by Francis Lee for The Saker Blog
‘’ … the malaise and disunity within exhausted and fearful Western countries makes it more difficult for them to negotiate together a new international set-up with the world’s rising nations. Also providing them with a convenient foreign scapegoat for the West’s economic troubles the rise of China helps Westerners evade the genuine roots of their economic issues which are closer to home. These problems should be addressed domestically rather than dodged by assigning false blame on other countries … (1)
The Dollar Standard – Structural Anomalies.
To use a description coined by Oswald Spengler, when exactly did the ‘Decline of the West‘ set in? Some would argue that the turning point was the decision of the United States to leave the Gold Standard in 1971. This event saw the mutation of the United States from being the world’s global creditor to being the global debtor. This was a (quite plausible) view put forward by Michael Hudson in his seminal work Super Imperialism first published in 2003. (2)
Hudson argued that the root cause of the US’s decline had been the expenditure on the Indo-China wars and the social and economic profligacy of the then Johnson administration and the Great Society programme, referred to as being the ‘Guns and Butter’ policy. Predictably the policy combination of both had pretty much bankrupted the US. Perhaps the American economists should have heeded Herman Goring’s warning that: ’‘Guns will make us powerful; butter will only make us fat.’’
All was not lost, however. The US used its hegemonic position and financial guile to enforce its ‘allies’ in both Western Europe and East Asia to accept the US dollar as a substitute for gold. US allies were (apparently) reassured that the $ was as good as gold, a form of paper gold. This of course was a form of modern alchemy; no-one of the US’s allies actually believed it (note the pithy comment from the French politician, Valery Giscard D’Estaing, apropos of the ‘exorbitant privilege’ of the Americans conjuring trick.) No matter, the allies had to conform and duly accept green paper for goods and services which they had produced since, unlike the US, Europe and East Asia were running trade surpluses, and the US was then – as today – running trade deficits. A nice bargain for the Americans. But like all things in life and economics there is always a catch.
Which is to say that the permanence of the above arrangements should be seen as having inbuilt limitations with continuing structural instability resulting in serial economic and financial crises during the 21st century; these beginning with the dot.com bubble boom and blow out in 2001, followed by the property bubble in 2008, and now the everything bubble of 2020. Each one of these crises was worse, deeper, and more all-encompassing than the one before. But as any market trader will tell you running an economy in a manner similar to a Ponzi scheme is bound to end in tears, this notwithstanding the fiat-dollar standard.
Moreover, as Professor Triffin pointed out back in the 1960s having a currency which must serve the domestic economy and also one that concurrently serves as a global currency is simply not viable in the long-run; this being due to the tension between its national and global monetary policy requirements. The use of a currency, such as the US$ as the global reserve currency leads to stress between its domestic and global monetary functions. This is reflected in fundamental imbalances in the balance of payments, specifically the current account, as some policy objectives require an outflow of dollars (global requirement) from the United States to the rest of the world, which strengthens the greenback, and making it overvalued, whilst internal domestic requirements need an overall dollar inflow (domestic requirement) which weakens the greenback making US exports cheaper and therefore more competitive. In short you cannot have a currency which is concurrently both weak and strong! It is tricky at best in the short-run, virtually impossible in the long-run
The Golden Age of Social-Democracy 1945-1975
But let’s not get ahead of ourselves. Prior to this the 1945-75 period, which the French defined as Les Trente Glorieuses (Golden Age) was a European (and under its US Democratic variant) a social-democratic system of reformist governments based upon a recognition and popular support of Keynesian economic/social programmes which were established in both ideological and policy terms: this involved an active reforming state in partnership with business interests producing both private and public goods – a social democratic compact of full-employment, low inflation, high levels of investment and wages which became the norm pretty much in the whole of Western Europe, East Asia and the US.
But unfortunately this was not to last. Weaknesses in the system, most prominently stagflation, had become apparent, growth had stalled, and unemployment began to rise. But this only goes to show that capitalism is nothing if not cyclical. The downswing of the Kondratiev cycle ushered in a new political and economic regimen which started in the mid-70s
The winds of change started to blow across the Atlantic during this period with the advent of Milton Friedman and his Chicago University acolytes, the fashionable economic theory of ‘monetarism’ became popularised, a theory which in fact was neither modern nor even plausible, but let it pass. The transatlantic breeze was followed in due course by an economic and political gale. This was the beginning of the end of the social-democratic order. Mrs Thatcher (Conservative Party) had won the 1975 election in the UK, and again in 1979. This was followed in due course by Ronald Reagan (Republican Party) in the US in 1981. Significantly, and not altogether surprisingly, this new political received wisdom started with a speech given by the then leader of the UK’s Labour Party, James Callaghan. Labour party annual conference was treated to a taste of the coming counter-revolution ushered in by the ‘new realism’ which was to permeate the body politic with the neoliberal ideology and eventually win the ideological battle at the beginning of the 1980s. But only because the ‘left’ had been ideologically softened up during the 1970s and duly capitulated.
Please note the following:
‘’We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment.’’(3)
Such sentiments could have come straight from the mouth of any monetarist-cum-neoliberal, politician, academic, or financial journalist of the times. Callaghan the Labour Party leader was merely mouthing the fashionable neo-liberal patter and was eventually superseded by the even more fanatical neo-liberal globalist in the shape of Anthony Blair. The counter-revolution was here, TINA (there is no alternative) was also here, and apparently here to stay. Meantime the left was conspicuous by its absence and continues to be so. But first the powers that were needed to abolish the working classes organizations, and foremost came the offensive against the labour unions. In Britain during the mid-80s, the National Union of Mineworkers and in the US the air traffic controllers – were both smashed as the consolidation process for the neoliberal globalist order was confirmed.
But the cherry on the neoliberal/globalist cake was the fall of the Soviet system and seemingly the triumph of the west. US meddling in the internal affairs of a sovereign state – Russia – were manifest. Particularly during the Yeltsin period ‘reforms’ were overseen in Russia by a group of senior state officials headed by Yegor Gaidar, advised supported and encouraged by senior figures from the US administration, as well as by senior American ‘experts’. Moreover, according to the American scholar Janine Wedel the Russian reforms were worked out in exhaustive detail by a handful of specialists from Harvard University, with close ties with the American government and were implemented in Russia through the politically dominant ‘ Analtoliy Chubais clan’. Mr Chubais is having recorded as having officially engaged foreign consultants, including officers from the Central Intelligence Agency (CIA) to fulfil leading posts in the State Property Committee.
‘’Jonathan Hay, citizen of the US and officer in the CIA was appointed director of the Foreign Technical Aid and Expertise Section and deputy to the chairperson of the committee within the Export Commission. This Export Commission was empowered to review draft decrees of the President of Russia’’ (presumably Yeltsin) ‘’to review drafts for decisions by the government and instructions by the chairman and deputy chairman of the State Property Committee of the Russian Federation on the details of privatisation in various sectors of the economy.’’ (4)
The memories of Strobe Talbott, an American diplomat who served as the Deputy Secretary of State from 1994 to 2001 and assistant to the US President Bill Clinton, left no doubt that the US administration regarded President Boris Yeltsin as a reliable conduit for its interests in Russia. The Neoliberal economists Jeffrey Sachs and Andriy Shleifer, as well as the aforementioned Hay, had a degree of influence over Russia’s economic policy that was unprecedented for a sovereign state. Together with Gaidar and Chubais they formulated decisions that were inserted directly into Presidential decrees.
Thus the neo-liberal global counter-revolution continued to roll on swallowing state after state and nation after nation particularly in Europe, including not only the former social-democratic states and parties, but also ex-soviet republics and Warsaw Pact allies. The onward expansion and march of the EU-NATO, which had become a much enlarged political-military American sponsored aggressive alliance, was to park itself on Russia’s western frontiers from the Baltic to the Black Sea. This process was accompanied by various ‘colour revolutions’ stoked up by the EU, CIA, USAID, and NED in Georgia and Ukraine. In doing so expanding to the borders of the Russian Federation and organizations of the left in the developed world but also in the developing world. Although at this high point of American aggression the momentum began to slow down, particularly when Putin began to repair the damage of the Yeltsin period. Whether Putin – who after all was a member of the dominant centre-right party ‘United Russia’ – was lacking in a more rigorous push-back against both the US imperialists and the domestic oligarchs has been a matter of debate, particularly on the Russian left, is a moot point with no definitive answer. The issue is far from dead, however.
If US policy carried out against a weakened Russia was unconscionable, which it was, in the developing world it was quite simply barbaric. US intelligence agencies role – both overt and covert – were designed to counter any threat to US geopolitical and economic interests. Of course leading the charge was the CIA – an organization which can only be described as being – murderous – but various other clandestine agencies also took part. Foreign Heads of state in the developing world were targeted for ‘silencing’ by one form or another. In terms of importance a short menu of regime change policies were used to stifle domestic political opposition in states which America controlled, or thought that it should control. In order of importance the methodology was as follows. 1. Corruption by bribes and other inducements, 2, Assassination by the, Jackals, CIA killers/assassins, or 3. Subject to military invasion. (5)
A case in point were two cases that John Perkins (see below) was familiar with and to a slightly lesser degree involved. Omar Torrijos a populist and popular leader in the Panama who not only negotiated the return of the Canal with Jimmy Carter, but also embarked on a widespread system of land reform, education, and investment in economic infrastructure as well as literacy campaigns. The same was also true of another Latin American patriot, Jaime Roldos who became President of Ecuador and who pursued similar policies as did Torrijos. This did not go down at all well with the outside actors and their internal agencies. It may or may not have been coincidence that both men died in aircraft accidents within months of each other. I leave the reader to form their own conclusions.
But these events prompted Perkins to question who exactly he was working for; as it turned out this was not what he expected; the organization of which he was a member, and which was almost certainly one of the CIA front outfits. It was then that Perkins decided to quit, wrote his book, and accepted an unsolicited invitation for a meal/drink from an unknown admirer. Let him take up the story.
‘’In late March 2005, less than 5 months after the publication of my book, I flew to New York … as I was scheduled to speak at the UN the next day. I was in perfect health as far as I knew. A man who identified himself as a free-lance journalist had been hounding my publicists for an interview. Because his credentials were sketchy and I was receiving a lot of press at the time, she (Perkins publicist) kept putting him off. But when he suggested picking me up at La Guardia Airport, taking me to lunch, and driving me to an apartment where I was staying with a friend, she consulted with me and I acquiesced.
The gentleman in question was waiting for me as I disembarked. He took me to a small café, told me how much he admired my book, asked some what had become standard questions about my life as an Economic Hit Man and then we drove to my friend’s apartment on the Upper West Side.
I never saw that man again and meeting him would have been an unmemorable event – except that a couple of hours later I suffered severe internal bleeding. I lost about half the blood in my body, went into shock, and was rushed to Lennox Hill hospital. I ended up spending 2 weeks and having 70% of my large intestine removed.’’ Interesting that. Was he poisoned or not, and who by? (6)
Regardless, however the death roll-call of assassination of political leaders in Latin America has not, generally speaking, been the result of old age, typhoid, or yellow fever. Such was the US policy in Latin America. It was also extended to the middle-east with illegal invasions/occupations against Libya, Iraq, and Syria, and the record-breaking occupation of Afghanistan. Then of course come the drone killings. All of which were completely in violation of UN rules. Ruthless doesn’t begin to describe it.(7)
The Counter-Revolution Begins to Stall.
I think it would be true to say that the momentum of the neo-liberal globalization regime reached its high point in the 1990s, but thenceforth began to run out of steam and stall. More than anything else this was due to the economic shocks which were manifest at the time. Neo-liberal/globalization was not living up to all the hype during the period 1980s and 1990s. Wealth was and continues to be increasingly concentrated to the world’s 1% or even 0.1%, income inequality was higher than it has ever been; electorates around the world were not getting what they were promised. The irresistible growth of global debt and the unexpected emergence of new types of parasitic economic viruses, namely, rentier corporations such as Hedge Funds, Vulture Funds, Private Equity – attested to a system which was feeding off the economy and society. Moreover, markets became increasingly concentrated which was both a cause and consequence of increasing oligopolistic and monopolistic integration. Whatever this system was, it wasn’t capitalism, and it didn’t work. Or if it did work it did so only for a small percentage of the population.
Going back to Mrs Thatcher – that soi-disant doyenne of free-market capitalism – together with her political struggles against her enemies in the 1980s. Firstly, the enemy without, the Argentine invasion of the Falkland Islands in 1982, when these British held Islands in the South Atlantic were retaken from Galtieri the Argentine dictator by British forces. Secondly, the enemy within, the British miners’ strike in 1984/85. What the venerable lady did not realise, however, was that the real enemy within was not British coal-miners and third world dictators but the enemy within were us, that is to say the UK’s ruling economic and business class and above all financial establishment ensconced in the City of London, who were all part of the UK economy’s and world’s wrecking crew and still are. These people had no loyalty to their own nation since they were no longer sovereign but under American control; they were members of a cosmopolitan, nationless elite living in an over-world of opulence and power and not responsible to any higher authority except perhaps to their confreres on the other side of the pond.
It was as if capitalism was reverting back to a system of aristocratic land-owning classes who derived their income from a stream of rent from land, monopoly rents, and other forms of rent extraction through the ownership of paper assets which included stocks, bonds, shares, all pumped up with monetary largesse from the central banks, in addition to money lending and debt – all of which enabled those owning these assets to tap into these streams of income in perpetuity. It is like the days of Ricardo and Mill fulminating against the landlord class ‘’who got rich during their sleep.’’ (J.S.Mill)
In any event efforts to pump life into western economies by central bank policies has had the opposite effect. Central Bank low zero or minus interest rate programmes have created zombie economies. In this brave new world weak businesses survive, directing cash flow to cover interest on loans that cannot be repaid but that banks will not write off. With capital tied up, banks reduce lending to productive enterprises, especially small and medium sized ones, which account for a large proportion of output and employment. Firms do not dispose of or restructure unproductive investments. In Schumpeterian terms the creative destruction and reallocation of resources necessary to restore the economy does not occur. As the French playwright Molière noted: ‘More men die of their remedies than their diseases.’ (8)
The Sun Rises in the East.
The backdrop of the Western decline has been the rise in the East, particularly of China and its Belt and Road Initiative (BRI). This has provoked a near hysteria in the West, but the West has only itself to blame. Signs of the deterioration of the post-1945 order was increasingly evident in the 1970s. The long decline from 1971 to 2020, was punctured by recurrent crises – most importantly by the use of the US$ as the overvalued global currency, which hollowed out American productive industry – alongside a long sub-depression in the Atlantic world. Slowing productivity, and the huge expansion of debt, both private and public, along with the serial financial/economic blow-outs after 2000 heralded a sea-change in the fortunes of the Western Economies.
‘’Against the rivalrous background, the shift in the economic balance of power from West to East and especially the rise of China has deeply unsettled the old order. In response, the declining powers have clung, pragmatically, to the existing structures and rules that they established and still oversee, though often clashing with each other in the process. Meanwhile the rising powers, generally excluded from the positions of authority in those institutions, have been, selectively, challenging the old framework. This has included setting up international organisations side by side with existing ones.’’ (9)
Presumably, what Mr Mullan has in mind are the BRI and AIB – Asian Investment Bank – and the Shanghai Co-operation Organisation SCO.
The present situation, both economic and geopolitical seems headed for a fundamental reconfiguration and/or open conflict between the old order represented by the US and its subaltern ‘allies’ and the rising order represented by the newly emerging powers. Today’s impending geopolitical rupture derives from this collision between the great powers. The source of the conflict has been the fact that the centre of wealth creation has shifted from West to East, which is to say from the US to China, whilst the political distribution of power within existing institutions – IMF, World Bank, WTO, BIS, OECD are not in any sense neutral but under de facto American control, and still reflect the world of 1945. This situation is bound to inflame already increasing tensions.
Whether or not this east-west standoff will lead to actual conflict has been noted by historians and various statesmen as a 21st century Thucydides moment. According to the man himself: ‘’What made war inevitable was the growth of Athenian power and the fear that this caused in Sparta.’’(10)
Today we seem to be on the same path as old and new powers clash. But,
‘’Just as Sparta could not always expect to be on top, so America, and the West in general, should not always be the dominant powers. The problem is that a rising China is bringing out the anxieties within America and Europe. West-East animosities are heating up over trade, technology, investment, and geopolitical influence around the world. The EU and US agree in officially describing China not only as an economic competitor but also as a systemic threat.’’(11)
But now adding to the explosive mix is a growing West-West tension between the US and the EU.* This is generally not appreciated but the differences in terms of interests between the EU and the US over, for example, imported hormone treated beef from the US to the EU, is being blocked by the EU. The US in the shape of Trump has lambasted the EU for not paying its share toward NATO, and NATO itself is a US boondoggle as most Europeans know and that it is fanciful in the extreme to imagine that Putin is going to loose his tank divisions into Europe. It was Macron who also called NATO ‘’brain-dead’’, and there is also the intra-EU spectacle of conflict in the Mediterranean involving three NATO countries – Turkey, Greece, and France, hardly a united NATO front.
Add to this the ongoing saga of Nordstream-2 which has occasioned a confrontation between the German/European Atlanticists, an archaic collection of brain-dead relics from the first Cold War, who, like the Bourbons, ‘’have learnt nothing and forgotten nothing’’, and the German (and Austrian) business community whose unit costs will increase if Germany has to buy LNG from the United States. Moreover, the German auto-industry depends massively on its sales to China, particularly for high-end luxury vehicles. In 2017, for example, global sales to China were, BMW, Mercedes-Benz, Volkswagen-Audi group. A trade war would be disastrous for the German auto-vehicle industry, Germany itself, and most of the EU. In normal times these arguments for economic and political co-operation would not be contentious; however, these are not normal times where common sense and reasoned dialogue are waived away by what can only be called mass hysteria.
‘’Thus with international tensions growing, West-West, West-East, North-South the financial dependence on the number 1 global power, on the second and third largest economies is an unprecedented situation of political and geopolitical flux.(12)
I wish that I could be optimistic but the globalist beliefs which are extant among the West’s PTB are such to block any new thinking or constructive political and economic developments. The establishment of the 1945 settlement blinds liberal politicians, journalists, academics, and various other talking heads, to a commitment to the status quo, and to what they refer to as a ‘rules-based’ global order which is anything but ‘rules-based’. But this is itself becoming a serious source of conflict. The vitriol of their responses to the several popular anti-establishment votes – e.g., , Brexit and Trump – is indicative of their lack of adaptation to the domestic consequences of change, as well as the geopolitics of economic rebalancing. But as they say – hope springs eternal. To paraphrase the words of Clint Eastwood playing the maverick cop in ‘Dirty Harry’: ‘Do we feel lucky today’?
‘’The democratic path to peace and prosperity is truly internationalist because it upholds national sovereignty of all countries. National Sovereignty and international cooperation are not the opposites that we are told they are. On the contrary there is much truth in the proverb that ‘’good fences make good neighbours.’’ International cooperation works when we have cohesive and dynamic states and assured national borders. Such nation states are what we need in order to make strong and effective commitments to cross-border collaboration and international harmony.’’ (13)
La Lotta Continua
(1) Phillip Mullan – Beyond Confrontation – p.xxvi
(2) Super Imperialism, The Origins and Fundamentals of US World Dominance.
(3) James Callaghan speaking at Labour Party Annual Conference – Blackpool -1976.
(4) (Mir Tesen 2002 quoted in – Semi-peripheral Russia and the Ukraine Crisis – Ruslan Dzarasov – Russia, Ukraine, and Contemporary Imperialism – p.88)
(5) John Perkins – Confessions of an Economic Hit Man – p.xiii.
(6) John Perkins – Op.cit – p.216
(7) See William Blum – Rouge State – passim. Noam Chomsky – On Western Terrorism – passim.
(8) La Malad Imaginaire 1673 – Act 3, Scene 3
(9) Phillip Mullan – Beyond Confrontation – p.xix
(10) Thucydides – The Peloponnesian War.
(11) Mullan – Ibid. – xxv
(12) Mullen – Ibid – p.147
(13) Mullen – Op.cit.
* See Patrick Armstrong writing in Strategic Culture .Org 13 September – Trump and the Gordian Knot – Year 3.