[THIS PAGE IS INTENTIONALLY BLANK] Editor-in-chief: Criton Zoakos Associate Editor: Robyn Quijano Managing Editor: Susan Johnson Art Director: Martha Zoller Circulation Manager: Lana Wolfe Contributing Editors: Lyndon H. LaRouche, Jr., Christopher White, Costas Kalimtgis, From the Editor Uwe Parpart, Nancy Spannaus

INTELLIGENCE DIRECTORS: Africa: Douglas DeGroot Agriculture: Susan B. Cohen, Bob Ruschman Asia: Daniel Sneider Counterintelligence: Jeffrey Steinberg Economics: David Goldman Energy: William Engdahl Europe: Vivian Zoakos Latin America: Dennis Small Law: Felice Merritt Middle East: Robert Dreyfuss Military Strategy: Susan Welsh Science and Technology: Marsha Freeman Soviet Sector: Rachel Douglas United States: Konstantin George United Nations: Nancy Coker S ince Henry Kissinger rediscovered Communist China, we have been inundated with successive waves of Sinophilia. While the uncrit­ INTERNATIONAL BUREAUS: Bogota: Carlos Cota Meza ical adoration of Maoist China has slowed down somewhat, the media Bonn: George Gregory, in this country, encouraged by officials in Washington, are still Thierry LeMarc unabashedly biased toward our newfound "allies" in Peking. Chicago: Mitchell Hirsch Copenhagen: Vincent Robson The excesses of Maoism are supposedly over, and through the Houston: Tim Richardson leadership of Deng Xiaoping, China has entered a new era of political Mexico City: Josejina Menendez stability and openness to Western influence, we are told. Even more, Milan: Muriel Mirak Monterrey: M.Luisa Gomez del Campo there are daily reports of the victories of "capitalism" in China, from New Delhi: Paul Zykofsky Coca-Cola to hairdryers in Shanghai salons. Paris: Katherine Kanter, Sophie Tanapura This is a rebirth of that turn-of-the-century myth of the great Rome: Claudio Celani Chinese market. As many businessmen who have spent good hard Stockholm: Clifford Gaddy cash waiting in Peking anterooms for the past few years have discov­ Washington D.C.: Laura Chasen, Susan Kokinda ered, this time around the myth is no more real than befort;. Wiesbaden (European Economics): This week's Special Report is the first of a series which will give Mark Tritsch, Laurent Murawiec our readers hard facts inside of deliberate myths and wishful nonsense Executive Intelligence Review about China. The EIR made a decision several months ago to develop (ISSN 0 273-6314) is published weekly by a intelligence capability on China that would be second to none, and New Solidarity International Press Service 304 W.58thStreet, New York. N. Y. 10019. we have been quietly assembling the expertise and the information to In Europe: Campaigner Publications. carry out that commitment. Deutschl. GmbH. + Co. Vertriebs KG Postfach 1966. D. 6200 Wiesbaden The first installment focuses on the immediate political situation Copyright © 1980 New Solidarity inside China. Future reports will follow the events discussed in this International Press Service All rights reserved. Reproduction in whole or report, with lengthier background on Chinese history. And we are in part without permission strictly prohibited. now in the initial stages of preparing a blockbuster analysis of the Second-class postage paid at New York. New York and at additional mailing offices. Chinese economy that we promise will wipe out more than a few of those myths. POSTMASTER: Send address changes to New Solidarity International Press Service. 304 W. 58th St.. N. Y .. N. Y. 10019

Subscription by mail for the U.S.: 3 months-$125, 6 months-$225, I year-$396, Single issue-$10 ITillContents

Departments Economics

5 Editorial 6 Will Reagan dump A new set of choices Volcker ... or get Thatcherized? 51 Book Review The Friedman partisans in the Steven Bardwell, plasma physics Reagan camp want the Fed to director of the Fusion Energy contract credit before January. Foundation, on Jeremy Rifkin's Entropy: A New World View. 8 Banking Expanding credit through 52 Middle East Report a new Federal Reserve. Time running out for Assad. A special banking report on draft 53 Dateline Mexico legislation. The Wharton model: Documentation: Excerpts consumer fr aud. from the Federal Reserve Reform Act 61 Facts Behind Terrorism of 1981. The Hare Krishna: a synthetic cult. 11 France can cure inflation Faster depreciation 64 Energy Insider for industry and curbs Politics versus reality. on real-estate speculation are proposed in our economic survey.

16 India seeks assistance for large-scale industrial projects A report from New Delhi on current negotiations.

17 Currency Rates

18 International Credit European Currency Unit moves ahead.

19 Trade Review

20 Business Briefs Volume 7 Number 46 November 25, 1980

Special Report International National

42 Who's doing what 56 Reagan's cabinet choices: to whom in Poland they're up for grabs Lyndon LaRouche's The pledge not to restore analysis of the Nixon-Ford personnel London-Moscow gambits wholesale is being and the traps ahead. taken seriously.

46 Will Reagan support an 58 Moderates look to alternative to Camp David? leadership posts

Militia exercise at the Chiliying people's com- The interim U.S. debate The Democratic mune, in June 1975. Photo: Sygma and Europe's proposals. Party fight.

47 France, Tunisia launch 59' GO P chairmen to 22 Power struggle in development initiative reverse track China: the myth of The 'trialogue' comes off The Senate com­ 'the new stability' the drawing board. mittee prospects. An introduction. Documentation: The 62 National News 28 China's new leadership communique identifying investment areas. Their biographies.

49 'Shock therapy' 33 The return of the for Brazil? Chou-Deng group Correction: Chase Manhattan has An error crept into our A chronology, delivered its Nov. 18 book review heading. The from 1976 to 1980. instructions. publisher of Lyndon LaRouche's How Credit Can Be Greatly 35 The CCP: a facade Documentation: Comments by Expanded Without Adding to of discipline Willard Butcher and David Inflation is the National Party factions. Rockefeller. Democratic Policy Committee, not the New Democratic Policy Committee. The latter does not 37 The PLA: a 54 International Intelligence restive element exist. Army factions.

40 Discredited and dysfunctional The security apparatus. ''Watchfulobservers tend to ask themselves whether Volcker and Miller are merely incompetent or downright insane:'

- Lyndon H. LaRouche Contributing editor, Executive Intelligence Review

When Federal Reserve Chairman Paul Volcker introduced his credit control policies last year, the EIR was quick to sound the alarm to the danger of "Dr. Volcker's horse liniment."The Volcker package would not be anti-inflationary, EIR warned, but would carry the "Friedmanite stagflation" of the Nix<;>n years to extremes.

Finally, red-faced economists and government officials are now admitting that "some­ thing" went wrong.

The Executive Intelligence Review is now making available a comprehensive series of studies on the American economy to show why the Volcker measures had to fail, why the country's economists missed the boat in forecasting the trends for 1980, and why EIR's LaRouche-Riemann econometric model was right on the mark. Can the American Economy Recover?

A special reprint series from the Executive Intelligence Review available November 1980 $50.

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Make checks payable to: Executive Intelligence Review, Dept. M, 304 W. 58th Telephone Street, 5th Floor, New York, New York 10019 area code Editorial

A new set of choices

On Election Day 1980 the American population is on. George Shultz and William Simon, who are went to the polls to rid the nation of the zero­ mooted to be in line fo r top cabinet posts, are both growth austerity policies that have collapsed the on the record in favor of Friedmanite austerity economy, put millions out of work, and made the policies. "Mr. Shultz says Mr. Friedman is his United States a second-rate power. Americans favorite economist and recently told the New York made a choice. Against a media charade designed Times that Mr. Friedman is also Mr. Reagan's to hide the immense dissatisfaction with the ad­ favorite," reported Reaganite Jude Wanniski in the ministration, the population threw Carter onto the Wall Street Journal. Simon went on record recently unemployment lines. But will Federal Reserve endorsing V olcker tight money policies, and call­ Chairman Paul V olcker go with him? ing on Volcker to "take even stronger action" than Now a more active choice is demanded of the he has. "Nobody considers Paul Volcker the ene­ citizenry. Will the constituencies that handed Rea­ my," he told the Wall Street Journal. gan a landslide victory ensure that his administra­ An overwhelming majority of the electorate did tion will junk V olcker's policies and rebuild the consider Volcker the enemy, and as Wanniski re­ nation as an economic and scientificpower ? calls, Reagan smashed his opponents in the primar­ Europe is eyeing the transition; both the mone­ ies on the basis of his call for economic growth. tarist faction, and the European heads of state That fact is being well-publicized by factions committed to economic growth are out to influence within the Reagan camp and the Democratic Party. the Reagan administration. French President Gis­ A legislative draftproposal on banking reform that card and West German Chancellor Schmidt are defines a way to expand credit on a sound basis to said to be happy about the Reagan victory because serve a growing national economy is being widely it will mean a "strong America," unafraid of work­ circulated by the National Democratic Policy ing together with a strong Europe. Committee. "I think a functioning and growing economy in And within the Reagan camp a group of econ­ itself represents a major part of the security of a omists and elected officials are beginning to put the nation," said Schmidt shortly after the Reagan heat on to ensure that Reagan-who is said to landslide. This perspective, the one that guided the detest austerity-can respond to his mandate. creators of the European Monetary System, must Rep. Jack Kemp of New York charged this also be the guide for rebuilding America. week that Paul Volcker, by adhering to Friedman's The battle for and against four more years of monetarism, is wrecking the American economy. Friedmanism is now totally out in the open. Last "Austerity is the problem, not the solution," he week a former British prime minister, Conservative told EIR this week. "The only solution to our Edward Heath, warned against the Friedmanite economic problems is economic growth." To the policies that Margaret Thatcher has imposed on Buffalo Courier-Express Kemp said on Nov. 9: "If Britain. Thatcher's policies have been "cata­ we end up 'Thatcherizing' the economy, the voters strophic," he said, adding that Milton Friedman, a will turn on us with a vengeance. We've got to Reagan adviser, intends to abolish the industrial make people feel good right away. If we go back to base in the United States. "If you persuade Reagan the old-time economics that I call 'root-canal' eco­ to accept that, then the future of the American nomics, we'll be turned out. The advocates of ' root­ people is really bleak," he warned. canal' economics argue that the worse you feel, the But from the side of Friedmanism, the pressure better off you'll be.... "

EIR November 25, 1980 Editorial 5 �TIillEconomics

Will Reagan dump Volcker

...or get Thatcherized?

by David Goldman

Certain of Milton Friedman's collaborators in President­ The most important events with respect to the new elect Ronald Reagan's entourage have already figured administration's policies took place last week in Paris, out how to sell a depression policy to the incoming chief Bonn, and Riyadh, where a deal emerged to stabilize the executive, London Times Editor-in-Chief William Rees­ European Monetary System (EMS). The EMS is now a Mogg reports. They will explain to Mr. Reagan that ifhe stable currency zone of the European Community mem­ causes the Federal Reserve to tighten credit and force a bers (excluding the recalcitrant British), and plans to monetary bloodbath as soon as he takes office, the become an alternative monetary power center to the economy will recover in time for the 1982 congressional International Monetary Fund, the leading enforcer of elections! Friedmanite policies on the developing sector. In the meantime, Jude Wanniski reported in the Wall Street JournalNov. 10, that the. Friedman gang is hoping The Fed's putsch Fed Chairman Paul VoIcker will enforce "mindbog gling As EIR reported Nov. 11, the Federal Reserve, i.e., interest-rate austerity" between now and Jan. 20, when FRB Chairman Paul VoIcker and New York Fed Reagan takes office, ill order to remove the blame for the President Anthony Solomon, decided to pre-empt the hideous consequences from the new administration. new administration's ties to European economic policy It is hard to imagine how, except by such twisted and by breaking up the European Monetary System before cynical arguments, the monetarists who now advise the Jan. 20. The chosen vehicle for the assault was what the President-elect could possibly persuade him to continue French call "interest-rate warfare," i.e., a strong rise in the V oIcker program, after the economic disasters in dollar interest rates to draw hot-money flows into the both the United States and Britain during the past year. dollar (and the pound sterling), and disrupt European Fortunately, much more will shape Governor Reagan's monetary stability. outlook than the advice of Bill Simon, George Shultz, The dollar rose spectacularly, from less than DM Alan Greenspan, Arthur F. Burns, and other certified 1.90 to over DM 1.96 Nov. 7, per the Fed's intention. losers. What is most important now is not the infighting But on Nov. 10, word reached the foreign exchange around the cabinet but how Reagan views himself as a markets of negotiations between the West Germans and world leader, and how he responds to his peers among French for a $10 billion credit package, in advance of other allied world leaders-as opposed to mere employ­ the European Community's scheduled $10 billion bor­ ees in Washington. rowing for next year. At the same time, according to

6 Economics EIR November 25, 1980 Saudi sources EIR considers authoritative, the Saudi as the London Financial Times put it the morning of Arabian Monetary Agency shifted funds from dollars Nov. 10. But the events on the foreign exchange markets into West German marks. In five hours, the dollar following the meeting show clearly who won. plummeted 5 pfennig, from DM 1.95 to DM 1.90, and fell below the 1.90 mark, where it remains as of this Reagan's choices writing. It will take some doing to transform this favorable Of equal importance was the decision of Western strategic correlation into a policy profile forthe Reagan European central banks to support the price of gold administration in the United States. Regrettably, Rea­ when it fell below $600 per ounce last week, apparently gan decided not to meet any foreign leaders personally due to high interest rates. (Eurodollar short-term rates in order to avoid Israeli Prime Minister Menachem exceeded 171/2 percent by the end of last week, forcing Begin, and will delegate former Treasury Secretary many gold holders who had bought gold on credit to George Shultz to meet with West German Chancellor liquidate their positions.) The European Monetary Sys­ Schmidt when Schmidt comes to the United States this tem fu nctions on a gold reserve basis: 20 percent of the coming week. One group of Reagan's advisers, includ­ gold reserves of its members are pooled and valued at ing Rep. Jack Kemp and fo rmer Wall Street Journal market price. and each member is permitted to draw associate editor Jude Wanniski, have started a spirited currency in European Currency Unit (ECU) denomi­ attack on the "Thatcherization of Reagan," as Wannis­ nation in order to defend the parity of its currency. ki put in his Wall Street Journal op-ed Nov. 10. Strategically, the EMS gold-reserve system is the poten­ Kemp and his associates fall short, however, of tial vehicle for a re-linking of the dollar to gold. being able to offer Reagan more than the suggestion that reductions in marginal tax rates will automatically EMS, Saudi countercoup cure the depression. Kemp told EIR that much would The fo reign exchange markets are now saturated be decided at the four-day meeting the weekend of Nov. with rumors concerning what the Europeans and Saudis 16 among Reagan and Kemp, Arthur Burns, Milton are up to, particularly since the West German business Friedman, George Shultz, Alan Greenspan, and Wil­ weekly Wirtschafts woche reported a $9 billion Saudi liam Simon. direct credit facility to the West German Bundesbank The New York congressman is probably wrong Nov. 11 (a report denied by the West German finance about the unique importance of this meeting. Reagan ministry). has a national constituency to answer to, one much However, what is clear is that Western Europe has broader than the spectrum of views among his advisers. carried off a political coup with the Mideast's richest oil Most of the Western senators who formed the backbone nation, for the combined purposes of Persian Gulf of his early campaign effort, including Paul Laxalt of security, currency stability, and oil price moderation Nevada, and Orrin Hatch and Jake Garn of Utah, are (see International). There is no longer serious discussion spoiling for a fight with what Wanniski called "The of a major oil price increase. Eastern Establishment (Trilateral Commission, Council European leaders can now tell the new administra­ on Foreign Relations, international bankers)." The tion precisely why Paul Volcker is the first Carter Democratic Party will have a resurgent conservative official it must get rid of. They can point to the wing, characterized better by Lyndon LaRouche's Na­ economic disaster brought on by 18 months of Fried­ tional Democratic Policy Committee than the Ameri­ manite policies in Britain, including production levels cans for Democratic Action. lower than those of 1969 and nearly 20 percent inflation: Whatever initial appointments Reagan makes for a more advanced version of what has occurred under the senior cabinet jobs, he will have to come to terms Paul Volcker's direction in the United States. They can with his peers among America's allies, and the real indicate the prospects fo r world economic recovery constituencies who voted him into office in protest through expanded international trade, provided the against the consequences of Paul Volcker's atrocious United States cooperates with the European Monetary blunders. All bets are off on what Reagan will finally System. do. It may be that the apparent dip in the Federal funds The Federal Reserve's "interest-rate war" turned rate this week shows that V olcker fears the conse­ into a rout at a central bankers' meeting at the Bank fo r quences of continued increases in the prime rate. It is International Settlements on the weekend of Nov. 8 and too early to tell whether for political reasons interest 9. Called to discuss means of stabilizing the West rates have peaked, although the stock market apparent­ German mark, the meeting produced no results what­ ly drew that conclusion Nov. 12. The point is that the ever, according to wire service accounts, except the rules of the game have changed in a fundamental way conclusion that "the monetary policy of the Bundes­ since the Nov. 4 elections, and unlike the Carter ad­ bank and the Federal Reserve are totally incompatible," ministration, Mr. Reagan has a margin for success.

EIR November 25, 1980 Economics 7 Special Banking

Expanding credit through a new Federal Reserve

by Kathy Burdman

The National Democratic Policy Committee announced The aim of the amendments is: 1) to forbid the this week the release of a draft"F ederal Reserve Reform Federal Reserve from creation of new fiat credit Act of 1981," reshaping the nation's central bank in through its current mechanism of open-market opera­ order to halt the current inflationary expansion of money tions, commonly known as creation of net new money supply. The act would redirect expanded credit instead supply; 2) to provide the banking system instead with to high-technology capital-goods investment and a gen­ unlimited new credit through the Fed discount window, eral expansion of production of real industrial and agri­ provided that all loans to the economy presented to cutural wealth. discount by banks to the Fed are earmarked for new The legislation is based on proposals by policy com­ real capital investment, production, or transport of mittee advisory board chairman Lyndon H. LaRouche, tangible wealth; and 3) to raise reserve requirements Jr. to return the United States to the form of central charges on the deposits of those banks whose total loans banking originally intended by Treasury Secretary Alex­ and other assets outstanding show an inadequate pro­ ander Hamilton and embodied in the Constitution. The portion of lending for purposes of tangible real pro­ current Federal Reserve open-market creation of bank duction. reserves is unconstitutional, states LaRouche, because it Modification of open market operations. "The core leaves "the power to create fiat credit in the hands of a of the problem," the supporting brief to the new act powerful cartel of private bankers" led by Citibank and asserts, "is to be found in the way that the Federal Chase Manhattan, "who dominate the federal funds Reserve System creates money." The Fed currently adds market." Mr. LaRouche, a 1980 conservative Dem­ net new money supply to the banking system each week ocratic presidential candidate, called instead for a return by printing of fresh new Federal Reserve Notes, the to "the constitutional obligation of the federal govern­ familiar bills which circulate as currency, to buy a ment" to ensure that the nation's credit goes directly to certain portion of U.S. Treasury bills or notes, the productive manufactures and agriculture. government's debt, which would not otherwise be pur­ The National Democratic Policy Committee is an chased by money already in circulation in the banking organization of conservative Democrats formed after the system. This is known as "monetizing the government August 1980 Democratic Party National Convention in debt," printing fiat money to finance the government's opposition to the party's nomination of Jimmy Carter. deficit. The committee, which accurately predicted the disas­ Even worse than this inflationary problem of "How trous loss by the Democrats on Nov. 4 under a Carter much money supply?" the brief continues, "is the candidacy, rej ects the no-growth economics of the Carter question 'Whose?' '' In practice, the Fed does not administration, and seeks to revitalize the party through purchase Treasury bills directly from the Treasury, but the promotion of high-technology industrial develop­ from the two dozen leading Wall Street government ment. securities houses such as Salomon Brothers and Gold­ man, Sachs, who have bought the debt from the Treas­ The legislative agenda ury in anticipation. These big security dealers then The Federal Reserve Reform Act of 1981 would deposit the proceeds of their Treasury debt sale-the amend the Federal Reserve Act of 1913 which created new fiat-money of the Federal Reserve-into accounts the Fed system. at the top 20 commercial banks, led by New York's

8 Economics EIR November 25, 1980 Citibank and Chase Manhattan. effect on tangible goods or services, so that the central "The banks then have additional deposits, created bank is assured new money goes to create real wealth. out of thin air," the National Democratic Policy Com­ mittee brief points out. "They then create more money Criteria for borrowing out of thin air: they loan their deposits to a customer; For example, U.S. Steel will be able to get a loan the customer's loan is redeposited and becomes a new from the Pittsburgh National Bank if it can prove the deposit; and so forth." Current reserve requirements funds will be used to build a new steel plant. In that limit the "money multiplier" to about 2.5 times the orig­ case, the banker will be able to take the loan agreement inal creation of new money by the Federal Reserve to the Fed discount window under the new act and System. borrow cash up to 50 percent of the value of the loan. The control of the nation's credit thus rests with a The 50 percent requirement is to make sure the banker private banking cartel, not the federal government, the continues to bear his share of the loan's risk, to ensure legislative brief states. sound lending. "In effect, the Fed shares its monopoly powers over If U.S. Steel wants to borrow, however, to diversify money creation with a handful of big money-center into real-estate speculation or casino gambling, Pitts­ banks. If these institutions made most of their loans to burgh National will advise them that the Fed wouldn't the goods-producing sector of the American economy, discount such a loan and that the bank cannot make it, there would be no problem. They do precisely the except perhaps at exorbitant rates. opposite. Half the profits of the top 10 commercial The new Act states in Section 4: banks accrue from the highly speculative Eurodollar "Upon the endorsement of any of its member market. The large banks are as likely to lend out the banks ...any Federal Reserve bank may discount newly created money they received from the Federal up to 50 percent of the face value of notes, drafts, Reserve into the Eurodollar sinkhole as they are to the . and bills of exchange rising out of the production American economy. of actual tangible wealth or capital improve­ "That explains why the majority of the nation's ments ....This shall be defined as the purchase of 14,700 commercial banks have suffered a deposit short­ raw and intermediate materials and capital goods, age during the past two years, even while money supply construction of facilities, or employment of labor rose sharply. What the Federal Reserve pumps in does to produce or transport manufactured goods, ag­ not reach the capillary system of the economy, because ricultural commodities, and construction mate­ the aorta has a leak." rials; to work mines; to build manufacturing, The Federal Reserve Reform Act of 1981 therefore transportation, and mining facilities or dwellings; proposes to modify the Fed's open-market operations to produce and deliver energy in all forms; and to such that net new fiat money is no longer created provide public utilities." through money supply expansion, which the act accom­ plishes in Section 3 by setting a statutory limit to the Preventive reserve requirements. To prevent banks amount of U.S. government debt the Fed may hold. generally from lending new Federal Reserve discount The Fed may continue to perform the other functions window credits, which may be redeposited by the bor­ of open-market operations, such as the short-term buy­ rowers or among banks many times, for nonproductive ing and selling of Treasury debt to stabilize the markets, purposes thereafter, the new act further adds a safety but may not buy net new debt. reserve requirement. A new, expanded discount window. The new act The Federal Reserve now requires all banks to keep then proposes that large amounts of new credit be is­ on deposit with the Fed a reserve against bad loans, sued to the economy, rather, by the reformed Fed's calculated at an average rate of 16 percent of the bank's getting back total constitutional federal government total deposits. This in effect costs the bank money, since control over its new fiat money and directing it specifi­ the funds are immobilized, and cannot be loaned out. cally to productive enterprise. "The Federal Reserve Under the new act, as long as banks maintain at System may create new money indefinitely as long as least 60 percent of their loans in the real productive the new money serves to create new wealth," the activities listed above, they will be subject to normal supporting brief states. reserve requirements. However: "For every I percent by The new act therefore proposes that the Fed open which the member bank's proportion of tangible wide its discount window, which currently provides, by wealth-creating assets falls below 60 percent of total custom, only marginal amounts of credit for emergen­ assets," the new act states, "the Federal Reserve shall cies to the banks, for general productive lending. The require" an additional 1 percent reserve-requirement advantage of the discount window is that it discounts, charge. This should greatly discourage any bank from via the banks, bills of trade which represent chits in falling below the 60 percent productive-asset limit.

EIR November 25, 1980 Economics 9 "U pon the endorsement of any of its member banks, with a waiver of demand, notice, and protest by such bank, any Federal Reserve bank may discount up to 50 percent of the face value of notes, drafts, and bills of The Federal Reserve exchange arising out of the production of actual tangible wealth or capital improvements for the production of Reform Act of 1981 tangible wealth. Any Federal Reserve bank may also pay in 50 percent of the value of any loan made by any The fo llowing are excerpts from the National Democratic member bank fo r the purpose of furthering the produc­ Policy Committee draft legislation: tion of tangible wealth. This shall be defined as the purchase of raw and intermediate materials and capital Sec. 3. Sec. 14 of the Federal Reserve Act of 1913 as goods, construction of facilities, or employment oflabor amended is hereby amended to include the following new to produce or transport manufactured goods, agricultur­ paragraph: al commodities, and construction materials; to work Sec.2. Sec. 14 of the Federal Reserve Act of 1913 as mines; to build manufacturing, transportation, and min­ amended is hereby amended to include the following new ing facilities or dwellings; to produce and deliver energy paragraph: in all forms; and to provide public utilities for communi­ "The power of the Federal Reserve banks to purchase cations. Such definition shall not include notes, drafts, or sell bills, notes, and bonds of the United States shall bills, or loans issued or drawn for the purpose of con­ be limited to these functions; ducting business except in the areas so defined, or for "a) the anticipation of tax revenues accruing not carrying or trading in stocks. bonds, or other investment more than one year from the date of purchase of said securities. bills, notes, and bonds, in order to help maintain an "Any Federal Reserve bank may discount the full orderly flow of disbursements by the United States value of acceptances which are based on the exportation Treasury; of goods, or 50 percent of the value of acceptances which "b) to maintain an orderly market in the bills, notes, are based on the importation of goods, provided that and bonds of the United States, and to meet the tempo­ such goods conform to the restrictions set fo rth in the rary liquidity needs of members of the Federal Reserve preceding paragraph. System; "All Federal Reserve banks shall meet all such re­ "c) the purchase of such liabilities of the United quests fo r discount of or participation in notes, drafts, States as may be presented by foreign governments for bills, and loans made by member banks, once the Federal sale to the Federal Reserve System by said governments; Reserve bank has determined that the purpose of such "However, the total holdings of the Federal Reserve credit conforms to the restrictions set fo rth above. There banks of bills, notes, and bonds of the United States shall shall be no restrictions applied to such discounts in be set as an annual ceiling as of the date of enactment of furtherance of tangible wealth creation on the basis of this Act. Said holdings may vary in size in the course of member banks' capital positions .... each year, but may not increase in size at the end of the "This Section shall stand as amended in Public Law year, fo llowing enactment of this Act and at annual No. 302, enacted July 21, 1932 (H.R. 9642 Sec. 210)." intervals thereafter, except as a result of purchases of official liabilities of the United States from foreign gov­ Sec. 5. Section 19 of the Federal Reserve Act of 1913 ernments, i.e., the Federal government may not create shall be amended to include the following: money supply by monetizing United States government "The above reserve requirements shall apply in the debt;" case that member banks maintain 60 percent of their total assets in the form of loans, bills, drafts, and ad­ Sec. 4. Section 13 of the Federal Reserve Act is hereby vances to tangible wealth-creating borrowers, of a type amended to read: eligible for discount under Sec. 4 of the Federal Reserve "Any Federal Reserve bank may receive from any of Reform Act. For every one percent by which the member its member banks, and from the United States, deposits bank's proportion of tangible wealth-creating assets falls of current funds in lawful money, national-bank notes, below 50 percent of total assets, the Federal Reserve Federal Reserve notes, or checks and drafts upon solvent banks shall require that member bank to place an addi­ member banks, payable upon presentation; or, solely for tional one percent of demand deposits in reserve with the exchange purposes, may receive fr om other Federal Re­ Federal Reserve banks. However, to permit an orderly serve banks deposits of current funds in lawful money, or transition to this reserve rule, this formula shall apply checks and draftsupon solvent member or other Federal only to new assets appearing on the balance sheets of Reserve banks, payable upon presentation. member banks afterthe date of enactment of this Act."

10 Economics EIR November 25, 1980 France can cure inflation Laurent Murawiec 's survey of the economy's dirigist strengths, and the remedies for its weaknesses.

French output levels broke into a sharp downturn during share of nuclear-generated energy from a few percent­ the second quarter of 1980, with a 13 percent annualized age points in 1974 to 40 percent of total energy con­ rate of decline of manufacturing output, and the consen­ sumption by 1990. A total of about 65 gigawatts will sus fo recast for 1981 sees a year of little or no economic have come on line by then-one nuclear power plant growth. The short-run behavior of the French economy will start operating every second month between this has largely to do with the effects of the 1979 doubling in year and 1988, including the world's first large-scale oil prices, and consequent tighter interest rates at home commercial fast breeder, the Super-Phenix. and constricted markets abroad. This investment of more than $60 billion (the Eighth But the near-term behavior of the output indices is National Five-Year Plan calls for an annual investment less important as a measure of French economic success of $19 billion in the energy sector at large, $12 billion of than the French government's willingness, and ability, to which will be government outlay) has only been made take on two basic structural problems that have chroni­ possible by a mobilization of the nation's credit and cally weakened French economic growth: the low rate of productive powers. Those state corporations at the depreciation of capital stock, and the parasitical, infla­ center of the nuclear program and the other "first tionary growth of the real-estate sector. Both add up to circle" industries-the national utility, EOF; the atomic unacceptable susceptibility to inflation, now running at energy commission, CEA; the aerospace's SNIAS; the an annual rate of almost 14 percent. national railway corporation, SNCF; the coal board, Foreign constraints, including the slowing of inter­ COF; and even the postal administration-have doubled national trade and the Federal Reserve's "interest-rate their productive investment since 1973 in constant prices, war," might be blamed by French officials for the im­ while real GOP only grew by 21 percent. mediate recession problem. But the domestic crisis-man­ Those public corporations, plus the dense industrial agement policy of Premier Raymond Barre has actually network of subcontractors and private-sector corpora­ worsened the French economy's biggest structural prob­ tions associated with one or the other aspect of the lem: France's inability to turn its spectacular success in a industrial programs-companies such as Creusot-Loire, handful of state-sponsored industries into a general re­ leumont-Schneider, and Saint-Gobain-Pont-a-Mous­ newal of production methods in stagnant sectors . son-are reaping the benefits of the French conception of dirigisme. The national five-year plan is "indicative," The first circle of industry that is, it does not imply a bureaucratic type of The secret of the French economy lies in the ex­ planning, but a concerted programming of major na­ tremely high concentration of available means, in both tional economic development objectives, and the con­ physical and financial terms, in a few select high-tech­ centration of budgetary, fiscal, and credit policies in the nology, capital-intensive sectors which are generally service of such aims. state-owned or steered. The two principal poles are the The top priority has been capital goods with high energy sector with its nuclear spearhead, and the de­ technological content. The defense/aerospace sector fense/aerospace, transportation, telecommunications, sells about $6 billion a year abroad, 8 percent of the and electronics that provide the complement. country's exports, and 10 percent of the world's arms Nothing better than the nuclear program shows the trade. (France ranks third in international military inner workings of the "French System." Initiated in materiel exports.) Aircraft represents two-thirds of this. 1974 by then-President Georges Pompidou, and ampli­ If Concorde, a technical success, was a commercial flop, fied by his successor, the program calls for lifting the Airbus, the Oassault Corporation's Mirage, the Alpha-

EIR November 25, 1980 Economics 11 Jet, and others are all the results of this deliberate manipulation of U.S. interest rates, in order to prevent focusing of national credit on high-powered investment. an outflow offunds. Three-month money, which yielded More recently, France has joined the international space 6.44 percent in December 1979, now fetches 13 percent, club Eurosat, with launchers and satellites, and a prom­ and long-term government bonds, which carried 9.94 ising commercial future. percent, now carry 13.44 percent. The effects on the productive economy, and especially on those sectors Export promotion system highly dependent on nonsubsidized credit, are obvious. The other pillar of the mechanism is export financ­ Meanwhile, the rate of inflation has stubbornly ing, which invariably provokes spasms of hysteria refused to abate, for reasons examined later, and re­ among British and American officials, insofar as it mains in the range of 12 to 14 percent per annum in the represents to them the very conception of "excess upper tier of the OECD countries, which strengthens industrialization and export" which the Council on the case for expensive credit. The currency, thanks to Foreign Relations and the City of London so badly such measures, has remained at the top of the EMS want to suppress. Its central aim is to maximize the parity grid with great stability. export of high-value capital goods, including military In global terms, the 1980 budget is a deflationary hardware. exercise, with a small deficit of FF 31 billion-France The Banque de France has a window open for the has one of the OECD's lowest national debts in absolute Banque Fran�aise du Commerce Exterieur, the French and relative terms-which includes significant fiscal foreign trade bank, and lends it at a rate of 4.5 percent, stimulus for investment, and, for the first time after which BFCE makes available to the commercial banks years of neglect of this sector, a big boost for the for financing exports. This subsidized credit is then research and development effort of the state. mixed with market-rate credits to obtain an interest in conformity with the OECD's export-credit, gentleman's A piecemeal approach agreement floor-rate of7.75 percent. France is the only This budget typifies the policy pursued by Mr. Barre national party to this agreement to lend at the floor­ ever since he became premier in the fall of 1976: while it rate. In 1979, about $16.5 billion of purchaser credit allocates sizable resources to the development of the was extended in this way (and as much went to French "first circle" sector, those situated outside that tier are industrialists as supplier credit). Coface, the Compagnie simply leftto the play of "market forces." Fran�aise pour l'Aide au Commerce Exterieur, orga­ The crisis-ridden steel industry was ruthlessly re­ nizes every credit package for the private or public structured two years ago at great loss of labor, capacity, sector corporations involved. It is not an accident that and productive power. About $1 billion was expended the growth rate of export credit (29.3 percent in 1976, on both restructuring and the sprinkling of investments 25.6 percent in 1977, 12 percent in 1978, and 19 percent over the regions hit by closings and layoffs. That money in 1979) has been one of the fastest of all categories of was not channeled into creating new, growth-oriented credit, with purchasers' credit alone growing even fast­ industrial facilities, but simply used to cool down local er. This has been the principal cause of a return to the unrest, ridiculously. Auto components plants replaced black in trade figures prior to the second oil shock. steel, at least to some extent, but are also facing The second oil shock has increased the imported escalating troubles, now that the cheap-credit-depen­ energy bill from FF 84 to FF 146 billion; the 1980 trade dent automobile sector sales are on a downward slope. deficit will amount to FF 60 billion, and the current But there is worse than this piecemeal approach in account deficit to FF 30 billion. It will take the tradi­ Mr. Barre's book. (This may bear some partial resem­ tionally large surplus on invisibles, large inflows of blance to Mrs. Thatcher's shock therapy, but ill-educat­ foreign, especially OPEC, capital, and fairly large bor­ ed individuals in the Anglo-American press who present rowings by the public sector corporations to balance the both as cothinkers simply fail to understand that the account. export orientation and reindustrialization which other­ In the first half of 1980, in spite of successful forays wise characterize French policy are nowhere to be seen into relatively new markets such as Brazil or English­ on the other side of the Channel). Barre's liberal dogma speaking Africa, a worrisome trend has decreased the led last year to the lifting of price controls, which surplus on capital goods account, and sales to the sparked off a new round of inflation, far less short-lived LDC's show a similar trend. The sales deficit with than the premier expected. As a result of the spate of OECD countries has doubled, reflecting traditionally price increases that exploded, and to which public prices high imports of capital goods fr om that sector, and a contributed noticeably, the government amplified the tendency fo r imports to grow faster than exports. policy of budgetary and fiscal austerity fo llowed since The French government has had to sharply increase 1976, and its companion, enforced wage austerity. the level of interest to respond to Paul Volcker's upward The rationale behind the new "freedom of prices"

12 Economics EIR November 25, 1980 (prices were under state control since 1939) is that this conservatism" threatens Giscard's second mandate, by freedom will force the "truth of prices" to the fore and creating a larger and increasingly desperate pool of effect a "sanitization of the industrial fabric," in Mr. unemployed, underemployed, and soon-to-be-laid-off Barre's own words. labor, prone to be organized against the president. The resulting anarchic "cutting the fat" in the nonpriority sectors has meant a very large increase in The domestic constraints industrial bankruptcies and layoffs . If many corpora­ Contrary to liberal dogma and Keynesian environ­ tions have been able to use the new leeway to increase mentalist delusions, there is a way to solve the paradox prices to reconstitute their war chests, they have not without unleashing either inflation or unemployment. necessarily used their added cash to invest. Little ration­ That solution, however, requires extremely bold politi­ al effort has been made to generate durable industrial cal and economic steps to finally remove the built-in, employment, in spite of countless "plans" and "mini­ quasi-feudal interests that parasitize the French econo­ plans" and spates of measures trumpeted by the pre­ my and continuously burden its growth. mier's office. First, the. historical fact of a lack of "in-breadth" This year, the private sector is expected to increase industrialization. Only 38 percent of the population is its investment by 4.5 percent, and the public-owned employed in industry, as compared to 45 percent in corporations by 10 percent. Still, industrial output is neighboring Germany. The domestic market, as a con­ already down 3.5 percent over the year before, and the sequence, is fairly small, especially with a total popula­ alarm signals are blinking in many branches, especially tion of only 53 million. While the agricultural popula­ steel, chemicals, textiles, shipyards (in spite of the just tion, contrary to a widespread belief, amounts to only 9 announced $3.5 billion Saudi order), while auto stag­ percent of the total, the service sector now accounts for nates at a still-high level. Engineering expects only very nearly 53 percent of the active population, and the mild growth. Only electronics and pharmaceuticals are latter's entirely parasitical (as opposed to socially nec­ unequivocally up among the nonpriority sectors. essary) component, retail trade, and office employment A regional review reveals several extremely sensitive in banking, insurance, and other bureaucracies, repre­ hotspots, especially in the crisis-wracked regions of old sents an increasingly unbearable toll. industry, the north, Lorraine, and a more general It is fortunate that the agricultural sector has been nibbling away of small chunks of the industrial fabric able, in spite of intense speculation on the value of land, throughout the country, which add up to increasingly to progress at unprecedented rates since the early 196Os, significant results. As mentioned above, official unem­ and evolve into a highly capitalized, relatively concen­ ployment figures are above 1.5 million, and moving fast trated, and high-yield sector. This has generated a very to the 2 million mark. healthy export surplus, and partially offset the extreme Against that background, and that of the upcoming weakness of the downstream food industry. presidential election, a major debate has erupted around While those parts of industry defined here as the the soon-to-be-released Eighth Five-Year Plan. Premier "first circle" rank among the world's leaders in their Barre's version of it calls fo r an average annual real domain, other branches, such as textiles and, worst of growth of no more than 2.5 percent, which he claims all, construction, are large-scale employers, and ex­ would permit a balancing of the domestic and external tremely backward and labor intensive. accounts and preserve the parity of the franc-his stated Employment in industry, including construction, priorities. Barre also acknowledges that this would add peaked in 1974, and lost 8 percent last year, down to 7 between one-half and a fu ll million new unemployed to million, while service employment grew 1.5 million, or the current figures. Hardly an appealing election pro­ 15 percent, now totaling more than II million. gram . Planning Commissioner Michel Albert has associ­ Low depreciation ated with Giscard's likely presidential challenger, So­ An economy can offset the cost of taking goods out cialist Michel Rocard, the Council on Foreign Rela­ of the process of productive circulation only by increas­ tions' French pet, to push a counterproposal aimed at ing productivity. If the services and government sectors gaining 300,000 to 1 million jobs over the same five­ of employment grow faster than the rate of productivity, year period-at the price of zero growth in the workers' inflation will ensue. purchasing power, a 35-hour work week, a strong It is elementary financialmana gement that addition­ budget deficit, and large increase in foreign indebted­ al expenditures on pure economic overhead will cause ness, with labor-intensive "soft energies" and "soft inflation in the price of tangible goods, because such technologies" content. expenditures put additional money supply in circulation This counterproposal is designed more for the elec­ faster than the economy produces tangible wealth. torate than the economy. Still, Barre's stubborn "fiscal What is less obvious is the way capital investment

EIR November 25, 1980 Economics 13 contributes to this process. The new fixedinv estment in advances, i.e. the low rate of depreciation in the capital goods each year also removes a portion of LaRouche-Riemann model's terms. tangible goods from circulation. If the cost of fixed This is one of the two decisive factors in France's investment is not offset by increasing productivity, inflation problem. We see from Figure 2 (at right) that investment will appear as inflationary. between 1970 and 1978, employment in the private Undepreciated new investment and overhead (ser­ services sector rose by 21 percent, employment in the vices and government) expenditures are the precise government sector was virtually unchanged, and indus­ equivalent of waste heat in thermodynamic process, i.e., trial employment was virtually unchanged. At the same the amount of energy lost to the process. Tangible time, the index of French manufacturing productivity goods that are recirculated back into the production rose by 32 percent. process, such as raw and intermediate goods and con­ This tells us that the rate of productivity growth was sumption of goods-producing workers, are "recap­ sufficient to contain the expansion of overhead costs. tured" as thermodynamic work. So is the depreciation But we have already seen that this productivity growth of the fixed capital stock, the portion of capital stock was not translated into a sufficient rate of renewal of "absorbed" into the production process in each cycle. the capital stock. In addition, the French economy France's major problem is a low rate of depreciation, began to suffer from a form of fictitious overhead cost or a high rate of entropy associated with capital invest­ in the form of uncontrolled real-estate speCUlation, ment. The state-backed investment policy in nuclear which made up the biggest portion of monetary infla­ energy, aerospace, transportation has produced spectac­ tion during the past decade. ular gains in productivity in those sectors. But the spinoff productivity of these investments with respect to High real-estate speculation the rest of the economy has been low. Measurement of The high cost of housing, adding up to more than a the actual rate of turnover of capital stock in France is third of national credit, is the second home-grown difficult. But we can take, for purposes of rough esti­ ingredient of inflation. mate, France's capital goods import dependency as a "Monetary" inflation primarily (if not exclusively) rough measure of the depreciation problem. The high originates in real-estate speculation. The history of the import dependency shows that economic growth led by problem starts with the enormous housing shortage that state investments did not "resonate" through the rest of emerged in the postwar period. the economy, and that the discrepancy in growth rates To face this explosive problem, a fr anchise was had to be made up through imports. given to the banking sector, in the form of lavish and Figure I compares the rate of industrial production cheap credit, so that it could finance, at any price, a change with change in imports from the United States, real-estate boom and somehow settle the problem. (An a major source of French capital goods imports. important political compromise was also involved in The data fo r 1978 and 1979 are striking; they show allowing monetarist sectors of the financial structure to a huge increase in the real volume of capital goods acquire this looting license in return for their neutrality imports needed to maintain the investment program on other policies.) A construction boom did start in the backed by the state. This discrepancy in rates of increase 1958-60 period. Still, as late as 1977, almost 60 percent of output and of capital-goods imports measures the of housing was over 35 years of age, with 21 percent narrowness o/base of the French economy's productivity over a century old. This, then, explains why households were compelled to devote upward of 30 percent of their income to housing costs. In 1973, one square meter of a newly built apartment Figure 1 in Paris (one Frenchman in five lives in the Paris region) French industrial and import trends, was on average worth 3,500 francs. By 1978, this had 1974-79 become 7,400 francs, and today 11,000 fr ancs. This trebling of the cost, which gallops far above and beyond Percentage change Percentage change industrial output imports from U.S. the average rate of inflation, represents all the more a cancerous development. In one "real-estate franc," only 1974 ...... +2.9% +2.4 % slightly more than 30 percent represents effective physi­ 1975 ...... -7.9 -6.5 cal and other necessary costs (design, construction, 1976 ...... -9.8 +8.0 necessary overhead, and financial costs), while the state 1977 ...... +1.9 -2.3 pockets 15 percent of the final value in the fo rm of 1978 ...... +0.9 +11.2 value-added tax (VAT). The rest, a mind-boggling 55 1979 ...... +4.5 +14.1 percent of the sales price, goes to pure speculation-the capitalization of fictitious values as represented by

14 Economics EIR November 25, 1980 Figure 2 The French labor force, 1970-78

Sector Percentage Absolute (in millions) 1970 1978 change· change··

Total active resident population ...... 21.37 22.67 +6.1% 1.30 Employed ...... 20.86 21.48 +2.9 .62 Unemployed ...... 5 1 1.20 +135.3 .68 Manufacturing ...... 5.84 5.79 -0.9 .32 Civil engineering , construction ...... 1.99 1.84 -7.9 .16 Transportation, communications ...... 1.20 1.32 +9.7 .12 Private sector ...... 5.60 6.78 +21. 1 1.18 Public sector ...... 3.43 3.76 +9.5 .33

*Based on non-rounded figures **Rounded separately

ground rent. is 20 percent higher than that of his German counter­ At the national level, in addition, out of FF 511 part. billion of total medium and long-term credit distributed, e.g. in 1977, to the economy as a whole (corporate Service sector expansion sector, households, budget, etc.), no less than FF 178 The relatively smaller share of industry in total billion-35 percent-went to the combined construc­ employment has worsened in the last years. Manufac­ tion/real estate sector. Gridding the "real cost of con­ turing employment has dropped from 27.3 percent of struction" factor against total credit expansion, what the labor force total in 1970 to 24.3 percent in 1978. emerges is that on the chosen example of 1977, 19 Industry-manufacturing plus construction, civil engi­ percent of all credit extended to the economy, both neering, transportation, and telecommunications-has medium- and long-term, went into capitalizing entirely seen its share drop from 42.2 percent to 39.4 percent in speculative ground rent values! Compared with the the same period. more than 10 percent rates of inflation painstakingly On the other hand, the service sector alone absorbed attained through Mr. Barre's policy, it becomes obvious more than the total increase in the labor force, and that only massive transfers of value from the productive created close to 1.5 million jobs in that period, an sector into this speculative bubble can feed it by preserv­ increase of more than 14 percent. And, while it repre­ ing the "value" of this financial paper, and conversely, sented 42.2 percent of the active population in 1970, it that all the inflation generated by the bubble must be now amounts to more than 46 percent. The rest went to mopped up by slashing the expenditure of other sec­ the dole. tors-hence, budget and wage austerity. Of the 1.5 million jobs created in the service sector, "Structural" inflation, on the other hand, has con­ a full 1 million were created in retail trade, general tinuously been worsened by the tax levied against real commerce, distribution, and clerical employment in estate. As the tax works its way throughout the econom­ banking and insurance, generating burgeoning over­ ic pyramid, consumption, investment, and the internal head costs that would increasingly offset whatever profit and external value of the currency suffer, with the result margins were being generated in the productive areas. that the dirigiste policy described above has to concen­ Freezing the real-estate bubble in its present state trate relatively scarce means (the "free energy" that would free national credit for the tasks of financing the remains after monetarist speculation has exacted its toll) needed reindustrialization. This makes it a national on relatively limited sectors of the economy, those priority-with far-reaching political implications: the defined here as the "first circle" industries. speculative portion of the financial sector, which is This goes a long way toward explaining why only 38 primarily based in real estate, is the premier power base percent of the active population as of 1980 is employed of monetarist forces in France,while the relative back­ in industry, as opposed to 45 percent in Germany, even wardness of much of the economy provides these fo rces though the per capita productivity of a French worker with their crucial margin of social control.

EIR November 25, 1980 Economics 15 India seeks assistance for large-scale industrial projects

by Paul Zykofsky, New Delhi correspondent

An economic analyst in New Delhi recently noted that The need to modernize plant and equipment in the "the year began with French President Giscard's visit, new projects is most clearly reflected in the decreased and will end with the visit of Soviet President Brezhnev." productivity of three sectors during the past year. 1980 This summary of India's fo reign and economic policy fi rst-half figures indicate that the overall industrial pro­ characterizes Indian efforts to obtain assistance from the duction index has fallen slightly more than 1 percent in European and socialist bloc countries in building large­ the last year, in power generation, steel, fe rtilizer, and scale industrial projects over the next few years. The crude oil. important economic agreements signed during Giscard's Despite labor problems and bottlenecks in the coal visit, and the proposed agenda fo r discussion when and railway sectors, the government believes that only Brezhnev arrives Dec. 8, also bear this out. In addition, a new investments of the type currently under discussion large delegation from the German industrial association can break the economic impasse India is currently suffer­ Bundesverband der Deutschen Industrie (BDI) is cur­ ing. rently in India to discuss Indian development proj ects. The Gandhi government has been encouraging link­ India's massive push to sign agreements stems from ups especially with the European and socialist bloc the commitment by the Indira Gandhi government both countries. France has agreed to build a large aluminum to upgrade and modernize India's sagging infrastruc­ plant on the east coast of Orissa, in the same area as a ture, and to assert her role as an industrial leader in Asia. similar Soviet-built plant under construction. India is looking to sign, or has already signed, agree­ The BDI delegation in India from Nov. 2- 12 was ments fo r large-scale steel, coal, energy, oil, and fe rtilizer reportedly interested in oil, steel, coal, energy, and development projects. The projected scale of these proj­ transportation projects. Dr. Kurt Hansen, head of the ects will surpass anything India has done in the past 20 West German delegation, enumerated the reasons why years, since the first major industrial investments under­ West Germany seeks India as a trading partner in an taken during the Second Five-Year Plan. interview with India's Financial Express: "India's im­ The government has outlined plans to modernize and portant role as a major leader in Asia, among the expand all fo ur public-sector steel plants; build two new nonaligned countries, the United Nations ... [and] the shore-based steel plants (Visakhapatnam and Paradeep); tremendous economic potential of India in view of its double oil production from the Bombay High oil fi elds; gross national product, population, market size, raw increase coal production, and build five more "super"­ thermal power stations in addition to the fo ur now under Blast fu rnaces and cooling towers at the [)urgapur steel plant in

construction. H-/est Bengal. Photo courtesy of the Information Service of India.

16 Economics EIR November 25, 1980 materials and reservoir of [skilled] manpower." Currently, West Germany is also involved in mod­ ernizing and expanding the steel plant at Rourkela. Currency Rates Mannesman is bidding for a tender for a new steel plant at Paradeep, Orissa, along with Britain and Rumania.

Soviet involvement Indian Planning Minister N. D. Tiwari, on a recent visit to Moscow, reportedly discussed with Gosplan The dollar in deutschemarks head Babikov the idea of dovetailing India's Sixth Five­ New York late afternoon fixing Year Plan with the Soviet Union's Eleventh, both currently under preparation. While an Indo-Soviet eco­ 1.90 /" � nomic mission will meet in New Delhi in mid-November 1.85 � to discuss the options, it is not known if the Soviets will V"" agree to expand their level of assistance to India. 1.80 , V

However, India is reportedly seeking $5.2 to $6.5 billion 1.75 in Soviet assistance for coal, energy, steel, aluminum, and oil projects, and an increase in petroleum imports 1.70 9/ i4 10/1 10/8 10/i5 10/22 10/29 11/5 11/12 from the Soviet Union from 3.5 million tons per year to 7 million tons. Currently, Soviet credits to India total $14.95 billion. It is expected that agreements for sub­ The dollar in yen stantial Soviet aid to India will be signed during Brezh­ New York late afternoon fixing nev's upcoming visit. 240

Financing 230 India must also seek foreign financing for its devel­ 220 opment projects, given that the cost of India's oil 210 imports this year alone add up to 70 percent of her total � 1\ IJ -- /\ export earnings. Thus, the Sixth Five-Year Plan is - -- .... 200 \ proposing public sector allocations for industrial devel­ 9/24 10/1 10/8 10/ 15 10/22 10/29 11/5 11/12 opment of $117 billion, when a projected $182 billion allocation would be necessary to achieve an overall growth rate of 5 percent. The dollar in Swiss francs So far, India has been assured financing for the New York late afternoon fixing

Para deep steel project and the French aluminum project 1.75 at Orissa. Rather than relying on aid from the World Bank, the Aid India Consortium, and government-to­ 1.70 � � government credits, India may well go into the private "'" 1.65 , � financial market, as exemplified by a $680 million credit f'" y from the Eurodollar market recently granted to India 1.60 with French aid. 1.55 The large Eurocredit is to finance the French alu­ 9/14 10/ 1 10/8 10/ 15 10/21 10/19 11/5 11/12 minum project and involved the Banque Nationale de Paris, the Societe Generale, and the Bank of America. The British pound in dollars This type of credit is a relatively new departure in New York late afternoon fixing project financing for India, particularly in its size. India ,...... I received excellent terms for the credit, reportedly at 0.5 2.40 � '\ percent over LIBOR, terms granted to good credit - 2.35 risks. If India is to achieve the desired levels of industrial 2.30 growth, considerably more capital aid from Europe and 2.25 elsewhere will have to be made available. By January the new Sixth Five-Year Plan will be adopted, and it 2.20 will be important to watch the response to India's 9/24 10/1 10/8 10/15 10/22 10/29 11/5 11/12 newest industrialization proposals.

EIR November 25, 1980 Economics 17 InternationalCredit by Renee Sigerson

European Currency Unit moves ahead To drive home their serious de­ European-A rab negotiations signal renewed interest in the mand for U.S. dollar stabilization, "the Saudis are telling the Treas­ European Monetary Fund. ury that otherwise they will orient to the ECU and index the dollar to it," one Arab stated, "but this re­ quires the Europeans to move up the schedule for the EMF." In Ld by France and West Ger­ mitted, as this column has empha­ order fo r really large amounts of many, the governments of the Eu­ sized, to maintaining their econom­ ECU bonds to be issued by the ropean Monetary System are now ic growth and that of their trading European Monetary System di­ negotiating up to $20 billion in partners in spite of the murderous rectly, as opposed to the current long-term government loan agree­ rise in world interest rates and inst­ situation where the European ments with Saudi Arabia and its ability provoked by the U.S. Feder­ Community floats bonds through Arab allies, Arab sources in Lon­ al Reserve. "The Arabs have there­ private banks on the open market, don told EIR this week. The fact fore centered all policy on Europe, the EMS must have its own bank, that these loans will be denominat­ and their goal is to stabilize the the planned European Monetary ed in European Currency Units European balance of payments." Fund. (ECU), the accounting numeraire France, Germany, and Saudi With such an EMF, Saudi Ara­ of the EMS member currencies, Arabia are already sending mes­ bia could take parts of its vast means that the ECU's global role sages to the incoming Reagan ad­ dollar holdings, bring them to the will be greatly expanded. ministration to "either lower U.S. EMF window, and be issued ECU­ As announced by the European interest rates and stabilize the dol­ denominated bonds; sources said Community finance ministers in lar through economic growth, or this was one formula under nego­ October, the EC as a corporate else fa ce the fact that Europe and tiation. "There will be no issuing body plans in 1981 to issue $10 the Arabs will make their own trade of ECUs as some alternative cur­ billion in long-term bonds on the and monetary arrangements," rency, but rather the Saudis, for Eurodollar market to finance the Arab sources in the Midwest told example, would hold the bond and oil payments deficits of EC mem­ EIR this week. "If the U.S. does not then cash it in for so many German bers. These bonds would be denom­ change its economic policy, Saudi marks, French francs, and so on," inated in ECUs for the first time, Arabia is going fo r diversification. one explained . thus creating a major market inter­ Already, U.S. exports to the Arabs "The Saudis could even decide nationally in ECU-denominated are flat, at $11 billion in 1979 and to peg the dollar to the ECU bas­ paper, as the Federal Reserve told $12 billion in 1980. France alone ket in this way," another Arab EIR at the time. has raised its exports to them from monetary expert stated. "By sim­ The Saudi Arabian Monetary $9 billion to $11 billion. I estimate ply pricing their oil in terms not of Agency (SAMA), the government's European exports to the Arabs dollars only, but in terms of the arm, has already agreed with the overall at over $40 billion this year. basket of the ECU currencies plus French and German governments Five years ago U.S. and European the dollar. This would force the to lead a consortium of Arab states exports to them were equal." U.S. to stabilize the dollar." in purchasing the majority of these The proposed European Mon­ High-level negotiations for this new 1981 ECU bonds, said an Arab etary Fund (EMF), the new world kind of expanded role for the ECU source. Furthermore, the Giscard credit fa cility which the EMS has and the rapid fo rmation of the and Schmidt governments "are on the boards fo r 1982, is now EMF are already taking place be­ looking for another $10 billion, being heatedly discussed and may tween the French and German perhaps under the table, from the have its timetable advanced by the governments on the one hand, and Saudis and the Arabs, this year," he need for a new world monetary Saudi Arabia on the other, acting said, also in ECUs. system to finance a Euro-Arab with the full support of Kuwait Europe and the Arabs are com- trade boom, all sources agreed. and the Arab Gulf states.

18 Economics EIR November 25, 1980 Trade Review by Mark Sonnenblick

Cost Principals Project/Nature of Deal Financing Comment

NEW DEALS

$300mn. U.S.A. from Japan Nissan Motors will build 120,000truck Nissan's per year plant near Nashville. Nissan biggest U.S. says will use U.S. steel and components investment equal to 40% of vehicles' value.

$289 mn. Mexico from U.S. Export-Import Bank is financing $178 8.25% for CFE deal made mn. worth of American steelmaking HYLSA; 8.75% rapidly to equipment for HYLSA, S.A., the big- for CFE relieve gest private Mexican steel producer. electrical Ex-1m is also financing $111 mn. for 14 shortage. gas turbines for Mexican Federal Elec- tricity Commission (CFE) to be provid- ed by GE, Westinghouse, Brown Bov- eri, and United Technologies.

$142 mn. Egypt from France Soft-term financing committed for Mostly 7.5% on France has French exports to Egyptian develop- French francs for committed ment projects, possibly including the 10 yrs.; part at $250 mn. Cairo subway for which French consor- 3%. concessional tia are in sharp competition. France has loans to Egypt also pledged $480 mn. for Damietta this year. port under similar conditions.

$750 mn. U.S.S.R. from Japan Financing for third stage of South Yak- Yen credit terms Both projects $940 mn. utia fo restry project in Siberia to pro- to be negotiated. committed vide Japan 15 mn. cu. ft. per year of before Afghan timber will be sought in Tokyo next boycott. week by Soviet Dep. Trade Minister Ivanov.

UPDATE

$680 mn. India from France Financing package being arranged for 0.5 to 0.625% Syndication Orissa aluminum complex described in over LIBOR for expected to EIR, Sept. 16. Banque Nationale de 10 yrs. go easily. Paris and Societe Generale, close to the Pechiney group which designed proj- ect, and State Bank of India and Bank of America's Hong Kong branch are managing $680 mn. loan for the $2. 1 bn. project at quite favorable terms.

CANCELLED DEALS

$452 mn. Chile fr om Canada N oranda Mines announced failure of Deal talks with Chilean state agencies and announced international private banks committed in 1979. to the Andacolla copper project. Nor- anda has suspended engineering oper- ations on the Andacolla mine, of which it owns 51%, while Chile owns 49%.

EIR November 25, 1980 Economics 19 BusinessBriefs

In ternational Credit tors are occurring in Tel Aviv in protest year-before levels. It is expected that this against repeated failure to meet monthly pledge, or levels close to it, will be main­ German banker terms oil salary payments to workers. tained despite the ITC decision. The Jerusalem Post, an English-lan­ Japanese leaders hope to establish surplus 'forced savings' guage newspaper politically close to the good relations with the incoming Rea­ Histadrut and Labour Party, has at­ gan administration from the beginning, Dr. Kurt Riechebiicher, chief economist tacked Israel's finance ministry for and avoid a continuation of the wrangles for Germany's Dresdner Bank, urged in­ adopting "adulterated Milton Fried­ they experienced with Nixon and Carter. ternational businessmen in Philadelphia man-type policies" that are creating "so­ Additionally, since Japan's worldwide this week to consider monetary coopera­ cially intolerable" conditions in Israel. car exports are now falling anyway­ tion with oil-producing countries. down 4 percent fo r Toyota from Septem­ Speaking before a conference spon­ ber and 17 percent for Nissan-Japan sored by the Group of 30, Riechebiicher hopes Reagan will meet its continued Gold noted that Western officials could begin restraint on cars with a lifting of the to consider the oil producers' surplus sanctions of industrial plant sales to the income as "forced savings." "Capital in­ European central banks Soviet Union. vestment," Riechebiicherasserted, "is in­ stabilize price The trade talks beginning in Tokyo dependent of oil price rises." What is Nov. 14 between U.S. Assistant Secre­ needed are means for channeling these tary of State Richard Cooper and Japa­ Western European central banks inter­ "forced savings" into "energy-saving nese Deputy Foreign Minister Kiyoaki vened to stabilize the gold price on Nov. and -producing equipment" worldwide. Kikuchi are now expected to be dominat­ 7, according to market sources, after the International financiers must begin to ed by Japanese questions about what to price plummeted nearly $30 to $588 an draw "one crucial distinction," he stated, expect from Reagan. ounce, its lowest level in six months. The between "little bits of paper," or loans central bankers are expressing their de­ which only refinance old debt, "and the termination to protect the value of their reality of ...building the capital stock" large gold reserves, partially remonetized in "plant and equipment." Economic Policy by the European Monetary System. Gold has been vulnerable in recent Thatcher is under weeks because of the sharp rise in U.S. Labor interest rates, which made dollar instru­ intramural pressure men ts appear temporarily more attrac­ Israeli inflation and tive. Short-term rates tapered off during British Prime Min ister Margaret Thatch­ the week of Nov. 10, however. er and her monetarist economic commit­ unemployment mount ments have drawn criticism even within her cabinet for the first time since the Official statistics released over the Nov. current controversy began over new 8-9 weekend by the Israeli Central Bu­ World Trade budget cuts. In a Nov. 9 speech at Cam­ reau of Statistics reveal that Israel's an­ bridge University, the Lord Privy Seal, nual inflation rate has hit 160 percent, Japan auto shipments Sir Ian Gilmour charged that continua­ one of the highest in the world. Unem­ tion of Thatcher's policies will produce ployment has reached 5 percent, the to U. S. will slack "a Clockwork Orange society," and highest since the 1960s and especially forecast that "the current wisdom of high fo r a country whose lifeblood de­ Japan's auto sales to the u.s. are expect­ economists" will soon be revised. pends on finding jobs for immigrants. ed by Japanese industry sources to mod­ Two former Conservative Prime The real value of net wages has erate despite the decision this week of the Ministers, Harold Macmillan and Ed­ dropped by 14 percent during the first U.S. International Trade Commission to ward Heath, had lashed out earlier this half of 1980, while private consumption reject the Ford-United Autoworkers re­ month at Thatcher's "catastrophic" pro­ during the same period has fallen off by quest for import limitations. Already in gram; Heath specifically blamed Milton 8 percent, the largest drop in Israel's October, Japanese car exports to the U.S. Friedman, whom he accused of "wishing history. Israel's national trade union fe ll fr om September's peak levels, by 16 to abolish America's industrial base in confederation, the Histadrut, which is percent for Nissan and just slightly for the same way that is happening in the closely affiliated with the opposition Is­ Toyota. U.K." raeli Labour Party, is holding large-scale The decline was the result of increas­ Meanwhile, the >T hatcher govern­ protest rallies in Jerusalem Nov. 16, es­ ing U.S. production of small cars com­ ment has made a bid to serve as the pecially aimed against the government­ bined with a virtual pledge by Japan's arbiter of ties between the Reagan ad­ sponsored price rises of recent months. trade ministry to limit car exports to the ministration and Western Europe on pol­ Strikes by municipal workers and doc- U.S. in October-December to less than icy matters. Foreign Secretary Lord Car-

20 Economics EIR November 25, 1980 Briefly

• SIX PRESIDENTS of Japan's giant trading companies have made journeys to Moscow since rington told the International Herald U.K. Debate the beginning of October. Accord­ Tribune in an interview published Nov. ing to the business daily Nihon Ke­ 14 that "the old relationship" of privi­ Labour Party spokesman zai Shimbun, they are gambling leged ties between the U.S. and U.K. that Reagan will lift the sanctions should not only be maintained but used praises Thatcherism on Soviet trade which, they com­ to "coordinate European policy." plained in a report to the Japanese The period of the 1930s economic col­ government, have cost them $4 to British Industry lapse in Britain is now being re-evaluated $5 billion in deals this year to Eu­ and recognized as "accelerating the de­ ropean competitors. U. K. business protests velopment of powerful modern indus­ 'cynical ignorance' tries," argued Paul Johnson in the Nov. • VIKTOR IVANOV, a Soviet 12 New York Times. deputy trade minister, is due to Johnson is a fo rmer editor of the arrive in Tokyo in late November British industrialists attending the an­ British Labourite New Statesman maga­ to reopen negotiations on two Si­ nual conference of the Confederation of zine, and now works for the pro-Fried­ berian development projects. At British Industry (CBI) the week of Nov. man American Enterprise Institute. stake are $40 billion in loans for 10 expressed opposition to Prime Minis­ Appropriately comparing the effects coal exploration in southern Yak­ ter Thatcher's high-interest-rate regimen of the current policies of Prime Minister utsk and $1 billion for developing and proposed public spending cuts. Ron­ Thatcher with the devastation of the Brit­ Siberian timber. The Soviets are ald Utinger, chairman of British Alumin­ ish economy in the deep depression peri­ believed to seek yen-denominated ium and head of the CBI's Economic od of the 1930s, Johnson attempts to credits. Policy Committee, argued that Thatch­ argue that "the upheaval in the economy er's decisions for the public sector would created by mass unemployment and the • RENE LARRE, general man­ rebound against private industry. consequent decline in union militancy ager of the Bank for International "A government which sets out to re­ and restrictive practices seems to have Settlements will be succeeded by duce the public sector is in fact reducing accelerated the development of ...pow­ Gunther Schleiminger, a German, the private sector," he said. Government erful modern industries." when the French Larre retires. predictions that only already weak indus­ Jonnson's op-ed comes on the heels This is the first time a German has tries would suffer showed "a cynical ig­ of severe criticisms and warnings against held the number-one post since the norance of how manufacturing industry "Thatcherism" being voiced in the BIS was fo unded to handle Ger­ works and of what is actually happening United States over the past week. man debt under the Versailles now." Sir Ray Pennock, president of the agreement. CBI, warned that permitting unemploy­ ment to rise steeply, as the government • ROBERT TRIFFIN, Belgian has done, meant that "we will be storing Domestic Credit economist from Louvain Univer­ up immense problems for the future." sity, made some monetary policy Recent statistics show that the col­ Have U. S. rates recommendations aimed at the lapse of British industrial potential is Reagan administration at a Nov. deepening. The industrial production in­ begun to peak? 14-15 conference held in Philadel­ dex declined 1.8 percent in September, phia. Triffin suggested that the fo llowing a 2.9 percent decline in August. There is considerable pressure on Fed U.S. Treasury could buy bonds de­ Money supply has continued to grow­ chairman Volcker from West Germany nominated in ECUs, the unit of up two percent in the latest banking in particular, not to push rates much account used in the European month-although the ostensible aim of higher, since West Germany suffers cap­ Monetary System, to diversify high rates was to curtail money supply ital flightwhen U.S. rates rise. U.S. currency reserves. Many con­ and inflation. Yet, Robert Synch, economist for Bear, ference participants noted that In a Nov. 8 editorial, "Learning by Stearns investment bank stated Nov. 13, central banks have ceased using Disaster," the Financial Times warns that "I think we're only seeing a pause in the dollars exclusively to intervene in "There is a danger that some time in the rate increases and that soon they will be foreign exchange markets. The next few months the industrial economy up to 17 percent. Volcker right now has dollar still accounts for 70 percent may reach another turning point, like the no constraints on him. The Carter ad­ of world reserves, but central point which occurred after the steel strike ministration is in no position to object. banks are moving towards a "mul­ this spring. Many industrialists believe November may be a slow month for ti-currency" world reserve system. that exports, which have so far been money supply growth, as it traditionally Several participants proposed in­ holding up well against the unprecedent­ is slow, and we still have no sign that creased use of SDRs to meet inter­ ed 22 percent decline in competitiveness anyone is pleased that money supply is vention and liquidity needs. that has occurred this year, may suffer a under control. This would mean higher sharp and almost irreversible fa ll." interest rates."

EIR November 25, 1980 Economics 21 TIillSpecia1Report

Power struggle in China: the mythof 'the new stability'

by Daniel Sneider

The terrorist bomb that went off in the main railway station of China's capital city Peking two weeks ago is only an echo of the political turmoil now rumbling inside China's leadership. Western observers of China have for the most part ignored the clear sign of trouble inside China, preferring to echo the myth now promoted by the current strongmen in China that after prolonged chaos, the country has now entered an era of "stability and unity," to use a current Chinese phrase. The mythmakers in Peking and their admirers in the West have a good reason to promote the image of a stable China entering on a "pragmatic" modernization. The reason, simply put, is the active alliance between the dominant factions of the Chinese leadership and the Anglo-American alli­ ance of the United States and Britain. The "China card" policy-and its converse, the "America card" policy of Peking-depend upon the ability of the Peking leadership to make this myth a reality. The key man for the China card circles is the emergent strongman of China, Communist Party Vice-Chairman Deng Xiaoping (Teng Hsiao­ ping). Deng is the architect of the "pragmatic" economic liberalization policies and the pro-Western orientation which is now being hailed in the Western media. More importantly, he is the direct political heir of the outlook, policies, and factional base of the late Chinese Premier Chou En­ lai, the second-ranking Chinese Communist after the late Chairman Mao Tse-tung. Chou's reputation as a moderate, urbane and sophisticated Chinese statesman who was the author of the alliance with the U.S., is well circulated in Western circles. Less well known is his role in Chinese politics as the "grey eminence" who stood behind the often mad emperor Mao, ruthlessly manip­ ulating political battles and managing always to emerge on top. Deng is the heir of both Chou's "America card" policy of grand manipulation of the United States for the ends of Chinese foreign policy, and of his ruthless political factioneering.

22 Special Report EIR November 25, 1980 In the fo reground. September 1976 : Chairman Hua Guofe ng. Wang Hongwen. Ye Jianying. and Jiang Qing (Madame Mao). Directly behind Hua isZhang Chunqiao. Wang. Zhang and Madame Mao. as Gang of Fo ur members. were arrested shortly aft er this photograph was taken.

Under Chou's protection, Deng emerged from the polit­ ical wilderness in the early 1970s after being purged during the wild days of the "Great Proletarian Cultural In this section Revolution," only to be purged again in the months after This report on China has been prepared by our Asia Chou's death in January 1976 by the radical Maoists. He Editor, Daniel Sneider, with the assistance of our China desk specialist, Gregory Buhyoff, and in consultation fo ught his way back into power the next year and has with professional "China-watchers" with long experi­ spent the last fo ur years consolidating his power base in ence in the fi eld. the Chinese hierarchy, purging his opponents one by one and gathering his strength for a fi nal bid fo r total power. l. Power struggle in The Dengist bid for power rests on the myth of China: the myth of stability, and implicitly, on the axis with the Anglo­ 'the new stability' American powers. At this moment in China, crucial II. China's new leadership events are unfolding that will determine the extent of Ill. The return of the Deng's success. Chou-Deng group The Executive Intelligence Review presents in this Special Report the true story behind those events, the IV. The CCP: a facade facts demonstrating that the myth will fa il and that the of discipline reality of China is not a future of stability and unity but V. The PLA:a of broad-scale instability and increasing tension within restive element the leading circles of the Chinese leadership. With a new VI. Security apparatus: administration in Washington, one that will perhaps be discredited and less enamored of the aura of imperial China, it is all the dysfunctional more urgent that the reality of China be understood. This reports deals with the immediate events in We have bowed, out of necessity but not preference, to the system for China, the nature of the Deng group and its bid fo r phonetization of Chinese currently in use in the People's Republic of China, the Pinyin system. We have done this with a few exceptions of power, and exami nes closely the cracks in China's basic persons and places that are well known to the average reader in the fo undation that will determine the fu ture course of previously used Wade-Giles system, such as Peking rather than Beijing, events. It is the fi rst of many such reports to come, the and Mao Tse-tung rather than Mao Zedong. We have also provided, for reference, the Wade-Giles spelling in parentheses for most of the persons product of ElR's intelligence reading of China, generally referred to in the text. unavailable in the West.

EIR November 25, 1980 Special Report 23 The chronology of Deng's last comeback begins in eign capital financingthe enterprises. 1977, but it is over the course of this past year that the Alongside this Chinese "New Deal" is a promise of Dengists have felt strong enough to "go for broke." government responsiveness to the needs of the popula­ Deng and his allies are in the midst of a three-act tion, an end to overbearing, privilege-taking bureau­ Chinese opera whose finale is intended to seal their crats. For peasants there is the promise of more personal power position. income; for workers, material work incentives; for intel­ lectuals, a social standing above their previous lowly Deng's scenario: an opera in three acts status in the Maoist caste system; and for the population The first act of this opera is already completed-it in general, a higher standard of living with more took place in the first part of September at the meeting consumer goods available. of the National People's Congress (NPC), the Chinese The man elevated to the premiership, Zhao Ziyang, equivalent of a parliament (or Supreme Soviet, to use is credited with having successfully tried out this system the Soviet parallel). At the NPC meeting the leading in Deng's home province of Sichuan, where he was personalities of the government apparatus were mas­ party boss. The Dengists have essentially staked their sively shuffled, starting at the top with the resignation own political future on their ability to "deliver the of Deng opponent Hua Guofeng from the post of goods" to the Chinese masses, whose desire for material premier and his replacement with a man close to Deng. gain rather than Maoist sloganeering has now been At the same congress, the new policies of the Dengists elevated to the level of state policy. were promulgated as state policy. The slogan of this Chinese "New Deal" is "The The second act of the opera is to be the trial of Four Modernizations"-of industry, agriculture, sci­ Madame Mao (Jiang Qing) and her three radical Maoist ence and technology, and military defense. While the associates-the Gang of Four-along with six others content of this slogan is apparently different from the linked to the late army leader and one-time chosen exhortations of "spirit" involved in the infamous eco­ successor to Mao, Lin Piao. The trial of these 10, on nomic disaster known as the Great Leap Forward (now charges ranging from plotting coups to attempted as­ condemned as an error) and subsequent versions of the sassination of Mao, is a major political event. It is same, it is uncertain whether, for the great majority of intended to set the stage for the purge of "the followers China's one billion people, this campaign appears any of the Gang of Four and Lin Piao" and to officially different from the rest. The difference, perhaps, is the stamp the period in Chinese history from the start of consequence of failure this time around. This may be the Great Proletarian Cultural Revolution in 1966 up to the last time the Chinese people will seriously tolerate the arrest of the Gang of Four in 1976 as a grand another millenarian image of the distant golden future deviation from the true path of the Chinese Revolution. offered if they will only follow the Communist Chinese The third act of the opera, the finale, is to be the leadership. The reported levels of skepticism and cyni­ Twelfth Congress of the Chinese Communist Party cism already prevailing certainly call into question how (preceded by a Central Committee plenum) which will much the Four Modernizations are really believed to be approve an official document stating the party line on attainable by the population. Mao Tse-tung, his "mistakes" and his "contributions" Beneath the rhetoric of "market socialism," there defined, they hope, for all time. Also on the agenda will was a more serious reality presented at the NPC: the no doubt be a full shake-up of the present membership state of crisis prevailing in the Chinese economy. The of the Central Committee, the leading body of the crisis is characterized by slowing rates of agricultural party, and of its leadership bodies, completing the and industrial growth, reported large budget deficits, Dengist takeover. This could include the ouster of Hua and a stagnant and even declining level of energy Guofeng from his last position as party chairman. production, including petroleum output. This entails Each act has its own particular purpose and its own serious shortages of capital, particularly of foreign­ perils. We shall now take a closer look at them. exchange liquidity with which to purchase needed for­ eign technology. The NPC: 'market socialism' The economic and financialrep orts delivered at the The September National People's Congress was a NPC presented this situation fa irly openly. It was stage for the promotion of the Dengist "pragmatic" announced that the Ten-Year Plan previously an­ economic and governmental policies. The centerpiece nounced in 1978 was being scrapped and a new plan was a new doctrine of "market socialism," which prom­ drawn up. The key shift involves the scrapping of a ises to decentralize economic decision-making and the grand industrialization program included in the pre­ planning process and attacks overall bureaucratic cen­ vious plan, consisting in part of 120 major industrial tralization of government. This includes everything projects, many of which were to include fo reign tech­ from private-plot agriculture to a profit criterion for nology and participation. Many foreign companies with individual factory operation to joint ventures with for- visions of the "great China market" fo und this out

24 Special Report EIR November 25, 1980 I knew him since France where we were together and I regarded him as my elder brother. We joined the revolution almost at the same time ... he could exercise his influence as moderator and act as a pillow cushion which softens the blows. Ma ny losses could be avoided thanks to Chou En-lai, many people could be sp ared thanks to his role. Deng Xiaoping, August 1980 interview in the Washington Post Chou En-lai (left ) with Deng Xiaoping.

much earlier, when project negotiations were suddenly Stalin in the 1930s) in which industrial Investment is halted and plans shelved indefinitely. downplayed in favor of pro-rural, pro-rich-peasant eco­ The new Dengist economic policy attacks these nomics. Ironically, this is entirely consistent with Mao's heavy industrial plans as wasteful and unnecessary, and policy of maintaining China's backward peasantry as in some cases, as the products of mismanagement and the social and political base of the regime. poor plann ing, or of alleged bureaucratic cliques. The The political implications of the NPC policy moves Deng policy calls instead fo r emphasis on agriculture were displayed during the meeting by the sacking of the and light industry, with the latter to emphasize invest­ petroleum minister-for mismanagement-and by at­ ment in labor-intensive, export-oriented goods like tex­ tacks on other senior leaders associated with the pre­ tiles, which can bring a quick return in fo reign exchange vious industrially oriented policy. Also key was the earnings. Several provinces in southern China, border­ announced cut in the defense budget-a cut whose ing Hong Kong and Macao, have been opened up as actual precise effect on the military is difficult to free trade zones where Overseas Chinese and others are determine, but which certainly increased disgruntlement offered incentives, including extremely cheap labor, to among senior military leaders who understand that move their sweatshops into China as "j oint ventures." without massive investment in the capital-goods sector They supply the machinery, the markets, and in some of industry, there can be no serious modernization of cases the management; Peking supplies the labor. China's antiquated military hardware. The army has All this is discussed in articles on economic "theory" been told to wait fo r the fr uits of the Deng policy's in Peking publications as a switch from emphasis on success-the failure of that policy will then also have its "accumulation," i.e., large-scale capital investment, to fruits for Deng . Both the People's Liberation Army "consumption" fo r the population. While the Deng (PLA) and important segments of the state industry policy has been hailed in the West as a Yugoslav-or sectors have good reason to be opposed to Deng's shall we say Polish-transformation of China, or even "New Deal." the rebirth of capitalism, it is more accurate to see the policy as a desperate, "pragmatic" response to econom­ The trial of the recalcitrant ic collapse and even chaos under political conditions Madame Mao where the Dengists must try to feed the masses, partic­ Sometime in mid-November, according to current ularly the huge majority of peasants, and provide some reports fr om Peking, the next act will begin-the trial evidence that a better era has arrived in China. of the Gang of Fo ur and the Lin Piao group (see list of In classical terms, Deng's policy is a new Bukharin­ defendants elsewhere in this report). The trial has been ite policy (Bukharin was the Soviet leader purged by delayed several times since it was first announced late

EIR November 25, 1980 Special Report 25 this summer. The principal reason cited by observers for ed in pro-Peking Hong Kong papers that some of it will the delay is the refusal of Madame Mao to recant and even be televised. Foreign correspondents will not be confess her crimes before the tribunal. allowed in the courtroom, but given the circumstances This refusal has more serious implications than it is hard to see how this much-watched event will be creating a messy situation during what the Dengists significantly concealed from scrutiny. Hence it repre­ obviously hope will be a grand show trial witnessed by sents an acute test of strength for Deng. the Chinese masses. The trial itself is aimed at placing One aspect of this trial, though, is perhaps its most blame for the evil madness of the past, particularly the intriguing-that is the mixing together of the radical Cultural Revolution period, at the doorstep of the Gang Maoists of the Gang of Four with the close military of Four and Lin Piao, thus absolving Mao of any associates of the late Marshall Lin Piao. On the surface, fundamental blame for it. Mao will be portrayed as the linkage is that both groups were leading elements in having made mistakes, true, and of having been manip­ the conduct of the Cultural Revolution, and both have ulated and even controlled in his later years (when he been classed by the current Peking leadership as "ultra­ was, they will say, ill and senile) by these "criminals." leftists" responsible for the insanity of the past. But the Dengists, and Deng himself, in a August 1980 However, it is well understood, certainly within interview with a Western journalist, have made it clear China, that the radical Maoists and the Lin Piao group that they will not carry out their campaign to the extent had little in common, and, although allied broadly at of Khrushchev's anti-Stalin campaign. one point, were in fact political enemies. We will discuss Deng cannot do this, nor can any other of the the role and importance of Lin Piao below; meanwhile, Chinese leadership, for the obvious reason that they it is clear that by placing these two groups together, the themselves derive their legitimacy from Mao and from intent is to imply that the Soviet Union is also on trial, Maoism-there is no "Lenin" to reach back to as a and that the Gang of Four was linked to the Soviets. "true authority." At the same time they must try to Lin Piao was accused of intriguing with the Soviets to convince a cynical Chinese population-one that knows launch a coup against Mao, and is supposed to have full well Mao's responsibility fo r the murderous chaos died in a plane crash in Mongolia while fleeing to the China has gone through fo r more than 20 years-that Soviet Union after the failure of an assassination at­ the blame can be laid elsewhere. The Dengists have now tempt against Mao in 1971. rehabilitated every leading Chinese figure-many of The attempt to link the Gang of Four with Lin Piao them posthumously-who was purged by Mao since the appears to be an attempt to tar the more serious mid-1 950s. How then can the credibility of the deity be opposition represented by the Lin Piao tradition with maintained? the brush of the hated Gang of Four. Madame Mao This trial is, after all, five years in the making. It and the Gang of Four, far from being Soviet agents, was delayed for at least two years by the refusal of were radical xenophobes and vehemently anti-Soviet as elements close to Chairman Hua, including the security well as generally anti-foreign. Their ultra-egalitarianism boss and party leader responsible for their arrest, to was opposed to industrialization and even to moderni­ actively pursue prosecution. This refusal reflectsthe fact zation of the military. that when these people go on trial, along with others Lin, on the other hand, was a military professional, being tried in absentia, there will be tens of thousands and although he attempted to ride the horse of the of others in the Communist Party who will be on trial Cultural Revolution and the Mao personality cult to with them, both figuratively and literally. The trial is power, the evidence is that he in fact was pro-industrial the entry point for a Dengist purge of the supporters of and opposed to the rabid egalitarianism of the radicals. the radical Maoists and others who are points of His pro-Sovietism was, from available evidence, an resistance to Deng. opposition to Chou's deal with Kissinger; and, based Under these circumstances Deng and his associates on the view that China had to seek outside economic cannot welcome the defense which Madame Mao is assistance after the ravages of the Cultural Revolution, reportedly going to make: a spirited claim that her it was also a pragmatic decision to see rapprochement actions and those of her associates were performed on of some sort with the Soviet Union. This doubt about the orders of Mao, and even of Chairman Hua, and that the embrace with Washington and openness to a limited any crime she is charged with was in fact carrying out rapprochement with the Soviets, at least for economic Mao's political line. The Dengists have gone to great benefits, is understood to still be held in important pains to say that only "crimes" will be tried, under the circles in China, perhaps inside the PLA. new Chinese legal system, and not political mistakes, precisely fo r the reason that they wish to finesse the The finale: Deng's Communist Party Congress question of Mao's role. The intended show trial is supposed to lead into the The trial will be witnessed by a selected group of 800 upcoming Twelfth Party Congress of the CCP. A Chinese, plus the court tribunal, and it has been report- preceding Central Committee meeting is to approve a

26 Special Report EIR November 25, 1980 document which sets out the final historical statement forces, who hope to modernize their military hardware on the contributions and fa ults of Mao. The most and their command structure. The industrialization interesting question in all this will be how far Deng requirements for this are obvious; and the army's more intends to go in carrying out a large-scale purge of the realistic view of the dangers of the Dengist alignment existing Central Committee membership and Politburo with the U.S. (especially after the beating they took at leadership. Some of that leadership has already been the hands of the Vietnamese in early 1979) tend to make purged over the past two years in particular (see Chro­ the People's Liberation Army a political wild card in nology), but it is still far from a Dengist-controlled the long run. party. If we were to make a simplifiedspe ctral analysis, we can see that at one end lies the radical Maoists of the We shall certainly evaluate Chairman Gang of Four variety. At the other end are the followers Mao 's merits and mistakes which of Chou, the pragmatic Maoists of the Deng group who characterized his life. We shall intend in precise fashion to de-Maoize China and block certainly affi rm his merits and say that the future comeback of the Gang of Four types and they are of primary importance, others. But even at this time there is a vast middle, acknowledge his errors and assess that leading figures and institutions that share no values they are secondary, and while making with the acknowledged madness of the Cultural Revo­ them public we will adopt a realistic lution period, but harbor profound doubts about attitude. But, also, we shall certainly China's viability if it is governed by a Deng ideology continue to up hold Mao Tse-tung which proclaims only that: "Practice is the sole criterion Thought, which was the correct part of truth" (Deng's slogan). In that middle is a range of figures from Chairman of his life .... We shall not do to Mao Hua, who was certainly closer to the Gang of Four, to Tse-tung what Krushchev did to Stalin fo llowers of Lin Piao (an uncertain category), and some at the twentieth Soviet Communist identifiable "old men" of the Chinese hierarchy who are Party Congress. known to be opposed to extensive criticism of Mao and Deng Xiaoping, interview to any attempt by Deng to upset the present precarious with Italianjournalist political balance by pushing through a bid for total Oriana Fallaci, August 1980 power. In that group one can place the man who fo rmally ranks number two in the CCP hierarchy (after Hua and before Deng), Marshall Ye Jianying, and The potential for military rule-or, in its degenerate perhaps also the number-four ranking Politburo mem­ fo rm, fo r breakup of China into a new era of warlord­ ber Li Xiannian, both of them old men (Ye is 84). Ye is ism-is always present. This is combined with the said to be the protector of Hua who secured his choice intense, often underestimated regionalism still prevail­ as a compromise candidate to succeed Mao as chairman ing in China, a regionalism reinforced by the often of the CCP. As we will discuss in detail elsewhere, Ye's mutually unintelligible dialects of Chinese that divide role also has implications deriving from his standing as north from south and east from west. Following a a long-time military leader. breakdown of the authority and legitimacy of the It is far from clear whether Deng has the power to Communist Chinese leadership, something which the force his way past such opposition. Even the NPC did men in the middle must greatly fear, all these factors not represent a total victory for him, as we discuss later. could assert themselves with devastating results. It is alsO'an institutional question. Deng's power base is that of Chou-the state appa­ The failure of Deng's Confucian pragmatism ratus itself and certain organs of the CCP-but essen­ Ultimately, Deng has been able to seize power by tially it does not rest even on the party. There are points virtue of his promise to the Chinese population that he of resistance in the party which are evident from the will end the horrors of the past period. Placing Mao on admission of still-entrenched fo llowers of the "Gang of the shelf, and removing the personality cult, has the Four and Lin Piao cliques" in many layers of the party dual purpose of removing Deng's enemies and of facing apparatus, individuals W',l 0 have enjoyed the status of the reality of the fading faith of the masses. Deng has power holders for the past 15 years. left himself with a pragmatism that articulates the desire There are also party figures who have built bases in of the population for an end to the insane Maoist world the segments of the state industrial apparatus over a of shifting "lines," "struggles," and "directives." period of decades and who have an im;titutional stake The transition from the Emperor Mao's reign of in an emphasis on a heavy-industry-oriented policy. terror to a promised era of order, legality, and stability Perhaps the most important factor is the armed is hardly unprecedented in the classical history of impe-

EIR November 25, 1980 Special Report 27 rial China, a history of which Maoist China is very much a part . It is in fact a conscious mirror of the transition fr om the first dynasty of imperial China, that of the Ch'in emperor Shih Huang-ti, to the establish­ ment of the Confucian order of the great Han dynasty that fo llowed. China's new In the third century B.C., the Ch'in emperor, on whom Mao consciously modeled himself, ruthlessly unified China and organized masses of Chinese peasants leadership in huge corvee labor projects, including the construction of a large part of the Great Wall of China. He ended his Last Feb. 29, China's Eleventh Party Central Committee rule in a spiral of dementia that included the purge and closed its fifth and finalplenar y session, a six-day affair murder of intellectuals and the burning of most of the that produced some of the most significant leadership books in China. and policy changes in years. It signaled a major assault Deng, like the great mandarin and Confucian Chou on radical Maoist elements in the party and government En-lai, his mentor, has taken the stance of the Han who have showed, or are likely to show, opposition to dynasty which fo llowed that madness, promising an era the policies of the current ruling faction headed by of order, of the fa therly rule of the Confucian mandari­ strongman Deng Xiaoping (Teng Hsiao-ping). Re­ nate. The Han rule turned out to be less than benevo­ moved from their Politburo posts at this plenum were: lent, however, as it, too, attempted to move the great Vice-Chairmen Wang Dongxing and Ji Dengkui, former masses of Chinese peasantry in service of expansion of Peking Mayor Wu De, and ex-commander of the Peking the Han state, and empire. Military Region Chen Xilian. All fo ur are recognized as Deng and his associates, in fact, must still cling to leading Maoists opposed to the liberal "Four Moderni­ Maoism-and Deng is very much a Maoist-inasmuch zations" plan, which they view as a blasphemous depar­ as Maoism is only a new moment in the long Chinese ture from the line of the late Chairman Mao Tse-tung. tradition of a Han empire based on a loyal peasant The demise of the "Whateverists" (fansh i pai), those mass. Deng's economic perquisites to the peasantry are who believe that whatever Mao said was correct, coincid­ aimed at maintaining that loyalty, while his anti-indus­ ed with the promotion of Deng associ ates to high party trial policy undermines the process of modernization posts, many of whom had been victims of purges them­ they claim to want. selves . The Central Committee Secretariat, a body dis­ There is a crisis of ideology very much evident in mantled by Mao during the Cultural Revolution of 1966- China today-the questioning even in official Chinese 68, was reestablished and stacked with Deng people. publications as to the very purpose of the Chinese The National People's Congress held fr om Aug. 29 Revolution-which arises from a circumstance where to Sept. 10 saw much of the same, as leftist-leaning the events of the last 20 years are now repudiated. Premier Hua Guofeng, his own power base weakened by Without the willingness or the ability to create a new purges, stepped down as head of the government, to be leadership and a new elite that actually seeks moderni­ replaced by Deng protege Zhao Ziyang. zation through science and technology in a rational The fo llowing is an introduction to some of the new world order, that crisis must ultimately catch up with fa ces in the cast of characters that is likely to play major the Dengists. roles in China's future. It is unlikely, however, that things will even get that far. The crucial factor ,is the economic strategy presently pursued by Deng: at best a short-term boost in living standards, a boost soon undermined by the fai lure to improve the basic productivity of the Chinese economy through mechanized agriculture, industrialization, and education. At that point Deng's incapacity to actually eliminate the other centers of power in China, to resolve the cracks in the fo undation, will assert itself. That point may come sooner than many expect. Stability has rarely prevailed in Chinese history except when looked at over the long sweep of history. Zhao Ziyang: Politburo Standing Committee member, There is little reason to believe that the present circum­ premier of State Council. Born to a wealthy landlord stances offer favorable prospects for that. Those who fam ily in Huaxian, Henan; Zhao, younger at 61 than wander in the fa ntasy land of the China card will be the most of his peers, is already one of the most powerful last to understand that fa ct. men in China. He spent the early part of his career in

28 Special Report EIR November 25, 1980 Guangdong Province where he led land and agricultural reforms, eventually rising to the post of first secretary of the Guangdong Provincial Committee in 1965. Though attacked during the Cultural Revolution, Zhao survived relatively unscathed and in 1971 was made secretary of the Inner Mongolia Regional Committee. The following year he was reassigned to his previous post in Guang­ dong and in 1975, reportedly with the help of Deng Xiaoping, he replaced Liu Xingyuan, a follower of the disgraced Lin Piao, as secret ary of Sichuan Province. It is there that he became fa mous fo r turning around the economic disaster that had befallen Sichuan, using poli­ Hu Yaobang: Standing Committee Politburo member; cies now advocated nationally by the Deng clique. Zhao's secretary-general, Central Committee. This 65-year-old rapid rise to the top has come largely on the coattails of Deng protege has spent most of his career as a propa­ his mentor Deng. gandist, dealing primarily with the indoctrination of youth . Hu was brought to Peking from Sichuan by Deng in the 1950s. In 1965 he was elected to the Standing Committee of the Third National People's Congress, but shortly after came under attack by the Red Guards as a mem ber of Liu Shaoqi's "revisionary" clique. Following the purge of the "Gang of Four," Hu was made head of the Central Committee Propaganda Department, presi­ dent of the Academy of Sciences, and now is number six in the party hierarchy. Considered to be Deng's right hand man, Hu holds some very important posts and is an official to watch over the coming period. Huang Hua: vice-premier of State Council, minister of foreign affairs. Huang, born in 1913 in Cixian County, Hebei, is without a doubt the most seasoned diplomat in China today. He was active in student politics while at Yenching University in Peking during the early 1930s, a period that coincided with pro-Mao pUblicist Edgar Snow's tenure as visiting professor there. He became very close to Snow and once took refuge in Snow's apartment after his release from a two-week imprison­ ment fo r participating in student demonstrations. Huang left for the Yenan "Soviet Zone" (liberated zone) in the Peng Chong: Politburo member, Party Secretariat summer of 1936 tv act as interpreter fo r Snow, who had member, mayor of Shanghai. The 65-year-old Peng was gone that spring. The trip was reportedly financed by born in Fujian Province but was raised in Singapore, Mrs. Snow after she received word from her husband to returning to China in the early 1930s to join the Com­ send Huang. It was in Yenan that Huang interpreted for munist revolution. During the early part of his career, he the now famous dialogues between Mao Tse-tung and served as a member of the Jiansu Provincial Secretariat Edgar Snow. During World War II and the civil war, and as mayor of Nanjing. During the Cultural Revolu­ Huang worked as a correspondent for the New China tion, Peng was severely attacked by a wall-poster cam­ News Agency in Chungking under his mentor Chou En­ paign carried out by his subordinates who criticized his lai an d disseminated anti-Kuomintang information "bourgeois life style." Guangdong Military Commander among American military and diplomatic circles. During Xu Shiyou, the man who protected Deng Xiaoping the Korean War he was in charge of indoctrination of during the "Gang of Four"-led anti-Deng campaign POWs and was a Chinese representative to the armistice fo llowing the death of Chou En-lai, helped reinstate the negotiations at Panmunjon in 1953. Huang served as an disgraced Peng to the post of deputy political commissar adviser and spo kesman fo r the Chou En-lai led Chinese of the Nanjing army units. He was elected to the party delegations to both the Geneva and Bandung confer­ Politburo at the First Plenum of the Eleventh Party ences. From 1960 on, he was variously ambassador to Central Committee and made a member of the recently Ghana, Canada, and the United Arab Republic, and reestablished party secretariat, a body Deng has stacked China's permanent representative to the U.N. He has with his own supporters and will use to wield considera­ been China's fo reign minister since 1976. ble power.

EIR November 25, 1980 Special Report 29 reported to have had a close connection. Following the arrest of the Gang of Four, he again assumed high office in both the party and government.

Wan Li: Party Central Secretariat member, vice-pre­ mier of State Council. Born in the same country of Sichuan Province as Deng Xiaoping, Wan studied in France as a young man . After working at the prefectural Gu Mu: vice-premier of State Council, Party Secretar­ and provincial level, he followed Deng to Peking in 1953 iat member. Born in 1914, Gu Mu hails from Shandong and was appointed minister of urban construction in Province in the north. Prior to the Cultural Revolution, 1955. In 1958 he served at several municipal posts in the he was inv olved in economic planning, serving as a capital, supervising a number of major construction member of the State Construction Commission, the State projects, including the Great Hall of the People. During Planning Commission, and the State Economic Commis­ the Cultural Revolution he came under attack fr om the sion. After holding a number of high-level ministerial Jiang Qing "Gang of Four" clique as a "counterrevolu­ posts, he became a vice-premier of the State Council. tionary" and was demoted. In 1975, with Deng as his Like most of the new faces in Chinese politics, he was agent of influence,Wan was rehabilitated and appointed attacked and purged during the Cultural Revolution and minister of railways, only to be attacked again by the rehabilitated after the downfall of the Gang of Four. "Gang of Four" during the chaotic period that followed Chou En-lai's death. After the arrest of Jiang Qing and her associates, he replaced a pro-Gang of Four head in Anhui Province and is credited with reversing the eco­ nomic collapse afflicting the province. Wan, regarded as a talented planner and administrator, is at the center of Deng Xiaoping's "Sichuan clique."

Yu Qiuli: vice-premier of State Council, Party Secre­ tariat member, Politburo member. Yu, 66, is a native of Jian County, Jiangxi Province. Hejoined the Communist Party in 193 1 and, afterparticipating in the Long March, became a political commissar for a division of the famous Eighth Route Army. A long military career saw him attain the rank of lieutenant general while serving at a Fang Vi: Politburo member; vice-premier, State variety of military administrative posts, including direc­ Council; Party Secretariat member. A native of Fujian tor of the Political Department fo r both the Northwest Province, Fang held a number of low-level economic and and Lanchow Military Regions. In 1958 he was appoint­ financial posts in the provinces of Hubei, Anhui, and ed a minister of the petroleum industry and elected Shandong before being sent back to Fujian to lead the deputy for Sichuan Province to the Second and Third land reform there in 1951. Later he served as an economic National People's Congresses. affairs representative to Hanoi and minister of economic After being made vice-chairman of the State Planning relations with fo reign countries. Fang went on to such Commission, he was attacked by Red Guards during the posts as vice-minister of finance and vice-minister of Cultural Revolution, then saved from political death by state planning, and eventually served as vice-premier of Chou En-lai. Of late, Yu appears to be part of a loosely­ the State Council and president of the important Acade­ knit but identifiable pro-industry, pro-energy-expansion my of Scien ces. In 1967, during the height of the Cultural faction that does not seem to have fixed ties to either the Revol ution, Fang was attacked and temporarily sus­ Deng clique or the Gang of Four. Yu's recent removal pended from all his posts. It is likely that he was saved from the State Planning Commission, along with recent from total disgrace by Chou En-lai, with whom he is insinuations in the press, indicate that he is to a large

30 Special Report EIR November 25, 1980 degree blamed fo r the economic failures of the last three the Japanese, the Nationalists, the Americans in Korea, years. However, the State Energy Commission, to which and, most recently, the Vietnamese during the Sino­ Yu was recently appointed, is also a very important post, Vietnamese war of February 1979. Yang co-led the mili­ as competent energy management is crucial to the mod­ tary operation against the Vietnamese with Deng's trust­ ernization of the country. ed fr iend and onetime protector General Xu Shiyou; Yu Qiuli's most recent speeches have been in line with both have since been called to Peking to assume impor­ the Deng faction's policy of energy resource conserva­ tant posts, Xu as a member of the Military Affairs tion, but attacks on the management of the petroleum Commission, and Yang as Army chief of staff. With industry have already fe lled Min ister of the Petroleum faithful generals in charge of Peking military affairs, Industry Song Zhenming and besmirched Vice-Premier Deng views the capital as safe. for Petroleum Kang Shien with a "demerit of the first degree." The ouster of Yu, Kang, and Vice-Premier Chen Muhua was demanded at September's National People's Congress by Wang Bingnan, who said in his speech that the three "enjoy prestige neither in the party nor the government." Yu's political position could get more unstable as the real power groupings precipitate out of the uncertainty of the next few months.

Peng Zhen: Politburo member; Standing Committee member, National People's Congress. A native of Shanxi Province, Peng was born in 1902 to a peasant fa mily. In 1951 he became mayor of Peking, and gradually emerged as of the most powerful men in China, achieving the ranks of Central Committee and Politburo member. Peng gained notoriety as the first Politburo member to fa ll victim to the Cultural Revolution. He was accused of a number of crimes and was tried three times in public

Zhang Aiping: vice-premier of State Council; Eleventh before being purged in 1966. Party Central Committee member. Zhang was born in Sichuan Province and has been in the military through­ out his career. He served under the recently rehabilitated General Peng Dehuai during the Long March. After the fo unding of the People's Republic of China, Zhang rose within the army hierarchy and accompanied Chou En-Iai as a member of military delegations visiting both India and Burma. He is now deputy chief of staff of the People's Liberation Army and director of the National Defense ScientificCommis sion.

Yao Yilin: vice-premier of State Council, Party Secre­ tariat member. Born in Anhui Province, the 65-year-old Yao has been an economist throughout his career, spe­ cializing in financial and trade matters. He is usually the one to receive foreign trade delegations in his capacity as secretary general of the Financial and Economic Com­ mission. Yao has held such important posts as minister of commerce and deputy director of the Officeof Finance and Trade. He came under repeated attacks during the Cultural Revolution, but was reinstated after the ousting Yang Dezhi: Party Secretariat member, Army chief of of the Gang of Four. Most recently he was called on to staff. The military careerist Yang was born in 1910 in replace Yu Qiuli as head of the State Planning Commis­ Hunan Province . He is a veteran of campaigns against sion.

EIR November 25, 1980 Special Report 31 journalist and intelligence operative Edgar Snow while the latter was in Shaanxi. In 1937 he was sent to Chung­ king, then the site of diplomatic headquarters for most Western nations. Wang's mem bership in the Communist Party was not betrayed until 1942, which enabled him to hold several lower-level KMT posts, augmenting his anti-KMT activ­ ities. After 1942 he became Chou En-lai's personal sec­ retary, and remained as such throughout the war and immediate postwar period, except for a brief time in 1945, when he and his wife went to India to conduct Communist activities there. Like Huang Hua, he was in Hu Qiaomu: Party Secretariat member. Hu was born frequent con tact with Westerners, in particular Ameri­ in 1912 in Jiangsu Province, the son of a wealthy land­ cans, during the period of the Marshall mission. lord. He has been a writer and a propagandist through­ Wang's postwar, pre-Cultural Revolution career saw out his career and has held such posts as director of the him accompany Chou En-Iai to the 1954 Geneva Confer­ New China News Agency and director of the People's ence and is highlighted by his nine-year tenure as ambas­ Daily, China's most important newspaper. Earlier in his sador to Poland, a period that coincided with the 1956 career he was close to Mao, serving as the Chairman's Hungarian uprisings. He was China's representative to secretary and editing many of the party's more important the Chou-engineered Warsaw talks with the United documents. During the Cultural Revolution he was States, which started in 1955, and was behind the scenes stripped of all his posts and was little heard from until during the 1961 Geneva Conference on Laos. During the after the fall of the Gang of Four, when he resurfaced Cultural Revolution he was attacked and purged for and was appointed president of the Chinese Academy of "collusion with other countries." Rehabilitated afterthe Social Sciences. He has replaced Maoist Wang Dongxing Gang of Four's ouster, he is anti-Soviet, and is on record as the man in charge of editing the writings of the late most recently as being very supportive of the "Solidari­ Chairman Mao. ty" labor movement in Poland. Wang is a man to watch in matters of Chinese fo reign policy, a contact point with Anglo-American circles.

Wang Bingnan, president of the China Friendship As­ sociation, Central Committee member. A long-time Chou En-Iai associate, the 74-year-old son of a rich Shaanxi landlord is now head of the China Friendship Associa­ Chen Yun: vice-chairman of Central Committee, Pol­ tion, a foreign ministry-linked branch of Chinese intelli­ itburo Standing Committee member. Chen , 74, was elected gence. In 1931 he went to Germany to study at the to his current posts at the Third Plenum of the Eleventh University of Berlin where he joined the Comintern and Party Central Committee in December 1978. He is an married Anna von Kleist. Wang and his wife returned to experienced economic official who is a long supporter of China in 1936 and immediately went to Xian, Shaanxi, material incentives for workers, a view shared by the where he succeeded in persuading the nominally pro­ other architects of the new "Four Modernizations" eco­ Kuomintang (KMT) General Yang H ucheng to join the nomic program. Unlike many of the other recently ele­ United Front against the Japanese, countermanding vated officials, Chen comes fr om a genuine working­ Chiang Kai-shek's orders not to deal with the Commu­ class background. He has long been at odds with Maoist nists. All the while keeping his own party membership ideologues because of his economic views, which explains secret, Wang then made direct contact with the Com­ why his career has had more than its share of political munists, serving as a liaison between them and Yang. ups and downs. Chen's recent promotion strengthens During this period he reportedly assisted the American Deng Xiaoping's hold on party politics and policy.

32 Special Report EIR November 25, 1980 CHRONOLOGY

The return of the Chou-Deng group

Jan. 9, 1976 Politburo members: Death of Premier Chou En-Iai. Wei Guoqing, Ulanfu, Fang Vi, Deng Xiaoping, Ye Jianying, Liu Bocheng, Xu Shiyou, Ji Dengkui*, Su April 5, 1976 Chenhua, Li Xiannian, Le Desheng, We De*, Yu Qiuli, Tien An Men incident, in which tens of thousands of Wang Dongxing*, Zhang Tingfa, Geng Biao, Ni Zhifu, Chinese demonstrate in memory of Chou, in support of Peng Chong, Chen Yonggui*, Chen Xilian*, Xu Xiang­ Deng, and against the Gang of Four. Demonstrators are qian, Nie Rongzhen suppressed, hundreds reported killed. Feb. 11-23, 1978 Sept. 9, 1976 Second Plenum of the Eleventh Party Central Committee. Death of Mao Tse-tung. No officials chosen or dismissed. Business dealt primarily with preparations for the convocation of the Oct. 10, 1976 Fifth National People's Congress (China's legislative Gang of Four arrested climaxing a turbulent period that body) including compilation of reports and drafteddoc­ fo llowed the death of Chou En-lai and Mao Tse-tung, of uments to be submitted to the NPC for examination and factional jockeying fo r power. Deng Xiaoping, under approval. A list of candidates for StateCo uncil and NPC intense media attack in the north, fled to Guangdong Standing Committee was approved by the plenum. and remained there under the protection of General Xu Shiyou until after Gang of Four's arrest. Feb. 26-March 5, 1978 First Session of the Fifth National People's Congress. July 16-21, 1977 Component members of State Council chosen, minister­ Third Plenum of the Tenth Party Central Committee. ial posts filled. Resolution passed formally restoring Deng Xiaoping to State Council posts: all his posts and officially expelling Jiang Qing, Zhang Premier: Hua Guofeng Chunqiao, Yao Wenyuan, and Wang Hongwen from all Vice-Premier: Deng Xiaoping, Li Xiangqian, Ji their posts. Dengkui*, Yu Qiuli, Chen Xilian*, Geng Biao, Chen Yonggui*, Fang Vi, Wang Zhen, Gu Mu, Kang Shien, Aug. 12-18, 1977 Chen Muhua Eleventh National Congress of the Chinese Communist Party. Anti-Gang of Four theme prevailed throughout Dec. 18-22, 1978 congress. Cultural Revolution still praised as a success. Third Plenum of Eleventh Party Central Committee. Deng Hua Guofeng legitimized as Mao's rightful successor. associate Chen Yun elected additional vice-chairman of Central Committee selected. the Central Committee and member of Politburo Stand­ ing Committee. Hu Yaobang, Wang Zhen, and Deng Aug. 19, 1977 Yingzhao (widow of Chou En-lai) elected additional First Plenum of the Eleventh Party Central Committee. members of the Politburo. Past criticism of Mao oppo­ Main business concerned election of high-level officials. nents Peng Dehuai and Tao Chu judged erroneous. Bo Central Committee posts: Yibo and Yang Shangkun also officially rehabilitated. Chairman: Hua Guofeng Vice-Chairman: Ye Jianying, Li Xiannian, Deng June 18-July 1, 1979 Xiaoping, Wang Dongzing* Second Session of the Fifth National People's Congress. Politburo Standing Committee: Peng Zhen elected vice-chairman ofNPC Standing Com­ H ua Guofeng, Li Xiannian, Ye Jianying, Deng Xiao­ mittee. Formerly disgraced officials Chen Yun, Bo Yibo, ping, Wang Dongxing* and Yao Yilin appointed vice-premiers of the State Council. Vice-Premier Fang appointed president of the *currently purged Chinese Academy of Sciences.

EIR November 25, 1980 Special Report 33 September 25-28, 1979 views fu lly, hold great debates, and write big character Fourth Plenum of the Eleventh Party Central Committee. posters," as stipulated in Article 45 of the Constitution, Criticism of the Gang of Four remains prevailing theme. be deleted. Zhao Ziyang and Peng Zhen elevated to Central Com­ mittee Politburo . Aug. 30-Sept. 10, 1980 Third Session of the Fifth National People's Congress. Feb. 23-28, 1980 Resignations, appointments, and reshuffl ing highlighted Fifth Plenum of the Eleventh Party Central Committee. this session of Congress. Main business entailed elevation and dismissal of certain Resigned: officials and discussion of the upcoming Twelfth Party Premier H ua Guofeng, replaced by Zhao Ziyang Congress. Party Secretariat reestablished and filled with Vice- Premiers Deng Xiaoping, Li Xiannian, Chen Deng supporters. Yun, Wang Zhen, Wang Renzhong, Xu Xiangqian, General Secretary: H u Y ao bang Chen Yonggui. Those appointed to Secretariat included: Hu Yao­ Elected: bang, Wan Li, Hu Qiaomu, Yao Yilin, Peng Chong, Premier: Zhao Ziyang Yang Dezhi, Fang Vi, Gu Mu, Song Renqiong, Yu Vice-Premiers: Yang Jingren, Zhang Aiping, Huang Qiuli, Wang Renzhong. Hua Zhao Zi yang and Hu Yaobang appointed to Stand­ Vice-Chairmen of the NPC Standing Committee: ing Committee of the Politburo. Peng Chong, Zi Zhongxun, Su Yu, Yang Shangkun, "Whateverist" faction of Chen Xilian, Wu De, Wang Bainqen Erdini Qoigyi Gyaincain Dongzing, and Ji Dengkui removed from their posts. Deng and his associ ates resigned fr om their posts as Liu Shaoqi posthumously rehabilitated. vice-premiers but retained thier high-level party posts. Plenum decided to propose to the National People's This was done to make room for younger Deng sup­ Congress that the right to "speak out freely, air their porters.

itks" of personality cult under new historical condi­ The leader reassessed tions. When others want to reduce pUblicity on indi­ Th e Deng group's campaign to reassess Mao andplace viduals, they accuse them of "belittling the leader" the blame fo r Mao 's misdeeds on the Gang of Fo ur and because people "with deep proletarian sentiments" the Lin Plao group has been carried out with increasing like them cannot stand it. .. . They are just bent on intensity in all the organs of the Chinese media. One findingfa ult because they disagree with the principles Session important example is a two-part article en titled "The laid down during the Third Plenary of the Leader and the People, " published on September J 8-1 9, Central Committee. 1980, in the party organ People's Daily . Th e author, Li Seeking truth fr om fa cts and recognizing that the Honglin , has been previously identifiedas the author of leader grows up in practice and that he has made significant "theoretical" articles transmitting the lineof indelible historical contributions and also has un­ th e Deng group; the name may be a pseudonym fo r a avoidable shortcomings and mistakes-this is the only person or persons associated with the Academy of Social way to really defend the leader's image that will not Sciences. Excerpts fo llow. dampen the masses' faith in him .... Since the leader's own power is given to him by the During those "unprecedented" 10 years [referring people, of course he has no power to designate his to Cultural Revolution-D.S.], feudal morality was "successor" because the position does not belong to

openly advocated .... Practice has proven that the him. [This is a clear reference to Mao's designation of principle "The people should be loyal to the leader" Chairman Hua Guofeng as his successor-D.S.] ... has seriously impeded the development of our society If the party's princi ple of collective leadership is and should therefore bejettisoned and replaced by the always upheld, then the departure or staying of indi­ principle "The leader should be loyal to the vidual leaders will not affe ct the stability of the group people." ... of leaders. In other words, it will not affect unity and But in those 10 years, practicing the personality stability. Ifwe can uphold this principle in the political cult was the sign of utmost revolutionary spirit. To life of the party and the country , such heavy fe udal clean up this garbage today, a considerable am ount of legacies as "one leader," the "lifetime tenure system," work has to be done. We must particularly guard and "the individual designating his successor" can all against some people's attempts to highlight the "pol- be put in the museum of history .

34 Special Report EIR November 25, 1980 PARTY FA CTIONS

The CCP: a facade of discipline

The Communist Party of China (CCP) is theoretically came at the Fifth Central Committee Plenum this the center of power, the source of legitimacy, and the February, where the Secretariat of the Central Commit­ ruling party of the Chinese state. However, the reality of tee was re-established along with the post of party that proposition has been extremely varied throughout secretary-general and granted overall responsibility for the history of the People's Republic, particularly under handling the day-to-day work of the party organization. the recurring circumstances of Mao's own opposition to As secretary-general, a post Deng once held before his the party leadership and his mobilization of fo rces out­ purge in the Cultural Revolution, Deng installed his side the party to enforce his will. closest collaborator and protege, Hu Yaobang. Hu is a The Great Proletarian Cultural Revolution is the candidate to replace Hua Guofeng as party chairman. most fa mous example of such Maoist activity, with its In general, the members of the Secretariat are Deng use of the Red Guard youth gangs and later the People's followers, but not in toto nor all to the same degree. Liberation Army (PLA) to purge leading party cadre. One interesting Secretariat member, and the only PLA The security and intelligence apparatus, under the overall man among them, is General Yang Dezhi (Yang Teh­ direction of Kang Sheng, was used by Mao to direct chih), who was formerly commander of the troops of much of the activity of the Cultural Revolution and was the Kunming region and a leader of the 1979 war directed against his opponents within the CCP. After against Vietnam. Yang is not known to be close to Mao had to deploy the PLA to "curb the excesses" of the Deng, and in the past was a strong supporter of Cultural Revolution, the army had virtually taken over Madame Mao. the party apparatus in many localities. An important element in Deng's party control ap­ Over the most recent period, the Deng group has parat is the Central Committee Disciplinary Investiga­ tried to reorganize the party and restore it to some kind tion Commission (CCDIC) established at the Third of normality. However, the status of the party organiza­ Central Committee Plenum on December 18-22, 1978. tion and the membership remains very much in question. This unit is clearly part of the overall security and At the center in Peking, Deng is in control; but beyond intelligence apparatus, with a specific function as the that, out into the provinces and down into the middle action arm of the effort to rehabilitate and restore to and lower levels of party units in the communes, facto­ positions of power and influence those CCP cadres ries, PLA units, and so on, the degree of Dengist control persecuted during the Cultural Revolution. This also is in question. includes purges of current power holders; and the reach One reason is that a majority of the estimated 37 of the CCDIC apparently penetrates well down into all million party members were admitted to the party during layers of the party apparatus throughout the country. the 1966-76 period from the beginning of the Cultural The CCDIC was initially provided with a loo-man Revolution to the arrest of the Gang of Four, the period staff. It is headed by a Standing Committee member of now condemned by Deng and his associates. This major­ the CCP Politburo, Chen Yun, first secretary of the ity exists in the Central Committee, the leadership body CCDIC. Second secretary is Deng Yingchao; third of the party. While the Dengists have brought back many secretary is Hu Yaobang; and permanent secretary is of the cadre who were purged by the Maoists, there is no Huang Kecheng. Huang is in operational charge of the question that a significant layer of the CCP membership activities of the organization-he was elevated to the once were adherents of the radicals represented by the Central Committee at the Third Plenum and was chief Gang of Four. Of course, most of them have recanted of staff of the armed forces in 1959, when he was purged and adjusted to the new leadership, but their degree of along with Marshal Peng Dehuai (Peng Teh-huai) in loyalty must remain in question. the campaign at that time against "capitalist roaders" and "rightist opportunists." (Peng has since been post­ Deng's reorganization humously rehabilitated.) Deng has taken certain steps to restore his control Activities of this body have been mentioned in over the party apparatus at the top. The most important Chinese news reports in connection with disciplining

EIR November 25, 1980 Special Report 35 leading cadre who refuse to carry out rehabilitation achieve more efficient functioning of government by measures. In Shanxi Province, for example, there has taking party functions out of the government and reportedly been resistance to rehabilitations of what are having the party concentrate on matters of party organ­ called "victims of false and wrong accusations." Appar­ ization, mobilization, and education of the population. ently cadre belonging to Deng's fa ction have "not been This is' all supposedly part of the enforcement of legal thoroughly rehabilitated," and the complaint has been order and an end to the constant political campaigns aired that the perpetrators of the "frame-up" remain in which disrupted the functioning of the government. official posts "throwing their weight around." In this However, another explanation is that the Dengists instance, at least, the CCDIC is still unable to fully have their power base not in the party but in the state enforce its will from Peking. apparatus built up and protected by their late leader, Chou En-Iai. What may be involved here is not some Separation of party and government formal separation of powers, but an effective downgrad­ The unsettled state of the CCP itself may be one of ing of the status and power of the CCP itself in the the major factors behind a current topic in the Chinese Chinese regime, a move which is sure to bring tremen­ press and in the speeches of the Peking leadership. This dous resistance from those who still derive their power is the campaign for the "separation of party and and position from the primacy of the CCP. This trend government" functions and personnel. At the Septem­ regarding "state" and "party" is perhaps the most ber National People's Congress meeting this was a portentous aspect of the Deng bid fo r power. major theme, with the emphasis provided by the resig­ Judging from the attacks on them in the Peking nation of many senior party leaders from their state press, those who oppose the downgrading of the party positions, including Premier Hua, so that they hold only role argue that the removal of the party role will open party positions. the gates for "bourgeois ideology," particularly under The rationale presented for this in Peking is to conditions of heightened Western influence. The work­ er-peasant party cadre, who had such an elevated status during the Maoist period, look askance at the current emphasis on restoring intellectuals, many of them non­ party members, to a high social status in the state and 'The factionalists' party apparatus. Within the Deng group itself, as well as leading Th e fo llowing is excerpted fr om an Oct. 29, 1980 party circles not closely associated with Deng, there are commentary in the People's Daily, .. Ve teran Cadres' fears of "anti-Marxist" currents, a fe ar addressed fre­ New Tasks",' quently in the party organs. The clampdown carried out by Deng on the short-lived "Peking Spring," a flourish­ Some old comrades worry that the factionalists, ing of unauthorized journals that went so far as to or even the attackers, smashers, and grabbers, attack Marxism and socialism, is evidence of fears that might be promoted while the middle-aged and the de-Maoification campaign will undermine the very young cadres are being selected. This worry is legitimacy of the Chinese regime as it now exists. justified to a certain extent because the leading Among the intellectuals are widespread fears of a back­ groups of some areas and some departments have lash against the current liberalization. still not been properly consolidated today, and An event that points up the fragility of Deng's grasp some factionalists might promote their followers in of the political structure is the decision to delete from the name of promoting middle-aged and young the constitution the clause guaranteeing the "Four Big cadres. That is why the central authorities have Freedoms"-to "speak out freely, air their views fully, repeatedly reminded us that the organizational and hold great debates, and write big character posters." ideological remnants of the Lin Piao and Jiang This was announced at the Fifth Party Plenum as an Qing cliques should not be underestimated [em­ action intended to "help eliminate factors causing in­ phasis added] .... stability," and was read as a move directed against both Some people are deeply poisoned by the influ­ the Gang of Four faction and the non-party intelligent­ ence of the Lin Piao and Jiang Qing cliques. Their sia. Curiously, some China watchers have cited this factionalist sentiments are serious and they still move as evidence of the "awesome consolidation of refuse to repent. Although they have some ability, power" by Deng; it is more logical to view it as a they should never be promoted to leading posts. If manifestation of the weakness of the regime and the they still occupy some leading posts, they should necessity to suppress public expression of the forces at be brought down resolutely. work in the power plays now going on in the Chinese leadership.

36 Special Report EIR November 25, 1980 ARMY FACTIONS

The PLA: a restive element

The current status and political role of the Chinese coming years it will be impossible to sharply increase People's Liberation Army (PLA) has been the subject of our defense spending." very little attention over the recent period. However, The context for examining the circumstances in the despite the considerable effo rts of the current Peking PLA at this time must include the upcoming trial of the leadership to "depoliticize" the PLA, there is ample Gang of Four and the Lin Piao group, a trial which will evidence that the PLA remains a major political factor necessarily include sensitive issues regarding the PLA. and perhaps the only reliable unifying force in China. This is due to the inclusion in the 10 defendants of five Since the so-called Lin Piao affair-the alleged senior military officials, identified as collaborators of attempted coup by PLA chief Lin Piao and his subse­ Lin Piao, who disappeared shortly after the 1971 events. quent purported death in a plane crash in Mongolia The trial indictment, so far as it is known at this while fleeing to the Soviet Union-the PLA has suffered time, includes charges of conspiring to carry out a coup a significant downgrading as a political institution. and assassinate Mao, charges coming out of the Lin Moreover, there is no clear person or group of persons Piao affair itself. As we will discuss below, there was within the PLA who exercise a commanding role in the much reason to doubt the veracity of these charges at institution, as did Lin, particularly during the period that time, and there still is. It will be very interesting to from the late 1960s until the affair in 1971. see how the Deng group presents the charges and Nonetheless, over the recent period there are signif­ evidence to back them up. Suffice it to say that the icant signs that the PLA is a base of resistance to the downfall of Lin can be traced directly to Chou En-lai, domination of the Deng Xiaoping (Teng Hsiao-ping) as a principal competitor fo r the succession to Mao. group, and that in the future, control over the PLA or elements of it may be crucial in the power struggles to The PLA and Lin Piao come. The recent meeting of the National People's The mystique of Lin Piao can be expected to provide Congress (NPC) spurred such speculation when cuts in one of the more sensitive themes to be handled during the current defense budget were announced. There were the Gang of Four trial. Next to Mao's name, Lin Piao's signs that senior PLA commanders were unhappy over is certainly the most revered among the PLA rank and such moves, particularly because there is a demand for file. He was most highly regarded both for his tactical a significant upgrading of the PLA's professional status and strategic abilities. He was always referred to affec­ and modernization of its military hardware. tionately as "Lin Zong" ("Chief Lin") by the fighters The fa ct that one of the grand old men of the PLA, and commanders of the PLA. This was not just limited Marshal Ye Jianying (Yeh Chien-ying), remained in his to the famous Fourth Field Army, which he personally position of chairman of the congress, despite the resig­ commanded, and led all the way from the northeast nation of almost all the other leading figures of that region to the southernmost fringe of the PRC on body, is the most suggestive event. Some speculation Hainan Island, from 1946 to 1949. has been that Ye's resistance to resigning reflects PLA It was Lin Piao's forces that tilrned the tide and discontent with the economic and de-Maoification pol­ spelled the end of the Kuomintang (KMT) on the icies of the Deng group. mainland. It happened in the first of the "Three Great Evidence cited to back this speculation includes Ye's Campaigns" of the 1946-49 civil war. This was the closing speech to the NPC which gave specific praise to campaign in the Liaohsi-Shenyang region which en­ Party Chairman Hua Guofeng's major speech to the abled the PLA to establish a foothold in Manchuria, congress, and also highlighted the need to strengthen the rich, most industrialized part of China. The control national defense as a priority alongside that of the of this region enabled the PLA, until then hopelessly "Four Modernizations." Also, Hua, himself, in his outnumbered, to destroy the KMT divisions, cross the speech, gave strong praise to the PLA, calling it "a Shanhaikuan barrier and stream into the heartland of strong pillar of the dictatorship of the proletariat" and China. After this nothing could check it. expressing dissatisfaction over the fact that "in the The strategic doctrines developed in this campaign

EIR November 25, 1980 Special Report 37 and the tactics employed became operations manuals the vituperative Madame Mao embarked upon an at­ fo r use right down to the PLA's battalion and company tack on Ye and the whole general staff. Between Decem­ levels. It was this institutional reverence fo r Commander ber 1972 and January 1973, the general staff was forced Lin that the post-Lin Piao leadership has attempted to to "reveal their crimes" three times. Ye was accused of obliterate through mass campaigns. Yet the memory opposing the Party Central, the general staff was de­ has persisted in the minds of the fighters and command­ picted as a "pitch-black organization," and the general ers of the PLA. staff of Lin Piao. (Ironically, Lin is now lumped with This "Lin Zong" legend, and the general attitude the Gang of Four as an antagonist to the true line of toward discipline and order inherent in the professional Mao Tse-tung Thought.) military, which allowed the PLA to weather the general In pursuing the matter of Ye's status, the question turmoil of the Cultural Revolution relatively intact, has been raised as to whether he "really" offered to makes it imperative for the Deng Xiaoping regime to resign as chairman at the recent National People's handle the PLA carefully as it rehabilitates and consol­ Congress. It has been noted that on Sept. 19, Hua idates the position of the civilian sector, i.e., the party Guofeng stated to a prominent foreign visitor that Ye and the government. had submitted his resignation, but it was not accepted. The battered sensibilities of the PLA must be taken It was also noted, however, that Deng and his fo llowers into account not only because ofthe summary dismissal, have remained silent on the matter. One observer cites formal disgracing, or general harassment over the years this episode as an indication that personnel changes at of such prominent military figures as Peng Dehuai, Lo the senior levels of the government may not have been Juiching, Ho Lung, Chu Teh, and Lin Piao. There also as smooth and amicable as they are presented to the remains some resentment in the ranks because of the masses of China and the West. way the PLA as a whole was forced during the Cultural Another aspect in the relationship between the mili­ Revolution to act as gendarmes against the Red Guards tary and state involves the exercise in multiple transfers and their violent factional strife. at the regional level. Early this year most of the PRe's The PLA knows on the basis of putting "theory into 11 military regions underwent leadership changes. Deng practice" that waving Mao Tse-tung's little red book, relinquished his position as PLA chief of staff in favor or expounding the current ideological variant, is not as of Gen. Yang Dezhi (Yang Teh-chih). It has also been efficacious a "norm of truth" (Deng's current favorite suggested that the transfer to Peking of a number of the phrase) in developing a "fine [military] work style," most prestigious senior officers to the Military Affairs such as live fire practice and frequent combat maneu­ Commission, and their replacement in the provinces vers. This is particularly true when it is put to the test as with little-known individuals, is in part an effo rt to in the February-March 1979 incursion into Vietnam. diminish the tendency toward the development of the Whatever the lack of equipment or defects in prepared­ dreaded "independent kingdoms," or factionally domi­ ness that resulted in the PLA's drubbing at the hands of nated regions. local and regional Vietnamese troops, this action must In sum, then, it may be said that Ye, as a certified have resulted in a general, if inarticulate, disaffection anti-Gang of Four type, is still a focal point of some from the CCP leadership of the Cultural Revolution controversy in Peking. This may be explained in terms decade. of his role as one of the few surviving mentors of the The above factors may account for the speculation essentially apolitical role of the body of the PLA about the role and status of senior military officials still (leaving aside for a moment the question of the political in positions of authority. Among them, as noted above, proclivities of the host of PLA senior officers cited is Ye Jianying, 84, one of the five still-living marshals above). His situation may also be explained as repre­ from the famous 12 appointed in 1955. Such speculation senting a faction, including significant supporters of the must revolve around the question of the political posi­ pace and direction of Deng's current line. tion of the army, rather than any question of Ye's Another military figure who may represent a cate­ political stand on the Gang of Four versus Deng, or the gory of skeptical moderates between the two contending more mundane matter of his age. factions (Deng and the remaining vestigial elements Ye, like Deng, was attacked, directly and indirectly, loyal to the Gang of Four at the middle and lower level by the Gang of Four, though unlike Deng, he was not of cadre) is Xu Shiyou (Hsu Shih-yu). Xu, as command­ purged. There is the matter of the "Shangtung Ques­ er of the Canton Military Region, had a prominent role tion," for example, an exercise of Madame Mao and both in the recent Vietnam campaign and earlier, in a her dilettante literati, who, while ostensibly on vacation critical moment of Peking palace politics, when the in August 1972, decided to take over, or at least Gang of Four was arrested in October 1976. (Xu, "investigate," a military base and check out the political then stationed in Canton as commander, returned to condition of the troops there. Ye objected, whereupon Nanking, whose command he held for 20 years, one can

38 Special Report EIR November 25, 1980 presume he did this to fo restall any manifestation of support for the Gang of Four from their strong power base in Shanghai, which lies within the purview of the Nanking Troop.) Xu is credited with protecting Deng in the aftermath of his latest fa ll fr om grace. Thus, when the command­ The trial detendatlts ers of the Military Regions were reshuffled in February 1980, it was expected by authoritative sources that Xu Jiang Qing: widow ofthelate Chairman Mao and

would be honored with a significantly higher position­ one ofthe main protagonists during the . Cultural logically this would mean in Peking. However, no such Revolution. She has been identified as the leader of honor has yet been bestowed upon the faithful Xu. the Gang of Four. Earlier this year, speculation concerning Xu's status ranged from his personally attempting to assassinate Zhang Cbunqiao: leading protagonistand publish� Deng, to his being kept at a distance from Deng by er of fe llow Gang of Four member Yao Wenyuan's other senior military men who are not in full accord radical writings. Zhang grabbedcont rol of China's with the pact of change advocated by Deng and who propaganda apparatus during the Cultural Revo­ fe ared Xu's strong personality. It is also noted that it lution. He fo rmerly was a PolitburoStandingCom� was not Xu but the number-two man of the Vietnam mittee member and was once viewed as a likely War, Yang Dezhi, who was promoted to chief of staff. successorto Premier Chou En-laL All that can be said of the "number-one mystery man," Xu, is that he did appear at the recent National People's Yao Wenyuan : leading radical theorist and propa­ Congress, and is evidently a member in good standing gandist who worked closely with Zhang Chunqiao with the Military Affairs Commission. from their base in Shanghai during the Cultural Revolution . Yao was a member of the Politburo. Background of the Lin Piao affair : Chou's revenge Wang Hongwen: the Shanghai "boy wonder" who The background of the Lin Piao affair forms an was promoted fr om a factory security job in his important part of the current events, the trial, the power horne city to the Standing Committee of the Polit­ struggles within the Chinese leadership, and the status buro and to party viee-chairman by Mao himself. of the PLA. The dramatic charges of Lin's leadership of These were the "Gang of Four." an anti-Mao coup that surfaced in China fo llowing the September 1971 fl ight of Lin from China are clearly Cben B()da : Chaiman Mao's private secretary and only a part, and perhaps a small part, of the truth. One chief propagandistfor over 30 years., and one of the element is strategic-Lin's opposition to Chou En-Iai's leaders of the Cultural Revolution group that car-. entente with the United States that was manifested in ried out attacks against ·'revisionists." the July 1970 visit of Henry Kissinger to China and also in the late 1969 armed border clashes with the Soviet Five fo rmer military Jeaders accused of coIlu­ Union. Evidence suggests these clashes were engineered sion in Lin Piao's alleged assassination attempt on by the Chinese, perhaps by Chou and Mao, with the Chairman Mao in 1971 : aim of discrediting Lin's opposition to an axis with the U.S. and his rumored support fo r some kind of limited HUaRg Yongsheng: former chief of staffof the Peo­ rapprochement with the Soviet Union. , pIe's Liberation Army. However, there are also internal aspects relating to Lin's role as heir-apparent to Mao and the tremendous Wu Faxian : fo rmer commander of the Air Force. political power exercised by Lin and the People's Lib­ eration Army resulting from the PLA's role in ending U Zu openg : former Chief Political Commissar of the chaos of the Cultural Revolution under conditions . theNa vy. of almost complete destruction of the party as an organized institution. The origins of this can be traced Qiu Huizuo � former director of the General Rear to the Ninth Communist Party Congress in April 1969. . ServicesDepartment. This congress officially ended the disorder of the Cul­ tural Revolution. . Jiang Tengjiao: former connnander of the Air It was at the time of the Chou group's resurgence Foree CentralHeadq uarters . that Lin began to turn to his military comrades and to Chen Boda (Chen Po-ta) for support in the struggle for

EIR November 25, 1980 Special Report 39 succession, a succession in which Lin had already been formally designated the heir-apparent. (Chen is one of SECURITY APPARATUS the 10 trial defendants.) Some sources believe there were differences between Lin and Chou even before the Ninth Party Congress. Specifically, these involved, or were articulated, as differences over the manner and extent to which the purge of the party was to be carried out. What it comes down to is who was to be axed and by whom. The outcome of the struggle between the "radicals/Reds," and "moderates/experts" would determine the post­ Discredited and Cultural Revolution power structure. Mao and Chou first attempted to undercut Lin by initiating a low-key rectification campaign against Lin's dysfunctional power base in the military apparatus. Also at this time, the "Central Cultural Revolution China's security and intelligence apparatus is rarely a Group" headed by Chen Boda was abolished, and he subject of public discussion in either China or the West­ was relegated to an unimportant post. yet it is one of the most important power centers in Lin's increasingly precarious position was manifest­ China, one which has held power equal perhaps to that ed dramatically in March 1970, when Mao deleted the of the much-discussed Soviet KGB. In the recent period, office of chairman of the state from the new draft however, the Chinese security apparat has come to bear constitution. This decision, which confirmed Premier little resemblance to its Western counterparts, including Chou En-lai as de facto head of government, thus the Soviet, in form, content or direction. In earlier years outranking Lin in both his government position of vice­ it was under the command of the shadowy powerful premier and minister of national defense, indicated that Kang Sheng, once trained in the Soviet Union but a Mao had abrogated his plan for a single successor, Lin. known architect of the anti-Soviet policy of the Chinese At the Lushan Plenum of the CP Central Committee Communist Party {CCP) from its inception. in August 1970, Lin and Chen openly challenged Mao's Kang Sheng is now the subj ect of intense attack in authority on fundamental questions concerning the the Chinese media as the architect of the personality cult power structure and the correct line. The subsequent of Mao and the perpetrator of various crimes, through charges against Lin and his military supporters-that the security apparat, against those cadres who were they had practiced "revisionism, splittism, and conspir­ purged various times over the past 20 years. Once head acy"-refer to this challenge to Mao's leadership at of the "Social Affairs Department" of the CCP (an Lushan. intelligence bureau whose continued formal existence is The aftermath of the August plenum was character­ uncertain), toward the end of his life Kang had reached ized by a subtle undercutting of Lin's power base in the the highest ranks of the Chinese Communist leadership. PLA. Once Lin's power base had been dissipated, it His status as a member of the Politburo of the CCP and would be relatively simple to render him harmless. fi fth-ranking vice-chairman of the party, remained intact The principal charges in the indictment against Lin at the time of his death in 1975. Piao were: that he plotted a coup d'etat; that he Kang Sheng has since had the unusual status of being attempted to assassinate Mao Tse-tung; and that when purged from the CCP after his death, along with another these efforts failed, he attempted to defect to the Soviet top figure in the security/intelligence apparatus. There Union (with which he had had "illicit" relations not have been numerous indications that his "crimes" will be further specified). a part of the trial of the Gang of Four and that he will be Sources here say that following the Second Plenum, posthumously tried with them, as their "godfather." It is the struggle had reached a stalemate. Confronted by a important to note that as late as the Eleventh Party powerful coalition of PLA leaders, the Chou element, Congress in 1977, Chairman Hua listed him among the using Mao as their ideological front man, were com­ most venerated of the departed CCP leaders. pelled to move cautiously and indirectly. Presumably they were constrained from taking direct action against The departed chiefs Lin until serious proof of conspiracy was at hand. The A quick review reveals that every known top leader party documents characterized the situation as one in of the security/intelligence apparatus (leaving aside which both sides "were riding the tiger and finding it fo reign intelligence operations, particularly those under difficult to dismount," and that they were involved in a Chou En-Iai's command) has suffered a grim fate. The "superficial equilibrium which cannot last long." minister of public security (formally the state apparatus

40 Special Report EIR November 25, 1980 responsible fo r internal security) at the beginning of the (Hsi Kuo-kuang) fo und it necessary to thank the PLA 1970s, Xie Fuzhi (Hsieh Fu-chih), an ally of Lin Piao, for having given assistance in the maintenance of public disappeared, and, according to some sources, was assas­ order. sinated by a member of his own staff. He was recently posthumously purged along with Kang. Li Zhen (Li The Chinese resistance Chen), who became minister of public security in 1972, The problems besetting the battered security organs disappeared without a trace in 1973. Some sources say are not confined to those in the political arena alone. In that he too did not die a natural death. addition to the antisocial, criminal activity which re­ The subsequent minister to fill that post was none quire the assistance of the PLA to handle, there is also other than Hua Guofeng, currently chairman of the the matter of "underground activities." This fascinating CCP, and it seems clear that the attacks on Kang also and minimally discussed problem was recently high­ strike indirectly at Hua. One of Hua's allies was Wang lighted in an obscure journal, News Frontline. No. 4, Dongxing (Wang Tung-hsing), another senior figure in 1980. This journal carried a speech to journalists by Hu the security apparatus who was purged at the Fifth Qiaomu (Hu Chiao-mu), a member of the Central Party Plenum in February from his position in the Committee Secretariat and head of the Academy of Politburo and as vice-chairman of the CCP. Wang had Social Sciences, on the matter of "secret organizations." been head of the special security and intelligence unit Hu cited two types of antiregime, underground assigned to protect Mao and the top Chinese leader­ organizations-"remnants of the Gang of Four" and ship-the 8341 Unit, as it was called, a unit likened by others described as "small factions which are not the some observers to a Praetorian Guard. (This unit has remnants of the Gang of Four," evidently a reference to been disbanded and a similar force reconstituted as the elements from groups formed during the Cultural Rev­ 570001 Unit.) olution. There was a third group alluded to as opposing The purge of Wang had been systematically pursued "proletarian dictatorship, but who want to continue the by Deng, including getting Wang removed from the revolution." This may refer to underground groups command of the general office of the Central Commit­ who want "radical changes but not party dictatorship," tee (since taken over by Yao Yilin) and fr om responsi­ i.e., individuals who want rapid changes to continue bility for carrying out the investigation of the crimes of until they achieve the status in society to which they the Gang of Four. Clearly Wang's role in carrying out believe they are entitled. the arrest of the Gang of Four on Oct. 10, 1976 has not Strikingly, Hu described these "secret organiza­ absolved him from being a close colleague of Kang, and tions" as "in mutual liaison all over the country," thus held partially responsible for the implementation indicating they are located in many regions of China, of the Cultural Revolution and the purges and depre­ and that they are in communication with one another. dations that resulted. Though their ideological affiliations and programs may not be identical, they evidently have many objectives in Functioning impaired common. The article notes that the Gang of Four "in The current minister of public security is Zhao some regions ...still have considerable power, menac­ Cangbi (Chao Tsang-pi). His security background goes ing our stability and unity." back to his services as director of public security in Deng is quoted as stressing that the strength of these Deng's native Sichuan province, indicating his close ties secret organizations should not be underestimated. to Deng. Zhao recently held a work conference of some Noted are their capacity for organization, secretiveness, 145 security officials to criticize the "work style" of communication, flexible strategy, and ability to adjust these cadre of the public safety bureaus. While repeat­ to changing circumstances. It would appear these par­ edly praising the "fine work style" of these cadre, Zhao ticular elements have learned from Mao all too well, noted that the "pernicious influence" of Lin Piao and and have been "corrupted by their tradecraft." the Gang of Four still existed. He indicated it would As the continuing tension in Shanxi Province would take some six months to overcome this influence. indicate, and as Deng and Hu have complained, some From this and similar references in the Chinese of these secret organizations are receiving support from media it is apparent that the functioning of the security cadres who still hold their posts. In this connection one apparatus has been significantlyimpair ed and its ability old China hand notes that because of the long tradition to faithfully carry out the orders of the Peking leader­ of secret societies in China, resistance does not take the ship is somewhat in doubt. This is supported by the form of such "naive" activities as those in East Euro­ reported re-entry of the People's Liberation Army into pean countries where dissidents organize human rights the role of providing security functions as it did in the groups and monitor the Helsinki agreements in public. Cultural Revolution. At a meeting in Peking early this "Resistance is much more subtle, invisible, all-penetrat­ year a vice-minister of public security, Xi Guoguang ing."

EIR November 25, 1980 Special Report 41 Whos doing what to whom in Poland

by Lyndon H. LaRouche, Jr. , Contributing Editor

In former times, most sensible adults walked through life "solidarists" might turn out to have been merely a forewarned that a certain kind of experience might await gambited pawn, or, at most, a gambited bishop? The them around the next corner. "solidarists" are pieces of great significance in the cur­ Two men, two women, or perhaps a man and a rent Polish chess game, but they are not playing the woman, begin a crescendo of a squabble in a public game; they are being played. place. A crowd of onlookers is aggregated. The fight Who is playing the Polish chess game? The hard ends. The protagonists disappear. The onlookers wonder evidence is that the Polish game is being fought out what the fight was really all about-until they reach to between two factions at the highest level in Moscow their purses and wallets. itself. For weeks, the world has watched a crescendo of One of the two Moscow factions playing the Polish destabilization in Poland. We have gathered, chiefly as chess game is conveniently identified as a pro-Paris, pro­ onlookers, anticipating that Grand Guignol of a day on Bonn faction. This Moscow faction suffered a serious which Soviet armored fo rces re-enact, perhaps on a setback throughout the Comecon bloc with the fall of the larger and much bloodier scale, the finalscene of Prague Polish government of former party leader Edward Spring 1968. Now, I say: "Ladies and gentlemen onlook­ Gierek. This Moscow faction may have had strong criti­ ers, it is time to look to your purses and wallets!" This cism of Gierek's handling of Poland's domestic affairs, situation is not quite what it seems to be. but it was tied to Gierek's "special relationship" with The "solidarist" conspiracy, which gave its name to both France's Giscard and Germany's Schmidt. Lech Walesa's new trade-union organization, is quite The opposing Moscow faction is anti-Bonn, anti­ real. Within Poland itself, this conspiracy is indeed di­ Paris, and pro-London. This faction's policy is typified rected by Jesuits, and is indeed coordinated with the by declarations of Soviet Politburo member Boris Pono­ West chiefly through Vienna. It, Polish "solidarism," is marev at the recent East Berlin meeting of representatives admittedly both bitterly anti-Soviet and is determined to of communist parties. This Moscow faction is on rela­ bring Polish approximations of Soviet socialism to an tively the friendliest of terms with General Secretary Gus end. Those fa cts. which accord with prevailing opinion Hall of the Communist Party U.S.A. of the matter in the Western press, are quite real-within The latter Moscow faction is playing with a British certain limits. secret-intelligence asset inside the leadership ofthe Polish Yet-ladies and gentlemen, your purses and wallets, communist party, Stefan Olszowski. please!-did it ever occur to any of you that the Polish Olszowski is a close associate of British intelligence

42 International EIR November 25, 1980 operative Jan Szczepanski. Former Polish "KGB" chief deployment of Soviet armored forces against the Polish Stanislaw Kania provided the key role in effecting the "solidarist" insurgency. We merely insist that if those ouster of Edward Gierek, and is performing the function tanks moved, it would not be for precisely the reasons of a bridge-government during a transitional period given in most of the Western press. leading toward, presumably, a takeover of Poland by First, the kind of game which London and Moscow Olszowski and his friends. are playing out in Poland is a risky one. For example, From the point of the fall of Gierek, leading Polish the "solidarists" do represent to a certain degree an Catholic circles feared that Moscow was orchestrating independent factor in the situation, a potential wild Lech Walesa's strike movement to some end-goal which card. For that or other reasons, the present "controlled included the victimization of the Polish Church. This fear destabilization" of Poland might go over into becoming was a prominent consideration included in the calls for an "uncontrolled destabilization," as the Jesuits, among moderation issued by Cardinal Wyszynski. Although the others, fear. With so many players playing independent "solidarist" movement itself is predominantly a creation games in the situation, and the situation so close to the of the Jesuit order in Poland, and although the rank and edge of "uncontrolled disintegration," the risk of mis­ file ofthe movement is under effective ideological control calculation is relatively enormous . of priests coordinated by the Jesuits, Poland's Jesuits are Second, it is by no means certain that the present not such amateurs as to believe that their movement Moscow majority will continue to be the majority. cannot be effectively manipulated by Moscow. The policy declaration delivered by Boris Pono­ It becomes "curio user and curiouser." Although marev at the recent East Berlin meeting was a brutal Moscow factions are immediately on top of the Pbiish repudiation of the protocol of the May 1978 meetings chess game, are the Moscow players themselves being between Soviet President Leonid Brezhnev and West played by other forces? German Chancellor Helmut Schmidt. This change in Naturally, the Carter administration has had its fin­ Soviet policy was one of London's leading policy objec­ gers in the Polish situation. Yet, one must not be taken in tives for British secret-intelligence's leading role in the by Zbigniew Brzezinski's delusions of grandeur. destabilization of the Gierek government. London's Brzezinski is merely a hired gun, and on a significant­ objective has been to bring down the deutschemark and ly lower level in the pecking order than hired gun Henry collapse the European Monetary System. Ponomarev's Kissinger. Brzezinski is a bungling schoolboy by com­ policy declaration will tend to promote such chain­ parison with old hand Jay Lovestone, and Lovestone reaction side effects. himself is a mere underling in the establishment of which For related reasons, the policy set forth by Pono­ he is a part. Granted, Brzezinski and Lovestone have marev could be repudiated rather abruptly by Moscow. been playing in the Polish situation, but who is playing Under the global conditions defined by the Carter Brzezinski and Lovestone? administration, the relative weight of France's Giscard Essentially, London is using the pro-British faction and Germany's Schmidt governments was the principal in Moscow in an effort to isolate France and the Federal obstacle to the growing danger of actual nuclear war­ Republic of Germany. That is the primary strategic fa re between NATO and Warsaw Pact forces. If significance of the fall of Edward Gierek. The game Schmidt and Giscard were to be destabilized, as a being played iIi Poland features British secret-intelli­ colla:pse of the EMS would virtually ensure, the last gence operatives and assets such as Szczepanski, 01- important obstacle to nuclear war would be removed szowski, and Mieczyslaw Moczar. Yet Moscow is fully from the situation. conscious of these connections to British intelligence. Fortunately, the landslide victory of President-elect Is London playing Moscow, or is Moscow playing Ronald Reagan has dramatically lessened the overall London? That is where the key question mark on the danger of a nuclear confrontation. Polish situation is to be placed. The fact that Mr. Reagan's victory was of landslide The highest Jesuit levels are well aware of such ques­ proportions is of great importance strategically. The tion marks. Those Jesuits have alliances to and sympa­ large base of support gives the new President-elect a thies for London's side of the game. Yet the Jesuits are maneuvering room within his own circles which would worried. They are quite familiar with the ethics of British not exist had his election been a "squeaker." The fact secret intelligence. They are therefore suspicious that that there is room for policy conflicts within the "Rea­ London may be gam bitting the fate of the Polish Church gan camp" means that the Reagan forces will enjoy a in the current game between London and Moscow. flexibility, a capacity for sophisticated, rational policy initiatives and policy responses altogether absent from Soviet armor could roll the Carter administration. This does not mean that we exclude entirely the As this fact penetrates even the heads of Moscow

EIR November 25, 1980 International 43 - circles, a certain amount of rethinking will occur in such industrial employers and trade unionists as political . quarters. That could mean a tilt away from pro-London fo rces endemically dedicated to technological progress factions in Moscow, back toward pro-Gaullist factions, under industrial-capitalist development. and a resumption of the May 1978 perspectives. Under The authors of this technique were the Venice-cen­ such conditions, British assets such as Szczepanski, tered oligarchical faction of Europe. The method used Olszowski, and Moczar will tend to suffer the political was the brainwashing of recruited circles of both em­ fate they administered to their victim, Edward Gierek. ployers and trade unionists according to the procedures If the "solidarists" attempted to prevent this shift by of rhetoric set fo rth in Aristotle's Nicomachean Ethics. forcible means, things could become very rough. Although the Catholic Church was heavily targeted If, on the other hand, the coordinators of the for penetration by the authors of "solidarism," "soli­ "solidarists" elected to adapt calmly to the abrupt shift darism" is by no means an outgrowth of any variety of in political winds from Moscow, repression and blood­ Apostolic Christianity. The typical center for "soli dar­ shed would be avoided. ist" ideology in Europe today is the University of The foolish admirers of Gertrude Stein brush such Louvain, an avowed international center of the anti­ analysis aside. Such simple-minded bunglers babble, "A Christian pagan doctrine called Gnosticism. The first Soviet tank is a Soviet tank is a Soviet tank." Such Gnostic of significance in the history of the Christian miserably ignorant people remind us properly of the Church was Simon "the Magician" Magus, the com­ morality of the Commedia's "Inferno." In Hell it is mon foe of Saint Peter and Rabbi Philo Judaeus in permitted only to ask "What?" but never "Why?" Rome. Gnosticism was one of the principal pagan, Similarly, nations which limit their policy making to pseudo-Christian cults outlawed by the Council of "What," not asking "Why?" often find themselves Nicea, and is in fact a fo rm of pseudo-Christianity plunged into the sort of Hell designed to receive persons based upon the Ptolemaic version of the Cult of Isis. and nations of such simple-minded persons. Although Gnosticism was maintained in Italy prior To act efficiently in response to any actual or to the 13th century, chiefly by Isis-worshiping fa milies threatened occurrence one must first determine the descending from leading families of the ancient Roman nature of the process which is producing such effects. imperial senate, the main bastion of Gnosticism was in To stop the effect, or to correct it once it has occurred, Byzantium. The Byzantine Church is divided to the one must apply one's action not to the effect itself, but present day between a traditionally Apostolic current, to the process which has caused the effect. A Soviet and a Gnostic, pseudo-Christian current, which identi­ tank under condition "A" is not a Soviet tank under fies itself with the teaching of the ancient Apollo-cultist condition "B." The person who has not mastered such Aristotle (Apollo = Lucifer). It was by way of Venice distinctions should keep his mouth shut until he learns that a broad wave of Gnosticism was introduced into better. the West during the second half of the 13th century. Among leading circles of "solidarists" today, "soli­ The 'solidarism' factor darism" means essentially the solidarity in common The enraged bear, if loosed from his cage, becomes action of the combined Gnostic factions penetrating extremely significant to the persons proximate to that both Eastern and Western Churches. cage. It is the person who might open the cage under During the 1920s and 1930s, the best-known expres­ those circumstances which is the important matter in sion of "solidarism" was the variety of fa scism known such a setting. as "corporativism" (as equal to the idea of the "corpo­ The "solidarist" movement is extremely significant rate state"). This version of solidarism was identified but its importance is much exaggerated. with Benito Mussolini's fascism in Italy, with that of "Solidarism" is not an autonomous movement, nor Dollfuss in Austria, and Gregor Strasser's solidarist is it in fact a creation of the Catholic Church. It is a tool version of Nazism in Germany. It was also the basis for created by a powerful faction in world affairs, a faction the fascist regimes of Hungary, Rumania, and Poland usefully identified as the "Hospitallers," and identified prior to the Nazi takeover of those countries. since the late 13th century as the "Genoese" black Today, "solidarism" is predominantly a movement nobility. As is a common enough sort of occurrence in on the European continent, deeply implanted in both the popular naming of things, what is called the "Gen­ western and eastern parts of the continent. It is nomi­ oese black nobility" is in fact the "Venetian black nally centered in the Gnostic factions' penetration of nobility"; the Genoese were-and are-but the junior the Catholic and Eastern Orthodox Churches, but is partners of the Venetian oligarchs. equally represented in Gnostic (existentialist) perver­ "Solidarism" was developed during the last half of sions of Protestantism. the 19th century as a technique fo r neutralizing both The "solidarist" network's largest assets are outside

44 International EIR November 25, 1980 professedly Christian bodies. These non-Christian ef­ The latter was the policy of the Cult of Apollo at forts exude a "pagan" (Lucifer-worshiping) element: Delphi, Aristotle's patron. This policy is known to theosophist networks and atheistic elements in the foot­ classical historians down through the millennia since as steps of such figures of the 1920s as Gregor Strasser, the oligarchical do ctrine. That was the name given to the "left fascist," and Karl Korsch, the leading anarch­ this doctrine by the proponents of the "Persian Model" ist philosoher of the 1920s Communist Party of Ger­ from the fourth century B.C. many. Who represents such an oligarchical doctrine today? In brief, "solidarism" is a doctrine and method used Insiders call the leading oligarchists of today "Vene­ to develop a force of dupes into a social battering ram tians," "Genoese," "Hospitallers." It is not properly against the institutions of industrial society. astonishing, therefore, to discover that the highly­ Since the close of the 1920s, "solidarism" has been placed forces behind the creation and continuing de­ w.Jely known as variously the "Third Way," or "Third ployment of "solidarism" is the same "Venetian" net­ Camp." It is, so to speak, the "inner Morgenthau Plan" work which insulted Queen Elizabeth II during her visit for all of continental Europe, an effort to destroy to the Pallavicini palace in Genoa recently-a Venetian industrial society from within both Western and Eastern princess who insulted the queen as some boorish par­ Europe. venu whose presence presumably "let down the quality Its particular focus of hatred is against industrial of the neighborhood." capitalism. It is opposed to profit, and opposes capital­ This is the same crowd which is behind the Club of intensive forms of technologically-advanced capital in­ Rome and its genocidal limits-to-growth proposals. vestment in both industry and agriculture. It views the The faction of British intelligence which controls the Soviet industrial form of socialism as another expression Polish "Experience and the Future" group is known in of the same principle as industrial capitalism, and is its international guise as "The Futurologists." The resolved to eliminate both . London Tavistock Institute (Sussex), to whose interna­ The fact that "solidarism" is a mobilization of mere tional "Russian Studies" branch Brzezinski was at­ dupes is symptomized in two most obvious ways. tached, is a key part of that oligarchical element of First, the possibility of sustaining a population of British intelligence. That element of British intelligence any given size within a nation depends upon what is is an outgrowth of what was known during the 17th best termed the complicated-sounding name of "poten­ century as the "Genoese" financial interest which took tial relative population density." This potential for over the City of London with James I's 1603 accession sustaining a given population of human beings depends to the then-newly-created throne of the United King­ upon not only a certain level of technological develop­ dom. This "Genoese" faction in Britain became known ment, but also a certain range of advancement of as the British East India Company, the fo rce against technology. Without continuing technological advance­ which the American Revolution was fo ught. ment, it is not possible to overcome the effects of Consequently, it would be a grave error to view the relative depletion of "natural resources." This technical British involvement in the Polish destabilization as an progress requires not only a growth in the amount of outgrowth of the British people generally or Britain's energy used per person in society, but also a rise in the adducible interests as an industrial-capitalist nation. energy flux density of energy sources used for produc­ The crowd involved is the "one worlders," the oligarchs tion. who rej ect national loyalties and the very idea of an Consequently, any national movement which pro­ industrial-capitalist form of vital national interests. poses to turn back the clock on industrial progress is The "solidarists" of Europe are generally merely proposing to wipe out a corresponding proportion of gambited pawns, and sometimes gambited bishops, in a its own population: genocide. No people ever secreted a game being played by the oligarchical fa ction. That spontaneous perception that it ought to subject itself to latter faction, which fo rmerly owned the N. Bukharin genocide. "Solidarism" is not a sane expression of the to whom Jay Lovestone was formerly attached, controls independently perceived self-interests of any large pop­ a significant "neo-Bukharinist," pro-London faction in ulation. "Solidarism" is a form of mass brainwashing the leadership in Moscow today-as well as in other of dupes into complicity with their own mass suicide. East bloc nations. Who benefits? What sort of political forces would Those are the general dimensions of the game being develop and deploy such an instrument of mass brain­ played by evil old men. Poland is but a chessboard-a washing as "solidarism"? One has but to read the victim-of that game. bucolic, cultist ravings of Hesiod, or the draft proposal Nonetheless, although a mere pawn, "solidarism" is for creating a Western Division of the PerSlail Empire not to be underestimated. In chess, a pawn sometimes from the fo urth century B.C. to findsuita ble precedents. captures a queen.

EIR November 25, 1980 International 45 Will Reagan support an alternative to Camp David? by Robert Dreyfuss

Western Europe and the League of Arab States are other influential progrowth Western circles. preparing joint political initiatives to replace the dead Now, Western Europe is prepared to take immediate Camp David accords with the framework for a compre­ steps to fill the policy vacuum left by the collapse of the hensive Middle East peace settlement. But whether the Camp David accords. incoming Reagan administration will support the effort, or remain with the Camp David policy, is uncertain. Europe's challenge to Camp David Within the Arab world, the states of Iraq, Saudi At the beginning of December, the nine heads of Arabia, and Jordan have agreed upon a strategy of state of the European Community countries will meet basing Middle East peace efforts on a solid foundation to discuss shaping a European Middle East policy of economic development . independent of Camp David. In substance, the Europe­ At a meeting of the Arab League heads of state in ans intend to call fo r the "involvement of the PLO" in Amman, Jordan, on Nov. 25, it is expected that the entire current talks, and for the full withdrawal of Israel from Arab world, with the exception of Egypt and Libya, will the territories occupied in 1967. The European initiative, approve an enormous capital development and indus­ taken together with the Amman conference one week trialization effort for the year 2000 and beyond. Based earlier, it will set both Western Europe and the Arab on existing development plans, over the course of the world on a course toward a comprehensive peace that, next fiveyears the 20 Arab states will spend as much as many people believe, will influence the way in which the $2 trillion on development. The Saudi Arabian five-year Reagan administration acts on Middle East policy. plan alone totals more than $300 billion. With the collapse of the Carter administration, "We are a triangle, comprised of Saudi Arabia, Iraq, virtually no one thinks the Egypt-Israel separate peace and Jordan," a senior Arab diplomat said in an interview can be salvaged as a basis for further efforts in the with EIR last month. "We want to develop the Arab Middle East. Even President Anwar Sadat of Egypt has potential to its fullest extent-with nuclear energy, aero­ abandoned all hope of pursuing the Camp David treaty. space technology, and so forth," he said. Thus, should he continue the Camp David policy of his "We disagree with Syria's approach. The Syrians predecessor, Reagan will not only offend the Arabs and want to confront Israel with an Arab army. But we lose countless billions of dollars in development con­ believe that this is not in the Arab's interest," he added. tracts with the Arab world. He will also findhimself in "In fact, if only the Israelis would realize it, what we are the position of having to exert pressure on a reluctant doing is also in Israel's best interests. They could take Sadat to continue down a dead end. That, most Arabs part in this economic renaissance with us. But Menachem believe, will all but ensure Sadat's downfall. Begin is too stupid to understand that." The driving force behind the Arab strategy is Iraq, Choices facing Israel which is making a bid to take the leadership mantle in Under the present circumstances, only two real the Arab world. The Iraqi strategy, which has broad choices are left to Israel. support among the other Arab countries, is very close to The stated goals of Arab economic development, the Middle East peace and development proposals first combined with European willingness to provide the put forth as early as 1975 by Lyndon H. LaRouche, an necessary technology and capital, will mean that some­ EIR contributing editor and former Democratic presi­ time during the 1980s, Israel will be confronted with a dential candidate. LaRouche has proposed that the key highly developed Arab world that, in terms of economic to a Middle East peace is the eventual integration of and military power, will have the ability for the first Israel into Middle East economic development. A joint time to defeat Israel in a war. Israeli intelligence spe­ Arab-Israeli approach to regional development would cialists ar':: "ware of that reality. win strong support from French, West German, and One response is for Israel to realize this state of

46 International EIR November 25, 1980 affairs and to accommodate itself to that reality by accepting Arab offers to make peace based on the creation of an independent Palestinian state. The other Israeli option-the suicide option-is for Israel to de­ France, Tunisia launch cide now to prevent the development of the Arab world by wars and by the fo menting of Khomeini-style Islamic fundamentalist revolutions in the Arab world. development initiative The Reagan administration must face this problem squarely. To support the intransigent policies of the Begin regime will mean that President-elect Reagan, as by Dana Sloan Carter before him, is throwing American support be­ hind an Israeli policy fundamentally in conflict with A little-publicized Oct. 26 agreement between France basic American interests. On the other hand, to support and Tunisia to set up an industrial investment bank with the European-Arab strategy, Reagan will not only French, Arab, and Tunisian capital may be the single ensure American interests, but will guarantee Israel's most important event in the several-year history of best interests as well. French President Giscard's proposal for a "trialogue." Which way Reagan will ultimately go is still unclear. While this is not the first time that Arab petrodollars and Inside the Reagan camp, a fi erce fightis raging over the Western technology will be brought together into indus­ extent to which Reagan should accommodate the Begin trial proj ects in the Third World, it represents a first government and its policies. For example, Reagan institutionalization of the process. adviser Richard Allen is reportedly prevailing upon the The trialogue, organized cooperation for industrial President-elect to agree to a tripartite meeting with development between European, Arab, and African na­ Carter and Begin in an obvious effort to keep Reagan tions, has been the center for the past two years for a on the Camp David track. However, another Reagan good deal of French diplomacy in those regions. How­ adviser and possible choice fo r a cabinet post, George ever, as a result of frequent postponement ofthe decision Shultz, is vigorously opposing such a meeting, insisting to implement Phase Two of the European Monetary that there is no need to "trap" Reagan into picking up System-the phase which will inaugurate a credit-gener­ the Carter mantle on Middle East policy. Significantly, ating system that can rival the functions of the Interna­ Reagan refused to meet with Begin during the latter's tional Monetary Fund and World Bank-the trialogue trip last week to the United States. had threatened to become an empty phrase in the eyes of In a recent article in the Jerusalem Post, Washington many of its expected and actual participants. correspondent Wolf Blitzer worriedly noted that in The Franco-Tunisian agreement was initialed during Reagan's large conservative base, the "Israeli lobby" the course of French Premier Raymond Barre's October forces, have little if any representation let alone clout. 24-26 trip to Tunisia, where he met extensively with his Blitzer predicted the emergence of a pro-Saudi bias as a Tunisian counterpart, Premier Mohamet Mzali. It now result of the conservative composition of the Reagan provides the model for possible similar triangular ac­ constituency, and reported that Israeli officials are cords in the future involving France and other North scrambling to somehow get in on the inside of the African, Middle Eastern, or continental African states. Reagan policy-making apparatus. The Israeli foreign The bank is designed to finance Tunisia's Sixth Five­ ministry has dispatched David Kimche, a high-ranking Year Plan, which goes into effect next year, and is Mossad intelligence agent with longstanding ties to intended to propel the country into Western living stand­ British intelligence, to the United States to handle ards by the year 2000, a perspective which increasing Israel's contacts with the Reagan transition team. numbers of African and Middle Eastern countries share, Because the Reagan team currently contains several whether or not they have oil resources. This type of political fi gures long associated with promoting Israeli development program, as all partners in the trialogue are demands at the expense of U.S. interests-figures such quick to emphasize, represents the sine qua non of eco­ as Joseph Churba, Eugene Rostow, Henry Kissinger, nomic health, and therefore political stability and mili­ and Henry Jackson-numerous Reagan supporters tary security, in the developing-sector countries. have expressed concern that Reagan will be unable to maneuver a course free of the constraints of the Israeli The trialogue bank lobby. However, the expected exclusion of these figures Premier Mzali first proposed the creation of a bank from the inner circle of Middle East policy making over to then-Foreign Trade Minister Jean-Fran�ois Deniau the next several weeks could be the first step by the new and Foreign Minister Jean Fran�ois-Poncet when they Reagan administration to deny from the Begin govern­ visited Tunisia on two separate occasions this summer. ment the "special treatment" that, given Israel's actions, Preliminary soundings among Arab states indicated it no longer deserves. that Iraq would commit itself to financial backing for

EIR November 25, 1980 International 47 the plan, a commitment which the continuation of the icals, and the electronics-computer sector, to be given Iran-Iraq war could undermine. While a final decision priority by the new bank. France and Tunisia will also by Iraq has not yet been made, Iraq is stepping up its cooperate in agriculture to make Tunisia a regional development plans despite the war, and has asked fo od exporter (see communique). Tunisia, now chairing the Arab League, to convene a conference later this year to draw up the blueprints for Modern Islam versus fundamentalism its ambitious year 2000 development program that The program's architect is Premier Mzali, who would also extend into Saudi Arabia and Jordan. intends to fo rge a national consensus in his profoundly The initial $250 million capitalization of the bank Islamic country around his objectives. Questioned by will be 40 percent Tunisian interests, 30 percent Arab, African correspondent Jean-M arie Kalfleche in the Oct. and 30 percent French interests . The participating 24 issue of Le Figaro about the apparent contradiction French banks will probably incl ude the Banque Nation­ between Western and Islamic values, Mzali was em­ ale de Paris, the Banque de Paris et des Pays-Bas phatic: "I do not believe that I must choose between the (Paribas) and the Credit Agricole, all of whom will be Orient and the West. I am a Tunisian patriot." Mzali sending representatives to Tunisia later this month. added, in a reference to the dark-ages cultists in Iran Phase one of the project is expected to get off the and Libya, that "the more we defend Islam in its ground during the early months of 1981 -coinciding modern aspects, the more we are perceived by the with the beginning of Tunisia's next five-year plan­ people as the defenders of the authentic values of and a second phase involving fi nancing projects outside Islam." of Tunisia itself is currently under discussion. Mzali has more than one reason to forge a broad The plan, which is still being worked out under the national consensus around his program. For Tunisia is direction of Premier Mohamet Mzali, is intended to one of the nations on Qaddafi's black list. thrust the small nation of Tunisia into industrial devel­ Wedged between Libya to its east, and Algeria to its opment, creating 60,000 new jobs a year (for a total immediate west, with Morocco lying just beyond, Mza­ population of some 5 million), and doubling investment Ii's Tunisia is a comparative oasis of stability in the to the $20-billion level. The large-scale industrial proj­ entire North African region. Mzali's program points ects, will principally be in machinery plants, petrochem- the direction fo r its neighbors.

..

d�velopment efforts by increasing financial support fo r the · expected investments, and especially by in­ crea.sing the French state's assistance. The French governmentdeclar es its agreement to create an invest­ ment bank whose capital is to be SUbscribed by Tuni-: sia, French financial institutions, and a number of The inve stment targets Arab parties. It will ask French quarters to establish this bank as soon as possible .... Th e fo llowing are excerpts from the joint communique The two premiers agreed, regarding agriculture issued by French Premier Raymond Ba rreand Tunisian and marine fishing, and Tunisia's attainment of fo od Premier Mohamet Mzali October 26: security, on the necessity to undertake joint actions to raise the level of fo od production in order to meet the ...The Tunisian governmentex t'resses its happi­ needs of the domestic and fo reign markets. They ness at France's contribution to the progress made in recorded their satisfaction with the Tunisian govern­ Tunisia during the last two development plans. The ment's program to achieve a regional balance of social two premiers underlin[edJ the big effortwhich Tunisia and economic development in Tunisia and particu­ should undertake during the third development plan, larly to begin the study and realization of development which demands the extension of cooperation and the plans in northwest, central west, and southern Tuni­

increase of its diversity in a mannerthat will contrib­ sia ..•. ute to the growth of Tunisia's national income .... They also believe that the new form of bilateral In this framework the French side wishes to make cooperation must develop in a manner which will a vital contribution to the financingof the investments permit Tunisia to strengthen its industrial capabilities, of the third plan, and the French side reaffirmsthe will particularly in modern technology, which will require of the French government to strengthen the Tunisian assistance fro m France.

48 International EIR November 25, 1980 'Shock therapy' for Brazil?

Mark Sonnenblick reports on David Rockefeller's latest instructions to his southern debtors.

In order to execute stiff austerity "conditionalities" rec­ understandable that they acted in the past the way they ommended by the International Monetary Fund, David did." Rockefeller has ordered Brazil to reinstate the dictator­ Rockefeller tried to bolster his Friedmanite argu­ ship the Figueiredo government is presently dismantling. ments by broadly hinting that they are shared by the Rockefeller gave his ultimatum that Brazil shift to incoming Reagan administration. Business Internation­ "shock therapy"-as the discredited methods peddled by al, the New York consulting firm, likewise tried to give Nobel Laureate Milton Friedman are appropriately the Brazilians the impression that American business called-on the eve of this week's Chase Manhattan Bank solidly backed recessionary policies for Brazil in a docu­ board of directors meeting in Brazil. ment it presented to the government at a meeting of 100 Chase held similar festivities a few days earlier in multinational executives in Brasilia. The multis would be Argentina, where Rockefeller, whom Argentina knows the firstones hurt by Brazilian austerity and devaluations primarily fo r his sponsorship of the Trilateral Commis­ which make it harder to pay their dollar loans, but some sion, held what he proclaimed to be a "historic" meeting of them believe that Brazilian firms will be hit harder, with Argentine Finance Minister Jose Martinez de Hoz. permitting monopolization of the local market. De Hoz's Friedmanite policies, which have decapitalized It remains to be seen to what degree Brazil will industry and blown out the Argentine banking system, knuckle under to Rockefeller's austerity demands-with are under increasing attack by business and military or without the U.S. presidential seal of approval. For leaders in Argentina. Rockefeller also paid friendly visits months, Brazilian Planning Minister Antonio Delfim to Chile, Paraguay and Panama. Netto, the country's chief economic policy-maker, has

In an interview with Veja magazine, Brazil's Ne ws­ been carrying on a running battle with his enemies in the week. the Chase chairman declared: "Brazil must make City of London, Wall Street, and the Carter administra­ serious adjustments in its economy ....On this point, I tion, who are trying to send him to the IMF. In every believe the IMF has a role to play ....The adjustment international financial capital, Delfim has refused to process is always painful." Chase, which has an exposure submit to the exigencies of the bankrupt IMF. of $2 billion in Brazil, threatened that until Brazil goes to The argument of Delfiman d Brazilian President J03.0 the Fund, it and other American and British banks would Figueiredo is straightforward: IMF "structural adjust­ continue blocking the loans Brazil needs to service its $57 ments" will damage the Brazilian economy. They con­ billion debt-the largest in the developing world. (The tend that debts are best paid through growth, not shrink­ blockade has not been airtight and Brazil has continued age. As Delfimpu t it in an Oct. 20 speech at the National to be able to raise fu nds in the Eurodollar markets, Foreign Trade Convention in New York, "a much too though at higher interest than before.) drastic policy ...to curb economic growth will make the Rockefeller noted that "after a period without de­ task heavier fo r future generations, which will inherit an mocracy, the Brazilian government has taken measures even poorer country with its productive capacity ham­ to permit greater participation by the people." But, to pered by the lack of adequate investments." the interviewer's question of whether additional austerity President Figueiredo is particularly sensitive to the programs would be compatible with the political open­ social and political dislocations that would be caused by ing, Rockefeller replied, "to do both things at the same the application of virulent economic austerity. Figueire­ tirnewould probably be more difficultthan to do one at a do's entire political strategy is premised on gradually time." By demanding that economic belt tightening broadening the "political opening" initiated a few years come fi rst, Rockefeller was brazenly advocating the re­ ago. Specifically, he and his eminence grise, General turn to power of the repressive apparatus which made Golbery do Couto e Silva, believe that seriously depres­ Brazil's 1968-75 "period without democracy" a night­ sive measures would bring the defeat of the government mare. Rockefeller piously added in justification: "It is party in the 1982 general elections, in which local, state,

EIR November 25, 1980 International 49 and fe deral officials constituting the electoral college for the 1985 presidential succession are to be elected . This rejection of the regime might in turn result in an army "hardliner" coup against the democratization process, and set into motion a vicious cycle of "leftvers us right" Butcher and Rockefeller violence and counterviolence.

talk about Brazil The European connection Brazil is by no means isolated on the international scene in its batt le with the IMF. After meeting with Williard Butcher, Rockefe ller's replacement as Presi­ Delfim during a Paris visit, in which Brazil picked up dent of Chase Manhattan, made thefollowing comments substantial bank loans, French President Valery Giscard to the daily, Jornal do Brasil, Nov. 2: d'Estaing told his ambassador to Brazil: "Brazil is a very important country fo r France, which considers it a The association of the IMF with the private banks partner even more fr om a political than an economic to take care of Brazil's needs will increase Brazil's perspective." On the same late October voyage, to ability to raise loans on the world markets. Ifwe think Japan Delfim landed almost $1.8 billion in combined it is in the interest of Chase, in the interest of Brazil, credits and investments. Paris and Tokyo are actively then I should say it would be an added positive fa ctor recycling petrodollars to fi nance exports of their coun­ in considerations of Brazilian loan requests. tries' industrial equipment for Brazilian development projects. This is a direct challenge to the IMP's attempt David Rockefe llercon veyed the same message-and to close off credit spigots until Brazil agress to submit more-in a more diplomatic fa shion in an in terview with itself to IMF supervision. the Brazilian newsweekly, Veja, Nov. 5: Yet, neither such positive deals nor European words of encouragement suffice to meet Brazil's need fo r $13 I don't think a country likeBrazil that is so depen­ to $17 billion in gross capital inflows in 1981. Delfim is, dent on imported oil can take energy prices rising so consequently, being fo rced to play a pragmatic balanc­ rapidly without making serious adjustments of its ing act at home. On Nov. 4, he announced a package of economy .. ..On this point I think the IMF has a role austerity measures which go in the direction the IMF­ to play . ... The IMF can make objective recommen- which even Brazil's anti-IMF supporters in France, dations without gettinginvolv ed in politics .... Germany, and Japan had been demanding. He told I ask myself if Brazil can deal with its economic reporters that starting in January, Brazil would gradu­ problems taking some of these austerity meas­ without ally increase the pace of minidevaluations to compen­ ures. The adjustment process is, unfortunately. always sate fully fo r its rapid inflation. Present stiff controls on painful, but I don't see any long-term way ofavoiding prices and interest rates will also be eased, while the it. ...Gi ven the fact that Brazil's fo reign debt rose so money supply tourniquet will be turned even tighter in substantially, I think it's unrealisti c to hope private the face of a predictable inflationary outbreak. banks would give loans as they used to. Delfim stated hopefully that these orthodox reces­ I think that people here in the United States are in sionary policies would increase exports and domestic general satisfi ed to see that the Brazilian .gove;n­ investment in new productive capacity. However, as has ment-after a period of without democracY-Is takmg been fo und with the approach of Paul Volcker and steps to permit the people greater It is participatio�. Maggie Thatcher, "freeing" a troubled economy to understandable that [the dictators-ed.] acted m the "market forces" tends only toward hyperinflation com­ past the way they did, but one always hopes that such bined with recession. fo rms of government are temporary .... Although monetarist in approach, Delfim's new measures fa ll far short of the savage wage gouging and Veja asked, .. Would new austerity programs be dismantling of Brazil's industrial structure being de­ compatible with the political opening?" Rockefe llerre­ manded by the IMF in return fo r at most $3 billion in sp onded diplomatically , but clearly: "tranches" at high cost and short term. Perhaps most significant of all, as an example fo r the other developing I certainly applaud both objectives-the effort to sector nations which are watching the Brazilian prece­ adjust the economy and the political opening-but it dent closely, is the fact that Delfim once again refused would probably be more difficult to do both at once to let his country be a guinea pig fo r the IMF. than to do them one at a time. It is this independent attitude that Rockefeller and his allies find so offensive in Brazil's current posture.

50 International EIR November 25, 1980 fixed system, everything must run down and eventually BookReview approach equilibrium, so must human society. At this point in his book, Georgescu-Roegen un­ flinchingly draws the rigorous conclusion that follows from his premises: there are too many people; many must die; man can only survive in small agricultural settle­ ments or troops, much like baboons today. The alterna­ An old fallacy tive, according to Georgescu-Roegen, is simple: Will mankind listen to any program that implies a by Dr. Steven Bardwell constriction of its addiction to exosomatic com­ fort? Perhaps the destiny of man is to have a short, but fiery, exciting and extravagant life rather than Entropy: A New Wo rld View a long, uneventful, and vegetative existence. Let by Jeremy Rifkin and Ted Howard other species-the amoebas, for example-which Afterword by Nicholas Georgescu-Roegen have no spiritual ambitions, inherit the earth still Viking Press: New York, 1980 bathed in plenty of sunshine. 305 pages. $10.95 The vegetative existence has fo und its popular cham­ The thesis of Jeremy Rifkin's new book, which he glori­ pion in Jeremy Rifkin. Rifkin's attempts at philosophy fies with the name of the "entropy world view," is that are pathetic (he does not mention the single most influ­ everything is getting worse. He is certainly right about ential proponent of the concept of progress and devel­ the various rehashings of this thesis, of which Rifkin's is opment, G. W. Leibniz); his historiography is a blatant certainly the most banal, simple-minded and pretentious. lie (he lumps Plato and Aristotle together as believing in Rifkin's idea is that the second law of thermody­ a static creation whose initial perfection has decayed namics-which, accurately phrased, states that no trans­ under man's influence); and his attempts at science are fo rmation of energy can occur with 100 percent efficien­ laughable (he resurrects the oldest misinterpretations of cy-has applications to economics and sociology. The the first and second laws of thermodynamics). But Rif­ idea got its most significant treatment from the econo­ kin's admirers betray the real significance of his work. mist who wrote an afterword to Rifkin's book, Nicholas The Aquarian Conspiracy writ large turned out to Georgescu-Roegen. applaud the publishing of his book-Willis Harmon of Any reader seriously interested in pursuing the cog­ the Stanford Research Institute, Gar Alperovitz of the nitive (as opposed to propagandistic) contentbf Rifkin's fascist National Center fo r Economic Alternatives, Hazel book should leave his sophomoric regurgitation ofGeor­ Henderson, author of Creating Alternative Futures. Sen. gescu-Roegen, and read Georgescu-Roegen's 1971 Mark Hatfield, and George McGovern, among others. book, The Entropy Law and the Economic Process. Most telling, however, is the fact that Rifkin'spro­ In that book, Georgescu-Roegen begins with an gram for depopulation, ruralization, and ruthless auster­ incisive critique of classical and current economics, pin­ ity is exactly that of the funders and founders of the pointing its fundamental fallacy in the assumption of Aquarian Conspiracy, the World Bank and the Interna­ some equilibrium or steady-state existence for industrial tional Monetary Fund. As one World Bank economist, capitalism. As Georgescu-Roegen accurately points out, Peter Knight, said of the book: "Rifkinand Howard call this is a false assumption. us to reflect on a law from which there can be no escape In the next step of his argument, he shows, again and to use our remaining notl1'enewable energy resources correctly, that if a system like human society exists within frugally to ease the inevitable transition to the solar age." a given set of natural or physical laws, two consequences There is a certain irony in the fact that any person fo llow. First, increasing complexity, growth, and eco­ who denies the possibility of human creativity and scien­ nomic development cannot be long-term tendencies, but tific endeavor to change the laws that limit mankind, only short-term perturbations in an overall progression who says that his mental processes are governed by toward stasis-in concrete terms, he says that finite physical laws like the second law of thermodynamics, is, resources, finiteland areas, and fixedna tural laws forbid in fact, correct. Rifkin's book is certainly a dramatic infinite growth. Second, the natural long-term tendency proof of the finitenss of his intellect. Fortunately, the of temporal change, for economic systems as well as majority of humanity, and its intellectual forefathers physical ones, is governed by the only physical law which unmentioned by Rifkin, are forging the technological, talks about a direction of evolution-the second law of scientific, and moral solutions to the problems Rifkin thermodynamics. Since this law requires that within a transforms into necessities.

EIR November 25, 1980 International 51 MiddleEast Report by Robert Dreyfuss

Time running out for Assad Libyan merger, Saudi Arabia took Sy ria 's president has provoked the fo rmation of an opposition the unprecedented action of break­ Na tional Front. ing off diplomatic relations with Libya, fo llowing a call to "revolu­ tion" in Mecca, Saudi Arabia, by the Libyan madman. The Saudi break with Libya hit Syria like a Srian President Hafez Assad is public evidence of Muslim Brother­ thunderclap, since Syria depends fi­ digging himself deeper and deeper hood terrorism and violence, ac­ nancially and to some extent politi­ into a hole and, increasingly in the cording to sources. cally on support fr om Saudi Ara­ international intelligence commu­ In fact, a consensus is develop­ bia. The Saudis are said to be put­ nity, there are fewer and fewer peo­ ing among dozens of Syrian exile ting enormous pressure on Assad to ple who think that he can get out. dissidents, Syrian political and mil­ drop the Libyan unity plan and to The most recent example of the itary leaders, and others in mer­ stop posturing as an Arab utter isolation of the Assad regime chant and business layers that As­ "radical." in Syria is his cable on Nov. 12 to sad must either be fo rced to make a But Assad is reportedly not the headquarters of the League of radical policy shift-or be toppled. making moves for a reconciliation Arab States asking officially for a In the near future, an anti­ with the Arabs, as the move to pos­ postponement of the long-sched­ Assad "National Front" reportedly pone the Arab summit reveals. In­ uled Nov. 25 meeting of Arab heads will be created, with the backing of stead, Assad, whose rule is based on of state in the Jordanian capital of Syria's Arab neighbors, that in­ the sectarian infl uence of the mi­ Amman. Assad, whose foreign tends to crystallize the anti-Assad nority Alawite Shiite sect, of which minister participated in a planning sentiments. he is a member, is, through his meeting for the summit only last Iraq, which already cooperates brother Rifaat Assad, encouraging week, announced that the summit with many Syrian exiles who are moves that seem to be aimed at the ought to be put off because of "dif­ members of the Arab Baath Social­ creation of a separate "Alawite ferences" among the Arabs. ist Party, is supporting the forma­ state" in northern Syria. Syria's action shocked many tion of a nationalist Syrian opposi­ For several years, as part of his Arab leaders, because of the cru­ tion. At the same time, Saudi Ara­ maneuvers within Arab and Syrian cial, even indispensable role that is bia's royal fa mily is quietly sup­ internal politics, Assad has more planned for the Arab summit Nov. porting anti-Assad religious cur­ and more relied on the manipula­ 25. At that meeting, a plan for the rents in Syria, including some ele­ tion of tribal and religious sectarian economic development of the entire ments in the Muslim Brotherhood, issues to prop up his rule. Accord­ Arab world to the year 2000, initial­ to further put pressure on Assad. ing to some sources, he has gone as ly proposed by Iraq and ratified by Faced with isolation on the far as to provide covert support to Saudi Arabia, Jordan, and other Arab front and growing domestic the terrorist Muslim Brotherhood Arab states, will be fo rmally ap­ action, President Assad has thus in order to strengthen the Alawite proved. launched two dramatic moves in sentiment for separatism . But now "What Syria is doing is outright recent weeks: first, a sudden merger it is all on the verge of an explosion. sabotage of the Arab effort," said of Syria with the Libyan dictator­ According to Arab sources, an informed European analyst. ship of Col. Muammar Qaddafi, only one door remains open to the According to highly informed whose public insanity has made him Syrian leader: should he announce Arab sources, the Assad regime in an object of scorn among Arab cir­ a national reconciliation policy, Syria is nearing the end of the line. cles; and second, the signing of a free political prisoners, welcome Since at least 1978, Assad has treaty of friendship with the Soviet home Syrian exiles, and engage in a adopted policies that have alienated Union. serious national policy debate to virtually every important section of Both actions were viewed as form a government of national uni­ the Syrian power structure. That moves of desperation by Assad. ty, he might survive. Otherwise, it is opposition goes far deeper than the Within weeks of the Syrian- only a matter of time.

52 International EIR November 25, 1980 DatelineMexico by Josefina Menendez

The Wharton model : consumer fraud for six years, and six years, not. Lawrence Klein reveals the subjective side of Wh arton'sfamed Cyclical instability could stop growth at some historic moment. Mexico model. Collapse would then ensue." Though Klein attempts to dif­ ferentiate himself fr om Mont Peler­ in's leading U.S. ideologue, Milton It hardly jibed with the image of SuspIcIOns here that his Wharton Friedman, some see merely a divi­ precision economic forecasting that Econometric Forecasting Associ­ sion oflabor in the same anti-indus­ econometrics has gained over the ates quarterly model fo r Mexico, trial growth cause. years. The fo under of this most called Diemex, is something other For instance, Wharton custom­ quantitative branch of economic than the objective instrument it pre­ arily eschews the kind of frenzied science, Lawrence Klein, was tends to be. Is the infelicitous name attacks on the Mexican state sector speaking to the Mexican magazine for the Mexican model really so which characterize such Mont Pe­ Proceso last week, just days after inadvertent, people are wondering. lerin spokesmen as Luis Pazos, receiving this year's Nobel Prize for Diemex counts among its writer in the magazine Impacto. But Economics. clients many leading Mexican gov­ Wharton's well-noted fixation on "In an economy that develops ernmental and private sector insti­ the devaluation question-it has rapidly, every day there are more tutions, as well as U.S. multiation­ long insisted a new devaluation of cases of conspicuous consumption. als in Mexico. Much of its method the peso is imperative, and went so People become divided, jealousy is was adopted in the projections fo r far as to construct one of its latest unleashed. Every citizen, even the Mexico's central planning docu­ models on the assumption that a poorest, thinks he should progress ment, known as the Plan Global de devaluation can be forced before rapidly, like the country, since the Desarrollo. the end of 1980-is indistinguish­ country is rich," Klein told the in­ What further concerns serious able from Mont Pelerin's argu­ terviewer. economists and planners here is ments on this score. "Then the citizen becomes disil­ that Klein's comments coincide There is fortunately evidence lusioned. People take to the streets. with a growing rumor campaign that prolonged exposure to Klein's They scream their demands .... inside Mexico to the effect that the brand of sociometrics results in Corruption at the different social country will be hit with a major eventual awareness on the part of levels ends up generating revolu­ economic and political crisis in ear­ the intended victim that he has in tionary movements. If the pauper­ ly 1981. fact been taken in by a fraud. ized groups don't ascend rapidly in For example, one of the fo ur I learned this week, for example, Mexico, it runs the risk of an out­ members of the Mont Pelerin Soci­ that many of the trustees of Whar­ come like Iran." ety, the international association of ton's parent institution, the Univer­ In the mouth of a neophyte soci­ economists who advocate Fried­ sity of Pennsylvania, were outraged ology student, flush with the dis­ man-style anti-growth policies, told when Klein won the Nobel prize for covery of the "Law of Rising Ex­ us that by March of 1981 a combi­ economics. pectations," such a facile and nation of economic and political "The man can't even run his incompetent equation of "rapid crises will virtually collapse Mexico own school," one trustee confided. growth" with "Iranization" might as a nation. "It will be worse than "He has indebted it time and again, be excused. the 1968 student riots," he fo recast, like a profligate Third World na­ But from the redoubtable No­ and will shake the Lopez Portillo tion, and time and again we have bel-winner Lawrence Klein, it was a administration profoundly .. had to bail him out." The trustee different story. His obsession with Klein has markedly similar explained that Klein was losing the Iran-the Proceso interviewer views on the Mexican presidency school enrollment, and that they notes that the theme "seemed like a and how crises can affect it. He told were planning to ease him out of his bird which circled within Klein's Proceso that "Mexico depends on post-until the Nobel Committee mind"-has already intensified just one man. It can have stability came along and fouled it up.

EIR November 25, 1980 International 53 International Intelligence

the Lebanese situation and we are wor­ wants to criticize Bonn, Bonn can point Kh omeini supporter ried that the forces are not powerful out the importance of reinstituting the fe arfu l of Reagan enough in Reagan's advisory camp to U.S. draft if America intends to do more prevent Kissinger from playing a key in the Atlantic Alliance. role." In preparation for a NATO defense Georgetown University Prof. Thomas The official attacked Kissinger for ministers' conference, the State Depart­ Ricks, a longstanding supporter of the having devised a policy of "seeking to ment's David Newsom and Robert Khomeini revolution in Iran, revealed permanently settle the Palestinians either Komer of the Pentagon are about to visit this week that he is worried that "a strong in Lebanon as a whole or more narrowly West Germany to demand that the gov­ element" within the Reagan camp will in southern Lebanon. Either way is com­ ernment meet the 3 percent spending in­ organize an "Arab counterrevolution" pletely unacceptable to us, and we will crease and specify medium-range "Eu­ to Khomeini's Islamic theocracy. "This never forget the role Kissinger played in romissile" sites. has been building for about 18 months the mid- 1 970s in setting this policy in now. You can see it in London and motion. Washington, and you can see it at "The entire Middle East settlement Georgetown, where an awful lot of Rea­ depends on how this question is re­ gan's Mideast advisers are centered," solved," he concluded. "Either a com­ Seaga authorizes complained Ricks. prehensive solution involves a home for "They want to build up Pan-Arabia 'hot money' inflo ws the Palestinians on the soil of Palestine, in order to destroy the Pan-Islamic or we force Lebanon to abdicate its sov­ movement which Khomeini's regime has Newly installed Jamaican Prime Minister ereignty, and give up on any chances of a sparked." Edward Seaga has lost no time declaring Middle East solution at all." Ricks bemoaned his increasing isola­ that the de facto legalizing of drug profits tion at Georgetown. "They know that I is the immediate priority of his govern­ support the Iran revolution, and they are ment. against me." "Regardless of whether we want it or Ricks' anxiety about a pro-Arab tilt We st Germany rejects not, the [drug] industry as such is here to by the Reagan team, perhaps has Ricks stay. It is just not possible for it to be worried that he may find himself unem­ NA TO demands wiped out, and if it is here to stay then we ployed and forced to change his political have to make up our mind from that tune, given the strong pro-Arab turn at West German Defense Minister Hans point as to how best to deal with it," he Georgetown in the recent months. Apel has stated that West Germany will told the Washington Post Nov. 10. "Med­ definitively not increase its military ical reports seem to suggest there's no budget this year as NATO has requested. conclusive evidence that ganja is harm­ In an interview with Bildzeitung maga­ fu l." zine, Apel defended the German govern­ Seaga initiated moves immediately Lebanese-Americans: ment decisions to spend only an addi­ upon his election Oct. 30 to allow Jamai­ tional 1.8 percent in the 1981 defense can banks to accept cash from private no to Kissinger budget instead of NATO's 3 percent re­ individuals to cover imports, "no ques­ commendation. He also stated that the tions asked." Previously this drug-mon­ A prominent Lebanese-American politi­ Federal Republic will not provide addi­ ey laundering technique was permitted cian who supported Ronald Reagan's tional soldiers to the alliance. ony if the deposits were made abroad. bid for the presidency informed EIR this Apel went on to say that the German Seaga faces an estimated $150 million week that the Lebanese-American lead­ navy will not deploy in the Gulf, since shortfall in fo reign exchange require­ ership is strongly pressuring Reagan to any deployment outside of Germany vi­ ments between now and the end of the deny Henry Kissinger any substantial olates the German constitution. Nor will year. role in formulating U.S. policy toward Germany participate in any United Na­ This is the first demonstrable case of Lebanon. tions peacekeeping operations. a nation's legalizing drug earnings in "We have met with Reagan and are Apel concluded that President-elect order to pay its foreign debt. pleased with his stated support for the Ronald Reagan knows all this, and there The International Monetary Fund sovereignty and territorial integrity of is no reason to accuse Bonn of decreasing has informally expressed satisfaction Lebanon, but we are nonetheless con­ its efforts in the Atlantic Alliance, since with Mr. Seaga's economic program and cerned that Reagan will allow Kissinger over the past ten years it has been mainly is expected to provide a major financing a role in fo rmulating Lebanon policy," Bonn that has sustained a constant effort package soon. the official stated. "If Reagan listens to in the alliance. Today, concluded Apel, Several cabinet members are legali­ Kissinger, we will lose Lebanon. Kissin­ the Bundeswehr is the most modern army zation advocates, including Agriculture ger represents a clear present threat to in the world, and if the United States Minister Percival Broderick.

54 International EIR November 25, 1980 Briefly

• MARTIAL LAW officials have closed down Cumhuriyet. Turkey's his air-conditioned desert trailer, and the oldest daily newspaper, in re­ Ne w mystery about next day made her change cars seven sponse to criticisms by the paper of Iran hostages times during a drive "for security rea­ the free-market system that Tur­ sons." In Algeria, however, the Queen key's new military rulers are at­ was the first Western head of state ever tempting to impose. French intelligence sources claim that 10 invited to speak before the National As­ of the American hostages seized last N 0- sembly. Not only did her speech refer to • ISLAM and the West, a Lon­ vember in Iran are dead, and the deaths the 1765 friendship treaty between her don-based organization, earlier are being deliberately covered up by the forebears and the Algerian monarchy, this month sponsored a closed­ Carter administration and Iran. which she said she considers "still in door seminar in Stockholm on Underscoring the mystery surround­ force," but the speech was well received. "appropriate technologies," as the ing the whereabouts and condition of the Algeria's kowtowing to the Queen ap­ basis for future economic devel­ hostages is the fact that the various un­ parently reflects the power of the anti­ opment of the Muslim world. Is­ official lists naming the 52 hostages are French and pro-Libyan factions sur­ lam and the West is closely allied not the same. For example, a list pub­ rounding President Chadli Benjedid, with the Club of Rome in advocat­ lished by the New York Times includes a who are angling for a cold coup in policy ing a "small is beautiful" econom­ Max Copeland and a James Hughes, nei­ matters. ic ideology for the Arab world. ther of whom appear on lists compiled by the New York Daily News. the Associ­ • VOICE OF THE Vanguard, a ated Press, or United Press International. clandestine Saudi opposition Similarly, a John O'Keefe appears on the group based in the United States, Daily News list, but not on the other will have members present at the three. Schmidt-Giscard meeting Nov. 21-23 annual meeting of the When asked about the discrepancies, Association of Arab-American a New Yor k Times spokesman admitted plans joint strategy University Graduates in Boston, that they were "bizarre." "We have much Massachusetts. A keynoter at the confidence in our list. We researched it French President Valery Giscard meeting will be lawyer Ramsey exhaustively, and cross-checked it with d'Estaing and West German Chancellor Clark, a backer of radical anti-re­ the State Department." The State De­ Helmut Schmidt met in Paris on Nov. 10 gime groups throughout the Mid­ partment has refrained from releasing an to lay out a joint European policy in the dle East who was instrumental in official list of the hostages. wake of the election . Schmidt, and later bringing Iran's Ayatollah Kho­ perhaps Giscard, is scheduled to arrive in meini into power. the United States this month. The French daily Le Figaro ran the • THE IMF is "eager and will­ banner headline Nov. II: "Giscard­ ing" to dispatch a special team of Queen Elizabeth Schmidt at the Elysee: a Strong Europe consultants to advise the Polish on the Side of a Strong America," and government on how to restructure crosses the desert quoted Giscard: "Between a strong the economy in order to finance America and a Europe assured of its outstanding external debt, accord­ Queen Elizabeth of England toured Al­ power and its role, cooperation and a ing to a Nov. 13 Boston Globe re­ geria, Tunisia, and Morocco Oct. 21-22 natural dialogue can be established that port by William Beecher. Poland is in an undisguised bid to put a crimp on will help in maintaining peace and de­ not a member of the International French influence in the area. The London fen ding peace and liberty in the Monetary Fund. Sunday Times wrote Nov. 2 that the world ....France can only rejoice to see Queen's reasons for making the trip "es­ a strong America assume its responsibil­ • ALAIN PEYREFITTE, the sentially boil down to two notions: that it ities in the world ....This makes it even French justice minister, filed suit might be useful to show the flag in this more necessary to end the anomaly of in criminal court last week against traditionally French-influenced part of Europe's self-effacement since the end of the prestigious daily newspaper Le the world (especially when the French are World War II." Monde. charging that the paper hard at work trying to make friends and Schmidt declared: "Everything the had jeopardized activities of the do business in the formerly British bits of [French) President underlined corre­ jUdiciary. The suit singles out an Africa); and that, particularly in Algeria, sponds to my interpretation. We too are article in which Le Monde alleged­ there might be some trade opportunities in favor of a strong American govern­ ly charged political motives for the to exploit." ment. We [Schmidt and Giscard) have government's deportation of for­ In Morocco, King Hassan caused a also talked about the crisis in Southeast eign suspected of terrorism. veritable scandal when he kept Her Maj­ Asia and the Persian Gulf, and we under­ esty waiting for over half an hour outside line our position, one of neutrality ."

EIR November 25, 1980 International 55 �TIillNational

Reagan's cabinet choices: they're up for grabs

by Kathleen Murphy

Although the shape of the Reagan government is being ground between the various political factions fighting accurately described by Washington insiders as "still for predominance in the incoming administration. very much an open question" with respect to policies and The Eastern Establishment, both through private personnel, there are indications that one faction at least channels and through its press outlets has been attempt­ is striving to ensure the new administration makes a ing to steer Reagan into peopling his cabinet with such clean break with both Democratic and Republican poli­ holdovers from the Nixon-Ford days as former Secretary cies of the past. of State Henry Kissinger and ex-Treasury Secretary The fightnow raging between contending groups for George Shultz. Despite this, it appears that Reagan is control over Reagan's economic program (see article, p. leaning toward a cabinet that represents a more indepen­ 6) is being reflected in other areas, particularly over dent cast. membership in the cabinet. His spokesman, Ed Meese, has been repeatedly cau­ Reagan has repeatedly insisted that he plans to great­ tioning against taking published reports that Reagan ly expand the powers of the cabinet, making department will choose his cabinet from among the old Rockefeller heads responsible for overall policy and not simply fo r Republican wing of the party too seriously. The day after their own bailiwicks. the election, he told reporters that the cabinet will include In a Nov. 12 speech to the National Association of "a lot of dark horses." Meese himself will hold a cabinet Counties in Washington, transition director Ed Meese, a seat as presidential counselor. long-time political confidante and aide to the President­ Meese was even more explicit in a Nov. 9 appearance elect, made the same point, emphasizing that increasing on NBC-TV's Meet the Press. Asked by reporters if it the responsibilities of the cabinet would mean a propor­ were true that Reagan's cabinet would be simply a Nixon tionate downgrading of the White House staff. (Rea­ reshuffle, Meese bluntly replied: "Our administration gan's stated commitment to take away all policy-formu­ will not be a Nixon-Ford restoration," and went on to lating functions from the national security adviser and point out that Reagan intends to bring on board people reinstate the secretary of state as the foreign policy with no government experience whatsoever. spokesman for the U.S. government is one example of The key requirement for membership, he said, was how this would work.) "philosophical compatibility" with the new administra­ Reagan's emphasis on the role of the cabinet explains tion's goals. Meese made the point even sharper when why its composition has emerged as a major battle- asked whether he considered the Nixon-Ford economic

56 National EIR November 25, 1980 program (engineered by many of the same people the and ex-Office of Management and Budget head Caspar East Coast press is pushing for high-level posts) to have Weinberger. been successful: While I prefer to let history make its own The composition of this group is significant for sev­ judgement, he replied, the main point is that the Reagan eral reasons. First, the fact that it's dominated by the administration will have its own economic program, and Californians suggests that Reagan has rejected argu­ the overwhelming popular mandate to implement it. ments that he must give most top government slots to Reagan himself made much the same point in an Eastablishment members in order to govern effectively, interview published in the Nov. 17 issue of Time maga­ and that he intends instead to rely on his own political zine. The President-elect said his cabinet would include a base to an important extent. lot of surprises, and not solely the presence of some Secondly, the California group, with a few possible Democrats. exceptions, generally holds to a protechnology, anti­ Discussing his yardstick for cabinet appointments, zero-growth perspective which would enable it to func­ Reagan said: "My basic rule is that I want people who tion as a strong counterweight to the pro-austerity fac­ don't want a job in the government. I want people who tion around Reagan who want him to implement the are already so successful that they would regard govern­ same kind of belt-tightening policies endorsed by Rea­ ment as a step down, not a step up. Out there in the gan economic adviser Milton Friedman through which private sector, there's an awful lot of brains and talents Prime Minister Margaret Thatcher has wrecked much of in people who haven't learned all the things you 'can't' the British economy. do." It is likely that several members of this committee will An important sign that these statements are meant receive cabinet appointments themselves. One interesting very seriously was the formation Nov. 10 of a transition­ possibility is Justin Dart, who reportedly advocated the group committee which has been charged with making "supply side" economic faction, represented by Rep. recommendations for cabinet and sub-cabinet appoint­ Jack Kemp, who oppose the "Thatcherites." ments. Its composition is a significant indication that Dart is said to be interested in either Commerce or Reagan intends to seek cabinet members from outside Treasury. He has so far been unavailable for comment. the Eastern Establishment's charmed circle. William French Smith is also reported to be under con­ Headed by William French Smith, a Los Angeles sideration for attorney general, while Bill Simon is a lawyer who has been Reagan's personal attorney for candidate fo r one of the principal economic or energy years, the committee is heavily weighted to the so-called posts. California mafia, a closely knit group of California Meese's inclusion in the group is also significant, entrepreneurs who funded Reagan's successful guberna­ since it puts him in a prime position to shape the new torial bid in 1966 and have backed him politically and cabinet. Reagan is said to trust Meese's judgement in personally since then. particular. When Reagan was asked early in the cam­ Representing this group on the committee are Justin paign whom he would turn to in office if he had a Dart, head of the multibillion-dollar Dart Industries, a particularly difficult problem to face, he quickly replied, Los Angeles-based plastics and chemicals conglomerate "Ed Meese." which does business in more than 30 foreign countries; Meese, who used to be the deputy district attorney of Earl Jorgensen, the 82-year-old founder and chief exec­ Alamada County (Southern California) and is on leave utive officer of Jorgensen Steel, a highly profitable Cali­ as head of a University of San Diego Law School subdi­ fornia steel manufacturing company specializing in oil vision, combines both a progrowth outlook of Reagan's drilling and rigging equipment; Alfred Bloomingdale, California business backers with deep contempt for such fo under of Diners' Club; oil magnate Jack Wrather; liberal social policies as drug decriminalization. A retired rancher William Wilson; movie entrepreneur Theodore Army lieutenant colonel with a son at West Point, Meese Cummings; and Holmes Tuttle, a wealthy Los Angeles also has a relatively indepth familiarity with defense auto dealer. Many of these men had been among the issues. earliest backers of Sen. Barry Goldwater's 1964 presiden­ When he takes over as White House counselor, Meese tial bid. will have oversight over not only the domestic policy Senator Paul Laxalt, a close personal friend of Rea­ staff but the national security staff. gan and chairman of his 1976 and 1980 campaigns, is Some of the other Reagan transition team appoint­ also a member, as are Ed Meese and Michael Deaver, ments also look promising. Elizabeth Dole, former head who held a top post in Reagan's Sacramento administra­ of the Federal Trade Commission and wife of Sen. tion. Robert Dole (R-Kans.), has been given responsibility Representing a more Eastern Establishment bias on over human resources, while Richard Fairbanks, an the committee are William Casey, chairman of the tran­ energy expert who favors fusion power development, is sition team; former Treasury Secretary William Simon, heading up the energy and resources section.

EIR November 25, 1980 National 57 The Democratic Pm1Y- ship and its congressional delegation with the circula­ tion of draft legislation in several areas, including tax policy and reform of the Federal Reserve System.

The DNC fight Moderates look to One of the first focal points fo r the fight within the party will be the selection of the party chairman. That leadership posts subject is sure to come up at the emergency executive committee meeting of the Democratic National Com­ mittee on Dec. 9 in Washington, D.C. In a piece entitled by Lonnie Wolfe "The Knives Are out for John White," syndicat­ ed columnists Germond and Witcover report that there A brawl is shaping up between moderate conservatives is strong sentiment to remove Carter appointee John and liberals for control of the Democratic party appara­ White, who was expected to do the "right thing" and tus and program. step down, as did Democratic Chairwoman Jean West­ Senator David Boren of Oklahoma reflected this wood immediately after the 1972 McGovern debacle. fightwhen he announced Nov. 12 at a Washington press Instead, White has announced that he intends to conference that he saw "a new bipartisan consensus stay on through March at least and may stand fo r re­ emerging" in national politics, despite the opposition of election. He boasts that he has the votes to win-a fact liberal Democrats. He described a meeting of the Dem­ hotly contested within party ranks. There is some ocratic Senate caucus earlier in the day. sentiment for a "nuts and bolts" man to rebuild the "There are those who think we should give the Re­ party, say Germond and Witcover, and many people publicans everything they want," and then when the would object to someone like outgoing Vice-President country falls on its face, this will lock the GOP out of Walter Mondale, whose name has been mentioned, politics for twenty-five years; there are others, Boren mostly by supporters of a Mondale presidential bid for continued, notably "one of the Massachusetts senators," 1984. who said we must fightto ensure that programs are not dismantled. "But I am confident that people will not No Carter input ignore the interests of the country." Boren indicated that Few people feel that the Carter crowd should be the new consensus would be based on programs for new given any voice in choosing a new chairman. As if technology and capital formation. oblivious to last week's election, the Carter honchos are Boren's statement identifies the central issue in the nonetheless pushing various "options," including John fight: will the Democratic Party fall back on the shop­ White. Carter-Mondale campaign committee chairman worn liberal prescriptions typified by the policies of Bob Strauss reportedly made more than 300 calls to Edward Kennedy and his backers, or pull together a new DNC members recommending that Finance Committee position in tune with the electorate that voted out Jimmy Chairman Charles Manatt of California take the post; a Carter and George McGovern? few days later, Strauss reversed field and said that White should stay on for a "transition period." 'No need for liberal Dems' Meanwhile, the names of a whole crop of Democrat­ One Democratic Party leader from upstate New ic losers from last week's election debacle are being York warned this week that the McGovernite wing of floated including Sen. Birch Bayh and Rep. John Bra­ the party, which includes the ultraliberal section of Sen. demas, both of Indiana, and Gov. Bill Clinton of Edward Kennedy's backers, "has destroyed our elec­ Arkansas. toral base with their single-issuism ." Noting the exodus The Kennedy crowd has yet to indicate their prefer­ of traditional constituencies like the blue-collar vote ence, but say they want White out. The McGovernites from the Democratic columns in this election, he stated: are expected to field a candidate for party chairman, "We don't need any more of these platforms which talk though they have backed off from the ludicrous propos­ for page after page about the ERA and abortion .... al that McGovern take the job himself. We don't need 'liberal Democrats' anymore." At this point, the LaRouche faction and the moder­ Lyndon H. LaRouche, Jr., the fo rmer Democratic ate conservatives, who have a majority on the DNC, presidential candidate and chairman of the advisory have yet to put forward a candidate. Discussion is, committee of the National Democratic Policy Commit­ however, taking place on developing a policy consensus tee, has called on conservative Democrats to take hold around the NDPC proposals. Such a consensus would of their party and work with their counterparts in the finish off Strauss and White, whose only chance to hang GOP to define a new economic policy for the nation. onto the party power structure depends on misrepre­ The NDPC has sparked debate within the party leader- senting themselves as a "consensus" leadership.

58 National EIR November 25, 1980 The U.S. Senate qualified people, will be the highest priority of the new chairman, declared his aide. Hatfield was vigorously opposed to the Alaska Lands bill, sarcastically termed the Alaska lock-up bill by one of his aides because of the GOP chairmen millions of acres it would take out of development. Senate Finance Committee-Senator Robert Dole (R­ to reverse track Kansas): Senator Dole is not ideologically far apart from the current committee chairman, Russell Long (D-La.). Dole is already working for passage of the $39 billion tax by Barbara Dreyfuss cut, worked out by Senator Long and the Finance Com­ mittee earlier this year. Dole wants the legislation passed With an overwhelming mandate from the American into law during the lame-duck session of Congress begin­ electorate, the largely conservative Republicans who will ning Nov. 12, so that Americans can see lower tax bites now head the major committees have already announced in their paychecks as early as January. their intention to start work on new policies. Another issue Dole will move on quickly is the wind­ fall profits tax on the oil industry . Of prime concern to Senate Banking Committee-Senator Jake Garn (R­ him is reducing the tax on the two million small royalty Utah) : The Senate Banking Committee perhaps best owners, many of whom are dependent on royalties for illustrates the changing outlook of the Senate. Whereas their retirement financing. He also hopes to increase oil the outgoing committee chairman, liberal William Prox­ production by lowering the tax on newly discovered oil mire (D-Wis.), working closely with House Banking and newly drilled oil wells. Committee chairman Henry Reuss, has tightened Fed­ As chairman of the Finance Committee, Dole will eral Reserve Board control over the banking system and have to deal with the problems of the Social Security backed legislative changes favoring the big New York Administration. Aides report he is reviewing the possi­ banks, new chairman Gam will take the committee in the bility of a major temporary loan to the social security opposite direction. system from general revenues to alleviate the immediate One issue the committee will review shortly is whether cash-flow problem of the system. For the long term, the the McFadden Act, which prohibits state-chartered committee will review the benefit package, putting it banks from operating across state lines, should be more in line with revenues. changed. McFadden has protected local banks from Although President-elect Reagan has not given high competition by major, especially New York-based, priority to the catastrophic state of health care, Dole has, banks. The Carter administration strongly favors chang­ and intends to make it a major issue. He has introduced ing the law. Gam, however, is concerned about the fate legislation on this previously and has worked with Sena­ of small, regional banks. We want to prevent "a few tor Long on one proposal for such insurance. large banking institutions in this country fr om dominat­ ing the industry," he declared. Senate Armed Services Committee-Senator John darn also opposes the activity of the Depository Tower (R-Texas): As with Senator Dole, Tower is not Institutions Deregulation Committee. The DIDC, head­ very different in views from the outgoing committee ed by Federal Reserve Board chairman Paul Volcker, has chairman, John Stennis (D-Miss.). In a press conference publicly called for the controlled disintegration of the Nov. 11, Tower detailed the policies he intends to fo cus nation's economy. The DIDC forces banks to join the his committee on. "For the first time in approximately Fed and phase out protective regulations for savings 25 years the GOP has the chance to shape a course for a banks. "I did not expect DIDC to do what it is doing .... legislative agenda, particularly in national defense. The They are not fo llowing our intent of gradual change," election results reflect a strong public sentiment behind warned Gam, adding that he will press for legislation the efforts to restore our military strength, and it's my that regulates DIDC activity. expectation to begin vindication of that trust immediate­ While Proxmire backed the International Monetary ly." Fund, Gam wants better "oversight over the internation­ Tower declared that he wants to focus on developing al financialinstituti ons," said his aide. Garn will instead the MX system, the manned bomber, probably a B- 1 emphasize expanding the Export-Import Bank to facili­ derivative, the Trident II, and a long-range theater nuc­ tate U.S. exports to the Third World. lear fo rce modernization program. Tower expressed con­ cern about the ability of the U.S. to retain a trained Senate Appropriations Committee-Senator Mark military fo rce, as well as its capacities for a combat­ Hatfield (R-Ore.): Reversing the decline of the all-vol­ sustaining base, especially ammunition and spare parts unteer army, increasing pay and benefits to attract more adeq uacy. These issues will be addressed in the 198 1

EIR November 25, 1980 National 59 nanced projects, but instead change the way the law is enforced. fiscal year supplemental budget, he announced, calling Senate Judiciary Committee-Senator Strom Thur­ for a quick passage of the 1981 defense appropriations mond (R-S.C.): Senator Thurmond will be a very differ­ bill. In the supplemental budget he proposes pay raises ent chairman fr om the current committee head, liberal for the middle grades, and money for fuel costs to help Ted Kennedy, who has backed decriminalization of mar­ alleviate these problems, said the Senator. ijuana, an end to the death penalty, and forced school The FY 1982 budget will be devoted to "new systems busing. Thurmond announced that he will press for modernization," he told reporters, and will be carried legislation next year to reestablish the death penalty for out in a "bipartisan spirit." He predicted work on an murder, treason, and kidnapping. "I think the death enhanced radiation warhead, and increased shipbuilding penalty helps deter crime," he told reporters Nov. 6. because "another carrier force is desirable." Thurmond also said he opposes forced school busing Tower has attacked the Carter Doctrine projecting because it is "impractical" and favors abortion only in American military strength into the Middle East in times extreme cases. He indicated he might support a consti­ of crisis, calling it a bluff the V .S. could not back up. In tutional amendment limiting abortion. his first press conference after the election, Tower called fo r adequate military forces to meet such crises. He said Senate Energy Committee-Senator James McClure the V.S. needs IO additional ships in the Indian Ocean, (R-Idaho): McClure is one of the Senate's most ardent air, sealift,and amphibious assault capabilities. spokesmen for nuclear energy development and nuclear exports. He led the fight against the Nuclear Nonproli­ Senate Agriculture Committee-Senator Jesse Helms feration Act of 1978, which prohibits nuclear energy (R-N.C.): Helms's firstactivity as head of the committee exports to Third World nations that don't agree to will be to review ways to reduce the rate of growth of new stringent surveillance procedures. This year McClure food stamp users, and to reform the programs generally, fo ught for, and won, Senate approval for the sale of according to one of his chief aides. Beyond this, Helms nuclear fuel to India. intends to keep the "delicate mix of programs in the bill, McClure has strongly supported the fast breeder which works, but not to mismanage it as the Carter reactor; he recently warned that Carter planned to scrap administration did," declared the aide. "Carter had a the breeder if re-elected. He has fought hard against the cheap fo od policy; he manipulated the program to lower windfall profits taxon oil producers, and will likely try to prices, and that killed farmers." amend it. McClure has stated that he favors synthetic The aide was referring to the Food and Agriculture fuels production, but has reservations about establishing Act of 1977, which comes up for reauthorization in a major synthetic fuels corporation, fearing it will be­ January, and covers price supports as well as most other come another federal bureaucracy. farm matters. Senate Foreign Relations Committee-Senator Senate Labor and Human Resources Comittee-Sen­ Charles Percy (R-III.): Percy, a board member of the ator Orrin Hatch (R-Utah): Organized labor considers Chicago Council on Foreign Relations, is, unlike the Hatch, a cochairman of the National Right to Work other Senate Republican chairmen, also a leading mem­ Committee, one of their main enemies. He was a vigorous ber of the Eastern Establishment. A vigorous opponent opponent of labor law reform last session, legislation of nuclear energy sales to the Third World, he wrote the vigorously lobbied for by the AFL-CIO. He has strongly Nuclear Nonproliferation Act, commonly called the Per­ supported a subminimum wage for youth, despite warn­ cy-Glenn bill. A supporter of decriminalization of mari­ ings from organized labor that this will depress wage juana, Percy sponsored an amendment that prohibits the levels generally. V.S. from conducting paraquat spraying abroad. As a But following the Republican sweep in the Senate, result of the amendment, Colombia could not use V.S. Hatch announced that he plans to pursue what he termed aid to buy paraquat to eradicate its enormous marijuana a more "moderate approach." "There is no reason for crop. the labor movement to be alarmed. I come from the labor movement. I believe there should be labor unions. If the Senate Budget Committee-Senator Pete Domenici unions give me a chance, I think we can do good things (R-N.M.): Domenici has been a strong proponent of a together for the country. I made it clear to them that my balanced federal budget, although he thinks a constitu­ door will always be open," declared Hatch. "There is no tional amendment may not be necessary to achieve this. reason for a confrontationist approach." In this spirit, Domenici believes "a strong budget committee will real­ Hatch said he would not move to repeal the Davis-Bacon ize these objectives," declared an aide to the senator. He Act, which requires minimum wages on federally fi- also supports a vigorous tax cut.

60 National EIR November 25, 1980 law-enforcement agencies in the United States: • In early 1978, Krishna leader Alexander Kulik, a Facts Behind Terror director of the Krishna holding company Prasadam Distributors, Inc., was arrested and charged with the murder of another Prasadam employee, Steven J. Bovin. Kulik had hired three "Mafia hitmen" to kill Bovin, allegedly for embezzling from the company. When police arrested Kulik, they found one pound of The HareKrishna : pure heroin in his car. He was driving a $100,000 Stutz­ Blackhawk antique car, and lived in a $450,000 beach a synthetic cult house. Within hours of his arrest, Kulik had raised the $500,000 bond required for his release. by Jeffrey Steinberg The Prasad am Company (named for the Krishna word for food) was identifiedas the holding company for a number of other Krishna businesses, including Bionic Under a perversion of constitutional guarantees of the Bit Cookie Co. and Delthic Auto Dealers. Police at the First Amendment, members of the Hare Krishna cult time speculated that Prasad am was used to set up front can be fo und soliciting funds as a "religious" organiza­ companies for laundering illegal drug profits. tion-and frequently assaulting unsuspecting travelers • In January 1980, Krishna leader Joseph Shelton at major airports around the country. Davis and two other Krishnas were convicted on charges A series of arrests of leading members of the Hare of operating a multimillion-dollar drug traffic.The three Krishna has produced evidence that the Hare Krishna is cult members were caught by U.S. Customs agents not a religious, nor even an Indian, organization. There smuggling hashish oil from Pakistan. is considerable evidence indicating that Hare Kri�hna is • Shortly afterwards, Hans Kari, a.k.a. Srila Hansa­ a classic cult, developed by British intelligence as a dutta Swami, one of the 11 disciples who run the cult, component in international drug trafficking and terror. was arrested fo r illegal weapons possession after police The real nature of the Hare Krishna, fo rmally known found a submachine gun, two handguns, and two high­ as the International Society for Krishna Consciousness, powered rifles in his car in Berkeley, Calif. Kari, a West has been increasingly exposed in recent years through German citizen, had the charges dropped when a low­ arrests of their members on charges ranging from credit­ level Krishna member "confessed" to being the owner of card fr aud and drug trafficking to illegal weapons pos­ the weapons. session and murder. Besides reporting numerous inci­ • In the spring of 1980, California police raided a dents of assaults on citizens, law-enforcement officers Krishna-owned ranch in Lake County, in search of Mi­ speculate that soliciting by the Krishna at airports may chael Pugliese, a.k.a. Gover Dan, wanted fo r credit-card be simply a cover for prostitution and credit-card theft. theft. At the ranch, known as Mt. Kailasha Farm, police The Krishna cult originated in the East Bengal sec­ fo und a rocket launcher, assault rifles,and thousands of tion ofIndia, where British opium production operations rounds of ammunition. have been based for over 100 years. Beginning as a front Pugliese is a former aide to Hans Kari and is still to exempt a wealthy Brahmin family from taxes, the cult wanted in California for credit-card theft, forgery, and was geared up in the 1950s and early 1960s to be used in assault. Additionally, police in Tokyo have issued three destabilization operations against the Indian govern­ warrants for Pugliese's arrest for jewel theft. ment. A leading member of the cult, A. C. Bhaktivedan­ • Soon after theMt. Kailasha raid, police raided a ta, was also dispatched to the United States to participate gun shop in El Cerrito, Calif., searching for more stolen in the MK-Ultra mind-control project run by British credit cards. The shop, named Sgt. Pepper's Guns, is intelligence. owned by Ronald Ray Walters, another West German Arriving in the United States in 1966, Bhaktivedanta citizen. In the raid, police fo und over nine tons of gun­ was sent into New York's Lower East Side, one of the powder, tens of thousands of shell casings, and slugs for major drug-counterculture laboratories-along with manufacturing ammunition. Haight-Ashbury-used by MK-Ultra operatives . Re­ • Krishna member Walter Bernstangle, who had cruiting fr om drugged hippie layers, the Krishna cult set access to the Mt. Kailasha arms cache, is currently up operations in every part of the country. In 1977, wanted for grand theft in Mendocino County, Calif. Bhaktivedanta died, leaving the cult's international • Peter Kaufmann, another member with a long crime empire in the hands of II disciples, who run record of illegal arms-possession charges, is also known Krishna's operations to this day. to have access to the arms cache. Since 1978, a revealing picture of the Krishna's vast These important pieces of evidence show only the top criminal operations has emerged from discoveries by layers of a much greater-and dirtier-operation.

EIR November 25, 1980 National 61 NationalNews

preservation of American military power and industrial competitiveness. The advisers also unanimo usly reject­ Baker pledges not ed Milton Friedman's proposal for end­ Conservative group to 'bait' labor ing fe deral support to basic research by universities, and said they considered it targets interest rates The "biggest surprise" fr om the Reagan very unlikely that the Reagan admini­ The National Conservative Political Ac­ White House and the new Republican stration would implement any such poli­ tion Committee (NCPAC), which helped majority will be the degree to which they cy. "It is naive to contemplate recQn­ unseat several liberal senators on Nov. 4, will work to "protect the legitimate structing U.S. society to make possihle plans to broaden its list of political tar­ rights of labor" declared Senate Minori­ the removal of government involvement gets to include members of Congress who ty leader Howard Baker (R-Tenn.). in science and technology," panel co­ support "bad economic policies that lead Baker promised that neither the Sen­ chairman Ramo said. Dr. Nierenberg of to inflation, high interest rates, and un­ ate nor the White House would adopt Scripps was also emphatic in urging employment," according to Terry Do­ "labor-baiting or antilabor policies" and strong government intervention to re­ lan, the group's director. that the new Chairman of the Senate verse what he called "the growing scien­ Dolan made the announcement at a Labor Committee, Orrin Hatch (R­ tificil literacy" of Americans. Washington, D.C. press conference Nov. Utah) will be a fair friend of labor. Hatch II, where he also revealed that NCPAC has been an active supporter of right-to­ will attempt to defeat 20 incumbent sen­ work laws and other antilabor legisla­ ators up for re-election in 1982, including tion. Democrats Edward Kennedy, Henry Baker said he himself supports the Conservatives try to Jackson, Daniel Moynihan, Howard proposal by Se!latorJake Garn(R-Utah) tip O'Neill Metzenbaum, and Republicans Robert to repeal the Davis-Bacon Act, which T. Stafford, John H. Chafee and Lowell Rep. Bill Archer, a Texas Republican, is establishes minimum wages for federal P. Weicker. meeting with some Democratic counter­ projects, but that it was unlikely the new The NCPAC will also become in­ Senate would do more than modify it. parts to explore the idea of forming a volved in both Democratic and Republi­ Senator Hatch was seen by meet­ coalition to topple House Speaker Tip EIR can primary races, Dolan said. ing with AFL-CIO president Lane Kirk­ O'Neill from his post. The meetings are land on Nov. 13. also exploring possible collaboration be­ tween conservative and moderate Dem­ ocrats and the GOP on policy questions. Archer has stated that O'Neill, linked Warnke forms new arms Reagan appoints his to both Carter and the liberals, does not represent the policies of the Republicans control committee science advisory panel and moderate Democrats who form the Former arms control negotiator Paul President-elect Ronald Reagan has ap­ House majority. Echoing this sentiment, Warnke has formed a new group, the pointed a 15-member panel to advise him Rep. C. V. Montgomery of Mississippi, Committee for National Security (CNS), on national science policy that draws a Democrat, told the New York Times announced at a press conference in heavily fr om high-technology industry. Nov. 7: "We've been trying to tell the Washington Nov. 12. Initiating members The group includes Simon Ramo of leadership to take a good hard look at include such liberals as Harrison Salis­ TRW and Arthur Bueche of General the mood of the nation." bury of the New York Times, Harvard Electric as cochairmen; Edward David of O'Neill's ouster is not very likely, but economist John Kenneth Galbraith, Exxon Research; Frederick Seitz of the policy collaboration, especially on spe­ Richard Barnet of the Institute for Policy National Academy of Sciences and cificis sues affecting economic growth, is Studies, and former State Department Rockefeller University; H. Guyford far from unprecedented. If only 26 Dem­ spokesman Hodding Carter. Stever of the National Science Founda­ ocrats bloc with the GOP, that grouping According to the CNS's fo unding tion; Edward Teller; William Baker of will gain a majority. document, the real threat to U.S. nation­ Bell Labs; Gen. Bernard Schriever of Air Moderate Democrats' prominence in al security is that the instability caused Force Systems Command; Harold Ag­ the new House is a key; Gillis Long of by an uncontrolled arms race could trig­ new of General Atomic; and William Louisiana, a moderate, is on the inside ger a nuclear war. Nierenberg, the director of the Scripps track to become chairman of the House A CNS spokesman, asked if the cur­ Institute of Oceanography. Democratic caucus, edging out arch-lib­ rent movement toward a U.S.-Peking al­ According to the New York Times, eral Charles Rose of North Carolina. liance might pose a threat to peace, said, the members of the panel are unanimous This is the fo urth most powerful leader­ "I don't think so. We need a militarily in their view that science is vital for the ship post in the House. strong China on the Soviet's southern

62 National EIR November 25, 1980 Briefly

• THE SENATE voted Nov. 13 to restore $1.7 million to the do­ mestic budget of the Federal Drug Enforcement Administration. The amendment introduced by John frontier ....Of course, [Cambodian dic­ Heinz (R-Pa.) will reinstate full tator] Pol Pot was tragic, and I suppose DEA operations in Philadelphia; sooner or later you do have to make a Reno, Nevada; and EI Paso, Tex­ choice, or do you?" as. The CNS spokesman also said the Democratic chairman key to U.S. national security lies not so claims he'll stay • HOWARD BAKER said this much in improving its military capabili­ week that his goal as Senate Ma­ ties, but in good North-South relations. The fight for control of the Democratic jority Leader will be to restore the "I think that the Brandt Commission and Party sharpened last week as party chair­ Senate as "the premier forum for the Global 2000 report point out the man John White made clear that he in­ policy debate in the nation. The problems we will have to deal with," he tended to remain in office despite the Senate has become an aggregation said. The Global 2000 report, issued last disaster he had helped to lead the party of elected bureaucrats who are en­ spring and supported by the State De­ into. Dismissing those calling for his re­ gaged in administration and oper­ partment, advocates reduction of the moval as "out-of-work staffers who ational details rather than policy." world population. wouldn't know a DNC [Democratic Na­ Baker said he wants to cut the tional Committee] member if he walked number of roll-call votes by about in the door," White insisted he had the half, noting that "legislating by votes to hold the chairmanship come physical endurance might give you what may. a clear slate, but it will not give you Legislation mooted An aide to Senator Kennedy was good legislation." to abolish the FEC quick to disagree: "I think there is a general sentiment that White must go, • HENRY KISSINGER, persist­ Senator Gordon Humphrey (R-N.H.) given the outcome of the election." ent rumors in Washington have it, announced this week his intention to in­ House Speaker Tip O'Neill was emphatic will be appointed by Reagan to troduce legislation to abolish the Federal in demanding White's resignation, say­ replace Sol Linowitz as special Election Commission (FEC). Humphrey ing, "I don't intend to be Speaker of the U.S. envoy to the Middle East. stated his belief that the FEC was clearly House and allow my party to go down unconstitutional, and that in any case no the drain." • PUERTO RICO'S election for one has ever run for officewho has not of White's hopes received a blow when the gubernatorial post is still too necessity violated many of the FEC's outgoing President Jimmy Carter, for­ close to call, and a full recount complicated provisions. This makes en­ merly his staunchest supporter, adopted could take up to two months. The forcement of FEC guidelines totally se­ an apathetic attitude to White's contin­ close vote nixes a plebiscite on the lective in their enforcement, Humphrey ued tenure: "I don't think it matters what island's future for the fo reseeable said, and thus more of a vehicle for polit­ the identity ofthe chairman might be." ical harassment than one of law. future. According to Humphrey's aide Mor­ ton Blackwell, the senator believes that • REP. JIM JONES, an Okla­ the support definitely exists for abolish­ homa Democrat, has committed ing the FEC during the incoming Con­ Air Force general himself to work with the GOP for gress, but that the senator is contemplat­ a capital gains tax and accelerated ing introducing his legislation immedi­ plugs Connally for State depreciation program. According ately, during the current lame-duck ses­ General George Keegan, retired head of to an aide, "Jones wants to contin­ sion "in order to let the idea percolate Air Force Intelligence, is lobbying Presi­ ue the American dream for every­ around a bit." Blackwell described the dent-elect Reagan to appoint John Con­ one, and he feels the way to do that legislation as not only a blow on behalf nally to a high government post. is to expand the economic base." of constitutional democracy, but also ful­ Keegan said that his first choice for The accelerated depreciation pro­ ly in accord with the new administra­ State would be the form Navy secre­ posal, made jointly with Barber tion's commitment to doing away with tary. "Connally is tough; he knows how Conable (R-N.Y.), will be incor­ useless bureaucracy. If the FEC is abol­ the Russians work. He was alive during porated as part of the next tax bill, ished under Humphrey's legislation, World War II and the Chamberlain he said. As of December, Jones there will no longer be any individual farce." If he can't get State, said Keegan, will chair the Democratic Re­ limit on individual contributions to polit­ "Connally would make a helluva defense search Organization, a congres­ ical candidates, and all fe deral subsidies secretary." Keegan also confided that he sional policy group he intends to to political campaigns will end. would like to see Richard Allen named turn into a rallying point fo r mod­ The NCPAC (see above) is also lob­ national security adviser, "because he's erate and conservative Democrats. • bying to dismantle the FEe. the best friend Israel has in the U.S."

EIR November 25, 1980 National 63 EnergyInsider by William Engdahl

Politics versus reality to the cost of extraction. Wh at world oil supplies really are, and whether they will now I had a recent discussion with a distinguished domestic oil and gas be developed. producer, Mr. Jim Russell, of Rus­ sell Petroleum out of Abilene, Texas. Russell currently heads the Crude Oil Committee of the Inde­ pendent Petroleum Association of Wth the nightmare of the Carter mbd in i9�5. ln the year 2000, U.S. America, the nation's largest or­ years of "war on energy" thankful­ production could be as low as 4 ganization of independent produc­ ly behind us, I think it appropriate mbd." They further calculate that ers. When I put the question to him to look at some basic assumptions primary and secondary recovery about the potential left to be dis­ which need to be destroyed if we are from existing U.S. proven reserves covered in this country, he drew my to pursue necessary energy growth. "may decrease from approximately attention to a since-buried report Since the controversial publication 8.1 mbd in 1979 to 4.7 mbd in issued by a special study committee of the April 1977 Central Intelli­ 1985." This is a pretty alarming of the National Petroleum Council, gence Agency report on petroleum prospect which Rep. Morris Udall a blue-ribbon government advisory supply projections, we have been (D-Ariz.), chairman of OTA's body. Russell, who served on the bombarded with study after gov­ congressional board, and no cham­ committee in the early 1970s, par­ ernment study trying to convince us pion of energy growth, uses to justi­ ticipated in the study, which con­ that oil and gas supplies have fy a call for "serious and sustained cluded that "we have probably 300 peaked worldwide and domestical- efforts to increase efficiency and cut billion barrels of oil in place in this Two new studies have just waste in our use of oil," codeword country that has not been touched added credibility to this thesis. One in liberal jargon for drastic cuts in to date." is a study by Richard Nehring of living standards and industrial Russell added that without suf­ the Rand Corporation in Santa growth through energy austerity. ficient incentives, such as repeal or Monica, Calif. The other is a study What's wrong with these Cas­ substantial amendment of the most prepared fo r the Senate Foreign sandra-like doom fo recasts? Noth­ destructive impact of the so-called Relations Committee by the ing, if we take the assumptions that windfall tax, "these reserves will Congressional Office of Technolo­ lie behind them and make them into perhaps never be found." He calcu­ gy Assessment (OTA) titled law such as people like Udall have lates that his own company's net "World Petroleum Availability: done. Namely, if we impose meas­ pre-income tax income in 1980 will 1980-2000." ures such as the Crude Oil Windfall be down by about 68 percent as a The Rand thesis is simple: "The Profits Tax of 1980 which mandate result ofthe combined impact ofthe outlook for conventional world oil removal, at the wellhead, of $227.3 tax and a galloping real inflation of resources is not promising," Nehr­ billions over the next decade from drilling costs of 30 to 40 percent. ing states, adding that "the current capital available for fu rther explo­ President-elect Reagan has ap­ high rates of conventional oil pro­ ration. This will ensure that the pointed a respected geologist, duction can be sustained at most for substantial increase in exploratory Michel Halbouty of Houston, to another three decades." The OTA drilling needed to map and exploit head his energy policy task fo rce. report is even more explicit in re­ potential reserves in this country We have the opportunity now to gard to projected domestic U.S. just will not happen. To make dou­ take on the challenge of energy de­ production: "Based on the reason­ bly sure, we can add, as Udall and velopment that Russell and thou­ ing discussed in this section," they his cronies on the "environmental­ sands like him are eager to pursue. piously declare, "OTA estimates ist" side of the aisle have done, But before we do, we should clean that liquid petroleum production ridiculous legislative and regula­ house of the incompetents that have will decline from the 1979 average tory restrictions on environmental proliferated as government energy production rate of 10.2 million bar­ impact of drilling mud chemicals analysts in the last decade, whether rels per day to a level of 7.2 to 8.5 and the like to add further billions from OTA, CIA, or Rand.

64 National EIR November 25, 1980