran Ozlem
Tombazos Stavros
Vatikiotis Leonidas
Vivien Renaud

With contributions from:
Aktypis Héraclès
Albarracin Daniel
Bonfond Olivier
Borja Diego
Cutillas Sergi
Gonçalves Alves Raphaël
Goutziomitros Fotis
Kasimatis Giorgos
Kazakos Aris
Lumina Cephas
Mitralias Sonia
Saurin Patrick
Sklias Pantelis
Spanou Despoina
Stromblos Nikos
Tzitzikou Sofia

The authors are grateful for the advice and input received from other members of the Truth Committee on Public Debt as well as other experts, who contributed to the Committee’s work during the public sessions and hearings and the closed or informal consultations.

The authors are grateful for the valuable assistance of Arnaoutis Petros Konstantinos, Aronis Charalambos, Bama Claudia, Karageorgiou Louiza, Makrygianni Antigoni and Papaioannou Stavros.

Executive Summary

In June 2015 Greece stands at a crossroads of choosing between furthering the failed macroeconomic adjustment programmes imposed by the creditors or making a real change to break the chains of debt. Five years since the economic adjustment programme began, the country remains deeply cemented in an economic, social, democratic and ecological crisis. The black box of debt has remained closed, and until a few months ago no authority, Greek or international, had sought to bring to light the truth about how and why Greece was subjected to the Troika regime. The debt, in the name of which nothing has been spared, remains the rule through which neoliberal adjustment is imposed, and the deepest and longest recession experienced in Europe during peacetime.

There is an immediate democratic need and social responsibility to address a range of legal, social and economic issues that demand proper consideration. In response, the President of the Hellenic Parliament established the Truth Committee on Public Debt (Debt Truth Committee) in April 2015, mandating the investigation into the creation and the increase of public debt, the way and reasons for which debt was contracted, and the impact that the conditionalities attached to the loans have had on the economy and the population. The Truth Committee has a mandate to raise awareness of issues pertaining to the Greek debt, both domestically and internationally, and to formulate arguments and options concerning the cancellation of the debt.

The research of the Committee presented in this preliminary report sheds light on the fact that the entire adjustment programme, to which Greece has been subjugated, was and remains a politically orientated programme. The technical exercise surrounding macroeconomic variables and debt projections, figures directly relating to people’s lives and livelihoods, has enabled discussions around the debt to remain at a technical level mainly revolving around the argument that the policies imposed on Greece will improve its capacity to pay the debt back. The facts presented in
this report challenge this argument.

All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and

It has also come to the understanding of the Committee that the unsustainability of the Greek public debt was evident from the outset to the international creditors, the Greek authorities, and the corporate media. Yet, the Greek authorities, together with some other governments in the EU, conspired against the restructuring of public debt in 2010 in order to protect financial institutions. The corporate media hid the truth from the public by depicting a situation in which the bailout was argued to benefit Greece, whilst spinning a narrative intended to portray the population as deservers of their own wrongdoings.

Bailout funds provided in both programmes of 2010 and 2012 have been externally managed through complicated schemes, preventing any fiscal autonomy. The use of the bailout money is strictly dictated by the creditors, and so, it is revealing that less than 10% of these funds have been destined to the government’s current expenditure.

This preliminary report presents a primary mapping out of the key problems and issues associated with the public debt, and notes key legal violations associated with the contracting of the debt; it also traces out the legal foundations, on which unilateral suspension of the debt payments can be based. The findings are presented in nine chapters structured as follows:

Chapter 1, Debt before the Troika, analyses the growth of the Greek public debt since the 1980s. It concludes that the increase in debt was not due to ex4 cessive public spending, which in fact remained lower than the public spending of other Eurozone countries, but rather due to the payment of extremely high rates of interest to creditors, excessive and unjustified military spending, loss of tax revenues due to illicit capital outflows, state recapitalization of private banks, and the international imbalances created via the flaws in the design of the Monetary Union itself. Adopting
the euro led to a drastic increase of private debt in Greece to which major European private banks as well as the Greek banks were exposed. A growing banking crisis contributed to the Greek sovereign debt crisis. George Papandreou’s government helped to present the elements of a banking crisis as a sovereign debt crisis in 2009 by emphasizing and boosting the public deficit and debt.

Chapter 2, Evolution of Greek public debt during 2010-2015, concludes that the first loan agreement of 2010, aimed primarily to rescue the Greek and other European private banks, and to allow the banks to reduce their exposure to Greek government bonds.

Chapter 3, Greek public debt by creditor in 2015, presents the contentious nature of Greece’s current debt, delineating the loans’ key characteristics, which are further analysed in Chapter 8.

Chapter 4, Debt System Mechanism in Greece reveals the mechanisms devised by the agreements that were implemented since May 2010. They created a substantial amount of new debt to bilateral creditors and the European Financial Stability Fund (EFSF), whilst generating abusive costs thus deepening the crisis further. The mechanisms disclose how the majority of borrowed funds were transferred directly to financial institutions. Rather than benefitting Greece, they have accelerated the privatization process, through the use of financial instruments.

Chapter 5, Conditionalities against sustainability, presents how the creditors imposed intrusive conditionalities attached to the loan agreements, which led directly to the economic unviability and unsustainability of debt. These conditionalities, on which the creditors still insist, have not only contributed to lower GDP as well as higher public borrowing, hence a higher public debt/GDP making Greece’s debt more
unsustainable, but also engineered dramatic changes in the society, and caused a humanitarian crisis. The Greek public debt can be considered as totally unsustainable at present.

Chapter 6, Impact of the “bailout programmes” on human rights, concludes that the measures implemented under the “bailout programmes” have directly affected living conditions of the people and violated human rights, which Greece and its partners are obliged to respect, protect and promote under domestic, regional and international law. The drastic adjustments, imposed on the Greek economy and society as a whole, have brought about a rapid deterioration of living standards, and remain incompatible with social justice, social cohesion, democracy and human rights.

Chapter 7, Legal issues surrounding the MoU and Loan Agreements, argues there has been a breach of human rights obligations on the part of Greece itself and the lenders, that is the Euro Area (Lender) Member States, the European Commission, the European Central Bank, and the International Monetary Fund, who imposed these measures on Greece. All these actors failed to assess the human rights violations as an outcome of the policies they obliged Greece to pursue, and also directly violated the Greek constitution by effectively stripping Greece of most of its sovereign rights. The agreements contain abusive clauses, effectively coercing Greece to surrender significant aspects of its sovereignty. This is imprinted in the choice of the English law as governing law for those agreements, which facilitated
the circumvention of the Greek Constitution and international human rights obligations. Conflicts with human rights and customary obligations, several indications of contracting parties acting in bad faith, which together with the unconscionable character of the agreements, render these agreements invalid.

Chapter 8, Assessment of the Debts as regards illegitimacy, odiousness, illegality, and unsustainability, provides an assessment of the Greek public debt according to the definitions regarding illegitimate, odious, illegal, and unsustainable debt adopted by the Committee.

Chapter 8 concludes that the Greek public debt as of June 2015 is unsustainable, since Greece is currently unable to service its debt without seriously impairing its capacity to fulfill its basic human rights obligations. Furthermore, for each creditor, the report provides evidence of indicative cases of illegal, illegitimate and odious debts.

Debt to the IMF should be considered illegal since its concession breached the IMF’s own statutes, and its conditions breached the Greek Constitution, international customary law, and treaties to which Greece is a party. It is also illegitimate, since conditions included policy prescriptions that infringed human rights obligations. Finally, it is odious since the IMF knew that the imposed measures were undemocratic, ineffective, and would lead to serious violations of socio-economic rights.

Debts to the ECB should be considered illegal since the ECB over-stepped its mandate by imposing the application of macroeconomic adjustment programmes (e.g. labour market deregulation) via its participation in the Troika. Debts to the ECB are also illegitimate and odious, since the principal raison d’etre of the Securities Market Programme (SMP) was to serve the interests of the financial institutions, allowing the major European and Greek private banks to dispose of their Greek bonds.

The EFSF engages in cash-less loans which should be considered illegal because Article 122(2) of the Treaty on the Functioning of the European Union (TFEU) was violated, and further they breach several socio-economic rights and civil liberties. Moreover, the EFSF Framework Agreement 2010 and the Master Financial Assistance Agreement of 2012 contain several abusive clauses revealing clear misconduct on the part of the lender. The EFSF also acts against democratic principles, rendering these particular debts illegitimate and odious.

The bilateral loans should be considered illegal since they violate the procedure provided by the Greek constitution. The loans involved clear misconduct by the lenders, and had conditions that contravened law or public policy. Both EU law and international law were breached in order to sideline human rights in the design of the macroeconomic programmes. The bilateral loans are furthermore illegitimate, since they were not used for the benefit of the population, but merely enabled the private creditors of Greece to be bailed out. Finally, the bilateral loans are odious since the lender states and the European Commission knew of potential violations, but in 2010 and 2012 avoided to assess the human rights impacts of the macroeconomic adjustment and fiscal consolidation that were the conditions for the loans.

The debt to private creditors should be considered illegal because private banks conducted themselves irresponsibly before the Troika came into being, failing to observe due diligence, while some private creditors such as hedge funds also acted in bad faith. Parts of the debts to private banks and hedge funds are illegitimate for the same reasons that they are illegal; furthermore, Greek banks were illegitimately recapitalized by tax-payers. Debts to private banks and hedge funds are odious, since major private creditors were aware that these debts were not incurred in the best interests of the population but rather for their own benefit. The report comes to a close with some practical considerations.

Chapter 9, Legal foundations for repudiation and suspension of the Greek sovereign debt, presents the options concerning the cancellation of debt, and especially the conditions under which a sovereign state can exercise the right to unilateral act of repudiation or suspension of the payment of debt under international law. Several legal arguments permit a State to unilaterally repudiate its illegal, odious, and illegitimate debt. In the Greek case, such a unilateral act may be based on the following arguments: the bad faith of the creditors that pushed Greece to violate national law and international obligations related to human rights; preeminence of human rights over agreements such as those signed by previous governments with creditors or the Troika; coercion; unfair terms flagrantly violating Greek sovereignty and violating the Constitution; and finally, the right recognized in international law for a State to take countermeasures against illegal acts by its creditors, which purposefully damage its fiscal sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate economic self-determination and fundamental human rights. As far as unsustainable debt is concerned, every state is legally entitled to invoke necessity in exceptional situations in order to safeguard those essential interests threatened by a grave and imminent peril. In such a situation, the State may be dispensed from the fulfilment of those international obligations that augment the peril, as is the case with outstanding loan contracts. Finally, states have the right to declare themselves unilaterally insolvent where the servicing of their debt is unsustainable, in which case they commit no wrongful act and hence bear no liability.

People’s dignity is worth more than illegal, illegitimate, odious and unsustainable debt.

Having concluded its preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.

Making this preliminary report available to the Greek authorities and the Greek people, the Committee considers to have fulfilled the first part of its mission as defined in the decision of the President of the Hellenic Parliament of 4 April 2015. The Committee hopes that the report will be a useful tool for those who want to exit the destructive logic of austerity and stand up for what is endangered today: human rights, democracy, peoples’ dignity, and the future of generations to come.

In response to those who impose unjust measures, the Greek people might invoke what Thucydides mentioned about the constitution of the Athenian people: “As for the name, it is called a democracy, for the administration is run with a view to the interests of the many, not of the few” (Pericles’ Funeral Oration, in the speech from Thucydides’ History of the Peloponnesian War).

Game with No Rules: Legal Imperialism against Russia (I)

Game with No Rules: Legal Imperialism against Russia (I)

Valentin KATASONOV | 17.02.2015 |

The term legal imperialism was coined in relation to the Argentina’s public debt. A New York court admitted a number of private claims to hand down a verdict. By a stroke of hand a judge increased the country’s debt up to $120 billion, according to experts’ estimates. The essence of legal imperialism is the support rendered by Anglo-Saxon legal system to financial vultures. 

Financial vultures vs. Argentina under the cover of American Themis

It all started in 2001. Argentina had to declare a sovereign default on around $130 billion. It was the biggest default on sovereign debt in history. The talks on restructuring started. As a result, the lenders agreed to write off the bulk of it (75%) and alter the conditions for paying off the rest. Some bondholders in possession of around $4 billion of Argentinian bonds refused to comply with the agreements’ terms. This included a small group of hedge funds holding over $1, 3 billion bonds headed by Elliott Management Corp. of billionaire Paul Singer. The hedge funds had already obtained the reputation of financial vultures. They acquired the bonds of the states that were on the verge of sovereign default or the ones already in default and then demanded 100% payments refusing to accept any compromises. The audacity is supported by the fact that they normally win the trials demanding 100% payments on the bonds. The vultures went to the New York court to sue Argentina for the whole amount without restructuring. In October 2012 the United States Court of Appeals for the Second Circuit (New York) ruled on the pari passu clause that required they receive full payment. Moreover it forbade Argentina to pay off its restructured debts till it complies with the court’s decision. It was an uphill struggle for Argentina as it realized that other lenders would demand full payments too. The country was a hostage because its bonds were issued in compliance with the laws of the state of New York. According to the court’s decision, Argentina faced the June 31, 2014 deadline when it was supposed to pay the next installment of interest to all bondholders. No settlement had been reached so the leading rating agencies greatly lowered the country’s investment rating. The regular payments by Argentina to comply with the conditions of restructured debt were blocked by the court’s ruling. Argentina refuses to comply while the fines keep on growing each passing day… 

Yukos case – first large-scale operation conducted by legal imperialism against Russia

The decision handed down by the Hague-based International Arbitration Court in the Russian oil giant Yukos case upon the claim of foreign shareholders is the example of how the legal imperialism works. Yukos ceased to exist as a legal entity in November 2007. For many years it avoided paying taxes. The taxes debts were to be paid in accordance with the court’s decision taken ten years ago. The company failed to comply. The bigger part of Yukos assets went to Russian oil producer Rosneft. Yukos foreign shareholders were disgruntled and went to courts abroad. Finally the claims were consolidated and sent to the Hague International Court. Initially the claimed sum was $114 billion (much more than the Yukos assets at the time of company’s liquidation). The Court let the claims be suspended, it was waiting for something. Finally it got what it was expecting. The West imposed sanctions against Russia in the spring of 2014. The court went back to the Yukos case and made public its verdict: Russia was to pay investors of the now non-existent company $50 billion – the largest compensation ever paid to shareholders upon an international arbitrary tribunal. According to the Court’s decision, Russia allegedly violated the Energy Charter Treaty and expropriated the company taking it from legal owners. A peculiar ruling in view that Russia never ratified the Charter. It is even more peculiar that the acquisition of the Yukos assets by another company is called «expropriation». In fact the verdict was an informal way of imposing sanctions by the West against Russia or the legal imperialism in force. As they say Russia was «put on the counter». After the ruling was announced Russia was given 180 days to comply. It did not. From January 15, the deadline set by the Court in the Hague for Russia to pay its fine, the fine will attract interest equal to the yield on a 10-year US Treasury bond. On January 15 the rate measured 1.91 percent. It means that the first year the sum of the debt will increase to $956, 6 million. That’s why over one billion dollars will surely be added to the $50 billion in 2015. 

The Hague Court ruling: what does it mean for Russia?

The appeals made by Russian lawyers brought about no result. The Hague Court’s decision was not taken into account in the 2015 budget. The opposite side is very active. Right after the Court’s decision the former Yukos shareholders were involved in interesting activities – they started to look for Russian assets to be used to pay the debt. Russia’s state foreign assets could be confiscated. The Rosneft assets are to be arrested first, other companies with state participation (VTB, Gasprom, Aeroflot, VAB etc.) second and state agencies third. Embassies have immunity unlike ships visiting foreign ports. 

Nobody cares about the fact that there are few companies with 100% state participation. There are non-state minority shareholders and the expropriation of companies’ assets would constitute a violation of their property rights. This is a classic game without rules. Actually there is one – punish Russia at any cost. 

Legal imperialism as effective informal sanction against Russia

There have been three packages of sanctions introduced against Russia. Experts believe that the fourth will also come into effect. I don’t think so. The matter is – informal sanctions are more effective. There will be new claims to Russia, its companies and banks. Russian individuals and legal entities will be blacklisted; Western courts will hand down decisions on expropriating their foreign assets. The «case of Rotenberg» will be repeated. In the spring of 2014 Russian entrepreneur Arkady Rotenberg was blacklisted during the first wave of sanctions. In September Italian courts handed down a decision to arrest and confiscate his €30m assets. The March sanctions envisioned a ban on entering the territories of the countries that imposed sanctions and seizing the bank accounts of blacklisted persons. In the case of Rotenberg they took away his real estate that had no relation to business. I emphasize it to show that legal imperialism is a war without rules waged to satisfy the desire to plunder. In general, that’s how the algothytm of legal marauding works: 

1) A Western vulture chooses an asset that belongs to a Russian legal entity of individual; 

2) The vulture makes the Russian owner blacklisted;

3) A Western court hands down a decision to seize the asset;

4) The court’s decision is carried out; the asset becomes the property of the vulture. 

Black lists as an instrument of legal imperialism

There are different grounds for being included into black lists: «suspicion of corruption involvement», «complicity in the annexation of Crimea and aggression against Ukraine», «the violation of human rights», «ties with terrorists» etc. The US has already introduced special laws, for instance, «the Magnitsky Act» allowing making lists of those who had connection to the death of lawyer Sergey Magnitsky. The lawyer represented the investment advisory firm Hermitage Capital Management. In 2008 he was arrested accused of few billion roubles tax evasion. He died in a prison cell. The West made him a martyr and responded with black lists. 

Not the United States is mulling a possibility to turn the Magnitsky Act into a universal instrument of fighting Russia under the banner of defending human rights. It is planned to include into the list not only those who did anything wrong to Magnitsky, but also Alexey Navalny and his associates in «the struggle against totalitarianism». Washington wants to kill two birds with one stone: a) to exert political pressure on Russia; b) to reap benefit by seizing the assets of the persons included into the black lists (the Magnitsky Act envisions a ban on entry into the country and arrest of bank accounts). They want to get more out of it. It is considered to go beyond seizing the bank accounts but also spread the sanctions on bonds and equity. 

(To be continued)

The Russian Loan and the IMF’s One-Two Punch: Ukraine Denouement

The Russian Loan and the IMF’s One-Two Punch

Ukraine Denouement


The fate of Ukraine is now shifting from the military battlefield back to the arena that counts most: that of international finance. Kiev is broke, having depleted its foreign reserves on waging war that has destroyed its industrial export and coal mining capacity in the Donbass (especially vis-à-vis Russia, which normally has bought 38 percent of Ukraine’s exports). Deeply in debt (with €3 billion falling due on December 20 to Russia), Ukraine faces insolvency if the IMF and Europe do not release new loans next month to pay for new imports as well as Russian and foreign bondholders.

Finance Minister Natalia Yaresko announced on Friday that she hopes to see the money begin to flow in by early March.[1] But Ukraine must meet conditions that seem almost impossible: It must implement an honest budget and start reforming its corrupt oligarchs (who dominate in the Rada and control the bureaucracy), implement more austerity, abolish its environmental protection, and make its industry “attractive” to foreign investors to buy Ukraine’s land, natural resources, monopolies and other assets, presumably at distress prices in view of the country’s recent devastation.

Looming over the IMF loan is the military situation. On January 28, Christine Lagarde said that the IMF would not release more money as long as Ukraine remains at war. Cessation of fighting was to begin Sunday morning. But Right Sector leader Dmytro Yarosh announced that his private army and that of the Azov Battalion will ignore the Minsk agreement and fight against Russian-speakers. He remains a major force within the Rada.

How much of Ukraine’s budget will be spent on arms? Germany and France made it clear that they oppose further U.S. military adventurism in Ukraine, and also oppose NATO membership. But will Germany follow through on its threat to impose sanctions on Kiev in order to stop a renewal of the fighting? For the United States bringing Ukraine into NATO would be the coup de grace blocking creation of a Eurasian powerhouse integrating the Russian, German and other continental European economies.

The Obama administration is upping the ante and going for broke, hoping that Europe has no alternative but to keep acquiescing. But the strategy is threatening to backfire. Instead of making Russia “lose Europe,” the United States may have overplayed its hand so badly that one can now think about the opposite prospect. The Ukraine adventure turn out to be the first step in the United States losing Europe. It may end up splitting European economic interests away from NATO, if Russia can convince the world that the epoch of armed occupation of industrial nations is a thing of the past and hence no real military threat exists – except for Europe being caught in the middle of Cold War 2.0.

For the U.S. geopolitical strategy to succeed, it would be necessary for Europe, Ukraine and Russia to act against their own potential economic self-interest. How long can they be expected to acquiesce in this sacrifice? At what point will economic interests lead to a reconsideration of old geo-military alliances and personal political loyalties?

The is becoming urgent because this is the first time that continental Europe has been faced with such war on its own borders (if we except Yugoslavia). Where is the advantage for Europe supporting one of the world’s most corrupt oligarchies north of the Equator?

America’s Ukrainian adventure by Hillary’s appointee Victoria Nuland (kept on and applauded by John Kerry), as well as by NATO, is forcing Europe to commit itself to the United States or pursue an independent line. George Soros (whose aggressive voice is emerging as the Democratic Party’s version of Sheldon Adelson) recently urged (in the newly neocon New York Review of Books) that the West give Ukraine $50 billion to re-arm, and to think of this as a down payment on military containment of Russia. The aim is old Brzezinski strategy: to foreclose Russian economic integration with Europe. The assumption is that economic alliances are at least potentially military, so that any power center raises the threat of economic and hence political independence.

The Financial Times quickly jumped on board for Soros’s $50 billion subsidy.[2] When President Obama promised that U.S. military aid would be only for “defensive arms,” Kiev clarified that it intended to defend Ukraine all the way to Siberia to create a “sanitary cordon.”

First Confrontation: Will the IMF Loan Agreement try to stiff Russia?

The IMF has been drawn into U.S. confrontation with Russia in its role as coordinating Kiev foreign debt refinancing. It has stated that private-sector creditors must take a haircut, given that Kiev can’t pay the money its oligarchs have either stolen or spent on war. But what of the €3 billion that Russia’s sovereign wealth fund loaned Ukraine, under London rules that prevent such haircuts? Russia has complained that Ukraine’s budget makes no provision for payment. Will the IMF accept this budget as qualifying for a bailout, treating Russia as an odious creditor? If so, what kind of legal precedent would this set for sovereign debt negotiations in years to come?

International debt settlement rules were thrown into a turmoil last year when U.S. Judge Griesa gave a highly idiosyncratic interpretation of the pari passu clause with regard to Argentina’s sovereign debts. The clause states that all creditors must be treated equally. According to Griesa (uniquely), this means that if any creditor or vulture fund refuses to participate in a debt writedown, no such agreement can be reached and the sovereign government cannot pay any bondholders anywhere in the world, regardless of what foreign jurisdiction the bonds were issued under.

This bizarre interpretation of the “equal treatment” principle has never been strictly applied. Inter-governmental debts owed to the IMF, ECB and other international agencies have not been written down in keeping with private-sector debts. Russia’s loan was carefully framed in keeping with London rules. But U.S. diplomats have been openly – indeed, noisily and publicly – discussing how to “stiff” Russia. They even have thought about claiming that Russia’s Ukraine loans (to help it pay for gas to operate its factories and heat its homes) are an odious debt, or a form of foreign aid, or subject to anti-Russian sanctions. The aim is to make Russia “less equal,” transforming the concept of pari passu as it applies to sovereign debt.

Just as hedge funds jumped into the fray to complicate Argentina’s debt settlement, so speculators are trying to make a killing off Ukraine’s financial corpse, seeing this gray area opened up. The Financial Times reports that one American investor, Michael Hasenstab, has $7 billion of Ukraine debts, along with Templeton Global Bond Fund.[3] New speculators may be buying Ukrainian debt at half its face value, hoping to collect in full if Russia is paid in full – or at least settle for a few points’ quick run-up.

The U.S.-sponsored confusion may tie up Russia’s financial claims in court for years, just as has been the case with Argentina’s debt. At stake is the IMF’s role as debt coordinator: Will it insist that Russia take the same haircut that it’s imposing on private hedge funds?

This financial conflict is becoming a new mode of warfare. Lending terms are falling subject to New Cold War geopolitics. This battlefield has been opened up by U.S. refusal in recent decades to endorse the creation of any international body empowered to judge the debt-paying capacity of countries. This makes every sovereign debt crisis a grab bag that the U.S. Treasury can step in to dominate. It endorses keeping countries in the U.S. diplomatic orbit afloat (although on a short leash), but not countries that maintain an independence from U.S. policies (e.g., Argentina and BRICS members).

Looking forward, this position threatens to fracture global finance into a U.S. currency sphere and a BRICS sphere. The U.S. has opposed creation of any international venue to adjudicate the debt-paying capacity of debtor nations. Other countries are pressing for such a venue in order to save their economies from the present anarchy. U.S. diplomats see anarchy as offering an opportunity to bring U.S. diplomacy to bear to reward friends and punish non-friends and “independents.” The resulting financial anarchy is becoming untenable in the wake of Argentina, Greece, Ireland, Spain, Portugal, Italy and other sovereign debtors whose obligations are unpayably high.

The IMF’s One-Two Punch leading to privatization sell-offs to rent extractors            

IMF loans are made mainly to enable governments to pay foreign bondholders and bankers, not spend on social programs or domestic economic recovery. Sovereign debtors must agree to IMF “conditionalities” in order to get enough credit to enable bondholders to take their money and run, avoiding haircuts and leaving “taxpayers” to bear the cost of capital flight and corruption.

The first conditionality is the guiding principle of neoliberal economics: that foreign debts can be paid by squeezing out a domestic budget surplus. The myth is that austerity programs and cuts in public spending will enable governments to pay foreign-currency debts – as if there is no “transfer problem.”

The reality is that austerity causes deeper economic shrinkage and widens the budget deficit. And no matter how much domestic revenue the government squeezes out of the economy, it can pay foreign debts only in two ways: by exporting more, or by selling its public domain to foreign investors. The latter option leads to privatizing public infrastructure, replacing subsidized basic services with rent-extraction and future capital flight. So the IMF’s “solution” to the deb problem has the effect of making it worse – requiring yet further privatization sell-offs.

This is why the IMF has been wrong in its economic forecasts for Ukraine year after year, just as its prescriptions have devastated Ireland and Greece, and Third World economies from the 1970s onward. Its destructive financial policy must be seen as deliberate, not an innocent forecasting error. But the penalty for following this junk economics must be paid by the indebted victim.

In the wake of austerity, the IMF throws its Number Two punch. The debtor economy must pay by selling off whatever assets the government can find that foreign investors want. For Ukraine, investors want its rich farmland. Monsanto has been leasing its land and would like to buy. But Ukraine has a law against alienating its farmland and agricultural land to foreigners. The IMF no doubt will insist on repeal of this law, along with Ukraine’s dismantling of public regulations against foreign investment.

International finance as war

The Ukraine-IMF debt negotiation shows is why finance has become the preferred mode of geopolitical warfare. Its objectives are the same as war: appropriation of land, raw materials (Ukraine’s gas rights in the Black Sea) and infrastructure (for rent-extracting opportunities) as well as the purchase of banks.

The IMF has begun to look like an office situated in the Pentagon, renting a branch office on Wall Street from Democratic Party headquarters, with the rent paid by Soros. His funds are drawing up a list of assets that he and his colleagues would like to buy from Ukrainian oligarchs and the government they control. The buyout payments for partnership with the oligarchs will not stay in Ukraine, but will be moved quickly to London, Switzerland and New York. The Ukrainian economy will lose the national patrimony with which it emerged from the Soviet Union in 1991, still deeply in debt (mainly to its own oligarchs operating out of offshore banking centers).

Where does this leave European relations with the United States and NATO?

The two futures

A generation ago the logical future for Ukraine and other post-Soviet states promised to be an integration into the German and other West European economies. This seemingly natural complementarity would see the West modernize Russian and other post-Soviet industry and agriculture (and construction as well) to create a self-sufficient and prosperous Eurasian regional power. Foreign Minister Lavrov recently voiced Russia’s hope at the Munich Security Conference for a common Eurasian Union with the European Union extending from Lisbon to Vladivostok. German and other European policy looked Eastward to invest its savings in the post-Soviet states.

This hope was anathema to U.S. neocons, who retain British Victorian geopolitics opposing the creation of any economic power center in Eurasia. That was Britain’s nightmare prior to World War I, and led it to pursue a diplomacy aimed at dividing and conquering continental Europe to prevent any dominant power or axis from emerging.

America started its Ukrainian strategy with the idea of splitting Russia off from Europe, and above all from Germany. In the U.S. playbook is simple: Any economic power is potentially military; and any military power may enable other countries to pursue their own interest rather than subordinating their policy to U.S. political, economic and financial aims. Therefore, U.S. geostrategists view any foreign economic power as a potentially military threat, to be countered before it can gain steam.

We can now see why the EU/IMF austerity plan that Yanukovich rejected made it clear why the United States sponsored last February’s coup in Kiev. The austerity that was called for, the removal of consumer subsidies and dismantling of public services would have led to an anti-West reaction turning Ukraine strongly back toward Russia. The Maidan coup sought to prevent this by making a war scar separating Western Ukraine from the East, leaving the country seemingly no choice but to turn West and lose its infrastructure to the privatizers and neo-rentiers.

But the U.S. plan may lead Europe to seek an economic bridge to Russia and the BRICS, away from the U.S. orbit. That is the diplomatic risk when a great power forces other nations to choose one side or the other.

The silence from Hillary

Having appointed Valery Nuland as a holdover from the Cheney administration, Secretary of State Hillary Clinton joined the hawks by likening Putin to Hitler. Meanwhile, Soros’s $10 million on donations to the Democratic Party makes him one of its largest donors. The party thus seems set to throw down the gauntlet with Europe over the shape of future geopolitical diplomacy, pressing for a New Cold War.

Hillary’s silence suggests that she knows how unpopular her neocon policy is with voters – but how popular it is with her donors. The question is, will the Republicans agree to not avoid discussing this during the 2016 presidential campaign? If so, what alternative will voters have next year?

This prospect should send shivers down Europe’s back. There are reports that Putin told Merkel and Holland in Minsk last week that Western Europe has two choices. On the one hand, it and Russia can create a prosperous economic zone based on Russia’s raw materials and European technology. Or, Europe can back NATO’s expansion and draw Russia into war that will wipe it out.

German officials have discussed bringing sanctions against Ukraine, not Russia, if it renews the ethnic warfare in its evident attempt to draw Russia in. Could Obama’s neocon strategy backfire, and lose Europe? Will future American historians talk of who lost Europe rather than who lost Russia?

Michael Hudson’s book summarizing his economic theories, “The Bubble and Beyond,” is now available in a new edition with two bonus chapters on Amazon. His latest book is Finance Capitalism and Its Discontents.  He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. He can be reached via his website,


[1] Fin min hopes Ukraine will get new IMF aid in early March – Interfax,

5:40AM ET on Friday Feb 13, 2015 by Thomson Reuters

[2] “The west needs to rescue the Ukrainian economy,” Financial Times editorial, February 12, 2015.

[3] Elaine Moore, “Contrarian US investor with $7bn of debt stands to lose most if Kiev imposes haircut,” Financial Times, February 12, 2015.


The US’ Dark Empire Has Secret Operations in Over 100 Countries

The US’ Dark Empire Has Secret Operations in Over 100 Countries

The United States deployed special forces to 70 percent of the nations on earth.

By Nick Turse / Tom Dispatch. January 24, 2015

In the dead of night, they swept in aboard V-22 Osprey tilt-rotor aircraft. Landing in a remote region of one of the most volatile countries on the planet, they raided a village and soon found themselves in a life-or-death firefight.  It was the second time in two weeks that elite U.S. Navy SEALs had attempted to rescue American photojournalist Luke Somers. And it was the second time they failed.

On December 6, 2014, approximately 36 of America’s top commandos, heavily armed, operating with intelligence from satellites, drones, and high-tech eavesdropping, outfitted with night vision goggles, and backed up by elite Yemeni troops, went toe-to-toe with about six militants from al-Qaeda in the Arabian Peninsula. When it was over, Somers was dead, along with Pierre Korkie, a South African teacher due to be set free the next day. Eight civilians were also killed by the commandos, according to local reports. Most of the militants escaped.

That blood-soaked episode was, depending on your vantage point, an ignominious end to a year that saw U.S. Special Operations forces deployed at near record levels, or an inauspicious beginning to a new year already on track to reach similar heights, if not exceed them.

During the fiscal year that ended on September 30, 2014, U.S. Special Operations forces (SOF) deployed to 133 countries — roughly 70% of the nations on the planet — according to Lieutenant Colonel Robert Bockholt, a public affairs officer with U.S. Special Operations Command (SOCOM). This capped a three-year span in which the country’s most elite forces were active in more than 150 different countries around the world, conducting missions ranging from kill/capture night raids to training exercises. And this year could be a record-breaker. Only a day before the failed raid that ended Luke Somers life — just 66 days into fiscal 2015 — America’s most elite troops had already set foot in 105 nations, approximately 80% of 2014’s total.

Despite its massive scale and scope, this secret global war across much of the planet is unknown to most Americans. Unlike the December debacle in Yemen, the vast majority of special ops missions remain completely in the shadows, hidden from external oversight or press scrutiny.  In fact, aside from modest amounts of information disclosed through highly-selective coverage by military media, official White House leaks, SEALs with something to sell, and a few cherry-picked journalists reporting on cherry-picked opportunities, much of what America’s special operators do is never subjected to meaningful examination, which only increases the chances of unforeseen blowback and catastrophic consequences.

The Golden Age

“The command is at its absolute zenith. And it is indeed a golden age for special operations.” Those were the words of Army General Joseph Votel III, a West Point graduate and Army Ranger, as he assumed command of SOCOM last August.

His rhetoric may have been high-flown, but it wasn’t hyperbole. Since September 11, 2001, U.S. Special Operations forces have grown in every conceivable way, including their numbers, their budget, their clout in Washington, and their place in the country’s popular imagination.  The command has, for example, more than doubled its personnel from about 33,000 in 2001 to nearly 70,000 today, including a jump of roughly 8,000 during the three-year tenure of recently retired SOCOM chief Admiral William McRaven.

Those numbers, impressive as they are, don’t give a full sense of the nature of the expansion and growing global reach of America’s most elite forces in these years.  For that, a rundown of the acronym-ridden structure of the ever-expanding Special Operations Command is in order. The list may be mind-numbing, but there is no other way to fully grasp its scope.

The lion’s share of SOCOM’s troops are Rangers, Green Berets, and other soldiers from the Army, followed by Air Force air commandos, SEALs, Special Warfare Combatant-Craft Crewmen and support personnel from the Navy, as well as a smaller contingent of Marines. But you only get a sense of the expansiveness of the command when you consider the full range of “sub-unified commands” that these special ops troops are divided among: the self-explanatory SOCAFRICA; SOCEUR, the European contingent; SOCKOR, which is devoted strictly to Korea; SOCPAC, which covers the rest of the Asia-Pacific region; SOCSOUTH, which conducts missions in Central America, South America, and the Caribbean; SOCCENT, the sub-unified command of U.S. Central Command (CENTCOM) in the Middle East; SOCNORTH, which is devoted to “homeland defense”; and the globe-trotting Joint Special Operations Command or JSOC — a clandestine sub-command (formerly headed by McRaven and then Votel) made up of personnel from each service branch, including SEALs, Air Force special tactics airmen, and the Army’s Delta Force, that specializes in tracking and killing suspected terrorists.

And don’t think that’s the end of it, either. As a result of McRaven’s push to create “a Global SOF network of like-minded interagency allies and partners,” Special Operations liaison officers, or SOLOs, are now embedded in 14 key U.S. embassies to assist in advising the special forces of various allied nations. Already operating in Australia, Brazil, Canada, Colombia, El Salvador, France, Israel, Italy, Jordan, Kenya, Poland, Peru, Turkey, and the United Kingdom, the SOLO program is poised, according to Votel, to expand to 40 countries by 2019. The command, and especially JSOC, has also forged close ties with the Central Intelligence Agency, the Federal Bureau of Investigation, and the National Security Agency, among others.

Shadow Ops

Special Operations Command’s global reach extends further still, with smaller, more agile elements operating in the shadows from bases in the United States to remote parts of Southeast Asia, from Middle Eastern outposts to austere African camps. Since 2002, SOCOM has also been authorized to create its own Joint Task Forces, a prerogative normally limited to larger combatant commands like CENTCOM.  Take, for instance, Joint Special Operations Task Force-Philippines (JSOTF-P) which, at its peak, had roughly 600 U.S. personnel supporting counterterrorist operations by Filipino allies against insurgent groups like Abu Sayyaf. After more than a decade spent battling that group, its numbers have been diminished, but it continues to be active, while violence in the region remains virtually unaltered.

A phase-out of the task force was actually announced in June 2014. “JSOTF-P will deactivate and the named operation OEF-P [Operation Enduring Freedom-Philippines] will conclude in Fiscal Year 2015,” Votel told the Senate Armed Services Committee the next month. “A smaller number of U.S. military personnel operating as part of a PACOM [U.S. Pacific Command] Augmentation Team will continue to improve the abilities of the PSF [Philippine Special Forces] to conduct their CT [counterterrorism] missions…”  Months later, however, Joint Special Operations Task Force-Philippines remained up and running. “JSOTF-P is still active although the number of personnel assigned has been reduced,” Army spokesperson Kari McEwen told reporter Joseph Trevithick of War Is Boring.

Another unit, Special Operations Joint Task Force-Bragg, remained in the shadows for years before its first official mention by the Pentagon in early 2014. Its role, according to SOCOM’s Bockholt, is to “train and equip U.S. service members preparing for deployment to Afghanistan to support Special Operations Joint Task Force-Afghanistan.” That latter force, in turn, spent more than a decade conducting covert or “black” ops “to prevent insurgent activities from threatening the authority and sovereignty of” the Afghan government. This meant night raids and kill/capture missions — often in concert with elite Afghan forces — that led to the deaths of unknown numbers of combatants and civilians. In response to popular outrage against the raids, Afghan President Hamid Karzai largely banned them in 2013.

U.S. Special Operations forces were to move into a support role in 2014, letting elite Afghan troops take charge. “We’re trying to let them run the show,” Colonel Patrick Roberson of the Afghanistan task force told USA Today. But according to LaDonna Davis, a spokesperson with the task force, America’s special operators were still leading missions last year. The force refuses to say how many missions were led by Americans or even how many operations its commandos were involved in, though Afghan special operations forces reportedly carried out as many as 150 missions each month in 2014. “I will not be able to discuss the specific number of operations that have taken place,” Major Loren Bymer of Special Operations Joint Task Force-Afghanistan told TomDispatch. “However, Afghans currently lead 96% of special operations and we continue to train, advise, and assist our partners to ensure their success.”

And lest you think that that’s where the special forces organizational chart ends, Special Operations Joint Task Force-Afghanistan has five Special Operations Advisory Groups “focused on mentoring and advising our ASSF [Afghan Special Security Force] partners,” according to Votel.  “In order to ensure our ASSF partners continue to take the fight to our enemies, U.S. SOF must be able to continue to do some advising at the tactical level post-2014 with select units in select locations,” he told the Senate Armed Services Committee. Indeed, last November, Karzai’s successor Ashraf Ghani quietly lifted the night raid ban, opening the door once again to missions with U.S. advisors in 2015.

There will, however, be fewer U.S. special ops troops available for tactical missions. According to then Rear-, now Vice-Admiral Sean Pybus, SOCOM’s Deputy Commander, about half the SEAL platoons deployed in Afghanistan were, by the end of last month, to be withdrawn and redeployed to support “the pivot in Asia, or work the Mediterranean, or the Gulf of Guinea, or into the Persian Gulf.” Still, Colonel Christopher Riga, commander of the 7th Special Forces Group, whose troops served with the Combined Joint Special Operations Task Force-Afghanistan near Kandahar last year, vowed to soldier on. “There’s a lot of fighting that is still going on in Afghanistan that is going to continue,” he said at an awards ceremony late last year. “We’re still going to continue to kill the enemy, until we are told to leave.”

Add to those task forces the Special Operations Command Forward (SOC FWD) elements, small teams which, according to the military, “shape and coordinate special operations forces security cooperation and engagement in support of theater special operations command, geographic combatant command, and country team goals and objectives.” SOCOM declined to confirm the existence of SOC FWDs, even though there has been ample official evidence on the subject and so it would not provide a count of how many teams are currently deployed across the world. But those that are known are clustered in favored black ops stomping grounds, including SOC FWD Pakistan, SOC FWD Yemen, and SOC FWD Lebanon, as well as SOC FWD East Africa, SOC FWD Central Africa, and SOC FWD West Africa.

Africa has, in fact, become a prime locale for shadowy covert missions by America’s special operators. “This particular unit has done impressive things. Whether it’s across Europe or Africa taking on a variety of contingencies, you are all contributing in a very significant way,” SOCOM’s commander, General Votel, told members of the 352nd Special Operations Group at their base in England last fall.

The Air Commandos are hardly alone in their exploits on that continent. Over the last years, for example, SEALs carried out a successful hostage rescue mission in Somalia and a kidnap raid there that went awry. In Libya, Delta Force commandos successfully captured an al-Qaeda militant in an early morning raid, while SEALs commandeered an oil tanker with cargo from Libya that the weak U.S.-backed government there considered stolen. Additionally, SEALs conducted a failed evacuation mission in South Sudan in which its members were wounded when the aircraft in which they were flying was hit by small arms fire. Meanwhile, an elite quick-response force known as Naval Special Warfare Unit 10 (NSWU-10) has been engaged with “strategic countries” such as Uganda, Somalia, and Nigeria.

A clandestine Special Ops training effort in Libya imploded when militia or “terrorist” forces twice raided its camp, guarded by the Libyan military, and looted large quantities of high-tech American equipment, hundreds of weapons — including Glock pistols, and M4 rifles — as well as night vision devices and specialized lasers that can only be seen with such equipment. As a result, the mission was scuttled and the camp was abandoned. It was then reportedly taken over by a militia.

In February of last year, elite troops traveled to Niger for three weeks of military drills as part of Flintlock 2014, an annual Special Ops counterterrorism exercise that brought together the forces of the host nation, Canada, Chad, France, Mauritania, the Netherlands, Nigeria, Senegal, the United Kingdom, and Burkina Faso. Several months later, an officer from Burkina Faso, who received counterterrorism training in the U.S. under the auspices of SOCOM’s Joint Special Operations University in 2012, seized power in a coup. Special Ops forces, however, remained undaunted. Late last year, for example, under the auspices of SOC FWD West Africa, members of 5th Battalion, 19th Special Forces Group, partnered with elite Moroccan troops for training at a base outside of Marrakech.

A World of Opportunities

Deployments to African nations have, however, been just a part of the rapid growth of the Special Operations Command’s overseas reach. In the waning days of the Bush presidency, under then-SOCOM chief Admiral Eric Olson, Special Operations forces were reportedly deployed in about 60 countries around the world. By 2010, that number had swelled to 75, according to Karen DeYoung and Greg Jaffe of the Washington Post. In 2011, SOCOM spokesman Colonel Tim Nye told TomDispatch that the total would reach 120 by the end of the year. With Admiral William McRaven in charge in 2013, then-Major Robert Bockholt told TomDispatch that the number had jumped to 134. Under the command of McRaven and Votel in 2014, according to Bockholt, the total slipped ever-so-slightly to 133. Outgoing Defense Secretary Chuck Hagel noted, however, that under McRaven’s command — which lasted from August 2011 to August 2014 — special ops forces deployed to more than 150 different countries. “In fact, SOCOM and the entire U.S. military are more engaged internationally than ever before — in more places and with a wider variety of missions,” he said in an August 2014 speech.

He wasn’t kidding. Just over two months into fiscal 2015, the number of countries with Special Ops deployments has already clocked in at 105, according to Bockholt.

SOCOM refused to comment on the nature of its missions or the benefits of operating in so many nations. The command would not even name a single country where U.S. special operations forces deployed in the last three years. A glance at just some of the operations, exercises, and activities that have come to light, however, paints a picture of a globetrotting command in constant churn with alliances in every corner of the planet.

In January and February, for example, members of the 7th Special Forces Group and the 160th Special Operations Aviation Regiment conducted a month-long Joint Combined Exchange Training (JCET) with forces from Trinidad and Tobago, while troops from the 353rd Special Operations Group joined members of the Royal Thai Air Force for Exercise Teak Torch in Udon Thani, Thailand. In February and March, Green Berets from the 20th Special Forces Group trained with elite troops in the Dominican Republic as part of a JCET.

In March, members of Marine Special Operations Command and Naval Special Warfare Unit 1 took part in maneuvers aboard the guided-missile cruiser USS Cowpens as part of Multi-Sail 2014, an annual exercise designed to support “security and stability in the Indo-Asia-Pacific region.” That same month, elite soldiers, sailors, airmen, and marines took part in a training exercise code-named Fused Response with members of the Belizean military. “Exercises like this build rapport and bonds between U.S. forces and Belize,” said Air Force Lieutenant Colonel Heber Toro of Special Operations Command South afterward.

In April, soldiers from the 7th Special Forces Group joined with Honduran airborne troops for jump training — parachuting over that country’s Soto Cano Air Base. Soldiers from that same unit, serving with the Afghanistan task force, also carried out shadowy ops in the southern part of that country in the spring of 2014. In June, members of the 19th Special Forces Group carried out a JCET in Albania, while operators from Delta Force took part in the mission that secured the release of Army Sergeant Bowe Bergdahl in Afghanistan. That same month, Delta Force commandos helped kidnap Ahmed Abu Khattala, a suspected “ringleader” in the 2012 terrorist attacks in Benghazi, Libya, that killed four Americans, while Green Berets deployed to Iraq as advisors in the fight against the Islamic State.

In June and July, 26 members of the 522nd Special Operations Squadron carried out a 28,000-mile, four-week, five-continent mission which took them to Sri Lanka, Tanzania, and Japan, among other nations, to escort three “single-engine [Air Force Special Operations Command] aircraft to a destination in the Pacific Area of Responsibility.” In July, U.S. Special Operations forces traveled to Tolemaida, Colombia, to compete against elite troops from 16 other nations — in events like sniper stalking, shooting, and an obstacle course race — at the annual Fuerzas Comando competition.

In August, soldiers from the 20th Special Forces Group conducted a JCET with elite units from Suriname. “We’ve made a lot of progress together in a month. If we ever have to operate together in the future, we know we’ve made partners and friends we can depend upon,” said a senior noncommissioned officer from that unit. In Iraq that month, Green Berets conducted a reconnaissance mission on Mount Sinjar as part an effort to protect ethnic Yazidis from Islamic State militants, while Delta Force commandos raided an oil refinery in northern Syria in a bid to save American journalist James Foley and other hostages held by the same group. That mission was a bust and Foley was brutally executed shortly thereafter.

In September, about 1,200 U.S. special operators and support personnel joined with elite troops from the Netherlands, the Czech Republic, Finland, Great Britain, Lithuania, Norway, Poland, Sweden, and Slovenia for Jackal Stone, a training exercise that focused on everything from close quarters combat and sniper tactics to small boat operations and hostage rescue missions. In September and October, Rangers from the 3rd Battalion, 75th Ranger Regiment deployed to South Korea to practice small unit tactics like clearing trenches and knocking out bunkers. During October, Air Force air commandos also conducted simulated hostage rescue missions at the Stanford Training Area near Thetford, England. Meanwhile, in international waters south of Cyprus, Navy SEALs commandeered that tanker full of oil loaded at a rebel-held port in Libya. In November, U.S. commandos conducted a raid in Yemen that freed eight foreign hostages. The next month, SEALs carried out the blood-soaked mission that left two hostages, including Luke Somers, and eight civilians dead. And these, of course, are only some of the missions that managed to make it into the news or in some other way onto the record.

Everywhere They Want to Be

To America’s black ops chiefs, the globe is as unstable as it is interconnected. “I guarantee you what happens in Latin America affects what happens in West Africa, which affects what happens in Southern Europe, which affects what happens in Southwest Asia,” McRaven told last year’s Geolnt, an annual gathering of surveillance-industry executives and military personnel. Their solution to interlocked instability?  More missions in more nations — in more than three-quarters of the world’s countries, in fact — during McRaven’s tenure. And the stage appears set for yet more of the same in the years ahead. “We want to be everywhere,” said Votel at Geolnt. His forces are already well on their way in 2015.

“Our nation has very high expectations of SOF,” he told special operators in England last fall. “They look to us to do the very hard missions in very difficult conditions.” The nature and whereabouts of most of those “hard missions,” however, remain unknown to Americans. And Votel apparently isn’t interested in shedding light on them. “Sorry, but no,” was SOCOM’s response to TomDispatch’s request for an interview with the special ops chief about current and future operations. In fact, the command refused to make any personnel available for a discussion of what it’s doing in America’s name and with taxpayer dollars. It’s not hard to guess why.

Votel now sits atop one of the major success stories of a post-9/11 military that has been mired in winless wars, intervention blowback, rampant criminal activity, repeated leaks of embarrassing secrets, and all manner of shocking scandals. Through a deft combination of bravado and secrecy, well-placed leaks, adroit marketing and public relations efforts, the skillful cultivation of a superman mystique (with a dollop of tortured fragility on the side), and one extremely popular, high-profile, targeted killing, Special Operations forces have become the darlings of American popular culture, while the command has been a consistent winner in Washington’s bare-knuckled budget battles.

This is particularly striking given what’s actually occurred in the field: in Africa, the arming and outfitting of militants and the training of a coup leader; in Iraq, America’s most elite forces were implicated in torture, the destruction of homes, and the killing and wounding of innocents; in Afghanistan, it was a similar story, with repeated reports of civilian deaths; while in Yemen, Pakistan, and Somalia it’s been more of the same. And this only scratches the surface of special ops miscues.  

In 2001, before U.S. black ops forces began their massive, multi-front clandestine war against terrorism, there were 33,000 members of Special Operations Command and about 1,800 members of the elite of the elite, the Joint Special Operations Command. There were then also 23 terrorist groups — from Hamas to the Real Irish Republican Army — as recognized by the State Department, including al-Qaeda, whose membership was estimated at anywhere from 200 to 1,000. That group was primarily based in Afghanistan and Pakistan, although small cells had operated in numerous countries including Germany and the United States.

After more than a decade of secret wars, massive surveillance, untold numbers of night raids, detentions, and assassinations, not to mention billions upon billions of dollars spent, the results speak for themselves. SOCOM has more than doubled in size and the secretive JSOC may be almost as large as SOCOM was in 2001. Since September of that year, 36 new terror groups have sprung up, including multiple al-Qaeda franchises, offshoots, and allies. Today, these groups still operate in Afghanistan and Pakistan — there are now 11 recognized al-Qaeda affiliates in the latter nation, five in the former — as well as in Mali and Tunisia, Libya and Morocco, Nigeria and Somalia, Lebanon and Yemen, among other countries. One offshoot was born of the American invasion of Iraq, was nurtured in a U.S. prison camp, and, now known as the Islamic State, controls a wide swath of that country and neighboring Syria, a proto-caliphate in the heart of the Middle East that was only the stuff of jihadi dreams back in 2001. That group, alone, has an estimated strength of around 30,000 and managed to take over a huge swath of territory, including Iraq’s second largest city, despite being relentlessly targeted in its infancy by JSOC.

“We need to continue to synchronize the deployment of SOF throughout the globe,” says Votel. “We all need to be synched up, coordinated, and prepared throughout the command.” Left out of sync are the American people who have consistently been kept in the dark about what America’s special operators are doing and where they’re doing it, not to mention the checkered results of, and blowback from, what they’ve done. But if history is any guide, the black ops blackout will help ensure that this continues to be a “golden age” for U.S. Special Operations Command.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit’s Men Explain Things to Me, and Tom Engelhardt’s latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

West’s agri-giants snap up Ukraine

West’s agri-giants snap up Ukraine

Frederic Mousseau, Asia Times, January 28, 2015

OAKLAND, United States – At the same time as the United States, Canada and the European Union announced a set of new sanctions against Russia in mid-December last year, Ukraine received US$350 million in US military aid, coming on top of a $1 billion aid package approved by the US Congress in March 2014.

Western governments’ further involvement in the Ukraine conflict signals their confidence in the cabinet appointed by the new overnment earlier in December 2014. This new government is unique given that three of its most important ministries were granted to foreign-born individuals who received Ukrainian citizenship just hours before their appointment.

The Ministry of Finance went to Natalie Jaresko, a US-born and educated businesswoman who has been working in Ukraine since the mid-1990s, overseeing a private equity fund established by the US government to invest in the country. Jaresko is also the CEO of Horizon Capital, an investment firm that administers various Western investments in the country.

As unusual as it may seem, this appointment is consistent with what looks more like a takeover of the Ukrainian economy by Western interests. In two reports – “The Corporate Takeover of Ukrainian Agriculture” and “Walking on the West Side: The World Bank and the IMF in the Ukraine Conflict” – the Oakland Institute has documented this takeover, particularly in the agricultural sector.

A major factor in the crisis that led to deadly protests and eventually to president Viktor Yanukovych’s removal from office in February 2014 was his rejection of a European Union Association agreement aimed at expanding trade and integrating Ukraine with the EU – an agreement that was tied to a US$17 billion loan from the International Monetary Fund (IMF).

After the president’s departure and the installation of a pro-Western government, the IMF initiated a reform program that was a condition of its loan with the goal of increasing private investment in the country.

The package of measures includes reforming the public provision of water and energy, and, more important, attempts to address what the World Bank identified as the “structural roots” of the current economic crisis in Ukraine, notably the high cost of doing business in the country.

The Ukrainian agricultural sector has been a prime target for foreign private investment and is logically seen by the IMF and World Bank as a priority sector for reform. Both institutions praise the new government’s readiness to follow their advice.

For example, the foreign-driven agricultural reform roadmap provided to Ukraine includes facilitating the acquisition of agricultural land, cutting food and plant regulations and controls, and reducing corporate taxes and custom duties.

The stakes around Ukraine’s vast agricultural sector – the world’s third-largest exporter of corn and fifth-largest exporter of wheat – could not be higher. Ukraine is known for its ample fields of rich black soil, and the country boasts more than 32 million hectares of fertile, arable land – the equivalent of one-third of the entire arable land in the European Union.

The maneuvering for control over the country’s agricultural system is a pivotal factor in the struggle that has been taking place over the last year in the greatest East-West confrontation since the Cold War.

The presence of foreign corporations in Ukrainian agriculture is growing quickly, with more than 1.6 million hectares signed over to foreign companies for agricultural purposes in recent years. While Monsanto, Cargill, and DuPont have been in Ukraine for quite some time, their investments in the country have grown significantly over the past few years.

Cargill is involved in the sale of pesticides, seeds and fertilizers and has recently expanded its agricultural investments to include grain storage, animal nutrition and a stake in UkrLandFarming, the largest agribusiness in the country.

Similarly, Monsanto has been in Ukraine for years but has doubled the size of its team over the last three years. In March 2014, just weeks after Yanukovych was deposed, the company invested $140 million in building a new seed plant in Ukraine.

DuPont has also expanded its investments and announced in June 2013 that it too would be investing in a new seed plant in the country.

Western corporations have not just taken control of certain profitable agribusinesses and agricultural activities, they have now initiated a vertical integration of the agricultural sector and extended their grip on infrastructure and shipping.

For instance, Cargill now owns at least four grain elevators and two sunflower seed processing plants used for the production of sunflower oil. In December 2013, the company bought a “25% +1 share” in a grain terminal at the Black Sea port of Novorossiysk with a capacity of 3.5 million tonnes of grain per year.

All aspects of Ukraine’s agricultural supply chain – from the production of seeds and other agricultural inputs to the actual shipment of commodities out of the country – are thus increasingly controlled by Western firms.

European institutions and the US government have actively promoted this expansion. It started with the push for a change of government at a time when president Yanukovych was seen as pro-Russian interests. This was further pushed, starting in February 2014, through the promotion of a “pro-business” reform agenda, as described by the US Secretary of Commerce Penny Pritzker when she met with Prime Minister Arsenly Yatsenyuk in October 2014.

The European Union and the United States are working hand in hand in the takeover of Ukrainian agriculture. Although Ukraine does not allow the production of genetically modified (GM) crops, the Association Agreement between Ukraine and the European Union, which ignited the conflict that ousted Yanukovych, includes a clause (Article 404) that commits both parties to cooperate to “extend the use of biotechnologies” within the country.

This clause is surprising given that most European consumers reject GM crops. However, it creates an opening to bring GM products into Europe, an opportunity sought after by large agro-seed companies such as Monsanto.

Opening up Ukraine to the cultivation of GM crops would go against the will of European citizens, and it is unclear how the change would benefit Ukrainians.

It is similarly unclear how Ukrainians will benefit from this wave of foreign investment in their agriculture, and what impact these investments will have on the seven million local farmers.

Once they eventually look away from the conflict in the Eastern “pro-Russian” part of the country, Ukrainians may wonder what remains of their country’s ability to control its food supply and manage the economy to their own benefit.

As for US and European citizens, will they eventually awaken from the headlines and grand rhetoric about Russian aggression and human rights abuses and question their governments’ involvement in the Ukraine conflict?

Frederic Mousseau is Policy Director at the Oakland Institute.

The Rise of German Imperialism and the Phony “Russian Threat”

The Rise of German Imperialism and the Phony “Russian Threat”

By James Petras

December 08, 2014 “ICH” – The principle Nazi ideological prop that secured massive financial and political support from Germany’s leading industrialists was the Communist and Soviet threat.  The main Nazi military drive, absorbing two-thirds of its best troops, was directed eastward at conquering and destroying Russia.  The ‘Russian Threat’ justified Nazi Germany’s conquest and occupation of the Ukraine, the Balkans, Eastern Europe and the Baltic states, with the aid of a substantial proportion of local Nazi collaborators.

After Germany’s defeat , division  and  disarmament, and with the extension of Soviet power,  the US reinstated the Nazi industrial and banking giants, officials and intelligence operatives. At first they were engaged in rebuilding their domestic economy and consolidating political power, in collaboration with the US military occupation forces.

By the late 1960’s Germany regained economic primacy in Europe and was at the forefront of European ‘integration’, in association with France and England. It soon came to dominate the principle decision – making institutions of the European Union(EU). The EU served as Germany’s instrument for conquest by stealth. Year by year, through ‘aid’ and low interest loans,the EU  facilitated German capitalist’s  market penetration and financial expansion,through out south and central Europe. Germany set the agenda for Western Europe, gaining economic dominance while benefiting from US subversion and encirclement of Eastern Europe, Russia and the Baltic and Balkan states.

Germany’s Great Leap Forward:  The Annexation of East Germany and the Demise of the USSR

Germany’s projection of power on a world scale would never have occurred if it had not annexed East Germany. Despite the West German claims of beneficence and ‘aid’ to the East, the Bonn regime secured several million skilled engineers, workers and technicians, the takeover of factories, productive farms and, most important, the Eastern European and Russian markets for industrial goods, worth  billions of dollars. Germany was transformed from an emerging influential EU partner, into the most dynamic expansionist power in Europe, especially in the former Warsaw Pact economies.

The annexation of East Germany and the overthrow of the Communist governments in the East allowed German capitalists to dominate markets in the former  Eastern bloc. As the major trading partner, it seized control of major industrial enterprises via corrupt privatizations decreed  by the newly installed pro-capitalist client regimes.  As the Czech Republic, Poland, Slovakia, Hungary, Bulgarian, the Baltic States “privatized” and “de-nationalized” strategic economic, trade, media and social service sectors, ‘unified’ Germany was able to resume a privileged place.  As Russia fell into the hands of gangsters, emerging oligarchs and political proxies of western capitalists, its entire industrial infrastructure was decimated and Russia was converted into a giant raw-material export region.

Germany converted its trade relations with Russia from one between equals into a ‘colonial’ pattern:  Germany exported high value industrial products and imported gas, oil and raw materials from Russia.

German power expanded exponentially, with the annexation of the “other Germany”, the restoration of capitalism in Eastern Europe and the ascendancy of client regimes eager and willing to submit to a German dominated European Union and a US directed NATO military command.

German political-economic expansion via ‘popular uprisings’, controlled by local political clients, was soon accompanied by a US led military offensive – sparked by separatist movements. Germany intervened in Yugoslavia, aiding and abetting separatists in Slovenia and Croatia .It backed the US-NATO bombing of Serbia and supported the far-right, self-styled Kosovo Liberation Army ( KLA),engaged in a terrorist war in  Kosovo .  Belgrade was defeated and regime change led to a neo-liberal client state.  The US built the largest military base in Europe in Kosovo. Montenegro and Macedonia became EU satellites.

While NATO expanded and enhanced the US military presence up to Russia’s borders, Germany became the continent’s pre-eminent economic power.

Germany and the New World Order

While President Bush and Clinton were heralding a “new world order”, based on  unipolar military supremacy, Germany advanced its new imperial order by exercising its  political and economic levers.  Each of the two power centers, Germany and the US, shared the common quest of rapidly incorporating the new capitalist regimes into their regional organizations –the European Union (EU) and NATO– and extending their reach globally. Given the reactionary origins and trajectory into vassalage of the Eastern, Baltic and Balkan regimes, and given their political fears of a popular reaction to the loss of employment, welfare and independence resulting from their implementation of savage neoliberal “shock policies”, the client rulers immediately “applied” for membership as subordinate members of the EU and NATO, trading sovereignty, markets and national ownership of the means of production for economic handouts and the ‘free’ movement of labor, an escape valve for the millions of newly unemployed workers.  German and English capital got millions of skilled immigrant workers at below labor market wages, and unimpeded access to markets and resources. The US secured NATO military bases, and recruited military forces for its Middle East and South Asian imperial wars.

US-German military and economic dominance in Europe was premised on retaining Russia as a weak quasi vassal state, and on the continued economic growth of their economies beyond the initial pillage of the ex-communist economies.

For the US, uncontested military supremacy throughout Europe was the springboard for near-time imperial expansion in the Middle East, South Asia, Africa and Latin America.  NATO was ‘internationalized’ into an offensive global military alliance: first in Somalia, Afghanistan then Iraq, Libya, Syria and the Ukraine.

The Rise of Russia, The Islamic Resistance and the New Cold War

During the ‘decade of infamy’ (1991-2000) extreme privatization measures by the client rulers in Russia on behalf of EU and US investors and gangster oligarchs, added up to vast pillage of the entire economy, public treasury and national patrimony.  The image and reality of a giant prostrate vassal state unable to pursue an independent foreign policy, and incapable of providing the minimum semblance of a modern functioning economy and maintaining the rule of law, became the defining view of Russia by the EU and the USA. Post-communist Russia, a failed state by any measure, was dubbed a “liberal democracy” by every western capitalist politician and so it was repeated by all their mass media acolytes.

The fortuitous rise of Vladimir Putin and the gradual replacement of some of the most egregious ‘sell-out’ neo-liberal officials, and most important, the reconstruction of the Russian state with a proper budget and functioning national institutions, was immediately perceived as a threat to US military supremacy and German economic expansion.  Russia’s transition from Western vassalage to regaining its status as a sovereign independent state set in motion, an aggressive counter-offensive by the US-EU. They financed a neo-liberal-oligarchy backed political opposition in an attempt to restore Russia to vassalage via street demonstrations and elections. Their efforts  to oust Putin and re-establish Western vassal state failed. What worked in 1991 with Yeltsin’s power grab against Gorbachev was ineffective against Putin. The vast majority of Russians did not want a return to the decade of infamy.

In the beginning of the new century, Putin and his team set new ground-rules, in which oligarchs could retain their illicit wealth and conglomerates, providing they didn’t use their economic levers to seize state power.  Secondly, Putin revived and restored the scientific technical, military, industrial and cultural institutions and centralized trade and investment decisions within a wide circle of public and private decision makers not beholden to Western policymakers.  Thirdly, he began to assess and rectify the breakdown of Russian security agencies particularly with regard to the threats emanating from Western sponsored ‘separatist’ movements in the Caucuses, especially, in Chechnya, and the onset of US backed ‘color revolutions’ in the Ukraine and Georgia.

At first, Putin optimistically assumed that, Russia being a capitalist state, and without any competing ideology, the normalization and stabilization of the Russian state would be welcomed by the US and the EU.  He even envisioned that they would accept Russia  as an economic, political, and even NATO partner.   Putin even made overtures to join and co-operate with NATO and the EU.  The West did not try to dissuade Putin of his illusions .In fact they encouraged him, even as they escalated their backing for Putin’s internal opposition and prepared a series of imperial wars and sanctions in the Middle East, targeting traditional Russian allies in Iraq, Syria and Libya.

As the ‘internal’ subversive strategy failed to dislodge President Putin, and the Russian state prevailed over the neo-vassals, the demonization of Putin became constant and shrill. The West moved decisively to an ‘outsider strategy’, to isolate, encircle and undermine the Russian state by undermining allies, and trading partners

US and Germany Confront Russia:  Manufacturing the “Russian Threat”

Russia was enticed to support US and NATO wars in Iraq, Afghanistan and Libya in exchange for the promise of deeper integration into Western markets.  The US and EU accepted Russian co-operation, including military supply routes and bases, for their invasion and occupation of Afghanistan. The NATO powers secured Russian support of sanctions against Iran. They exploited Russia’s naïve support of a “no fly zone” over Libya to launch a full scale aerial war. The US financed  so-called “color revolutions” in Georgia and the Ukraine  overt, a dress rehearsal for the putsch in 2014  Each violent seizure of power allowed NATO to impose anti-Russian rulers eager and willing to serve as vassal states to Germany and the US.

Germany spearheaded the European imperial advance in the Balkans and  Moldavia, countries with strong economic ties to Russia.  High German officials “visited” the Balkans to bolster their ties with vassal regimes in Slovenia, Bulgaria, Slovakia and Croatia.  Under German direction, the European Union ordered  the vassal Bulgarian regime of Boyko “the booby” Borisov to block the passage of  Russian owned South Stream pipeline to Serbia, Hungary, Slovenia and beyond.  The Bulgarian state lost $400 million in annual revenue . . .  Germany and the US bankrolled pro-NATO and EU client politicians in Moldavia – securing the election of Iurie Leanca as Prime Minister.  As a result of Leanca’s slavish pursuit of EU vassalage, Moldavia lost $150 million in exports to Russia.  Leanca’s pro-EU policies go counter to the views of most Moldavians – 57% see Russia as the country’s most important economic partner.  Nearly 40% of the Moldavian working age population works in Russia and 25% of the Moldavians’ $8 billion GDP is accounted for by overseas remittances.

German and the US empire-builders steamroll over dissenting voices in Hungary, Serbia and Slovenia, as well as Moldova and Bulgaria, who’s economy and population suffer from the impositions of the blockade of  the Russian gas and oil pipeline.  But Germany’s, all out economic warfare against Russia takes precedent over the interests of its vassal states: its theirs to sacrifice for the ‘Greater Good’ of the emerging German economic empire and the US – NATO military encirclement of Russia. The extremely crude dictates of German imperial interests articulated through the EU, and the willingness of Balkan and Baltic regimes to sacrifice fundamental economic interests, are the best indicators of the emerging German empire in Europe.

Parallel to Germany’s rabid anti-Russian economic campaign, the US via NATO is engaged in a vast military build-up along the length and breadth of Russia’s frontier.  The US stooge, NATO Chief Jens Stoltenberg, boasts that over the current year, NATO has increased 5-fold the warplanes and bombers patrolling Russian maritime and land frontiers, carried out military exercises every two days and vastly increased the number of war ships in the Baltic and Black Sea.


What is absolutely clear is that the US and Germany want to return Russia to the vassalage status of the 1990’s.  They do not want ‘normal relations’. From the moment Putin moved to restore the Russian state and economy, the Western powers have engaged in a series of political and military interventions, eliminating Russian allies, trading partners and independent states.

The emergent of extremist, visceral anti-Russian regimes in Poland, Latvia, Estonia and Lithuania served as the forward shield for NATO advancement and German economic encroachment.  Hitler’s ‘dream’ of realizing the conquest of the East via unilateral military conquest has now under Prime Minister Merkel taken the form of conquest by stealth in Northern and Central Europe, by economic blackmail in the Balkans, and by violent putsches in the Ukraine and  Georgia.

The German economic ruling class is divided between the dominant pro-US sector that is willing to sacrifice lucrative trade with Russia today in hopes of dominating and pillaging the entire economy in a post-Putin Russia (dominated by ‘reborn Yeltsin clones’); and a minority industrial sector, which wants to end sanctions and return to normal economic relations with Russia.

Germany is fearful that its client rulers in the East, especially in the Balkans are vulnerable to a popular upheaval due to the economic sacrifices they impose on the population. Hence, Germany is wholly in favor of the new NATO rapid deployment force, ostensibly designed to counter a non-existent “Russian threat” but in reality to prop up faltering vassal regimes.

The ‘Russian Threat’, the ideology driving the US and German offensive throughout Europe and the Caucuses, is a replay of the same doctrine which Hitler used to secure support from domestic industrial bankers, conservatives and right wing overseas collaborators among extremists in Ukraine, Hungary, Rumania and Bulgaria.

The US-EU seizure of power via vassal political clients backed by corrupt oligarchs and Nazi street fighters in Ukraine detonated the current crisis. Ukraine power grab posed a top security threat to the very existence of Russia as an independent state.  After the Kiev take-over, NATO moved its stooge regime in Kiev forward to militarily eliminate the independent regions in the Southeast and seize the Crimea .thus totally eliminating Russia’s strategic position in the Black Sea. Russia the victim of the NATO power grab was labelled the “aggressor”. The entire officialdom and mass media echoed the Big Lie. Two decades of US NATO military advances on Russia’s borders and German-EU economic expansion into Russian markets were obfuscated.  Ukraine is the most important strategic military platform from which the US-NATO can launch an attack on the Russian heartland and the single largest market for Germany since the annexation of East Germany

The US and Germany see the Ukraine conquest as of extreme value in itself but also as the key to launching an all-out offensive to strangle Russia’s economy via sanctions and dumping oil and to militarily threaten Russia. The strategic goal is to reduce the Russian population to poverty and to re-activate the quasi-moribund opposition  to overthrow the Putin government and return Russia to permanent vassalage. The US and German imperial elite, looking beyond Russia, believe that if they control Russia, they can encircle ,isolate and attack China from the West as well as the East.

Wild-eyed fanatics they are not.  But as rabid proponents of a permanent war to end Russia’s presence in Europe and to undermine China’s emergence as a world power, they are willing to go to the brink of a nuclear war.

The ideological centerpiece of US-German imperial expansion and conquest in Europe and the Caucuses is the “Russian Threat”.  It is the touchstone defining adversaries and allies.  Countries that do not uphold sanctions are targeted.  The mass media repeat the lie.  The “Russian Threat” has become the war cry for cringing vassals – the phony justification for imposing frightful sacrifices to serve their imperial ‘padrones’ in Berlin and Washington –  fearing the rebellion of the ‘sacrificed’ population.  No doubt, under siege, Russia will be forced to make sacrifices.  The oligarchs will flee westward; the liberals will crawl under their beds.  But just as the Soviets turned the tide of war in Stalingrad, the Russian people, past the first two years of a bootstrap operation will survive, thrive and become once again a beacon of hope to all  people looking to get from under the tyranny of US-NATO militarism and German-EU economic dictates.

James Petras is a Bartle Professor (Emeritus) of Sociology at Binghamton University, New York.

Piketty and the Crisis of Neoclassical Economics

Piketty and the Crisis of Neoclassical Economics

by John Bellamy Foster and Michael D. Yates

John Bellamy Foster is the editor of Monthly Review and professor of sociology at the University of Oregon. Michael D. Yates is associate editor of Monthly Review and editorial director of Monthly Review Press.

Not since the Great Depression of the 1930s has it been so apparent that the core capitalist economies are experiencing secular stagnation, characterized by slow growth, rising unemployment and underemployment, and idle productive capacity. Consequently, mainstream economics is finally beginning to recognize the economic stagnation tendency that has long been a focus in these pages, although it has yet to develop a coherent analysis of the phenomenon.1 Accompanying the long-term decline in the growth trend has been an extraordinary increase in economic inequality, which one of us labeled “The Great Inequality,” and which has recently been dramatized by the publication of French economist Thomas Piketty’s Capital in the Twenty-First Century.2 Taken together, these two realities of deepening stagnation and growing inequality have created a severe crisis for orthodox (or neoclassical) economics.

To understand the nature of this crisis of received economics it is necessary to look at the two principal bulwarks of neoclassical theory, which were originally erected in response to socialist critics. The first is the notion that a freely competitive capitalist economy left to itself generates full employment, indicating that unemployment is the product of various frictions, imperfections, or government interference. The second is the related proposition that income and wealth inequality are determined by the “marginal productivity” (or relative contributions to output) of the various factors of production, chiefly capital and labor—a logic that is extended to the contributions of individuals themselves. The renowned post-Second World War national income statistician, Simon Kuznets, in his famous Kuznets Curve, even argued that there was a tendency in developed capitalist economies towards a decrease in inequality, due to the effects of modernization, including enhanced educational opportunities.3

Contrast these propositions to the reality of the mature capitalist economies today. Far from a full-employment equilibrium, what we see rather is a long-term tendency to economic stagnation. Moreover, this reality describes all of the developed capitalist economies and can be seen in a trend going back forty years, or indeed longer.4 Over roughly the same period, income and wealth levels, rather than converging, have diverged sharply—a divergence that cannot be attributed to differences in education and skill, nor to the contributions of capital relative to labor.5 In short, both of the principal justifications for the system provided by neoclassical economics have collapsed before our eyes.6

The first of these fissures in the outlook of neoclassical economics is long-standing and well known. During the Great Depression, unemployment in the United States rose at its height in 1933 to 25 percent. It was in this context that John Maynard Keynes, the intellectual heir to Alfred Marshall at Cambridge University, and hence one of the principal figures in neoclassical economics, broke partially with the economic orthodoxy with the publication of his magnum opus, The General Theory of Employment, Interest and Money in 1936. Keynes sent mainstream economics into a tailspin by attacking (as had Marx earlier) the notion of Say’s Law of classical economics, which postulated that supply creates its own demand.7 He thus engaged in a frontal assault on the notion that full-employment equilibrium was an inherent tendency of the system. Instead Keynes contended, “When effective demand is deficient there is under-employment of labour in the sense that there are men who are unemployed who would be willing to work at less than the existing real wage.”8 Nor was this an unusual circumstance under capitalism; mass underemployment in this sense was the normal condition in rich capitalist economies. As John Kenneth Galbraith summed up Keynes’s heresy in The Age of Uncertainty:

Keynes’s basic conclusion can…be put very directly. Previously it had been held that the economic system, any capitalist system, found its equilibrium at full employment. Left to itself, it was thus that it came to rest. Idle men and idle plant were an aberration, a wholly temporary failing. Keynes showed that the modern economy could as well find its equilibrium with continuing, serious underemployment. Its perfectly normal tendency was to what economists have since come to call an underemployment equilibrium.9

Keynes was convinced that the capitalist economy tended towards stagnation, a phenomenon that he explained in terms of a decline in the marginal efficiency of capital (expected profits on new investment). He did not, however, present a coherent explanation of stagnation in The General Theory but contented himself with pointing to a waning in “the growth of population and of invention, the opening-up of new lands, the state of confidence and the frequency of war”—all of which had constituted historical factors stimulating capitalism in the past.10 These were the factors that Alvin Hansen, Keynes’s leading early follower in the United States, primarily focused on in his Full Recovery or Stagnation? and other works, delineating a theory of “secular stagnation.”11

Later, a more developed analysis of stagnation, focusing in particular on the growth of monopoly capital (but also taking into account other conditions of capitalist maturity) was to emerge in the work of Michał Kalecki, and, in particular, in Josef Steindl’s Maturity and Stagnation in American Capitalism (1952), which built on Kalecki. Paul Baran and Paul Sweezy’s Monopoly Capital (1966) constituted an attempt to extend this analysis to the entire social and economic system of capitalism and to bring out its connection to the Marxian critique. Later Harry Magdoff and Paul Sweezy were to connect stagnation to financialization, most notably in Stagnation and the Financial Explosion (1987).12

Today we see a reemergence of notions of secular stagnation in neoclassical economics, beginning with Lawrence Summers’s resurrection of the idea in a 2013 speech to an IMF forum.13 But it remains divorced from the rich historical tradition that emerged within Marxian theory (and even from Hansen’s historically based analysis, rooted in Keynes)—thus offering little in the way of a real explanation.14 Nevertheless, the notion that the capitalist economy tends towards full employment—or that macroeconomic techniques inherited from Keynes effectively produce the same result, as Paul Samuelson (Summers’s uncle) famously argued in the so-called “neoclassical synthesis”—has no legs left to stand on, owing its continuing presence entirely to the ideological function of neoclassical economics.

The second main justification of the system provided by neoclassical economics—the notion that capitalism promotes a kind of equality, at least in terms of the determination of earnings by the marginal productivity of factors (and individuals)—has shown itself to be just as false. As this has become more apparent neoclassical economists have sought to declare the whole issue out of bounds. Martin Feldstein, chairman of the Council of Economic Advisors under President Reagan, replied to critics of the Robin Hood-in-reverse policies of Reaganomics by stating, “Why there has been increasing inequality in this country is one of the big puzzles in our field and has absorbed a lot of intellectual effort. But if you ask me whether we should worry about the fact that some people on Wall Street and basketball players are making a lot of money, I say no.”15 Likewise Robert Lucas, Jr. of the University of Chicago, the most influential macroeconomist of his day, was merely stating the dominant view of the profession and of the establishment as a whole when he opined in 2004, “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of [income] distribution.”16

Feldstein’s and Lucas’s sharp dismissals of any concern over income and wealth distribution reflected the mainstream economic view that inequality is benign precisely because it can be attributed to different levels of marginal productivity and the corresponding different education and skill sets. In this accounting, a person’s income is simply a function of his or her productivity and willingness to work. People are poor because they are not very productive or because they have a weak attachment to the labor force as a result of their own choices. Productivity is driven in the main by the willingness of individuals to invest in their “human capital,” and the most important type of such investment is education. Attachment to the labor force depends on “leisure preferences” of individuals. This refers to the relative weight potential workers place upon the utility they will gain by buying the goods and services that an increase in income makes possible—while factoring in, through a benefit and cost calculus, the happiness they could have by not working, by choosing more free time. Thus those with high incomes are presumed to have invested in their human capital and have low leisure preferences, while for the poor the opposite is true.

Modern technology, in this view, has only made human capital more important. Many people have been left behind in the race to the top of the income distribution because they do not possess the knowledge that modern technology requires. Most mainstream economists do say that appropriate public policies could help reduce inequality, by, for example, making it easier for those without means to attend college. However, it would be dangerous, we are told, to reduce inequality too much—for example, through free higher education for all—because then individuals would not have an incentive to work hard and be productive. This would be to the detriment of the capacity of the economy to grow and thus to provide the extra income needed to distribute to those at the bottom. Equality is therefore self-defeating.

The Mad Hatter logic of neoclassical economics can actually be used to demonstrate that in perfectly competitive markets there can be no wage and salary inequality at all!17 Consider a woman making a career decision. Assume, as does the neoclassical economist, that she has complete knowledge of the wages and benefits associated with every occupation she is considering entering. She also knows the costs of the education and training necessary for employment in each occupation, as well as the income she will lose by not working while she is getting this schooling and training. Any particular negative aspects of an occupation, such as physical danger, are also known, as are their costs. What should she do? She will weigh the benefits against the costs of each occupation and pick the one for which the net benefits are highest.

Implicit in this scenario is a wage for each occupation that at least covers the cost of entering it. Competition in the marketplace will, in fact, make the wage just equal to the entry cost. An occupation with a wage higher than the entry cost will attract new applicants; this will put downward pressure on the wage and upward pressure on the costs (as more people demand schooling and training); and eventually, the above average wage-cost difference will disappear. Remarkably, this theory shows that, while some workers earn higher wages than others, these higher wages simply reflect higher entry costs. A doctor is therefore not really better off than a motel room cleaner; in terms of wages minus costs, they are in exactly the same position. Voilà! At least as far as labor income is concerned, there can be no inequality.

Enter the real world. The Great Financial Crisis of 2007–2009 and the Occupy Wall Street uprising punctured this neoclassical fairy tale. The Occupy movement pinpointed the growing division between the 1% and the 99%—achieving in a very short time a transformation in public consciousness on inequality that radical political economists had sought to effect for decades. The press began to draw more frequently on data showing skyrocketing income and wealth inequality that had long been available but had been relegated to the status of a dirty little secret of the capitalist economy.18 For decades researchers had been compiling sophisticated statistical portraits in this area. Now due to Occupy and the sheer outrage of the population, it all began to come out into the open. Especially notable in this respect were the contributions of New York University economist Edward N. Wolff, a leading authority on wealth distribution; the Economic Policy Institute, which publishes The State of Working America; Branko Milanovic, a heterodox economist employed by the World Bank’s research division; and James K. Galbraith, a prominent institutionalist economist and analyst of inequality in pay.19

Yet, the big change on the data front, making it impossible to deny any longer the extent of the growth of inequality in all of the mature economies was the development, over the last decade and a half, beginning with the early work of Piketty, of the World Top Incomes Database (commonly referred to as the Top Incomes Database). The result of a major international project, involving some thirty researchers, this database primarily uses income tax data, focusing on most of the mature capitalist economies.20 The leading researchers for the U.S. case were Piketty himself, located at the Paris School of Economics, and Emmanuel Saez, a professor of economics at the University of California, Berkeley. The Top Incomes Database is the single largest historical database on long-term inequality currently in existence, covering countries in Europe and North America, but also a sampling of countries in Asia, Africa, and Latin America.

The publication by Harvard University Press in 2014 of Capital in the Twenty-First Century by Piketty, using the Top Incomes Database to explain the dynamics of growing inequality at the center of the capitalist world, was therefore bound to draw extraordinary attention in the economic world. For Piketty is no ordinary economist. He is at one and the same time a dissenter and a representative of the higher circle of the economics establishment. Although he served for a few months in 2007 as the economic adviser to Ségolène Royal in her campaign as the Socialist Party nominee for president of France—she lost to Nicolas Sarkozy—Piketty is no Marxist, or even an institutionalist or post-Keynesian political economist, in whose work one could expect to find an analysis centering on inequality. Rather, he is a highly credentialed member of the neoclassical economics elite. Thus, when he presented a theoretical perspective that challenged the primary approach to questions of income and wealth distribution previously held to by almost all neoclassical economists, the result was explosive. Suddenly there was a work on growing inequality that had the imprimatur of the establishment (backed by prestigious publications in the Quarterly Journal of Economics, American Economic Review and the Journal of Economics Literature), and could not be easily dismissed ad hominem as the work of a “non-scientific” heterodox economist. If not exactly a revolution against neoclassical economics, the contents of his book had all the looks of a palace coup. And remarkably too, Piketty had a gift of expression and breadth of knowledge unusual in economists, allowing him to draw on Jane Austen and Honoré de Balzac as much as Adam Smith and Karl Marx. Within a short time the book reached number one on Amazon, surely an unprecedented achievement for the author of a data-filled economics book of 685 pages.

For most readers it was not the fine details of Piketty’s analysis that were so interesting but rather the overall conclusions dramatically highlighted in the very beginning of the book.21 Here he made it clear he was challenging head-on some of the core assumptions of orthodox economics—though from inside rather than outside of the neoclassical perspective. It was this divorce of his analysis from the main ideological propositions of received economics—the sense of letting the numbers speak for themselves—that gave Piketty’s work the feeling of a disinterested inquiry after the truth rather than what Marx called “the bad conscience and evil intent of apologetics” that has so long dominated orthodox economics.22

Most importantly, Piketty concluded in what will undoubtedly be his single most enduring contribution, that “There is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently” in a capitalist economy. This can be seen as the critical counterpart (within the realm of distribution) to Keynes’s break with Say’s Law, or the notion of a natural tendency in capitalism to a full-employment equilibrium. Not only does Piketty point out that Kuznets’s assumption of growing equality in developed capitalist economies is wrong, but he argues that the standard neoclassical human-capital argument of equality-cum-meritocracy—wherein deviations from equality are simply due to attributes such as greater skill, knowledge, or productivity—is equally false in the real-world economy.23

This is shown by his now famous formula r > g, where r stands for the annual rate of return to wealth—referred to by Piketty as capital—and g for the growth rate of the economy (the rate of increase in national income). Wealth in slow-growing capitalist economies (below 1.5 percent per capita), which Piketty takes as the normal case, expands more rapidly than income—a phenomenon no doubt heightened in our financialized age.24 He argues that the higher rate of per capita growth in the first quarter century after the Second World War, when the per-capita growth rate in the United States was about 1.9 percent, was exceptional, and that we are seeing—for one reason or another—a return to the norm of much lower growth (1.2 percent or even 1 percent per capita), which he calls at one point a “low-growth regime.” (This applies to all of the mature economies on the “technological frontier”—but not to economies now experiencing catch up such as China.)25

Relatively slow growth—what we would term stagnation—thus provides the background condition for Piketty’s r > g, practically ensuring that wealth at the top of society will become ever more concentrated, while the main wealth-holders accrue their wealth not so much because of what they do but because of where they are placed in the social-class hierarchy. Indeed, capitalism in its normal case, Piketty tells us, promotes patrimonial dynasties. “Liliane Bettencourt,” the heiress to the French cosmetic giant L’Oréal, “who never worked a day in her life, saw her fortune grow exactly as fast as that of Bill Gates, the high-tech pioneer, whose wealth has incidentally continued to grow just as rapidly since he stopped working.”26

Piketty thus drives a critical wedge into the traditional justification of the system, according to which income and wealth shares are determined by the marginal productivity of the various factors of production (thought to be applicable to individual contributions as well). To understand the full significance of this, it is useful to quote from the 2012 book The Price of Inequality by economist Joseph Stiglitz. According to Stiglitz, with the rise of capitalism,

it became imperative to find new justifications for inequality, especially as critics of the system, like Marx, talked about exploitation.

The theory that came to dominate, beginning in the second half the nineteenth century—and still does—was called “marginal productivity theory”; those with higher productivities earned higher incomes that reflected their greater contributions to society. Competitive markets, working through the laws of supply and demand, determine the value of each individual’s contributions.27

Piketty’s argument and his data make a mockery of this core neoclassical economic thesis. But Piketty advances such an argument without breaking completely with the architecture of neoclassical economics. His theory thus suffers from the same kind of internal incoherence and incompleteness as that of Keynes, whose break with neoclassical economics was also partial. Deeply concerned with issues of inequality, just as Keynes was with unemployment, Piketty demonstrates the empirical inapplicability over the course of capitalist development of the main conclusions of neoclassical marginal productivity theory. His work has thus served to highlight the near-complete unraveling of orthodox economics—even while staying analytically within the fold.28

This overall incoherence, as we shall see, ultimately overwhelms Piketty’s argument. He is unable to explain why capitalist economies tend to grow so slowly as to generate such a divergence between wealth and income (and between capital and labor). Hence, while his analysis sees slow growth or relative stagnation as endemic to this system, he neither explains this nor is concerned directly with it. Significantly, he replaces more traditional notions of capital as a social and physical phenomenon with one that equates it with all wealth.29 As a result the accumulation of capital in his analysis means no more than the amassing of wealth of whatever kind, from plant and machinery to financial assets to jewelry, thereby confusing the whole issue of capital accumulation.30 Nor does he address the relations of power—principally class power—that lie behind the inequality that he delineates. His analysis is confined largely to distribution rather than production. He neither follows nor (by his own admission) understands Marx, though at times clearly draws inspiration from him.31 The question of monopoly capital is entirely missing from his study, which, as he says, does not include imperfect competition as a factor in generating inequality.32

But even with these and other deficiencies, Piketty, nevertheless, brings a certain degree of reality—even a sense of “class warfare” (if only implicitly)—back to bourgeois economics. The result is to heighten the crisis of neoclassical theory. Moreover, he argues—even though he dismisses the idea as “utopian”—for the imposition of a tax on wealth.33 Piketty thus represents a partial revolt within the inner chambers of the economics establishment.

Not surprisingly, given the extraordinary attention given to Capital in the Twenty-First Century and the breech in the wall of the neoclassical orthodoxy it represents, the Wall Street Journal sought to counterattack in May 2014, with an op-ed by none other than Feldstein. Reagan’s former economic advisor predictably condemned “the confiscatory taxes on income and wealth that Mr. Piketty recommends,” declaring that “the problem with the distribution of income in this country is not that some people earn high incomes because of skill, training or luck” but rather that a small minority has fallen below the poverty line.34 However, Feldstein misses the mark completely. Piketty’s point is that skill and training cannot explain the gross inequality that has arisen in U.S. society, which is disproportionately weighted toward inherited wealth and CEO mega-salaries, and that while some do get vastly higher incomes by the “luck” of having been born with silver spoons in their mouths, they can hardly be said to have “earned” them.

Increasing Inequality: A Law of Capitalism

Prior to the publication of Piketty’s book, Piketty and Saez used Internal Revenue Service data to track U.S. income inequality from 1913 to 2010. These data show that the rise in inequality, as measured by the share of income going to the top 1 percent of “tax units” (not exactly comparable to families or households), is much greater in the United States than in any other rich capitalist country, although the United Kingdom is not far behind. Income inequality in the United States has not been this high since the early Roaring Twenties depicted in F. Scott Fitzgerald’s The Great Gatsby. The richest 1 percent now takes home more than 20 percent of the nation’s entire income, up from about 9 percent in the 1970s. In addition, the top 1 percent of income recipients has seized most of the past few decades’ gains in income. Of the increase in total household income from 1977 to 2007, the richest 1 percent got almost 60 percent, and the richest 0.1 percent (the top one-thousandth—in 2010, those earning more than $1.5 million a year) garnered roughly half of that. By comparison, the poorest 90 percent saw their income grow by “less than 0.5 percent per year.”35

Expanding upon these earlier conclusions, Piketty in Capital in the Twenty-First Century elucidates four key findings. First, similar trends, though less marked than in the United States, are found in almost every part of the globe. Second, in the United States, a major factor in this trend is the rise of an elite of “super managers,” top officials of the largest corporations who take home enormous salaries and have so much power that they can literally set their own pay.36

Third, Piketty stresses that the richest 1 percent enjoyed similar distance from the rest of us throughout most of capitalism’s history. The only period in which the capital-income ratio becomes more equal and the dominance of inherited wealth diminishes in the rich countries as a whole is that between the beginning of the First World War in 1914 and the mid-1970s. This was a truly exceptional time, marked by “shocks” to the system: two catastrophic wars, the Bolshevik Revolution, the Great Depression, and the rise of the social welfare state after the Second World War. Heavy taxes were placed on top incomes, fortunes were lost in both the wars and the Depression, and working-class movements arose and forced higher wages, benefits, and social insurance from employers and governments—both of which were willing to make concessions if only to avoid a deeper radicalization of the working class. However, once elites regained their bearings, capitalism began to return to the norm of growing inequality.37

Fourth, during the sixty-odd years of expanding equality, a substantial “middle” class arose—professionals, civil servants, and unionized workers—which, while not wealthy, had enough income to live well above subsistence and to accumulate a certain amount of wealth, mainly in the form of housing. The rise of this intermediate “petty patrimonial” propertied class of home owners, he argues, has had profound effects on the political trajectory of the rich nations, because there is now a sizeable portion of society outside the upper class intent on maintaining the value of their wealth and increasing it if possible.38

Most individuals earn income by working. However, very substantial incomes derive from ownership of wealth. What is more, certain types of wealth, such as stocks, bonds, and other financial instruments, represent control over the commanding heights of the economy and government. If these are divided in an unequal manner, then so is the power that flows from their ownership. The data show with great clarity that the distribution of wealth is extraordinarily unequal and likely to become more so. Edward Wolff has pioneered the study of wealth data in the United States. In his most recent paper, he finds that the average (mean) net worth of the wealthiest 1 percent in 2010 was $16.4 million. By contrast the average for the least wealthy 40 percent was $–10,600 (that is, it was negative!).39 For various asset classes, the share owned by the top 1 percent is even more astonishing:

Asset Class

Share of Top 1% in 2010

Stocks & Mutual Funds

Financial Securities


Business Equity

Non-home Real Estate

Source: Edward N. Wolff, “The Asset Price Meltdown and the Wealth of the Middle Class,” NBER Working Paper Series, Working Paper 18559, 2012, http:/, 57, Table 9.

Indeed, it is in wealth statistics that the real social divide stands out. Thus, as Piketty notes, the Federal Reserve Board in recent estimates, covering the years 2010–2011, indicated that the top 10 percent of wealth holders in the United States own 72 percent of the country’s wealth, while the bottom half own only 2 percent.40 Meanwhile, there is much inequality even within the 1 percent. Sylvia Allegretto of the Economic Policy Institute tells us that in 2009, the mean net worth of the infamous “Forbes 400” (the four hundred wealthiest persons in the United States) was $3.2 billion; but the top wealth holder had a net worth fifteen times greater than the mean for the Forbes 400 as a whole, an increase from 8.6 times larger in 1982.41

Piketty has a great deal to say about wealth, and his data are global in scope. He is interested mainly in the capital-income (wealth-income) ratio. As noted above, he uses capital and wealth interchangeably, which has led to deserved criticism by heterodox economists. His book is about the distribution of societal output and the wealth of everyone, but especially those who own the nonhuman means of production used to produce this output. The title of the book suggests a connection to the most famous book about capital, Marx’s Capital. However, Marx’s conception of capital and Piketty’s conception could not be more unalike. Piketty has no notion of capital as an exploitative social relationship. Instead, for him capital has an existence simply as private wealth (he does write about public capital, but this is an insignificant component of total social wealth). By, in effect, objectifying capital, considering it apart from the social relationship embedded within it, he marks himself well within the economic mainstream. Wealth, in his view, can generate income whether it is in the form of shares of stock in the largest corporations, a small apartment building, or a government bond. And wealth of any kind can provide enormous benefits to its owners.

Piketty thinks about wealth in terms of the number of years’ worth of income it represents. If for example, you have wealth equal to $100,000 and your annual income is $25,000, then your wealth equals four years of income. Your capital-income (or wealth-income) ratio is four. He does this for countries, using the data that he and his associates have painstakingly accumulated over many years of examining tax and various other public records. He looks at short-term fluctuations in the capital-income ratio (which he designates as β) and notes that these are considerable. For example, the boom in Japanese real estate and stock prices in the 1980s caused the ratio to rise, and the collapse of these bubbles made it fall precipitously.

However, what he is really interested in is the long-run trend in the ratio. He shows that throughout the eighteenth and nineteenth centuries, and right up until the First World War, wealth in most rich nations equaled six to seven years of national income. In the United States it was the equivalent of only about four to five years of income, for reasons that we will look at shortly. Then, over the next thirty years, the shocks of two world wars and the Great Depression caused a marked decline in the wealth-income multiple, to about two to four years.42 The causes were the destruction of physical capital, the loss of foreign holdings, and heavy taxes on the rich. In some nations, notably in Europe, much private enterprise was nationalized after the Second World War and progressive taxation funded social welfare programs, and these factors helped keep the wealth-income ratio low. However, beginning in the mid–1970s, capital made a remarkable comeback, and the ratio began to climb, and is now approaching the level that existed at the start of the First World War. Public capital has been privatized and political regimes throughout the world have been very well disposed toward the interests of wealth-holders.43

If we abstract from the special periods of wars, depression, and the social welfare state, what explains long-term trends in the capital-income ratio? Piketty outlines in Chapter 5 (“The Capital/Income Ratio Over the Long Run”) what he calls a “law of capitalism,” namely that over the long run, the capital-income ratio tends toward the quotient of the rate of saving and the rate of growth of the economy: β = s / g. As he explains in the book (and more clearly in a technical appendix to the book available online), this formula is the “steady-state” condition for a simple neoclassical growth model, such as the one developed by economist Robert Solow.44 It is significant that he chose a neoclassical growth model, one that has embedded in it very definite and not universally accepted assumptions about how the macroeconomy works, and one which assumes, for example, that there are such things as the marginal productivities of labor and of capital, and that capital and labor are reasonable substitutes for each other.45

Still, Piketty’s “law” has a certain intuitive appeal. The “weight” of “capital,” aka wealth (in terms, say, of its owners’ potential power), will be greater, other things equal, the lower an economy’s growth rate and the higher its rate of saving. Piketty finds that in the rich capitalist countries, the trend has been, and will most likely continue to be, toward relatively low growth rates and high savings rates (or, in Marxian terms, a high rate of surplus generation). This tells us that the capital-income (i.e., wealth-income) ratio will continue to rise, perhaps to levels never before seen. Low growth rates, he contends, will be the consequence mainly of low population growth rates, accentuated by low rates of technological change.46

As noted, Piketty takes into account the “catching up” achieved by countries such as China and India. He makes the point that nations with rapidly growing populations and high economic growth will be ones in which wealth accumulated in the past will not have as great an impact on how those societies operate as those in which these two types of growth are low.47 In the United States, for example, immigrants have arrived in very large numbers without much wealth, and they have had to rely upon current labor and income generation to accumulate capital. In dynamic economies, there is a churning within the wealth and income distributions, meaning that the capital-income ratio will be lower than in those where this is not true.

Piketty uses his formula β = s / g, along with an equation that defines capital’s share of national income, α = rβ (where r = the rate of return on capital and, as we have seen, β = the capital-income ratio) to show what will happen to the share of capital over time. A simple substitution yields α = r (s / g). From this, he derives his famous inequality: r > g.48 If the rate of return on capital r is greater than the growth rate of the economy g, then capital’s share of income will rise. Piketty shows that over very long periods of time, r has in fact been greater than g; in fact, this is the normal state of affairs in capitalist economies. Only during the long crisis, brought on by war and depression and the aftermath when social welfare policies helped keep r low and g high, was this not the case. And even as the capital-income ratio has risen, the fact that economies have become more capital intensive has not exerted enough downward pressure on r to push capital’s income share lower. Nor will increasingly “perfect” capital markets, brought on by rapid globalization, force r lower; in fact, the growing sophistication of financial instruments and money managers, along with the desire of poorer nations to attract capital, will keep r high. If, as Piketty thinks likely, g grows very slowly in the future, we are in for a steady rise in capital’s share of income and a steady fall in labor’s share. Increasing polarization of society, in terms of the two main social actors, workers and owners of capital, is a very likely prospect.

To make matters worse, those with the largest amounts of capital (wealth) almost always get a higher rate of return on their wealth than do those with lesser amounts. Piketty gives a telling example of this by looking at the returns garnered by the endowments of U.S. colleges and universities. He finds that there is a direct and significant correlation between the size of the endowment and the rate of return on it. Between 1980 and 2010, institutions with endowments of less than $100 million received a return of 6.2 percent, while those with riches of $1 billion and over got 8.8 percent. At the top of the heap were Harvard, Princeton, and Yale, which “earned” an average return of 10.2 percent.49 Needless to say, when those already extraordinarily rich can obtain a higher return on their money than everyone else, their separation from the rest becomes that much greater.

The research of Piketty, his associates, Wolff, and many others tells us without a doubt that income and wealth have become grotesquely unequal and are on a trajectory to become still more so. The implications of this are dire, exacerbating all manner of economic, social, environmental, and political problems. There is no way, for example, that it is possible now to say that we have anything even remotely resembling democracy in the United States, and for that matter, in any capitalist country. Rather plutocracy is now the dominant political form.

One thing we can say with certainty is that neoclassical economics does not have a viable theory of inequality, any more than it has a viable theory of unemployment. As we have emphasized throughout this article, received economics says that wages depend on worker productivity, meaning that as productivity rises, so will wages. If workers become more productive by, for example, investing in their “human capital” (getting more schooling, training, etc.), they will then add more to the employers’ revenues than existing wage rates add to costs. This increase in employer profits at current wages will supposedly cause employers to raise the demand for employees, pushing wages up .

Reality could not be more different than what neoclassical theory leads one to expect. In the United States, real weekly earnings for all workers have actually declined since the 1970s and are now more than 10 percent below their level of four decades ago. This reflects both the stagnation of wages and the growth of part-time employment.50 Even when considering real median family income that includes many two-earner households there has been a decrease of around 9 percent from 1999 to 2012.51

Indeed, the data show that while output per worker has risen considerably over the past forty years, wages have fallen far behind. Perhaps the most startling comparison is between wage and productivity gains. In a recent paper, Economic Policy Institute economist Elise Gould found that “Between 1979 and 2013, productivity grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation.” This means that the gains from productivity went to capital and workers at the top of the wage scale. She also discovered that:

Between 1979 and 2007, more than 90 percent of American households saw their incomes grow more slowly than average income growth (which was pulled up by extraordinarily fast growth at the top).

By 2007, the growing wedge between economy-wide average income growth and income growth of the broad middle class (households between the 20th and 80th percentiles [where most production and nonsupervisory workers reside]) reduced middle-class incomes by nearly $18,000 annually. In other words, if inequality had not risen between 1979 and 2007, middle-class incomes would have been nearly $18,000 higher in 2007.52

A 2013 report by the Federal Reserve Board of San Francisco showed that once the top 1 percent of wage and salary recipients are removed from the total, the labor share of overall national income plummets: “by 2010 the labor share of [income of] the bottom 99 percent of taxpayers had fallen to approximately 50 percent from just above 60 percent prior to the 1980s.”53 Neoclassical economics is completely incapable of explaining this sharp decline in the workers’ share of national income.

The Monopoly of Power

Piketty’s work raises the question of growing class inequality in a statistical sense without explicitly addressing either the roots of this or the question of growing class power. His work thus remains within the bounds of establishment discourse—though serving to shake up the ruling ideology with its revelations. He uses the term “upper class” for the top 10 percent of income recipients and the term “dominant class” for the top 1 percent (all those in the upper class who are not in the dominant class are referred to as the “well-to-do”). In the United States, with a total population of some 320 million—of which 260 million are adults—the top 1 percent is of considerable size: 2.6 million adults. The dominant class tends to congregate in a relatively few cities, to be concentrated in given neighborhoods, and to exercise “a prominent place in the social landscape.”54

A dramatic illustration of what Piketty means when he refers to the divergence in the social (and cultural) landscape appeared in the New York Times in August 2014, under the title “In One America, Guns and Diet. In the Other, Cameras and ‘Zoolander’: Inequality and Web Search Trends.” Those geographical locations described as “harder places to live,” associated with the lowest levels of educational attainment, household income, and life expectancy and the highest levels of unemployment, disability, and obesity were strongly correlated with Web searches for things like “free diabetic,” “antichrist,” “.38 revolver,” “ways to lower blood pressure,” “SSI disability,” and “social security checks.” While areas described as “easier places to live,” associated with the well-to-do or with the 1% itself, were strongly correlated with Internet searchers for “Canon Elph,” “baby jogger,” “baby massage,” “Machu Picchu” (and other exotic locales), “ipad applications,” “new nano,” and “dollar conversion.” We are increasingly living in a world so polarized that much of the 99% have nothing in common with the 1%.55

Piketty recognizes that the “dominant class” in the sense of the 1 percent is not really dominant; it is only when you get to the top 0.1 percent, which owns about half of what the 1 percent owns, that you begin to get at the really dominant income/wealth of the society. Thus he notes that Occupy Wall Street was not altogether wrong in contrasting the 1% to the 99% or in declaring that “We are the 99 percent!” He compares this situation to that of the French Revolution arising from the revolt of the Third Estate.56

But how does this relate to issues of class struggle and class power? What are the consequences of these realities in terms of control of corporations, the economy, the state, the culture, and the media? Piketty, though making a few tantalizing allusions, tells us next to nothing about this. Although he does not entirely avoid terms such as “class struggle,” he has very little to say about it. In fact, the nature of his analysis, which concentrates on statistical inequality and the relation between the growth of wealth and the growth of income, is far removed from the direct consideration of capital versus labor. His is an argument primarily about fairness and not social struggle—or even economic crisis/stagnation.

Piketty’s failure to relate inequality to power is not, it should be stressed, a particular failure on his part, but rather a general fault of neoclassical economics, tied to its position of ideological hegemony. “The neglect of power in mainstream economics,” as the heterodox Austrian economist Kurt Rothschild wrote in 2002, “has its main roots…in deliberate strategies to remove power questions to a subordinate position for inner-theoretic reasons,” such as the search for mathematical models with a high degree of mathematical certainty. In this respect, the messy issues dealt with in such fields as sociology and political science (or for that matter political economy) are deliberately excluded, even at the expense of realism of analysis. Moreover, part of the attraction of such pure models and the state of mind that they generate is that they reflect “the ideological preference of powerful socio-economic groups for a neoclassical type of theory,” which justifies the status quo by excluding all questions of power. As Rothschild pointedly put it: “Extremely formulated one could say that societal power promotes the study of models of powerless societies.”57

It goes without saying that Piketty’s acceptability to neoclassical economics is dependent on his avoidance of the question of inequality and power. Hence the contrast between his Capital in the Twenty-First Century and Marx’s Capital, as we observed, could hardly be greater. Moreover, it is precisely because Piketty is discussing inequality divorced from power that his analysis is inevitably disjointed and cannot approach anything like a general theory. It is not the mere recognition of inequality in itself, but the wider perception of its promotion as part of a system of power that raises questions that are dangerous to the system. Hence, the real importance of Piketty’s analysis only comes out when the implications are taken beyond what he himself, as a representative of orthodox economics, is willing or even able to address: issues of class power and monopoly power, and how these relate to overaccumulation, stagnation, and financialization.

Piketty starts with the fact that some individuals and groups of individuals arranged into percentages of the population have more income or wealth than others. He does not explain the origins of this or why, but he makes it clear that it is not simply a product of individual skill or productivity, as neoclassical economics has traditionally argued. In reality the basis of a capitalist society is the private monopoly of the capitalist class over the means of production, whereby the great majority of the population is relegated to a position in which it has nothing to sell but its labor power, i.e., its capacity to work. This sets up an extremely uneven power relationship, allowing the owners of the means of production to appropriate the greater part of the surplus produced. Far from being a description of society that pertained only to the nineteenth century, this, as Piketty helps us to understand, is probably a better description of our society today than at nearly any previous time in history. It is not difficult to discern who these owners of the means of production are: they are not so much the top 1 percent, as the top 0.1 percent of society (or even higher) in terms of income and wealth. In the United States a mere four hundred people, the Forbes 400, own approximately as much wealth as the bottom half of the population, or something like 130 million adults.58

Due to their power to appropriate the society’s surplus, which takes the form of financial wealth, and has a rate of return that, as Piketty tells us, normally grows faster than the income of society as a whole, those in the dominant class become richer both absolutely and relatively, benefitting from the upward flow of value, which seldom trickles down. Over the years 1950 to 1970, for each additional dollar made by those in the bottom 90 percent of income earners, those in the top 0.01 percent received an additional $162. From 1990 to 2002, for every added dollar made by those in the bottom 90 percent, those in the uppermost 0.01 percent (around 14,000 households in 2006) garnered an additional $18,000.59

Just as class power tends to concentrate, so does the power of the increasingly giant, oligopolistic firms which, in economic parlance, reap monopoly power, associated with barriers to entry into their industries and their ability to impose a greater price markup on prime production costs (primarily labor costs). The bigger firms, as Marx explained, tend to win out in the struggle over the smaller, while the modern credit system facilitates ever-larger mergers and takeovers, leading to the increased centralization of capital and a heightening of monopoly power.60 In 2008, the top 200 U.S. corporations accounted for 30 percent of all gross profits in the economy, up from around 21 percent in 1950. At the same time the revenues of top 500 global corporations were equal to about 40 percent of world income.61 Under these circumstances corporations, nationally and internationally, operate less as competitors than as—to borrow a term from the great conservative economist, Joseph Schumpeter—co-respecters.62 In some sectors, such as Internet Service Providers, and communications in general, we are seeing the reappearance of cartels—with the state, if anything, supporting such developments.63

Writing for the Wall Street Journal, Peter Thiel, co-founder of PayPal, declared that “Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away…. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits…. Monopoly is the condition for every successful business.” Indeed, this might even stand as the credo of today’s generalized monopoly capital.64

The class power of capital in the widest sense—as powerfully argued by economist Eric Schutz in his 2011 work, Inequality and Power: The Economics of Class—extends to all spheres of society and penetrates increasingly into the state and to civil society in general (including the media, education, all forms of entertainment).65 As Kalecki long ago pointed out, a labor party such as exists in many countries in Europe, even where it gains control of the government through popular election, is hardly likely to be in control of the state as a whole, much less the economy, finance, or media. It therefore remains subservient to those who retain the class power of capital, which controls production and through it the main organs of society.66

For Piketty himself there is no organic relation between the two main tendencies that he draws in Capital in the Twenty-First Century—the tendency for the rate of return on wealth to exceed the growth of income and the tendency toward slow growth. Nor is his analysis historical in a meaningful sense, which requires scrutiny of the changing nature of social-class relations. Increasing income and wealth inequality are not developments that he relates to mature capitalism and monopoly capital, but are simply treated as endemic to the system during most of its history.

In reality, however, capitalism matures as a system over the course of its history, as do its contradictions, which are an inescapable part of its being. Today the existence of inordinate class power coupled with ever-greater monopoly power (at both the national and global levels) are producing a more acute condition of overaccumulation at the top of society. This in turn weakens the inducement to invest, leading to a powerful tendency toward a slowdown in growth or stagnation. Under these conditions, as the system continues to seek outlets for its enormous actual and potential economic surplus, while at the same time enhancing the wealth of those at the top, it inevitably resorts to financial speculation. The result is what Summers has recently called “over-financialization,” associated with massive increases in total (primarily private) debt in relation to national income, leading to financial bubbles, one after the other, which inevitably burst.67 This dialectical relation between stagnation and financialization constitutes the primary reality defining today’s monopoly-finance capital.68

Here it is useful to recall that for Keynes the danger was not only one of secular stagnation but also the domination of the rentier. He thus called for the “euthanasia of the rentier, and consequently the euthanasia of the cumulative oppressive power of the capitalist to exploit the [artificial] scarcity-value of capital.”69 In today’s financialized capitalism, we face, as Piketty recognizes, what Keynes most feared: the triumph of the rentier.70 The “euthanasia of the cumulative oppressive power of the capitalist” is needed now more than ever. This cannot be accomplished by minor reforms, however—hence Piketty’s advocacy of what he calls a “useful utopia,” a massive tax on wealth.71

Yet, today we live in a world of global monopoly-finance capital: a system of class power, monopoly power, imperial power, and financial power. Just how unrealistic Piketty’s “useful utopia” is as a mere reform program becomes immediately apparent once we look at the class dynamics of society. It is even more apparent when we move beyond a national to an international outlook. Piketty’s data and analysis do not take him far beyond the rich countries, and hence he does not look at inequality in global North-South terms, much less recognize the reality of imperialism or a world ruled by global monopolies (multinational corporations). He therefore takes no account of the imperial transfer of value as a historical phenomenon or the consequences of this for the concentration of world capital. As Indian economist Prabhat Patnaik states in “Capitalism, Inequality, and Globalization”:

It is significant that imperialism plays no role in Piketty’s analysis, neither in explaining the growth of wealth and wealth inequalities, nor even in the analysis of past growth, or prognostication of future growth. On the contrary the book is informed by a perception according to which capitalist growth in one region…is never at the expense of the people of another region, and tends to spread from one region to another, bringing about a general improvement in the human condition. What this perception misses is that capitalist growth in the metropolis was associated not just with the perpetuation of the pre-existing state of affairs in the periphery but with a very specific form of development, which we call “underdevelopment,” which squeezed the people in an entirely new way. For instance, over the period spanning the last quarter of the nineteenth century and the first two of the twentieth (until independence), not only was there a decline in per capita real income in “British India,” but also the death of millions of people owing to famines.72

In such an imperial system, carrying down to our day, a tax on capital—Piketty’s one solution—would, as he realizes, have to be international in scope in order meaningfully to address issues of inequality and power. This then takes us inexorably to the question of a revolutionary reconstitution of society on a global level. Indeed, there is no real solution that does not require the worldwide transcendence of capital as a mode of production.

None of this of course is to deny that Piketty’s wealth tax would be a good, strategic place to start in promoting a new radical social project, since it challenges “the divine right of capital.”73 But this would require in turn a reorganization and revitalization of the class/social struggle, and in every corner of the globe. The goal must be a truly “utopian” struggle for a society of all; one that is of, by, and for the people—the 99%. Moreover, the 99% here must be understood as representing the dispossessed of the entire world, while recognizing their varying conditions. Today “members of the top percentile [among global wealth holders] are almost 2000 times richer” than the bottom 50 percent of world population.74 Issues of inequality must be seen as ubiquitous in today’s capitalism, occurring at every level, the product of imperialism as well as class, race, and gender—none of which are addressed directly in Piketty’s analysis.

Yet, despite the numerous gaps in Piketty’s argument from the standpoint of existing power relations, Capital in the Twenty-First Century embodies positive messages for social struggle in our time, which it would be a grave mistake to overlook. Significant in this respect is that he chose as the epigraph of his book a line from the Declaration of the Rights of Man and Citizen from the French Revolution: “Social Distinctions can be based only on common utility.”75 One could hardly pick a statement more opposed to the system in which we live, which seeks not the common but the individual utility. Indeed, Piketty’s saving grace, we believe, is that he cares for “the least well off,” beyond his own class. Although a social-democratic supporter of capitalism, he is also in many ways a critic of what he refers to as “the globalized patrimonial capitalism of the twenty-first century,” calling for its radical “regulation.”76 Coming from a neoclassical economist, this is little short of a revolutionary departure.


↩This is evident in recent mainstream discussions of what is called “secular” or long-term stagnation. For an analysis of this and recent trends see Fred Magdoff and John Bellamy Foster, “Stagnation and Financialization,” Monthly Review 66, no. 1 (May 2014): 1–24.
↩Michael Yates, “The Great Inequality,” Monthly Review 63, no. 10 (March 2012): 1–18; Thomas Piketty, Capital in the Twenty-First Century (Cambridge: Harvard University Press, 2014).
↩Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review 45, no. 1 (1955): 1–28.
↩See John Bellamy Foster and Robert W. McChesney, The Endless Crisis (New York: Monthly Review Press, 2012), 1–21.
↩There has been no trend showing that the growing income and wealth gap has been accompanied by similarly growing education and skills gap. Neoclassical theory tells us that rising income and wealth inequality must be caused by such an increasing differential in schooling and skills. That is, those with relatively low incomes and wealth must be falling more and more behind those with relatively high incomes and wealth in terms of their skill and schooling levels. See Lawrence Mishel, “Education is Not the Cure for High Unemployment or for Income Inequality,” January 12, 2011,
↩Piketty, Capital in the Twenty-First Century, 20–22.
↩An oversupply of aggregate output would lead to falling wages, interest rates and prices, which in turn would give rise to higher employment, capital spending, and increasing consumer demand. On the significance of Keynes’s critique in this area see Paul M. Sweezy, Modern Capitalism and Other Essays (New York: Monthly Review Press, 1972), 79–91.
↩John Maynard Keynes, The General Theory of Employment, Interest, and Money (London: Macmillan, 1936), 289.
↩John Kenneth Galbraith, The Age of Uncertainty (Boston: Houghton Mifflin, 1977), 216.
↩Keynes, The General Theory, 307–8; Sweezy, Modern Capitalism and Other Essays, 80.
↩Keynes, General Theory, 307; Alvin H. Hansen, Full Recovery or Stagnation (New York: W.W. Norton, 1938), 303–18; Sweezy, Modern Capitalism, 79–83.
↩Michał Kalecki, Theory of Economic Dynamics (London: George Allen and Unwin, 1954); Josef Steindl, Maturity and Stagnation in American Capitalism (New York: Monthly Review Press, 1976); Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966); Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (New York: Monthly Review Press, 1987). It is worth noting that Hansen took Steindl’s theory seriously, modifying some of his own assumptions. See Alvin H. Hansen, “The Stagnation Thesis,” in American Economic Association, ed., Readings in Fiscal Policy (Homewood, IL: Richard D. Irwin, Inc., 1955), 540–57.
↩Lawrence Summers, “Speech to the IMF Fourteenth Annual Research Conference,” November 8, 2013,
↩Magdoff and Foster, “Stagnation and Financialization.”
↩Feldstein quoted in “Grounded by an Income Gap,” New York Times, December 15, 2001,
↩Lucas quoted in Paul Krugman, “Why We’re in a New Gilded Age,” New York Review of Books, May 8, 2014,
↩The example outlined in this and the preceding paragraph are based upon the critique of neoclassical wage theory presented in Eric A. Schutz, Inequality and Power: The Economics of Class (New York: Routledge, 2011). One of the authors presented this example in a slightly different way, in Yates, “The Great Inequality.”
↩A search in the New York Times archives show that between January 1, 2007 and January 1, 2014, there are 4,260 articles listed under the term “income inequality.” Between January 1, 1977 and January 1, 2007, there are only 2,660 articles listed under this term.
↩Edward N. Wolff, Top Heavy (New York: New Press, 2002); Economic Policy Institute, State of Working America,; Branko Milanovic, The Haves and Have-Nots (New York: Basic Books, 2011); James K. Galbraith, Created Unequal (New York: Free Press, 1998), Inequality and Instability (Oxford: Oxford University Press, 2012).
↩See “The World Top Incomes Database,”
↩The Wall Street Journal used Amazon’s “popular highlights” page associated with its Kindle e-book device to get an idea of how much books were being read. For every book, the top five most highlighted passages by Kindle readers are listed. All five pages most highlighted for Capital in the Twenty-First Century, which at that time had been out for three months to wide acclaim, were in the first twenty-six pages, suggesting that the beginning of the book (2.4 percent of the whole) has had the most impact on Kindle readers, and are the most closely read. Although one cannot draw much in the way of conclusions from this, it is undoubtedly here, in the beginning, that Piketty puts his argument and conclusions most clearly and forcefully, minus much of the detailed elaboration that follows. “The Summer’s Most Unread Book Is…,” Wall Street Journal, July 3, 2014,
↩Karl Marx, Capital, vol. 1 (London: Penguin, 1976), 97. Two other what we might call “empirical economists” are David Card and Alan Krueger, whose book, Myth and Measurement: The New Economics of the Minimum Wage (Princeton, NJ: Princeton University Press, 1997), demolished the neoclassical “law” that raising the minimum wage leads inevitably to higher unemployment. Their book led to such a severe backlash from their neoclassical brethren that they stopped doing minimum wage research. Piketty’s findings have also been attacked, but he has the great advantage of teaching in France, where economists are not tied as tightly into the establishment—and required to toe the line—as they are in the United States, and where there is still a strong sense of social justice within the part of the working class. He says, “Hence they [economists] must set aside their contempt for other disciplines and their absurd claim to greater scientific objectivity, despite the fact that they know almost nothing about anything”; 32. It is difficult to imagine an orthodox economist in the United States saying this.
↩Piketty, Capital in the Twenty-First Century, 13–16, 20–22.
↩Piketty, Capital in the Twenty-First Century, 25–27.
↩Piketty, Capital in the Twenty-First Century, 72–74, 93–96, 353–58. It should be noted that Piketty likes to work with big data sets encompassing large parts of the world, and often bases his assumptions on data stretching back to the eighteenth century or earlier. Although he sees the Industrial Revolution as a turning point, he often skates over true historical analysis, often arguing as if all the societies covered by his data on all continents were essentially the same, and capitalist in structure from approximately 1700 on. Such crude practices naturally undermine his conclusions on long-term economic growth.
↩Piketty, Capital in the Twenty-First Century, 440.
↩Joseph Stiglitz, The Price of Inequality (New York: W.W. Norton, 2012), 30.
↩Piketty sometimes seems to endorse marginal productivity arguments in his book, as, for example, when he writes about the marginal productivity of capital in Chapter 6 and of labor in Chapter 9. In the latter case, he argues that over the long run education plays a very important role in determining individual worker productivity and income. However, he places so many qualifications on the marginal productivity theory that it is difficult to believe that he thinks it has much merit.
↩For Piketty “capital” is simply wealth, whether land, money, financial assets, or jewelry. Piketty, Capital in the Twenty-First Century, 45–50; James K. Galbraith, “Kapital for the Twenty-First Century?,” Dissent, Spring 2014,
↩The consequences of effacing the concept of capital with the concept of wealth are profound, but space does not allow their detailed treatment here. It took Marx three whole volumes to define the meaning of “capital” and if time had allowed he would undoubtedly have provided even more volumes. Suffice it to say that not only does Piketty eschew a social concept of capital, as in Marx’s Capital, but by confusing capital with wealth he also conflates capital as invested surplus (that is, capital accumulation or investment in new productive capacity as it is usually understood in economics) with financial speculation or what Marx called “fictitious capital.” Hence, while Piketty provides genuine insights by focusing on wealth versus income, his approach to capital as wealth is in many ways objectionable even in terms of standard economics.
↩Piketty indicates in a number of places his understandable difficulty in reading Marx. This is a problem that Sweezy used to argue faced any establishment economist, once inculcated into neoclassical marginal productivity theory, since the Marxian perspective requires a fundamentally different outlook and set of analytical tools. It is therefore not surprising that Piketty demonstrates at times penetrating insights with respect to Marx, such as his comments on “the principle of infinite accumulation,” coupled with such elementary errors as the notion that Marx failed to perceive the growth of productivity under capitalism, or that he saw the economy heading toward zero productivity growth. All of this encourages him to discount Marx’s economic vision as simply “apocalyptic.” Such errors seem to be the result of trying to model Marx in neoclassical terms. Although he has a lot to say about Marx, Piketty clearly has not gotten very far into Marx’s system. See Paul M. Sweezy, “Interview,” Monthly Review 38, no. 11 (April 1987), 3; Piketty, Capital in the Twenty-First Century, 7–11, 27, 227–30, 565; Thomas Piketty, “Interview,” New Republic, May 5, 2014,
↩Piketty, Capital in the Twenty-First Century, 27, 573.
↩Piketty, Capital in the Twenty-First Century, 21, 252–55, 515–18.
↩Martin Feldstein, “Piketty’s Numbers Don’t Add Up,” Wall Street Journal, May 14, 2014,
↩Piketty, Capital in the Twenty-First Century, 292–97, see especially figures 8.5 and 8.6. The original articles and data backing up the book are to be found in the Top Incomes Database,, and in the online “Technical Appendix of the book, Capital in the Twenty-First Century,”
↩Piketty, Capital in the Twenty-First Century, 315–21.
↩Piketty, Capital in the Twenty-First Century, 274–76.
↩Piketty, Capital in the Twenty-First Century, 260–62, 418–21.
↩Edward N. Wolff, “The Asset Price Meltdown and the Wealth of the Middle Class,” NBER Working Paper No. 18559, November 2012, Table 4,
↩Piketty, Capital in the Twenty-First Century, 257.
↩Sylvia A. Allegretto, “The State of Working America’s Wealth, 2011: Through Volatility and Turmoil, the Gap Widens,” Economic Policy Institute, Briefing Paper #292, March 24, 2011, Figure D,
↩Piketty, Capital in the Twenty-First Century, 164–71.
↩Piketty, Capital in the Twenty-First Century, 170–72.
↩Piketty, Capital in the Twenty-First Century, 166–70, 231, “Technical Appendix of the book, Capital in the Twenty-First Century.”
↩For a critique of Solow’s neoclassical growth model and a comparison with the earlier Keynesian growth models of Roy Harrod and Evsey Domar, see E.K. Hunt and Mark Lautzenheiser, History of Economic Thought: A Critical Perspective (Armonk, NY: M.E. Sharpe, 2011), 450–57. For a critique of Piketty’s analysis itself in this respect see Prabhat Patnaik, “Capitalism, Inequality and Globalization: Thomas Piketty’s ‘Capital in the Twenty-First Century,’” International Development Economic Associates (IDEAs), July 18, 2014,
↩Although Piketty does not explain the long-term slow growth (below 1.5 percent per capita) that he says is closer to the norm for a capitalist economy, he does point to demographic factors and to technological innovation as guiding factors—pointing to Robert Gordon’s notion of declining innovation in order partly to explain the present economic slowdown. See Piketty, Capital in the Twenty-First Century, 94–95.
↩Piketty, Capital in the Twenty-First Century, 83–87.
↩Piketty, Capital in the Twenty-First Century, 52–54, 166–67.
↩Piketty, Capital in the Twenty-First Century, 447–52, see especially Table 12.2.
↩Economic Report of the President, 2014, Table B-15.
↩Calculated from the St. Louis FRED database, Real Median Household Income in the United States (MEHOINUSA672N). See also Fred Magdoff and John Bellamy Foster, “The Plight of the U.S Working Class,” Monthly Review 65, no. 8 (January 2014): 15–20.
↩Elise Gould, “Why America’s Workers Need Faster Wage Growth—And What We Can Do About It,” EPI Briefing Paper #382, August 27, 2014,
↩Michael W.L. Elsby, Bart Hobijn, and Aysegul Sahin, “The Decline of the U.S. Labor Share,” Federal Reserve Board of San Francisco, Working Paper, 2013-27, 2013,
↩Piketty, Capital in the Twenty-First Century, 252–55.
↩“In One America, Guns and Diet. In the Other, Cameras and ‘Zoolander’: Inequality and Web Search Trends,” New York Times, August 18, 2014,
↩Piketty, Capital in the Twenty-First Century, 254.
↩Kurt W. Rothschild, “The Absence of Power in Contemporary Economic Theory,” Journal of Socio-Economics 31 (2002): 437–40.
↩Arthur B. Kennickell, “Ponds and Streams: Wealth and Income in the U.S. 1989 to 2007,” Federal Reserve Board Working Paper 2009–13, 55, 63,; Matthew Miller and Duncan Greeenberg, ed., “The Richest People in America” (2009), Forbes,
↩Correspondents of the New York Times, Class Matters (New York: New York Times Books, 2005), 186.
↩Marx, Capital, vol. 1, 777–78.
↩For data and analysis see Foster and McChesney, The Endless Crisis, 67–77.
↩Joseph A. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper and Row, 1942), 90. Schumpeter referred here to such firms as “corespective.”
↩Robert W. McChesney, Digital Disconnect (New York: New Press, 2013), 113–20, 138–40. It should be noted that in emphasizing the role of monopoly capital in contemporary capitalism, and Piketty’s failure to incorporate this into his analysis, we are not thereby adopting a position like Stiglitz, who in his criticism of Piketty says it is not capitalism that is the problem but imperfect competition. No argument could be more ahistorical or absurd: a product of abstracted compartmentalization of neoclassical theory that thinks that capital and power can be separated. Piketty himself is free of this kind of illogic. See Joseph Stiglitz, “Phony Capitalism,” Harpers, September 2014, 14–16.
↩Peter Thiel, “Competition is for Losers,” Wall Street Journal, September 12, 2014, On generalized monopoly capital see Samir Amin, The Implosion of Contemporary Capitalism (New York: Monthly Review Press, 2013).
↩Eric A. Schutz, Inequality and Power (New York: Routledge, 2011).
↩Michał Kalecki, Selected Essays on Economic Planning (Cambridge: Cambridge University Press, 1986), 19–24.
↩Lawrence H. Summers, “The Inequality Puzzle,” Democracy 33 (Summer 2014), On the sources of financialization, see John Bellamy Foster and Fred Magdoff, The Great Financial Crisis (New York: Monthly Review Press, 2009), Fred Magdoff and Michael D. Yates, The ABCs of the Economic Crisis (New York: Monthly Review Press, 2009), and Costas Lapavitsas, Profiting Without Production (London: Verso, 2013).
↩Foster and Magdoff, The Great Financial Crisis, 63–76; Foster and McChesney, The Endless Crisis, 49–63.
↩Keynes, The General Theory, 376.
↩Piketty, Capital in the Twenty-First Century, 422–24.
↩Piketty, Capital in the Twenty-First Century, 515.
↩Patnaik, “Capitalism, Inequality and Globalization,” 5. In his discussion of forces leading to less inequality Piketty, Capital in the Twenty-First Century, 21, stresses the dissemination of “knowledge and skills.” He says this applies especially to the convergence of incomes between nations. However, even supposing that per capita incomes across nations are becoming more equal, this says nothing about either the transfer of incomes from poor nations to rich ones or the convergence of incomes within any particular country. Incomes have been becoming more unequal in China over the past few decades, but there has been a convergence between per capita income in China and per capita income in the rich countries. He appears to take the per capita income convergence as unalloyed good, but the issue is a great deal more complicated, as one would expect a sophisticated analyst of inequality like Piketty to recognize.
↩Marjorie Kelly, The Divine Right of Capital (San Francisco: Berrett-Koehler, 2003).
↩James B. Davies, Susanna Sandström, Anthony Shorrocks, and Edward N. Wolff, “The World Distribution of Household Wealth,” in James B. Davies, ed., Personal Wealth from a Global Perspective (Oxford: Oxford University Press, 2008), 402.
↩Piketty, Capital in the Twenty-First Century, 1, 479–480. A society in which this is true could not be a capitalist society. In a gathering and hunting society, a superior hunter may have social distinction, but he will not get a larger share of food than anyone else. His social distinction is therefore based on his serving the common good, by increasing the group’s food supply. Nothing comparable exists in capitalism, except in the ideological constructs of its apologists, especially neoclassical economists. Piketty’s notion of how modern capitalist societies function can at times appear painfully naïve. His wealth tax, he says, must be democratically debated, and the data he and his colleagues have amassed will make such debate possible. Yet, the very increase in the social “weight” of those at the top of the wealth distribution corresponds with so much political “weight” that it is reasonable to ask just how democratic debate, much less decision-making, is possible. His support for serious, even radical regulation of “global patrimonial capitalism” is commendable, but his faith in the capitalist version of democracy is not.
↩Piketty, Capital in the Twenty-First Century, 571–77.

Our Friends in Riyadh
Our Friends in Riyadh

by Toby C. Jones

The United States is allies with Saudi Arabia not in spite of the country’s authoritarian political order, but because of it.

Last Wednesday, a criminal court in Saudi Arabia sentenced Shia cleric Sheikh Nimr al-Nimr, one of the kingdom’s most visible political dissidents, to death. Saudi authorities have justified the verdict in terms of national security. Convicted on vague charges of sedition, Al-Nimr was tried in a court established to judge cases of terrorism.

As is often the case in Saudi Arabia, what passes for the rule of law and national security is more often the theater of the absurd. The execution verdict, which could be commuted to a lengthy prison sentence, is the product of a system based on political exclusion, a system that sacrifices human beings to maintain centralized authority and elite privilege.

Al-Nimr was arrested and subsequently sentenced not because he is a danger to Saudi society, but because he has long been a critic of oppression, has agitated against sectarian discrimination, and led protests demanding reforms to an unjust political order. Al-Nimr has been a prominent figure in supporting what has been a largely unseen, but nevertheless persistent protest movement in the predominantly Shiite communities of eastern Saudi Arabia.

Since 2011, shortly after citizens mobilized against the al-Khalifa in neighboring Bahrain, Saudi Shiites also took to the streets. In response, the authorities have cracked down brutally, criminalizing a broad range of activism, aggressively policing Shiite communities, and chasing down, arresting, or killing scores of activists.

Al-Nimr only poses a threat to the regime itself. The state’s repression, cloaked in the language of security and sedition, is a weak effort to mystify this fundamental fact. Given the stakes of expressing anger at the regime, particularly for the Shiite community, it is noteworthy that street protests have continued daily since the sentence against al-Nimr.

Of course, even casual observers of Saudi Arabian politics are likely unsurprised by the decision to execute a prominent Shia cleric. After all, the kingdom is widely believed to be a center of religious extremism and sectarian ferment. And it is certainly true that anti-Shiism has a history in Saudi Arabia.

Shiites, who make up as much as 15 percent of the Saudi population, have been targeted historically by both religious zealots and a central government tantamount to an imperial regime. The community has faced systematic discrimination and exclusion since the imperial expansion of the Al-Saud from central Arabia in the early twentieth century.

But sectarian pathologies, even in Saudi Arabia, have particular histories. And they are hardly as widespread as we might assume. It is certainly the case that discriminatory sentiment has become more entrenched in the last generation, but the worst varieties of anti-Shiism, especially those advocating violence and supportive of the regionalization of a Sunni-Shiite war, are a small, but powerful minority.

Anti-Shiism today is not so much the product of a retrograde or orthodox interpretation of Islam — widely labeled Wahhabism — as it is the convergence of several political forces, the most important of which is a vulnerable state.

Confronted by a number of internal and external threats — the Iranian pursuit of influence in the Gulf; the rise of Shiite power in post-invasion Iraq; the uprising in Bahrain, Saudi Arabia’s satellite state; and most importantly, the rise of a range of domestic challenges to Saudi authority since 2003, including criticism of deep state corruption and the absence of political rights — leaders in Riyadh have responded by fomenting discriminatory anti-Shiism. Rather than broadening participation or overturning inequalities, the regime’s impulse has been to pursue the politics of sectarian escalation.

Seen this way, the verdict against al-Nimr is not so much about national security or a reflection of deeply conservative, anti-Shiite sentiment as it is an indication of the regime’s vulnerability.

It is tempting to say that in threatening to execute al-Nimr the state seeks to dissuade other Shiite dissidents from challenging its authority. This is certainly true. But the regime is also throwing red meat to the worst reactionaries in its midst, engaging in the politics and practice of distraction, and, providing political legitimacy for the strident and virulent forms of sectarianism that have settled in across the region.  The obvious effect is that anti-Shiism, both at home and abroad, has and will continue to gain greater currency, as it seemingly has with the rise of the Islamic State in Iraq and Syria (ISIS). More subtly, the Saudi gambit is also based on a clear understanding that other potential forms of dissent — against charges of corruption or frustration at what is a heavy-handed security state — can be deflected or set aside by stoking anti-Shiism and by sacrificing Shiite bodies.

The sectarianization of Saudi politics is also political-economic and bound up in the kingdom’s “special relationship” with the United States. Since the uprising in Bahrain in 2011, United States has continued to support the autocratic Arab regimes in the Gulf rather than democracy or human rights. Justifications include priorities around “security,” the need to contain Iran, and ensuring that oil flows from the Gulf to global markets.

With these priorities in mind, it is unlikely that American officials will do much to challenge Riyadh on either al-Nimr’s verdict or try to alter its sectarian behavior more generally. Critics have called on the United States to rethink its strategic ties to Riyadh. But doing so would require confronting not only the contradictions in American policy, especially given that it is close to a Saudi state that supported the rise of ISIS, even if indirectly, even while it now claims to be committed to the Islamic State’s destruction.

In any case, the United States’ unwillingness to confront Saudi Arabia’s role in ISIS’s rise, aside from comments from Secretary of State John Kerry that seemed to acknowledge this, enables the kingdom’s contradictory behavior. Whatever the limits of American power, the plain reality is that Washington has never meaningfully pressed the Saudis on their complicity in the spread of post-2003 sectarianism or anti-Shiite terrorism.

Beyond these contradictions, it is important to keep in sight the role that the United States government and that American capital have played in the rise of autocracy and discriminatory politics in Saudi Arabia in the first place.

Al-Nimr comes from a small village called Awamiyya in Saudi Arabia’s Eastern Province, a place where American influence runs deep. It is in the east where almost all of the kingdom’s Shiite community lives, and where almost all of its oil sits. For a regime worried about internal threats, Shiite challenges to power are meaningful not only for their content, but also because of their location. The US government and American capital know this all very well.

Although American political and corporate interests surrendered direct control of Saudi Arabia’s oil resources in the early 1980s, they were present in the eastern province, in and around Shiite communities, from the late 1930s through much of the twentieth century.

Fearful of politically mobilized Saudi labor in the mid twentieth century, the Arabian American Oil Company (which was known to employ CIA officials) coordinated closely with Saudi leaders from the 1940s until the 1970s in building a centralized, discriminatory political order that was anti-democratic, anti-labor, and that sought to create disciplined and docile bodies in a place where the al-Saud lacked much in the way of political legitimacy. The very political order that Saudi authorities seek to shore up by way of show trials and capital punishment is the legacy of this twentieth century cooperation.

American policymakers no longer think in terms of the interests of an American oil company that controls Saudi oil. But its practical and political economic interests have changed very little. Since the late 1970s, in fact, these connections have proliferated, most importantly through weapons sales and the entanglement of the American military-industrial complex with Saudi oil wealth. There is no greater engine for the recycling of Saudi and Gulf Arab petrodollars than massive and expensive weapons systems. These sales are largely justified in the language of security and by invoking regional threats like Saddam Hussein and whatever regime sits in Tehran. The reality, though, is that they are hugely profitable.

While it has sometimes bristled at American policy over the last decade, Riyadh remains committed to its relationship with Washington. The opposite is also true. American policymakers continue to see Saudi Arabia as indispensable not because it has shown itself willing to change or develop a more inclusive and tolerant political order, but because it does not.

To push for democracy in Saudi Arabia, or even simply a more critical approach to the ways that Riyadh’s domestic political maneuvering courts regional catastrophe, would be to open up the possibility of a government that wouldn’t subordinate the interests of its citizens to American energy needs. That’s a risk the US government and capital aren’t willing to take.

Dollar Deception: How Banks Secretly Create Money

 Dollar Deception: How Banks Secretly Create Money

by Ellen Brown (Web of Debt) July 3, 2007

It has been called “the most astounding piece of sleight of hand ever invented.” The creation of money has been privatized, usurped from Congress by a private banking cartel. Most people think money is issued by fiat by the government, but that is not the case. Except for coins, which compose only about one one-thousandth of the total U.S. money supply, all of our money is now created by banks. Federal Reserve Notes (dollar bills) are issued by the Federal Reserve, a private banking corporation, and lent to the government.1 Moreover, Federal Reserve Notes and coins together compose less than 3 percent of the money supply. The other 97 percent is created by commercial banks as loans.2

Don’t believe banks create the money they lend? Neither did the jury in a landmark Minnesota case, until they heard the evidence. First National Bank of Montgomery vs. Daly (1969) was a courtroom drama worthy of a movie script.3 Defendant Jerome Daly opposed the bank’s foreclosure on his $14,000 home mortgage loan on the ground that there was no consideration for the loan. “Consideration” (“the thing exchanged”) is an essential element of a contract. Daly, an attorney representing himself, argued that the bank had put up no real money for his loan. The courtroom proceedings were recorded by Associate Justice Bill Drexler, whose chief role, he said, was to keep order in a highly charged courtroom where the attorneys were threatening a fist fight. Drexler hadn’t given much credence to the theory of the defense, until Mr. Morgan, the bank’s president, took the stand. To everyone’s surprise, Morgan admitted that the bank routinely created money “out of thin air” for its loans, and that this was standard banking practice. “It sounds like fraud to me,” intoned Presiding Justice Martin Mahoney amid nods from the jurors. In his court memorandum, Justice Mahoney stated:

Plaintiff admitted that it, in combination with the Federal Reserve Bank of Minneapolis, . . . did create the entire $14,000.00 in money and credit upon its own books by bookkeeping entry. That this was the consideration used to support the Note dated May 8, 1964 and the Mortgage of the same date. The money and credit first came into existence when they created it. Mr. Morgan admitted that no United States Law or Statute existed which gave him the right to do this. A lawful consideration must exist and be tendered to support the Note.

The court rejected the bank’s claim for foreclosure, and the defendant kept his house. To Daly, the implications were enormous. If bankers were indeed extending credit without consideration – without backing their loans with money they actually had in their vaults and were entitled to lend – a decision declaring their loans void could topple the power base of the world. He wrote in a local news article:

This decision, which is legally sound, has the effect of declaring all private mortgages on real and personal property, and all U.S. and State bonds held by the Federal Reserve, National and State banks to be null and void. This amounts to an emancipation of this Nation from personal, national and state debt purportedly owed to this banking system. Every American owes it to himself . . . to study this decision very carefully . . . for upon it hangs the question of freedom or slavery.

Needless to say, however, the decision failed to change prevailing practice, although it was never overruled. It was heard in a Justice of the Peace Court, an autonomous court system dating back to those frontier days when defendants had trouble traveling to big cities to respond to summonses. In that system (which has now been phased out), judges and courts were pretty much on their own. Justice Mahoney, who was not dependent on campaign financing or hamstrung by precedent, went so far as to threaten to prosecute and expose the bank. He died less than six months after the trial, in a mysterious accident that appeared to involve poisoning.4 Since that time, a number of defendants have attempted to avoid loan defaults using the defense Daly raised; but they have met with only limited success. As one judge said off the record:

If I let you do that – you and everyone else – it would bring the whole system down. . . . I cannot let you go behind the bar of the bank. . . . We are not going behind that curtain!5

From time to time, however, the curtain has been lifted long enough for us to see behind it. A number of reputable authorities have attested to what is going on, including Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s. He declared in an address at the University of Texas in 1927:

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta in the Great Depression, wrote in 1934:

We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.6

Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged:

Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created — brand new money.7

Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report:

[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.

How did this scheme originate, and how has it been concealed for so many years? To answer those questions, we need to go back to the seventeenth century.

The Shell Game of the Goldsmiths

In seventeenth century Europe, trade was conducted primarily in gold and silver coins. Coins were durable and had value in themselves, but they were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their coins with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier coins they represented. These receipts were also used when people who needed coins came to the goldsmiths for loans.

The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. They could safely “lend” the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand. They thus created “paper money” (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. At an interest rate of 20 percent, the same gold lent five times over produced a 100 percent return every year, on gold the goldsmiths did not actually own and could not legally lend at all. If they were careful not to overextend this “credit,” the goldsmiths could thus become quite wealthy without producing anything of value themselves. Since only the principal was lent into the money supply, more money was eventually owed back in principal and interest than the townspeople as a whole possessed. They had to continually take out loans of new paper money to cover the shortfall, causing the wealth of the town and eventually of the country to be siphoned into the vaults of the goldsmiths-turned-bankers, while the people fell progressively into their debt.8

Following this model, in nineteenth century America, private banks issued their own banknotes in sums up to ten times their actual reserves in gold. This was called “fractional reserve” banking, meaning that only a fraction of the total deposits managed by a bank were kept in “reserve” to meet the demands of depositors. But periodic runs on the banks when the customers all got suspicious and demanded their gold at the same time caused banks to go bankrupt and made the system unstable. In 1913, the private banknote system was therefore consolidated into a national banknote system under the Federal Reserve (or “Fed”), a privately-owned corporation given the right to issue Federal Reserve Notes and lend them to the U.S. government. These notes, which were issued by the Fed basically for the cost of printing them, came to form the basis of the national money supply.

Twenty years later, the country faced massive depression. The money supply shrank, as banks closed their doors and gold fled to Europe. Dollars at that time had to be 40 percent backed by gold, so for every dollar’s worth of gold that left the country, 2.5 dollars in credit money also disappeared. To prevent this alarming deflationary spiral from collapsing the money supply completely, in 1933 President Franklin Roosevelt took the dollar off the gold standard. Today the Federal Reserve still operates on the “fractional reserve” system, but its “reserves” consist of nothing but government bonds (I.O.U.s or debts). The government issues bonds, the Federal Reserve issues Federal Reserve Notes, and they basically swap stacks, leaving the government in debt to a private banking corporation for money the government could have issued itself, debt-free.

Theft by Inflation

M3, the broadest measure of the U.S. money supply, shot up from $3.7 trillion in February 1988 to $10.3 trillion 14 years later, when the Fed quit reporting it. Why the Fed quit reporting it in March 2006 is suggested by John Williams in a website called “Shadow Government Statistics“, which shows that by the spring of 2007, M3 was growing at the astounding rate of 11.8 percent per year. Best not to publicize such figures too widely! The question posed here, however, is this: where did all this new money come from? The government did not step up its output of coins, and no gold was added to the national money supply, since the government went off the gold standard in 1933. This new money could only have been created privately as “bank credit” advanced as loans.

The problem with inflating the money supply in this way, of course, is that it inflates prices. More money competing for the same goods drives prices up. The dollar buys less, robbing people of the value of their money. This rampant inflation is usually blamed on the government, which is accused of running the dollar printing presses in order to spend and spend without resorting to the politically unpopular expedient of raising taxes. But as noted earlier, the only money the U.S. government actually issues are coins. In countries in which the central bank has been nationalized, paper money may be issued by the government along with coins, but paper money still composes only a very small percentage of the money supply. In England, where the Bank of England was nationalized after World War II, private banks continue to create 97 percent of the money supply as loans.9

Price inflation is only one problem with this system of private money creation. Another is that banks create only the principal but not the interest necessary to pay back their loans. Since virtually the entire money supply is created by banks themselves, new money must continually be borrowed into existence just to pay the interest owed to the bankers. A dollar lent at 5 percent interest becomes 2 dollars in 14 years. That means the money supply has to double every 14 years just to cover the interest owed on the money existing at the beginning of this 14 year cycle. The Federal Reserve’s own figures confirm that M3 has doubled or more every 14 years since 1959, when the Fed began reporting it. 10That means that every 14 years, banks siphon off as much money in interest as there was in the entire economy 14 years earlier. This tribute is paid for lending something the banks never actually had to lend, making it perhaps the greatest scam ever perpetrated, since it now affects the entire global economy. The privatization of money is the underlying cause of poverty, economic slavery, underfunded government, and an oligarchical ruling class that thwarts every attempt to shake it loose from the reins of power.

This problem can only be set right by reversing the process that created it. Congress needs to take back the Constitutional power to issue the nation’s money. “Fractional reserve” banking needs to be eliminated, limiting banks to lending only pre-existing funds. If the power to create money were returned to the government, the federal debt could be paid off, taxes could be slashed, and needed government programs could be expanded. Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply. The dollars would just replace the bonds, leaving the total unchanged. If the U.S. federal debt had been paid off in fiscal year 2006, the savings to the government from no longer having to pay interest would have been $406 billion, enough to eliminate the $390 billion budget deficit that year with money to spare. The budget could have been met with taxes, without creating money out of nothing either on a government print press or as accounting entry bank loans. However, some money created on a government printing press could actually be good for the economy. It would be good if it were used for the productive purpose of creating new goods and services, rather than for the non-productive purpose of paying interest on loans. When supply (goods and services) goes up along with demand (money), they remain in balance and prices remain stable. New money could be added without creating price inflation up to the point of full employment. In this way Congress could fund much-needed programs, such as the development of alternative energy sources and the expansion of health coverage, while actually reducing taxes.


1 Wright Patman, A Primer on Money (Government Printing Office, prepared for the Sub-committee on Domestic Finance, House of Representatives, Committee on Banking and Currency, 88th Congress, 2nd session, 1964).

2 See Federal Reserve Statistical Release H6, “Money Stock Measures,” (February 23, 2006); “United States Mint 2004 Annual Report,” Ellen Brown, Web of Debt, (2007), chapter 2.

3 “A Landmark Decision,” The Daily Eagle (Montgomery, Minnesota: February 7, 1969), reprinted in part in P. Cook, “What Banks Don’t Want You to Know,” (June 3, 1993).

4 See Bill Drexler, “The Mahoney Credit River Decision,” .

5 G. Edward Griffin, “Debt-cancellation Programs,” (December 18, 2003).

6 In the Foreword to Irving Fisher, 100% Money (1935), reprinted by Pickering and Chatto Ltd. (1996).

7 Quoted in “Someone Has to Print the Nation’s Money . . . So Why Not Our Government?”, Monetary Reform Online, reprinted from Victoria Times Colonist (October 16, 1996).

8 Chicago Federal Reserve, “Modern Money Mechanics” (1963), originally produced and distributed free by the Public Information Center of the Federal Reserve Bank of Chicago, Chicago, Illinois, now available on the Internet; Patrick Carmack, Bill Still, The Money Masters: How International Bankers Gained Control of America (video, 1998), text.

9 James Robertson, John Bunzl, Monetary Reform: Making It Happen (2003), page 26.

10 Board of Governors of the Federal Reserve, “M3 Money Stock (discontinued series),” .

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Brown’s eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies.

Fiat money is unconstitutional in the United States

The Federal Reserve Act
is Unconstitutional

In order to fully understand the following documents there needs to be an explanation of the background behind the case.

Please note that the assignment of the case to Judge Mahoney was through standard lawful practices and that the Chief Justice of the Minnesota Supreme Court assigned an associate justice to assist in the trial

These action give total and complete lawful jurisdiction to the actions of the Court

We will now let the participants set the stage.



A Minnesota Trial Court’s decision holding:

  • the Federal Reserve Act unconstitutional and VOID
  • holding the National Banking Act unconstitutional and VOID
  • declaring a mortgage acquired by the First National Bank of Montgomery, Minnesota in the regular course of its business, along with the foreclosure and
  • the sheriff’s sale, to be VOID

This decision, which is legally sound, has the effect of declaring all private mortgages on real and personal property, and all U.S. and State bonds held by the Federal Reserve, National and State Banks to be null and VOID.

This amounts to an emancipation of this nation from personal, national and State debt purportedly owed to this banking system.

Every True American owes it to himself/herself, to his or her country, and to the people of the world for that matter, to study this decision very carefully and to understand it, for upon it hangs the question of freedom or slavery

by: Jerome Daly, Attorney at Law
28 East Minnesota Street
Savage, Minnesota 55378
February 7, 1969


On May 8, 1964 the writer executed a Note and Mortgage to the First National Bank of Montgomery, Minnesota, which is a member of the Federal Reserve Bank of Minneapolis. Both Banks are private owned and are a part of the Federal Reserve Banking System.

In the Spring of 1967 the writer was in arrears $476.00 in the payments on this Note and Mortgage. The Note was secured by a Mortgage on real property in Spring Lake Township in Scott County, Minnesota. The Bank foreclosed by advertisement and bought the property at a Sheriff’s Sale held on June 26, 1967 and did not redeem with the 12 month period of time allotted by law after the Sheriff’s Sale.

The Bank brought the Action to recover the possession to the property in the Justice of the Peace Court at Savage, Minnesota. The first 2 Justices were disqualified by Affidavit of Prejudice. The first by the writer and the Second by the Bank. A third one refused to handle the case. It was then sent, pursuant to law, to Martin V. Mahoney, Justice of the Peace, Credit River Township, Scott County, Minnesota, who presided at a Jury trial on December 7, 1968. The Jury found the Note and Mortgage to be void for failure of a lawful consideration and refused to give any validity to the Sheriff’s Sale. Verdict was for the writer with costs in the amount of $75.00.

The president of the Bank admitted that the Bank created the money and credit upon its own books by which it acquired or gave as consideration for the Note; that this was standard banking practice, that the credit first came into existence when they created it; that he knew of no United States Statutes which gave them the right to do this. This is the universal practice of these Banks. The Justice who heard the case handed down the opinion attached and included herein. Its reasoning is sound. It will withstand the test of time. This is the first time the question has been passed upon in the United States. I predict that this decision will go into the History Books as one of the great Documents of American History. It is a huge cornerstone wrenched from the temple of Imperialism and planted as one of the solid foundation stones of Liberty.



The “Credit River Decision” handed down by a jury of 12 on a cold day in December, in the Credit River Township Hall, was an experience that I’ll never forget.

The Chief Justice of the Minnesota Supreme Court had phoned me a week before the trial and asked me if I would be an associate justice in assisting Justice Martin V. Mahoney since he had never handled a jury trial before. I accepted, and it took me two hours to get my car running in the 22 below zero weather.

I got to the courtroom about 30 minutes before trial, and helped get the wood stove going, since the trial was being held in an unheated storeroom of a general store. This was the first time I met Justice Mahoney, and I was impressed with his no nonsense manner of handling matters before him. My object was to help pick the jury, and to keep Jerome Daly and the attorney representing the Bank of Montgomery from engaging in a fist fight. The courtroom was highly charged, and the Jury was all business.

The banker testified about the mortgage loan given to Jerome Daly, but then Daly cross examined the banker about the creating of money “out of thin air,” and the banker admitted that this was standard banking practice. When Justice Mahoney heard the banker testify that he could “create money out of thin air,” Mahoney said, “It sounds like fraud to me.” I looked at the faces of the jurors, and they were all agreeing with Mahoney by shaking their heads and by the looks on their faces.

I must admit that up until that point, I really didn’t believe Jerome’s theory, and thought he was making this up. After I heard the testimony of the banker, my mouth had dropped open in shock, and I was in complete disbelief. There was no doubt in my mind that the Jury would find for Daly.

Jerome Daly had taken on the banks, the Federal Reserve Banking System, and the money lenders, and had won.

It is now twenty eight years since this “Landmark Decision,” and Justice Mahoney is quoted more often than any Supreme Court justice ever was. The money boys that run the “private Federal Reserve Bank” soon got back at Mahoney by poisoning him in what appeared to have been a fishing boat accident (but with his body pumped full of poison) in June of 1969, less than 6 months later.

Both Jerome Daly and Justice Martin V. Mahoney are truly the greatest men that I have ever had the pleasure to meet. The Credit River Decision was and still is the most important legal decision ever decided by a Jury. – Bill Drexler


The above-entitled action came on before the Court and a Jury of 12 on December 7, 1968 at 10:00 am. Plaintiff appeared by its President Lawrence V. Morgan and was represented by its Counsel, R. Mellby. Defendant appeared on his own behalf.

A Jury of Talesmen were called, impaneled and sworn to try the issues in the Case. Lawrence V. Morgan was the only witness called for Plaintiff, and Defendant testified as the only witness in his own behalf.

Plaintiff brought this as a Common Law action for the recovery of the possession of Lot 19 Fairview Beach, Scott County, Minn. Plaintiff claimed title to the Real Property in question by foreclosure of a Note and Mortgage Deed dated May 8, 1964, which Plaintiff claimed was in default at the time foreclosure proceedings were started.



First National Bank of Montgomery, Plaintiff vs Jerome Daly, Defendant


The above entitled action came on before the Court and a Jury of 12 on December 7, 1968 at 10:00 am. Plaintiff appeared by its President Lawrence V. Morgan and was represented by its Counsel, R. Mellby. Defendant appeared on his own behalf.

A Jury of Talesmen were called, impaneled and sworn to try the issues in the Case. Lawrence V. Morgan was the only witness called for Plaintiff and Defendant testified as the only witness in his own behalf.

Plaintiff brought this as a Common Law action for the recovery of the possession of Lot 19 Fairview Beach, Scott County, Minn. Plaintiff claimed title to the Real Property in question by foreclosure of a Note and Mortgage Deed dated May 8, 1964 which Plaintiff claimed was in default at the time foreclosure proceedings were started.

Defendant appeared and answered that the Plaintiff created the money and credit upon its own books by bookkeeping entry as the consideration for the Note and Mortgage of May 8, 1964 and alleged failure of the consideration for the Mortgage Deed and alleged that the Sheriff’s sale passed no title to plaintiff.

The issues tried to the Jury were whether there was a lawful consideration and whether Defendant had waived his rights to complain about the consideration having paid on the Note for almost 3 years.

Mr. Morgan admitted that all of the money or credit which was used as a consideration was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneapolis, another private Bank, further that he knew of no United States Statute or Law that gave the Plaintiff the authority to do this. Plaintiff further claimed that Defendant by using the ledger book created credit and by paying on the Note and Mortgage waived any right to complain about the Consideration and that the Defendant was estopped from doing so.

At 12:15 on December 7, 1968 the Jury returned a unanimous verdict for the Defendant.

Now therefore, by virtue of the authority vested in me pursuant to the Declaration of Independence, the Northwest Ordinance of 1787, the Constitution of United States and the Constitution and the laws of the State of Minnesota not inconsistent therewith;


1. That the Plaintiff is not entitled to recover the possession of Lot 19, Fairview Beach, Scott County, Minnesota according to the Plat thereof on file in the Register of Deeds office.

2. That because of failure of a lawful consideration the Note and Mortgage dated May 8, 1964 are null and void.

3. That the Sheriff’s sale of the above described premises held on June 26, 1967 is null and void, of no effect.

4. That the Plaintiff has no right title or interest in said premises or lien thereon as is above described.

5. That any provision in the Minnesota Constitution and any Minnesota Statute binding the jurisdiction of this Court is repugnant to the Constitution of the United States and to the Bill of Rights of the Minnesota Constitution and is null and void and that this Court has jurisdiction to render complete Justice in this Cause.

The following memorandum and any supplementary memorandum made and filed by this Court in support of this Judgment is hereby made a part hereof by reference.

Dated December 9, 1968
Credit River Township

Scott County, Minnesota


The issues in this case were simple. There was no material dispute of the facts for the Jury to resolve.

Plaintiff admitted that it, in combination with the federal Reserve Bank of Minneapolis, which are for all practical purposes, because of their interlocking activity and practices, and both being Banking Institutions Incorporated under the Laws of the United States, are in the Law to be treated as one and the same Bank, did create the entire $14,000.00 in money or credit upon its own books by bookkeeping entry. That this was the Consideration used to support the Note dated May 8, 1964 and the Mortgage of the same date. The money and credit first came into existence when they created it. Mr. Morgan admitted that no United States Law Statute existed which gave him the right to do this. A lawful consideration must exist and be tendered to support the Note. See Ansheuser-Busch Brewing Company v. Emma Mason, 44 Minn. 318, 46 N.W. 558. The Jury found that there was no consideration and I agree. Only God can create something of value out of nothing.

Even if Defendant could be charged with waiver or estoppel as a matter of Law this is no defense to the Plaintiff. The Law leaves wrongdoers where it finds them. See sections 50, 51 and 52 of Am Jur 2nd “Actions” on page 584 – “no action will lie to recover on a claim based upon, or in any manner depending upon, a fraudulent, illegal, or immoral transaction or contract to which Plaintiff was a party.”

Plaintiff’s act of creating credit is not authorized by the Constitution and Laws of the United States, is unconstitutional and void, and is not a lawful consideration in the eyes of the Law to support any thing or upon which any lawful right can be built.

Nothing in the Constitution of the United States limits the jurisdiction of this Court, which is one of original Jurisdiction with right of trial by Jury guaranteed. This is a Common Law action. Minnesota cannot limit or impair the power of this Court to render Complete Justice between the parties. Any provisions in the Constitution and laws of Minnesota which attempt to do so is repugnant to the Constitution of the United States and void. No question as to the Jurisdiction of this Court was raised by either party at the trial. Both parties were given complete liberty to submit any and all facts to the Jury, at least in so far as they saw fit.

No complaint was made by Plaintiff that Plaintiff did not receive a fair trial. From the admissions made by Mr. Morgan the path of duty was direct and clear for the Jury. Their Verdict could not reasonably been otherwise. Justice was rendered completely and without denial, promptly and without delay, freely and without purchase, conformable to the laws in this Court of December 7, 1968.


FORWARD: The above Judgment was entered by the Court on December 9, 1968. The issue there was simple – Nothing in the law gave the Banks the right to create money on their books. The Bank filed a Notice of Appeal within 10 days. The Appeals statutes must be strictly followed, otherwise the District Court does not acquire Jurisdiction upon Appeal. To effect the Appeal the Bank had to deposit $2.00 with the Clerk within 10 days for payment to the Justice when he made his return to the District Court. The Bank deposited two $1.00 Federal Reserve Notes. The Justice refused the Notes and refused to allow the Appeal upon the grounds that the Notes were unlawful and void for any purpose. The Decision is addressed to the legality of these Notes and the Federal Reserve System.

The Cases of Edwards v. Kearnzey and Craig v. Missouri set out in the decision should be studied very carefully as they bear on the inviolability of Contracts. This is the crux of the whole issue. Jerome Daly.

SPECIAL NOTATION. Justice Mahoney denied the use of Federal Reserve Notes, since they represent debt instruments, not true money, from being used to pay for the appeal process itself. In order to get this overturned, since the bank’s appeal without the payment being recognized was out of time, it would have required that the Bank of Montgomery, Minnesota bring a Title 42, Section 1983 action against the judicial act of Justice Mahoney for a violation of the Constitution of the United States under color of law or authority, and if successful, have the case remanded back to him to either retry the case or allow the appeal to go through. But the corrupt individuals behind the bank(s) were unable to ever elicit such a decision from any federal court due to the fact that because of their vile hatred for him and what he had done to them and their little Queen’s Scheme, had him murdered (same as them murdering him) just about 6 months later. And so, the case stands, just as it was. Amazingly, if they hadn’t been so arrogant about the value of their federal reserve notes and paid the Justice just 2 measly silver dollars, or else 4 measly half dollars, or else 8 measly quarters, or else 20 measly dimes, or else 40 measly nickels, or else 200 measly pennies, they could have had their appeal and would not have had to get blood on their hands.

As it is, they are now known for their bloody ways, and the day will come when the American people will reap vengeance upon them for such a heinous and villainous act. Amen.

December 9, 1968
Justice Martin V. Mahoney
Credit River Township

Scott County, Minnesota

Note: It has never been doubted that a Note given on a Consideration which is prohibited by law is void. It has been determined; by independent of Acts of Congress, that sailing under the license of an enemy is illegal. The emission of Bills of Credit upon the books of these private Corporations for the purpose of private gain is not warranted by the Constitution of the United States and is unlawful. See Craig v. Mo. 4 Peters Reports 912. This Court can tread only that path which is marked out by duty. M.V.M.

JEROME DALY had his own information to reveal about this case, which establishes that between his own revealed information and the fact that Justice Martin V. Mahoney was murdered 6 months after he entered the Credit River Decision on the books of the Court, why the case was never legally overturned, nor can it be.


Jerome Daly was from Savage Minn. and a close friend of mine. The “Credit River” decision (was) where a jury in a Justice of the Peace court trial found that Federal Reserve Notes were not Moneys of Account of the United States and the court in his opinion found them to be ‘FRAUDS’.

This case was on Dec. 7, 1968 before Justice Martin V. Mahoney of Credit River Minn. and I was an associated Justice since Justice Mahoney had never tried a jury trial and I was asked by “Chief Justice of the Minnesota Supreme Court, Oscar Knutson, (commonly known as “King Knute”) to assist Justice Mahoney, since the Bank of Montgomery was represented by an attorney, and Jerome Daly was an attorney, and the case was about “Failure of Consideration” by a bank in a mortgage foreclosure on Jerome’s cabin at Prior Lake, Minn..

Justice Mahoney declared that only “Gold and Silver Coins” were moneys of account of the United States, and that the Constitution is still the LAW today. “No state shall make any “THING” but Gold and Silver Coin a tender in payment of debts…”

And of course since the Federal Government had been given only 18 to 20 powers under the Constitution it was a “Limited Government”, and according to the 9th and 10th amendments the states and the people were Sovereign, and retained for themselves all of the other rights not specifically given to the Feds.

When news of the jury’s decision was picked up by Vern Myers and written about in his newsletter, “Myers Finance and Commerce” and sent world wide the whole world was afraid to accept FRAUDS and it got so big that they had Justice Mahoney killed within 6 months and Jerome and I had a couple of close calls too.

I’ve published the book: “The Credit River Decision” for 20 years now, but sold my last copy about 6 months ago, since like Waco, no one was interested in it after the Govt put their “SPIN DOCTORS’ to work to try to discredit it. This like the “Special Appearance” really needs to be studied to learn the real truth about our “Funny Money” system of creating Money “Out of thin Air” by the Banksters.

During the trial, on cross examination the President of the “Bank of Montgomery” testified that the banks regularly “create money out of thin air.”

Jerome asked the Bank President:

“If you were just opening up your bank and no one had yet made a deposit, and I came into your bank, and wanted to take out a loan of $18,000.00, could you loan me that money?

When the Bank President said, “Yes.” I thought the jury would faint.

Jerome than said , “Does this mean that you can create money out of thin air?”

The Bank President said: “Yes. We can create money out of thin air.”

Justice Mahoney then said “IT SOUNDS LIKE FRAUD TO ME” and everybody in the court room nodded their heads indicating that they agreed with Justice Mahoney.

The jury went out and returned a verdict in favor of Jerome Daly on the basis that the Federal Reserve Notes were not legal and valid consideration for a mortgage note contract.

Those that have a copy of “The Credit River Decision” just won’t part with it, and it’s too expensive to print just a few copies, so I really don’t know where you’ll get a copy.

Good luck on your case, and I hoped that I helped you a little.

Bill Drexler


Abe Lincoln said teach the Constitution in our schools, preach it from the pulpits. We see the Internet is both and more.


Following are two letters giving a brief synopsis by Minnesota Attorney Jerome Daly, concerning his “Credit River Decision” from December 7, 1968.

I have a complete transcript of this case, including the Findings of Fact and Conclusions of Law, as well as Jerome Daly’s scathing letter to the members of the Bar, to whom Jerome refers to as “The Boys in the Back Room.”

The letter is addressed to Patrick Foley, U.S. Attorney for Minnesota on December 27, 1968, and follows below here, in addition to Jerome’s “Introduction” letter. Further below my e-mail signature line is a letter from Bill Drexler, who was an associate Justice in the Jerome Daly case in Minnesota, which you should find VERY interesting.

I had a chance to meet and confer with Jerome Daly in 1991, when he assisted me with an unlawful foreclosure on my home in Puyallup. That case is not over yet. At that time he was living out in California. He drafted some of the legal documents on my behalf. The brief he prepared in support of my position will knock your socks off. One of these days
I’ll post it with attachments, because it does take a “picture” to explain the fraud.

If any of you still have Federal Reserve Notes, circa 1920’s through the 1960’s, you know what I’m talking about. And if you research and read Public Law 90-269 of March 18, 1968 followed by the Legislative History of Public Law 94-564, and the contents of Public Law 95-147 on October 28, 1977, you will begin to understand the FRAUD that has been perpetrated by the Congress of the United States upon the People of this Nation. Public Officials need to be held STRICTLY accountable to their Oath of Office and the Law of the Land.

In my case, a certain Court Commissioner and a Superior Court Judge are yet to be prosecuted for their fraudulent perpetrations. Sometimes the wheels of “Justice” move slowly – but they will ONLY move when forced to do so by the Citizenry — “We the People” — who hold ALL the power over our ordained and established Constitution, Bill of Rights, and proper Organs of Government through Delegated Powers and Authority to Act on OUR behalf.

Perhaps after reading this you’ll begin to understand why those who are enlightened to the fraud try to deal in Coin, as it is the ONLY medium of exchange specifically authorized under the Constitution, Article I, Section 8, Clause 5 & 6, and Article I, Section 10, as well as the Coinage Act of 1792, neither of which has ever been repealed, notwithstanding the fraudulent assertions otherwise by the totally compromised and corrupted Congress and Legislatures. As the Maxim of Law states, “Fraud and Justice never dwell together.” And it should be remarked here that thanks to Congressman Philip M. Crane, you NOW have Gold and Silver Coin pursuant to Public Law 99-61 (July 9, 1985) and Public Law 99-185 (December 17, 1985).

These two Public Laws made it possible for the minting and distribution of American Gold Eagles and Silver Eagles, available at your local Coin shop. Everyone should have some real “money” in their possession; but you need to know that your PAPER Federal Reserve Note with $1 printed on it won’t buy a One Dollar Silver Eagle — you’ll have to give about $8.00 to $9.00 FRN’s for the REAL “Dollar”. Read Public Law 90-269 and you’ll understand why. The paper FRN and the Silver dollar should be at “parity”.

By the way, “FRAUD” stands not only for the crime, but “Federal Reserve Accounting Unit Device”.

Mr. Daly passed away a couple of years ago . . . but his Credit River Decision lives on, even though the members of the Bar have sought to suppress this case from public view. It is probably fitting to insert here Jerome’s “Introduction” letter of February 7, 1969, as well as a copy of the letter to the US Attorney on December 27, 1968, so you have some idea of the gravity of what occurred, and before you read what Bill Drexler, a friend of Jerome, wrote below my signature line. I quote herein the two letters, as follows:

Jerome Daly
Attorney At Law
28 East Savage Street
Savage, Minnesota 55378
December 27, 1968

Mr. Patrick Foley
United states Attorney for Minnesota
United States Court House Bldg.
Minneapolis, Minnesota
Re: First National Bank of Montgomery vs. Jerome Daly

As you are on my mailing list, at your request, attached kindly find 2 copies of a decision rendered at Credit River Twp. Justice of the Peace court on December 9, 1968 by Justice Martin V. Mahoney, who by occupation is not dependent upon the fraudulent Federal Reserve Mob for his sustenance; thus he was able to view the whole fraud, which is Global in scope, with a mind in the settled calmness of impartiality, disinterestedness, and fairness, in keeping with his Oath and with a completely friendly feeling toward the Constitution of the United States of America.

In truth and in fact the Justice of the Peace Court is the highest Court in the land as it is the closest to the People. Every Judge who is dependent upon this fraudulent Federal Reserve, National and State Banking System for his sole support is DISQUALIFIED because of self interest and had no jurisdiction to sit in review of this Judgment. If any Appellate Court, including the Supreme Court of the United States, in review of this Judgment, perpetrates a fraud upon the People by defying the Constitutional Law of the United States, Mahoney has resolved that he will convene another Jury in Credit River Township to try the issue of the Fraud on the part of any State or Federal Judge, and in an action on
my part to recover the possession if the Jury decides in my favor, the Constable and the Citizens Militia of Credit River Township will, pursuant to the Law, deliver me back into possession. So you see, this Justice of the Peace can keep the peace in Scott County, Minnesota, not with the help of these State and Federal Judges who have fled reality, but in spite of them. This Thomas Jefferson’s prophesy with reference to Chattel Slavery once again rings true; “God’s Justice will not sleep forever.”. (emphasis added – now you may understand one of the lawful purposes of the Militia!)

One wonders sometimes what the United States, and its leaders, including the Shylock usury element, did to bring on a Pea[r]l Harbor Attack on December 7, 1941, with such suddenness and devastation. It could be the Judgment of a Just God giving vent to a stored wrath in retaliation to the money changers. It is ironic in deed that the Jury should return its verdict on the same day 27 years later and the National and International Banking and Oil Mob shudder in their back rooms where they have cornered the money of the World and where they sit pulling the strings; fostering, conniving and perpetrating War with profit to themselves paid for by the blood, sweat, tears and toil of the farmer, the mechanic, the laborer and the humbler members of society; and well they might tremble, for, as they listen they can hear, with every increasing distinctness, the sound of the waves at low tide as they wash across the lonely decks of the U.S.S. Arizona with over 2,500 men entombed in her hold, with oil still seeping therefrom to the surface.

It is better to be charitable than miserly, honest than dishonest, direct than indirect, upright than underhanded, intelligent than unintelligent, to have courage than be a coward, to be free than slave, in body and in mind.

I remain, Quite Independently Yours,

/s/ Jerome Daly

P.S. Give my best wishes for a New Year to the Boys in the Back Room.


“Reason obeys itself; and ignorance does whatever is dictated to it.”
–Thomas Paine, Rights of Man (“Conclusion”)

“All laws which are repugnant to the Constitution are null and void.”
–Marbury v. Madison, 5 U.S. (2 Cranch) 137 (1803)

Please direct all comments to:

The Sadruddin Aga Khan Report on Iraq, 1991 (S/22799)

The Sadruddin Aga Khan Report on Iraq, 1991

Note by the webmaster:
The following document, scanned by me, includes what a mission appointed by the UN Secretary-General, reported after visiting Iraq in the summer of 1991.  The document presents a shocking picture of the conditions to which an entire nation was subjected by the United Nations, through sanctions and an authorized bombing campaign. The document constitutes an indictment of the United Nations for having masterminded a crime against humanity, verging on genocide. As these lines are written – in May 2013 – the United Nations has yet failed to investigate who bears the responsibility for the harm that befell the Iraqi nation since August 2, 1990 until it was again attacked by the United States in 2003.  In this document, the representative of the Secretary-General warns about the effects of not allowing Iraq to restore clean water.  The Security Council did not heed these warnings, with the consequence that approximately half a million children died during the sanctions period from the compound effects of the sanctions. No person has ever been charged for this massive killing of innocent children, committed in the name of the “international community.” 

The following report may be read in conjunction with a number of papers I have written regarding the sanctions imposed on the Iraqi people (available HERE). The scanned version below does not include the Annexes (detailed tables).
Security Council  Document S/22799

Accompanying as Annex the following letter dated 15 July 1991 from the Secretary-General, Javier Perez de Cuellar,  addressed to the President of the Security Council:

“I have the honour to transmit herewith for the attention of the members of the Council the report of the inter-agency mission headed by my Executive Delegate for the United Nations Inter-Agency Humanitarian Programme for Iraq, Kuwait and the Iraq/Turkey and Iraq/Iran border areas, Sadruddin Aga Khan.

The task entrusted to the mission, which visited Iraq from 29 June to 13 July 1991, was to assess current needs for humanitarian assistance and recommend measures for meeting those needs.”

Report to the Secretary-General dated 15 July 1991 on humanitarian needs in Iraq prepared by a mission led by Sadruddin Aga Khan, Executive Delegate of the Secretary-General

Foreword by the Executive Delegate

The aftermath of the Persian Gulf war of January and February 1991 presented a compelling spectacle of suffering and devastation to the international community. The tragic consequences of conflict, the untold loss of life and destruction were compounded by massive displacements of ill-prepared populations, by ecological disasters of unprecedented magnitude, by the collapse of the structures that sustain life in today’s human societies. The region continues to face an enormous challenge in its attempt to recover from the ravages of war. In Iraq itself, the upheaval’s insidious effects are leading to the gradual but inexorable collapse of essential services, leading to the risk of a humanitarian crisis whose eventual dimensions would dwarf today’s difficulties.

When we decided, last month in Geneva, to try to confront these urgent issues, we knew that speed was vital. We were also aware that our findings had to be factual, precise and credible. The expert team from the United Nations programmes and agencies concerned – the united Nations Children’s Fund (UNICEF), the World Health Organization (WHO), the Food and Agriculture Organization of the United Nations (FAO), the World Food Programme (WFP), the Office of the United Nations High Commissioner for Refugees (UNHCR) and the United Nations Development Programme (UNDP) – carried out a most professional and effective assessment, well supported by their colleagues already in Iraq. The mission fanned out throughout the country, revealing both pockets of destitution and the full scale of the problems in all regions. This was a field-based mission; the observations and conclusions were drawn from on-the-spot country-wide evaluation, not imposed from the vantage point of
predetermined opinion.

As well as our United Nations partners and their colleagues based in Iraq, we benefited from a third tier of expertise: a very distinguished group of non-United Nations specialists and personalities participated in the mission and its activities. I am deeply grateful to Donato Chiarini, Thomas Hammarberg, Arve Johnsen, Jean-Daniel Levi, Sir John Moberly, Edwin Moore, Elliot Richardson and Nico Schrijver for having accepted my invitation to join us. They made a contribution of outstanding intellectual, moral and technical value, which undoubtedly enhances the report’s scope and credibility. Needless to say, it represents a consensus view to which all of us subscribe, while not committing every member to every single phrase and sentence written.

Our aim has been to be sober, measured and accurate. We are neither crying wolf nor playing politics. But it is evident that for large numbers of the people of Iraq, every passing month brings them closer to the brink of calamity. As usual, it is the poor, the children, the widowed and the elderly, the most vulnerable amongst the population, who are the first to suffer. This cannot leave us unconcerned, whatever the solution proposed. In the pages of this report we have tried, in accordance with the purely humanitarian remit that was ours, to diagnose the problem and suggest remedies. It will be for the international community to decide how to respond further.

(Signed) Sadruddin Aga Khan


1. The decision to undertake the present mission was made by the Seretary-Genera1, his Executive Delegate Sadruddin Aga Khan, and the executive heads of United Nations specialized agencies and programmes responsible for the humanitarian programmes in Iraq, Kuwait and the Iraq/Turkey and Iraq/Islamic Republic of Iran borders at a meeting held at Geneva on 13 June 1991. Extensive first-hand reports had been received in previous weeks indicating that the conditions of the civilian population in many parts of Iraq were steadily deteriorating. The onset of summer was likely to exacerbate the situation further, while the return of large numbers of those displaced was also having a considerable impact on severely strained food, medical, water and infrastructural resources.

2. Given the indications of the worsening plight of the majority of Iraq’s population, the meeting decided that a high-level mission should proceed to Iraq to assess ·the current humanitarian needs and recommend measures to address them. The mission was to be action- and field-oriented, should be carried out rapidly and should focus in particular on the emergency needs of vulnerable groups. Within its overall framework, the mission would concentrate on four main sectors: food supply; water and sanitation; health; and energy (with special reference to power generation).

3.  The mission was led by the Secretary-Genera1’s Executive Delegate, Saldruddin Aga Khan, and was composed of experts from the relevant United Nations programmes and agencies, namely, UNICEF, WHO, FAO, WFP, UNHCR and UNDP, as well as consultants, specialists and eminent personalities from outside the United Nations system. The latter comprised participants from Canada, France, the Netherlands, Norway, Sweden, the United Kingdom of Great ~ Britain and Northern Ireland, the United States of America and the Commission of the European Communities. While not part of this mission, a separate team from the International Telecommunication Union (ITU) was in Iraq at the same time. Several of their findings are noted in the present report and a summary of their own mission report is included as appendix X.

4. Mission members received briefings at Geneva from the Executive Delegate before flying to Baghdad on 29 June to join with staff from United Nations agencies already in the country. The first part of the mission was devoted to information collection and analysis in Iraq. At Baghdad mission members were briefed by United Nations staff, non-governmental organizations (NGOs), and the International Committee of the Red Cross (ICRC) and were welcomed by the Minister of State for Foreign Affairs and members of the National Committee for the Coordination of Relief and Assistance. After meetings and discussions with staff of the relevant technical ministries on 1 July, mission members visited various sites, mainly outside Baghdad, from 2 to 7 July. The mission~ divided into four teams, which visited sites in 16 of the 18 governorates (including Baghdad).

5. The Executive Delegate and additional mission members arrived in Baghdad on 8 July. Together with certain members of his team, he met with various government officials, including the Deputy Prime Minister, the Foreign Minister, ministers of relevant technical Ministries and other senior officials. The Executive Delegate also visited the southern region in order to further the provision of relief assistance to vulnerable groups and displaced persons in the area of the marshes. The mission team departed for Geneva on 13 July.

6. The Executive Delegate and members of the mission greatly appreciated the support and cooperation extended to them by the Iraqi authorities throughout the course of their stay in the country.


7. As of mid-1990, Iraq was in certain respects fast approaching a standard comparable to that of some highly industrialized countries in the sector areas of concern to the present mission. A wide-reaching and sophisticated health system had been put in place, capable of routinely providing services such as kidney dialysis treatment in regional hospitals. The provision of clean drinking water was the norm, with over l,500 water-treatment units nationwide providing a very high quantity of water (e.g., over 450 litres per person per day in Baghdad). Sewage treatment, including a number of very large and technically sophisticated plants, kept the quality of the water in the Tigris and Euphrates rivers at a reasonable level. While poverty and moderate malnutrition remained a problem in some areas, severe malnutrition, and related syndromes such as marasmus and kwashiorkor, were not major public health problems. A key component of the country’s infrastructure and services was the generation of power through a system of 20 main stations. These stations provided power not only for the 70 percent of the population living in urban areas, but also for many of those in outlying regions, as well as for the large amount of irrigated farm land. The country had a modern telecommunications network in both the urban and the rural areas, serving millions of Iraqis through 900,000 telephone lines.

8. An essentia1 basis for this complex and extensive infrastructure was trade. For example, most of the machinery, as well as the spare parts to keep it running, was obtained from outside the country. Approximately 70 per cent of the food needs of the country were met through imports from abroad. What primarily paid for this level of imports was revenue from the sale of oil.

9. After the invasion of Kuwait by Iraqi forces on 2 August 1990, the situation started to change abruptly. From 6 August, by its resolution 661 (1990), the Security Council imposed on all States a comprehensive package of financial and economic sanctions. The war in January and February 1991 brought about massive destruction in many elements of the physical and service infrastructure. This was followed by further majorr damage created by the civil conflicts that ensued. These internal conf1icts also led to the displacement in March and April 1991 of an estimated 400,000 persons to the Turkish border and approximately 1.2 million to the border with the Islamic Republic of Iran or into that country itself.
10. In February 1991, a joint WHO/UNICEF team assessed the impact of the war on the women and children of Baghdad. From 10 to 17 March, a United Nations mission assessed the urgent humanitarian needs in Iraq and presented its findings in the Secretary-Genera1’s report of 20 March 1991. This led to an initial appeal by the Secretary-General on 8 April for $US 178 million for aid to vulnerable groups in Iraq. On 9 April, the Secretary-General appointed Sadruddin Aga Khan as his Executive Delegate for United Nations humanitarian programmes for Iraq, Kuwait and the Iraq/Turkey and Iraq/Islamic Republic of Iran border areas. A small core Office of the Executive Delegate was subsequent1y established with the help and support of UNDP. A second appeal was then made on 12 April for $US 400.2 million for refugees and displaced persons on the borders of Iraq and Turkey and in the Islamic Republic of Iran.

11. These two appeals were consolidated on 15 May, together with additional needs not previously covered. On 12 June 1991, an updated and revised appeal was issued for $US 448.9 million. This included $US 34.9 million for the deployment of a United Nations guards contingent inside Iraq. Of the funds requested, approximately half had been pledged to date. The majority of the funds received are designated for aid to refugees and returnees.

12. United Nations assistance in Iraq is currently provided under the terms of the Memorandum of Understanding signed by the Foreign Minister of Iraq and the Executive Delegate on 18 April 1991 and an annex to it dated 25 May 1991. Eight United Nations agencies operate in the country with approximately 400 international staff (as of 30 June), of which 197 are United Nations guards and 140 UNHCR staff. Further deployment will bring the contingent to its full complement of 500 guards. Other agencies providing assistance include an estimated 20 international NGOs, ICRC, and the International Organization for Migration.


13. The mission members concluded that the scale of damage and decline in Iraq in the past year had indeed been dramatic. Eight years of war with the Islamic Republic of Iran had taken their toll even before the destruction of the Persian Gulf war. In significant parts of the country, the destruction caused by the internal civil conflicts that followed the war was comparable or even greater. A final factor had been the consequence of economic and financial sanctions imposed on Iraq including the freezing of its foreign assets and a ban on the international sale of its oil. It was clear to the  mission that the impact of the sanctions had been, and remains, very substantial on the economy and living conditions of its civilian population. The mission was informed that the last reserves of food commodities that are included in the ration basket are in the process of being exhausted.

14. During the past several months major efforts have been made by the Government of Iraq to restore the country to some semblance of its pre-war situation. These efforts have been only partially successful. For example, a number of bridges have been repaired, and with the limited pumping of oil for local consumption, internal transport capabilities have in large part been restored.

15. However, the mission found that in the sectors of concern to it, the process of restoration had in many crucial respects reached its limit. Indeed, there are a number of problem areas that are likely to worsen in the foreseeable future. A review of several of the main findings within each of the sectors, which are discussed in more detail in the later sections of this
report, gives reason for alarm.

16. As far as water is concerned, damaqe to water-treatment plants and the inability to obtain needed spare parts have cut off an estimated 2.5 million Iraqis from the government system they relied upon before the war. The perhaps 14.5 million Iraqis who continue to receive their water through this system are now provided on average with one quarter the pre-war amount per day. Much of this water is of doubtful quality, owing to such problems as defective treatment and lack of sufficient hours of electric power. Major damage was also suffered by the national sewerage system owing to the loss of electric power during the war. Most of this damage has not been repaired, with raw sewage now flowing in some city streets and into the rivers. Diarrhoeal diseases, thought to be mainly caused by water and sewage problems, are now at four times the level of a year ago. The country is already experiencing outbreaks of typhoid and cholera.

17. The health of the population in Iraq is now challenged by growing environmental hazards, insufficient access to quality medical care and inadequate nutrition. Public health programmes have reduced their activities for lack of supp1ies. Hospitals and public health centres are severely affected by lack of electricity, water and medicines. Medical, surgical, dental and laboratory equipment suffer from the lack of spare parts, reagents and maintenance. The fleet of vehicles that once assured the effectiveness of the health services has been reduced to a few units. Iraq used to import annually approximately $US 360 million worth of drugs and medical appliances alone. It is highly improbable that international humanitarian aid will be able to meet this demand. Mechanisms need to be established urgently for the country to procure its own medical supplies and to maintain its equipment in operation. Failing this, the health situation will further worsen. Vulnerable groups, each day more numerous, will be the first victims.

18. As for the food supply, the position is deteriorating rapidly in virtua1ly all parts of the country. Preliminary forecasts for the current main harvest indicate that this year’s aggregate cereal production will be around one third of last year’s. This will further increase the country’s dependence on imports, which even in good years has meant that approximately 70 per cent of its food needs must be imported. Data collected on prices throughout the country show tremendous levels of inflation. For example, current retail prices for wheat and rice – the two normal staple food items remain 45 and 22 times their corresponding price levels of last year, while average incomes have shown only moderate gains. The government rationing system, even if basically equitable in its distribution, can provide only about one third of the typical family’s food needs, resulting in a strikingly low level of dietary intake. The situation is particularly alarming with respect to the nutritional status of children, pregnant and lactating mothers as well as households headed by widows. Several independent studies and direct observation by the mission confirmed the high prevalence of malnutrition among children. There are numerous, reliable reports of families resorting to sales of personal and household items to meet their immediate needs. Taken collectively, this information clearly demonstrates a widespread and acute food supply crisis which, if not averted through timely
intervention, will gradually but inexorably cause massive starvation throughout the country.

19. The current emergency feeding programmes, such as those being implemented by WFP for vulnerable groups, refugees, returnees and internally displaced persons accordingly acquire special significance and need to be maintained for at least the next few months. The process of repatriation must be encouraged by the continued provision of timely and adequate amounts of relief aid, not least to ensure that the situation in the areas to which the refugees are  returning reverts to normal as quickly as possible. It should be noted that the economic sanctions also lessen the ability of the returning refugees to  resume their ordinary lives and traditional economic activities. Indeed, the mission was informed by Kurdish leadership that the sanctions were taking an unfortunately harmful toll upon the living conditions of the Kurdish population.

20. In terms of power generation, Iraq’s capacity had been reduced to a negligible level by the end of February. At present, the power generating capacity has been restored to 25 percent of the pre-war level.  As it is operating continuously, electricity production is about 40 per cent of the 1990 level. However, this restoration process has been accomplished through such methods as cannibalizing parts from damaged units, making risky makeshift repairs and operating the remaining plants without the normal breaks for maintenance and repairs. At this point, little more can be done to increase power generation further unless major imports of new parts are allowed. Barring this, power output can be expected to decline from now on. The mission has also assessed the situation of the oil sector. The ­requirements of the internal market can essentially be met with the current production and refining capacity, although with repairs needed soon for some refineries that are in precarious condition. The main concern is the oil export capacity, which is now only one third of the pre-war level.

21. As for telecommunications, the ITU team noted that at least 400,000 of the original 900,000 telephone lines were damaged beyond repair. while additional ones were partly damaged. The main microwave links connecting most of the cities were also damaged. This has had an obvious negative impact on the operation of health and social services as well as on humanitarian assistance programmes. All international telecommunications were put out of service. Even after restoration work, the system can still handle only 30 per cent of its pre-war internal service, while international telecommunications remain out of service.

22. Clearly, the situation described above is one that deserves urgent attention and immediate response. In considering what actions to recommend, the mission came to a series of additional conclusions.

23. As spelled out in the specific sector reports, the primary action that is needed to address these needs is the import of material goods. This includes such items as drugs, vaccines, medical equipment, ambulances, spare parts and replacements for water and sewerage equipment, food and agricultural inputs and equipment and parts for power generation plants and the oil sector, as well as for the telecommunications network.

24. A review of the relevant Security Council resolutions and decisions by the Security Council Committee established by resolution 661 (1990) concerning the situation between Iraq and Kuwait indicates that the sale or supply to Iraq of most of these items is not restricted, although for most items notification to or prior approval by the Sanctions Committee would be required. Many fall under the clauses exempting “medicine and health supplies” and “foodstuffs” from the sanctions (see resolutions 661 (1990),  666 (1990) and 687 (1991). Others fall under the category of materials and supplies for “essential civilian needs” as exempted in resolution 687 (1991), as well as the clause contained in the 20 March 1991 Sanctions Committee decision. The latter provides that civilian and humanitarian imports to Iraq, as identified in the report of that date to the Secretary-General, are integrally related to the supply of foodstuffs and supplies intended strictly for medical purposes … and that such imports should also be allowed… , subject to approval by the Sanctions Committee under its no-objection procedure. So far, the relevance to the humanitarian programme of the import of spare parts and equiment for the restoration of electric power plants and for the telecommunication network has not been recognized.

25. In this context, the mission observed that, in most of the cases that came to its attention, problems to date with importing the above items had more to do with the financing of such imports than actual prohibitions. The question of financing becomes even more crucial in relation to future importations that need to be made.

26. The mission members utilized the best information available to them to estimate the costs of returning the systems in each of the four sector areas to their pre-war condition. This proved possible for most sectors, with the estimates being $US 12 billion for the power-generating capacity, $US 6 billion for the oil sector, $US 450 million for the water and sanitation systems, $US 2.64 billion for food imports and $US 500 million for agricultural imports. While these calculations were not possible for health, an indicative figure would be the typical level of international imports for the health sector for one year, which has been approximately $US 500 million.

27. The principal criterion adopted by the mission in evaluating these needs has been that it is concerned not only with addressing immediate requirements of humanitarian scope and nature, but also with averting a crisis in the next 6 to 12 months. To illustrate this point, urgent measures must be taken now to ensure that the next agricultural planting season can be completed under reasonably normal conditions.

28. Consequently, the mission attempted to determine the costs for some lower level of actions, over a one-year time-frame. Figures were calculated for providing approximately two fifths of the pre-war per capita levels of clean drinking water and putting a corresponding proportion of the damaged sewage-treatment capacity back in operation. Expenditures for imports for health services were calculated at the pre-war level. Food import calculations were based on the ration level that WFP provides to sustain disaster-stricken populations. Special supplemental feeding programmes to support the nutritional needs of malnourished children and pregnant and lactating mothers for one year were calculated. Power generation estimates were based on restoring approximately one half of the pre-war capacity of the country. For the oil sector, the mission worked out a cost based on the consolidation of existing refineries, the restoration of lubrication units, the repair of the Iraq-Turkey pipelines, and of the oil facilities in the Kirkuk areas. This would not include repair of the southern oil fields.

29. The total estimated costs for this greatly reduced level of services came to approximately$US 6.8 billion over a one-year period. This includes  $US 180 million for water and sanitation, $US 500 million for health services, $US 53 million for supplemental feeding, $US 1.62 billion for general food imports, $US 300 million for essential agricultural needs, $US 2 billion for the oil sector and $US 2.2 billion for power generation. If this analysis is applied to a four-month time-frame, the requirements would come to $US 60 million for water and sanitation, $US 167 million for health services, $US 18 million for supplemental feeding, $US 540 million for food imports, $US 100 million for essential agricultural imports, $US 667 million for the oil sector, and $US 1.1 billion for power generation. The power and oil sectors include allowances for the front-end costs occurring in these sectors. Thus, the total for an initial four-month period would be $US 2.63 billion.

30. The massive financial requirements to establish even this reduced level of service are of a scale far beyond what is likely to be available under any United Nations-sponsored programme. The current United Nations appeal for humanitarian assistance for Iraq, Kuwait and the border areas with the Islamic Republic of Iran and Turkey has received only some $US 210 million to date. Most of these funds are pledged for the needs of refugees and returnees. Further, any additional requests for aid to Iraq must compete with a continually lengthening list of other emergency situations around the world with very compelling needs.

31. It is evident that the Iraqi Governmkent will have to revise its priorities and mobilize all internal resources. It will also have to finance the import of the type of materials under discussion, for which it has already requested approval form the Security  Council Committee established by resolution 661(1990). It certainly appeared that the Iraqi Government has the potential itself to generate the funds required to cover the needs identified by the team. This could be done either by the unfreezing of substantial amounts of Iraqi assets now held abroad or through the pumping and subsequent international sale of oil. The mission was informed that foreign exchange reserves of only $US 14.75 million were on hand in the central bank and that the Government’s holding of gold bullion in support of the national currency had remained constant for the last 20 years.

32. With respect to the possible sale of oil by the Iraqi Government to finance such imports, paragraph 23 of Security Council resolution 687 (1991) empowers the Security Council Committee established by resolution 661 (1990) to approve exceptions to the prohibition against the import of commodities and products originating in Iraq, with the explicit purpose of assuring “adequate financial resources” on the part of the Iraqi Government to procure medicine and health supplies, foodstuffs and materials and supplies for “essential civilian needs”.

33. According to the Government, the current oil-production capacity of the country is 1,455 million barrels per day. Taking into account internal consumption requirements, the production available for export could be about 1 million barrels per day. This would mean a potential net revenue of $US 5.5 billion over one year. Furthermore, in order to increase the production to the pre-war level, extensive repairs and rebuilding would have to take place, particularly in the Basra area. The mission therefore recommends that Iraq be allowed to import over a four-month period  $US 1 billion worth of equipment, spare parts and consumable materials to start restoration of the oil sector.

34. If the Security Council Committee were to decide that Iraq should be allowed to use funds from oil sales or facilitate the use of blocked accounts in order to meet urgent humanitarian needs, the Government indicated that it would cooperate in making available documentation relating to sales of crude oil as well as purchases of the authorized imports. It noted that all revenues accruing from oil sales were normally held in United States banks and that a suitable device for monitoring such credit balances could be established. This procedure could include information on the use of unfrozen accounts. In addition, the staff of the United Nations and other humanitarian agencies present in Iraq, as well as special missions designated by the Secretary-General as required, might for instance submit periodic assessments and in particular report on the changes in the composition of the rations of foodstuffs and the provision of health and social services brought about by increased imports. The staff concerned would also obtain up-to-date information on the repair and improvement of power-generating capacity, the operation of water and sewerage plants and the like. The envisaged procedure would thus help to ensure the actual receipt of the civilian and humanitarian goods in Iraq and their utilization by the intended beneficiaries.

35. In summary, the mission recommends that:

(a) Immediate steps be taken to alleviate the priority needs identified by the mission in the areas of food supply, health services, water and sanitation, power generation, the oil sector and telecommunications;
(b) To meet these needs, essential goods and materials should be imported, including:
(i) Food to meet the minimum consumption requirements, in part to reduce and shorten the emergency relief operation now in operation at donors’ expense;
(ii) Agricultural inputs, including fertilizers, pesticides, animal feed and drugs, machinery and spare parts needed to repair the damaged irrigation and drainage system;
(iii) Drugs, including raw materials needed for local pharmaceutical production, vaccines, medical supplies and medical, surgical, dental and diagnostic equipment for the health system;
(iv) Vehicles (and spare parts for them) needed by the health system, including ambulances;
(v) Spare parts, supplies and equipment and replacement pumps and other heavy equipment needed by water-treatment and pumping facilities and by the sewage treatment system;
(vi) Equipment, materials and spare parts for the electric power system,. the oil sector and for the telecommunication sector;
(c) A monitoring system should be instituted for this. purpose. The relevant commercial transactions relating to the export of oil and the import of the above-mentioned goods and services could be made sufficiently transparent at the international level to allow adequate controls with respect to their shipment and entry into Iraq. The monitoring arrangements in the context of the United Nations humanitarian presence in Iraq, as outlined in paragraph l3 of the Memorandum of Understanding of 18 April 1991, could be further developed and strengthened so as to provide adequate information on the destination and use of the goods in question.


A. Water, sanitation and environmental health

36. Appraisals of the provision of safe drinking water, sanitation and environmental health services were based on information from several sources. These included earlier studies and surveys by UNICEF and other United Nations agencies, ICRC, NGOs and related government services, as well as personal accounts of other knowledgeable individuals and direct observations during the mission’s extensive field visits. The Governorates of Kut, Amarah, Basra, Erbil and Dokuk were visited, and extensive discussions took place with the population, local authorities and plant operators in each of them. In addition, technical discussions were held with the Ministry of Health and the General Establishment for Water and Sewage at Baghdad. Finally, the field visits included inspection of the treatment plants and review of their performance.

37. In the course of discussion, the mission learned that a sizeable quantity of spare parts, equipment and ductile iron pipes were being held in Turkey owing to the embargo imposed on Iraq, and that these had already been paid for. Mission members were also informed that a large number of contracts negotiated and signed with foreign companies had not. been executed owing to the embargo.

38. Before the advent of the Persian Gulf crisis, over 90 per cent or 16.8 million of the population of Iraq had access to an abundant quantity of safe drinking water through a network of some 1,500 water treatment plants. The rest of the population (1.9 million) relied on untreated water from rivers and springs. In mid-1990 average national water consumption was estimated at around 416 litres per capita per day. Baghdad and a score of cities situated along the Euphrates and Tigris rivers benefited from modern sewage-treatment plants which kept the quality of river water at reasonable levels of purity.

39. Extensive efforts to eradicate malaria, leishmaniasis and other vector-borne diseases had resulted in dramatic decreases in their incidence. An effective environmental health surveillance system ensured a high quality of drinking water. These efforts, coupled with a relatively extensive health delivery system in the country, spared Iraq from the epidemics that are encountered in many other developing countries.

40. The events of the Persian Gulf crisis severely disrupted the water and sanitation services. Actual potable water production is now 1.5 million cubic metres a day whereas it was 7 million cubic metres a day in mid-1990. An estimated 2.5 million people who formerly received water through the government system have been deprived of this service (of these, 1.2 million are located in the country outside Baghdad, many of them along the two main highways leading north from Basra where bridges were heavily bombarded). This is due to two factors: the damage or destruction of water-treatment plants and water-distribution networks and the lack of spare parts to repair the systems in place that were not affected by the war. Ad hoc maintenance practices over the years have also compounded the problem. The remaining 14.3 million inhabitants now receive some 100 litres per capita, ranging from 10 litres per capita in some rural areas to 250 litres per capita in parts of Baghdad. This is a nearly threefold decrease, and the water provided is of doubtful quality. With water-consuming industries now at a standstill, this quantity of water is barely sufficient to meet the most basic needs of the population. However, once power becomes available and these industries resume operations, competing with the needs of the population, it is likely that potable water will become dangerously scarce, whereas production is greatly increased in the interim.

41. About 300 wells, mainly in the north of the country, were seriously damaged during the past six months. Additionally, many of the boreholes require maintenance. All of these water sources require replacement equipment, including chlorinators. In the rural areas of the country a large proportion of the population receives water from local springs. A high percentage of these springs have been damaged, as have their protection installations and delivery pipes. Such sources can be restored with the participation of the local population.

42. The large treatment plants at Al-Khadir (near Samawa) and at Ramadi were seriously damaged. These stations require major repairs, and they should be. put back into service as soon as possible. Cannibalization of equipment has left weak, inefficient units operating without any back-up capabilities. Many maintenance stages are bypassed when they stop. For example, the clarifiers are bypassed at the Basra treatment plant because the motors there are burnt. At the same station, chlorine is fed directly from the cylinder, as there is no chlorinator. Spare parts, a steady power supply and technical expertise from the manufacturers are needed to help keep the plants in service.

43. There are also small treatment plants, mostly skid-mounted, installed all over the country. All of these units require spare parts for maintenance and over 75 per cent of them require chlorination equipment. Four of the above plants are totally worn out and need replacing; currently, the population served by them is obliged to use badly contaminated water. The main problem facing a large number of these plants, many of which have no stand-by generators, is the lack of electrical power supplied.

44. Supply and distribution networks were also severely affected. The destruction of the two bridges in Baghdad with their main feeder pipes deprived about 20 per cent of the city’s population of access to the municipal water supply. The leaks in the system, many of which are results of the war, are presumed to be underground. Water engineers are unable to verify this for lack of leak detectors. Many leak detectors, repair collars and large-diameter pipes are needed to replace the destroyed feeders in Baghdad and elsewhere.

45. Throughout the country, electric power is available only six to eight hours a day on average. This forces the systems to shut down, thus causing serious risks of pollution within the networks, because of a back-siphonage effect that is especially severe in areas with high water-tables. In cities such as Basra, fresh sewage was observed overflowing in many city streets when such power interruptions occurred.

46. Aluminium sulphate and chlorine, the chemicals essential for water treatment, are in short supply; indigenous production halted following the destruction of the local chemical plants. These chemicals now have to be imported. Owing to the chlorine shortage since the end of the war, the water is all too often distributed without chlorination. The shortage of chlorine has also prevented the pre-chlorination process in treatment plants and therefore algae and water grass have grown on the walls of the concrete water channels, the clarifiers and settling tanks of these plants. There is little point in cleaning up this infrastructure until chlorine is available on a steady basis and they can be put back into effective operation on a long-term basis.

47. Water quality has been affected tremendously by the limited stocks or lack of chlorine available to the treatment plants. In a number of water treatment plants visited, chlorine residual readings are no longer being taken, for lack of the necessary reagents.

48. Bacteriological tests are being carried out haphazardly and results are not reliable, since power cuts interfere in the incubation of samples being analysed. In Amarah, for example, the presence of faecal material in treated water has been recorded several times by the plant laboratory. This has been attributed to the decreasing performance capacity of the sand filters,which are not being cleaned regularly (for lack of compressors):as well as to the irregular application of chlorine.

49. The General Establishment for Water and Sewage in Baghdad has a state-of-the-art water-testing laboratory that is partially functioning. The modern equipment received just at the outbreak of the Persian Gulf crisis is idle, since the staff is not in a position to install or operate it. Foreign expertise is needed to make the equipment operational and train local technicians in its use and maintenance.

50. In the sewerage sector, most of the treatment plants have ceased to operate, owing to flooding of the pumping stations by sewage and rainwater during the period when electrical supply was not available at all. The sewage is now either overflowing in the streets of cities (Basra), or being discharged into the rivers without any treatment (Amarah, Baghdad). These technically sophisticated plants require continuous and sustained maintenance. Available expertise cannot provide the necessary servicing of these installations, which require foreign expertise from the firms that built them. The ultimate threat is posed by the large quantities of sewage from upriver cities that flow untreated into the country’s two major rivers and run downstream. These rivers, the Euphrates and Tigris, constitute the main water sources of the country. Much of the population along their banks is now obliged to drink this polluted water straight from the river, since most of the water purification systems they depended upon no longer function. This further compounds the vicious cycle of water-borne diseases.

51. Basra, at the end of the most contaminated river, faces a particularly drastic situation: the high salinity of its water is compounded by the high water-table that lies beneath the city. With only 1 pump operating in 4 out of 26 main sewage-pumping stations, Basra is choking. Sewage overflows its streets and has inundated basements and low-lying areas of the city. The city authorities are in a quandary as to whether to satisfy the drinking water needs of the population, thus contributing to the sewage problem, or to limit the flow of water, until such time repairs can be made. The latter choice would necessitate the provision of spare parts and new pumps; the cannibalizing of severely damaged pumps can no longer solve this massive and growing problem.

52. The capacity of the solid-waste collection and disposal system is less than 25 per cent of the mid-1990 level. This capacity is decreasing further owing to the poor maintenance of remaining equipment and the lack of spare parts. The core of the problem, however, lies in the destruction of specialized equipment which occurred during and after the upheavals, especially in the south. Garbage stays for long periods of time before being collected. The lack of pesticides is allowing the continuous increase of insects, rodents and other pests, many of which are disease vectors. The fleet of garbage collection equipment, primarily compactor trucks, has to be upgraded through the purchase of spare parts and new trucks. As incinerators no longer function, sanitary landfills must be established in proximity of large towns. This will require the provision of earth-moving equipment (graders, bulldozers and dump trucks).

53. The control measures for vector-borne diseases and environmental health conditions are affected by the lack of insecticides, rodenticides and chemical reagents required in performing bacteriological and chemical quality tests for water, sewage and foodstuffs. Municipal solid-waste disposal systems have been disrupted owing to the looting of the vehicular parks in many of the municipalities. In many of the municipalities visited, the sanitary landfill method has been discontinued as bulldozers and graders are no longer available.

54. The sanctions imposed are hampering the importation of the spare parts, chemicals, reagents, insecticides and means of transportation required to provide environmental health services to the urban areas of the country. They are stymying the delivery of these services to rural areas.

55. The results of the humanitarian efforts launched by the international community and the great strides made by the various government departments to reactivate essential services have not succeeded in meeting even basic recurrent water and sanitation requirements. They are clearly insufficient to re-establish standards of living at a minimal acceptable level.

56. The substantial demand for spare parts, replacement machinery and transport equipment is so great that the humanitarian effort will not be able to meet existing needs. For example, chemicals for water treatment supplied by humanitarian organizations up to the end of May represent the needs of  14 days of operation only at current pumping levels. As for spare parts and equipment, the amount needed represents less than 1 per cent of the real need. It is only by making it possible for Iraq, which had been self-supporting in this sector for many years, to use its own resources to finance these life-sustaining, essential services that they can be re-established.

57. An analysis was made of the costs of the imported supplies and equipment needed to raise present potable water-production rates to their pre-Persian Gulf war levels of approximately 7 million cubic metres per day and to put the waste-water treatment and solid-waste disposal systems back to their pre-war levels. This was estimated to require approximately $US 450 million.

58. A further analysis was made of the costs required to reach a lower level of operation. This involved producing 3 million cubic metres per day of potable water and returning the sewage-treatment systems to approximately half of their pre-war level. The costs came to $US 90.6 million for the water system and $US 73.75 million for the sewage-treatment systems. This work could certainly be completed within a one-year time-frame if the importation of the needed materials is allowed. In addition, $US 15.85 million worth of imported materials and goods need to be imported for the operation of vector control and environmental health services for one year. This would give a total cost for one year of $US 180.2 million.

59. The mission recommends that the following actions be taken to deal with the problems identified in the water, sanitation and environmental health sectors:

(a) Allow both the importation of spare parts, which were prepaid and held in transit to Iraq and the implementation of already negotiated projects;
(b) Permit the importation of supplies and equipment needed to raise present potable water-production and sewage-treatment rates to their pre-Persian Gulf war levels. If this is not possible, importation of at least $US 180.2 million in goods and materials should be allowed over the next  12 months to re-establish these systems at the minimal rates described earlier. A reasonable initial four-month level of importation at this reduced target level would be $US 80 million, which reflects some of the front-end costs of restoring major equipment;
(c) Facilitate the contracting of foreign expertise for the Baghdad Water and Sewage Authority and the General Establishment for Water and Sewage to reinforce and increase the availability of their services to the population of Iraq.

B. Health sector

60. In order to appraise the status and trends of health and of the provision of health services in Iraq, the mission drew information from various complementary sources. These included: Iraqi government written material and officials (especially health personnel); earlier studies and surveys; personal accounts by other knowledgeable individuals in the country including the staff of NGOs and members of the community, patients and their relatives; and direct observation during the mission’s extensive site visits. The design of the mission and the time-frame within which it had to operate did not allow extensive primary data collection and analysis.

61. Before August 1990, the health care system in Iraq was based on an extensive and developing network of primary-, secondary- and tertiary-care facilities, both governmental and private. These facilities were linked among themselves and with the community by a large fleet of ambulances and service vehicles and by a good communication system. The health-care system, which tended to emphasize curative aspects, was complemented by a set of active public health initiatives.

62. The war, and to a larger measure the ensuing internal civil disturbances, resulted in significant damage to hospitals and health centres. The extent of this damage varied from one governorate to another, being most severe in the southern Governorate of Basra and in those bordering Turkey and the Islamic Republic of Iran. However, site visits made by the team led to the conclusion that the physical infrastructure of health services remained adequate to cope with the present needs with the exception of certain areas where refugees chose to return. The functional capability of the system was however greatly diminished by the shortage of water and-power supply, by the lack of vehicles and the collapse of the telecommunications system.

63. Since the early days of the war between the Islamic Republic of Iran and Iraq in 1982, foreign exchange for the import of equipment and supplies has been tightly controlled. Heavy equipment, such as X-ray machines, CAT scans, laboratory apparatus and generators have been procured through a national authority. This authority has relied heavily on international sources for the supply of spare parts and for many major repair and maintenance operations.
An effect of the current sanctions and other international restrictions has been to limit markedly the provision of these items and services.

64. It is estimated that less than half of the diagnostic and medical equipment present in health-care facilities is still in operable condition. Some of it has been damaged by frequent power fluctuations or inadequate water supply. Other machines are still awaiting repeatedly postponed major maintenance operations.

65. Most hospitals have now had to function for months partly on electricity provided by generators that had largely exceeded their recommended usage time. Two thirds of the generators in the hospitals visited were out of order. The fleet of vehicles had suffered major losses. Some had been taken away, others destroyed, others needed repair. Frequently, governorates were left with a dozen vehicles out of an initial pool of over 100.

66. Regarding drugs and medical supplies, the isolation of Iraq from its normal sources of procurement since August 1990 has made it draw on its own internal stocks. These may be nearly exhausted. Certain vaccines, antibiotics to combat epidemics of cholera and typhoid, drugs for the treatment of certain metabolic diseases (e.g. insulin for diabetes), and certain drugs for treating cancer and cardiovascular diseases, are no longer available in sufficient quantities from the central medical store. The production of the local pharmaceutical industry has come to a halt as a consequence of the lack of power supply, water and raw materials.

67. According to government figures, the total amount of funds spent by Iraq on the purchase of drugs and medical appliances alone for the public and the private sectors in 1989 was $US 360 million. It was estimated during the mission that, apart from refugee relief operations, humanitarian organizations had provided drugs and medical supplies to Iraq for a total value of less than $US 50 million in 1991. This leaves a large gap that is most unlikely to be bridged by any international aid during this year. Although medicine is exempted from the United Nations sanctions, there are at present payment problems for such imports owing to the freezing of Iraq’s assets abroad, restrictive trading arrangements and the prohibition on the export of oil.

68. The mission concluded that there was currently no major problem regarding the availability of health personnel in Iraq. After a period that saw a decline in the total number of health staff owing to military mobilization, population displacement in the north and south and, to a lesser extent, the departure of expatriate employees, the situation is now close to that prevailing before August 1990.

69. In the health personnel development area, in-service short courses had taken place in certain governorates on such topics as diarrhoeal diseases or immunization, but training abroad was no longer possible. The effects of this will not show immediately but it is urgent that that opportunities for training abroad be restored.

70. Regarding access to health care, in 1986 it was estimated that 97 per cent and 78 per cent of urban and rural populations respectively had access to health services. At present, considerable regional variations can be noted in the degree to which population groups have access to health care. However, overall, the compound effects of lack of transport, population displacement, reduced capacity of government health facilities and the impossibility for many families to afford services from the private sector is reducing the access to health services of many people, especially the most vulnerable groups.

71. Because of the particularly precarious state of health of populations returning from the Islamic Republic of Iran and Turkey, special attention must be given to medical infrastructure and programmes in areas where returnees are concentrating. To address this situation, the emphasis has been put on re-establishing the normal structures where these have been damaged or destroyed and on restoring health networks such as those for drug distribution.

72. The mission did not find any evidence that medium- to long-term contingency plans had been worked out for the health sector to respond to the fast evolving situation. It was clear however that adjustments were made periodically as new challenges were being faced and that in the prevailing context of uncertainties and fears, these adjustments were understood, endorsed and implemented by dedicated health staff.

73. The utilization by the public of medical-care services is also being confronted with increasing difficulties. In recent years, there has been an easy access to government services, which were provided free of cost, and to affordable private medical services. Thus, according to government statistics, the per capita expenditure by private citizens on medical services and health care was relatively low: 1.6 per cent of total expenditures. Virtually all physicians have a private practice, which often yields an income in one day equivalent to their monthly government salary. Reportedly, in 1990 the country was equipped with 31,000 beds in government hospitals and health centres, supplemented by 9,000 beds offered by the private sector. These figures are illustrative of a system that relied on a combination of two sub-systems (public and private), which was deemed adequate to meet the needs. The war, the ensuing civil disturbances and the shortage of external supplies had a direct impact on the coverage and quality of care.

74. The displacement of large population groups, the lack of transport and the chaotic situation prevailing in hospitals and health centres during the first six months of 1991 resulted in severe disturbances in the patients’ referral system. Many health centres being temporarily closed, a major influx of patients came directly to hospitals already overloaded with casualties, understaffed and deprived of water and electricity.

75. The lack of energy supply resulted, for example, in the shutting down of at least two haemodialysis departments. In Mosul, 28 of the 50 patients who were on artificial kidneys in early 1991 reportedly died as lack of electricity and water prevented the machinery from functioning. In Basra, 17 patients died for the same reason. In surgical departments, the shortage of anaesthetic drugs, dispensable equipment, electricity and water had led hospital authorities to limit surgical interventions to emergencies only. Elective surgery was postponed indefinitely. Patients suffering from chronic metabolic diseases or cancer were affected by the lack of drugs and the reduced capability of the health system to provide biomedical monitoring.

76. The foreign exchange needed to cover the costs of the imports required for one year of operation of the health sector would be an estimated  $US 360 million for finished drugs, vaccines, medical appliances and disposable supplies; $US 100 million for raw materials needed to sustain the local pharmaceutical production; $US 10 million for ambulance and liaison­vehicles; $US 30 million for the replacement and maintenance of critical health service equipment, including generators and medical, surgical, dental, laboratory, X-ray and other diagnostic apparatus. Therefore, the total requirement, which should be revised periodically as the situation evolves, would be in the region of $US 500 million.

77. The mission held extensive discussions with medical, surgical and nursing staff on the need to apply appropriate case management more systematically. These discussions led to the general conclusion that additional strategy planning and retraining could help to cope better with the evolving situation but that the impact of these measures would only be marginal.

78. Common communicable diseases of major public health importance in Iraq are closely associated with environmental sanitation. As water supply is deficient in both quality and quantity and services for waste disposal are severely reduced, the country has experienced an increased incidence of cholera and typhoid. By way of example, in five governorates visited, the reported diarrhoeal cases among children under five years of age were over 26,000 and 77,000 for May 1990 and 1991 respectively, representing a threefold increase. For typhoid, the total figures for May 1990 and 1991 were 98 and 230 respectively, a more than twofold increase. Because of disruption in the reporting and surveillance system, the 1991 figures no doubt represent only a fraction of the actual incidence of these diseases.

79. Emphasis should be put on public health programmes with a strong training component in environmental sanitation. This is particularly true of areas where refugees from Turkey and the Islamic Republic of Iran are returning, and where a dramatic increase in water-borne diseases has been noted.

80. A WHO mission examined the malaria situation in May 1991 and concluded that the incidence of the disease remained low, although the risk of its spreading was aggravated by the shortage of insecticides and spraying equipment and by the expected return of refugees from areas of higher endemicity.

81. In all the governorates visited, the mission was informed of shortages of reagents for laboratory diagnosis, even for common and life-threatening communicable diseases, and of the essential drugs for their treatment. The capacity of the national health authorities to respond quickly to epidemics has been compromised because of communications difficulties (especially telephone and electronic communications). All in all, the indications are that, without an immediate improvement in the situation, communicable diseases will take a heavy toll on the Iraqi population.

82. Immunization, an. important element of the maternal and child health (MCH) programme, requires an effective cold-chain, regular supplies of vaccines and systematic follow-up on children during their first year. The war and civil disturbances severely affected these elements. The lack of electric power, the shortage of vaccines (all imported) and population displacements led to a complete halt in immunization activities between January and April 1991. The mission found that immunization had gradually restarted in many health centres but that in many places vaccines were periodically lacking, the cold-chain had not been fully restored, the staff were unfamiliar with some newly supplied kerosene refrigerators and the immunization sessions were deficient in educational components.

83. A second area of emphasis in MCH is the prevention and control of diarrhoeal diseases. Diarrhoea took a heavy toll among the children of displaced populations and among those who no longer had access to safe drinking water supply. Oral rehydration therapy (ORT), being administered to 71 per cent of diarrhoeal cases in 1990, was in fact rarely observed in health centres or described by a mother whose child was treated for diarrhoea. In hospitals, this method was not widely applied, even among children who were able to drink but were still under intravenous rehydration therapy. By contrast, ORT had been an important and successful feature of mortality reduction among displaced population, particularly among those who had been residing in camps.

84. The remaining two factors relating to MCH care are the food supply for pregnant and lactating women and the emergency supplementary feeding programme for malnourished children. The conflicts have left an estimated 300,000 children below the age of six malnourished. These children, who represent 10 per cent of the total population of their age group, will require roughly 20,000 tons of nutritional support over the next 12 months, including skimmed milk, weaning formulae, sugar and oil. Among pregnant and lactating women, nearly one third are in need of nutritional support, primarily in the form of oil, sugar and dates.

85. The pattern of deliveries in the country used to be such that about 70 per cent of deliveries took place in health institutions. This pattern was reversed during the disturbances as most mothers gave birth at home. No figure on maternal mortality could be estimated for 1991. Visits to health facilities indicated that pregnancy monitoring was being reinstituted but that it was hampered by the lack of laboratory support (haemoglobin) and medicine (vitamin supplements and iron). The outcome of pregnancies among mothers who are currently suffering from stress and undernutrition and are exposed to less hygienic living environments will impose on the health system a need for reinforced pre-, peri- and post-natal care.

86. According to sources available to the mission, malnutrition was not a major public health problem among children in Iraq prior to 1991. Nutrition surveillance and nutrition training were neglected, however. Before the Persian Gulf crisis, although growth charts were used in MCH centres, growth-monitoring was virtually non-existent, health records seldom filed, nutrition education of mothers neglected and consequently weaning and feeding practices of babies frequently inappropriate. The proportion of babies being breast-fed was low and at the age of one year only 20 per cent were still breast-fed.

87. Available studies, conducted after the Persian Gulf war between February and June 1991 have been limited to a small number of children (sample size of a few hundred), predominantly in MCH centres and hospitals. Those studies indicate a high prevalence of growth retardation and wasting among babies and children. When trends could be found they suggested consistently a deterioration of nutritional indicators in the last three months
(April-June 1991).

88. The mission visited paediatric wards and health centres in five governorates in the south and six in the north. Cases of malnutrition were seen in outpatient departments and in paediatric wards with a frequency that varied significantly from one governorate to another and, within the same governorate, from one facility to another. There was clear evidence that severe malnutrition was present in all governorates, it being recognized however that frequency and patterns of malnutrition seen in hospitals were only a reflection, sometimes distorted, of the situation prevailing in rural areas. All the indicators, testimonies, anthropometric measurements, mortality and morbidity data collected consistently pointed to widespread and severe malnutrition in Iraq. The children examined by qualified investigators appeared at the lowest limit of adaptation to a reduced dietary intake.

89. The mission noted the general absence of therapeutic feeding centres in the country and the weakness of supplementary feeding centres, which were too often short of food supplies. Feeding centres should now be established in all governorates in order to take care of children needing therapeutic and supplementary feeding. In creating these centres and deciding on their location, account should be taken of vulnerable children already present in Iraq but also of those now in refugee camps in the Islamic Republic of Iran, who are about to be brought back.

90. A concern of the mission was the wide availability and use of feeding bottles, which were exposing children to frequent diarrhoea as sterilization was generally not carried out, dilution was inadequate and milk reconstitution undertaken with unsafe water. Several factors were reported to have increased the use of feeding bottles in the country: reported interruption of lactation in mothers exposed to psychological stress and the lack of alternate weaning or supplementary food. The mission agreed with many paediatricians met during the visit that active education of mothers and attempts to diversify weaning foods should receive high priority and lead to a drastic reduction in the distribution of feeding bottles.

91. In view of the assessed risk of an abrupt food shortage before December 1991 and a rapid deterioration of the nutritional situation, the mission recommends the creation of a national nutritional surveillance system. MCH centres could start immediately to record anthropometric and other early warning indicators.

92. In summary, in the past year the availability and quality of health care in Iraq has greatly deteriorated. The mission therefore recommends that:

(a) It is imperative that the provision of drugs, vaccines, supplies and medical, surgical, dental and diagnostic equipment from outside Iraq be substantially and quickly resumed;
b) Provision should be made urgently to restore water and power supplies to medical, surgical and such social institutions as rehabilitation centres for the handicapped, through the procurement of pumps, generators and other needed appliances and spare parts;
(c) The fleet of vehicles for the transport of patients and of medical supplies and for ensuring liaison within the health network should be re-equipped through the renewed provision of spare parts and new ambulances and services vehicles. As certain maintenance and repair operations need the services of firms from abroad, arrangements should be made for such services to recommence;
(d) The foreign exchange required to cover the above costs would probably be an estimated $US 500 million for a one-year period. This estimate should be revised periodically as the situation evolves. Funds of this size would have to come from the national resources of Iraq, as it is unlikely in the present world situation that international humanitarian aid would be able to meet needs of this magnitude. Mechanisms should, therefore, be put in place for Iraq to use its own funds to provide for the health care of its people;
(e) To support the nutritional needs of malnourished children and pregnant and lactating mothers, mechanisms would need to be put into place to permit the importation of necessary foodstuffs. The estimated cost for the provision of this support over a l2-month period is $US 53 million, of which $US 40 million is to cover aid to pregnant and lactating mothers, and
$US 13 million is to go to the emergency supplementary feeding programme for malnourished children;
(f) In the meantime, to avoid a general collapse of Iraq’s health services and in view of the deteriorating food situation, urgent arrangements should be made to enable the country to use some of its own resources. For the last four months of 1991, the needs would be $US 167 million for medical supplies and equipment and $US 18 million for supplementary foods for mothers and children.

93. Noting that the above needs be examined in a humanitarian spirit, the mission also wished to establish that the prolonged dependency of Iraq on insufficient international aid to the health sector is contrary to health ethics. Furthermore, the principle of equity is challenged by a situation in which health care is less and less accessible to, and affordable by, all; national self-reliance in generating and deciding on the use of resources is replaced by dependency on meagre donations; and sustainability in the availability and quality of care is jeopardized by responses to emergencies that have to be made on an ad hoc basis.

C. Food sector

94. The rapidly  deteriorating food supply situation has brought the Iraqi peop1e to the brink of a severe famine. The nutritional situation of the population continues to deteriorate, with high incidence of malnutrition. Present food rations provided by the Government at subsidized prices cover about one third of the actual consumption levels in recent years. To meet their minimum requirements, people therefore have to purchase substantial quantities of food at exorbitant market prices which are beyond the reach of the majority of the population. Moreover, Iraq, which used to utilize several million workers from abroad to cope with the labour shortages, is now facing growing unemployment problems among its own population. There is a major ­increase in the number of destitute people who cannot be absorbed into the State support system for lack of government funds. This year’s domestic food output has been substantially reduced as a result of a number of adverse factors. The outlook for the 1991/92 season is even more gloomy. Unless immediate steps are taken, output in 1991/92 will drop drastically, causing further deterioration in the already grave food supply situation.

95. The mission conducted independent market surveys in 16 out of the 18 governorates. They found that for some food items, prices had declined from their peak levels of March 1991. This was mainly due to the resumption of fuel supplies for the domestic market in early May and the arrival of the new cereal harvest on the market. However, prices for all food items remain many times higher than their corresponding levels of last year. Compared to the same time last year, current prices are higher by 48 times for wheat flour, 22 times for rice, 12 times for lentils, 21 times for sugar, 7 times for local cheese, 20 times for vegetable oil, 3 times for fish, 2 times for red meat, 4 times for eggs, 19 times for milk powder, 19 times for tea and 4 times for potatoes, while poultry meat is not available any more (see appendix I).

96. Before September 1990, the Ministry of Trade was distributing 343,000 tons of basic food commodities monthly. Supply shortages brought this figure down to 182,000 tons per month between September and December 1990, and thereafter to 135,500 tons per month. However, certain commodities such as lentils, tea and dried milk either disappeared completely from the ration as they were unavailable or were severely restricted to certain beneficiary categories (e.g. milk for children under one year of age). In May, June and July 1991, some improvements (except for tea) in the scale per person per month were recorded, mainly in the cereal ration. The nutritional value of the commodities actually available between September 1990 and July 1991 through the food rationing system (per person/per day) has fluctuated between 894 k/cal and 1,318 (see appendix II). The cost of the full monthly ration, excluding lentils and milk was, in July 1991, 10.632 Iraqi dinars per family of six, which is the average family size in Iraq. The mission was assured throughout its extensive field inquiries that the rationing system was available to all (except for areas not accessible to the government distribution network); delays in supplies were however most common in governorates further away from Baghdad.

97. The mission noted the July 1991 average wages/salaries range from 80 dinars per month for a labourer to 250 dinars for a director of a government department. At these levels, and even assuming more than one wage earner per family (not common bearing in mind extremely high post-war unemployment) it is clearly not possible for the average family to ever achieve this level of consumption. At best, families would supplement their rationing system allowances on an ad hoc basis but nowhere near the adequate nutritional intake levels. Moreover, if the ration scale were to take account of the need for fresh foods, the average family food cost per month would be 1,063.242 dinars, a 191 per cent increase over the largely limited carbohydrate diet, comprising only the basic foods.

98. Mission inquiries in the field covering most provincial capitals confirmed the above analysis and showed that whilst the government rationing system is generally supplied with basic commodities, these arrive often late in the month, forcing families to resort to the free market. The number of people seeking “destitute” status has increased considerably in every governorate. The normal ration-system beneficiaries were applying to destitute feeding centres for allocation of free food. There was evidence of disposal of personal property and jewellery to generate income for food purchases. Families interviewed claimed that to achieve an adequate nutrition level they would need to spend an average of 600 dinars per month – a figure clearly beyond the reach of most Iraqis. The recent reports published (ICRC, UNICEF, Harvard University, etc.) indicate a considerable deterioration of the nutritional status of the population; admission figures of malnutrition cases in paediatric wards of hospitals appear to be on the increase. The mission considers the above indicators as a clear warning of an impending major famine.

99. To alleviate the impact of the United Nations embargo on nationa food supplies, the Government implemented in late 1990 a number of incentives to boost food production. These incluaed substantial increase in government procurement prices for cereals; for instance the procurement price for barley was increased from 280 dinars per ton in 1990 to 500 dinars in 1991; wheat  price was raised from 400 dinars per ton to 700-800 dinars per ton in 1991 (depending on quality). Farmers were provided with liberal supplies of seed, diverted from the public rationing system, and the cultivation of wheat and barley crops was introduced to new areas. These measures led to a sharp increase in area planted with wheat and barley.

100. To evaluate the outcome of the 1991 cereal/food crop harvest, the mission carried out extensive field surveys in 16 governorates that normally account for some 95 per cent of the national food crop production (see appendix III). It concluded that, despite a 50 per cent increase in the area planted, this year’s cereal output has been sharply reduced as a result of the breakdown of irrigation and drainage systems, acute shortage of essential inputs and disruption of farming activities due to war and civil strife. The adverse impact of these factors was further compounded by erratic and insufficient rains particularly in the main cereal-producing areas in the north where the bulk of production depends on rainfall. In several areas “black rain” in March adversely affected pollination and yields. Serious infestation with sunn pest occurred in the northern areas; with FAO assistance some 96,000 hectares were treated, but substantial infested areas could not be treated for lack of pesticides. There were also unconfirmed reports of the presence of locust larvae in some areas. Military activities had also resulted in the destruction of crops in several areas. Over 50 per cent of the farm machinery has been found to be out of service owing to shortages of spare parts, particularly tyres and batteries. In many areas, particularly in the south, transportation of farm inputs was constrained owing to the destruction of bridges during the war. As a consequence, total crop failures occurred on a substantial proportion of the areas planted, while extremely low yields were obtained from the areas harvested.

101. The mission estimates the aggregate cereal harvest in 1991 at 1.25 million tons, about a third of last year’s record harvest and close to the poorest crop in 1984 (see appendix IV). Other.crops, such as vegetables, oil seeds, pulses and fruit, also suffered serious losses owing to the above-mentioned factors. The livestock and poultry subsectors have been severely hurt. The poultry subsector, which produced 2 billion eggs and 250,000 tons of poultry meat in 1989, has been decimated. The livestock numbers have been virtually halved from pre-war levels of 10 million and the declining trend continues at a fast rate. Lack of feed, aggravated by the diversion of barley to food use, and unavailability of veterinary drugs have resulted in increased mortality and slaughter rates. Moreover, attractive prices across the borders have encouraged migration of cattle, particularly sheep and goats, to the neighbouring countries, mainly to Saudi Arabia and Turkey. Large flocks were also taken across the border by Iraqi refugees during the civil strife. The fisheries subsector has also suffered severe losses mainly owing to lack of feed and refrigeration facilities as a result of the breakdown of power supplies. The forest wealth of the country has also been affected owing to massive cutting of trees in many areas.

102. The outlook for the 1991/92 cropping season is even more gloomy.  Whatever small stocks of fertilizers and insecticides were available were used up for the 1990/91 crops, and little supplies are now available for the coming season. Seed supplies are extremely short and for vegetables virtually non-existent. A large part of the agricultural machinery power is out of service for lack of spare parts. Irrigation difficulties continue owing to excessive load shedding in many areas, lack of spare parts for irrigation pumps and damage to water reservoirs. The livestock numbers are declining for lack of feed, vaccines and an active informal trade across the borders. The revival of the poultry production has to start from scratch. Unless immediate steps are taken, domestic food output in 1991-1992 will fall further from its already poor level, causing further deterioration in the already grave food supply situation. The mission estimates the essential rehabilitation costs for the 1991/92 cropping season at $US 500,000 (see appendix V).

103. The mission noted that, in exceptionally good years, domestic food production in Iraq accounts for 30 to 35 per cent of total food requirements, the remainder being covered by food imports, costing over $US 2 billion annually. Following the exceptionally poor food output inside Iraq in 1990/91 as a result of the combined effect of adverse factors mentioned above, the country’s import needs for basic food are forecast to increase substantially in 1991-1992 (July-June). The mission estimates that Iraq will need to import 7.5 million tons of food in 1991-1992 (July-June) to feed its population of 18.7 million at an estimated cost of $US 2.6 billion. This is clearly a substantial amount that cannot possibly be funded by the international community and would therefore have to be borne by Iraq itself.

104. Largely as a result of considerations such as these, the United Nations system proposed, both in the report prepared by Under-Secretary-General Martti Ahtisaari (S/22366, annex) and in subsequent appeals by the Secretary-General and his Executive Delegate, the organization of food assistance programmes targeted at specific beneficiary groups throughout the country. The mission can confirm that the general situation with regard to the population’s nutritional requirements has continued to deteriorate, the small increases in the rationing system supplies being (a) insufficient to compensate for energy losses suffered during the several months of extremely low ration level distributions and (b) inadequate in themselves to raise the current allowances to satisfactory standards. There is therefore a continuing need to maintain the vulnerable group feeding programme to take account of the increase in the number of destitute people.

105. The mission also travelled extensively to the affected areas and reviewed the situation of the Kurdish population which sought refuge outside Iraq in February/March 1991. There are considerable differences between regions, with the north-west, under the control of the forces of States cooperating with Kuwait for the past several weeks, having returned to near-normal conditions and the north-east and east of the country undergoing a steady daily flow of returnees back home through several crossing points on the border with the Islamic Republic of Iran. The major preoccupation are their feeding needs and the uncertainty with regard to the duration of assistance for those who have settled in tents and other temporary structures on t~e ruins of their demolished villages. For these latter populations, their reintegration into the State rationing system will clearly depend on re-establishment of the food distribution network in settlements that do not exist anymore. On the other hand, for those returnees to towns and villages that do exist, whether under government control or not, the external food aid would be needed only temporarily until normal conditions are re-established.

106. The mission’s attention was also drawn to the difficulties faced by the internally displaced population that sought refuge from civil strife in the south of Iraq. They require temporary food support upon their return and until properly reintegrated in the internal rationing and distribution network. Pending the return to a normal marketing and distribution network that can guarantee access to food at reasonable prices to all, international food assistance will have to remain the cornerstone of the United Nations programme in Iraq. Such food aid should continue to be provided as at pr;sent through WFP under arrangements with the Ministries of Labour and Social Affairs and Health as well as directly with UNHCR with regard to the internally displaced and returnee feeding operations.

107. At the current level of food supplies, the Iraqi population is fast approaching the threshold of extreme deprivation except for the very few who can still afford to complement the food rationing system distribution by purchases in the free market. With the prospect of a major famine, the international humanitarian assistance programme can only be a palliative of short-term duration and this only on condition that it be underwritten by the donor community. On the other hand, it is evident that the Iraqi Government could afford, as it has done in the past, to import its food needs and so satisfy the largely unmet demand, by increasing the supplies through the rationing system or abandoning the rationing altogether but maintaining a heavily subsidized price structure for the basic food commodities. At the same time there is an urgent need to rehabilitate the agriculture sector to enable it to restore its traditional one-third contribution to national food requirements and to maintain the employment in this sector at pre-war levels.

108. The mission recommends the following actions:

(a) Suitable arrangements should be urgently worked out to enable Iraq to finance the purchase of its basic food imports for 1991-1992 (July-June) at an estimated cost of $US 2.64 billion and the essential agricultural import needs for the next cropping season, estimated at $US 0.5 billion;
(b) In the meantime the current food assistance programme will need to be extended to 31 December 1991; it must to cover the vulnerable groups including a large number of destitute people, returning refugees and the internally displaced persons. The quantity of food to be delivered between 16 July and 31 December 1991 is estimated at 81,723 tons, valued at
$US 34,835,065.

D. Energy

1. Electric power

109. Electricity is a basic need in Iraq because water supply, health services, sanitation handling, irrigation pumping, food manufacturing and processing and most services depend on electric power as the source of energy. The country’s high degree of urbanization and high temperatures requiring space cooling further aggravate this need for electricity.

110. The war’s damage to the power system facilities and the impact on the electricity supply was assessed during a field visit by the energy mission, extending from the Basra area in the south to the Mosul area in the north. It included visits to 15 power-generating plants and many 400 KV and 132 KV transmission substations. The facilities and headquarters of the Baghdad Water Authority were also visited to determine the linkage between power supply and the quantity and quality of water supply, and the power requirements for sewage.

111.  Iraq’s power system was severely damaged during the war, particularly the generating plants, and restoration will cost at least $US l2 billion. The installed capacity is of three types: steam plants to provide base-load supply; gas turbines for mid-range and peaking duty; and hydropower for varying services depending on water availability. The important steam plants required for sustained electricity supply were very severely damaged, varying from total destruction in the case of the 800 MW Hartha plant in the south and the 250 MW Dibis (steam/gas turbine) plant in the north, to 75 per cent destruction at the 1,200 MW Musayeb plant in the south and several plants in the Baghdad area. Gas turbine plants were 80 per cent destroyed. To prevent flooding if dams were destroyed the hydropower reservoirs had been lowered below minimum levels before the war, and now only limited hydroelectric energy is available, even when the units are operable.

112. The war came close to completely destroying the power system. In the 800 MW Nasariyah steam plant a special bomb or rocket penetrated the concrete substructure of the cooling water intake, flooding the basement and all pump motors. One motor was salvaged, but without cooling no output would be possible. Similarly, three of the four surge tanks at Saddam Dam hydroelectric plant were pierced by rockets, seriously affecting plant operations. Powerhouse cranes are critical because they are required for repairs and several were destroyed. At the Baiji steam plant, bombing resulted in the crane falling to the turbine hall floor, between two units. At Samawa hydroelectric plant the gantry crane was demolished and collapsed on one unit, so early plant restoration is impossible. The critical control rooms, substation protection buildings and spare parts storage areas were hit at almost all locations. This has resulted in long delays in any restoration work. The vital Mosul 400 KV substation serves as a major hub for five 400 KV lines and fourteen 132 KV lines, in addition to providing 1,000 MVA of  400/132 KV stepdown transformation to supply area loads. At this station the special gas-insulated 400 KV switchgear was damaged severely and all transformers were destroyed, so the station is still out of service. Supply to the Mosul area from Saddam Dam in the north has to be routed to Mosul via a single 400 KV line to Baiji plant (to the south) and return. The degree of destruction is shown by the condition of transmission facilities in the south. Ground forces destroyed fifty-seven 400 KV towers on the Basra to Nasariyah transmission line and wrecked 132 KV substation facilities at New Rumaila and its satellite stations, which normally provide power supply for oil production facilities in the area.

113. The pre-war generating capacity totalled over 9,500 MW while at the end of the war the available capacity was negligible. Since then, the electric utility management, engineers and staff have done a major job of restoring those generating units and transmission facilities that could be salvaged using ingenious makeshift arrangements and any available resources, including cannibalizing damaged units, using all spare parts, and searching out equipment in the local market. The Nasariyah steam plant was equipped with closed-circuit cooling towers with water from the Euphrates River serving only to make up for losses. All cooling towers were lost by bombing so the cooling system was converted to a once-through cooling of the condensers using river water. This involved a major civil and mechanical engineering project involving changing of 2-metre-diameter cooling lines. At the same plant all auxiliary pipes and control cables were destroyed and had to be reinstalled. Today two of the four Nasariyah units are in operation. However, these units are vulnerable to river silt blocking of the condensers at any time. At the Taji gas turbine plant, five of the seven gas turbines and all stepup transformers were destroyed, so partial output from the remaining two gas turbines is being supplied to the system using mobile transformers. The total destruction of the Dibis power plant also cut off electricity supply to the area including water pumping loads at the city of Kirkuk and the intermediate towns. One 132 KV line and temporary transformers have been arranged to provide partial power supply in the Dibis-Kirkuk area.

114. The pre-war generating capability of 9,552 MW was reduced to an available capacity on 1 July 1991 of 2,325 MW or 25 per cent (see appendix VIII).  Almost one half of the original 128 generating units are in operation but with substantial capacity reductions. The total available capacity will probably decline for lack of spare parts and maintenance. Furthermore, no additional capacity can be restored without spare parts and technical assistance. The transmission and distribution facilities generally survived the war with a larger amount of the pre-war facilities, about 75 per cent, than did generation facilities, because transmission and distribution facilities are not concentrated targets. However, only about 40 per cent of the original 400 KV facilities are available because these were a prime target.

115. It is important to recognize that the present restoration work is only a short-term solution. Many of the existing units, particularly the old ones, will soon either fail or will be shut down as obsolete. The plants that can be counted on for the long term are the existing hydropower plants, appropriately restored, totalling about 2,500 MW, and, when restored, the Baiji, Dora and Musayeb steam plants totalling about 3,000 MW. This 5,500 MW of capacity is still short of the required 7,500 MW to meet the 1990 load level plus a typical 50 per cent reserve. So new capacity must be built immediately. In the meantime, the cost over the next year of providing spare parts, restoring to service about 2,300 MW of the existing generating units, and returning to service 15 per cent more of the transmission and distribution facilities, is estimated at $US 2.2 billion (see appendix IX). To put this amount in perspective, the replacement cost of the complete Iraqi power system is $US 20 billion and annual spare part and maintenance requirements are 3 to 4 per cent of the investment cost. So $US 2.2 billion equals about three years of maintenance. If the existing capacity can be retained in operation and other units can be restored to service, this would still provide only about one half of the pre-war generating capacity.

116. The fragile electricity supply is frequently interrupted at the supply end by unit breakdowns.and at the consumer end by feeder switching. So service is only six to eight hours each day in urban areas. Water treatment plants are particularly hard hit because intermittent service means continuing pressure changes. Baghdad Water Authority is receiving only 50 MW of power while in 1990 it received 150 MW. As a result, most of its available power is being used for water supply. The sewage is not being pumped and is gathering, overflowing into the river, and even infiltrating the water system. The Water Authority is trying to find standby generators to pump sewage, as an alternative to the public electricity system.

117. The limited supply of electricity, particularly in the rural areas, is demonstrated by the results of a July 1991 UNICEF survey of the availability of electricity for water pumping in the Acqra district of the Mosul Governorate. In a sample of 194 villages and towns having a total population of 184,000, 192 villages or 99 per cent of the villages had public electricity supply. A typical village had electricity supply only three hours per day because the supply was rotated by switching feeders.

118. In all areas of the power system, power production will certainly be reduced owing to the hazardous condition and mode of operation of equipment, the lack of maintenance and absence of spare parts. This ‘is certainly the case for all the generating plants and those substations that have been repaired under emergency conditions that required using measures that are far short of normal technical standards. For instance, Saddam Dam output of 100 MW will be .interrupted if one circuit breaker fails. Similarly, at the Nasariyah steam plant 300 MW output will be lost if one air compressor or one cooling water pump or one water treatment pump fails. In every plant there are examples of risky emergency repairs, without adequate or sometimes any protection, resulting in critical situations that put the complete installation at risk in cases of failure. These risks are being increased as time progresses without any maintenance. This is particularly critical for gas turbines now operating on a continuous basis without the normally required maintenance inspections. Critical also is the old Najibiya steam plant near Basra, which was obsolete and shut down before the war, but now is being operated in a very dangerous condition.

119. In conclusion, unless additional capacity can be placed in service, the  overall power-generating capacity will certainly be reduced in the coming months. Moreover, if some critical components of these plants fail there is high risk of loss to the system of either the complete plant or at least a large unit. The consequences of such risks are very high during the peak demand months of July, August and September.

120. Under the present circumstances and the pressing power needs, there is no alternative but to find immediate solutions to maintain service, even though these may not be cost-effective in the long term, particularly since much of the restoration has been achieved by cannibalization and without adequate protection systems. Meanwhile, the following actions are recommended by the energy mission:

(a) The execution. of the prepaid orders that were placed with foreign contractors before the war and the delivery of parts and technical assistance should be allowed;  
(b) The present situation at the operating power plants should be consolidated by allowing spare parts and related technical services to be ordered and delivered;
(c) Import of goods and services should be allowed for the restoration of sources of additional capacity such as the No. 3 unit at Musayeb steam plant;
(d) Expenditure of national funds should be allowed to cover a six-month requirement for (a) to (c) above, totalling $US 0.7 billion.

2. Oil

121. The following provides information on the three main components of the oil sector: oil production; pipelines; and refineries. This assessment relies essentially on the information given by the Ministry of Oil. The mission could not check all this information but it is considered to be generally reliable. A field visit to the Dora refinery has confirmed the information given for that plant at the level of the Ministry.

122. Iraq’s oil production capacity before the Persian Gulf war was 1.3 million barrels per day in the northern fields (Kirkuk and others) and 2.2 million barrels per day in the southern fields (North and South Rumai1a, Zubair, Lahis). Iraq’s quota under the organization of Petroleum Exporting countries (OPEC) is 3.14 million barrels per day while its domestic requirements are 0.45 million barrels per day.

123. During the Persian Gulf war, the southern oil field facilities were severely damaged. Oil production there is assessed to be very low. The northern facilities were less damaged during the war, but they apparently suffered some damage during the civil conflict in March 1991. The total national oil production capacity is now estimated at 1.455 million barrels per day. Taking into account Iraq’s internal consumption requirements, the oil production available for export is estimated at 1 million barrels per day. This translates into a potential revenue of $US 5.5 billion over a one-year period, at a market price of $US 15 per barrel.

124. The Ministry of Oil considers that production capacity could be raised to 1.6 million barrels per day by the end of 1991 and to the pre-war level of 3.14 million barrels per day by mid-1992. These forecasts presume that the Government can import the necessary items to rehabilitate the production facilities. In any case, these forecasts seem rather optimistic and the mission does not expect a full rehabilitation of the production capacity before the end of 1992 at the earliest, assuming the lifting of the sanctions on import of needed materials.

125. Regarding pipelines, the main outlets for oil are the two pipelines through Turkey (IT 1 and IT 2). They have a potential volume of 1.590 million barrels per day, but are now estimated to be functioning at 1.340 million barrels per day because of the destruction of a purr,ping station. The  Al Bakkar terminal in the Persian Gulf, with a potential pumping capacity of 1 million barrels per day, is not in operation now. The pipeline linking the Rumaila fields to the east-west Saudi pipeline going to Yanhu is idle at this moment. Its capacity before the war was l.65 million barrels per day. To put it in service, the Iraqis must rebuild a compression station located in Iraq that was destroyed during the war and agree with the Saudi Arabian authorities on the use of the pipeline.

126. The Ministry of Oil has the necessary technical expertise available in-country to restore the lines through Turkey into full service, but it lacks the necessary parts. It may need some foreign technical assistance for work on the Al Bakkar terminal or for accelerating the rehabilitation programme overall, if they are given the possibility of obtaining such foreign assistance. For the next coming months, it appears that, while the addition of some spare parts would be useful, there is little risk of pipeline capacity dropping below the current capacity of 1 million barrels per day.
127. The current production levels at Iraq’s three refineries are:     
Baiji     300 000 bl/d
Dora     90 000 bl/d
Basra     70 000 bl/d
Total     460 000 bl/d

128. The total pre-Persian Gulf war refining capacity was 700,000 barrels per day. The Basra refinery has undergone the most severe damage, and only one out of two trains is now producing. All three refineries are simple hydroskimming; however the Baiji refinery also has hydrocracking. Repair operations have been made possible by heavy drawdown on spare refining equipment, including frequent cannibalization operations. This situation makes the reliability of the present refinery operations low. The final products in the market are of low quality. Additives needed for the ~ production of refined products are in short supply. The distribution network has also been damaged, as well as pumping stations and storage tanks. The security of supply is thus gradually decreasing as long as no spare parts are available.

129. In summary, spare parts and additives are both needed to keep up the present level of oil production, pipeline operations and refinery operations. In order to increase production to the pre-war level, extensive repairs and’ rebuilding would have to take place, particularly in the Basra area. The costs of such a full restoration of the oil sector is estimated at approximately $US 6 billion over a two-year period. The mission therefore recommends that Iraq be allowed to import $US 3 billion worth of spare parts and consumable materials over a one-year period, or at least $US 1 billion for an initial four-month period.


130. None of us on the mission team could overlook a glaring paradox: at a time when the international community is beset with disasters of daunting dimensions around the globe, we continue to appeal to the same donors to fund emergency programmes in Iraq that the country could pay for itself. with considerable oil reserves in the ground, Iraq should not have to compete for scarce aid funds with a famine-ravaged Horn of Africa, with a cyclone-hit Bangladesh.

131. We saw with our own eyes the scenes already reported at length: the raw sewage pouring into the Tigris and the Euphrates, the children afflicted by malnutrition. Our report is inevitably but a photograph in time, fast obsolete, yet the urgency of relief from suffering remains. Further, the hard statistics speak for themselves. Conditions are already grave in all of the essential sectors assessed and can only worsen in the weeks ahead. We must achieve a breakthrough to avert the looming crisis.

132. We have not set our sights on the optimum but no doubt unrealistic goal of full restoration of services to pre-war levels. We have not even aimed at funding for a full year. Instead, more modest objectives for the key sectors, for a limited initial four-month period (September to December 1991), have been quantified. Essential civilian needs must be assured for this immediate future.

133. To fund even this partial endeavour is far beyond the capacity of the United Nations system. Nor should the resources emanate exclusively from international programmes, given the dictates of common sense and of solidarity with those needs elsewhere I referred to above. Iraq’s own national resources, whether material or human, must obviously be put to good use.

134. The mandate assigned to me as the Secretary-Genera1’s Executive Delegate is of a humanitarian nature: political determinations are not in my purview. Indeed, we have consistently focused upon the needs of the most vulnerable groups, wherever they may be identified and located throughout the country. The United Nations presence in Iraq, which for the purposes of our operation has been managed through United Nations humanitarian centres with their accompanying complement of United Nations guards, has monitored and reported on the provision of humanitarian assistance and advised the authorities in this respect. This will continue to constitute a major priority. The right to food, water, shelter and adequate health are among the most fundamental of all human rights and must be assured to all people in all areas. As with all the key rights and freedoms set out in the Universal Declaration of Human Rights and the International Covenants, there can be no discrimination whatever in their enjoyment. Due note was taken, during our stay in Iraq, of the authorities’ declared objective of fostering the democratic process, with its intrinsic attributes of political pluralism and freedom of the press. The present negotiations with the Kurdish leadership were cited as an example of this trend.

135. Events of earlier years and, more recently, the civil strife that followed the Persian Gulf war, brought harmful consequences for vulnerable groups, for displaced populations, which must continue to be redressed. Those affected must be reassured and encouraged to return to their homes. The amenities so commendably accorded to those involved in the civil unrest must be extended. Where mines have been sown as indiscriminate seeds of death around refugees’ home regions, they must be detected and removed. Where original habitats have been destroyed, they must be rebuilt: this is particularly true of the Kurdish villages and towns that had been razed in previous years. It takes on an added urgency with the approach of winter. Indeed, massive transformations inflicted upon the human and natural environment in any region are unacceptable and can only be injurious to all concerned in the long term.

136. The creation of confidence, which is sadly lacking in some parts of the country, is crucial. It is in the interest of Iraq, of the displaced populations and of the international community. The United Nations presence in the country has welcomed the cooperation it has received from the authorities in pursuing this shared interest. In the coming weeks, as the need to maintain confidence in the equitable distribution of goods and services throughout all segments of the population takes on critical importance, such transparency and cooperation will be essential. We will have to be assured, in particular, of the maximum distribution to the civilian population, whose proportion can indeed only grow as the time of conflict and the militarization of society recedes.

137. This mission has addressed the current humanitarian needs in Iraq and has concluded that their magnitude requires funding that exceeds international aid and short-term palliatives and can be met only from the country’s own resources. How this finding is to be reconciled with the Security Council’s imposition of sanctions is a determination that is not ours to make. On the basis, however, of our deliberations and meetings with the authorities in Iraq, it would appear feasible to institute arrangements whereby Iraq’s requests for imports to meet the needs outlined in this report would be submitted to the United Nations and subjected to appropriate monitoring. The precise mechanism need not be specified here. The formula agreed upon would provide for clear records of all transactions to be furnished to the Organization. Constant accountability would be assured, as would the humanitarian purposes of imports financed by oil sales. As for the question of equitable distribution, a functioning food rationing system is already in place. Other aspects have been mentioned in preceding paragraphs and concern the United Nations presence in the country.

138. It remains a cardinal humanitarian principle that innocent civilians – and above all the most vulnerable – should not be held hostage to events beyond their control. Those already afflicted by war’s devastation cannot continue to pay the price of a bitter peace. It is a peace that will also prove to be tenuous if unmet needs breed growing desperation. If new displacements of Iraq’s population result from hunger and disease, if relief is again sought across national frontiers, the region’s stability will once more be set at risk with unforeseeable consequences. Humanitarian and political interests converge in the aversion of catastrophe. It is clearly imperative that Iraq’s “essential civilian needs” be met urgently and that rapid agreement be secured on the mechanism whereby Iraq’s own resources be used to fund them to the satisfaction of the international community.

[The Annexes are not included herein]]

IMF Sponsored “Democracy” in The Ukraine

IMF Sponsored “Democracy” in The Ukraine

by Michel Chossudovsky 28 November 2004

The URL of this article is:

Opposition candidate Viktor Yushchenko in the Ukrainian presidential elections is firmly backed by the Washington Consensus.

He is not only supported by the IMF and the international financial community, he also has the endorsement of The National Endowment for Democracy (NED)Freedom House and George Soros’ Open Society Institute , which played a behind the scenes role last year in helping “topple Georgia’s president Eduard Shevardnadze by putting financial muscle and organizational metal behind his opponents.” (New Statesman, 29 November 2004).

The NED has four affiliate institutes: The International Republican Institute (IRI) , the National Democratic Institute for International Affairs (NDI), the Center for International Private Enterprise (CIPE) , and the American Center for International Labor Solidarity (ACILS). These organizations are said to be “uniquely qualified to provide technical assistance to aspiring democrats worldwide.” See IRI, )

In the Ukraine, the NED and its constituent organizations fund Yushchenko’s party Nasha Ukraina (Our Ukraine), it also finances the Kiev Press Club. In turn, Freedom House, together with The Independent Republican Institute (IRI) are involved in assessing the “fairness of elections and their results”. IRI has staff present in “poll watching” in 9 oblasts (districts), and local staff in all 25 oblasts:

There are professional outside election monitors from bodies such as the Organisation for Security and Cooperation in Europe, but the Ukrainian poll, like its predecessors, also featured thousands of local election monitors trained and paid by western groups. … They also organised exit polls. On Sunday night those polls gave Mr Yushchenko an 11-point lead and set the agenda for much of what has followed.” (Ian Traynor 26 November 2004, the Guardian, )

Needless to say these various foundations are committed to “Freedom of the Press”. Their activities consist not only in organizing exit polls and feeding disinformation into the Western news chain, they are also involved in the creation and funding of “pro-Western”, “pro-reform” student groups, capable of organizing mass displays of civil disobedience. (For details, see Traynor, op cit) In the Ukraine, the Pora Youth movement (“Its Time”) funded by the Soros Open Society Institute is part of that process with more than 10,000 activists. Supported by the Freedom of Choice Coalition of Ukrainian NGOs , Pora is modeled on Serbia’s Otpor and Georgia’s Kmara.

The Freedom of Choice Coalition acts as an Umbrella organization. It is directly supported by the US and British embassies in Kiev as well as by Germany, through the Friedrich Ebert Stiftung (a foundation linked to the ruling Social Democrats). Among its main “partners” (funding agencies) it lists USAID, the Canadian International Development Agency (CIDA), Freedom House, The World Bank and the Charles Stewart Mott Foundation.

(Complete list at )

In turn, Freedom of Choice Coalition directly funds and collects donations for Pora (See )

The National Endowment for Democracy

Among the numerous Western foundations, the National Endowment for Democracy (NED), although not officially part of the CIA, performs an important intelligence function in shaping party politics in the former Soviet Union, Eastern Europe and around the World.

NED was created in 1983, when the CIA was being accused of covertly bribing politicians and setting up phony civil society front organizations. According to Allen Weinstein, who was responsible for establishing the NED during the Reagan Administration: “A lot of what we do today was done covertly 25 years ago by the CIA.” (Washington Post, Sept. 21, 1991).

In the former Soviet Union including the Ukraine, the NED constitutes, so to speak, the CIA’s “civilian arm”. CIA-NED interventions  are characterized by a consistent pattern. In Venezuela, the NED was also behind the failed CIA coup against President Hugo Chavez and in Haiti it funded the opposition parties and NGOs, in the US sponsored coup d’Etat and deportation of president Aristide in February 2004. (For details, see Michel Chossudovsky, 29 Feb 2004, )

In the former Yugoslavia, the CIA channeled support to the Kosovo Liberation Army (KLA) (since 1995), a paramilitary group involved in terrorist attacks on the Yugoslav police and military. Meanwhile, the NED through the  “Center for International Private Enterprise” (CIPE) was backing the DOS opposition coalition in Serbia and Montenegro. More specifically, NED was financing the G-17, an opposition group of  economists responsible for formulating (in liaison with the IMF) the DOS coalition’s  “free market” reform platform in the 2000 presidential election, which led to the downfall of Slobodan Milosevic.

Copy and Paste? The Center for International Private Enterprise (CIPE) has a very similar mandate in the Ukraine, where it directly funds research on “free market reforms” in several key “independent think tanks” and policy research institutes. The Kiev based International Center for Policy Studies (ICPS) is supported by CIPE. It has a similar function to that of the G-17 in Serbia and Montenegro:  A group of local economists hired by ICPS was put in charge of drafting, with the support of the World Bank, a comprehensive blueprint of post-election macro-economic reform.

Who is Viktor Yushchenko? IMF Sponsored Candidate

In 1993, Viktor Yushchenko was appointed head of the newly-formed National Bank of Ukraine. Hailed as a “daring reformer”, he was among the main architects of the IMF’s deadly economic medicine which served to impoverish The Ukraine and destroy its economy.

Following his appointment, the Ukraine reached a historical agreement with the IMF. Mr Yushchenko played a key role in negotiating the 1994 agreement as well as creating a new Ukrainian national currency, which resulted in a dramatic plunge in real wages.

The 1994 IMF package was finalized behind closed doors at the Madrid 50 years anniversary Summit of the Bretton Woods institutions. It required the Ukrainian authorities to abandon State controls over the exchange rate leading to an impressive collapse of the currency.

Yushchenko as Head of the Central Bank was responsible for deregulating the national currency under the October 1994 “shock treatment”:

  • The price of bread increased overnight by 300 percent,
  • electricity prices by 600 percent,
  • public transportation by 900 percent.
  • the standard of living tumbled

According to the Ukrainian State Statistics Committee, quoted by the IMF, real wages in 1998 had fallen by more than 75 percent in relation to their 1991 level.( )

Ironically, the IMF sponsored program was intended to alleviate inflationary pressures: it consisted in imposing “dollarised” prices on an impoverished population with earnings below ten dollars a month.

Combined with the abrupt hikes in fuel and energy prices, the lifting of subsidies and the freeze on credit contributed to destroying industry (both public and private) and undermining Ukraine’s breadbasket economy.

In November 1994, World Bank negotiators were sent in to examine the overhaul of Ukraine’s agriculture. With trade liberalization (which was part of the economic package), US grain surpluses and “food aid” were dumped on the domestic market, contributing to destabilizing one of the World’s largest and most productive wheat economies, (e.g. comparable to that of the American Mid West).

By 1998, the deregulation of the grain market had resulted in a decline in the production of grain by 45 percent in relation to its 1986-90 level. The collapse in livestock production, poultry and dairy products was even more dramatic.

(See )

The cumulative decline in GDP resulting from the IMF sponsored reforms was in excess of 60 percent (from 1992 to 1995).

Propaganda in support of the “Free Market”

Under these circumstances, why would Yushchenko, who was closely associated with the process of economic destruction and impoverishment be so popular? Why has the public image and political reputation of an IMF protégé, namely Mr. Yushchenko remained unscathed?

What the neoliberal agenda does is to build a consensus in “the free market reforms”.  “Short term pain gain for long term gain” says the World Bank. “Bitter economic medicine” is the only solution, much in the same way as the Spanish inquisition was the consensus underlying the feudal social order.

In an utterly twisted logic, poverty is presented as a precondition for building a prosperous society. This consensus presents a World of landless farmers, shuttered factories, jobless workers and gutted social programs as a means to achieving economic and social progress.

To sustain the consensus and convince public opinion, requires “turning the World upside down”, creating divisions within society, distorting the truth and ensuring, through a massive propaganda campaign, that no other viable political alternative to the “free market” is allowed to emerge.

Why is Yushchenko so popular? For same reason as George W. Bush, running on his record of war crimes is popular.

And because his opponent, outgoing Prime Minister Yanukovich does not represent a genuine political alternative for The Ukraine, which forcefully challenges the international financial institutions and the interests of Western corporate capital, which are destroying and impoverishing an entire nation.

The 2004 election in the Ukraine was built on a massive propaganda and public relations campaign, supported by the US, with money payoffs by Washington for political parties and organizations committed to Western strategic and economic interests. In turn, US intelligence, working hand in glove with various foundations including the NED, has consistently supported this process of civil society manipulation. The objective is not democracy, but rather the fracturing and colonization of the former Soviet Union.

The IMF and “Good Governance”

In the Ukraine, the IMF not only intervened in the implementation of the macroeconomic agenda, it also intruded directly in the arena of domestic party politics. As in Russia in 1993, the Ukrainian parliament was seen as an obstacle to the implementation of  the “free market reforms”. In 1999, under due pressure from Washington and the IMF, Yushchenko was appointed Prime Minister:

Yushchenko’s candidacy had been proposed by 10 parliamentary groups and factions, and Kuchma agreed with their choice…

The weightiest argument may be the International Monetary Fund’s desire to see Yushchenko as Ukraine’s prime minister, because the provision of the former Soviet republic with extended finance facilities depends on that.

Several parliament members believe the IMF is ready to extend a loan worth 300m dollars to Ukraine in January in case Yushchenko becomes prime minister. (ITAR-TASS news agency, Moscow, 17 Dec 1999)

Following his appointment, Yushchenko immediately set in motion a major IMF sponsored bankruptcy program directed against Ukrainian industry, which essentially consisted in closing down part of the country’s manufacturing base.  He also attempted to undermine the bilateral trade in oil and natural gas between  Russia and the Ukraine on behalf of the IMF which had demanded that this trade be conducted in US dollars rather than in terms of commodity barter.

They have sacked “our own” Prime Minister!

Yushchenko was accused by his opponents of having put the interests of the IMF ahead of those of the country. In 2001, Yushchenko was sacked as prime minister following a non-confidence vote in the parliament:

“Viktor Yushchenko has fulfilled obligations to the IMF better and more accurately than his duties to citizens of his our country, Olena Markosyan, a Kharkiv-based analyst, has opined in Ukrainian centrist daily Den” (BBC Monitoring, 16 Nov 2004)

“This [Yushchenko] government openly states that it executes all IMF recommendations. Though the government declares the social direction of its policy, actually it is carrying out an anti-social, anti-national policy,” said Communist Party leader Heorhiy Kruchkov ( quoted in Financial Times, May 17, 2001)

The international financial community took immediate action. The Ukraine was back on the creditors’ blacklist.

“The West, which openly put its stake on Yushchenko recently, is not likely to sit on its hands. There is no lack of instruments to bring pressure on Kiev. Most probably the question of resuming IMF, World Bank and EBRD credits to Ukraine will be put on hold because they were expressly linked with Yushchenko’s stay in power…. Talks with the Paris Club on restructuring Ukraine’s $1.2 billion debt may run into difficulty… Not surprisingly, (Ukrainian President) Leonid Kuchma yesterday hastened to distance himself from what is happening and spoke critically about the Rada [Parliament] decision. (Vremya Novostei, 1 May 2001, original Russian)

IMF Managing Director Horst Kohler was adamant. “Yushchenko has gained a lot of credibility outside of Ukraine, and I think he also deserves support inside of Ukraine.” (quoted in the Financial Times, 27 April 2001). The IMF Head did not mince his words:

He added that the IMF respects Ukraine’s right to choose its leaders, but maintained that the direction of reforms must be preserved. He questioned the wisdom of the VR spending time on maneuvering for a vote of no-confidence in the government while reforms need to be implemented.”

Replicating Yugoslavia. The Partition of The Ukraine?

A few months after his dismissal in 2001, Yushchenko was in Washington for talks with senior members of the Bush administration. He was back in Washington in early 2003 under the auspices of the International Republican Institute. During this visit, he met with Vice President Dick Cheney and Deputy Secretary of State Richard Armitage.

The Neocons had carefully “set the stage” for the October-November 2004 presidential elections.

Yugoslavia was a dress rehearsal for the fracturing of the remnant republics of the former Soviet Union. As recent developments suggest, the break up of the country, namely the partition of The Ukraine, modeled on the experience of former Yugoslavia is, no doubt, one among several transition “scenarios” envisaged by the Bush administration.

Creating divisions between Ukrainians, Russians, Tatars in Crimea and other ethnic groups, between Russian Orthodox. Ukrainian Orthodox and Ukrainian Catholics, etc. is part of Washington’s hidden agenda.

Military Realignments in support of the Free Market

Militarisation supports the Free Market and vice versa. The CIA oversees the NED. The donor community including the Washington based Bretton Woods institutions collaborate with the European Union, NATO and the US State Department.

War and Globalization go in hand in hand. While Yushchenko is considered a protégé of the international financial community, his colleague and political crony, former Defense Minister Yevyen Marchuk is a unbending supporter of US and NATO military presence in the region.

It was largely the initiative of Yevyen Marchuk as Defense Minister to send Ukrainian troops to Iraq, a decision which was opposed by the majority of the Ukrainian population.

In August, Marchuk met with Defense Secretary Donald Rumsfeld at The Crimean seaside resort of Yalta.

On the agenda of the August talks: Ukraine’s participation in the Iraqi war theater but also the upcoming Ukrainian elections. Defense Minister Marchuk announced following these meetings that Kiev would continue to participate in “the coalition of the willing” and would maintain its troops in Iraq.

Marchuk was sacked in September, barely a month before the first round of the presidential elections.

Attempting a Coup d’Etat?

In a televised address on November 25th, Marchuk, sent a message to the military, police and security forces to disobey the authority of the civil authorities, namely the government of Leonid Kuchma.

“Ukraine’s former defense minister and head of the National Security and Defense Council has declared that he’s convinced that opposition leader Viktor Yushchenko is entitled to be recognized as the president of Ukraine.

Former Defense Minister Yevhen Marchuk called on President Leonid Kuchma and Prime Minister Viktor Yanukovych to exercise good sense. Marchuk underscored that there should be no bloodshed in Ukraine.

Marchuk appealed to state security officers not to fulfill illegal orders and to remember their official honor and dignity.

He stressed that election fraud in the Nov. 21 presidential run-off election, which the government says was won by Prime Minister Yanukovych, was on a mass scale. He said that there is only one way out of the tense political stand-off that has engulfed Ukraine since Monday: negotiations between equals.

Marchuk also appealed to Russian Ambassador to Ukraine Viktor Chernomyrdin to pass along to Russian President Vladimir Putin only objective information. He reminded officers of the Russian Black Sea fleet in Sevastopol that they are on the territory of a foreign government, and that they should remain mindful of that, calling on the Russian Federation’s defense minister to obey the law.”  (See Kiev Post, 26 Nov 2004 and Kanal 5 transcripts, BBC Monitoringm 26 Nov 2004)

This statement by Marchuk, which calls upon the Armed forces and the Police to go against the government, essentially sets the stage for a US-NATO sponsored Coup d’Etat.

Power Struggle: Oil and Pipeline Corridors

Behind the presidential elections, there is a power struggle between pro-US-NATO and pro-Russian factions within the leading political establishment and the military.

What is at stake is not only the maintenance of the IMF sponsored macroeconomic agenda, strategic US-NATO military interests in the region are also at stake.

The objective of the Bush Administration is to install a Ukrainian government which is firmly aligned with Washington, with the ultimate objective of displacing the Russian military from the Black Sea.

In this regard, The Ukraine has already signed several military agreements with NATO and Washington under the government of Leonid Kuchma.

The Ukraine is a member of  GUUAM, a military alliance between five former Soviet republics ( Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova). This military alliance was initially designed in 1997 by the Ukrainian  National Security Services (NSBU) in close liaison with Washington. Its objective was to undermine the alliance between Russia and Belarus, signed between Moscow and Minsk in 1996.

The Ukraine also signed agreements with Poland and the Baltic states, pertaining to the control of transport corridors and pipeline routes.

GUUAM lies strategically at the hub of the Caspian oil and gas wealth, “with Moldava and the Ukraine offering [pipeline] export routes to the West.” The objective of GUUAM was to exclude Russia from the Black Sea, protect the Anglo-American pipeline routes out of Central Asia and the Caspian sea  and essentially cut Russia off not only from the Caspian sea oil basin but also from the Black sea.

Coinciding with the ceremony of NATO’s 50th anniversary at the outset of the war on Yugoslavia in 1999, the heads of State from all five GUUAM countries were present including President Leonid Kuchma of The Ukraine. They had been invited to NATO’s three day celebration in Washington to sign the GUUAM agreement under NATO and US auspices.

Georgia, Azerbaijan and Uzbekistan, immediately announced that they would be leaving the Commonwealth of Independent States (CIS) security union, which defines the framework of military cooperation between the former Soviet republics, as well their links to Moscow:

“The formation of GUUAM (under NATO’s umbrella and financed by Western military aid) was intent upon further fracturing the CIS. The Cold War, although officially over, had not yet reached its climax: the members of this new pro-NATO political grouping were not only supportive of the 1999 bombing of Yugoslavia, they had also agreed to ‘low level military cooperation with NATO while insisting that ‘the group is not a military alliance directed against any third party, namely Moscow.‘ Dominated by Anglo-American oil interests, the formation of GUUAM ultimately purports on excluding Russia from the oil and gas deposits in the Caspian area as well as isolating Moscow politically.” (Michel Chossudovsky, War and Globalization, the Truth behind September 11, Global Research, Montreal, 2002, Chapter V)

Text of Former Defense Minister Marchuk’s speech on Kanal 5 TV.

25 November 2004

Speaking on opposition 5 Kanal, former Defence Minister Yevhen Marchuk urged President Leonid Kuchma to admit widespread vote rigging

(Marchuk) Dear viewers of 5 Kanal, dear participants in the political events, dear government officials, dear military.

(Passage omitted: could not speak earlier due to illness)

Police must help, not fight civilians

(Addressing servicemen) When fulfilling any orders given to you, you must remember one thing: you are dealing with human beings, civilians, citizens, your brothers, sisters or friends. The main thing is: using force – to say nothing of using arms – against civilians, against your fellow citizens is an extremely high risk.

You must remember that any political orders are usually issued verbally, while commanders issue orders either in writing or verbally. Therefore you must be very clear about formulating and understanding orders.

Using force, in any form, is not only a great risk as I said, but is always fraught with casualties, even when weapons are not used. Servicemen know well that you can use force without using arms and cause panic and casualties among protesters because of chaotic movement of a panicking crowd of people. This is a science you’ve studied well.

It is worth reminding you that the law on the fundamental principles of national security says that before deciding to use force a government must weigh its force compared to the object it plans to using force against. To put it simply, you cannot use force against the peaceful population. While using other means, you must ask yourselves whether this could lead to panic and casualties.

To special forces. I understand that today you are called upon to perform various tasks as special units within the Ministry of Interior and the Security Service. When I worked on the law on the Security Services of Ukraine, I had to add one article, almost in the last minute: officers, servicemen and officials at the Security Service of Ukraine must not perform orders that do not correspond to the constitution and the law. The same is stipulated in other laws that regulate security agencies. In this connection I want to remind you that most special units must now, first of all, stay at their home base and, mainly, not to perform any tasks in plain clothes, especially in protesters’ midst. The only thing you can do is help protesters in keeping order, preventing provocations and identifying provocateurs who can cause a lot of trouble.

I also want to address special units of the Interior Ministry and interior troops. It’s hard work now. But you must remember one thing. You are facing people who disagree with the outcome of the election. They are defending their constitutional right to protest. It is their constitutional right, and you must help them.

Protesters must not storm

I also want to address protesters themselves. Friends, you need to understand that there are instances when governments can legitimately use force: when government bodies come under attack: either the presidential administration, the Cabinet of Ministers, the Supreme Council, the Constitutional Court and the Supreme Court.

(Passage omitted: these are guarded by police)

Therefore, there should be no storming. Any storming will invariably cause casualties.

Russia warned

I also wish to address the leaders of the Russian Black Sea Fleet and my colleague, Russian Defence Minister Sergey Ivanov. Please give an order to all your units. It is desirable now, while there is a crisis in Ukraine, that the main units of the Black Sea Fleet stay at their home base. This would be the wisest and farsighted decision. You have a complex status. You are based in a foreign state. Therefore, any careless action could cause great harm to Ukrainian-Russian relations and the fleet’s continued deployment in Ukraine.

I would also like to address the Russian ambassador in Ukraine, Viktor Chernomyrdin. (In Russian) Viktor Stepanovich, please try and insist that your staff report unbiased information to the Russian president about the true state of affairs in Ukraine regarding the election. The Russian president must receive maximum objective information about developments in Ukraine. I am sorry, I have certain reasons to give you this advice. But we have known each other for a long time, and I think you get my meaning.

Message to President Kuchma: vote was rigged

(In Ukrainian) I would also like to address the president of Ukraine. Leonid Danylovych, you know very well the true state of affairs and the true reasons for the current situation. I have told you before, it is sad to see how you are ending your presidency. But unfortunately this is the way it is. You are president now, and very much depends on you. And intimidation is not the way out – for either side. The situation has reached boiling point, a level of confrontation with such potential that the risk is growing every day. Only talks and nothing else can resolve this problem. You as president must seize the initiative and understand that today you as the guardian of the constitution and stability you bear the chief responsibility for stability and a peaceful way to resolve this conflict situation.

Leonid Danylovych, all people know there was widespread vote-rigging. Maybe you don’t know this, but teams of Donbass people toured the country in carousel voting by absentee ballots. And before that there were squads going around intimidating electoral commissions and voters. They added a huge number of people to the circle of (opposition leader Viktor) Yushchenko’s supporters and turned many people away from you. Believe me, it is these circumstances that scared many people, that this is possible in Ukraine, – these very circumstances caused the greatest damage to your reputation. Maybe your headquarters do not tell you this, but I have the moral right – and you know why – to say this straight to your face.

(Passage omitted: more in this vein)

There is only one solution: talks. But not talks between the victorious and the defeated, but talks between equals. And to reach the platform of equals, you must seriously consider what happened during the election. And the fact that there was widespread vote rigging has been proven.

(Passage omitted: hopes there will be no bloodshed.)

The protest potential is growing fast. But the government is also concentrating a large potential to counter it. And I know that this potential is strong. Therefore, you must stop. Just as the arms race which seemed insurmountable was once stopped, now we must stop the growth of potential on both sides. The situation is extremely dangerous.

Courts will prove opposition victory

I also wish to address Viktor Yushchenko. Viktor Andriyovych, I am firmly convinced that legal and constitutional procedures can prove that you won.

The World Bank’s strategy in the electric power sector

The World Bank’s strategy in the electric power sector

by Elias Davidsson
(Raw Materials Report, Vol. 5 No. 1 (1986))

The article first describes and analyses the context in which the National Power Company was established and its legal structure. It then analyses the World Bank’s role in promoting the establishment of institutions such as Landsvirkjun, monitoring their operations and finances, promoting their fast growth and steering their development.

Although some of the documents referred to in this article are a bit dated, the World Bank has not – as far as is known – changed its goals and methods in the electric power sector within the last decade. Thus, the following analysis may be considered both timely and relevant. Slight editorial improvements to this paper were made by the author in 2012.

The National Power Company of Iceland (Landsvirkjun) was established on July 1, 1965 by a partnership agree­ment between the Government of Iceland and the City Council of Reyk­javik (capital of Iceland) pursuant to Law No 59 of May 20, 1965. The con­ cern was jointly owned by these parties, each owning half of the company, until 1982. At that time the northern town of Akureyri joined in, acquiring from the ci­ty of Reykjavik 6 per cent of the shares.

The principal objectives of Land­svirkjun are to construct and operate electric power plants and main transmission facilities and to sell electric power wholesale for public and industrial consumption.

We will first describe and analyse the context in which the company was established and its legal structure. We will then analyse the World Bank’s role in promoting the establishment of in­stitutions such as Landsvirkjun, moni­toring their operations and finances, promoting their fast growth and steer­ing their development.

Landsvirkjun’s establishment and constitution

On May 3, 1965, members of the Icelandic parliament (Althing) received a copy of a Government Bill, concerning the establishment of a National Power Company, Landsvirkjun. As on other occasions, when the local power elite was pushing legislation related to foreign policy, its political arm (Govern­ment) took care to limit the debate about the proposed legislation in time and space. The legislature was granted just one day to prepare for the debate about the Bill, and a week”s time before a vote was taken.

We will review the articles of the Bill that have affected the political role Landsvirkjun has assumed, leaving aside those of a more technical nature.


Article 1 establishes that Landsvirkjun be jointly owned by the Government and the City of Reykjavik, in equal parts. Neither party is entitled to leave this joint-venture without the other’s consent.

Article 8 refers to the nomination of Board members and fixes their terms at six years. Both articles together have succeeded in immunizing the company against occasional changes in the government’s and city council’s political composition. Thus, the founders of Landsvirkjun – and those who formulated these articles – ensured until today that the Board of Landsvirkjun remained under the leadership of, and majority rule of, individuals favourable to the basic philosophy underlying Landsvirkjun’s role and foreign relationships.

Financial independence

Article 11 describes the procedures that Landsvirkjun has to follow in fixing electricity rates: After consulting with the Central Economic Institute, the Company’s Board is free to set prices, so that a “normal return on fixed capital in operations will be assured”. The new company’s revenue should also ensure an unspecified level of self-financing capabilities, allowing Landsvirkjun to expand power load capacity and “meet demand” independently of government policy.

Article 12 establishes that Landsvirkjun is allowed to raise local and foreign loans for its own needs. It is not required to consult its owners before negotiating new loans with foreign banks, as is the normal practice of other public enterprises in Iceland. In accordance with this article, Landsvirkjun has repeatedly issued bonds for sale in the European and American money markets.

Fiscal privileges

Article 13 exempts Landsvirkjun from paying import duties, estimated at 20-30 per cent of the cost of power plants and related equipment.  Article 16 exempts Landsvirkjun from paying income tax, community tax and other taxes.

Government guarantee

Article 15 permits the Government to guarantee loans that Landsvirkjun may raise, up to the amount of $28m or the equivalent in other currencies. This article has been amended a few times since, to keep up with the financing targets of Landsvirkjun.

Búrfell power plant

Pursuant to article 6, Landsvirkjun was allowed to construct a hydro-electric power plant of a total capacity of 210 MW (megawatt) at Búrfell on the Thjór­sá River. Landsvirkjun is also allowed to set up thermal power stations – for backup purposes – when and where it sees fit.

The above articles were not readily accepted by all Althing members, al­though a consensus existed about two main points: The desirability of establishing a National Power Company and the choice of Búrfell as the most economic site for a hydro-electric power plant.

The proposed Law was opposed on two levels: On a more general level it related to foreign investment policy; on a more specific level, the unique privileges granted to the company were considered unjustified.

It must be noted that the creation of the National Power Company and the proposed power plant at Búrfell were directly related to the plans of attracting foreign investment, especially power­ intensive industry. At the time of the Bill’s debate, extensive discussions had already taken place with Swiss Aluminium Co. (Alusuisse) concerning the establishment of an aluminum smelter (which has been operating since 1969) and with the World Bank, concerning loans for the Búrfell Power Project.

Although discussions with Alusuisse were then reaching their final stages, no formal decision was taken concerning the smelter at the time of the Bill’s enactment.

Some legislators considered it inap­propriate to grant a permission for a 210 MW power plant, that could more than feed a 60 kt/year aluminum smelter, while negotiations with Alusuisse were still pending. By enacting this permission, it was argued, the negotiating leverage of Iceland vis-a-vis Alusuisse would be reduced. It was furthermore claimed, that it would strengthen the negotiating posture, if Iceland could credibly demonstrate its ability and readiness to expand power generation capacity (for local use) without recourse to a foreign bulk customer. Thus, a per­mission for a 70 MW power plant would have sufficed at the time.

Others claimed that by granting Landsvirkjun a whole array of fiscal privileges (articles 13 and 16), the authors of the Bill attempted to artificially reduce operating costs with the sole aim of making electricity prices for a potential foreign investor more attractive. The general public – representing a captive market of Landsvirkjun – would thus subsidize indirectly the power com­pany’s import duties and taxes. One parliamentary representative raised the question why electric power retailers were not granted similar fiscal privileges.

The tariff philosophy (article 11) was also criticized by some legislators. As the legislature was denied the control of Landsvirkjun’s investment policies, concern was raised that a process of un­checked asset accumulation could ensue.

Some also considered inappropriate to hand the ultimate control of the elec­tricity sector to a Board on which the Ci­ty of Reykjavik would have veto power. This was apprehended because the development strategy for the electrical power sector was closely related to the policy on foreign investment. The ques­tion whether Iceland (at the time 240 000 inhabi­tants!) should allow foreign investment has been a hot political issue in the country for over 50 years.

In the next two sections, we will analyse the role of the World Bank in establishing, monitoring and steering Landsvirkjun.

The World Bank’s role in creating appropriate conditions for foreign investment in Iceland

The role of the World Bank in pro­moting a development scheme favorable to transnational companies has been analyzed by several writers (1-3). This being the case, no attempt will be made here to add evidence that is widely known. Instead we provide unpublished in­formation about means used by the World Bank group to pursue its goals specifically in the electric power sector.

In this section we will analyze the World Bank’s role in establishing in­stitutional bases apt to carry out the Bank’s ultimate aims “from within” a country, a method that has sometimes been called the “Troyan horse” method. The establishment of the National Pow­er Company in Iceland (Landsvirkjun) may be considered a typical case.

Did the World Bank formulate the Landsvirkjun Act of parliament?

No firm evidence exists that allows to answer this question with an unquali­fied yes. Having said so, there are never­theless a series of indications that strongly support the claim that the Bank was actively involved in formula­ting the law, or at least its most signifi­cant provisions. These indications will be reviewed here one by one:

1. A report of the Industrial Develop­ment Committee to the Icelandic Gov­ernment (1964-11-14), describes the World Bank’s attitude to the integrated power-station/aluminium-smelter pro­ject. Regarding the power company yet to be established, the Bank is quoted to have said “that it would like in a future discussion to study in detail the organi­zation and financial structure of the Company”.

2. According to the World Bank’s report “Operations Evaluation Report: Elec­tric Power” (hereafter called the WB Report, (4)) the Bank has regularly used its “leverage” to impose upon borrowers conditions (“covenants”) of an institu­tional character.

In the conclusions of this report the authors state:

“Effective project execution is im­portant and it is not irrelevant to the role of the Bank insofar as most of the companies studied were either created or consider­ ably reorganized within the period, with the Bank con­tributing to a greater or lesser ex­tent to the formulation of their basic constitutions.” (bold by ED) (p 66)

The report describes several methods the Bank uses to impose specific policies on borrowers in this sector. Some of these methods will be described later.

3. The Act of Landsvirkjun includes provi­sions that “insulate” the Power Com­pany from what the Bank calls “politi­cal interference”, a label that carries itself political connotations! This “insulation” was achieved by the provisions of articles 1, 8, 11 and 12 of the Act, described in the last chapter.

These provisions reflect faithfully the Bank’s philosophy (WB report p. 6, p 10. See also example later in this article).

4. The World Bank has acknowledged the Lansvirkjun Act by covenants in all Loan Agreements made between itself and Landsvirkjun. In these agreements, special covenants restrict the legislative power of the Icelandic Parliament.(5) Should Iceland’s parliament neverthe­less decide to exert its rights of legisla­tion and amend the Law of Landsvirk­jun so as to make Landsvirkjun for in­stance more accountable to the legisla­ture and to the general public, the World Bank would be entitled – at its own discretion – to define such amendments as a default on the Loan Agree­ment. If this should occur, the Bank,

“[…] at its option, may […]  declare the principal of the Loan and of all the Bonds then outstanding to be due and payable immediately together with the interest and other charges thereon”.(6)

Whether such infringement upon the sovereignty of a country’s legislature is consistent with current trends in inter­national law, is open to question. It is, however, noteworthy that this legal question was never brought to the attention of the Althing. Whether the World Bank ever referred to these clauses in its dealings with Iceland to assert its will, is not known and may never become known.

The World Bank’s invisible hand and Landsvirkjun

What quality has the relationship be­tween the World Bank and Landsvirk­jun taken? To what extent is Landsvirk­jun’s autonomy real? How does the World Bank exercice control over Landsvirkjun?

We will proceed by looking again at the Búrfell Loan Agreement  – a publicly available document (7) – made between Landsvirkjun and the Bank in 1966, and offer comments on those provisions that demonstrate the Bank’s influence on, or control of Landsvirkjun’s organization, constitution and operating pro­cedures (as distinct from the Bank’s in­fluence on or control of the execution of the Búrfell Power Project, for which the Bank has loaned funds).

Article 5.01

Landsvirkjun’s consultants and contractors must be “acceptable to, and to an extent and upon terms and conditions satisfactory to, the Bank”.

This covenant (condition) can be inter­preted in several ways. The Bank would maintain that such a covenant does ensure the qualifications and financial strength of consultants and contractors. In addition to this legitimate concern of the Bank it is plausible to ascribe to the Bank the aim of ensuring the selection of firms and individuals which share the Bank’s economic philosophy (support of MNCs etc).

The above assumption is quite legi­timate, if one considers the general ideological framework under which World Bank personnel operate, plus the fact that the Bank has often made loans conditional on hiring specific in­dividuals (WB Report, Table 4, 5).

Article 5.02 (c)
Landsvirkjun “shall enable the Bank’s representatives to in­spect”, not only the project for which loans are disbursed, but also “the goods, and all other plants, works, properties and equipment (of Landsvirkjun), and to examine any relevant records and documents.”

Article 5.02 (d)
Landsvirkjun “shall furnish to the Bank all such information as the Bank shall reasonably request concerning” not only “the expen­ditures of the proceeds of the Loan, the Búrfell Project” and related matters, but also “the ad­ministration, operations and fi­nancial condition (of Landsvirk­jun), its relations with ISAL (the subsidiary of Alusuisse in Ice­land) and the exercice of Land­svirkjun’s and ISAL’s respective rights, and the carrying out of their respective obligations, under the Power Contract and any other agreement related thereto.”

This covenant permits the World Bank to monitor and control the entire infor­mation base of Landsvirkjun, financial, legal, administrative and operational.

These scrutiny rights are incidentally denied to the members of the Althing and to Iceland’s tax­ payers.

Article 5.03 (b)
Landsvirkjun “shall inform the Bank of any condition which in­terferes with, or threatens to interfere with, the accomplishment of the purposes of the Loan, the maintenance of the service thereof, or the performance by Landsvirkjun of its obligations under this Loan Agreement, the Power Contract, the Purchase Agreements and the External Bonds”.

Article 5.09 (b)
“The Bank and Landsvirkun shall exchange views as to any ar­bitral or judicial proceeding con­templated or undertaken pur­suant to the Power Contract … Landsvirkjun shall promptly ad­vise the Bank of any such pro­ceeding contemplated or under­ taken and shall give the Bank such information as the Bank shall reasonably request … ”

While covenants 5.02 (c) and (d) call for a passive relationship towards the Bank, covenants 5.03 (b) and 5.09 (b) require Landsvirkjun to actively supply the Bank with legal and economic intelli­gence pertaining to domestic matters (such as government policies, plans and strategies to increase Iceland’s revenues from electricity sales to Alusuisse sub­sidiary, etc … ).

Article 5.08
Landsvirkjun “shall at all times take all steps necessary to main­tain its existence and right to carry on operations:” It shall “except as the Bank shall otherwise agree, take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful for ( … ) the conduct of its business.”

It seems obvious that the World Bank wanted hereby to ensure the cooperation of Landsvirkjun in warding off any laws or regulations that might affect the company’s constitution, prerogatives and “particular relationships.” There is evidence (WB Report p 10), that the Bank is ready to assume the defense of its borrowers in eventual con­flicts with their legitimate owners.

Articles 6.01 and 6.02
If “any provision of the Land­svirkjun Act or the Regulations (pertaining to Landsvirkjun -ED) shall have been amended, suspended, abrogated or repealed so as to affect adversely the finan­cial condition or operations of Landsvirkjun or the performance by Landsvirkjun of its obligations under the Loan Agreement, ( … ) the Bank, at its option, may declare the principal of the Loan and of all the Bonds then out­ standing to be due and payable immediately” (see also note 8).

This covenant, mentioned previously, restricts effectively the exercice of democratic control by the Icelandic nation over the main producer of electric energy in the country. It must be borne in mind that the terms “affect adverse­ly” used in this covenant, may have a wide range of applications: It may not only infer a deterioration of finances but refer to any decision that would af­fect the administrative obligations of Landsvirkjun towards the World Bank, such as those dealing with the role of Landsvirkjun as intelligence officer in behalf of the Bank.

There are some people who believe that stringent control of power com­panies by the World Bank is beneficial insofar as it ensures the completion of projects on time and within budget. This is not always the case, as the inter­nal WB report readily admits (p 75):

“Considerable cost overruns oc­cured in many of the projects reviewed in Colombia and Mexico (projects funded by the Bank), and in particular by experience of Calima for which the cost overrun was so great that, in combination with other factors of lesser impor­tance, it raises some doubt now as to whether the project was the most economical means of meet­ing system load growth.”

The above analysis focused on adminis­trative, institutional and constitutional covenants, that ensure the Bank’s con­trol of Landsvirkjun. Financial cove­nants will be reviewed later, in relation to the central aims of the Bank, as an agen­cy for steering a particular form of (state) capitalist accumulation.

Means and ends according to the World Bank’s own words (from the “WB report”)

The main aims of the Bank in attaching conditions (covenants ) to loan agreements are summarized by Bank’s officials in the following terms:

“Many of the Bank’s financial and institutional objectives in connection with its loans have been expressed in the form of covenants in the Loan Agreements or supplementary letters attached to the Loan Agreements. The conditions set were generally designed to assure sound financial management and development and sound organiza­tion and operations in the company and/or the country’s power sector as a whole.” (p 41).

There are basically three classes of covenants: Financial, managerial and institutional:

  • Financial covenants attempt to insure a minimal self-financing ratio and limit the incurrence of long-term debt.
  • Managerial covenants include obliga­tions of the borrowing company to con­sult with the Bank on issues such as con­tracting, consulting, accounting, bid­ding, hiring of executives and the like.
  • Institutional covenants attempt to en­sure or increase the autonomy of the borrowing company toward its owners (Government, City) or induce a specific sectoral development in a whole region or country.

Let us quote a few extracts from the Bank’s report, that describe in more detail the means and the ends of the Bank’s involvement in its member coun­tries’ electric power sector:

To be able to obtain World Bank finan­cing, borrowers had to bow to the Bank”s conditions or be turned down:

“A loan for a second stage at Jurong (Singapore -PUB) was seriously considered in 1970 but finally turned down because of PUB’s failure to take action on the appointment of a General Mana­ger.” (p 18)

It should not be assumed that this type of condition (covenant) is unique to this case:

“Covenants regarding Bank ap­proval of appointments to senior positions in (public) utilities, have been quite frequent features of Bank loans:” (p 6)

Another important type of institutional covenant is one dealing with a utility’s autonomy (meaning insulation from public policy):

“EEEB is an autonomous entity responsible for all phases of public electricity supply in the city of Bogota, the capital of Colom­bia, ( … ) The autonomy of the entity and its independence from other city services were assured by decrees issued in 1959 as a precondition for Bank lending. Al­though owned by the municipali­ty of Bogota, appointments to the Board are made in such a way as to prevent the city council from obtaining a majority of the seats; this arrangement, agreed with the Bank, has been designed to in­sulate the entity from intrusion of politics.” (bold by ED) (p 23)

Once a public utility is established in accordance with World Bank’s directives, the relationship with that utility,

” … has often been maintained by further loans in support of fur­ther expansion. There are a num­ber of companies with which the Bank has been associated more or less continuously since the early 1950s or even earlier, such as CFE in Mexico, KESC in Pakistan, Chidral in Colombia, ENDESA in Chile and CEMIG in Brazil ( … ) Interruptions in the Bank’s series of loans to such companies, where they have occurred, have generally resulted from delays by the company, or more often, the Government authorities, in tak­ing certain steps upon which the Bank insisted.” (p 4)

When the Bank”s client-utilities have difficulties with their legitimate owners, the Bank typically stands on the side of their clients:

“The Bank has been a strong pro­ponent of the company’s interests in negotiations with the Govern­ment (of Argentina), for instance, securing lower taxes on equip­ment purchased by SEGBA, spec­ial Government contributions in 1966 to its working capital, Gov­ernment support for renegotia­tion of the labor contract in 1968.” (p 10)

An operational aim of the World Bank in the electric power sector is to initiate and sustain a rapid expansion of elec­trical generation capacity, so that “all demand in the existing service area” would be met (p 4). Since demand must be met at all times, then public utilities will have to dispose of excess capacity, a situation sought after by the power­ intensive industry (smelters and process industries).

The Bank admits readily that its methods lead to a rapid expansion of its clients’ generation capacity:

“Through studies, advice, loan conditions and lending itself, it has sought to bring about changes in the sector’s institutional struc­ture or in Government policies toward the industry, which would enable the power sector to expand more quickly and at a lower unit cost than would otherwise be the case.” (bold by ED) (p 7)

The results have demonstrated that the Bank’s expansionary aims were fulfil­led:

“Sales by borrowing companies have grown faster than customers, indicating an average annual in­ crease of 4 per cent in kW/h con­sumption per customer.” (p 37)

Although many methods are used by the Bank to stimulate its “clients” expan­sion, one method is used more widely and more regularly than others:

“Tariff covenants have probably been in practice the most impor­tant: They have generally been phrased in such a way as to re­quire that the borrowing utility earn a surplus sufficient to fi­nance part of its own further in­vestment requirements ( … ) or to yield a certain rate of return on total net fixed assets in operation, sometimes revalued to allow for inflation.” (bold by ED) (p 6)

As most electricity sales to bulk users (power-intensive industry) are made under long-term agreements, the only way for a utility to reach the prescribed level of return “on total net fixed assets (revalued)” is to increase electricity tariffs to the general public.

As utilities earn a surplus, they invest in new facilities, thus increasing their capacity (fixed assets). As World Bank covenants require them to yield a rate of return based on the value of fixed assets, the borrowing utilities are forced to increase their earnings. This can best be done by pushing up electricity consumption and/or increasing the price to the cap­tive market, i.e. the general population.

Concluding remarks

We have now expanded on the means and ends of the World Bank in the electric power sector. These should be related to one of the Bank’s major purposes, namely:

“to promote private foreign in­vestment by means of guarantees or participation in loans and oth­er investment made by private in­vestors.”(9)

This primary purpose was reaffirmed in slightly different terms in another Bank publication from 1969:

“[A]s the records of the Bretton Woods deliberations indicate, the emphasis from the beginning was not so much on what the Bank could lend out of its paid-in capi­tal as on the concept of the Bank as a safe bridige over which private capital could move into the international field.” (10)

To provide “private capital” (in this context a euphemism for transnational corporations) a receptive investment and operating climate in the Bank’s less indutrialised member countries, the Bank carries out specific policies in each sector. The Bank’s operational strategy in the electric power sector may be broadly defin­ed as follows:

  • Subvert effective public control over electrical power utilities.
  • Build-up an oversupply of in­stalled generation capacity.
  • Use captive markets (local populations) to subsidize interna­tional competition between power utilities, for the benefit of power-intensive industries operating internationally.

(1) Teresa Hayter, Aid as Imperialism, Pen­guin books, 1971
(2) Bruce Nilsson, “The World Bank -A Political Institution”, Pacific Research and World Empire Telegram, San Francisco, Sept-Oct 1971
(3) Amon J Nsekele: “The World Bank and the New International Economic Order”, Development Dialogue, Uppsala (Sweden), 1977:1
(4) International Bank for Reconstruction and Development (The World Bank): Ope­rations Evaluation Report, Electric Power, 1972-03-10, Report Z-17 (restricted). Although this report deals in a general way with the Bank’s strategies in the electric power sector, it analyzes in more detail the operations of and its relationship with ten electricity companies in Third World coun­tries, namely: CFE (Mexico), VRA (Ghana), SEGBA (Argentina), CELPA (Ethiopia), FURNAS (Brazil), NEB (Malaysia), PUB (Singapore), EEEB (Colombia), EPM (Co­lombia), CVC/CHIDRAL (Colombia).
(5) Loan Agreement (Búrfell Power Project) between International Bank for Reconstruc­tion and Development (the World Bank) and Landsvirkjun, Loan No 466-0 for $18m
(6) Ibid. Article 8.01
(7) Contrary to general belief that Loan Agreements between the World Bank and its borrowers all over the world are confidential, they are in fact freely available from the Bank’s stationary stores in Washington, D.C.
(8) Article IX.10 in the Suppliers Credit Agreement between Landsvirkjun (Bor­rower) and Manufacturers Hanover Trust Company and ExImBank (Lenders), dated 1974-04-05, reads:
“(If) the Borrower shall have default­ed under any other agreement involv­ing the advance of credit to the Bor­rower, if such default gives to the holder of the obligation the right to accelerate the indebtness . . . then either lender … may make immedi­ately due and payable … (a) the entire principal indebtness owing to it then outstanding … and (b) accrued in­terest to the date of payment.”
(9) International Bank for Reconstruction and Development (The World Bank), Ar­ticles of Agreement, Washington 1976,”Arti­cle 1
(10) The World Bank, IDA and IFC Policies and Operations, The World Bank (IBRD), Washington, DC, June 1969

Letter to the editor in Baghdad Observer (1999)

Letter to the Editor
Published in the Baghdad Observer,  September 22, 1999

Entering the tenth year of the economic sanctions imposed on Iraq, we do not yet see the end of the suffering. As a person who has consistently and intensively opposed these criminal sanctions, I am aware that the Iraqi authorities have attempted to alleviate in many ways the dramatic consequences of the sanctions. I am not in a position to assess the extent of such measures but have no reason to doubt […] UN reports reporting and commending such measures.

While recognizing the efforts made domestically by the Iraqi authorities to mitigate the hardship, it appears to me that Iraq has not availed itself of the various international opportunities in order to stop the sanctions. Such opportunities are to be found in the domain of public advocacy, the UN system and the legal order.

According to Foreign Affairs, a conservative US magazine, the United States imposes currently economic sanctions on over 35 countries, most of which are located in the third world. The increasing use of economic sanctions against third world countries is often justified on such concepts as support for human rights. But a careful assessment of the support given by the US to undemocratic regimes throughout the world shows that the real goal of economic sanctions is economic. This goal is akin to that pursued by the International Monetary fund and the World Bank: Namely to maintain the hegemony of Western corporations and banks over the international economic system and prevent the emergence of independent economic powers. In preventing countries from enjoying their full economic rights, sanctions are an effective way to maintain them in poverty and induce their compliance with Western diktat.

The Iraqi government is certainly aware of this phenomena (sic) as it is on the receiving end of such measures. Why doesn’t it take initiatives within the non-aligned movement in order to garner a consistent opposition to such measures? One possibility open to the Group of 77 within the UN would be to propose a General Assembly resolution requesting an Advisory Opinion from the International Court of Justice regarding the legality of comprehensive economic sanctions, with particular regards to the needs of developing countries. Such a demarche has proved successful with regards to nuclear weapons. Aren’t comprehensive economic sanctions as weapon of mass destruction?

The terrible consequences of the sanctions against the Iraqi people are now well documented. Iraqi official statements maintain that the sanctions should be lifted because Iraq has fully complied with the demands of the Security Council. Such statements imply that the sanctions were justified as long as Iraq did not “fully complied”. I can hardly believe that this is what the Iraqi government wishes to convey. By making such statements the Iraqi authorities nevertheless undermine the efforts to define the sanctions as gross human rights violations and provide legitimacy to the demands imposed on Iraq.

Finally, measures that cause the deaths of over half a million Iraqi children, are clearly illegal and criminal under international law. Lawyers may argue whether they are war crimes, crimes against humanity or genocide, but nobody can argue that international law permits such massive slaughter. The victims must be defended, morally, politically and legally. Under general principles of justice and the law of civilized nations they are entitled to remedy and it is the task of the Iraqi authorities to help them seek redress. The Iraqi government is their official representative towards the international community and should take all necessary measures to give force to such rights.

The Global 1%: Exposing the Transnational Ruling Class

The Global 1%: Exposing the Transnational Ruling Class

Censored Notebook Aug 13, 2012
by Peter Phillips and Kimberly Soeiro

Abstract: This study asks Who are the the world’s 1 percent power elite? And to what extent do they operate in unison for their own private gains over benefits for the 99 percent? We examine a sample of the 1 percent: the extractor sector, whose companies are on the ground extracting material from the global commons, and using low-cost labor to amass wealth. These companies include oil, gas, and various mineral extraction organizations, whereby the value of the material removed far exceeds the actual cost of removal.We also examine the investment sector of the global 1 percent: companies whose primary activity is the amassing and reinvesting of capital. This sector includes global central banks, major investment money management firms, and other companies whose primary efforts are the concentration and expansion of money, such as insurance companies. Finally, we analyze how global networks of centralized power—the elite 1 percent, their companies, and various governments in their service—plan, manipulate, and enforce policies that benefit their continued concentration of wealth and power. We demonstrate how the US/NATO military-industrial-media empire operates in service to the transnational corporate class for the protection of international capital in the world.


The Occupy Movement has developed a mantra that addresses the great inequality of wealth and power between the world’s wealthiest 1 percent and the rest of us, the other 99 percent. While the 99 percent mantra undoubtedly serves as a motivational tool for open involvement, there is little understanding as to who comprises the 1 percent and how they maintain power in the world. Though a good deal of academic research has dealt with the power elite in the United States, only in the past decade and half has research on the transnational corporate class begun to emerge.[i]

Foremost among the early works on the idea of an interconnected 1 percent within global capitalism was Leslie Sklair’s 2001 book, The Transnational Capitalist Class.[ii] Sklair believed that globalization was moving transnational corporations (TNC) into broader international roles, whereby corporations’ states of orgin became less important than international argreements developed through the World Trade Organization and other international institutions. Emerging from these multinational corporations was a transnational capitalist class, whose loyalities and interests, while still rooted in their corporations, was increasingly international in scope. Sklair writes:

The transnational capitalist class can be analytically divided into four main fractions: (i) owners and controllers of TNCs and their local affiliates; (ii) globalizing bureaucrats and politicians; (iii) globalizing professionals; (iv) consumerist elites (merchants and media). . . . It is also important to note, of course, that the TCC [transnational corporate class] and each of its fractions are not always entirely united on every issue. Nevertheless, together, leading personnel in these groups constitute a global power elite, dominant class or inner circle in the sense that these terms have been used to characterize the dominant class structures of specific countries.[iii]

Estimates are that the total world’s wealth is close to $200 trillion, with the US and Europe holding approximately 63 percent. To be among the wealthiest half of the world, an adult needs only $4,000 in assets once debts have been subtracted. An adult requires more than $72,000 to belong to the top 10 percent of global wealth holders, and more than $588,000 to be a member of the top 1 percent.  As of 2010, the top 1 percent of the wealthist people in the world had hidden away between $21 trillion to $32 trillion in secret tax exempt bank accounts spread all over the world.[iv] Meanwhile, the poorest half of the global population together possesses less than 2 percent of global wealth.[v] The World Bank reports that, in 2008, 1.29 billion people were living in extreme poverty, on less than $1.25 a day, and 1.2 billion more were living on less than $2.00 a day.[vi] reports that 35,000 people, mostly young children, die every day from starvation in the world.[vii] The numbers of unnecessary deaths have exceeded 300 million people over the past forty years. Farmers around the world grow more than enough food to feed the entire world adequately. Global grain production yielded a record 2.3 billion tons in 2007, up 4 percent from the year before—yet, billions of people go hungry every day. describes the core reasons for ongoing hunger in a recent article, “Corporations Are Still Making a Killing from Hunger”: while farmers grow enough food to feed the world, commodity speculators and huge grain traders like Cargill control global food prices and distribution.[viii] Addressing the power of the global 1 percent—identifying who they are and what their goals are—are clearly life and death questions.

It is also important to examine the questions of how wealth is created, and how it becomes concentrated. Historically, wealth has been captured and concentrated through conquest by various powerful enities. One need only look at Spain’s appropriation of the wealth of the Aztec and Inca empires in the early sixteenth century for an historical example of this process. The histories of the Roman and British empires are also filled with examples of wealth captured.

Once acquired, wealth can then be used to establish means of production, such as the early British cotton mills, which exploit workers’ labor power to produce goods whose exchange value is greater than the cost of the labor, a process analyzed by Karl Marx in Capital.[ix] A human being is able to produce a product that has a certain value. Organized business hires workers who are paid below the value of their labor power. The result is the creation of what Marx called surplus value, over and above the cost of labor. The creation of surplus value allows those who own the means of production to concentrate capital even more. In addition, concentrated capital accelerates the exploition of natural resources by private entrepreneurs—even though these natural resources are actually the common heritage of all living beings.[x]

In this article, we ask: Who are the the world’s 1 percent power elite? And to what extent do they operate in unison for their own private gains over benefits for the 99 percent? We will examine a sample of the 1 percent: the extractor sector, whose companies are on the ground extracting material from the global commons, and using low-cost labor to amass wealth. These companies include oil, gas, and various mineral extraction organizations, whereby the value of the material removed far exceeds the actual cost of removal.

We will also examine the investment sector of the global 1 percent: companies whose primary activity is the amassing and reinvesting of capital. This sector includes global central banks, major investment money management firms, and other companies whose primary efforts are the concentration and expansion of money, such as insurance companies.

Finally, we analyze how global networks of centralized power—the elite 1 percent, their companies, and various governments in their service—plan, manipulate, and enforce policies that benefit their continued concentration of wealth and power.

The Extractor Sector: The Case of Freeport-McMoRan (FCX)

Freeport-McMoRan (FCX) is the world’s largest extractor of copper and gold. The company controls huge deposits in Papua, Indonesia, and also operates in North and South America, and in Africa. In 2010, the company sold 3.9 billion pounds of copper, 1.9 million ounces of gold, and 67 million pounds of molybdenum. In 2010, Freeport-McMoRan reported revenues of $18.9 billion and a net income of $4.2 billion.[xi]

The Grasberg mine in Papua, Indonesia, employs 23,000 workers at wages below three dollars an hour. In September 2011, workers went on strike for higher wages and better working conditions. Freeport had offered a 22 percent increase in wages, and strikers said it was not enough, demanding an increase to an international standard of seventeen to forty-three dollars an hour. The dispute over pay attracted local tribesmen, who had their own grievances over land rights and pollution; armed with spears and arrows, they joined Freeport workers blocking the mine’s supply roads.[xii] During the strikers’ attempt to block busloads of replacement workers, security forces financed by Freeport killed or wounded several strikers.

Freeport has come under fire internationally for payments to authorities for security. Since 1991, Freeport has paid nearly thirteen billion dollars to the Indonesian government—one of Indonesia’s largest sources of income—at a 1.5 percent royalty rate on extracted gold and copper, and, as a result, the Indonesian military and regional police are in their pockets. In October 2011, the Jakarta Globe reported that Indonesian security forces in West Papua, notably the police, receive extensive direct cash payments from Freeport-McMoRan. Indonesian National Police Chief Timur Pradopo admitted that officers received close to ten million dollars annually from Freeport, payments Pradopo described as “lunch money.” Prominent Indonesian nongovernmental organization Imparsial puts the annual figure at fourteen million dollars.[xiii] These payments recall even larger ones made by Freeport to Indonesian military forces over the years which, once revealed, prompted a US Security and Exchange Commission investigation of Freeport’s liability under the United States’ Foreign Corrupt Practices Act.

In addition, the state’s police and army have been criticized many times for human rights violations in the remote mountainous region, where a separatist movement has simmered for decades. Amnesty International has documented numerous cases in which Indonesian police have used unnecessary force against strikers and their supporters. For example, Indonesian security forces attacked a mass gathering in the Papua capital, Jayapura, and striking workers at the Freeport mine in the southern highlands. At least five people were killed and many more injured in the assaults, which shows a continuing pattern of overt violence against peaceful dissent. Another brutal and unjustified attack on October 19, 2011, on thousands of Papuans exercising their rights to assembly and freedom of speech, resulted in the death of at least three Papuan civilians, the beating of many, the detention of hundreds, and the arrest of six, reportedly on treason charges.[xiv]

On November 7, 2011, the Jakarta Globe reported that “striking workers employed by Freeport-McMoRan Copper & Gold’s subsidiary in Papua have dropped their minimum wage increase demands from $7.50 to $4.00 an hour, the All-Indonesia Workers Union (SPSI) said.”[xv] Virgo Solosa, an official from the union, told the Jakarta Globe that they considered the demands, up from the (then) minimum wage of $1.50 an hour, to be “the best solution for all.”

Workers at Freeport’s Cerro Verde copper mine in Peru also went on strike around the same time, highlighting the global dimension of the Freeport confrontation. The Cerro Verde workers demanded pay raises of 11 percent, while the company offered just 3 percent.

The Peruvian strike ended on November 28, 2011.[xvi] And on December 14, 2011, Freeport-McMoRan announced a settlement at the Indonesian mine, extending the union’s contract by two years. Workers at the Indonesia operation are to see base wages, which currently start at as little as $2.00 an hour, rise 24 percent in the first year of the pact and 13 percent in the second year. The accord also includes improvements in benefits and a one-time signing bonus equivalent to three months of wages.[xvii]

In both Freeport strikes, the governments pressured strikers to settle. Not only was domestic militrary and police force evident, but also higher levels of international involvement. Throughout the Freeport-McMoRan strike, the Obama administration ignored the egregious violation of human rights  and instead advanced US–Indonesian military ties. US Secretary of Defense Leon Panetta, who arrived in Indonesia in the immediate wake of the Jayapura attack, offered no criticism of the assault and reaffirmed US support for Indonesia’s territorial integrity. Panetta also reportedly commended Indonesia’s handling of a weeks-long strike at Freeport-McMoRan.[xviii]

US President Barack Obama visited Indonesia in November 2011 to strengthen relations with Jakarta as part of Washington’s escalating efforts to combat Chinese influence in the Asia–Pacific region. Obama had just announced that the US and Australia would begin a rotating deployment of 2,500 US Marines to a base in Darwin, a move ostensibly to modernize the US posture in the region, and to allow participation in “joint training” with Australian military counterparts. But some speculate that the US has a hidden agenda in deploying marines to Australia. The Thai newspaper The Nation has suggested that one of the reasons why US Marines might be stationed in Darwin could be that they would provide remote security assurance to US-owned Freeport-McMoRan’s gold and copper mine in West Papua, less than a two-hour flight away.[xix]

The fact that workers at Freeport’s Sociedad Minera Cerro Verde copper mine in Peru were also striking at the same time highlights the global dimension of the Freeport confrontation. The Peruvian workers are demanding pay rises of eleven percent, while the company has offered just three percent. The strike was lifted on November 28, 2011.[xx]

In both Freeport strikes, the governments pressured strikers to settle. Not only was domestic militrary and police force evident, but also higher levels of international involvement. The fact that the US Secretary of Defense mentioned a domestic strike in Indonesa shows that the highest level of power are in play on issues affecting the international corporate 1 percent and their profits.

Public opinion is strongly against Freeport in Indonesia. On August 8, 2011, Karishma Vaswani of the BBC reported that “the US mining firm Freeport-McMoRan has been accused of everything from polluting the environment to funding repression in its four decades working in the Indonesian province of Papau. . . . Ask any Papuan on the street what they think of Freeport and they will tell you that the firm is a thief, said Nelels Tebay, a Papuan pastor and coordinator of the Papua Peace Network.”[xxi]

Freeport strikers won support from the US Occupy movement. Occupy Phoenix and East Timor Action Network activists marched to Freeport headquarters in Phoenix on October 28, 2011, to demonstrate against the Indonesian police killings at Freeport-McMoRan’s Grasberg mine.[xxii]

Freeport-McMoRan (FCX) chairman of the board James R. Moffett owns over four million shares with a value of close to $42.00 each. According to the FCX annual meeting report released in June 2011, Moffett’s annual compensation from FCX in 2010 was $30.57 million. Richard C. Adkerson, president of the board of FCX, owns over 5.3 million shares. His total compensation in was also $30.57 million in 2010 Moffett’s and Adkerson’s incomes put them in the upper levels of the world’s top 1 percent. Their interconnectness with the highest levels of power in the White House and the Pentagon, as indicated by the specific attention given to them by the US secretary of defense, and as suggested by the US president’s awareness of their circumstances, leaves no doubt that Freeport-MacMoRan executives and board are firmly positioned at the highest levels of the transnational corporate class.

Freeport-McMoRan’s Board of Directors

James R. Moffett—Corporate and policy affiliations: cochairman, president, and CEO of McMoRan Exploration Co.; PT Freeport Indonesia; Madison Minerals Inc.; Horatio Alger Association of Distinguished Americans; Agrico, Inc.; Petro-Lewis Funds, Inc.; Bright Real Estate Services, LLC; PLC–ALPC, Inc.; FM Services Co.

Richard C. Adkerson—Corporate and policy affiliations: Arthur Anderson Company; chairman of International Council on Mining and Metals; executive board of the International Copper Association, Business Council, Business Roundtable, Advisory Board of the Kissinger Institute, Madison Minerals Inc.

Robert Allison Jr.—Corporate affiliations: Anadarko Petroleum (2010 revenue: $11 billion); Amoco Projection Company.

Robert A. Day—Corporate affiliations: CEO of W. M. Keck Foundation (2010 assets: more than $1 billion); attorney in Costa Mesa, California.

Gerald J. Ford—Corporate affiliations: Hilltop Holdings Inc, First Acceptance Corporation, Pacific Capital Bancorp (Annual Sales $13 billion), Golden State Bancorp, FSB (federal savings bank that merged with Citigroup in 2002) Rio Hondo Land & Cattle Company (annual sales $1.6 million), Diamond Ford, Dallas (sales: $200 million), Scientific Games Corp., SWS Group (annual sales: $422 million); American Residential Cmnts LLC.

H. Devon Graham Jr.—Corporate affiliations: R. E. Smith Interests (an asset management company; income: $670,000).

Charles C. Krulak—Corporate and governmental affiliations: president of Birmingham-South College; commandant of the Marine Corp, 1995–1999; MBNA Corp.; Union Pacific Corporation (annual sales: $17 billion); Phelps Dodge (acquired by FCX in 2007).

Bobby Lee Lackey—Corporate affiliations: CEO of McManusWyatt-Hidalgo Produce Marketing Co.

Jon C. Madonna—Corporate affiliations: CEO of KPMG, (professional services auditors; annual sales: $22.7 billion); AT&T (2011 revenue: $122 billion); Tidewater Inc. (2011 revenue: $1.4 billion).

Dustan E. McCoy—Corporate affiliations: CEO of Brunswick Corp. (revenue: $4.6 billion); Louisiana-Pacific Corp. (2011 revenue: $1.7 billion).

B. M. Rankin Jr.—Corporate affiliations: board vice chairman of FCX; cofounder of McMoRan Oil and Gas in 1969.

Stephen Siegele—Corporate affiliations: founder/CEO of Advanced Delivery and Chemical Systems Inc.; Advanced Technology Solutions; Flourine on Call Ltd.

The board of directors of Freeport-McMoRan represents a portion of the global 1 percent who not only control the largest gold and copper mining company in the world, but who are also interconnected by board membership with over two dozen major multinational corporations, banks, foundations, military, and policy groups. This twelve-member board is a tight network of individuals who are interlocked with—and influence the policies of—other major companies controlling approximately $200 billion in annual revenues.

Freeport-McMoRan exemplifies how the extractor sector acquires wealth from the common heritage of natural materials—which rightfully belongs to us all—by appropriating the surplus value of working people’s labor in the theft of our commons. This process is protected by governments in various countries where Freeport maintains mining operations, with the ultimate protector being the military empire of the US and the North Atlantic Treaty Organization (NATO).

Further, Freeport-McMoRan is connected to one of the most elite transnational capitalist groups in the world: over 7 percent of Freeport’s stock is held by BlackRock, Inc., a major investment management firm based in New York City.

The Investment Sector: The Case of BlackRock, Inc.

Internationally, many firms operate primarily as investment organizations, managing capital and investing in other companies. These firms often do not actually make anything except money, and are keen to prevent interference with return on capital by taxation, regulations, and governmental interventions anywhere in the world.

BlackRock, based in Manhattan, is the largest assets management firm in the world, with over 10,000 employees and investment teams in twenty-seven countries. Their client base includes corporate, public, union, and industry pension plans; governments; insurance companies; third-party mutual funds; endowments; foundations; charities; corporations; official institutions; sovereign wealth funds; banks; financial professionals; and individuals worldwide. BlackRock acquired Barclay Global Investors in December of 2009. As of March 2012, BlackRock manages assets worth $3.68 trillion in equity, fixed income, cash management, alternative investment, real estate, and advisory strategies.[xxiii]

In addition to Freeport-McMoRan, BlackRock has major holdings in Chevron (49 million shares, 2.5 percent), Goldman Sachs Group (13 million shares, 2.7 percent), Exxon Mobil (121 million shares, 2.5 percent), Bank of America (251 million shares, 2.4 percent), Monsanto Company (12 million shares, 2.4 percent), Microsoft Corp. (185 million shares, 2.2 percent), and many more.[xxiv]

BlackRock manages investments of both public and private funds, including California Public Employee’s Retirement System, California State Teacher’s Retirement System, Freddie Mac, Boy Scouts of America, Boeing, Sears, Verizon, Raytheon, PG&E, NY City Retirement Systems, LA County Employees Retirement Association, GE, Cisco, and numerous others.

According to BlackRock’s April 2011 annual report to stockholders, the board of directors consists of eighteen members. The board is classified into three equal groups—Class I, Class II, and Class III—with terms of office of the members of one class expiring each year in rotation. Members of one class are generally elected at each annual meeting and serve for full three-year terms, or until successors are elected and qualified. Each class consists of approximately one-third of the total number of directors constituting the entire board of directors.

BlackRock has stockholder agreements with Merrill Lynch & Co., Inc., a wholly owned subsidiary of Bank of America Corporation; and Barclays Bank PLC and its subsidiaries. Two to four members of the board are from BlackRock management; one director is designated by Merrill Lynch; two directors, each in a different class, are designated by PNC Bank; two directors, each in a different class, are designated by Barclays; and the remaining directors are independent.

BlackRock’s Board of Directors

Class I Directors (terms expire in 2012):

William S. Demchak—Corporate affiliations: senior vice chairman of PNC (assets: $271 billion); J. P. Morgan Chase & Co. (2011 assets: $2.2 trillion).

Kenneth B. Dunn, PhD—Corporate and institutional affiliations: professor of financial economics at the David A. Tepper School of Business at Carnegie Mellon University; former managing director of Morgan Stanley Investment (assets: $807 billion).

Laurence D. Fink—Corporate and institutional affiliations: chairman/CEO of BlackRock; trustee of New York University; trustee of Boys Club of NY.

Robert S. Kapito—Corporate and institutional affiliations: president of BlackRock; trustee of Wharton School University of Pennsylvania.

Thomas H. O’Brien—Corporate affiliations: former CEO of PNC; Verizon Communications, Inc. (2011 revenue: $110 billion).

Ivan G. Seidenberg—Corporate and policy affiliations: board chairman of Verizon Communications; former CEO of Bell Atlantic; Honeywell International Inc. (2010 revenue: $33.3 billion); Pfizer Inc. (2011 revenue: $64 billion); chairman of the Business Roundtable; National Security Telecommunications Advisory Committee; President’s Council of the New York Academy of Sciences.[xxv]

Class II Directors (terms expire in 2013):

Abdlatif Yousef Al-Hamad—Corporate and institutional affiliations: board chairman of Arab Fund for Economic and Social Development (assets: $2.7 trillion); former Minister of Finance and Minister of Planning of Kuwait, Kuwait Investment Authority. Multilateral Development Banks, International Advisory Boards of Morgan Stanley, Marsh & McLennan Companies, Inc., American International Group, Inc. and the National Bank of Kuwait.

Mathis Cabiallavetta—Corporate affiliations: Swiss Reinsurance Company (2010 revenue: $28 billion); CEO of Marsh & McLennan Companies Inc. (2011 revenue: $11.5 billion); Union Bank of Switzerland-UBS A.G. (2012 assets: $620 billion); Philip Morris International Inc. (2010 revenue: $27 billion).

Dennis D. Dammerman—Corporate affiliations: General Electric Company (2012 revenue: $147 billion); Capmark Financial Group Inc. (formally GMAC); American International Group (AIG) (2010 revenue: $77 billion); Genworth Financial (2010 assets: $100 billion); Swiss Reinsurance Company (2012 assets: $620 billion); Discover Financial Services (2011 revenue: $3.4 billion).

Robert E. Diamond Jr.—Corporate and policy affiliations: CEO of Barclays (2011 revenue: $32 billion); International Advisory Board of the British-American Business Council.

David H. Komansky—Corporate affiliations: CEO of Merrill Lynch (division of Bank of America 2009) (2011 assets management: $2.3 trillion); Burt’s Bees, Inc. (owned by Clorox); WPP Group plc (2011 revenue: $15 billion).

James E. Rohr—Corporate affiliations: CEO of PNC (2011 revenue: $14 billion).

James Grosfeld—Corporate affiliations: CEO of Pulte Homes, Inc. (2010 revenue: $4.5 billion); Lexington Realty Trust (2011 assets: $1.2 billion).

Sir Deryck Maughan—Corporate and policy affiliations: Kohlberg Kravis Roberts (2011 assets: $8.6 billion); former CEO of Salomon Brothers from 1992 to 1997 a Chairman of the US-Japan Business Council; GlaxoSmithKline plc (2011 revenue: $41 billion); Thomson Reuters Corporation (2011 revenue: $13.8 billion).

Thomas K. Montag—Corporate affiliations: president of Global Banking & Markets for Bank of America (2011 revenue: $94 billion); Merrill Lynch (division of Bank of America, 2009; 2011 assets management: $2.3 trillion); Goldman Sachs (2011 revenue: $28.8 billion).

Class III Directors (terms expire in 2014):

Murry S. Gerber—Corporate affiliations: executive chairman of EQT (2010 revenue: $1.3 billion); Halliburton Company.

Linda Gosden Robinson—Corporate affiliations: former CEO of Robinson Lerer & Montgomery; Young & Rubicam Inc.; WPP Group plc. (2011 revenue: $15 billion); Revlon, Inc. (2011 revenue: $1.3 billion).

John S. Varley—Corporate affiliations: CEO of Barclays (2011 revenue: $32 billion); AstraZeneca PLC (2011 revenue: $33.5 billion).

BlackRock is one of the most concentrated power networks among the global 1 percent. The eightteen members of the board of directors are connected to a significant part of the world’s core financial assests. Their decisions can change empires, destroy currencies, and impoverish millions. Some of the top financial giants of the capitalist world are connected by interlocking boards of directors at BlackRock, including Bank of America, Merrill Lynch, Goldman Sachs, PNC Bank, Barclays, Swiss Reinsurance Company, American International Group (AIG), UBS A.G., Arab Fund for Economic and Social Development, J. P. Morgan Chase & Co., and Morgan Stanley.

A 2011 University of Zurich study, research completed by Stefania Vitali, James B. Glattfelder, Stefano Battiston at the Swiss Federal Institute, reports that a small group of companies—mainly banks—wields huge power over the global economy.[xxvi] Using data from Orbis 2007, a database listing thirty-seven million companies and investors, the Swiss researchers applied mathematical models—usually used to model natural systems—to the world economy. The study is the first to look at all 43,060 transnational corporations and the web of ownership between them. The research created a “map” of 1,318 companies at the heart of the global economy. The study found that 147 companies formed a “super entity” within this map, controlling some 40 percent of its wealth. The top twenty-five of the 147 super-connected companies includes:

1. Barclays PLC*

2. Capital Group Companies Inc.

3. FMR Corporation

4. AXA

5. State Street Corporation

6. J. P. Morgan Chase & Co.*

7. Legal & General Group PLC

8. Vanguard Group Inc.


10. Merrill Lynch & Co. Inc.*

11. Wellington Management Co. LLP

12. Deutsche Bank AG

13. Franklin Resources Inc.

14. Credit Suisse Group*

15. Walton Enterprises LLC

16. Bank of New York Mellon Corp

17. Natixis

18. Goldman Sachs Group Inc.*

19. T Rowe Price Group Inc.

20. Legg Mason Inc.

21. Morgan Stanley*

22. Mitsubishi UFJ Financial Group Inc.

23. Northern Trust Corporation

24. Société Générale

25. Bank of America Corporation*

* BlackRock Directors

Notably, for our purposes, BlackRock board members have direct connections to at least seven of the top twenty-five corporations that Vitali et al. identify as an international “super entity.” BlackRock’s board has direct links to seven of the twenty-five most interconnected corporations in the world. BlackRock’s eighteen board members control and influence tens of trillions of dollars of wealth in the world and represent a core of the super-connected financial sector corporations.

Below is a sample cross section of key figures and corporate assets among the global economic “super entity” identified by Vitali et al.

Other Key Figures and Corporate Connections within the Highest Levels of the  Global Economic “Super Entity”

Capital Group Companies—Privately held, based in Los Angeles, manages $1 trillion in assets.

FMR—One of the world’s largest mutual fund firms, managing $1.5 trillion in assets and serving more than twenty million individual and institutional clients; Edward C. (Ned) Johnson III, Chairman and CEO.

AXA—Manages $1.5 trillion in assets, serving 101 million clients; Henri de Castries, CEO AXA, and Director, Nestlé (Switzerland).

State Street Corporation—Operates from Boston with assest management at $1.9 trillion; directors include Joseph L. Hooley, CEO of State Street Corporation; Kennett F. Burnes, retired chairman and CEO of Cabot Corporation(2011 revenue: $3.1 billion).

JP Morgan/Chase (2011 assets: $2.3 trillion)—Board of directors: James A. Bell, retired executive VP of The Boeing Company; Stephen B. Burke, CEO of NBC Universal, and executive VP of Comcast Corporation; David M. Cote, CEO of Honeywell International, Inc.; Timothy P. Flynn, retired chairman of KPMG International; and Lee R. Raymond, retired CEO of Exxon Mobil Corporation.

Vanguard (2011 assets under management: $1.6 trillion)—Directors: Emerson U. Fullwood, VP of Xerox Corporation; JoAnn Heffernan Heisen, VP of Johnson & Johnson, Robert Wood Johnson Foundation; Mark Loughridge, CFO of IBM, Global Financing; Alfred M. Rankin Jr., CEO of NACCO Industries, Inc., National Association of Manufacturers, Goodrich Corp, and chairman of Federal Reserve Bank of Cleveland.

UBS AG (2012 assets: $620 billion)—Directors include: Michel Demaré, board member of Syngenta and the IMD Foundation (Lausanne); David Sidwell, former CFO of Morgan Stanley.

Merrill Lynch (Bank of America) (2011 assets management: $2.3 trillion)—Directors include: Brian T. Moynihan, CEO of Bank of America; Rosemary T. Berkery, general counsel for Bank of America/Merrill Lynch (formerly Merrill Lynch & Co., Inc), member of New York Stock Exchange’s Legal Advisory Committee, director at Securities Industry and Financial Markets Association; Mark A. Ellman, managing director of Credit Suisse, First Boston; Dick J. Barrett, cofounder of Ellman Stoddard Capital Partners, MetLife, Citi Group, UBS, Carlyle Group, ImpreMedia, Verizon Communications, Commonewealth Scientific and Industrial Research Org, Fluor Corp, Wells Fargo, Goldman Sachs Group.

The directors of these super-connected companies represent a small portion of the global 1 percent. Most people with assets in excess of $588,000 are not major players in international finance. At best, they hire asset management firms to produce a return on their capital. Often their net worth is tied up in nonfinancial assets such a real estate and businesses.

Analysis: TCC and Global Power

So how does the transnational corporate class (TCC) maintain wealth concentration and power in the world? The wealthiest 1 percent of the world’s population represents approximately forty million adults. These forty million people are the richest segment of the first tier populations in the core countries and intermittently in other regions. Most of this 1 percent have professional jobs with security and tenure working for or associated with established institutions. Approximately ten million of these individuals have assets in excess of one million dollars, and approximately 100,000 have financials assets worth over thirty million dollars. Immediately below the 1 percent in the first tier are working people with regular employment in major corporations, government, self-owned businesses, and various institutions of the world. This first tier constitutes about 30–40 percent of the employed in the core developed countries, and some 30 percent in the second tier economies and down to 20 percent in the periphery economies (sometimes referred to as the 3rd world). The second tier of global workers represents growing armies of casual labor: the global factory workers, street workers, and day laborers intermittently employed with increasingly less support from government and social welfare organizations. These workers, mostly concentrated in the megacities, constitute some 30–40 percent of the workers in the core industrialized economies and some 20 percent in the second tier and peripheral economies. This leaves a third tier of destitute people worldwide ranging from 30 percent of adults in the core and secondary economies to fully 50 percent of the people in peripherial countries who have extremely limited income opportunities and struggle to survive on a few dollars a day. These are the 2.5 billion people who live on less than two dollars a day, die by the tens of thousands every day from malnutrition and easily curible illnesses, and who have probably never even heard a dial tone.[xxvii]

As seen in our extractor sector and investment sector samples, corporate elites are interconnected through direct board connections with some seventy major multinational corporations, policy groups, media organizations, and other academic or nonprofit institutions. The investment sector sample shows much more powerful financial links than the extractor sample; nonetheless, both represent vast networks of resources concentrated within each company’s board of directors. The short sample of directors and resources from eight other of the superconnected companies replicates this pattern of multiple board corporate connections, policy groups, media and government, controlling vast global resources. These interlock relationships recur across the top interconnected companies among the transnational corporate class, resulting in a highly concentrated and powerful network of individuals who share a common interest in preserving their elite domination.

Sociological research shows that interlocking directorates have the potential to faciliate political cohesion. A sense of a collective “we” emerges within such power networks, whereby members think and act in unison, not just for themselves and their individual firms, but for a larger sense of purpose—the good of the order, so to speak.[xxviii]

Transnational corporate boards meet on a regular basis to encourage the maximunization of profit and the long-term viability of their firm’s business plans. If they arrange for payments to government officials, conduct activities that undermine labor organizations, seek to manipulate the price of commodies (e.g. gold), or engage in insider trading in some capacity, they are in fact forming conspiratorial alliances inside those boards of directors. Our sample of thirty directors inside two connected companies have influence with some of the most powerful policy groups in the world, including British–American Business Council, US–Japan Business Council, Business Roundtable, Business Council, and the Kissinger Institute. They influence some ten trillion dollars in monetery resouces and control the working lives of many hundreds of thousands of people. All in all, they are a power elite unto themselves, operating in a world of power elite networks as the de facto ruling class of the capitalist world.

Moreover, this 1 percent global elite dominates and controls public relations firms and the corporate media. Global corporate media protect the interests of the 1 percent by serving as a propaganda machine for the superclass. The corporate media provide entertainment for the masses and distorts the realities of inequality. Corporate news is managed by the 1 percent to maintain illusions of hope and to divert blame from the powerful for hard times.[xxix]

Four of the thirty directors in our two-firm sample are directly connected with public relations and media. Thomas H. O’Brien and Ivan G. Seidenberg are both on the board of Verizon Communications, where Seidenberg serves as chairman. Verizon reported over $110 billion in operating revenues in 2011.[xxx] David H. Komansky and Linda Gosden Robinson are on the board of WPP Group, which describes itself as the world leader in marketing communications services, grossing over $65 billion in 2011. WPP is a conglomerate of many of the world’s leading PR and marketing firms, in fields that include advertising, media investment management, consumer insight, branding and identity, health care communications, and direct digital promotion and relationship marketing.[xxxi]

Even deeper inside the 1 percent of wealthy elites is what David Rothkopf calls the superclass. David Rothkopf, former managing director of Kissinger Associates and deputy undersecretary of commerce for international trade policies, published his book Superclass: the Global Power Elite and the World They Are Making, in 2008.[xxxii] According to Rothkopf, the superclass constitutes approximately 0.0001 percent of the world’s population, comprised of 6,000 to 7,000 people—some say 6,660. They are the Davos-attending, Gulfstream/private jet–flying, money-incrusted, megacorporation-interlocked, policy-building elites of the world, people at the absolute peak of the global power pyramid. They are 94 percent male, predominantly white, and mostly from North America and Europe. These are the people setting the agendas at the Trilateral Commission, Bilderberg Group, G-8, G-20, NATO, the World Bank, and the World Trade Organization. They are from the highest levels of finance capital, transnational corporations, the government, the military, the academy, nongovernmental organizations, spiritual leaders, and other shadow elites. Shadow elites include, for instance,  the deep politics of national security organizations in connection with international drug cartels, who extract 8,000 tons of opium from US war zones annually, then launder $500 billion through transnational banks, half of which are US-based.[xxxiii]

Rothkoft’s understanding of the superclass is one based on influence and power. Although there are over 1,000 billionaires in the world, not all are necessarily part of the superclass in terms of influencing global policies. Yet these 1,000 billionaires have twice as much wealth as the 2.5 billion least wealthy people, and they are fully aware of the vast inequalities in the world. The billionaires and the global 1 percent are similar to colonial plantation owners. They know they are a small minority with vast resources and power, yet they must continually worry about the unruly exploited masses rising in rebellion. As a result of these class insecurities, the superclass works hard to protect this structure of concentrated wealth. Protection of capital is the prime reason that NATO countries now account for 85 percent of the world’s defense spending, with the US spending more on military than the rest of the world combined.[xxxiv] Fears of  inequality rebellions and other forms of unrest motivate NATO’s global agenda in the war on terror.[xxxv] The Chicago 2012 NATO Summit Declaration reads:

As Alliance leaders, we are determined to ensure that NATO retains and develops the capabilities necessary to perform its essential core tasks collective defence, crisis management and cooperative security—and thereby to play an essential role promoting security in the world. We must meet this responsibility while dealing with an acute financial crisis and responding to evolving geo-strategic challenges. NATO allows us to achieve greater security than any one Ally could attain acting alone.

We confirm the continued importance of a strong transatlantic link and Alliance solidarity as well as the significance of sharing responsibilities, roles, and risks to meet the challenges North-American and European Allies face together . . . we have confidently set ourselves the goal of NATO Forces 2020: modern, tightly connected forces equipped, trained, exercised and commanded so that they can operate together and with partners in any (emphaisis added) environment.[xxxvi]

NATO is quickly emerging as the police force for the transnational corporate class. As the TCC more fully emerged in the 1980s, coinciding with the collapse of the Union of Soviet Socialist Republics (USSR), NATO began broader operations. NATO first ventured into the Balkans, where it remains, and then moved into Afghanistan. NATO started a training mission in Iraq in 2005, has recently conducted operations in Libya, and, as of July 2012, is considering military action in Syria.

It has become clear that the superclass uses NATO for its global security. This is part of an expanding strategy of US military domination around the world, wherby the US/NATO military-industrial-media empire operates in service to the transnational corporate class for the protection of international capital anywhere in the world.[xxxvii]

Sociologists William Robinson and Jerry Harris anticipated this situation in 2000, when they described “a shift from the social welfare state to the social control (police) state replete with the dramatic expansion of public and private security forces, the mass incarceration of the excluded populations (disproportionately minorities), new forms of social apartheid . . . and anti-immigrant legislation.”[xxxviii] Robinson and Harris’s theory accurately predicts the agenda of today’s global superclass, including

—President Obama’s continuation of the police state agendas of his executive predecessors, George W. Bush, Bill Clinton, and George H. W. Bush;

—the long-range global dominance agenda of the superclass, which uses US/NATO military forces to discourage resisting states and maintain internal police repression, in service of the capitalist system’s orderly maintenance;

—and the continued consolidation of capital around the world without interference from governments or egalitarian social movements.[xxxix]

Furthermore, this agenda leads to the further pauperization of the poorest half of the world’s population, and an unrelenting downward spiral of wages for everyone in the second tier, and even some within the first tier.[xl] It is a world facing economic crisis, where the neoliberal solution is to spend less on human needs and more on security.[xli] It is a world of financial institutions run amok, where the answer to bankruptcy is to print more money through quantitative easing with trillions of new inflation-producing dollars. It is a world of permanent war, whereby spending for destruction requires even more spending to rebuild, a cycle that profits the TCC and its global networks of economic power. It is a world of drone killings, extrajudicial assassinations, and death and destruction, at home and abroad.

As Andrew Kollin states in State Power and Democracy, “There is an Orwellian dimension to the Administration’s (Bush and later Obama) perspective, it chose to disregard the law, instead creating decrees to legitimate illegal actions, giving itself permision to act without any semblances of power sharing as required by the Constitution or international law.”[xlii]

And in Globalization and the Demolition of Society, Dennis Loo writes, “The bottom line, the fundamential division of our society, is between, on the one hand, those whose interests rest on the dominance and the drive for monopolizing the society and planet’s resources and, on the other hand, those whose interests lie in the husbanding of thoses resources for the good of the whole rather than the part.”[xliii]

The Occupy movement uses the 1 percent vs. 99 percent mantra as a master concept in its demonstrations, disruptions, and challenges to the practices of the transnational corporate class, within which the global superclass is a key element in the implementation of a superelite agenda for permanent war and total social control. Occupy is exactly what the superclass fears the most—a global democratic movement that exposes the TCC agenda and the continuing theater of government elections, wherein the actors may change but the marquee remains the same. The more that Occupy refuses to cooperate with the TCC agenda and mobilizes activists, the more likely the whole TCC system of dominance will fall to its knees under the people power of democractic movements.

peter phillips is a professor of sociology at Sonoma State University and president of the Media Freedom Foundation/Project Censored.

kimberly soeiro is a sociology student at Sonoma State University, library researcher, and activist.

Special thanks to Mickey Huff, director of Project Censored, and Andy Roth, associate director of Project Censored, for editing and for important suggestons for this article.


[i] For a more scholarly background on this subject, the following are required reading: C. Wright Mills, The Power Elite, New York, Oxford University Press, 1956; G. Willian Domhoff, Who Rules America 6th edition, Boston, McGraw Hill Higher Education, 2009; William Carroll, The Making of a Transnational Capitalist Class, Zed Books, 2010.

[ii] Leslie Sklair, The Transnational Capitalist Class, Oxford, UK, Blackwell, 2001.

[iii] Leslie Sklair, “The Transnational Capitalist Class And The Discourse Of Globalization,” Cambridge Review of International Affairs, 2000,

[iv] Tax Havens: Super-rich hiding at least $21 trillion, BBC News, July 22, 2012,

[v] Tyler Durgen, A Detailed Look At Global Wealth Distribution, 10/11/10,

[vi] “World Bank Sees Progress Against Extreme Poverty, But Flags Vulnerabilities,” World Bank, Press Release No. 2012/297/Dec., February 29, 2012,,,contentMDK:23130032~pagePK:64257043~piPK:437376~theSitePK:4607,00.html.

[vii] Mark Ellis, The Three Top Sins of the Universe,

[viii] “Corporatons are Still Making a Killing from Hunger,” April 2009, Grain,

[ix] On the extraction of surplus-value from labor, see Karl Marx, Capital, Vol. 3 (New York and London: Penguin, 1991[1894]).

[x] See, e.g., Paul Burkett, Marx and Nature: A Red and Green Perspective (New York: St. Martins, 1999), Chapter 6; for additional information on the Fair Share of the Common Heritage see,

[xi] Freeport-McMoRan Copper and Gold, Notice of Annual Meeting of Stockholders, June 15, 2011, document April 28, 2001,

[xii] “Freeport Indonesia Miners, Tribesmen Defend Road Blockades,” Reuters Africa, November 4, 2011,

[xiii] “Police Admit to Receiving Freeport ‘Lunch Money,’” Frank Arnaz, Jakarta Globe, October 28, 2011,

[xiv] “Indonesia must investigate mine strike protest killing,” Amnesty International News, October 10, 2011,; West Papua Report, November 2011,

[xv] Camelia Pasandaran, “Striking Freeport Employees Lower Wage Increase Demands,”Jakarta Globe, | November 7, 2011,

[xvi] Alex Emery, “Freeport Cerro Verde, Workers Sign Three-Year Labor Accord,” Bloomberg News,

December 22, 2011,

[xvii] Eric Bellman and Tess Stynes, “Freeport-McMoRan Says Pact Ends Indonesia Strike,” Wall Street Journal, December 14, 2011,

[xviii] John Pakage, “When there is no guarantee of the security of life for the people of Papau,” West Papua Media Alerts, March 1, 2012,

[xix] “Reasons to go the Darwin,” The Nation (Thailand), November 30, 2011,

[xxi] Karishma Vaswani, “US Firm Freeport Struggles to Escape Its Past in Papua,” BBC News, Jakarta,

[xxii] Phoenix Arizona, October 28, 2011, Youtube report:

[xxiii] BlackRock About Us:

[xxiv] Data for this section is drawn for

[xxv] Data for the corporations listed in this section comes fron the annual report at each corporation’s website. Biography information was gained from the FAX annual report to investors and online biographies for individuals wihen available.

[xxvi] Stefania Vitali, James B. Glattfelder, and Stefano Battiston, “The Network of Global Corporate Control,” PLoS ONE, October 26, 2011,

[xxvii] Willian Robinson and Jerry Harris, “Towards a Global Ruling Class? Globalization and the Transnational Capitalist Class,” Science and Society 64, no. 1 (Spring 2000).

[xxviii] Val Burris, “Interlocking Directorates and Political Cohesion Among Corporate Elites,” American Journal of Sociology 3, no. 1 (July 2005).

[xxix] Peter Phillips and Mickey Huff, “Truth Emergency: Inside the Military-Industrial Media Empire,” Censored 2010 (New York: Seven Stories Press, 2009), 197–220.

[xxx] Verizon Financials 2012, Hoovers describes Verizon as, “the #2 US telecom services provider overall after AT&T, but it holds the top spot in wireless services ahead of rival AT&T Mobility.” Hoovers Inc.

[xxxi] WPP:

[xxxii] David Rothkopf, SuperClass: the Global Power Elite and the World They are Making (New York: Farrar, Straus, and Giroux, 2008).

[xxxiii] Peter Dale Scott, American War Machine, Deep Politics, the CIA Global Drug Connection, and the Road to Afghanistan (Lanham, MD: Rowman & Littlefield Publishers, 2010). See also Censored Story #22, “Wachovia Bank Laundered Money for Latin American Drug Cartels,” in Chapter 1.

[xxxiv] David Rothkopf, Superclass, Public Address: Carnegie Endowment for International Peace, April 9, 2008.

[xxxv] NATO: Defence Against Terrorism Programme,’selectedLocale=en.

[xxxvi] NATO, Summit Declaration on Defence Capabilities: Toward NATO Forces 2020, May 20, 2012,

[xxxvii] For an expanded analysis of the history of US “global dominance,” see Peter Phillips, Bridget Thornton and Celeste Vogler, “The Global Dominance Group: 9/11 Pre-Warnings & Election Irregularities in Context,” May 2, 2010, and Peter Phillips, Bridget Thornton, and Lew Brown, “The Global Dominance Group and U.S. Corporate Media,” Censored 2007 (New York: Seven Stories, 2006), 307–333.

[xxxviii] Willian Robinson and Jerry Harris, “Towards a Global Ruling Class? Globalization and the Transnational Capitalist Class,” Science and Society 64, no. 1 (Spring 2000).

[xxxix] John Pilger, The New Rulers of the World (New York: Verso, 2003).

[xl] Michel Chossudovsky and Andrew Gavin Marshall, eds., The Global Economic Crisis (Montréal: Global Research Publishers, 2010).

[xli] Dennis Loo, Globalization and the Demolition of Society (Glendale, CA: Larkmead Press, 2011).

[xlii] Andrew Kolin, State Power and Democracy (New York: Palgrave MacMillan,c2011), 141.

[xliii] Loo, Globalization, op cit., 357.
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Lagos Dissents Under IMF Hegemony

Lagos Dissents Under IMF Hegemony
Nigeria : The Next Front for AFRICOM

By Nile Bowie

January 08, 2012 “Information Clearing House”

— On a recent trip to West Africa, the newly appointed managing director of the International Monetary Fund, Christine Lagarde ordered the governments of Nigeria, Guinea, Cameroon, Ghana and Chad to relinquish vital fuel subsidies. Much to the dismay of the population of these nations, the prices of fuel and transport have near tripled over night without notice, causing widespread violence on the streets of the Nigerian capital of Abuja and its economic center, Lagos. Much like the IMF induced riots in Indonesia during the 1997 Asian Financial Crisis, public discontent in Nigeria is channelled towards an incompetent and self-serving domestic elite, compliant to the interests of fraudulent foreign institutions.

Although Nigeria holds the most proven oil reserves in Africa behind Libya, it’s people are now expected to pay a fee closer to what the average American pays for the cost of fuel, an exorbitant sum in contrast to its regional neighbours. Alternatively, other oil producing nations such as Venezuela, Kuwait and Saudi Arabia offer their populations fuel for as little as $0.12 USD per gallon. While Lagos has one of Africa’s highest concentration of billionaires, the vast majority of the population struggle daily on less than $2.00 USD. Amid a staggering 47% youth unemployment rate and thousands of annual deaths related to preventable diseases, the IMF has pulled the rug out from under a nation where safe drinking water is a luxury to around 80% of it’s populace.  

Although Nigeria produces 2.4 million barrels of crude oil a day intended for export use, the country struggles with generating sufficient electrical power and maintaining its infrastructure. Ironically enough, less than 6% of bank depositors own 88% of all bank deposits in Nigeria. Goldman Sachs employees line its domestic government, in addition to the former Vice President of the World Bank, Ngozi Okonjo-Iweala, who is widely considered by many to be the de facto Prime Minister. Even after decades of producing lucrative oil exports, Nigeria has failed to maintain it’s own refineries, forcing it to illogically purchase oil imports from other nations. Society at large has not benefited from Nigeria’s natural riches, so it comes as no surprise that a severe level of distrust is held towards the government, who claims the fuel subsidy needs to be lifted in order to divert funds towards improving the quality of life within the country.

Like so many other nations, Nigerian people have suffered from a systematically reduced living standard after being subjected to the IMF’s Structural Adjustment Policies (SAP). Before a loan can be taken from the World Bank or IMF, a country must first follow strict economic policies, which include currency devaluation, lifting of trade tariffs, the removal of subsidies and detrimental budget cuts to critical public sector health and education services.

SAPs encourage borrower countries to focus on the production and export of domestic commodities and resources to increase foreign exchange, which can often be subject to dramatic fluctuations in value. Without the protection of price controls and an authentic currency rate, extreme inflation and poverty subsist to the point of civil unrest, as seen in a wide array of countries around the world (usually in former colonial protectorates). The people of Nigeria have been one of the world’s most vocal against IMF-induced austerity measures, student protests have been met with heavy handed repression since 1986and several times since then, resulting in hundreds of civilian deaths. As a testament to the success of the loan, the average laborer in Nigeria earned 35% more in the 1970’s than he would of in 2012.

Working through the direct representation of Western Financial Institutions and the IMF in Nigeria’s Government, a new IMF conditionality calls for the creation of a Sovereign Wealth Fund. Olusegun Aganga, the former Nigerian Minister of Finance commented on how the SWF was hastily pushed through and enacted prior to the countries national elections. If huge savings are amassed from oil exports and austerity measures, one cannot realistically expect that these funds will be invested towards infrastructure development based on the current track record of the Nigerian Government. Further more, it is increasingly more likely that any proceeds from a SWF would be beneficial to Western institutions and markets, which initially demanded its creation. Nigerian philanthropist Bukar Usman prophetically writes “I have genuine fears that the SWF would serve us no better than other foreign-recommended “remedies” which we had implemented to our own detriment in the past or are being pushed to implement today.”

The abrupt simultaneous removal of fuel subsidies in several West African nations is a clear indication of who is really in charge of things in post-colonial Africa. The timing of its cushion-less implementation could not be any worse, Nigeria’s president Goodluck Jonathan recently declared a state of emergencyafter forty people were killed in a church bombing on Christmas day, an act allegedly committed by the Islamist separatist group, Boko Haram. The group advocates dividing the predominately Muslim northern states from the Christian southern states, a similar predicament to the recent division of Sudan.

As the United States African Command (AFRICOM) begins to gain a foothold into the continent with its troops officially present in Eritrea and Uganda in an effort to maintain security and remove other theocratic religious groups such as the Lord’s Resistance Army, the sectarian violence in Nigeria provides a convenient pretext for military intervention in the continuing resource war. For further insight into this theory, it is interesting to note that United States Army War College in Carlisle, Pennsylvania conducted a series of African war game scenarios in preparation for the Pentagon’s expansion of AFRICOM under the Obama Administration.

In the presence of US State Department Officials, employees from The Rand Corporation and Israeli military personnel, a military exercise was undertaken which tested how AFRICOM would respond to a disintegrating Nigeria on the verge of collapse amidst civil war. The scenario envisioned rebel factions vying for control of the Niger Delta oil fields (the source of one of America’s top oil imports), which would potentially be secured by some 20,000 U.S. troops if a US-friendly coup failed to take place. At a press conference at the House Armed Services Committee on March 13, 2008, AFRICOM Commander, General William Ward then went on to brazenly state the priority issue of America’s growing dependence on African oil would be furthered by AFRICOM operating under the principle theatre-goal of “combating terrorism”.

At an AFRICOM Conference held at Fort McNair on February 18, 2008, Vice Admiral Robert T. Moeller openly declared the guiding principle of AFRICOM is to protect “the free flow of natural resources from Africa to the global market”, before citing China’s increasing presence in the region as challenging to American interests. After the unwarranted snatch-and-grab regime change conducted in Libya, nurturing economic destabilization, civil unrest and sectarian conflict in Nigeria is an ultimately tangible effort to secure Africa’s second largest oil reserves. During the pillage of Libya, its SFW accounts worth over 1.2 billion USD were frozen and essentially absorbed by Franco-Anglo-American powers; it would be realistic to assume that much the same would occur if Nigeria failed to comply with Western interests. While agents of foreign capital have already infiltrated its government, there is little doubt that Nigeria will become a new front in the War on Terror.
Nile Bowie is an independent writer and photojournalist based in Kuala Lumpur, Malaysia. – –

Truth – Justice – Peace