1. Introduction
The forces in Washington that support economic neoliberalism (the World
Bank, IMF, US Treasury, US Federal Reserve and associated thinktanks)
and political neoconservatism (the White House, Pentagon, State
Department and thinktanks) are both suffering major legitimacy problems.
These have built up not only in the economic sphere, as is now so
obvious, but also over a three-decade long geopolitical process. The
purpose of these remarks, as requested by WFA chair Samir Amin, is to
provide the background context for discussions on today’s world economic
order.
2. Geopolitical realignment, neoliberal ascendancy and economic volatility
A catalogue of geopolitical changes since the 1970s would emphasise at
least four major developments:
– the 1975 US defeat by the Vietnamese guerrilla army, which reduced the
US public’s willingness to use its own troops to maintain overseas
interests;
– the demise of the Soviet bloc in the early 1990s, as a result of
economic paralysis, foreign debt, bureaucratic illegitimacy and
burgeoning democracy movements;
– Middle East wars throughout the period, with Israel generally dominant
as a regional power from the 1973 war with Egypt (notwithstanding its
2006 defeat in Lebanon); and
– the rise of China as a potent competitor to the West (in political as
well as economic terms) during the 1990s-2000s.
These were merely the highest-profile of crucial political developments,
leaving a sole superpower in their wake, yet one with much lower levels
of legitimacy, dubious military and cultural dominance, slower economic
growth, higher poverty and inequality, and vastly reduced financial
stability over the past third of a century. One critical aspect of the
struggle between classes associated with these developments was the
waning of the Third World nationalist project and a dramatic shift in
class power, away from working-class movements that had peaked during
the late 1960s, towards capital and the upper classes.
Chronologically, other crucial “moments” that helped define the
splintered, polarised political sphere since the 1970s included the
following:
– formal democratization arrived in large parts of the world - Southern
Europe during the mid-1970s, the Cone of Latin America during the 1980s
and the rest of Latin America during the 1990s, and many areas of
Eastern Europe, East Asia and Africa during the early 1990s - partly
through human/civil rights and mass democratic struggles and partly
through top-down reform - yet because this occurred against a backdrop
of economic crisis in Latin America, Africa, Eastern Europe, the
Philippines and Indonesia, the subsequent period was often characterised
by instability, in which ‘dictators passed debt to democrats’ (as the
Jubilee South movement termed the problem) who were compelled to impose
austerity on their subjects, leading to persistent unrest;
– the ebbing of Third World revolutionary movements - in the wake of
transformations in Nicaragua, Iran and Zimbabwe in 1979-80 - was
hastened by the US government’s explicit attacks during the 1980s on
Granada, Nicaragua, Angola and Mozambique (sometimes directly but often
by proxy), as well as on liberation movements in El Salvador, Palestine
(via Israel) and Colombia, as well as former CIA client regimes in
Panama and Iraq, hence sending signals to Third World governments and
their citizenries not to stray from Washington’s mandates;
– after Vietnam, the US’s subsequent ground force losses in Lebanon
during the early 1980s and in Somalia during the early 1990s (followed
by Afghanistan and Iraq in the mid-late 2000s) shifted the tactical
emphasis of the Pentagon and NATO to high-altitude bombing, which proved
momentarily effective in situations such as the 1991 Gulf War
(decisively won by the US in the wake of Iraq’s invasion of Kuwait), the
Balkans during the late 1990s, the overthrow of Afganistan’s Taliban
regime in 2001 and the initial ouster of Saddam Hussein in Iraq in 2003;
– the 1989-90 demise of the Soviet Union had major consequences for
global power relations and North-South processes, as Western aid
payments to Africa, for example, quickly dropped by 40 percent given the
evaporation of formerly Cold War patronage competition (until the
resurgence of Chinese interest in Latin America and Africa during the
2000s);
– the consolidation of European political unity followed corporate
centralization within the European Economic Community, as the 1992
Maastricht treaty ensured a common currency (excepting the British pound
which was battered by speculators prior to joining the euro zone), and
as subsequent agreements established stronger political
interrelationships, at a time most European social democratic parties
turned neoliberal in orientation and voters swung between conservative
and centre-right rule, in the context of slow growth, high unemployment
and rising reflections of citizen dissatisfaction;
– persistent 1990s conflicts in “Fourth World” failed states gave rise
to Western “humanitarian interventions” with varying degrees of success,
in Somalia (early 1990s), the Balkans (1990s), Haiti (1994), Sierra
Leone (2000), Cote d’Ivoire (2002) and Liberia (2003), although other
sites in central Africa - Rwanda in 1994 and since then Burundi,
northern Uganda, the eastern part of the Democratic Republic of the
Congo, Somalia and Sudan’s Darfur region - have witnessed several
million deaths, with only (rather ineffectual) regional not Western
interventions;
– the 2001 attack on the World Trade Center in New York City and the
Pentagon near Washington (followed by attacks in Indonesia, Madrid and
London) signalled an increase in conflict between Western powers and
Islamic extremists, and followed earlier bombings of US targets in
Kenya, Tanzania and Yemen which in turn received US reprisals against
Islamic targets in Sudan (actually, a medicines factory) and Afghanistan
in 1998 and Yemen in 2002; and
– the early-mid 2000s rise of left political parties in Latin America
included major swings in Venezuela (1999), Bolivia (2004) and Ecuador
(2006), as well as turns away from pure neoliberal economic policies in
Brazil, Argentina, Uruguay and Chile, and were joined during the
mid-2000s in Europe by left coalitions in Norway and, momentarily, in Italy.
This list of seminal political moments should not obscure other
important trends that seem to have accompanied them:
– social and cultural change, including postmodernism, the "network
society", demographic polarizations and family restructurings;
– new technologies brought about by the transport, communication and
computing revolutions;
– major environmental stresses including climate change, natural
disasters, depletion of fisheries and worsening water scarcity; and
– health epidemics, such as AIDS, Bovine Spongiform Encephalopathy,
anthrax, drug-resistant tuberculosis and malaria, severe acute
respiratory syndrome and avian flu.
Although these are topics beyond the scope of the current paper, in the
realm of ideology the importance of these polarising events and
processes cannot be overstated. Moreover, given the rise of neoliberal
and neoconservative philosophies (formerly “modernization” and
colonialism), there have been sometimes spectacular counterreactions
ranging from Islamic fundamentalism and resurgent Third World
Nationalism, to Post-Washington Consensus and “global governanceâ” reform
proposals, to global justice movement protests.
3. Economic explosions prior to 2008
Meanwhile, in the sphere of economics, a variety of key moments mark the
rise and then decline of neoliberal policy influences across the world:
– in 1973, the Bretton Woods agreement on Western countries’ fixed
exchange rates - by which from 1944-71, an ounce of gold was valued at
US$35 and served to anchor other major currencies - disintegrated when
the US unilaterally ended its payment obligations, representing a
default of approximately $80 billion, leading the price of gold to rise
to $850/ounce within a decade;
– also in 1973, several Arab countries led the formation of the Oil
Producing Exporting Countries (OPEC) cartel, which raised the price of
petroleum dramatically and in the process transferred and centralized
inflows from world oil consumers to their New York bank accounts
(“petrodollars”);
– from 1973, “los Chicago Boys” of Milton Friedman – the young Chilean
bureaucrats with doctorates in economics from the University of Chicago
– began to reshape Chile in the wake of Augusto Pinochet’s coup against
the democratically-elected Salvador Allende, representing the birth
pangs of neoliberalism;
– in 1976, the International Monetary Fund signalled its growing power
by forcing austerity on Britain at a point where the ruling Labour Party
was desperate for a loan, even prior to Margaret Thatcher’s ascent to
power in 1979;
– in 1979 the US Federal Reserve addressed the dollar’s decline and US
inflation by dramatically raising interest rates, in turn catalyzing a
severe recession and the Third World debt crisis, especially in Mexico
and Poland in 1982, Argentina in 1984, South Africa in 1985 and Brazil
in 1987 (in the latter case leading to a default that lasted only six
months due to intense pressure on the Sarnoy government to repay);
– at the same time, the World Bank shifted from project funding to the
imposition of structural adjustment and sectoral adjustment (supported
by the IMF and the “Paris Club” cartel of donors), in order to assure
surpluses would be drawn for the purpose of debt repayment, and in the
name of making countries more competitive and efficient;
– the overvaluation of the US dollar associated with the Fed’s high real
interest rates was addressed by formal agreements between five leading
governments that devalued the dollar in 1985 (Louvre Accord), but with a
51 percent fall against the yen, required a revaluation in 1987 (Plaza
Accord);
– once the Japanese economy overheated during the late 1980s, a stock
market crash of 40 percent and a serious real estate downturn followed
from 1990, and indeed not even negative real interest rates could shake
Japan from a longterm series of recessions;
– during the late 1980s and early 1990s, Washington adopted a series of
financial crisis-management techniques - such as the US Treasury’s Baker
and Brady Plans - so as to write off (with tax breaks) part of the $1.3
trillion in potentially dangerous Third World debt due to the New York,
London, Frankfurt, Zurich and Tokyo banks which were exposed in Latin
America, Asia, Africa and Eastern Europe (although notwithstanding the
socialization of the banks’ losses, debt relief was denied the borrowers);
– in late 1987, crashes in the New York and Chicago financial markets
(unprecedented since 1929) were immediately averted with a promise of
unlimited liquidity by Alan Greenspan’s Federal Reserve, a philosophy
which in turn allowed the bailout of the Savings and Loan industry and
various large commercial banks (including Citibank) in the late 1980s
notwithstanding a recession and serious real estate crash during the
early 1990s;
– likewise in 1998, when a New York hedge fund - Long Term Capital
Management (founded by Nobel Prize-winning financial economists) - was
losing billions in bad investments in Russia, the New York Fed arranged
a bailout, on grounds the world’s financial system was potentially at
high risk;
– starting with Mexico in late 1994, the US Treasury’s management of the
midand late 1990s “emerging markets” crises again imposed austerity on
the Third World while offering further bailouts for investment bankers
exposed in various regions and countries - Eastern Europe (1996),
Thailand (1997), Indonesia (1997), Malaysia (1997), Korea (1998), Russia
(1998), South Africa (1998, 2001), Brazil (1999), Turkey (2001) and
Argentina (2001) - whose hard currency reserves were suddenly emptied by
runs; and
– in addition to a vastly overinflated US economy (with record trade,
capital and budget deficits) whose various excesses have occasionally
unravelled - as with the dot.com stock market (2000) and real estate
(2007) bubbles - the two largest Asian societies, China and India,
picked up the slack in global materials and consumer demand during the
2000s, but not without extreme stresses and contradictions that in
coming years threaten world finances, geopolitical arrangements and
environmental sustainability.
This, then, is a list of major events that reflect tensions and
occasional eruptions, but never genuine resolutions to the growing
overall problems of volatility that have wracked world politics and
economics, until the moment of September-October 2008, the "Great Crash
of 2008" as it will be known.