The Fall of the US Empire: Global Fault-Lines and the Shifting Imperial Order - Softcover

Fouskas, Vassilis K.

Softcover

ISBN 10: 0745326439 ISBN 13: 9780745326436

Publisher: Pluto Press, 2012

Synopsis

Whither the US empire? Despite Washington's military supremacy, its economic foundations have been weakening since the Vietnam war - accelerated by the great recession and credit-rating downgrade - and its global authority dented by the quagmires in Iraq and Afghanistan. In this accessible, punchy text, Vassilis K. Fouskas and Bülent Gökay intervene in the debates that surround the US's status as an Empire. They survey the arguments amongst Marxist and critical scholars, from Immanuel Wallerstein and others who argue that the US is in decline, to those who maintain that it remains a robust superpower. By explaining how America's neo-imperial system of governance has been working since WWII, Fouskas and Gökay link the US's domestic and foreign vulnerabilities. The Fall of the US Empire argues that the time has come to understand the US empire not by its power but by its systemic vulnerabilities of financialisation, resource depletion and environmental degradation. Its informed and accessible style will have wide appeal to students looking for an introduction to these issues.

About this title

About the Author

Vassilis K. Fouskas is Professor of International Relations at Richmond University, London and the founding editor of the Journal of Balkan and Near Eastern Studies. He is the author of Cyprus: The Post-Imperial Constitution (with Alex O. Tackie, Pluto, 2009), The New American Imperialism (with Bülent Gökay, 2005), The Politics of Conflict (editor, 2007, 2010) and Zones of Conflict (Pluto, 2003). He is an editor of globalfaultlines.com and a member of the editorial board of Debatte.

Excerpt. © Reprinted by permission. All rights reserved.

The Fall of the US Empire

Global Fault-Lines and the Shifting Imperial Order

By Vassilis K. Fouskas, Bülent Gökay

Pluto Press

Copyright © 2012 Vassilis K. Fouskas and Bülent Gökay
All rights reserved.

ISBN: 978-0-7453-2643-6

Contents

Acknowledgements, ix, 
List of abbreviations, xii, 
Introduction, xv, 
Box: a definition of global fault-lines, xviii, 
1 Global fault-lines, 1, 
2 From Bretton Woods to the abyss of globalization, 1944–71, 33, 
3 The failure of financial statecraft (1), 1971–91, 57, 
4 The failure of financial statecraft (2), 1991–2011, 77, 
5 The power shift to the global East, 111, 
6 Resource depletion and environmental degradation, 133, 
Conclusion, 142, 
Notes, 153, 
References, 176, 
Websites, 188, 
Index, 189, 

CHAPTER 1

GLOBAL FAULT-LINES

The most specific feature of this social group, which separates it from the proletariat and the bourgeoisie alike, is its alienation from economic life. This group does not participate in productive activities or in commercial transactions; its representatives, at times, do not even bother to show up to cash out the bonds with their own hands. This is why we can consider this group as being one that becomes active only in the sphere of consumption. The foundation of the entire life of the rentier is consumption – and the psychology of 'pure consumption' becomes their 'lifestyle'.

Nikolai Bukharin, Die Politische Ökonomie des Rentners, 1914 (Verlag für Literatur und Politik, 1926)

PRELIMINARY OBSERVATIONS

There is some analytical confusion concerning the literature on globalization (a term invented in the West to serve specific purposes), financialization and the state. Here, we confine ourselves to setting out some conceptual and methodological propositions/ clarifications in order to pave the ground for a critique of some of the most influential works on the current financial crisis.

A good starting point could be to clarify the linkages between the domestic and external domains of state activity, what old-fashioned realist theory in international relations (IR) calls 'second' and 'third' (or systemic) 'images'. These two analytical instances of social and political action are intrinsically interlinked, and at the same time relatively distinct, not least because of the differing policy practices, institutional structures and jurisdictions that pertain to each one of them. But mainstream IR does not take into account a 'fourth image', that of the empire-state. This 'image'/category or ideal-type is as significant as the other two categories, not least because it determines the key structures, practices and actions of them. For instance, as we have shown elsewhere, the US empire-state determines the policy and ideational contours of its key Eurasian allies (Europe, Japan, Middle Eastern and Latin American states) through hub-and-spoke arrangements, although the subordinate states in the imperial chain maintain a relative autonomy in order to organize class hegemony and other security interests in their respective domestic/national domains. In other words, subaltern states can question and challenge each other on certain issues, and they can also implement certain policies independently, but all these initiatives cannot challenge the fundamentals of supremacy of the empire-state – its class and security interests – by, for example, allying with a major rival. Having said this, we would put forward at this point three important propositions reflecting contemporary reality and settings:

• What came to be called as neoliberalism/neoconservatism in the wake of the Margaret Thatcher and Ronald Reagan 'revolutions' since 1979 applies, predominately but not exclusively, to the domestic environment of the capitalist state.

• What has commonly been called globalization, a term popularized under the Bill Clinton administration in the 1990s, should be seen as a policy of rampant financialization that, predominately but not exclusively, applies to the external environment of the capitalist state.

• The US empire-state is the lead agency of this Atlantic/ Eurocentric globalization/financialization and neoliberalism, dictating policy to other core, but not all, capitalist states and peripheries via hub-and-spoke arrangements, even if those states and regional blocs maintain a relative autonomy for class, and sometimes security/military, purposes. For example, these states or regions need a relative autonomy from the US hub in order to organize political hegemony over their respective populations. They do not always succumb to US pressure. In fact, at times, they oppose US policies (for instance, the conflict between the European Union and the United States on trade issues).

But globalization did not begin in the 1990s. Strictly speaking, globalization is directly linked to the process of the liberalization of banking and finance that began in the wake of the collapse of the Bretton Woods system in the late 1960s and early 1970s. This breakdown was not the result of a spontaneous collapse of the dollar–gold parity. In fact, it was a politically conscientious decision taken by the Richard Nixon administration as a response to the pressure exercised on the dollar's gold link by the other two caucuses of capitalist accumulation, notably Japan, on the one hand, and France and Western Germany on the other. The move away from the fixed exchange rates regime and the ability of the US state to set the price of the dollar without any obligation to any constraint, initiated new forms of money circulation and profiteering on the basis of what we can call 'financialization via dollarization'. This means that since the end of Bretton Woods, financial operators (individuals, investment banks, hedge funds and so on) could take advantage of the freed money markets and set benchmarks of moving cash and paper around – in the form of securities, derivatives, bonds, gambling in the stock market and so on – on the basis of the floating dollar, now the key global and unfettered reserve currency. This is a key feature of the post-1971 phase of globalization/ financialization. It is interesting to note that Nixon's decision to place the entire global capitalist economy on a dollar standard was immediately accompanied by an agreement with the Saudi oligarchy that oil trade be denominated in dollars. Among others, the aim of this agreement was that the surplus of dollars resulting from petroleum trade be invested in US Treasury bills, which in turn would help the United States to refinance its current account deficit and other debt obligations, including defence spending. This is exactly what has been happening since, the sole difference being that other US Treasury bill buyers became increasingly important, most notably Japan in the 1980s and 1990s and China more recently. Having said this, we would argue that both policies, that of globalization/financialization (predominately systemic) and that of neoliberalism (predominately domestic), were initiated by the Anglo-American alliance, trying to relaunch and revamp the policy envisaged in Bretton Woods and which Richard Gardner had accurately called 'sterling–dollar diplomacy'.

As we know from the work of Adam Smith, Karl Marx and other social theorists, forms of globalization and financialization are innate to capitalist modernity, and so they existed before the 1970s – we will also review Giovanni Arrighi's work later. Yet the period that started in the 1970s assumed different structural characteristics, the most important of which is the high degree of interpenetration of international finance and speculative arbitrage across frontiers and states. The Bretton Woods period was the only time in US imperial history since the 1890s that the US 'open door' policy was somewhat constrained by the gold standard and the fixed exchange rate regime. But since at least 1968, the United States, manipulating the dollar, began unleashing the 'open door' in a most ferocious and aggressive manner, encouraging and fostering high levels of speculation, financialization and both domestic and international institutional engineering towards neoliberal reforms (liberalization of the banking and financial sectors, abolition of capital controls, privatizations, reform of the General Agreement on Tariffs and Trade, GATT, wage and welfare state retrenchment, and so on). The aim was the transformation of the domestic environment of subaltern states after the image of US and UK neo-capitalisms.

Any further attempt at generalization might be problematic, the reason being that financialization in the Anglo-American world of free markets and shadow banking does not have the same functions and institutional connotations as in the Eurozone dominated by Germany, and the Japanese model. When Rudolf Hilferding in his classic Finance Capital (1910) defined finance as the merger of banking and industrial capital, he had in mind the institutional framework of Germanic states and empires (Germany, Austria), not that of Wall Street. According to Hilferding, finance capital should be distinguished from financial capital, the latter being the capital that characterized the epoch of competitive capitalism which Marx wrote about (Marx distinguished between industrial, merchant and financial capital ). But finance capital dominates the era of monopoly capitalism as industrial capital merges with banking capital under the dominance of the banks. Thus, it is vital not to confuse finance capital with financial capital, the former being the fusion of industrial and banking/financial capital, the latter being banks and all sorts of capitalist enterprises/individuals dealing with money.

The problem is that German/Japanese capitalisms (with a substantive institutional and even state presence in commodity markets) operate on a different institutional base than the Anglo-American model (unregulated market and 'open door' primacy). The Anglo-American model still runs the first reserve currency in the world, the US dollar, with UK sterling losing its second position to the euro after its introduction in 1999. We find it, therefore, extremely problematic to try to produce a general definition of the concept of financialization, and wherever we use the term here we intend it to mean the way finance operates in the internationalized markets of – strictly speaking – the United Kingdom and the United States. To put it differently, we use the term financialization as a movement that, stemming from its US–UK core, aims at penetrating other markets across the world. Thus, Anglo-American paper assets, liquid, deals and all sorts of banking practices and regulations of the so-called 'new political economy' penetrate Asian and European markets, contaminating their institutional frameworks, yet this has to do with the effects of globalization, rather than being the source of it.

This is now the time to make clear that profits resulting from financialization should not be confused with profits emanating from material production (for instance, manufacturing). Profits generated from rentier and commercial activities (such as speculative arbitrage in currency markets, interest-based profits and so on) do not stem from production of use values, although they may be invested for such a purpose. Along with classical economists, Marxists and other Marxisants, such as Andrew Glyn and Robert Brenner, we use the concepts of profit, profit rate and average rate of profit only if applicable to material production of use values. In particular, we define as rate of profit the percentage return on capital employed in material production. In this respect, profit and surplus value are forms, expressions of the social relations of production and exchange, but surplus value is only extracted during the process of material production, where direct producers (labour power) are legally dissociated/ dispossessed from the means and objects of their labour.

Unlike mainstream world system theory (for example, Immanuel Wallerstein and others following him), or realist/neorealist international policy economy (IPE) (for example Robert Gilpin and Stephen Krasner), which privilege the process of commodity circulation over material production in the definition of capitalist social orders, and unlike orthodox Marxists that see production determining circulation in the 'last instance', we counter by arguing that material production determines circulation only in the first instance. In this way – as we shall see in more detail later and with a plethora of empirical evidence – we avoid a twin fundamentalism: the fundamentalism of the market relation, whether commodity or money market relation, and the fundamentalism of the relations of production. Having said this, we are very sceptical of the official statistical information we have obtained in the course of research for this book. Thus, the tables and the statistics we have opted to use here are either carefully selected, or are elaborated by authors with whom we share our views about the manner in which real gross domestic product (GDP) and other aggregate data are measured. In any case, we use all quantitative data, statistics, tables and graphs as a way to indicate historical trends, not absolute extractions of solid conclusions and dogmas.

We can now formulate a theoretical proposition upon which we base our main contention in this work: there is a fundamental power shift to the global East (Russia, Brazil, South Africa, Indonesia, China, India), and the reasons for this are to be found not in the current crisis of financialization alone, but in the configuration of the totality of social and production relations that have been emanating from the Anglo-American core since the late 1960s. It is virtually impossible for the United States to regain the power it enjoyed in the 1940s and 1950s by, say, falling back on a path of sustainable growth and prosperity under whatever policy initiative, post-Keynesian or otherwise, inasmuch as the erosion of its productive, industrial, material basis seems to be historically irreversible. The United States may well turn out to be a great power among others, but not the super-power of the 1950s. This erosion of the industrial base of the Anglo-American economy has been accompanied by the outsourcing of labour power to the global East, especially China and India, which increasingly operate through economies of scale that 'could dwarf those currently enjoyed with the US market'. This reflects the potential for sustained growth and determines the money-capital in circulation and the political power embedded in these. Our insistence on the significance of manufacturing is not just an axiomatic 'article of faith', as Giovanni Arrighi put it in his debate with Robert Brenner (see our analysis below). Manufacturing is the ontological social base for the reproduction of life, and it is as significant in modernity, however defined, as it has been in all social systems that preceded modernity, East and West. In short, our claim that the remaking of the imperial order after the tragedy of globalization is under way has its foundations here.

This erosion of manufacturing, in turn, especially the deepening of the Chinese market through economies of scale, creates immense problems for the United States with the management of aggregate demand in periods of crisis, making even partial economic recovery very hard and nearly impossible. In addition, it has enormous repercussions on the ability of the US–UK axis to shape the security contours of the world. Almost three months after we wrote that the United States could not take the lead in the Libyan war because of financial constraints, thus making way basically for France, US Defence Secretary Robert Gates admitted exactly the same in his outgoing speech. He warned that NATO is facing the real possibility of military and security irrelevance, if European powers do not increase and rationalize their defence spending, adding that: 'any successor who advocated a land war in Asia or the Middle East should have his head examined'. Meanwhile, in June 2011, China announced the construction of its first aircraft carrier. In addition, during the 49th Paris Air Show in June 2011, the largest event in aviation and space in the world with over 2,100 exhibitors and nearly half a million visitors, the Chinese manufacturer COMAC (Commercial Aircraft Corporation of China) presented models of its future planes, which compete directly especially with the Airbus A320 and Boeing B737.

We contend that the current crisis should be seen as a systemic crisis of a particular form of capitalism, neoliberal capitalism. It is the outcome of the exhaustion of the (false) responses employed by the Anglo-American elites to deal with the over-accumulation crisis of the 1970s. It is, therefore, the outcome of deep-seated contradictions within the uneven/asymmetrical structure of the global economic system. But it should not be seen as a failure of the global system as a whole. Crises such as the one we are experiencing today are central to the mode of functioning of the global system itself, with the global East assuming pride of place in the international and technical division of labour. New caucuses of capitalist accumulation have been developed, especially in South and Southeast Asia. Furthermore, other combinations of capitalist cooperation – not necessarily between states with close geographical proximity – have emerged, balancing out the declining capitalist core centred on the US–UK axis. We argue that the most defining security characteristics of the present era are not the fall of the Soviet Union or 9/11, but Russia's and China's transition to capitalism, giving a new impetus to global economic competition between regional hubs around large states – the Western core, on the one hand, and the new rising caucuses such as Russia, China, India, Indonesia, Brazil, South Africa and Turkey on the other.

(Continues...)

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Edition details

• Publisher: Pluto Press
• Publication date: 2012
• Language: English
• ISBN 10: 0745326439
• ISBN 13: 9780745326436
• Binding: Paperback
• Number of pages: 216