The Global Economy Is a Giant Ponzi Scheme

By Chris Hedges and Michael Hudson, CounterPunch

26 March 16

e’re going to be discussing a great Ponzi scheme that not only defines not only the U.S. but the global economy, how we got there and where we’re going. And with me to discuss this issue is the economist Michael Hudson, author of Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. A professor of economics who worked for many years on Wall Street, where you don’t succeed if you don’t grasp Marx’s dictum that capitalism is about exploitation. And he is also, I should mention, the godson of Leon Trotsky.

I want to open this discussion by reading a passage from your book, which I admire very much, which I think gets to the core of what you discuss. You write,

“Adam Smith long ago remarked that profits often are highest in nations going fastest to ruin. There are many ways to create economic suicide on a national level. The major way through history has been through indebting the economy. Debt always expands to reach a point where it cannot be paid by a large swathe of the economy. This is the point where austerity is imposed and ownership of wealth polarizes between the One Percent and the 99 Percent. Today is not the first time this has occurred in history. But it is the first time that running into debt has occurred deliberately.” Applauded. “As if most debtors can get rich by borrowing, not reduced to a condition of debt peonage.”

So let’s start with the classical economists, who certainly understood this. They were reacting of course to feudalism. And what happened to the study of economics so that it became gamed by ideologues?

HUDSON: The essence of classical economics was to reform industrial capitalism, to streamline it, and to free the European economies from the legacy of feudalism. The legacy of feudalism was landlords extracting land-rent, and living as a class that took income without producing anything. Also, banks that were not funding industry. The leading industrialists from James Watt, with his steam engine, to the railroads …

HEDGES: From your book you make the point that banks almost never funded industry.

HUDSON: That’s the point: They never have. By the time you got to Marx later in the 19th century, you had a discussion, largely in Germany, over how to make banks do something they did not do under feudalism. Right now we’re having the economic surplus being drained not by the landlords but also by banks and bondholders.

Adam Smith was very much against colonialism because that lead to wars, and wars led to public debt. He said the solution to prevent this financial class of bondholders burdening the economy by imposing more and more taxes on consumer goods every time they went to war was to finance wars on a pay-as-you-go basis. Instead of borrowing, you’d tax the people. Then, he thought, if everybody felt the burden of war in the form of paying taxes, they’d be against it. Well, it took all of the 19th century to fight for democracy and to extend the vote so that instead of landlords controlling Parliament and its law-making and tax system through the House of Lords, you’d extend the vote to labor, to women and everybody. The theory was that society as a whole would vote in its self-interest. It would vote for the 99 Percent, not for the One Percent.

By the time Marx wrote in the 1870s, he could see what was happening in Germany. German banks were trying to make money in conjunction with the government, by lending to heavy industry, largely to the military-industrial complex.

HEDGES: This was Bismarck’s kind of social – I don’t know what we’d call it. It was a form of capitalist socialism…

HUDSON: They called it State Capitalism. There was a long discussion by Engels, saying, wait a minute. We’re for Socialism. State Capitalism isn’t what we mean by socialism. There are two kinds of state-oriented–.

HEDGES: I’m going to interject that there was a kind of brilliance behind Bismarck’s policy because he created state pensions, he provided health benefits, and he directed banking toward industry, toward the industrialization of Germany which, as you point out, was very different in Britain and the United States.

HUDSON: German banking was so successful that by the time World War I broke out, there were discussions in English economic journals worrying that Germany and the Axis powers were going to win because their banks were more suited to fund industry. Without industry you can’t have really a military. But British banks only lent for foreign trade and for speculation. Their stock market was a hit-and-run operation. They wanted quick in-and-out profits, while German banks didn’t insist that their clients pay as much in dividends. German banks owned stocks as well as bonds, and there was much more of a mutual partnership.

That’s what most of the 19^th century imagined was going to happen – that the world was on the way to socializing banking. And toward moving capitalism beyond the feudal level, getting rid of the landlord class, getting rid of the rent, getting rid of interest. It was going to be labor and capital, profits and wages, with profits being reinvested in more capital. You’d have an expansion of technology. By the early twentieth century most futurists imagined that we’d be living in a leisure economy by now.

HEDGES: Including Karl Marx.

HUDSON: That’s right. A ten-hour workweek. To Marx, socialism was to be an outgrowth of the reformed state of capitalism, as seemed likely at the time – if labor organized in its self-interest.

HEDGES: Isn’t what happened in large part because of the defeat of Germany in World War I? But also, because we took the understanding of economists like Adam Smith and maybe Keynes. I don’t know who you would blame for this, whether Ricardo or others, but we created a fictitious economic theory to praise a rentier or rent-derived, interest-derived capitalism that countered productive forces within the economy. Perhaps you can address that.

HUDSON: Here’s what happened. Marx traumatized classical economics by taking the concepts of Adam Smith and John Stuart Mill and others, and pushing them to their logical conclusion.

Progressive capitalist advocates – Ricardian socialists such as John Stuart Mill – wanted to tax away the land or nationalize it. Marx wanted governments to take over heavy industry and build infrastructure to provide low-cost and ultimately free basic services. This was traumatizing the landlord class and the One Percent. And they fought back. They wanted to make everything part of “the market,” which functioned on credit supplied by them and paid rent to them.

None of the classical economists imagined how the feudal interests – these great vested interests that had all the land and money – actually would fight back and succeed. They thought that the future was going to belong to capital and labor. But by the late 19^th century, certainly in America, people like John Bates Clark came out with a completely different theory, rejecting the classical economics of Adam Smith, the Physiocrats and John Stuart Mill.

HEDGES: Physiocrats are, you’ve tried to explain, the enlightened French economists.

HUDSON: The common denominator among all these classical economists was the distinction between earned income and unearned income. Unearned income was rent and interest. Earned incomes were wages and profits. But John Bates Clark came and said that there’s no such thing as unearned income. He said that the landlord actually earns his rent by taking the effort to provide a house and land to renters, while banks provide credit to earn their interest. Every kind of income is thus “earned,” and everybody earns their income. So everybody who accumulates wealth, by definition, according to his formulas, get rich by adding to what is now called Gross Domestic Product (GDP).

HEDGES: One of the points you make in Killing the Host which I liked was that in almost all cases, those who had the capacity to make money parasitically off interest and rent had either – if you go back to the origins – looted and seized the land by force, or inherited it.

HUDSON: That’s correct. In other words, their income is unearned. The result of this anti-classical revolution you had just before World War I was that today, almost all the economic growth in the last decade has gone to the One Percent. It’s gone to Wall Street, to real estate …

HEDGES: But you blame this on what you call Junk Economics.

HUDSON: Junk Economics is the anti-classical reaction.

HEDGES: Explain a little bit how, in essence, it’s a fictitious form of measuring the economy.

HUDSON: Well, some time ago I went to a bank, a block away from here – a Chase Manhattan bank – and I took out money from the teller. As I turned around and took a few steps, there were two pickpockets. One pushed me over and the other grabbed the money and ran out. The guard stood there and saw it. So I asked for the money back. I said, look, I was robbed in your bank, right inside. And they said, “Well, we don’t arm our guards because if they shot someone, the thief could sue us and we don’t want that.” They gave me an equivalent amount of money back.

Well, imagine if you count all this crime, all the money that’s taken, as an addition to GDP. Because now the crook has provided the service of not stabbing me. Or suppose somebody’s held up at an ATM machine and the robber says, “Your money or your life.” You say, “Okay, here’s my money.” The crook has given you the choice of your life. In a way that’s how the Gross National Product accounts are put up. It’s not so different from how Wall Street extracts money from the economy. Then also you have landlords extracting …

HEDGES: Let’s go back. They’re extracting money from the economy by debt peonage. By raising …

HUDSON: By not playing a productive role, basically.

HEDGES: Right. So it’s credit card interest, mortgage interest, car loans, student loans. That’s how they make their funds.

HUDSON: That’s right. Money is not a factor of production. But in order to have access to credit, in order to get money, in order to get an education, you have to pay the banks. At New York University here, for instance, they have Citibank. I think Citibank people were on the board of directors at NYU. You get the students, when they come here, to start at the local bank. And once you are in a bank and have monthly funds taken out of your account for electric utilities, or whatever, it’s very cumbersome to change.

So basically you have what the classical economists called the rentier class. The class that lives on economic rents. Landlords, monopolists charging more, and the banks. If you have a pharmaceutical company that raises the price of a drug from $12 a shot to $200 all of a sudden, their profits go up. Their increased price for the drug is counted in the national income accounts as if the economy is producing more. So all this presumed economic growth that has all been taken by the One Percent in the last ten years, and people say the economy is growing. But the economy isn’t growing …

HEDGES: Because it’s not reinvested.

HUDSON: That’s right. It’s not production, it’s not consumption. The wealth of the One Percent is obtained essentially by lending money to the 99 Percent and then charging interest on it, and recycling this interest at an exponentially growing rate.

HEDGES: And why is it important, as I think you point out in your book, that economic theory counts this rentier income as productive income? Explain why that’s important.

HUDSON: If you’re a rentier, you want to say that you earned your income by …

HEDGES: We’re talking about Goldman Sachs, by the way.

HUDSON: Yes, Goldman Sachs. The head of Goldman Sachs came out and said that Goldman Sachs workers are the most productive in the world. That’s why they’re paid what they are. The concept of productivity in America is income divided by labor. So if you’re Goldman Sachs and you pay yourself $20 million a year in salary and bonuses, you’re considered to have added $20 million to GDP, and that’s enormously productive. So we’re talking in a tautology. We’re talking with circular reasoning here.

So the issue is whether Goldman Sachs, Wall Street and predatory pharmaceutical firms, actually add “product” or whether they’re just exploiting other people. That’s why I used the word parasitism in my book’s title. People think of a parasite as simply taking money, taking blood out of a host or taking money out of the economy. But in nature it’s much more complicated. The parasite can’t simply come in and take something. First of all, it needs to numb the host. It has an enzyme so that the host doesn’t realize the parasite’s there. And then the parasites have another enzyme that takes over the host’s brain. It makes the host imagine that the parasite is part of its own body, actually part of itself and hence to be protected.

That’s basically what Wall Street has done. It depicts itself as part of the economy. Not as a wrapping around it, not as external to it, but actually the part that’s helping the body grow, and that actually is responsible for most of the growth. But in fact it’s the parasite that is taking over the growth.

The result is an inversion of classical economics. It turns Adam Smith upside down. It says what the classical economists said was unproductive – parasitism – actually is the real economy. And that the parasites are labor and industry that get in the way of what the parasite wants – which is to reproduce itself, not help the host, that is, labor and capital.

HEDGES: And then the classical economists like Adam Smith were quite clear that unless that rentier income, you know, the money made by things like hedge funds, was heavily taxed and put back into the economy, the economy would ultimately go into a kind of tailspin. And I think the example of that, which you point out in your book, is what’s happened in terms of large corporations with stock dividends and buybacks. And maybe you can explain that.

HUDSON: There’s an idea in superficial textbooks and the public media that if companies make a large profit, they make it by being productive. And with …

HEDGES: Which is still in textbooks, isn’t it?

HUDSON: Yes. And also that if a stock price goes up, you’re just capitalizing the profits – and the stock price reflects the productive role of the company. But that’s not what’s been happening in the last ten years. Just in the last two years, 92 percent of corporate profits in America have been spent either on buying back their own stock, or paid out as dividends to raise the price of the stock.

HEDGES: Explain why they do this.

HUDSON: About 15 years ago at Harvard, Professor Jensen said that the way to ensure that corporations are run most efficiently is to make the managers increase the price of the stock. So if you give the managers stock options, and you pay them not according to how much they’re producing or making the company bigger, or expanding production, but the price of the stock, then you’ll have the corporation run efficiently, financial style.

So the corporate managers find there are two ways that they can increase the price of the stock. The first thing is to cut back long-term investment, and use the money instead to buy back their own stock. But when you buy your own stock, that means you’re not putting the money into capital formation. You’re not building new factories. You’re not hiring more labor. You can actually increase the stock price by firing labor.

HEDGES: That strategy only works temporarily.

HUDSON: Temporarily. By using the income from past investments just to buy back stock, fire the labor force if you can, and work it more intensively. Pay it out as dividends. That basically is the corporate raider’s model. You use the money to pay off the junk bond holders at high interest. And of course, this gets the company in trouble after a while, because there is no new investment.

So markets shrink. You then go to the labor unions and say, gee, this company’s near bankruptcy, and we don’t want to have to fire you. The way that you can keep your job is if we downgrade your pensions. Instead of giving you what we promised, the defined benefit pension, we’ll turn it into a defined contribution plan. You know what you pay every month, but you don’t know what’s going to come out. Or, you wipe out the pension fund, push it on to the government’s Pension Benefit Guarantee Corporation, and use the money that you were going to pay for pensions to pay stock dividends. By then the whole economy is turning down. It’s hollowed out. It shrinks and collapses. But by that time the managers will have left the company. They will have taken their bonuses and salaries and run.

HEDGES: I want to read this quote from your book, written by David Harvey, in A Brief History of Neoliberalism, and have you comment on it.

“The main substantive achievement of neoliberalism has been to redistribute rather than to generate wealth and income. [By] ‘accumulation by dispossession’ I mean … the commodification and privatization of land, and the forceful expulsion of peasant populations; conversion of various forms of property rights (common collective state, etc.) into exclusive private property rights; suppression of rights to the commons; … colonial, neocolonial, and the imperial processes of appropriation of assets (including natural resources); … and usury, the national debt and, most devastating at all, the use of the credit system as a radical means of accumulation by dispossession. … To this list of mechanisms, we may now add a raft of techniques such as the extraction of rents from patents, and intellectual property rights (such as the diminution or erasure of various forms of common property rights, such as state pensions, paid vacations, and access to education, health care) one through a generation or more of class struggle. The proposal to privatize all state pension rights, pioneered in Chile under the dictatorship is, for example, one of the cherished objectives of the Republicans in the US.”

This explains the denouement. The final end result you speak about in your book is, in essence, allowing what you call the rentier or the speculative class to cannibalize the entire society until it collapses.

HUDSON: A property right is not a factor of production. Look at what happened in Chicago, the city where I grew up. Chicago didn’t want to raise taxes on real estate, especially on its expensive commercial real estate. So its budget ran a deficit. They needed money to pay the bondholders, so they sold off the parking rights to have meters – you know, along the curbs. The result is that they sold to Goldman Sachs 75 years of the right to put up parking meters. So now the cost of living and doing business in Chicago is raised by having to pay the parking meters. If Chicago is going to have a parade and block off traffic, it has to pay Goldman Sachs what the firm would have made if the streets wouldn’t have been closed off for a parade. All of a sudden it’s much more expensive to live in Chicago because of this.

But this added expense of having to pay parking rights to Goldman Sachs – to pay out interest to its bondholders – is counted as an increase in GDP, because you’ve created more product simply by charging more. If you sell off a road, a government or local road, and you put up a toll booth and make it into a toll road, all of a sudden GDP goes up.

If you go to war abroad, and you spend more money on the military-industrial complex, all this is counted as increased production. None of this is really part of the production system of the capital and labor building more factories and producing more things that people need to live and do business. All of this is overhead. But there’s no distinction between wealth and overhead.

Failing to draw that distinction means that the host doesn’t realize that there is a parasite there. The host economy, the industrial economy, doesn’t realize what the industrialists realized in the 19^th century: If you want to be an efficient economy and be low-priced and under-sell competitors, you have to cut your prices by having the public sector provide roads freely. Medical care freely. Education freely.

If you charge for all of these, you get to the point that the U.S. economy is in today. What if American factory workers were to get all of their consumer goods for nothing. All their food, transportation, clothing, furniture, everything for nothing. They still couldn’t compete with Asians or other producers, because they have to pay up to 43% of their income for rent or mortgage interest, 10% or more of their income for student loans, credit card debt. 15% of their paycheck is automatic withholding to pay Social Security, to cut taxes on the rich or to pay for medical care.

So Americans built into the economy all this overhead. There’s no distinction between growth and overhead. It’s all made America so high-priced that we’re priced out of the market, regardless of what trade policy we have.

HEDGES: We should add that under this predatory form of economics, you game the system. So you privatize pension funds, you force them into the stock market, an overinflated stock market. But because of the way companies go public, it’s the hedge fund managers who profit. And it’s those citizens whose retirement savings are tied to the stock market who lose. Maybe we can just conclude by talking about how the system is fixed, not only in terms of burdening the citizen with debt peonage, but by forcing them into the market to fleece them again.

HUDSON: Well, we talk about an innovation economy as if that makes money. Suppose you have an innovation and a company goes public. They go to Goldman Sachs and other Wall Street investment banks to underwrite the stock to issue it at $40 a share. What’s considered a successful float is when, immediately, Goldman and the others will go to their insiders and tell them to buy this stock and make a quick killing. A “successful” flotation doubles the price in one day, so that at the end of the day the stock’s selling for $80.

HEDGES: They have the option to buy it before anyone else, knowing that by the end of the day it’ll be inflated, and then they sell it off.

HUDSON: That’s exactly right.

HEDGES: So the pension funds come in and buy it at an inflated price, and then it goes back down.

HUDSON: It may go back down, or it may be that the company just was shortchanged from the very beginning. The important thing is that the Wall Street underwriting firm, and the speculators it rounds up, get more in a single day than all the years it took to put the company together. The company gets $40. And the banks and their crony speculators also get $40.

So basically you have the financial sector ending up with much more of the gains. The name of the game if you’re on Wall Street isn’t profits. It’s capital gains. And that’s something that wasn’t even part of classical economics. They didn’t anticipate that the price of assets would go up for any other reason than earning more money and capitalizing on income. But what you have had in the last 50 years – really since World War II – has been asset-price inflation. Most middle-class families have gotten the wealth that they’ve got since 1945 not really by saving what they’ve earned by working, but by the price of their house going up. They’ve benefited by the price of the house. And they think that that’s made them rich and the whole economy rich.

The reason the price of housing has gone up is that a house is worth whatever a bank is going to lend against it. If banks made easier and easier credit, lower down payments, then you’re going to have a financial bubble. And now, you have real estate having gone up as high as it can. I don’t think it can take more than 43% of somebody’s income to buy it. But now, imagine if you’re joining the labor force. You’re not going to be able to buy a house at today’s prices, putting down a little bit of your money, and then somehow end up getting rich just on the house investment. All of this money you pay the bank is now going to be subtracted from the amount of money that you have available to spend on goods and services.

So we’ve turned the post-war economy that made America prosperous and rich inside out. Somehow most people believed they could get rich by going into debt to borrow assets that were going to rise in price. But you can’t get rich, ultimately, by going into debt. In the end the creditors always win. That’s why every society since Sumer and Babylonia have had to either cancel the debts, or you come to a society like Rome that didn’t cancel the debts, and then you have a dark age. Everything collapses.

Returning Guantánamo

By Tim Reynolds, Jacobin

26 March 16

The Guantánamo Bay naval base has long been a site of US imperial power.

or all its historic import and feel-good photo shoots, President Obama’s visit to Havana played out on familiar terms. Obama and Cuban president Raúl Castro traded barbs about human rights abuses, Obama pressed for more avenues for the flow of private capital, and both leaders called for an end to the US trade embargo.

Castro also urged the US to return the Guantánamo Bay Naval Base to Cuban hands, drawing focus to an oft-ignored obstacle to the normalization of relations between the old enemies. Castro’s request is nothing new: Cubans of all political stripes have long demanded the base’s return, and since 1960, Havana has refused to cash the $4,085 lease payment Washington sends each year, alleging the lease is illegal.

Yet even as Obama seeks to close GTMO’s infamous detention center, the White House has made clear that it has no intent to return the base — despite Ted Cruz and Marco Rubio’s paranoid claims to the contrary.

Of course, Guantánamo is more than the object of a decades-old dispute. For the past fourteen years, the site — which occupies forty-five square miles of Cuba’s southeastern coast and houses thousands of servicemen, civilians, and foreign workers, along with ninety-one detainees — has been the setting of untold crimes committed by the US government. Yet these particular horrors are simply the latest in a history of oppression at GTMO that stretches back to its birth more than a century ago.

Indeed, the present-day prison and Cuba’s long-standing complaints are part and parcel of the same history — the history of Washington and Havana, of labor disputes and Cold War tensions, of workers, refugees, and detainees caught in legal limbo.

As the first of many US bases on foreign soil, GTMO’s history is also one of US empire and conquest, the Caribbean and its people, and resistance and survival under the gaze of bellicose governments.

Imperial Beginnings

In 1494, Christopher Columbus landed at Guantánamo Bay during his second voyage to the Caribbean. He was followed in 1511 by Diego Velazquez, who conquered the island and its indigenous inhabitants, the Taíno, for the Spanish crown. The Taíno proved to be resistant to Spanish rule and susceptible to European disease, so Velazquez soon authorized the import of African slaves.

Though Guantánamo Bay was among the Spanish Empire’s earliest conquests, Havana’s colonial government initially ignored much of eastern Cuba. But after a failed British invasion in 1741, Spain moved to consolidate its hold on the region and the bay. The area quickly became home to Spanish hacendados, French gentry fleeing the Haitian Revolution, and still more slaves imported en masse to plant and harvest sugar, tobacco, and coffee.

The United States entered the picture in 1898, declaring war on a Spanish government already fighting Filipino and Cuban struggles for independence. That summer, US soldiers and Cuban revolutionaries captured Guantánamo Bay — the US Navy’s preferred entrée into the Caribbean. Unswayed by the opposition of the Cuban revolutionaries and with their sights set on the Panama Canal and the empire to come, US forces established a camp at the bay. They haven’t left since.

When the US occupation ended five years later, Theodore Roosevelt and the new Cuban government negotiated a series of treaties giving the US the right to build and maintain certain naval stations — including Guantánamo — and to intervene militarily “for the preservation of Cuban independence.” The US made full use of these provisions in the coming decades, deploying troops from GTMO and elsewhere to protect the property of the United Fruit Company and the Guantánamo Sugar Company — US corporations that had seized control of the region’s agricultural economy.

Washington’s meddling extended well beyond Cuba. In a string of conflicts across Latin America known as the Banana Wars, the military intervened on behalf of United Fruit and the other US corporations that dominated the hemisphere’s sugar and fruit industries.

These interventions stoked anti-US sentiment across the region, spurring Franklin D. Roosevelt in 1934 to instate his “Good Neighbor” policy — a vow that the US would never intervene in Latin America’s domestic affairs. With respect to Cuba, FDR abrogated most privileges secured in 1903. The sole exception, however, was a big one: the US still claimed the right to a base at Guantánamo Bay.

In fact, the 1934 treaty took the 1903 agreement a step further. Whereas the earlier accord secured a ninety-nine-year lease, FDR’s pact gave the US control of the bay until it abandoned its base, or until both parties agreed to renegotiate.

In other words, no change could come without Washington’s approval. And no change has.

Building No-Man’s Land

In the late 1930s, in response to growing tensions across the Atlantic, FDR had military bases constructed throughout the Western Hemisphere. For Guantánamo, this meant transforming a modest outpust into a full-fledged naval base, and introduced the need for a massive labor force.

So began the long history of GTMO’s workers, who’d come to find themselves caught in legal limbo in their search for a better life.

The contract to build Guantánamo went to the Frederick Snare Corporation, a US company whose presence spanned Latin America. Empowered to hire as it wished, Snare turned to local workers hailing from Cuba, Jamaica, Puerto Rico, the West Indies, and beyond. Called “commuters,” most lived in the city of Guantánamo and made lengthy trips each day to the towns of Caimanera and Boquerón, where they could enter the base by ferry or on foot.

Like many present-day bases, these Cuban communities became sites of rampant crime, much of it enabled and sanctioned by base officials who paid little heed to local authorities and rarely held US citizens accountable for committing offenses outside the base. For the commuters, though, local crime was just the beginning.

Snare, helping pioneer a practice now common on US military posts across the world, exploited its status as a private contractor to skirt both Cuban and US labor laws. At GTMO, the Navy’s employees received full-time positions with modest benefits. Snare’s employees got nothing of the sort. Instead, the corporation hired most of its workers on a part-time basis, for low pay, and with no guarantee of day-to-day employment.

This was no small matter: at the peak of World War II — when GTMO was used to protect Caribbean shipping lanes — nearly ten thousand commuters worked at the base, most of them employed by Snare. At least two of these employees died in work-related accidents during the construction frenzy, and countless others endured long hours and abusive bosses, with little to no representation.

Faced with complaints, Snare simply reiterated that it was bound by neither Cuban nor US labor laws. And the Navy implicitly backed the company up, disavowing jurisdiction over the matter.

The Navy was more than happy, however, to intervene in other areas: it sent Snare lists of “undesirable” workers, required all would-be employees to obtain special authorization to work on the base, and operated the boats ferrying workers between the base and Caimanera. When a Navy lieutenant struck and killed a worker who leapt aboard one of these ferries, the Navy asserted its jurisidiction over the case, court-martialed the lieutenant for manslaughter, and found him not guilty.

Though contract workers bore the brunt of workplace abuses, all local workers — including the Navy’s official employees — shared a common set of struggles. Before and after the war, workers commuted to the base in cattle cars and ferries packed far beyond their capacity, endured invasive strip searches, and struggled to win even middling concessions from their employers.

Base officials and private contractors used the workers’ diverse origins to stifle collective organizing. Workers hailed from around the Caribbean, and in a country still reeling from the Great Depression, labor tensions split along racial and national lines. Workers leveraged their citizenship, language, and race to obtain positions with more security and responsibility, and bosses seemed happy to oblige.

English-speaking workers secured full-time administrative and skilled labor roles — the most coveted positions — while the rest were left to compete for manual labor jobs, the majority of which were part-time or temporary contract positions. At the bottom — in terms of pay, benefits, and prestige — were women of color in domestic roles, who earned far less than both white women in the same positions and their male peers on the rung above. And of course, no one enjoyed the same benefits as US civilians working the same jobs.

Workplace abuses and disparities did not go unnoticed. The local press invoked FDR’s language of good neighborliness to push for more Cuban employment (most of the full-time workers were Jamaican or West Indian, due to their English language skills), and in 1950, base workers successfully organized a fledgling union, aided by a joint effort from Cuban anticommunist unionist Eusebio Mujal and the American Federation of Labor’s Serafino Romualdi.

In exchange for giving up the right to strike, the union secured modest reforms, including wage hikes, paid leave, and a modest pension. Yet the union was only open to the Navy’s employees — not contract workers — and Cold War hysteria over communism limited the union’s ability to advocate for pro-worker measures.

All this came to a head in September 1954, when base officials arrested worker Lorenzo Salomón Deer for allegedly stealing $1,543.26 worth of cigarettes. Officials detained Salomón for two weeks without trial, beat and tortured him, and forced him to confess. Local union leaders condemned Salomón’s arrest and torture in a statement that echoes to the present, writing: “We could not conceive that in a naval establishment of the most powerful nation in the world, champion of democracy, things like this could happen.”

Working Between Worlds

Salomón’s case deepened the growing dissatisfaction with both US influence and Fulgencio Batista’s dictatorship, which included labor boss Mujal. These were the rotten fruits of Cuban independence: US corporations filled the vacuum left by Spanish landlords, and leaders in Havana sold out the working class.

Conditions were ripe for revolt, and in the 1950s, it came along in the form of Fidel Castro and the 26^th of July Movement.

During the revolution, the Cuban military used GTMO’s airstrip to land and refuel between bombing campaigns, while workers and sympathetic US citizens smuggled arms, money, and information to rebels outside the base. Revolutionaries kidnapped US citizens from GTMO as a way to press the US to stop aiding the Batista regime, and a few US teenagers even left the outpost to join the guerrilla forces in the surrounding mountains, earning valuable publicity for Castro’s revolution.

Following the revolutionaries’ victory in 1959, Castro’s nationalization of US interests, and the Eisenhower administration’s subsequent embargo, the base became a site of Cold War tensions acted out on a granular scale, with nuclear war on the line.

Some of these tensions were ready-made for the cameras: Fidel Castro once took a turn patrolling the border, and guards on both sides competed over who could raise their flag the highest. (The Cubans eventually moved their flag to the top of a nearby hill.)

Yet the conflict sometimes claimed real victims: GTMO worker Manuel Prieto Gómez was tortured for allegedly supporting Castro’s revolution; Rubén López Sabariego, another worker, was murdered for the same reason; at least two Cuban border guards were shot and killed by their US counterparts; and several would-be immigrants died crossing the minefield between the base and the border.

While Cuba didn’t shy away from confrontations with Washington, it avoided major retaliation for fear of an all-out invasion. The concerns weren’t misplaced. In April 1961, CIA-sponsored paramilitaries attempted to forcibly bring down the revolutionary government in the Bay of Pigs invasion.

And the US military — particularly during John F. Kennedy’s administration — devised numerous plans to assassinate the Castros, with GTMO often named as a site for a false flag attack.

Amid Washington’s machinations, the Castro government forbade the hiring of new Cuban workers at GTMO; those who remained employed became objects of suspicion and propaganda.

Authorities on both sides also began conducting rigorous searches of workers upon entry and exit, ramping up a practice the US had employed since the late thirties. But base authorities also exchanged workers’ dollars into pesos at a higher rate than the Cuban government, gave employees access to consumer luxuries, and paraded workers about as victims freed from the horrors of communism. In response, the Cuban government cited abuses against base workers and limited labor rights as evidence of the evils of capitalism and US imperialism.

Cuban commuters observed these geopolitical recriminations with their own survival in mind. Yet before long, their era came to an end.

In 1964, the Coast Guard detained a group of Cuban fishermen who had drifted into US waters near Key West, accusing them of espionage. (The boats were equipped with sophisticated communications gear.) The Cuban government reacted by cutting off the aqueduct supplying water to the base, and both sides escalated their military presence around the bay.

To provoke Castro and prevent subterfuge, the Navy suspended Cuban retirees’ pensions and fired approximately 2,000 of the base’s 2,750 Cuban workers. The Navy gave these terminated workers an ultimatum: return to Cuba, or stay at GTMO. Roughly 1,500 of them chose Cuba, where they were mostly placed in comfortable bureaucratic positions. Another 448 workers — most of whom ultimately emigrated to the US — opted to live on the base.

While several hundred Cuban workers kept their jobs, continuing to commute to and from the base, the 1964 firings marked the beginning of the end of Cuban labor at GTMO. The Navy turned to Jamaican workers to fill the gap, and in recent years they’ve been joined by a growing force of Filipino workers.

The disappearance of Cubans from the GTMO labor force (the last two retired in 2012) hasn’t brought better conditions for the remaining workers. Snare’s model of foreign contract labor remains alive and well. The Jamaicans who replaced the fired Cubans in 1964 were hired through a private contractor, and most of the base’s current foreign workers are short-term contract employees of Burns and Roe or the Pentad Corporation. Indeed, the Navy didn’t build GTMO’s detention centers — foreign contract employees of Halliburton did.

New Uses for Legal Limbo

At first, the end of the Cold War seemed to signal the end of GTMO’s utility. Ronald Reagan even briefly considered returning the base. But the US government quickly found other uses for the site, and in doing so, laid the legal groundwork for GTMO’s role in the “war on terror.”

In 1991, the overthrow of Haitian president Jean-Bertrand Aristide prompted thousands to flee the country on boats and makeshift rafts, their eyes fixed on the US. Instead, they found themselves detained at Guántanamo.

Though hardly the first Haitian refugees to end up at the bay, they were the most recent since an important court case a decade earlier.

In the late 1970s, the US government balked when it saw Haitians — escaping US-backed dictator Jean-Claude Duvalier — surge into the country. It held these refugees in camps in Florida, deemed the new entrants economic rather than political refugees (subjecting them to more stringent rules), largely ceased asylum hearings, and carried out a plan for mass repatriation.

But a federal judge’s ruling in the refugees’ favor stymied the plan, and asylum hearings recommenced.

By 1991, the US government had learned its lesson. So when the new wave of refugees set sail from Haiti — amid the build-up to a US presidential election — GTMO offered a convenient solution for George H. W.  Bush, potentially beyond the reach of US courts.

The US detained nearly 37,000 Haitians in makeshift tent cities, while authorities chose whom to grant asylum hearings, whom to deport without a hearing, and whom to leave in legal purgatory. Most of the people in this final group were HIV-positive refugees quarantined in their own camps, eligible for political asylum but banned from entering the United States. Some HIV-positive refugees were told they couldn’t leave GTMO until a cure was found.

Once again, Haitian refugees challenged their treatment. Protests led to protracted legal battles, and the case made its way to the Supreme Court. During his presidential campaign, Bill Clinton had promised to end the indefinite detention of refugees, leading many to believe he would let a lower court ruling in favor of the refugees stand. But in the week before his inauguration, Clinton reversed his position.

In an 8–1 decision in Sale v. Haitian Centers Council, the Supreme Court sided with the US government, noting that relevant laws governing refugees and immigration were not intended for “extraterritorial application” — GTMO, it seemed, was not US territory after all.

The judgment did not stop another wave of Haitian refugees from entering in 1994, joined by Cubans taking advantage of Castro’s one-time loosening of immigration restrictions. The US government again held the refugees at Guantánamo Bay, this time with precedent on their side. When legal challenges materialized, the Court of Appeals backed the government. While the Cubans were allowed to continue living in the US — immigrants from the island nation are almost automatically granted asylum — the Haitians were forcibly expelled.

In its concluding remarks, the Court of Appeals called for a humanitarian response to aid the refugees held at GTMO, even as it declared “that these migrants are without legal rights that are cognizable in the courts of the United States.”

Seven years later, in the early months of its war on terror, the second Bush administration wielded this jurisprudential logic to transform the base into a crucial component of its global campaign.

An Opportunity

The first detainees, utterly lacking constitutional protections, arrived at GTMO in January 2002. The ensuing years witnessed the detention and torture of hundreds (and the deaths of a few), protests by detainees and others, and the begrudging implementation of military tribunals.

Candidate Obama recoiled at this Bush-era horror and vowed to close it down. His 2009 effort to close the prison died at the hands of a recalcitrant Congress, and the closure plan he announced last month is similarly doomed. For now, his plan’s primary utility seems to be on the campaign trail, where it serves as a handy moral cudgel for Hillary Clinton and Bernie Sanders.

Yet amid his normalization of relations with the Castro government, Obama has the opportunity — and, perhaps, the authority — to return the base to Cuba, to take another step to engage Havana, and to end what has long been both a symbol of the worst of US foreign policy.

But for all his apparent interest in closing the prison, Obama has given little indication he wishes to relinquish the base, end indefinite detention of enemy combatants, or dismantle the United States’ still-sprawling empire.

And so Cuba’s appeal for the base’s return will likely pass to Obama’s successor and beyond, until it finds a president attentive to the demands of the Cuban people or a social movement intent on upending Washington’s posture of imperial arrogance.

Until then, Guantánamo Bay remains suspended between countries, between the Cold War and the war on terror, between the presence of empire and the possibility of something better.