Super Imperialism. Michael Hudson
its own non-tariff barriers, getting by far the best of an unequal bargain.
The trade theory promoted by the monetarist Washington Consensus neglects the degree to which countries that have let their development programs be steered by the World Bank have fallen into chronic deficit status. Economics students seeking to explain this problem get little help from their textbooks, whose logic ignores the defining characteristics of global affairs over the past thirty years. This hardly is surprising, as the criterion by which the economics discipline calls theories scientific is simply whether their hypothetical and abstract assumptions are internally consistent, not whether they are realistic.9
The tactics by which global credit flows are controlled are a secret that U.S. financial diplomats are not interested in broadcasting. But without such a study being given a central place in the academic curriculum, the minds of central bankers and money managers throughout the world will be inculcated with a narrow-minded view of finance that misses the dimension of national geo-economic strategy, the failures of IMF austerity programs, the dangers of dollarizing foreign economies and the free-ride character of key-currency standards.
The required study would show that in place of the competing national imperialisms that existed before World War I, only one major imperial power now exists. And instead of disposing of financial surpluses abroad as in Hobson’s and Lenin’s day, the U.S. Treasury draws in foreign resources, even as its American investors buy up controlling shares of the recently privatized commanding heights of French, German, Japanese, Korean, Chilean, Bolivian, Argentinian, Canadian, Thai and other economies, capped by that of Russia.
The above view of U.S. financial imperialism differs not only from the traditional economic determinist view, but also from the anti-economic, idealistic (or “national security”) rationale. Economic determinists have tended to neglect the full range of economic and political impulses in world diplomacy, and have limited themselves to those drives directly concerned with maximizing the profits of exporters and investors. This view by itself fails to note the drive for national military and overall economic power as a behavioral system that may conflict with the aim of promoting the wealth specifically of large international corporations.
On the other hand, “idealistic” writers (Samuel Flagg Bemis, A. A. Berle and so forth) have satisfied themselves simply with demonstrating the many non-economic motives underlying international diplomacy. They imagine that if they can show that the U.S. government often has been impelled by many non-economic motives, no economic imperialism or exploitation occurs.
But this is a non sequitur. It is precisely the United States’ drive for world power to maximize its own economic autonomy (whether viewed simply as an expression of “national security” or something more expansionist in character) that led it to innovate its parasitic tapping of the world economy through such instrumentalities as the IMF and World Bank. Its military-induced payments deficit led it to flood the world with dollars and absorb foreign countries’ material output, increasing its domestic consumption levels and ownership of foreign assets – the commanding heights of foreign economies, headed by privatized public enterprises, oil and minerals, public utilities and leading industrial companies. This again is just the opposite of the traditional view of imperialism, which asserts that imperialist economies seek to dispose of their domestic surpluses abroad.
The key to understanding today’s dollar standard is to see that it has become a debt standard based on U.S. Treasury IOUs, not one of assets in the form of gold bullion. While applying creditor-oriented rules against Third World countries and other debtors, the IMF pursues a double standard with regard to the United States. It has established rules to monetize the deficits the United States runs up as the world’s leading debtor, above all by the U.S. Government to foreign governments and their central banks. The World Bank pursues its own double standard by demanding privatization of foreign public sectors, while financing dependency rather than self-sufficiency, above all in the sphere of food production. While the U.S. Government runs up debts to the central banks of Europe and East Asia, U.S. investors buy up the privatized public enterprises of debtor economies. Yet while imposing financial austerity on these hapless countries, the Washington Consensus promotes domestic U.S. credit expansion – indeed, a real estate and stock market bubble – untrammeled by America’s own deepening trade deficit.
The early twenty-first century is witnessing the emergence of a new kind of centralized global planning. It is not by governments generally, as anticipated in the aftermath of World War II, but is mainly by the U.S. Government. Its focus and control mechanisms are financial, not industrial. Unlike the International Trade Organization envisioned in the closing days of World War II, today’s WTO is promoting the interests of financial investors in ways that transfer foreign gains from trade to the United States, not uplift world labor.
Part I
Birth of the American World Order: 1914–46
| 1 | Origins of Intergovernmental Debt, 1917–21 |
One great change . . . – probably, in the end, a fatal change – has been effected by our generation. During the war individuals threw their little stocks into the national melting-pots. Wars have sometimes served to disperse gold, as when Alexander scattered the temple hoards of Persia or Pizarro those of the Incas. But on this occasion war concentrated gold in the vaults of the Central Banks; and these banks have not released it.
John Maynard Keynes, Treatise on Money, Vol. II (London 1930), p. 291
During World War I and its aftermath debts among governments came to overshadow the private investments that had characterized prewar economic relations. Even more important than their size, however, was the geographic concentration of credit in the hands of a single nation, the United States. No prewar economist had anticipated how the behavior of this government would differ from that of earlier creditor nations, or how the new system of intergovernmental debt might differ from that of private international investment.
Before World War I, claims on foreign assets were held mainly by private investors in the form of equity interests or mortgage bonds secured by income-producing assets in railroads, mining companies, banks and other foreign-based corporations. Large government debts were common, but were held principally by private investors, not other governments.
International lending and investment was assumed to be self-amortizing. As foreign wealth increased, investors in mines, factories and other such enterprises would be repaid out of their profits, and in the case of government debts, by growth in the national tax base. Governments borrowed to finance projects designed in principle to increase income, and hence their ability to levy higher taxes out of which their borrowings could be repaid.
The war changed all that. It gave birth to massive claims by governments on other governments far exceeding the value of international private investments, and based on altogether different principles. Paramount among the postwar claims were the Inter-Ally armaments debts, which stood at $28 billion in 1923, plus Germany’s reparations bill, set at $60 billion in 1921. These obligations, totaling some $88 billion – excluding future interest charges that accumulated and magnified the sum – did not find any counterpart in productive resources or in visibly expanding taxing capacity. Postwar claims for payment were to finance the war’s destruction of resources, not their creation. Credits to finance Allied arms purchases, and Germany’s devastation of other countries for which it was now told to pay, were incapable of generating any earnings to amortize the postwar debts. Unlike private investments, they were not secured by productive assets as collateral, nor was their size at all related to the Allies’ or Germany’s capacity to pay out of current national income and foreign trade.
World War I had cost its participants some $209 billion in direct expenditures,1 a consumption of resources that Europe was unable to finance by itself. Prior to April 7, 1917, when the United States joined them, the Allies purchased U.S. arms on credit, running up a $3.5 billion debt in the form of European government obligations held by private U.S. investors. The belligerents also paid for U.S. arms by selling back to American residents nearly $4 billion of U.S. railroad bonds, common stocks and other securities.2 The result was a $7.5 billion