How The USA Grew Rich

Last week I described how Britain became the richest country in the world by protecting it’s nascent industries, particularly textiles, and enabling them to grow without foreign competition; by subjugating other countries and then stealing their natural resources; by enforcing free trade on subjugated states; and by convincing other states to also accept free trade (sometimes by enriching the elites that ruled them).

It is fascinating to see the USA’s response to this. After winning its independence from Britain there was a debate in the US over whether or not it should adopt free trade, which was enthusiastically advocated by Britain. Alexander Hamilton looked into the evidence for and against, and discovered that Britain had not, in fact, grown its economy through free trade, but had done so through a policy of protectionism.

He therefore implemented the same policy in the USA in his role as its first Secretary of the Treasury, and the USA continued to be the most protectionist country in the world at least until the end of the WWI, if not WWII.

So far, so British. But the British also benefited from the wealth stolen from its Empire. Did the USA have an equivalent? You might think we could look at the way the land that became the USA was gradually by stolen by European-descended immigrants from its original inhabitants through conquest, slaughter and the constant breaching of treaties. You might also think we could consider the use of slave labour to enrich the farmers of that land. However awful this history is (not to mention the on-going discrimination against these peoples), it is not analogous to Britain’s empire, but rather to the period in which Britain was welded into a single nation. This was a period of continual invasion, war and conquest, making Britain the original “melting pot”. Similarly feudalism, the form of social order across Europe for most the middle ages, was essentially a form of slavery. Technically serfs were bound to the land, rather than “owned” by another person, but the end result was much the same. Indeed, conquest and subjugation were the normal pattern of human existence in most parts of the world for most of history, and it would be somewhat unfair to single out the US in this regard. But by the same token, US claims of “exceptionalism” are overstated. Indeed, the whole point of this post is to demonstrate that the US, like Britain, did not get rich primarily because they distinguished themselves in establishing political and individual freedoms.

Indeed, it is the USA’s role in the 2nd half of the twentieth century in denying such freedoms to so many countries in the world that is analogous to the British Empire. Until this period the USA had not even been pretending to advocate free trade, nor had it taken much interest in international affairs or been a significant player on the world stage. WWI brought it more to prominence, and then WWII then left it in a pre-eminent position. The other major industrial powers were ravaged by the war fought in their actual territories. The US had a large trade surplus, much of which it invested in the Marshall Plan that rebuilt Western Europe and Japan (more on that fascinating lesson of history in a later post).

The end of the War ushered in a new era of international trade. The 1944 Bretton Woods Agreement established the International Monetary Fund (IMF) and the World Bank. These institutions, based in Washington, have followed the neoliberal policies of the American Government, and these policies have become known as the “Washington Consensus” – free trade and minimal Government intervention, particularly low tax and no regulation.

For the last 70 years, receiving aid or loans from the IMF and World Bank has been dependent on accepting and implementing such policies. This policy environment enables US companies to buy the rights for raw material extraction. Some industrial development and local employment takes place, but the profits from this trade are largely flowing to US (or other multinational) companies. Typically, Governments have had no choice but to accept such policies because they need the aid, but also corrupt ruling elites are easily bought off.

Indeed, providing aid was largely seen as a strategy in the Cold War battle. In 1974 the US Agriculture Secretary Earl Butz stated: “Food is a weapon. It is now one of the principal tools in our negotiating kit.” (For a detailed history of the US use of aid as a military tool, see Susan George, How The Other Half Dies, chapter 8.)

Where Governments resisted this process, the US Government typically responded by arming and assisting revolutionary movements and the subsequent dictatorships, in the name of the Cold War. A detailed description of the facts of US foreign policy in this regard would take months and months of posts. Look it up for yourself. You could research El Salvador, or Indonesia, or Guatemala, or Iran, or Honduras, or Haiti, or Panama, or Chile, or…

So we see that the USA grew rich through the same process as the British – nurturing its nascent industries through extensive protectionism, then only promoting free trade when these industries had grown to the point that they could crush others in a competitive environment. The US have preferred to use “aid” as a bribe to persuade others to adopt free trade rather than establish an Empire, but where this has failed it has poured military aid into repressive and authoritarian regimes that subjugated their people but adopted policies friendly to American economic interests (in marked contrast to US claims to be a bastion of democracy).

Again, this is not a complete account of how the USA grew to be the richest country on earth. The purpose of this post is to highlight those aspects of history that are left out of the popular account, so I fully accept it is one-sided, because my purpose is specifically to shed light on that one side which is too often unknown. It is therefore vital to point out that the US (and Britain) have made great contributions to the progress of the world. And hence this post is not intended as a harsh condemnation of the US (and similarly last week’s with respect to Britain) – this is not the tone of voice in which I am writing. My purpose here is not to “judge” these countries, but simply to point out certain facts. And what is reported here is factual. My account of these aspects of US history may be highly summarised, but it is factual, and these are essential elements in how the US grew rich and achieved its level of dominance. But these factors are completely left out of the account accepted in popular contemporary discourse.

The danger in pointing out such facts is the reaction it often provokes. The popular narrative – Britain and America as bastions of democracy and freedom, spreading these principles throughout the world, and growing rich through free market capitalism and thereby proving it to be the best economic system – has become a fundamental element of the national identities of many people, and hence of their personal identities. When these myths are challenged, people sometimes respond as if they are personally under attack. But lambasting individuals for responding in this way yields no useful result. Deriding people for failing to take into account facts of history is not going to help us build consensus or find solutions to the problems we all face. Quite the opposite, the more the discourse on both sides degrades (until it reaches the point of just being insults), the more entrenched each side’s position becomes. All the noise of political discussion produces precisely zero result, because no-one shifts their position one millimetre.

I have no desire to become involve in fruitless, cantankerous political debates. However, the purpose of this section of the blog is to understand why myths about Britain and the US have proved so powerful and compelling, and hence it has been necessary to point these facts of history out. Over the next two weeks we will delve into the economics underlying these facts a little more deeply.

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