Friday, June 19, 2009

End of the American imperium?

In the 1970s some leftist thinkers, vehemently opposed to American imperialism, rallied to a version of the world-systems model advocated by Immanuel Wallerstein. The World-systems thinking is an approach to world affairs that ranks as one of several applications of Neo-Marxism to the study of international relations. However, not all the world-system analysts are Marxists.

One of the basic features of the approach is its view of imperialism, which for many Marxists during the 20th century represented "the highest stage of capitalism," an expression coined by Vladimir Lenin, who also foreshadowed the use of the terms periphery and core to analyze world politics. Wallerstein characterizes the world system as a set of mechanisms which redistributes resources from the periphery to the core or metropole. In his terminology, the core is the developed, industrialized, democratic part of the world, and the periphery is the underdeveloped, raw materials-exporting, poor part of the world; the market being the means by which the core exploits the periphery.

Wallerstein traces the origin of today's world-system to the 16th century in Western Europe, defining it as:

"...a social system, one that has boundaries, structures, member groups, rules of legitimation, and coherence. Its life is made up of the conflicting forces which hold it together by tension and tear it apart as each group seeks eternally to remold it to its advantage. It has the characteristics of an organism, in that it has a life-span over which its characteristics change in some respects and remain stable in others. One can define its structures as being at different times strong or weak in terms of the internal logic of its functioning."

Wallerstein singles out four temporal processes. Cyclical rhythms represent the short-term fluctuation of economy, while secular trends mean deeper long run tendencies, such as general economic growth or decline. In the theory the term contradiction means a general controversy in the system, usually concerning some short term vs. long term trade-offs. For example the problem of underconsumption, wherein the drive-down of wages increases the profit for the capitalists on the short-run, but considering the long run, the decreasing of wages may have a crucially harmful effect by reducing the demand for the product. The last temporal feature is the crisis: a crisis occurs, if a constellation of circumstances brings down the system's structure, which also means the end of the system.

In fact world-systems analysis represents a fusion of the Neo-Marxist literature on development with the historical analysis characteristic of the French Annales School (especially as seen in the work of Fernand Braudel). A related approach is dependency theory, which seeks to explain the subordination of states residing in the periphery. Dependency and world-system theory hold that poverty and backwardness in poor countries are caused by the peripheral position that these nations have in the international division of labor. Ever since the capitalist world system evolved, there has been a stark distinction between the nations of the center and the nations of the periphery.

During the heyday of world-systems analysis, there were two great power blocks: the capitalist West (or “First World”) and the Soviet bloc (or “Second World”). In between the two lay the nations of the Third World, consisting of countries that had traditionally been subject to the hegemonic domination of the capitalist First World. By playing off the two great power blocs, one against the other, these vulnerable nations could gain a measure of freedom.

However, when the Soviet Union collapsed in 1991 this zone of maneuver disappeared. The United States became, in the common view, the sole remaining superpower. For those on the left who decry Western (especially American) domination, this was a terrible setback. Modern applications of the theory have sought to adjust to these changes by describing attempts by the United States and Europe to "colonize" or "absorb" the Newly Independent States of the Soviet Union and Eastern Europe into the New World Order. David Lempert's description of "Pepsi-stroika" builds on the "Coca-colonization" theme. Such rhetorical cleverness does not disguise the underlying problem.

In this situation left-leaning observers hve been repeated seduced into a quest for some countervailing power complex. Currently some are thinking of an alliance of China and India with some of the medium-sized powers, such as Russia, Iran, and Brazil. From the standpoint of the earlier perspective, however, China in particular can no longer be regarded as part of the periphery, but as a vital component of the core.

Economists like Joseph Alois Schumpeter (see previous posting) were always aware of the crises, cyclical imbalances, regional shifts, and of the rise and decline of entire regions and even continents in the process of capitalist development. For Schumpeter capitalism never was a smooth equilibrium process, whose end result is crisis-free growth, full employment, environmental sustainability, and an end to social exclusion. Failure to give proper acknowledgment of this essential volitility is one weakness of world-systems analysis and its successors. For these observers crisis are never temporary, but always precursors of the End, which is immanent. They are tempted to assert that capitalism, or at least US imperialism, is on its death-bed, while in reality we merely witness a transitory illness, as Schumpeter suggested.

Fast forward to the immediate present, June 2009. Chris Hedges has just published a piece, “The American Empire Is Bankrupt” at the left-leaning site Here is a portion of what he has to say.

“This week marks the end of the dollar’s reign as the world’s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That’s over. It is not coming back. And what is to come will be very, very painful.

“Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt. And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America’s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze.

“There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, ‘the most important meeting of the 21st century so far.’

“It is the first formal step by our major trading partners to replace the dollar as the world’s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times. State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose.

"I called Hudson, who has an article in Monday’s Financial Times called “The Yekaterinburg Turning Point: De-Dollarization and the Ending of America’s Financial-Military Hegemony.” “Yekaterinburg,” Hudson writes, “may become known not only as the death place of the czars but of the American empire as well.” . . .”

“This means the end of the dollar,” Hudson told Hedges. “It means China, Russia, India, Pakistan, Iran are forming an official financial and military area to get America out of Eurasia. The balance-of-payments deficit is mainly military in nature. Half of America’s discretionary spending is military. The deficit ends up in the hands of foreign banks, central banks. They don’t have any choice but to recycle the money to buy U.S. government debt. The Asian countries have been financing their own military encirclement. They have been forced to accept dollars that have no chance of being repaid. They are paying for America’s military aggression against them. They want to get rid of this.”

I’m sorry to tell you, messers H. and H., but your rejoicing is premature. The Yekaterinburg conference was a fiasco. It concluded with a meaningless statement that merely gestured towards a move away from the dollar’s dominant role in global commerce. I would have thought that that result was what the conference was supposed to accomplish. There was also an anodyne call for greater representation of developing countries in global financial institution. Russia’s president, Dmitri A. Medvedev, said the main point of the meeting was to show that “the BRIC [Brazil, Russia, India, and China] should create conditions for a more just world order.” Yes, but when and how?

We are told that the four leading countries produce about 15 percent of the world’s gross domestic product and hold about 40 percent of the gold and hard currency reserves. Yet they are not a unified bloc and do not do enough business among themselves to justify a trade alliance. Russia and Brazil export natural resources, while China exports manufactured goods. India bases its growth primarily on domestic demand. As such, India is not as concerned with the status of the dollar and is by no means as intent on scoring ideological points against the United States as is Russia.

In the meantime the dollar has stabilized, and even gained somewhat in relation to the euro. There are no signs that the dollar is yielding its key role as a reserve currency.

In short, obsequies of the American “imperium” in the Hudson-Hedges vein are unwarranted.

Is this outcome even desirable? The countries seeking to wield their power jointly at Yekaterinburg are quite diverse. Were they actually able to topple the American ogre, they would fall to fighting among themselves. They would also close ranks against lesser “developing” countries. Moreover, with China in the lead, one can have no confidence that democratic principles will prevail.

To paraphrase Winston Churchill, American hegemony is the worst possible system--except for all the others. It is likely to endure quite a while longer.

UPDATE (June 22). Here are some pithy comments from Gary Becker (at the Becker-Posner blog):

"Is the World Economic Center of Gravity Moving to Asia?"

"The short answer is "yes", although not immediately, and not inevitably. My reasons for an affirmative answer are partly demographic and partly economic. Asia has a large fraction of the world's population, and their biggest economies are generally experiencing rapid growth as they narrow the gap in living standards with the West.
"To start with the demographics, about 4 billion persons, or almost 60% of the world's population, live in Asia. India and China alone have about 2 ½ billion individuals. Other Asian countries with populations in excess of 100 million are Japan, Indonesia, Pakistan and Bangladesh, while Vietnam and the Philippines each have almost 100 million persons. In addition, Asia's population is growing much faster than that of either Europe or North America, so that 20 years into the future, Asians will constitute more than 2/3 of the total world population.
"By contrast, the whole European Union has only about 500 million people, and the very low birth rates in almost all countries within this Union imply that its population will be falling over time, unless offset by steep levels of immigration. The United States is still growing- partly fueled by considerable immigration- but more slowly than Asia's. As a result, the populations of Europe and North America will decline over time, perhaps absolutely but surely relative to the growing numbers in the rest of the world.
"Large populations alone do not have much impact on the world economy, as seen from the rather minor economic influence of both China and India prior to 1980, or the unimportance to the world economy of Sub-Sahara Africa's 800 million persons. Asia must have rapid economic growth during the coming several decades for it to become the major player in the economic world. Fortunately for them, China, India, Indonesia, Vietnam, and some of the other larger Asian countries discovered during the past 20 years many of the vital ingredients required to produce economic progress.
"These ingredients include first of all a reliance on private companies and competition, and a much smaller role for government direction of the economy. China started along this path in the late 1970s, while India began to throw off its socialist traditions in the late 1980s and early 1990s. Second in importance is the utilization of the world economy to find markets for Asian exports, and to attract foreign capital to finance its rapid industrialization, although India has lagged far behind China in using both world capital and world markets. Most Asian countries also have recognized that human capital is the foundation of modern knowledge-based economies, and they have begun to emphasize investments in education and training.
"As a result of these and related policy shifts, Asia as a whole experienced rapid economic growth during the past 20 years, and has narrowed the gap in per capita incomes with the rich countries of Europe and North America. The major Asian economies are likely to continue to grow rapidly for the next decade, and perhaps well beyond that decade, given how far behind Asian per capita incomes still are, the thirst of most of its population to become rich like the West, and the momentum their economies have built up. I say "perhaps" beyond the next decade because one cannot be sure that leading Asian countries will not shift away from growth-producing policies in the more distant future.
"its rapid growth in both per capita income and population implies that Asia's importance in the world economy will increase quite rapidly. As a result, Asia will become a far more important source of consumer demand not only for products made in Asia, but also for exports from America and the EU. In addition, it is likely that researchers and companies in Japan, China, India, and elsewhere in Asia will generate an increasing share of the world's important innovations.
Greater economic dominance of Asia does not necessarily mean that the United States will not continue to be the world's leader in per capita income and innovation. The development of Asia can stimulate the US and the EU economies by providing greater opportunities for trade, including valuable imports and large markets for its exports, and other advantages from having a more developed and larger Asia. The economic threat to the West is not Asia's development, but it is government excessive interference in the performance of markets, like the automobile bailout in the US, that may choke the very competitive system that created Western wealth, and demonstrated how to become rich to countries elsewhere.
"To be sure, as the economic center shifts to Asia, that continent will expect much greater influence over international institutions, like the IMF and the World Bank, ia greater role in determining common international trade policies, more say on climate policies, and on many other world economic issues. The larger Asian countries will also expect to have a more important role in determining world security and anti-terrorist policies. On security issues and possibly on climate and some other international questions, major conflicts might well emerge between countries like China and India, and the United States and the EU."

All of this strikes me as true, including the dangers of our resorting to protectionism, as in the auto bailout. Becker acknowledges that the US will continue to be wealthy and important, so that we are not confronted with a zero-sum game with regard to Asia vs. US. Europe, however, will probably end up being the loser--the tertium non-gaudens--because of its demographic weakness and inability to form a true union.

In college I dabbled in Asian studies. One thing I learned is that Asian countries are profoundly diverse. India and China, the two poles, are profoundly different. Even the Buddhism that appears to connect them is divided into two types, Theravada (southern) and Mahayana (northern). And Buddhism has disappeared in India. For its part, Confucianism has no purchase at all in India. Internally India is crippled by the burden of caste, complicated by dusty anachronisms inherited from the British Raj, neither of them afflicting China.

Moreover, unpleasant events in recent history divide China from Japan and Vietnam from China, to mention two other fissures.

So while Asia collectively will be much more powerful than the EU, Asia will have similar problems uniting. Indeed, such unity is not even desired in Asia.

As for Russia, Brazil, and the other lesser fry, they will simply be left out in the cold. And of course not all of Asia will be triumphant. Pakistan, Bangladesh, the Philippines, and Indonesia are unlikely ever to carry much weight economically.



Anonymous Anonymous said...

I think the Marxist paradigm may miss the point. The U.S. no longer is an industrial economy, its debt is so large, and its projected deficits due to the Bush era profligacy and the Clintonian shifting the "peace dividend" to private equity and hedge funds, and our government's spending is unfunded into the future.

Also ignored is unfunded mandates from Social Security, Medicare, and Social Welfare -- which also has been "subsidized" by "floating the dollar" to elicit its use as the global "reserve currency," rather than individual country's currencies.

If the dollar is fundamentally devalued to such a degree, that, if any one of these major countries choose a different unit of reserve currency, the deflation of the dollar will be catastrophic. Because that move will have such enormous repercussions has reasonably caused hesitancy, but like the savvy Central Bank of China is aware, it is smarter to take your losses earlier rather than allow them to encroach into future earnings. As the savvy bankers know, unlike D.C., ten cents on the dollar is better than nothing.

Unfortunately, the clowns of the Federal Reserve, Secretary of Treasury, and Council of Economic Advisers are academics, not practically experienced, and their silly theories suggest it is time to "get real."

2:17 PM  
Blogger Dyneslines said...

All the advanced industrial countries have unfunded mandates. The problem of an aging population has become acute in Japan, and China will not be far behind.

So this problem is not specific to the US.

The particular issue I raised is whether it is better for the world to be multipolar instead of unipolar or bipolar (as it was prior to 1991). I think multipolar is an invitation to strife, as Britain saw long ago with its concept of the balance of power--a tactful illusion fostered by Britain's hegemonic status that allowed it to rule the roost.

The BRIC countries are too diverse to rule the roost.

As to what happens down the road, that is anybody's guess. For the present China dare not pull the plug. And before too long the bill will come in for the various parties. Demographically, Russia is a mess. Brazil's fate is uncertain--and so forth.

Obviously, the US is diminished but it is still hegemonic. Yekaterinburg was a fiasco. Other such efforts, at least in the short run, are likely to be merely gestural.

Later on . . . But then as Lord Keynes famously remarked, we'll all be dead.

5:50 PM  

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