The hidden hand of the market will never work without a hidden fist. McDonald’s cannot flourish without McDonnell Douglas... And the hidden fist that keeps the world safe for Silicon Valley’s technologies to flourish is called the U.S. Army, Air Force, Navy and Marine Corps.

(New York Times columnist, Thomas Friedman in The Lexus and the Olive Tree).

In the happy lands where live the ideologists of global free trade, there are no wars, only people peaceably trading. [1] There, the hidden hand of the market ensures that the aggregate of millions of different, self-interested decisions appears, magically, as in everyone’s best interests. States are hardly visible either: they just protect property and enforce contracts. What an irony then that the most enthusiastic free marketeers are also the most warlike. The hidden hand of the market requires the (not so well) hidden fist.

And, because wars (or markets) are rarely won by military means alone, there exist organisations like the G8 to smooth the path of the corporations. As the articles by Jane Kelly and Eric Toussaint show, Tony Blair will use his Africa proposals to try to reassure progressive opinion that, despite his neo-liberal politics and his willingness to wage war in the interests of US and British capital, he is really one of them.

The Public Face of Global Capital

Behind the bland façade of the G8 is the brutal reality of the IMF and the World Bank

The first meeting of what was then the G5 occurred in Rambouillet, France in 1975. The end of the post war boom had led to growing unemployment in the Western capitalist economies aggravated by the so-called oil crisis. This, together with the defeat of the US in Vietnam and the growth of independence movements in South Africa, induced the mood of pessimism that pervades the founding declaration. [2] The solutions offered were the usual prescriptions of increased trade and monetary stability, which were to be effected through the IMF and the World Bank.

The G7/8 is only the public face of the main players in the management of global capitalism: the International Monetary Fund and the World Bank. When the latter was set up in 1945, [3] US Treasury Secretary, Henry Morganthau said, ‘nothing would be more menacing to world security than to have the less developed countries comprising more than half of the world’s population ranged in economic battle against the less populous but industrially more advanced nations of the west’. From the outset, their main purpose was to reshape the world in line with the needs of US capitalism. In 1999 Joseph Stiglitz, Vice President and Chief Economist of the World Bank, ‘resigned’ under pressure because of criticisms he made of the IMF and World Bank. Stiglitz is no radical but even he was forced to question its activities.

According to Stiglitz, when faced with appeals from a debtor country the World Bank, ‘hands every minister the same four-step programme’,

1 Privatisation. Rather than objecting to the sell-offs of state industries, some politicians - using the World Bank’s demands to silence local critics - happily flogged their electricity and water companies. ‘You could see their eyes widen’ at the possibility of commissions for shaving a few billion off the sale price. And the US government knew it, charges Stiglitz, at least in the case of the biggest privatisation of all, the 1995 Russian sell-off. ‘The US Treasury view was: “this was great, as we wanted Yeltsin re-elected. We DON’T CARE if it’s a corrupt election.”’

2 Capital market liberalization. He describes the disastrous capital flows that can ruin economies as ‘predictable’. And, the article continues, ‘when [the outflow of capital] happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.’

3 Market-based pricing. Stiglitz says the IMF ‘drags the gasping nation’ to this third step, which he describes as ‘a fancy term for raising prices on food, water and cooking gas’ leading, ‘predictably’, to Step-Three-and-a-Half, or ‘the IMF riot’. That is, predictable social unrest and often ‘peaceful demonstrations dispersed by bullets, tanks and tear gas’ causing further capital outflows. However, the bright side to all this is that, ‘foreigners, can then pick off remaining assets at fire sale prices’!

4 Free trade. A version dominated by rules of the World Trade Organisation and the World Bank, which Stiglitz likens to the Opium Wars. ‘That too was about opening markets,’ he said. ‘As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World’s agriculture.’ Stiglitz had two problems with the IMF/World Bank plans: first, the plans are devised in ‘secrecy and driven by an absolutist ideology… that undermines democracy’. And, second, ‘they don’t work’. He points out that IMF structural assistance led to Africa’s income dropping by 23 per cent. [4]

The IMF, set up in 1944, had as its original declared purpose the maintenance of a gold-based [5] money standard after the turbulence of the 1929 depression. It mainly functioned as an instrument of US foreign policy: cementing the western alliance in the Cold War, divesting Britain and other European imperial powers of their former colonies in order to expand US markets and to secure raw material supplies, especially oil. [6]

When in 1971, the US, under pressure from the financial crisis resulting from the Vietnam War, allowed the dollar to float, the objectives of the IMF were changed to ‘aiding development’. The so-called Washington Consensus meant that debtor countries trying to borrow from the Bank were forced to comply with the structural adjustment policies set by the IMF. The resulting cuts in government spending, the dismantling of tariff restrictions on imports and a shift in agricultural policy away from food production towards exportable cash crops, the earnings from which could be used to service the debts, [7] have resulted in a global tide of starvation, misery and environmental damage. Countries already desperately poor are forced to service debt they will never be able to repay and hand their economies over the international banks. The ultimate irony is that aid and cancellation of debt is ever more tied to ‘good governance’ preconditions when the main cause of bad government was and is the same structural adjustment policies associated with debt.

Another aspect of the ending of the Bretton-Woods Agreement - the move away from the gold-based system to a floating dollar - put enormous power in hands of the Wall Street (and to a lesser extent, the City of London) financiers. Like Britain after WW1, US Governments can literally print dollars to fund budget deficits arising from the enormous costs of maintaining their empire. Allied to this is the fact that most world trade is in dollars, as are large holdings of most other countries’ reserves. [8]

[9]

This flood of dollars is, in effect, financing US spending. The US can force other countries to lend to it and alternatively threaten them with devaluing its debts by driving down the value of the dollar. It allows US capital, centred on Wall Street to exercise financial and political domination over the world economy. [10] But this ability to manipulate the value of the dollar in trying to escape from its own contradictions is a long-standing source of anger and resentment in the other capitalist blocs. In the last major crisis of 1997, the US Government was forced to bail out a massive speculative finance company because allowing it to collapse could have brought down the global financial system. [11] In the end, economics is a political problem of who should bear the cost.

The problem for holders of US dollars is that if they sell, they will further reduce the value of their dollar holdings but if they don’t, they have to watch the value of their assets fall. Recent remarks by Japanese Prime Minister Junichiro Koizumi triggered a one-day fright in financial markets when he said, in reference to Japan’s foreign reserves, ‘I believe diversification is necessary.’ In other words, the mere suggestion that the Japanese would move some of their enormous holdings of dollars was enough to cause panic. [12]

The other major force in shifting the role of the IMF and World Bank was the collapse of the Soviet Union. In the period of the Cold War, the activities of both were directed to cementing the US-dominated anti-soviet alliance. After 1989, the main activity of the IMF centred on managing the fallout resulting from the gyrations of the dollar in the face of continuing massive US trade and budget deficits. [13] During the Cold War the US was able to guarantee its hegemony by offering military protection, particularly to Western Europe and Japan. With the Soviet ‘threat’ gone there is less leverage over its allies. Paul Wolfowitz’s appointment as World Bank President is a clear signal of the intentions of Bush and the neo-conservatives. Their hope is that US military power can lever advantage to the US.

It is not surprising given the series of defeats suffered by the workers movement in Britain, the US and elsewhere since the late 1970’s, that there is a tendency among some on the left to overestimate the power of the US – and therefore underestimate the potential for resistance – which can result in a one-sided critique and overly defensive strategies. But while the US election results and the ever more arrogant pronouncements of the US government are received with ‘shock and awe’ by some, it is by no means certain that the neo-conservatives will be able to carry out their plans or even that they have a stable hegemony within the US ruling class. [14]

The assertion of US military might in Iraq and elsewhere springs as much from weakness as strength. The key aspect of globalisation fostered by the IMF and World Bank and promoted by the G8 – free trade – at bottom is simply an attempt to change the relations between the US and those economies which hitherto concentrated on a national development strategy that privileged domestic ruling classes over foreign ones. The US, in the face of the challenge from its rivals, now wants ‘direct rule’, the complete subordination of independent-minded national capitalists to its own interests. Iraq was about oil, controlling access to oil by the US’s rivals, encirclement of China and so on. It was also an attack on the ‘state development’ model fostered by the Soviets in the Third World but also pursued in Latin America and elsewhere over a whole period since the previous great burst of globalisation ended with the WW1 and the economic slump of the 1930s.

The US is more dependent on international trade but also has a growing deficit on its balance of payments and even the surplus on services insufficiently compensates for the huge imbalance in trade in manufactured goods. (See Figure 2)

But free trade, even in the limited sense used by the US to further its own interests in overseas markets, means a continuing decline in the dollar, growing trade deficits and a long term undermining of US dominance of the world economy. [15] Alongside these are the massive disagreements, particularly between Europe and the US, over the attempt by the US to reshape the IMF and the World Bank in line with the Project for a New American Century. [16]

At the same time, the growing budget deficit and Bush’s tax concessions to the wealthy, mean massive cuts in social spending, hence Bush’s attempt to part privatise social security. Allied to that is the way these contradictions highlight the loss of political credibility by the US: at its simplest, forcing balanced budgets on debtor countries under the aegis of the IMF sits very strangely with its own massive deficit.

The contradictions of US policy are the main element in the growth of the World Social Forum, [17] which is a disparate range of social forces mobilised (primarily) against US policy. Driven by debt-enforced privatisation and the removal under IMF pressure of even the most basic social provision in health and education, it seeks to unite forces from different countries who recognise that they must take the battle beyond their own ruling classes. The challenge for the left is that such a diverse range of issues and social forces are hard to organise in a coherent manner to challenge capital on a planet-wide scale. A further issue is what levers are available to them to exert pressure on the dominant global ruling classes. The industrial working class in the advanced countries is more susceptible to the threat of moving production offshore and the ideology of ‘international competitiveness’. In Britain, significant sections of the trade union leadership are being drawn into New Labour’s social partnership project.

Super imperialism?

Some commentators, notably Negri in his book Empire, believe that imperialism has metamorphosed into a more ethereal and less identifiable target for opposition, namely ‘Empire’. [18] Many, such as the Socialist Register editors, argue that classical Marxist theories of imperialism are of little or no use in understanding the current state of global affairs, [19] not least because of the perceived ‘economism’ inherent in the classical model’s focus on the role of monopoly capitalists located within the national borders of the dominant countries.

While it is true that modern imperialism is not presently in a stage of warlike rivalry between national states, this does not mean that inter-imperialist competition could not in the future lead to such rivalry, though recent competition between capitalist powers has been institutionalised within bodies such as the G8. Related to this is the growing importance of trade between local branches of the one hundred transnational corporations that dominate global trade. This means that protectionist pressures (and therefore imperial rivalries) are lessened because raising trade barriers would also damage branches of transnational companies located within the protectionist state’s own borders. Conflicts of interest between transnationals are also negotiated within bodies such as the G8, the IMF or the World Trade Organisation (WTO).

It may be the sense of dislocation between, on the one hand national states and on the other, transnational corporations whose activities are more and more globally integrated, that gives rise to Negri’s idea of a decentred capitalism which is difficult to locate, let alone challenge. Certainly, capitalism can often appear to have slipped the bonds of national states and become global, beyond the reach of control or regulation. It is this belief that led Clare Short and other Labour ministers to call for the strengthening of such bodies as the IMF and the World Bank as the only effective means of controlling the globalised activities of transnational capitalism.

But that ignores the fact that 75 per cent of the 63,000 transnational companies are based in North America, Western Europe and Japan. Ninety-nine of the 100 largest transnational corporations are from the industrialized countries. [20] Nearly half of the top 500 transnationals are US owned. These statistics should not lead us to the conclusion, implicit in Negri, that the US is absolutely dominant even if it does point to the role of the US state in defending and furthering the interests of its corporations. In the last analysis the power at the elbow of transnationals in organisations such as the IMF and the World Bank comes not from the brand loyalty of their customers nor the market dominance but from the ability of their states to protect their interests, if necessary, by military force.

Such reasoning may have influenced Tony Blair in his decision to back Bush’s attack on Iraq. Behind the photo-calls at Gleneagles and windy declarations on ‘saving’ Africa, is the calculation that saving British capitalism requires him to support the military wing of US capital. Just as well then that Bush is a god-fearing Christian like himself.

David Coen is a member of Socialist Outlook’s editorial board.

NOTES

[1] Friedman claims that no two ‘McDonalds’ countries ever went to war. ‘Global is Good’ Guardian G2, April 21, 2005.

[2] See www.g8.utoronto.ca/summit/1975rambouillet/communique.html.

[3] Security was much too important to be trusted to bankers. The Echelon intelligence system was established under a secret 1947 ‘UKUSA Agreement’, which brought together the British and American systems, personnel and stations. To this was soon joined the networks of three British Commonwealth countries, Canada, Australia and New Zealand. Later, other countries including Norway, Denmark, Germany and Turkey signed secret SIGINT (Signals Intelligence) agreements with the United States and became ‘third party’ participants in the UKUSA network. http://www.heise.de/tp/r4/artikel/6/6929/1.htm.

[4] See www.globalissues.org/TradeRelated/SAP.asp#WhatistheIMF/WorldBankPrescription.

[5] 5. The ‘gold standard’ guaranteed the value of the $ by tying it to a pre-set quantity of gold. The original ‘sound’ currency - the £, was also backed by gold. The re-adoption of the Gold Standard by Britain in 1925, led to an even worse recession than Margaret Thatcher’s similarly inspired monetarist assault in the early 1980’s. http://www.dmo.gov.uk/bginfo/bofe.htm.

[6] See Peter Gowan, The Global Gamble Verso, 1999. Ch. 2 & 3

[7] See www.motherjones.com/news/feature/2000/03/fotc20.html.

[8] See http://www.globalpolicy.org/socecon/crisis/2003/07gpfdollar.htm.

[9] See http://msnbc.msn.com/id/7294906/. Note the ‘Caribbean Banking Centres’ includes offshore banking havens such as the Bahamas, Bermuda, Cayman Islands, et al.

[10] For a detailed discussion of these issues, see: Robert Brenner, The Boom and the Bubble; the US in the World Economy, Verso, 2002.

[11] See http://mondediplo.com/1998/11/05warde2.

[12] One of the reasons for the invasion of Iraq was the threat that Iraq and possibly OPEC as a whole would switch their oil revenues from dollars to Euros. http://www.ntu.edu.sg/idss/Perspective/research_050310.htm.

[13] Plaza Accord, agreed on September 22nd 1985 by finance ministers from the world’s five biggest economies - the United States, Japan, West Germany, France and the UK. All countries agreed to intervene in currency markets as necessary to get the dollar down. Perhaps not surprisingly, not all the promises were kept (least of all the American one on deficit cutting), but even so the plan turned out to be spectacularly successful. By the end of 1987, the dollar had fallen by 54 per cent against both the D-mark and the yen from its peak in February 1985. This sharp drop led to a new fear: of an uncontrolled dollar plunge. So in 1987 another big international plan, the Louvre Accord, was hatched to stabilise the dollar. Specific policy pledges were made by Japan to loosen monetary policy. Again the participants promised currency intervention if major currencies moved outside an agreed, but unpublished, set of ranges. The dollar promptly rose. http://www.economist.com/research/Economics/alphabeti.

[14] See for example, Yale School of Management professor and adviser to Nixon, Ford, Carter and Clinton, Jeffrey E. Garten, ‘The Global Economic Challenge’ in Foreign Affairs, Jan-Feb 2005.

[15] See http://www.globalpolicy.org. Part of the motivation for the attack on Iraq was Saddam’s threat to move Iraqi oil reserves from $s to Euros. More recently Venezuela has started to do the same. A hint by the Japanese that they had a similar move in mind threatened a run on the $. See also http://www.globalpolicy.org/socecon/crisis/2003/1119dollarnewlow.htm.

[16] Andrew Balls, Financial Times, April 15, 2005. See Also Immanuel Wallerstein, Monthly Review, July/August, 2003.

[17] International Viewpoint Online magazine, #364 February 05.

[18] See Claudio Katz, ‘Imperialism in the 21st Century’ IV, 345, November, 2002. Also, Finn Bowring, ‘From the Mass Worker to the Multitude’, Capital & Class, Summer, 2004.

[19] Leo Panitch, Historical Materialism, 9, Winter, 2001.

[20] See http://www.corpwatch.org/article.php?id=1728.