US Corporatocracy: US Loan and its Implications for Developing Nations

Illustration from FPCI UI

Introduction

It is a common practice for the United States (US) and other large influential countries to ‘kindly help’ a developing country. Such help is usually given in the form of a loan, which later could be utilized to build the infrastructure of the selected developing nations. Contrasting debates and opinions then circulated, whether or not those loans were actually beneficial or those loans were made only as a silhouette of an illusion. 

One side says that the government brings forward econometric models made by economists, financial experts, statisticians, and mathematicians to prove that such investment could increase the gross domestic product (GDP). However, the opposition would disagree that most of the money never even leaves the US or the respective country giving its loans because in each case, the condition of such loans was that the project would be built by the engineers or companies from the loan-giving countries. Hence, at the end, the money would only be circulated and only profited by a certain party, clearly not leaning with the developing nations. Many would also add that this loan could impact the receiving country politically. This set of events, where corporations are in a position to regulate and control the social and economic condition of the society is usually referred to as “corporatocracy.” In this article, the writers will first define what corporatocracy, especially US corporatocracy really is and why and how it has risen to fame and to its current standing. Additionally, the writers will also discuss the diverse impacts they have on different countries worldwide, which will be shown using two examples of loans given to Saudi Arabia and Panama by the US.

Defining Corporatocracy and the Rise of US Corporatocracy

First and foremost, the meaning of corporation must be clearly defined. Corporations are organizations composed of their people as in their employees and the owners. They work as a legal entity under the law which means they have their own obligations and rights that they must perform and can be carried out, though the corporate responsibility is separate from its owners. On the other hand, corporatocracy is an expression used when a corporation or a corporate interest manages the political, judicial, and economic system in a society. 

This term came to its popularity in the early 2000s, where a study by Corporate Watch, Global Policy Forum, and the Institute for Policy Studies (IPS) showed that corporatocracy should have been talked about heretofore as it is an ever-growing condition, currently dominated by the US. It has been proved by the same study that in the past, there were an estimated 40,000 corporations worldwide, and only 200 of these global corporations had a large international reach and influence. The said enormous businesses had financial power higher than many domestic economies and they were in control of approximately one-quarter of the globe’s economic activity. A point to wonder is that this study was conducted in 2000, the reach of these colossal corporations now are non-comparative as they have increased not only in value but also the quantity and in addition, the report describes that out of the 100 largest global economies, 51 were corporations (e.g. Walmart, Amazon, Toyota) while the remaining were countries.

Corporatocracy historically has been used by left-leaning critics, though it has also been used by political and economic observers throughout the spectrum. The book “The Price of Civilization” by Jeffrey Sachs, an American economist and scholar, describes the rise of the US as a corporatocracy as the result of many factors which arose during World War 2 and the Cold War. He proposed that this corporatocracy came about by four trends, consisting of (1) globalization leaning against laborers and workers; (2) a grounded and robust US military influence after the Second World War; (3) large corporates funding US election campaigns; and (4) frail national parties yet a well-built political representation of each US’s individual districts.

In 2004, this phrase was used again in a book by John Perkins named “Confessions of an Economic Hit Man”. Perkins described that corporatocracy is a collection of selected corporations, banks, and governments, which was later stated by C. Wright Mills, an American sociologist, was called The Power Elite. These power elites were composed of wealthy individuals who have such a position where they can control the processes of regulating and managing both society’s economic and political policies.

The Form and Significance of US’s Aid

Now, it may be deemed as a general practice that States give loans to another under the notion of building the other’s infrastructure. Such loans are usually justified as it was for their people. Experts were invited to give opinions on how certain developments and investments would spur the economic growth of the country, leading to the prosperity of the people. John Perkins has also stated how such statistics might be biased as they were skewed to the fortunes of the family that owns the industries, banks, and the various other businesses from the infrastructure built. 

While they bloom in prosperity, others suffer in disparity. To pay the interest of the loan that is given, countries may divert the budget initially allocated to health, education, or other social services. Later on, if the principal had not been paid fully, the hitman would arrive and demand the government to offer its oil or other resources to the corporation. They show how, in the end, corporations can have such a big impact on other nations’ political decisions. In this section, we will go deeper on analyzing the case examples of two countries, which are Saudi Arabia and Panama. We will also go about how the loan and its impact differ from one another. 

I.   Saudi Arabia

The global economy was under attack in the early 1970s. Seven Sisters, the most well-known major oil company, had successfully maintained the price of the world’s oil at a low point. They did this to reduce the amount of money they need to pay to the oil-producing countries to maximize their profit. Encountering the issue, oil-producing countries cooperated together in 1960 to form The Organization of the Petroleum Exporting Countries (OPEC) to regain control of the international oil ownership.

Their retaliation reached a climax in 1973 as they imposed an oil embargo on the US. On October 16, 1973, Saudi Arabia, Iran, and the other Arab Gulf States announced a 70% increase in oil prices. This action had resulted from the US’s participation in the Yom Kippur War or better known as the October War, which began on October 6 with the main countries participating consisting of Israel, Syria, and Egypt. Furthermore, on October 17, 1973, the Arab Gulf States decided on a limited embargo, beginning with a 5% reduction in production and increasing by 5% each month until their political goals were met. On October 19, President Nixon approved US Dollars (USD) 2.2 billion in military aid to Israel. Furthermore, the Arabian Gulf States imposed a complete oil embargo the following day. The US government recognized that it would lead to a repeat of the Great Depression if this was continued. This oil embargo has spillover effects to the economic and political sector of many countries worldwide, especially Saudi Arabia.

  • Economic Sector

The massive economic loss compelled the US corporatocracy to devise a means of reinvesting those funds in the US. The US recognized the absence of an administrative and institutional framework for managing natural resources in Saudi Arabia as the solution to their personal financial problem. Therefore, the US began discussion and negotiation with the Saudis, which led to the formation of the US-Saudi Arabian Joint Commission for Economic Cooperation (JECOR) in June 1974. David Holden and Richard Johns, The House of Saud’s authors, stated that “It was the most far-reaching agreement of its kind ever concluded by the US with a developing country. It had the potential to entrench the US deeply in the Kingdom, fortifying the concept of mutual interdependence.” 

Moreover, as a result, the US, supervised by Chas T. Main, the US engineering company, projected millions of dollars of income into Saudi Arabia’s economy on the condition that they would involve US engineering and construction firms. The Saudi Arabian Monetary Agency (SAMA) was established in October 1952 to implement the JECOR program. The funds would then establish an industrial sector dedicated to converting crude petroleum into finished products for export commodities. Petrochemical complexes also would be built from the desert. Naturally, such a plan would necessitate the construction of thousands of megawatts of electrical generating capacity, transmission and distribution lines, a plethora of service industries, and the infrastructure required to keep all these cogs turning. Thomas W. Lippman, a Middle East Institute scholar and former reporter, concluded that “The Saudis, rolling in cash, would deliver hundreds of millions of dollars to the (United States Department of) Treasury, which held on to the funds until they were needed to pay vendors or employees. This system assured that the Saudi money would be recycled back into the American economy.”

Almost all projects were settled under US command and the House of Saud was powerless to object to the plans. An American diplomat, Henry Kissinger, was sent to remind the Saudis what would happen if they tried to betray the US by reminding them of what happened to Iran’s former President, Mohammad Mossadegh, whom the US overthrew after evicting British petroleum interests.

  • Political Sector

Despite the fact, other oil-producing countries still warned of an embargo, the US wanted Saudi Arabia to secure the availability of oil for the US and its allies. In exchange, the US guaranteed to provide political and military assistance. The most devastating accord between the US and the House of Saud was supporting global terrorism. They bankrolled USD 3.5 billion to Osama bin Laden’s Afghan war against the Soviet Union in the 1980s. In late 2003, US News & World Report published an in-depth investigation titled “The Saudi Connection,” which concluded that Saudi Arabia’s quasi-official charities became the primary funding source for the rapidly growing jihad movement. Money was basically used to operate paramilitary training camps, buy weapons, and recruit new members. Billions of dollars in contracts, grants, and salaries have gone to former US officials, which are the ambassadors, Central Intelligence Agency (CIA) station chiefs, and even cabinet secretaries, who had dealt with Saudis. 

II. Panama

Formerly a part of Colombia, Panama’s independence was declared in 1903 by President Roosevelt. In contrast, the declaration did not truly set them free. The first Panama Canal treaty was signed, establishing a US zone on both sides of the future waterway, legalizing US military interference, and giving the US pragmatic control over this newly formed “sovereign” nation. However, no Panamanian official was assigned to the treaty. As a result, after years have passed, a wealthy oligarch family-led Panama emerged which has a special bond with the US.

One day, Omar Torrijos, the Commander of the Panamanian National Guard, successfully deposed Panama’s current oligarchic ruler, Arnulfo Arias. He stood out from the other presidents of developing countries at that time. Panama’s middle and working classes highly respected him because he listened to the oppressed. He was dedicated to his role in transforming his country into a haven for political refugees and accepting refugees from both sides of the political spectrum. Therefore, Torrijos was adamant about gaining independence from the US without forming alliances with the US’s adversaries nor the communist parties.

Furthermore, the Panama Canal had long been a symbol of US power and technological prowess. During Torrijos’ regime, he considered renegotiating the Panama Canal Agreement with the US, intending to accommodate the Canal Zone within its borders. He planned to build a new sea-level canal. In order to do so, he would undoubtedly require financial assistance from the US. However, he stated a few points unequivocally. Firstly, he did not want Bechtel, an American engineering company, to handle the project. He was aware of Bechtel’s President, George Shultz, who was at the time, President Nixon’s Economic Minister. So, if Bechtel attempted this project, there would be political intervention from President Nixon, the Bush Family, as well as the Republican Party. Second, in developing countries’ electricity, transportation, and communication, he assuredly obliged the US’s help – as the US also predicted. Nevertheless, Torrijos stated, “I understand that your company wants numerous projects and usually gets it by inflating the size of projects – wider highways, bigger power plants, deeper harbors. This time is different, though. Give me what’s best for my people, and I’ll give you all the work you want.”

In addition, Torrijos has also opposed the establishment of the School of the Americas and the US Southern Command tropical warfare training center, located in the Canal Zone. The US summoned Latin American dictators and presidents to send their sons and military leaders to this facility for many years. They were then trained to fight communism and protect US oil companies, including other oil private corporations. These facilities were despised by most Latin Americans, excluding the wealthy social group, who benefited from them. This training resulted in forming a right-wing paramilitary group, which transformed many countries into totalitarian regimes. Torrijos refused these training camps regulated in Panama.

Though, unlike other countries, the US received millions of dollars from Panama while Torrijos still retained the broad authority of the country. Because of his persistence, on September 7, 1977, the US government agreed to the Torrijos-Carter Treaties, led by President Jimmy Carter. The treaty acknowledged Panama’s territorial sovereignty in the Canal Zone but granted the US’s right to continue operating the canal until December 31, 1999. Although the majority of the US Senate opposed the agreement, President Carter nonetheless assigned the Neutrality Treaty. The treaty guaranteed the canal’s permanent neutrality, and it also gave the US the right to use military force, if necessary, to protect the canal from any threat that might interfere with its continued neutral service to ships of all nations.

The satisfaction, however, did not last long. The US, under President Ronald Reagan, asked Torrijos to renegotiate the Canal Treaty in 1981. Torrijos, on the other hand, refused Reagan’s offer. After that, on 31 July 1981, Torrijos perished in a plane crash. There was a bomb in the plane, according to Torrijos’ security guard, Sergeant Chuchu. People mourned Torrijos’ death and believed it was a premeditated murder because Torrijos was openly despised by President Reagan, Vice President Bush, Secretary of Defense Weinberger, the Joint Chiefs of Staff, and the CEOs of numerous powerful corporations, notably the Bechtel Group Inc.

Panama was later led by Manuel Noriega after Torrijos’ death. Initially, he continued Torrijos’ objective to complete the Panama Canal and cooperate with the US without causing harm to Panama. Noriega began his career as a colonel, commanding the Panamanian Defense Forces’ G-2 unit, the military intelligence command that acted as the country’s liaison with the CIA. Over time, he developed a close relationship with CIA Director, William J. Casey. The CIA used this link to further its agenda throughout the Caribbean, Central, and South America. He also assisted the CIA in infiltrating Colombia and other drug cartels.

Despite his close relationship with Casey, Noriega took the initiative to maintain the status quo of the Panama Canal Treaty and the refusal of the School of the Americas. The US’ refusal of Noriega’s stance was manifested on December 20, 1984, when President George W. Bush prompted a military invasion of Panama. The invasion demonstrated that the Bush administration would not hesitate to utilize military forces to attain its objectives. Politicians, governments, and the press all over the world have condemned the US’ unilateral actions as a violation of international law. Defense Secretary Richard Cheney claimed that 500 to 600 people had died, but human rights activists estimated 3,000 to 5,000 had died, with an additional 25.000 rendered homeless. It was revealed that US forces had barred the press, the Red Cross, and other outside observers from entering the heavily bombed area while soldiers burned and buried the victims for three days. Government policies and special orders from the White House to publishers, editors, and television executives severely limited press coverage.

Conclusion and Surviving Corporatocracy

Throughout the article, now we could define corporatocracy as a condition where corporations or power elites were in a position of power, having them the ability to influence society on making decisions. This is usually done by giving them loans, creating a notion of benefiting the people, while ensuring the money keeps circulating around them. Such assistance may impact a country in different ways, depending on how the government could take back the steering wheel. Countries like Saudi Arabia were heavily impacted by the political influence of the US because of the help prior given. On the other side, the US’ influence on Panama was not as significant as the leaders were consistent in opposing such enmity.

Now the question that arose is what, the people, could do for us to survive such corporatocracy. The pressing thing we should do is to convert fear into courage to create a better place – for us to replace debt with generosity, anxiety over insufficiency, and with certainty to provide sustainable abundance. Each person could take their own path while they are heading to the same destination: an economy that works for everyone.

References can be accessed through this link: https://bit.ly/USACorporatocracy

Fernanda V. Haryanto Iskandar and Regita Eka Maritza are Staff of Research and Analysis Division with Melinda Yunita assisting as Protégé of FPCI Chapter UI.

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