Will you take the off-ramp from reality?
And other great things I've found on the net this week
Engines of oligarchy: with Hugh Pope
One of my favourite podcasts with journalist, scholar and gentleman Hugh Pope. Hugh has just brought to publication a book written by his father in 1990. But being well ahead of its time, the book was unpublishable. It pursued Aristotle's point that elections installed a governing class and were therefore oligarchic. The institution that democracy represented the people was selection by lot as embodied today in legal juries. And it has a delicious fondness for G. K. Chesterton’s idea that “democracy is bringing the shy people out”. You’ll also see me learning profound new things — like the fact that one of the things democracy is about is how you change your mind.
If you'd rather just listen to the audio file, it's here.
The off-ramp from reality: me at Troppo
This picture is a progress report on illustrating the idea of an ‘off-ramp from reality’. In advertising for an AI artist on Upwork to illustrate the idea, I found myself explaining so much of the idea that I turned it into a blog post — which given its hybrid nature I’m quite happy with. Anyway, this is a lovely looking image, but we’re still working on it being more instantly legible to the eye as an ‘off-ramp’. The basic idea, as you’ll see if you click through to the post is that the off-ramp takes you to a place of weightless, consequenceless fantasy while the road takes you further on your journey into reality.
Wishful thinking can deflect us from really looking reality in the eye. H. A. Simon argues that this happens in corporations.
What managers know they should do — whether by analysis or intuitively — is very often different from what they actually do. A common failure of managers, which all of us have observed, is the postponement of difficult decisions. What is it that makes decisions difficult and hence tends to cause postponement? Often, the problem is that all of the alternatives have undesired consequences. When people have to choose the lesser of two evils, they do not simply behave like Bayesian statisticians, weighing the bad against the worse in the light of their respective possibilities. Instead, they avoid the decision, searching for alternatives that do not have negative outcomes. If such alternatives are not available, they are likely to continue to postpone making a choice. A choice between undesirables is a dilemma, something to be avoided or evaded.
I’d say that, since Simon wrote those words this process has been industrialised by various processes including the specification of ‘corporate values’. Invariably they’ll define them as a list of pleasing expressions. But usually, the real issue is how those values get traded off against each other. An organisation might agree on these three values among others.
We’re a close-knit team
We’re always keen to improve
The customer is always right.
Lots of people will be happy to sign up to all three, but I’d argue that we only really understand the reality of those values when we face the discomfort of how and in what circumstances one would trade one off against the other. Each value will sometimes be impossible to honour without sacrificing one of the other two. Supporting a colleague — always a nice thing in the abstract — might have to give way to the need to improve or satisfy a customer (in each case by reproving or disagreeing with what a colleague has done).
Note — according to an older tradition, the teaching of medical ethics, or the process of applying codes of conduct would focus people precisely on the uncomfortable dilemmas. If you really wanted to explore corporate values at your strategy retreat, you wouldn’t list your favourite values (This always reminds me of Woody’s mother saying to his father “Have it your own way, the Atlantic Ocean is a better ocean than the Pacific Ocean”.) Instead each of the small tables might explore situations where value 1 would be sacrificed for value 2 and vice versa. And why. But I’m unaware of that ever happening and very open to any counter-examples from readers’ experiences.
Thinking you can have all the values is just wishful thinking — and that keeps us away from reality. My post inviting you to the ‘alt-centre’ endorses James Burnham’s assertion that more than nine-tenths of political debate is likewise, just wishful thinking, or in my terms, an invitation to the ‘off-ramp’. ‘Freedom’, ‘equality’, ‘human dignity’ and ‘fairness’ are transcendental/metaphysical values:
From a purely logical point of view, the arguments offered for the formal aims and goals may be valid or fallacious; but, except by accident, they are necessarily irrelevant to real political problems, since they are designed to prove the ostensible points of the formal structure—points of religion or metaphysics, or the abstract desirability of some utopian ideal. … We imagine we are arguing over the moral and legal status of the principle of the freedom of the seas when the real question is who is to control the seas. From this it follows that the real meaning, the real goal and aims, are left irresponsible. …
Delicious
It’s official: redistribution promotes economic welfare
$1 to the poor is over 15 times as valuable as it would be in an average household and 763 times as valuable as it would be to a very rich one!
You might have heard of the law of diminishing returns. You know, that first glass of water you drink is pretty important. The next one not so much, but nice, the next OK and so on until you don’t want any more. If you had litres of water to distribute and you wanted them to go to their best use, you’d make sure they went first to those needing their first glass, then to those needing a second one and so on. This wasn’t just commonsense, it was economic orthodoxy at the turn of the twentieth century. But in its aspirations to become a science that went out the window. Pareto defined a new, more stringent standard of comparative welfare. Some policy change couldn’t be said to be clearly beneficial unless it left no-one worse off and some people better off. So a policy that saved a million from starvation but slugged a billionaire to do it wasn’t necessarily an improvement. But one that left the poor untouched but slipped a few dollars to the billionaire produced what became known as a Pareto improvement.
Anyway every now and again the old utilitarian idea which tends to assert the rough equality of everyone — each person’s equal moral claim to wellbeing — makes occasional comebacks. It poked its head above the parapet in the naughties when the Productivity Commission invoked it to inflate the value of the benefits that would go to the (generally very poor) beneficiaries of the NDIS that it was proposing. And now the US Office of Management and Budget has put out guidance which takes this seriously — how seriously you can see from the graph below.
If this ever gets taken seriously, it’s a big, big deal. Kevin Drum, the author of the graph explains.
The median household earns $70,000, so it gets a weighting of 1.
But if you're working class and earn, say, $30,000, an extra dollar is worth $3.27 to you. Conversely, if you're upper middle class and earn $200,000, an extra dollar is worth only 23¢.
So if I'm evaluating a new government program and it improves the life of a working class person by $10, that's a benefit of $32.70. If I take away $10 from an upper middle class person to pay for it, the cost is $2.30. Instead of a cost-benefit of zero, I have a whopping positive cost-benefit of $30.40.
This is via Noah Kaufman, who has (apparently) read the entire 91 pages of Circular A-4 and says:
This new guidance on capturing distributional concerns is the show stopper. Because this isn't just an assumption tweak. It's an entirely different approach to cost-benefit analysis.
Releasing this new guidance on a holiday weekend has kept it under the radar so far, but that won't last long. Needless to say, the usual suspects will have something to say before long. I predict that they will be very pissed off.
Gillian Tett on Digital Ukraine #Srsly
Three years ago, the digital ministry headed by Fedorov launched an app to enable citizens to perform private sector and government services on their phones. Initially, it looked like a modest tool to “fight corruption and turn Ukraine into a digital state”, as Fedorov says. During the Covid-19 pandemic, for instance, the app let Ukrainians verify their vaccination status. But its use has mushroomed to a startling degree.
The app is installed on 70 per cent of all Ukrainian phones and 19mn citizens, about half the population, regularly access the 100-odd services found on it. These include tools that give citizens the world’s first digital passport, enable them to get digital driving licences, organise construction permits, register new babies, pay taxes, make digital signatures and do banking.
More recently, features have been added that teach Ukrainians how to fly drones (and shoot them down), receive refugee payments, report the activities of Russian troops and apply for reconstruction funds when bombs destroy their homes. Indeed, the app is so effective that the US Agency for International Development, which funded part of its development with the British government, is working with Kyiv to export it. Estonia, for instance, is importing the DIIA code — which is striking since the Baltic state is itself a tech pioneer. USAID is now working with Zambia, Kosovo and Colombia for them to import the code too. …
If nothing else, DIIA shows that necessity is the mother of invention — and that Ukraine has the ability to surprise on the upside. Non-Ukrainians should remember that — for military and civilian reasons alike.
Kayfabe: in case you haven’t seen it
Martin Wolf on the Big Lie
A recent column from Martin Wolf on the political depravity of Trump and Murdoch.
Justin Nelson, Dominion’s lawyer, insisted in response to this settlement that it shows that “the truth matters” and “lies have consequences”. This is true, but only to a limited extent. … Facts can sometimes be debated. But very frequently, as in this case, falsehood cannot be: these are not “alternative facts”, but lies. In Truth and Politics, Hannah Arendt tells a story about Georges Clemenceau, leader of France at the end of the first world war. Asked who was responsible for the war, he replied: “I don’t know. But I know for certain they will not say Belgium invaded Germany.” Donald Trump did not win the presidential election of 2020. His allegations of fraud are lies.
Democracy can be defined as a civilised civil war. It recognises the existence of differences of opinion, but resolves these peacefully, through elections, which are the fundamental institution of representative democracy. Elections determine legitimacy. But to do so they must be recognised as fair A lie about the outcome of an election, then, is not just any lie. It is not even just any political lie. It directly threatens democracy. It is an attempt to overthrow elections as the arbiter of power. That is what Trump tried to do. It is what all those who supported or enabled him have tried to do. It is what Fox’s coverage of the election, not least the endless promotion of lies about the safety of the voting, tried to do.
Attempts to subvert democracy’s core institution in its heartland are unpardonable. Yet they are, alas, not surprising. As the British journalist Matthew d’Ancona argues in Prospect, Fox was “like the scorpion in the well-known fable, stinging the frog of democracy it was being carried on, sinking them both into a quagmire of dishonesty, disinformation and disorder. It was simply being true to its nature. It still is.”
One has to remember three big things about the market economy. The first and most fundamental is that one must not do everything that is profitable. Indeed, there has to be a lengthy list of activities one is not entitled to do. The second is that some of the things one must not do might be legal or, if contrary to law, hard to prevent. The last and most important therefore is that the survival of a civilised society depends on moral restraint, particularly from its leading figures. In 1954, Joseph Nye Welch, chief counsel for the US army, responded to the red-baiting of Senator Joe McCarthy by asking “Have you no sense of decency, sir?” Free societies will die if those with influence, wealth and power lack that virtue.
Slavoj Žižek and ‘superpositioning’: in case you’re interested
I’m not sure I’m any the wiser for having read this article, but maybe it’s just me. You may be.
In the absence of a unified and rigid official Marxist doctrine, Yugoslavia’s door was open to various theoretical formations. The Frankfurt School, Existentialism and Structuralism all found audiences and interlocutors there. Žižek was reading “Marx at age fifteen, Heidegger at twenty, Derrida at twenty-five, and Lacan and Hegel at thirty,” writes Bar-El, and embarked on his second PhD in Paris in 1979, having worked briefly in the communist bureaucracy.
Žižek and his theoretical fellow-travellers formed the Ljubljana School in the early 1980s. Rather than submitting to Eastern Marxism or Western Structuralism, they appropriated the core insights of Hegelian dialectics and Lacanian psychoanalysis, and also drew on a mix of other traditions. It was an early example of Žižek’s “superpositioning,” a term from quantum mechanics that Bar-El uses to describe the creation of a third position from an existing opposition as a way of breaking out of theoretical and political deadlocks.
Yiying Lu: friend, positive force of nature and designer of lovely and positive things
Malcolm on how Murdoch obliterated the Liberal Party’s centre and its foreseeable future
Malcolm Turnbull describes the problems in the Liberal Party in the same kind of terms someone would have described the problems in the ALP with its Victorian Socialist Left in the 1970s:
The 2022 election was a tipping point for the Liberal Party. Not because it was tipped out of government – that happens regularly. But rather because six of the party’s hitherto safest and wealthiest electorates were lost; not to Labor, but to six women who ran on small “l” liberal platforms calling for action on climate, gender equality and integrity in government.
When you add those six to Mayo’s Rebekha Sharkie, Indi’s Helen Haines and Warringah’s Zali Steggall you have nine of what were once the party’s safest seats in the hands of independent, liberal women – three of whom have been twice (or in Sharkie’s case thrice) elected with increased majorities. …
Ted O’Brien, the Liberal MP for Fairfax, summed it up well when he explained why he, a relatively progressive member of the LNP in Queensland, supported Peter Dutton’s attempted leadership coup in 2018, saying it was “like Alan Jones and Peta Credlin are having a branch meeting with my members every night”.
The membership of the Liberal Party has dwindled to the point where it is no longer even remotely a reflection of the community whose support it needs to win elections. The issues that rile up viewers of Sky News or listeners to 2GB have become the issues that stir up Liberal politics – the obsession with transgender people being the latest example. It used to be same-sex marriage, of course, until the 62 per cent national “Yes” vote settled it, and the culture war over global warming continues in the right-wing media bubble long after it has become a practical debate of ways and means in the rest of society.
Victoria, once the crown jewel of the Liberal Party, is now a political wasteland at both the state and federal levels. The state division is controlled by the hard right, their position secured by a program of stacking branches with the congregations of conservative Christian churches. The Liberal Party in the ACT, the only jurisdiction more liberal than Victoria, is naturally even more right wing. …
Over the years, I have seen how the right of the party, and indeed the right-wing media, would prefer to be in control of the Liberal Party in Opposition than have somebody else in charge in government. This terrorist approach of the right has meant they are prepared to blow the show up if they do not get what they want. Well, they are now the dog that has caught the car, and it is stuck, radiator boiling, on the barren shoulder that is Opposition.
Chris Lloyd on the voice
Chris Lloyd is a Club Troppo colleague and old family friend (his father and my father were close buddies). He’s a statistician and, on account of his impatience with slipshod thinking finds himself an unapologetic contrarian. (I’m more tolerant of slipshod thinking, seeing little alternative to it!) Here he is thinking aloud about The Voice. I’m with him in having misgivings (though for somewhat different reasons), but I’m also with him in intending to vote yes or as he puts it “I will probably swallow my shit sandwich and vote yes”. Anyway, click through to the whole long post if you want, and also at my longer explanation of a few aspects of my own somewhat different view.
Quite apart from the substance, the way this change is being presented is often emotive and evangelical. If you are against it, then you are racist. Peter Dutton is against it and he did not attend the apology so you have to support it to perform your disapproval of Dutton. If we are going to base constitutional change on how likeable our current politicians are then we are lost.
This should be the most purely intellectual decision that we can muster. But no. Not in 2023.
It is a “moment in history” that we have to be on the “right side of”. This makes constitutional change a social media contagion. And make no mistake that a large proportion of young voters will entirely base their decision on Tiktok and Instagram influence. The effects of this debasement of democracy will be far reaching and long term. Future changes to the constitution will no longer begin with an appropriate onus of proof. It will mainly be “the vibe” and the attractiveness index of the influencer who brings the referendum to your attention.
Finally, the government is not going to fund both the yes and no cases. This has been required with previous referenda where approved (and to some extent fact checked) brochures were sent out to each household. The argument of the government is that such a process is archaic. The consequence is that voters will get their information from their own sources. You can see how well that works out in some cases. #foxnews. …
How will I vote?
I will probably swallow my shit sandwich and vote yes.
Why? It is the only form of “recognition” that we are being offered. While I resent Albo’s cynical motives in forcing this issue, I do not want to slap indigenes in the face with a rejection and I cannot see that it will likely do much harm. This was pretty much my rationale for voting for gay marriage as well, even though I bristled against the sanctimonious bullying of the yes campaign.
So I will resist my usually contrarian nature and take a pragmatic view: it probably won’t do much harm, even though we never needed a referendum to do it. Some professional aboriginal activists may be able to make a career in Canberra and the High court will have some extra dockets to process. We will all get to know the “leaders” of the Voice – and be in no doubt that there will many self-appointed leaders that will be on the telly every night.
It might do some good even. We might find that grass roots activists will have more access to and influence on the pinnacles of power and we could see some better outcomes.
Monticello
‘In the summer of 1806, [Joe] Fossett surprised Jefferson by running away from Monticello…. Jefferson was stunned by such insubordination…. Fossett was not "running away" but was going to see his wife…. Following Thomas Jefferson's death in 1826, Fossett became a free man, one of five persons freed from slavery by the terms of Jefferson's will. In contrast, his wife Edith and their children were among the "130 valuable negroes" offered at the executors' sale in January 1827…
HT: Brad Delong
Some surprisingly good and apposite anti-fascist propaganda
Is nuclear power safe? (Hint: yes)
On seeing the pro-nuclear power propaganda video I posted last week, reader Alex said this one was even more compelling. I think he’s right:
The Globalists: an astonishing read on the ideological origins of neoliberalism
I know quite a bit about neoliberalism and its origins, having read a couple of books on it and written an essay which I titled “Another neoliberal: another neoliberalism?” which muses on what might have happened had neoliberalism taken the course that early and more centrist neoliberal Michael Polanyi took. Email me and ask for access to the essay if you’d like.) But I wasn’t prepared for the radicalism of what I’ve been reading in Globalists The End of Empire and the Birth of Neoliberalism by Quinn Slobodian.
Check out Chapter Four.
4
A World of Rights
Exchange control in time of peace should be considered an act of aggression and a violation of human rights in international law.
—PHILIP CORTNEY, 1949
Midway through The Road to Serfdom, the book he published in 1944 that made him famous, F. A. Hayek inserted a commentary on human rights. His target was specifically the expansive “Declaration of Rights” published by the author and public intellectual H. G. Wells in 1939, a list of eleven articles including the right to education, food, health care, and employment.1 Hayek did not object so much to the material provisions. His own proposal included elements of a basic social safety net and even countercyclical state spending.2 As libertarians later lamented, The Road to Serfdom called for “the security of a minimum income” and “a comprehensive system of social insurance.”3 What galled Hayek was Wells’s combination of the language of rights with a program of centralized economic decision making. For Hayek, rights talk could not work alongside state direction of production and labor. If nebulous categories like “the common welfare” could override one’s choice of employment, then individual rights could not exist.4 Hayek defended the language of individual rights, but only insofar as those rights were negative: the freedom to move one’s labor and capital where one saw fit. The rationale was based less on natural law than on utilitarianism: individual choices guided by competition would solve the riddle of the complexity of the market and ensure the best possible division of labor and allocation of resources.
Hayek and Wells moved in the same circles in 1930s Britain—an academic and cultural elite that felt obliged to rethink the foundations of a postwar world. There was a shared sense of duty among Austrian elites like Hayek, Mises, Hans Kelsen, and Hersch Lauterpacht, who had trained to serve what was now a vanished empire, and British elites like John Maynard Keynes, Lionel Robbins, Edwin Cannan, and James Meade, who were seeking to reform a still-living one. The connections were close. One of the drafters of Wells’s declaration was Hayek’s friend and colleague on the Federal Union’s economists committee Barbara Wootton, whose own article followed his now-famous 1939 article on “inter-state federalism” in the New Commonwealth Quarterly.5 Wells published in the same journal himself.6 In the years before and during the war, Hayek participated in the broad effort of public intellectuals in the West to conceptualize what Wells called in 1940 “The New World Order” that would follow global conflict.7 When in 1947 Hayek convened a group of intellectuals in Switzerland to form the Mont Pèlerin Society and initiate the postwar neoliberal intellectual movement, he was operating in this same spirit of visionary globalism.8
Although scholars routinely note Hayek’s inclusion of a safety net in his normative national order, they fail to cast their gaze beyond—or above—the nation.9 As we saw in Chapter 3, Hayek’s blueprint for world order at the end of The Road to Serfdom prescribed international federation as an antidote, not a complement, to the expanding welfare state. His national vision balanced state duties with negative rights, but his global order concentrated exclusively on the latter. The powers of an international authority, he wrote, “must above all be able to say ‘no’ ”: no to obstacles to the movement of goods, capital, and people, and, thus, no to protections for infant industries, increased taxation for state spending, and insulation of labor markets.10 It is telling that the two transgressions of individual rights that Hayek cites are both related to transnational relations. The first was the expropriation of businesses in Central Europe, where owners suddenly became foreign “minorities” in the successor nations of the crumbled Habsburg Empire.11 The second was the control of the exchange of money from one currency into another and its transport over borders, which he called, with surprising vehemence, “the decisive advance on the path to totalitarianism and the suppression of individual liberty.”12
Hayek’s language of negative rights and the power to say no can give a false impression of a passive or inactive state in his normative global order. Yet creating and securing such an arrangement required proactive engagement. Hayek himself was explicit that the international power needed “an authority capable of enforcing [the] rules.”13 Although after the war Hayek swerved away from engagement with international order, other neoliberals did not. As we will see, neoliberals argued against adding social and economic rights to the basic list of negative rights, even as they made the case for economic rights of their own—above all, the right to keep foreign investment safe and to move capital freely over borders. Like Hayek, they focused on the expropriation of foreign-owned property and controls on capital movements as being the central violations of rights. They would help design institutions that would safeguard the “negative rights” of freedom from expropriation and capital control.
To describe the particular form of rights promoted by neoliberals, I call them “xenos rights,” borrowing a term from Hayek. In his last published work, Hayek spoke of the xenos, or guest-friend, in early Greek history, “who was assured individual admission and protection within an alien territory.” Hayek suggests that this practice meant that “trade must have developed very much as a matter of personal relations.”14 Elsewhere he wrote that “rules are required which make it possible at each moment to ascertain the boundary of the protected domain of each and thus to distinguish between the meum [that which is mine] and the tuum [that which is yours].”15 The category of xenos rights helps us think about individuals having protected rights to safe passage and unmolested ownership of their property and capital, regardless of the territory. It is a right that inheres to the unitary economic space of dominium rather than the fragmented state space of imperium—yet it requires the political institutions of imperium to ensure it.
To neoliberals, the problem of the postwar period was the same problem that plagued states after the First World War: the unconstrained expansion of democracy. In 1932 ordoliberal Walter Eucken denounced “the democratization of the world.” By this he meant the universal male suffrage in industrialized nations that brought “the people and their passions, the interest groups and chaotic powers of the masses” into politics.16 The post-1945 era spread what Wilhelm Röpke called the “rabies democratica” globally.17 As the first colonies gained independence from their imperial masters, the international institutions, and the United Nations in particular, became spaces for political claims-making.18 As one-person-one-vote became one-country-one-vote, Global South nations found spokespeople among the very social democratic economists that the neoliberals had clashed with in the 1930s. Liberals like Haberler and Alexander Loveday had set the tone at the early League of Nations, but it was social democrats like the Swedish Gunnar Myrdal and the Hungarians Nicholas Kaldor and Thomas Balogh who dominated the young UN. The new language of “development” and the subfield of “development economics” helped legitimize worldwide demands for full employment, capital controls, and the right to nationalize foreign-owned assets and resources. As Röpke put it sarcastically, “today’s ‘human rights’ as formulated by the UN include the sacred right of a state to expropriate a power plant.”19
Neoliberals in the early postwar years felt that they had won the war but were losing the peace. When they gathered to take stock and talk strategies in Mont Pèlerin in 1947, Hayek suggested that they follow the example of socialists. Leftists like the Fabians, some of whom he had cooperated with in the Federal Union and as a professor at the Fabian-founded London School of Economics, had succeeded in shifting debates over time, thus capturing both public opinion and public power and making their vision reality. Scholars have noted how neoliberals began a “long-run war of position” on this understanding of the power of ideas in the postwar moment.20
Even as they dug in for the long struggle, neoliberals also engaged in shorter-term “wars of movement.” This chapter zeroes in on a specific, little-known case of the role of neoliberal intellectuals in helping to defeat the International Trade Organization (ITO), the institution that was intended to complete the Bretton Woods system, as well as their role in writing first drafts for postwar international investment law. The key players were Michael Heilperin, Philip Cortney, and Ludwig Erhard. Geneva School neoliberals proposed their own vision of a world of rights. Against human rights, they posed the human rights of capital. Against the stateless person, they posed the investor. Against sovereignty and autonomy, they posed the world economy and the international division of labor. Their “national” was both a person and a company. As the mouthpieces of big business’s two largest interest groups, Heilperin and Cortney articulated a polemical, alternative vision of human rights, created lasting precedent for international law, and made concrete Hayek’s 1949 demand for a liberal utopia.
THE DANGER OF ECONOMIC DEMOCRACY
The Bretton Woods institutions were born incomplete. The International Monetary Fund (IMF) was responsible for the world’s money. It helped keep currency values stable by making short-term loans to nations in trouble, and allowing states to adjust their exchange rates when necessary. The World Bank was responsible for reconstruction and development. It made low-interest, long-term loans and loan guarantees to help build infrastructure and industrial capacity, first in Western Europe and then in the Global South. What was missing was a body responsible for overseeing trade. The entity planned to fill this role was the ITO, which would complete the Bretton Woods trio. Like the IMF and the World Bank, it would be housed in the UN and provide a legal framework for international free trade. First proposed by the United States in 1945, the United Nations Economic and Social Council (ECOSOC) resolved in February 1946 to convene an international conference on trade and employment to draft a charter on world trade.21
The original authors of the charter were to be a group of fifteen of the major Global North nations with the addition of India and China. This allocation of decision-making power may have reflected the relative share of trade in the world economy, but it was less than representative, considering that the world contained seventy-one independent countries by 1946. Such a limited democratic principle would have reproduced the two-tier nature of governance in the UN, where a small Security Council had veto power over a large General Assembly. It would have also followed the model of the IMF and the World Bank, where votes were proportionate to a nation’s share of world trade. Nudged by the UN, the ITO planning group expanded over time, adding first Chile, Lebanon, and Norway, and then others.22 The number of nations involved in negotiations at the three meetings—in London in 1946, Geneva in 1947 and Havana in 1948—was even larger. The addition of Global South nations ended up being momentous, because Latin American and Asian delegates pushed the agenda away from free-trade orthodoxy. Without discrediting the value of international trade, these nations sought to enshrine a parallel right to deviate from the orthodox rules of free trade to protect nascent industries against foreign competition and to pursue domestic development and full employment.23
The expansion of the democratic principle in the planning of the ITO was a moment of revolt against the twinned imaginaries of the League of Nations and the International Chamber of Commerce (ICC) as expressed at the World Economic Conference of 1927. No longer would the simple principle of negative integration hold sway. Tariff walls did not exist only to be dismantled but to shelter aspiring infant industries. The chief U.S. negotiator at the ITO recalled a “chorus of denunciation” from the “underdeveloped nations” as they opposed uniform principles in the name of the need for special treatment in the cause of development.24 The most important way this was expressed was in the governing principle. Unlike the IMF and World Bank, the ITO was to be organized on the principle of one-country-one-vote. Democracy was to be brought to the stage of global economic governance.
The postwar neoliberal movement was born in the midst of the ITO drama, and some of its members played a starring role in it. As delegates met in Geneva in the spring of 1947 to draft the world trade charter, a group of intellectuals gathered at the other end of the lake at the base of Mont Pèlerin. Taking their name from the location, the Mont Pèlerin Society (MPS) became the germ of what its organizer Hayek called “the neoliberal movement.”25 Among those gathered were Mises, Röpke, Robbins, and two future Nobel Memorial Prize winners, Milton Friedman and George Stigler. The MPS picked up from the “Haberler-type” international collaborative projects of the 1930s, including the Lippmann Colloquium, the workshop on Haberler’s Depression study, and the Annecy workshop on the world economy.
In Hayek’s words, the intention of the MPS was to allow for “personal contact among the proponents of neoliberalism,” to “erect a coherent edifice of … neoliberal thought, and to work out its practical application to the problems of different countries.” This involved personal contact as well as translation and distribution of key texts to stimulate the “flow of neoliberal ideas.”26 Like the meetings in Geneva and Paris in the 1930s, the MPS was global in both its mandate and its object of study. Hayek felt that socialists had too long monopolized the language of internationalism. Neoliberals needed to have the courage of their convictions and exhibit the boldness to do what socialists had done for half a century: dream of a utopia. They must conceive of the world they wanted to see, even if that seemed impractical or implausible.27
We have already seen that socialists hardly held a monopoly on globalist thought before 1945. Economic liberals in Geneva both inside and outside of the League of Nations had dreamt big in the interwar period as they sought to reimagine and rebuild what they saw as the lost golden age of world capitalism. In many ways the MPS was a continuation of the League’s spirit. Many of the figures at Mont Pèlerin—including Mises, Röpke, Hayek, Robbins, Maurice Allais, and Rappard—had either worked at Geneva or presented their work at William Rappard’s Graduate Institute. Röpke had planned a meeting in Geneva to gather many of the same players for September 1939, the month the war broke out. The first gathering at Mont Pèlerin was the realization of the international meeting delayed.
Given the Genevan pedigree, it is no surprise that the MPS statement of aims was global in its perspective. Penned by Robbins, it began by observing that “over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace from the development of current tendencies of policy.” The reference here was not only to communism but also to trends toward social democracy, such as the wave of nationalizations being carried out by the recently elected Labour Party in Britain. The statement concluded by calling for study of “the creation of an international order conducive to the safeguarding of peace and liberty and permitting the establishment of harmonious international economic relations.”
The broad—and somewhat vague—sentiments of the MPS statement were given substance a few weeks later when five hundred businessmen from thirty countries convened in Montreux, less than twenty kilometers from Mont Pèlerin, at the first gathering of the International Chamber of Commerce since the war. As described in Chapter 1, Hayek, Mises, Haberler, and Machlup all shared and partially adopted their global perspective from the ICC, which had been their employer through the 1920s and early 1930s; Mises had represented Austria at more than one ICC meeting in the interwar period. More proximately, the biggest single funder of the first MPS meeting was the Swiss industrialist and diplomat Hans Sulzer, who was a member of council of the ICC’s executive committee in the 1930s and one of its vice presidents after 1945.28 A main financial supporter of the MPS and later a member—and blacklisted by the British for alleged trade with the Nazis—Sulzer helped try to hire Hayek for a chair at the University of Zurich after the war.29 He was also a member of the Joint Committee of the ICC and Carnegie Endowment for International Peace, which had sponsored major research by the world’s leading economists (including Mises) on international economic reconstruction in the 1930s.30
If the neoliberal intellectuals spoke from the mountaintop, the ICC was its base. At Montreux, the thirty-eight-year-old Polish American economist Michael Angelo Heilperin, an MPS member who would play a major role in monetary debates of the 1960s, presented the official analysis of the ITO Havana Charter to the gathered businesspeople. Heilperin was a quintessential member of the Geneva School. Born in Warsaw in 1909, he completed his undergraduate and graduate degrees at the University of Geneva, in 1929 and 1931. His dissertation (written in French) was on the monetary problems produced by the collapse of the Habsburg Empire. In 1934 he had generated serious interest from the Rockefeller Foundation to fund the creation of an International Monetary Institute in Geneva.31 A student of Rappard’s, Heilperin took a position at Geneva’s Graduate Institute for International Studies in 1935, a year after Mises.32 For three years he worked “in almost daily contact” with Mises and also alongside Röpke, who arrived at the institute in 1937.33 Heilperin presented on monetary issues at the Lippmann Colloquium in 1938.34 He was a vocal member of the MPS after the war as well as an associate editor of Fortune magazine, a participant in Bilderberg meetings and in the Bellagio Group meetings that helped end the Bretton Woods system of fixed but adjustable exchange rates.35
Heilperin first became involved with international business circles in 1943, when he took a leave of absence from his position at Hamilton College to work as an adviser for the pharmaceutical and cosmetics company Bristol-Meyers, which had flagship products in laxatives and toothpastes and secured a major contract to supply penicillin to Allied soldiers during the war.36 At the 1944 International Business Conference, which brought together the ICC, the National Association of Manufacturers, and others, Heilperin was the rapporteur for the section on international monetary relations.37 Enjoying the highest consultative status on the UN Economic and Social Council, the ICC was a participant at every stage of the attempt to create the ITO.38 As the ICC adviser, Heilperin was one of the few Americans attending both the Geneva and Havana conferences in an unofficial capacity.39 When the president of Bristol-Myers, Lee H. Bristol, appeared before the U.S. Congress in 1950 to reject the ITO charter, he brought Heilperin along, drew exclusively from his analysis, and deferred to him during the session for details that he was unable to provide.40
Heilperin’s statement of opposition to the Havana Charter at Montreux was a near carbon copy of the position of the ICC and the League of Nations at the World Economic Conference of 1927—an event that, according to Heilperin, was “the high point of international endeavor” and produced “the most comprehensive report of its kind, a well-reasoned document” but, regrettably, included no mechanism for enforcement or commitment.41 Like the 1927 report, Heilperin demanded negative integration. For the “overall growth of productivity, trade, investment, and living standards throughout the whole world,” a system was needed “in which goods, capital, and men can move and services be exchanged with the greatest possible freedom from country to country.”42
Heilperin condemned the proposed ITO, using the term of critique from the 1930s: “economic nationalism.” According to Heilperin, the number of exceptions, emergency clauses, and opt-outs in the Havana Charter had made it “the first international charter of economic nationalism ever written in the long history of the civilized world.”43 For Heilperin and the ICC, the ITO charter was a “dangerous document,” above all in its transposition of democracy into international relations. Speaking before the U.S. Congress, Bristol said that the “one-country-one vote voting procedure is unacceptable.” It threatened to create a situation in which “the rules of international commerce are being laid down by large numbers of countries who have a minor stake in international trade and often very little experience in conducting commercial policy.”44
Heilperin expanded his critique of the ITO to general observations about the world since the end of the First World War. He noted that the period had been marked by a paradox: barriers to international trade and exchange multiplied even as awareness of global economic interdependence increased.45 This had brought a series of quixotic hopes, such as the “insulation” promoted by Keynes and seen by many as at the heart of the postwar order. The essence of the goal of “policy autonomy” was that a nation should be free to break the rules of the game when it chose to. The Havana Conference, intended as a performance of internationalism, became a “very illuminating and enlightening seminar in present day nationalism.”46 To Heilperin, the ITO was a banner case of the failure to recognize the need for a double government for imperium and dominium.
Speaking to another gathering of industrialists, Heilperin said that a “good” ITO would “prohibit” any and all forms of blocking capital and goods, as well as more subtle forms of distorting the market through subsidizing production.47 Heilperin put “sovereignty” in quotation marks, implying that the term had no intrinsic meaning when applied to economic matters.48 In a paper based on a lecture delivered at the Graduate Institute in Geneva, he did the same with “autonomy,” similarly discrediting the notion.49 In Heilperin’s reading, exercising economic sovereignty and economic autonomy were not simply inadvisable—they were impossible.
Heilperin phrased part of his critique in terms of what I have called capitalism’s double world. One stratum of the world was that of the earth’s natural endowments and the space of production, distribution, and ownership. The other stratum was the political world of nations and states. The category mistake of the sovereignty claim was to assert political control over the world of nature and economics. Heilperin elaborated on this in 1952. In physical terms, he said, “the planet is a single unit which cannot be subdivided into equivalent or self-contained parts. Politically, however, it is divided into a multitude of separate states, all bent on independence, often seeking at least partial economic self-sufficiency.”50 The resources of the earth, including climates, seas, and the earth’s inner core, do “not favor the kind of political divisions which prevail on our planet.” “There is no way,” he wrote, “in which the political division of the planet can be reconciled with its physical structure by apportioning in some way or other the surface and the resources of the globe among individual states. The alternative is to reduce the importance of political divisions in terms of economic relationships.”51
Heilperin’s vision of order was multilateral but also unilateral: it brooked no deviations from the strictures of free trade. It was not only that he brushed away the complaint of infringement on sovereignty. Consistent with the Geneva School position of militant globalism developed since the 1930s, diminishing sovereignty was the exact point. He wrote directly that it was necessary to “subordinate” national objectives to international order.52 He echoed the federalist vision of Mises, Robbins, and Hayek when he argued that “the importance of national boundaries … must be radically and drastically reduced.” They must become “mere administrative demarcation lines,” and national governments must “have only limited powers over their populations.”53 In its strong form, this would require what he called “geopolitics in reverse gear,” reengineering national boundaries to actively diminish their capacity for self-sufficiency.54
Heilperin’s demands for a muscular ITO that would bind nations to free trade and potentially shrink them to increase dependency on world trade was the first example of a postwar neoliberal utopia being articulated in full. It was also done within the world’s most important business advocacy group. The solution was radical and no doubt would have been rejected by his employers within the “capitalist international.” He recognized that very few nations, including the United States, would be willing to sign such a document. Given this fact, it is remarkable to note the verifiable effect that his activism, along with that of fellow neoliberals, had in sinking the ITO.
The ICC opposition to the ITO was a surprise. The organization had been close to the U.S. State Department during and immediately after the war. It stood behind Secretary of State Cordell Hull’s push for free trade, and the American Council of the ICC had been one of “the keystones of bipartisan support” for his program.55 When the Havana Charter came up for a resolution, the reflexive inclination of many ICC members was to follow their pattern of support for the U.S. State Department by signing it. Yet, as the official history of the ICC (written by a former member) recounts, Heilperin found a crucial ally for his opposition in Philip Cortney, an acquaintance of Mises who joined the MPS in 1953.56 Cortney led the opposition and managed to convince the ICC executive committee to oppose the State Department on a major issue for the first time. The scene repeated itself at the international meeting when Cortney again led the opposition to the ITO against the British committee, who were disposed to sign the agreement. The decisive moment came when the chairman of the committee, Ernest Mercier, a French industrialist who had attended the Walter Lippmann Colloquium and was also member of the MPS, said he would tender his resignation before accepting the resolution. The resolution died on the floor.57
By lining up with Cortney and Heilperin, Mercier scuttled the support of the ICC for the ITO. One observer dubbed the group around Heilperin “the perfectionists” and suggested the “interesting possibility” that “in this case the businessmen were the ‘hopeless idealists’ while the bureaucrats and college professors who supported the Charter, without being enamored of it, were the ‘realists.’ ”58 Referring to a statement written by Heilperin, he said that “it is not always easy to tell when these statements are setting out utopian ideals and when they are describing a state of affairs, the business groups think is really attainable.”59 Such critiques failed to see that the utopianism was not incidental but intentional. Heilperin wrote in 1947, “We must agree to go beyond barren and complacent rationalizations of the present (in the name of what is often called ‘realism’) and seek goals which may appear unattainable … until they have actually been reached.”60 Heilperin and Cortney were fulfilling Hayek’s desire from 1949 to the letter by offering a “liberal Utopia … which is not too severely practical, and which does not confine itself to what appears today as politically possible.” It was precisely the overreach of the statements that make them amenable to the neoliberal program, which dictated polemic as a means to make liberalism “an intellectual adventure, a deed of courage.”61 What observers saw as a failing, in other words, may have been exactly Heilperin and Cortney’s goal—to reject diplomacy and pragmatism and take the fight to the advocates of national economic autonomy. The ICC position statements were not just policy documents but what the Germans call Kampfschriften, or fighting documents. As Heilperin put it, the failed world conferences of the interwar period had taught the lesson that “in order to counteract a strong trend it is necessary to hit at it and to hit hard.”62
In broad terms, the struggle over the ITO pitted the Global North against the Global South. Yet the official U.S. display of compromise to push the Havana Charter shows that it is important not to assume that “the West” was a single unitary actor in the postwar moment.63 Far from being intransigent, official U.S. representatives immediately after the war showed a remarkable willingness to respond to the demands of Global South countries. To blame the U.S. failure to ratify the ITO on the unwillingness of big business to give up its sovereignty neglects the fact that the ICC’s official position was not that the United States would lose too much sovereignty by participating in the ITO but that the ITO would not infringe enough on the sovereignty of signatories. Using the “business international” as an amplifier for a radical vision reminiscent of the federalism of Robbins and Hayek from the 1930s, Geneva School neoliberals outflanked the official government position and helped doom an organization committed to a level of decision-making parity with the poorer nations of the world.64
THE HUMAN RIGHT OF CAPITAL FLIGHT
Heilperin’s closest ally in opposition to the ITO had been Philip Cortney, who was active within both the American Council of the ICC and the National Association of Manufacturers (NAM). One historian calls Cortney “the major spokesman for the purists” against the Havana Charter.65 Born Philippe Cotnareanu in Romania in 1895, Cortney emigrated to the United States after taking an engineering degree in France. In 1946 he became an American citizen and president of Coty, a French perfume company. Cortney was a member of the executive committee of the U.S. Council of the ICC and would become its chairman in 1957.66 He was also a member of the International Relations Committee of NAM, a business advocacy group that was close to the European neoliberals.67 The committee executive was Noel Sargent, who had hired Mises to work as a paid and unpaid consultant for NAM from 1943 to 1948, when Cortney first met Mises.68 In 1949 Cortney published his criticism of the ITO under the title The Economic Munich, making a polemical analogy between the Charter and Neville Chamberlain’s appeasement of Adolf Hitler. Mises was extravagant in his praise, saying that the book would be “read and reread as a classic of economic freedom like the works of Cobden and Bastiat.”69
The Economic Munich was most notable for its engagement with the language of human rights. Cortney did not reject human rights as such. He praised the UN’s Universal Declaration of Human Rights as a “milestone in man’s fight for liberty and human dignity.”70 It was the choice of rights he disagreed with. He condemned the way that the Havana Charter made “full employment” into a “kind of sacred human right,” quoting Heilperin’s Montreux statement at length in support.71 Rather than discard the language of human rights as corrupted, Cortney added his own. In a strong statement he proposed that “exchange control in time of peace should be considered an act of aggression and a violation of human rights in international law.”72 By exchange control, Cortney meant what is better known as capital controls: the right to change money from one currency to another, specifically with the goal of transferring the money over a national border. The right to use capital controls was included in the framework of the IMF at Bretton Woods, a fact that Heilperin condemned as one of its crucial failings. Though many observers felt that the flow of “hot money” being invested by speculators back and forth across the Atlantic in the 1920s had helped precipitate the crash, Heilperin turned the problem around. “It is not the money that is ‘hot,’ ” he said, “but the place from which it takes flight.”73 If capital controls were removed, countries that had drawn investors would have to establish conditions hospitable enough to induce foreign capital to remain.
Cortney’s rhetorical move was to reframe the question from an economic matter into a matter of human rights. He linked capital control to the right to leave a country as such. Because “the right to leave a country is for all practical purposes, meaningless unless one is entitled to take with him belongings,” he argued that one must under all circumstances be allowed to exchange and export capital.74 Cortney described the right to emigrate as the “basis of all his other human rights,” noting that it is included in the Universal Declaration of Human Rights (Article 13) but suggesting that this should have gone further by linking it to its necessary prerequisite: the right of free capital movement.75 Cortney was effectively proposing the human right of capital flight.
In a postwar climate preoccupied with the rights of refugees and asylum seekers to stay once they had escaped danger, Cortney stood out for linking his claim of the human right of capital movement to the right to leave. His demand was neither spurious nor ill-informed. Cortney was a lifetime member of the American Society of International Law, and Philip Jessup, one of the fathers of transnational law, cited Cortney himself on the fact that exchange control can “effectively destroy” the right to emigrate.76 Cortney’s ingenuity was to read what was not intended as an economic right as an aspect of the economic constitution of the world, deeming money an item of property inhabiting the economic sphere that transcends political jurisdiction. Capital requires the protection of universal rights, in his interpretation. Consistent with ordoglobalism, he called for the constitutionalization of free-market principles, demanding that “exchange controls should be outlawed in the national constitutions.”77
What seems like an act of cynicism on Cortney’s part is actually consistent with the Geneva School neoliberal approach to the question of human rights in the years after 1945. Rather than reject human rights outright, the neoliberal tendency has been to undermine social democratic interpretations of human rights and international law while simultaneously co-opting them to cover clearly capitalist prerogatives. To say this was (or is) a critique of “social and economic rights” would be misleading, because the free movement of capital, goods, and labor was just as much a social and economic right as the demand for social security, employment, or nourishment. Indeed, as we will see in Chapter 6, the so-called market rights enshrined in the European Economic Community treaty were central to the neoliberal vision of Europe. Against Roosevelt’s Four Freedoms—of speech, of worship, from fear, from want—neoliberals posed the four freedoms of capital, goods, services, and labor.
THE CAPITALIST MAGNA CARTA
Heilperin wore two hats at the Montreux conference in 1947. The first was as the ICC’s man at the table for the ITO negotiations. The second was as the primary author of the ICC’s International Code to Protect Foreign Investments. This latter document worked within Cortney’s imaginary by tying business demands to the language of rights. At the conference Heilperin announced the need for “a code of fair practices in the field of international investments.”78 The draft code came out of the Committee on Foreign Investments, for which Heilperin was the rapporteur. It built on attempts made by the League of Nations in 1929 at a Conference on the Treatment of Foreigners and on a 1939 proposal from the ICC on the “legal treatment of foreign companies.”79 Picking up on prewar roots, the proposal was the first version of what would become today’s regime of international investment law.
Working with rather than against the UN, Heilperin and the ICC felt that the code of investors’ rights was to act as a supplement to the Universal Declaration of Human Rights. The ICC tasked ECOSOC with turning the code into “a universal convention” for later adoption.80 The preamble, likely written by Heilperin, took direct aim at a December 1947 report by a UN subcommission submitted by Uruguay that criticized the “special danger of direct foreign investments interfering in the political and economic affairs of those countries.”81 By contrast, the ICC code called for nationals (which it defined as “not only physical persons but also incorporated or unincorporated associations”) to enjoy the civil rights not of the host state but of their own state, even if this might grant them a “preferential” position.82 Heilperin had already noted in his 1947 book that the protection for foreign investors had to exceed that for citizens. If capital controls applied to citizens, for example, they must not be allowed to apply to aliens. “Equality of treatment,” he said, “does not suffice.83 In a classic demand for xenos rights, the alien investor must actually have more rights than citizens.
The focus of neoliberals and big business on investor rights in 1947 was motivated by the perceived precariousness of private property both during and after the Second World War. The decline had begun during the First World War, when, as Röpke noted, “disregard of the private property of the enemy had become the rule among the belligerents.”84 The Soviet Union’s expropriation of property after 1917 had been a signal rupture, followed by what a U.S. State Department adviser called a “dreary succession of such takings in the period between the wars.”85 It was such acts of expropriating foreign-owned property—or what was called nostrification in postimperial Central Europe when the property was given to private nationals—that Hayek complained of in The Road to Serfdom.86 Even though foreign owners were often compensated at above-market price for such nationalizations worldwide, observers regularly cited cases, such as the Mexican nationalization of oil in 1938, as evidence of a global erosion of property rights.87
Neoliberals saw the disrespect of what were variously called “foreign rights” and “alien rights” of capitalists continuing into the postwar period. The specific sparks to their outrage were sometimes surprising. The proximate context for Cortney’s call to designate exchange control a “violation of human rights,” for example, was the cooperation of the U.S. and Western European governments to repatriate concealed Western European assets as part of the Marshall Plan. Cortney said that in doing this, the United States was assuming “the role of a Gestapo” in locating European assets in American bank accounts.88 Röpke railed in a similar vein against the confiscation of German assets in Switzerland after the Second World War, saying that it undermined “the principle of the separation of sovereignty and property in the case of war.”89
Considering the horrors of the war, it is startling to find an intellectual perceiving its lasting scandal as being the loss of foreign-owned property by citizens of the aggressor nation. Yet to Röpke and Cortney, these were not isolated grievances but symptoms of a larger malady. In demanding an economic constitution of the world, Geneva School neoliberals insisted that governing a territory did not mean owning the property within it. The campaign of the ICC and its neoliberal advisers was to create a legal framework to uphold the distinction between the imperium of government and the dominium of property. Neoliberals reached to the armory of law to rebuild the distinction between property and territory.
The ICC’s proposal was taken up by an ECOSOC more sympathetic to social democratic nation-based demands than doctrinaire globalist business rights. In the postwar decades, the UN General Assembly became the “midwife” to the principle of “permanent national sovereignty over natural resources.”90 After a proposal by Uruguay and Bolivia, the UN General Assembly in 1952 passed its first resolution of many declaring that “the right of peoples freely to use and exploit their natural wealth and resources is inherent in their sovereignty.”91 Responding to a trend toward nationalization with UN sanction, the German Society for the Protection of Foreign Investment revived Heilperin’s ICC code as a basis for its own Draft Convention. At the Society’s inaugural meeting in 1956, MPS member Ludwig Erhard declared that “especially in the Western world, infractions against private property are eating further and further in, like a sneaking poison.”92 Erhard’s placement of the danger to property in the West was consistent with the neoliberal interpretation, which held that social democracy in the Global North was working in tandem with nationalizing tendencies in the Global South to imperil the sanctity of property. At an MPS meeting in 1957, Arthur Shenfield said that “if it became clear that the capital of the West could be obtained only by those who respected the rights of capital, there would be a very salutary influence on the internal conduct of affairs in the prospective borrowing countries. But for that, of course, the West must itself learn again to understand and respect the rights of capital owners.”93
In 1952 Mises observed the irony of the disavowed symmetry between Global South and North when he said, “If it is right for the British to nationalize the British coal mines, it cannot be wrong for the Iranians to nationalize the Iranian oil industry. If Mr. Attlee were consistent, he would have congratulated the Iranians on their great socialist achievement.”94 Röpke wrote a year later that “the Mossadeqs appeal to the Atlees and the Bevans, who have inspired them with the idea of nationalization.”95 In fact, the British case against the expropriation of Anglo-Iranian Oil was one of the most important signals to the international business community that new standards were necessary for more robust protection of foreign property. The German Society’s president, the Deutsche Bank head Hermann Josef Abs, who had overseen the expropriation of Jewish property in the Third Reich, became an international spokesperson for property rights in the second half of the 1950s. After the Society drafted an “International Convention for the Mutual Protection of Private Property Rights in Foreign Countries,” Abs made his case before the American Society of International Law in 1956 and, most influentially, in a San Francisco speech at the International Industrial Development Conference on October 15, 1957, in which he cited the ICC statement. The speech, titled “The Safety of Capital,” was reported in Time magazine under the headline “A Capitalist Magna Carta” in an issue that featured Ludwig Erhard on its cover.
Abs’s proposal opened an international conversation on the rights of the investor.96 His “capitalist Magna Carta” would oblige signees to abstain from “direct or indirect illegal interference” with “foreign capital” and would create an International Court of Arbitration to judge violations. Investors could turn to the third-party court first, without using local courts.97 To punctuate the need for his code, Abs brought up the recent cases of the expropriation of the Anglo-Iranian Oil Company, the United Fruit Company in Guatemala, the Suez Canal, Dutch land in Indonesia, and foreign-owned power plants in Argentina.98 For Abs, like the ICC, the UN had become an enemy accomplice of the property thieves, passing resolutions supporting the idea that “expropriations are permissible at any time without compensation.”99
That an individual who had been an active participant in processing the expropriation of the property of German Jews would later be actively defending property was incongruous, but Abs did not act from amnesia or repentance. In his San Francisco speech he made a point of raising Cortney and Röpke’s bugbear issue of foreign holders of accounts of German banks who were “still waiting for a fair settlement.”100 Abs was the man who signed the document forgiving Germany’s massive war debt in 1953, and it is known that he did so in the belief that it was not forgiveness per se but instead a just settling of accounts for the German assets seized abroad. Abs’s campaign for investor protection was a continuation of the dogged commitment to the economic constitution dividing the public world of states from the private world of property. Part of his original proposal, described by an observer as “idealistic,” would have made alien property immune from confiscation during times of war.101
The capitalist Magna Carta drew interest in the United States. The chair of the judiciary committee of New York, Emmanuel Celler, declared the urgency of Abs’s Magna Carta as he described a monument on a Mexico City boulevard commemorating the nationalization of oil and spoke balefully of “the law of the jungle” prevailing in Indonesia, where Dutch assets were expropriated by “wild men bent upon revenge.”102 “It would indeed be a great achievement,” he said, “if West Germany could blaze a trail to the creation of such a Magna Carta under the leadership of Abs and Erhard.”103 By the late 1950s the struggle against expropriation was taking on a racialized language of the rule of law against the rule of the jungle, pitting the rational West against a Global South, with its “emotional” commitment to sovereignty.104
Combined with the work of a group of British attorneys under Sir Hartley Shawcross, Abs circulated a “Draft Convention on Investments Abroad” for comment in 1959. The document was concerned entirely with the protection of the property of “nationals,” which were defined not as individuals but (following the ICC code) as “companies,” including “both juridical persons recognized as such by the law of a Party and associations even if they do not possess legal personality.”105 The legal experts who commented on the convention were not encouraging. The preamble of the convention presented itself as a “restatement of principles,” one expert noted, but “in several respects, it is clearly a good deal more than that.”106 They saw the convention as unprecedented in the protection it gave the foreign investor.107 In every instance, it tipped toward the investor, dismissing “public interest” as a reason for expropriation, allowing investors to turn to an international court before national courts, and breaking with current practice by forcing compensation to be made in the investor’s own currency and making the primary object of protection the company rather than the individual.108
By referring to both “direct” and “indirect” expropriation, the Abs-Shawcross convention even anticipated the later inclusion of “regulatory expropriation” in international codes. One contemporary critic noted, “It is difficult to determine where indirect deprivation of property ends and, for instance, taxation, planning legislation, or property law reform begins.”109 A former legal adviser to the State Department most sharply pointed out the lopsidedness of the convention. He wondered whether the proposition was not “to secure a commitment from a country that it must be prepared to take food from the mouth of its people in order to pay compensation in foreign exchange for property taken in exercise of its eminent domain power.” He asked if this would amount to “an effort to erect ‘property rights’ over the ‘human right’ to eat.”110
Demonstrating how far such a convention was from reality, one law-yer noted that the United States had been able to secure only “watered-down” commercial investment-protection treaties with a handful of Global South countries, and had no success at all with either recently decolonized nations or South American nations, which were major destinations for foreign capital.111 One interpretation could be that the Abs-Shawcross convention, like the ICC Code, was not a serious proposal. It was a polemical document, outlining a dream world in which capital not only moved unobstructed globally but was encased globally by both home states and supranational third-party institutions of arbitration. What is clear is that neither of them were attempts to meet developing nations halfway. Rather, they were gauntlets thrown down to the Global South. It is symptomatic, as critics noted, that neither the ICC nor the Abs-Shawcross convention even acknowledged investment protection proposals coming from the Global South, including one in particular from Malaya, that sought to balance the needs of capital-importing and exporting countries.112 The codes were coded threats of their own, seeking to discipline what their authors and champions saw as Third World overreach.
THE BILATERAL FIX
Given the utopian nature of the proposed international investment codes, it is a startling recognition of the long-term defeat of the bargaining power of the Global South that those codes have become reality over time. Modern international investment treaties now largely resemble the Abs-Shawcross “Draft.”113 A major difference between Heilperin’s proposals and what later came into effect, however, was the switch from the mulitilateral to the bilateral approach. In 1958 U.S. representative James G. Fulton (R-PA), one of the chief negotiators for the ITO, praised the idea of the capitalist Magna Carta but conceded that the world charter had shown the difficulty of the universal demand. He suggested that bilateral treaties might be used instead.114 From the beginning the ICC had indicated that a universal code was preferable, but their document would also work as the basis for bilateral relationships.115 In fact, the Montreux Congress had also produced a Model Bilateral Agreement drawing on interwar templates.116 Heilperin himself announced the failure of the “ ‘universalist approach’ to the problems of restoring the world economy to its former health.”117 When a second edition of his 1947 book The Trade of Nations came out in 1952, he stated that his opinion had moved in the intervening years to the quality of the bilateral treaty. State-to-state treaties were indeed much more the norm, including the Freedom of Commerce and Navigation treaties that the U.S. used up until the 1980s.118
The Bilateral Investment Treaty ended up offering the path that investor rights took from utopia to reality. Here, too, there was an MPS story. In 1959 the New York Times reported that Pakistan had “embarked upon a radical program of economic rehabilitation charted by the men behind West Germany’s remarkable postwar recovery.” Ludwig Erhard, economics minister for West Germany and MPS member, visited Pakistan in late 1958, and his policy advice was adopted “in toto” by General Mohammad Ayub Khan after his seizure of power in a coup. The advice was to halt the country’s industrialization campaign and to focus on agriculture to start an “all out export drive” on food crops.119 In 1959 Egon Sohmen, another MPS member, referred in the leading American economics journal to Pakistan’s “thoroughgoing reappraisal of its development planning along neoliberal lines.”120 The strategy was consistent with the development discourse in the MPS, which criticized a potential “overindustrialization” of the periphery and encouraged the Global South to keep its place in the international division of labor through agricultural production.121
Part of Pakistan’s reform was the signing of what became the template for all future bilateral investment treaties. Signed by the West German and Pakistani governments in November 1959, Erhard submitted the “Treaty for the Promotion and Protection of Investments” to the Bundestag in 1961.122 The treaty took language straight from the ICC Code and the Abs-Shawcross Draft, including the provision on compensation in the alien’s home currency and the expanded definition of “nationals” to include “any other company or association, with or without legal personality.”123 Where the universal approach had failed, the particular approach succeeded, bringing the seemingly radical conditions of international investor protection into binding law.
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Hayek began one of his books by comparing the law to a knife. “Just as a man, setting out on a walking tour, will take his pocketknife with him, not for a particular foreseen use but in order to be equipped for various possible contingencies, or to be able to cope with kinds of situations likely to occur,” he wrote, “so the rules of conduct developed by a group are not means for known particular purposes but adaptations to kinds of situations which past experience has shown to recur in the kind of world we live in.”124 Neoliberals took up the knife of the law in the years after 1945, relying on it to provide a framework for the market. They were compelled to do so for the same reason Hayek, over his lifetime, put increasing faith in the law: the reckless exercise and geographical expansion of democracy was corroding the principles separating politics from economics.
In the age of decolonization, neoliberals saw international organizations based on the one-nation-one-vote principle as the enemies of world economic order. They were unsuitable candidates for what Hayek called an international power with the authority to say no. The globalist Geneva of the 1930s was a lost Eden for neoliberals. In 1960 Heilperin pined for the League, “inspired by the philosophy of liberalism,” which “did all in its power to promote the revival of freer trade and payments and of stable currency relations between nations.” The postwar era brought “the United Nations, of which the opposite is largely true,” an organization that “has so far proved singularly ineffective in helping rebuild a workable international economy.”125 In many ways neoliberals were League of Nations “lost causers,” with the Genevan institution held up as the better version of international organization. Geneva School neoliberals railed against the UN not because it was world government but because it was the wrong kind of world government. It is an irony that this Edenic League, like their Edenic Habsburg Empire, was largely a fantasy, a wishful construct of their own theories. In fact, by 1945 the League had become a leading proponent for expansionary policy at a global level.126
One of the continuing questions regarding neoliberalism is whether it is a project to restore class power or a coherent ideology. We have seen that it was both. In the years after 1945, neoliberals worked with and alongside the International Chamber of Commerce to defend the threatened privileges of a specific class. Their imagination, however, exceeded that of their partners. Their radicalism always bore the potential of taking on a life of its own. Even though they worked with organizations grounded in internationalism, the globalism of the neoliberals often tended toward a goal that their hosts (and funders) did not necessarily share.
When in the years after 1945 neoliberals proposed a “good” ITO that would constrain national sovereignty and make investor rights stronger than civil rights, they were dismissed as dinosaurs or dreamers. Yet what was condemned by contemporaries in the 1950s as a “fallacy of nineteenth-centuryism”—believing the clock could be turned back to an earlier era—has become part of twenty-first-century reality.127 In the 1990s the number of bilateral investment treaties, based on the original one between West Germany and Pakistan, quintupled to nearly 2,000.128 These treaties and bodies would seek to enshrine what one scholar calls the “constitutional protection of capitalism” on the principle of “human rights as business rights.”129 Scholars see the 1970s as a time of the breakthrough of “the human rights of capital.”130 As we have seen here, that movement has an earlier history.
Defending the rights of the investor was an important early fight for neoliberal intellectuals and one they engaged in with their partners from the 1920s of the ICC. Although their campaign was framed as one for the sanctity of property rights, it is more accurately a fight for the sanctity of capital mobility. They were fighting, not for the right to own and stay, but for the right to sell and leave. In the aftermath of the Second World War, as international law was being rethought to accommodate the problem of the stateless and the refugee, international economic law was being formulated to protect the rights of what one contemporary called “refugee money” and the human right of capital flight.131 If, as historians argue, nobody believed that the human rights of the 1940s should be enforceable at the cost of state sovereignty, it is notable that many believed that the private rights of capital should be enforceable in exactly that way. Although the actual practice of international investment law has been far from seamless, its postwar origin story provides a pointed case of the political activism of neoliberals in their quest to encase the world economy.