New Age - May 9, 2009
Dropping the curtains on the cold war stage has not brought in stability in a much-propagated unipolar world. It was told by a section of pundits that The World is Flat (a book by Thomas L Friedman, 2005). Competition for accumulation in the centre and near-centre of the world system and the near-complete globalisation by capital has intensified instability that is inherent in the present world order. Gone is the static, stable world created in the period of cold war. Sounds of bombing on the lands of former Yugoslavia torn into pieces that peace.
The cold war bled the Soviet Union white. Military competition with the US together with weaknesses and faults within the post-revolutionary society in the Soviet Union made its collapse. The United States, the surviving super power in the cold war, reaped dividends from that war. The cold war 'increases the demand for goods', as the Harvard economist Sumner Slichter told bankers in 1949, 'helps sustain a high level of employment, accelerates technological progress and thus helps the country to raise its standard of living.... So we may thank the Russians for helping make capitalism in the United States work better than ever.'
The Second World War pulled up the country out of depression and as the war came to a conclusion bounty came in to the country as prize of the war and of the post-war reconstruction in Japan and Europe. The regional wars in Korea and Vietnam played crucial role in creating the 'golden age' in the history of capitalism in that land of 'opportunity'. By that time military-industrial complex made its seat in the US economy well-entrenched and the economy got dominated by the military-Keynesianism.
Then the world economy, as Sweezy put, experienced slow growth and the 'great' globalisation had the Midas touch of monopolisation and finacialisation. The contradiction of huge surplus and no scope for newer investment brought to life speculation with financial instruments that instrumented the present financial crisis. To George Soros, the renowned investor, these are 'fancy instruments for investment'. A market, unimaginable in size, with complex forms of investment including credit-default swaps that made it possible for investors to bet on the possibility that companies will default on repaying loans came into being. 'Such bets on credit defaults', according to Soros, made 'a market of $45 trillion', an amount more than five times the total of the US government bond market, which was entirely unregulated and the risks of such investments were not acknowledged by the mainstream. And, he said: 'the system' was 'built on false premises.' Market fundamentalism, the dominant ideology in the market, relied on the helpful hidden 'hand' of market.
Then the present great financial crisis came, erupting in the United States in August 2007 and spread around the globe. It entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. The global stock-market witnessed $6.5 trillion losses on October 6 and 7, as measured by Standard & Poor's BMI Global, an index of major markets worldwide. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the International Monetary Fund estimated in a recent report. Whatever the amount, it was a trillions-dollar game by the speculators.
There are 'stories' on financial crisis from the other sides of the Atlantic and the Pacific. Iceland was on the brink of bankruptcy. Then a political crisis followed there. Tales of state standing beside bankers were told from the United Kingdom, France, Germany, Japan, Australia, India, Canada, Hungary, Ukraine, China and many other countries. Europe is going through severe economic problems. 'By any measure, the downturn is the deepest since the Great Depression of the 1930s,' the IMF said in its latest World Economic Outlook. 'All corners of the globe are being affected.' Xu Lejiang, chairman of Baosteel, one of China's giant steelmakers, said: The era of rapid growth for Chinese steel 'will soon be remembered as history.'
Time wrote in October 2008: The Chinese stock market has also been hit hard; it was down about 60 per cent in 2008. China's economic growth has been a critical factor for the US because working in tandem, the nations have served as the twin motors of world economic growth: American consumers have snapped up everything that the Chinese have manufactured, from toys to apparel, and in return the Chinese have helped to finance America's deficits by accumulating ever larger amounts of US debt. If their economy hits the brakes, Chinese will buy fewer GM cars, Chinese steelmakers will use less US iron ore, and Beijing may want to use its cash reserves for other purposes, including investment at home to stimulate its own economy rather than to bail out the US treasury. New York Times said in last December: An ensuing movement of China away from the dollar could drastically destabilise the entire US-dominated world economic order.
These tales are now being told and retold all over the media and academia. Now, sections of the mainstream search the pages of Marx. Dr John Sentamu, the archbishop of York, as The Telegraph, UK, of September 24, 2008 reported, denounced the 'Alice in Wonderland world of global finance' and condemned 'the financial traders who made millions by driving down the share prices as "bank robbers and asset strippers"' while Dr Rowan Williams, the archbishop of Canterbury, opined that Marx was right in his analysis of 'unbridled capitalism'.
Along with this hullabaloo in the lands of capitalist 'miracles', 'miracles' that spellbound many of our economists, there are countries with big surpluses that have set up sovereign wealth funds, state-owned investment funds held by central banks. These countries include Abu Dhabi, China, Norway and Saudi Arabia. They aim to diversify their assets from monetary assets to real assets, one of the major developments. These sovereign wealth funds were equal in size, in 2008, to all of the hedge funds in the world combined, were growing and were expected to grow to about five times the size of hedge funds in the next 20 years.
While discussing the 'Four Crises of the Contemporary World Capitalist System', William K Tabb wrote: 'In 2006, for the first time, emerging markets accounted for over 50 percent of global output. If they continue to grow at the rate they have, forecasts project a very different world by mid-century. ... A 2006 study by PriceWaterhouseCoopers projected that in the year 2050 the Chinese economy would be almost as large as that of the United States in dollar terms, and that India would be the third largest. A year later Goldman Sachs researchers predicted China would pass the United Sates in 2027 and India's economy would become larger than that of the United States before 2050. Investment bankers predict Brazil's economy in 2050 will be as large as Japan's, and the Indonesian and Mexican economies will be larger than those of the United Kingdom and Germany. PriceWaterhouseCoopers' researchers expect the "E-7" (Brazil, China, India, Indonesia, Mexico, Russia and Turkey) will be about 25 percent larger than the current G-7 and will be driving the growth of the global economy.'
Assessments made in these predictions may change due to the global economy's lurch into reverse this year and in the coming few years. The changed equation of economic power might bring in powerful factors that might even create greater forces of instability. In 2010, the IMF, in the context of the present financial crisis, has predicted that the US economy will be flat, neither shrinking nor growing while Germany's and Britain's economies will shrink by 1 percent and 0.4 percent respectively. Other countries, such as Japan, Russia, Canada and Mexico, are projected to grow again. And China and India should pick up speed. Tabb says: 'A renewed strength of the dollar could be a reflection of greater trouble elsewhere rather than economic recovery in the United States.' These will reverberate in the arena of world power equation.
China is now much more important with its rise as a world power. With inroads in Africa and Latin America China has become a permanent point of pain in the US establishment. There is concern in the US establishment of a China-Russia-Iran coalition The Time report said: China's huge currency reserves and its vast holdings of US securities make it a key player in the US financial markets. If the Chinese decided to shift any of their money out of the US or the dollar, it would cause a huge upheaval, potentially sending the dollar skidding and hurting markets even further.
India, building up a blue water navy, is an emerging market on the bent backs of millions of poor. The US is making efforts to establish a military alliance with India. At the same time, there is a process of partnership among China, India and Russia. India and China are in need of energy. Tabb wrote in Z Magazine: 'Russia is selling advanced military systems to India and China and cooperating on energy.' He continued: The Shanghai Cooperation Organisation emerging as a counter to NATO has brought together China, Russia, India, Uzbekistan, Turkmenistan and Kyrgyzstan while observer status in the SCO to the US was pointedly denied. The same status has been given to Pakistan, Afghanistan, Iran and Mongolia. The SCO has declared that the US should leave the Middle East.
'Something' is coming up as Beijing Consensus as it appears an alternative to the Washington Consensus. While the former is based on respect for sovereignty the latter uses economic threats and cruise missiles to spread 'democracy' and 'free' market. There is the possibility of a nuclear armed Iran where India has billions of investment in gas and oil. Iran's alliance with Venezuela is not an easy event for the US and Russia is selling arms to Venezuela.
The changing colour of much of Latin America, from white to pink and red, is a challenge to the famous Monroe Doctrine that defined the Western Hemisphere as a US sphere of influence, and the Roosevelt Corollary that reasserted the US's position as protector of the Western Hemisphere. The radical Bolivarian Alternative for Latin America is promoting regional solidarity in Latin America. The Banko del Sur (Bank of the South) has weakened the grip of the IMF and the World Bank in the region. Discussions for a regional monetary system in the region have been initiated. Cuba is not having a sense of US imposed isolation. It is surviving with its increasing friends after passing through the 'Special Period' as its leadership calls the tough time the island - country went through since the demise of the Kremlin empire.
The imperial ambition of Russia, possessing the third-largest hard currency reserves in the world, haunts the US dominated faction of the mainstream. Yuliya Tymoshenko, the Ukraine prime minister for nine months in 2005, wrote in the US ruling elite-journal Foreign Affairs, May-June, 2007: The policy of 'containment' of Russia is still applicable today. Russia straddles the world's geopolitical heartland and is heir to a remorseless imperial tradition. She tells about 'Russia's ... desire to recapture its great-power status at the expense of its neighbours.' It is a tone of anxiety and concern. Russia's foreign policy is troubling for the US. Moscow has given Tehran diplomatic protection for its nuclear ambitions, and Russian arms sales are promiscuous. Putin once spoke favourably about creating a 'gas OPEC'. A number of times one of its neighbours has experienced the power of suspending gas supply. Georgia had a bitter experience with Russian firepower recently.
Northeast Asia is 'one of the most dangerous places on earth' now. Kent E Cadler, a former special adviser of the US ambassadors in Japan, wrote in Foreign Affairs, January-February 2001 issue: 'Only there are the world's three principal nuclear powers (the United States, Russia, and China) and the two largest economic powers (the United States and Japan) still politically and geographically engaged - their interests entwined in a volatile arc surrounding Japan. As other global hotspots moved fitfully toward peace [?], Korea remained locked in conflict. South Korea has long been a geostrategic island... a bridge - to Russia, China.' It has been argued in The United States, Japan, and Asia (ed. Gerald L Curtis) that there are dangers if the United States and Japan go separate ways in dealing with China, a difficult partner to deal with in world affairs, as they did in the 1930s. Financial and economic interests of both the countries may compel them to deal with China separately. The 'loose balance of power' between Russia, China, Japan and the US in 'the Strategic Quadrangle', East Asia, is not going to be permanent with the building up of ocean-going navy by China, its thirst for energy and expansion of trade relations.
Then where does the sole superpower stand on the stage of geopolitical drama? It is an apparent ambiguous position. The sole superpower is the largest empire in the history of humankind. Its arms could reach every corner of the earth with the mightiest machine for war mankind has ever made. But the war machine now finds that the economy that was supposed to support it does not now carry that capacity. Its adversaries and competitors do not match it in terms of fire power but outperform it in the area of economy. Even its mighty machine is overstretched; it cannot twist arms of 'disobedients' as it did decades ago. These are few of the contradictions that made it more adventurous and aggressive. A few of its fight are turning fistfights with Frankenstein and shadows. Its navy has to degenerate itself into marine police at times as it has to engage with pirates. Today it is with a band of pirates near the Somali coast, tomorrow it will be in the Gulf of Mexico.
The war on terror, Sorors argues in his book The Bubble of American Supremacy: The Costs of Bush's War in Iraq, has put the US on a wrong track. This war, to Soros, is responsible for the decline of US political influence and military power. This is only the 'story' in the centre of the centre of the world capitalist system. Soros writes: 'We are at the end of an era.' And, in terms of economy, he says, the US will not be the world power when the current crisis ends. It is a period of considerable uncertainty and turmoil. Hillary Clinton intends to revitalise the mission of diplomacy in American foreign policy and called for a 'smart power' strategy in the Middle East. At her confirmation hearing before the Senate Foreign Relations Committee, she said: 'America cannot solve the most pressing problems on our own, and the world cannot solve them without America.' But, alas! Often the outward face of geopolitics does not provide the sulphurous roaring to the most mighty Neptune, often the tricks of desperation are neutralised by the sharp wind of the north (italicised words are from The Tempest).
There are other actors, minor and emerging, in the drama of geopolitics. They are making moves as their needs compel them and as their capacity permits. These needs and capacity are influenced by factors including economy and historical destiny. There are hotspots, bigger and smaller, in Europe and in other continents that are turning difficult to deal with in this round world. A tumultuous time indeed!
Farooque Chowdhury mainly translates. One of his edited books is Micro Credit, Myth Manufactured
