[A-List] Michael Hudson: Super imperialism

[jenyang <enyang@xxxxxxxxxxxx>]

At the begining of what I hope will be an informative and useful
debate on the underpinnings of U.S. hegemony, I'd like to thank Michael
and Sabri for providing the opportunity to be part of this discussion on
the A-List.

In this first post in the discussion of Michael Hudson's `Super
Imperialism: the origins and fundamentals of U.S. global dominance,' I
will try to give a brief synopsis Hudson's thesis, highlighting its
strengths as well as those points where I differ with Hudsons, largely
over matters of emphasis and interpretation.

In the second week, I'd like to begin the more detailed discussion of
the book on a chapter-by-chapter basis, begining with Chapter 1, the
Origins of Intergovernmental Debt, 1917-21.

I look forward to a productive exchange on the A-List over the coming
summer.

J.Enyang

*********

In his preface to the second edition of `Super Imperialism' Michael
Hudson reminds us that the US economy currently faces a growing
balance-of-payments deficit, amounting at the time of writing to some
3-400 billion USD and that the U.S. currency is depreciating
significantly in value, particularly against the Euro. The
U.S. Treasury Secretary at the time Hudson was writing the preface to
his second edition in 2002, far from seeing this ballooning deficit
and falling currency as a problem, declared that he was not concerned
and that the situation `did not not call for any action, least of all
on the part of the US.'

Economists tell us that nations and states which -- in conventional
terms -- live beyond their means by running up unsustainable trade and
fiscal deficits will eventually be forced to `adjust', a process that
involves restricting domestic consumption by raising interest rates,
reducing (non-military) spending and currency devaluations -- the
theory being that these measures allow them to rebuild their economies
and finances on the `secure foundations' of export led growth and
their comparative advantages as opposed to the debt financed growth
and consumption which, as the theorists would have it, led to the
unsustainable deficits in the first place.

While the consequences of adjustment are open to debate, there is
little question that most states in the global system do in fact operate
under the perpetual threat of some degree of externally enforced
adjustment. On the weakest actors in the global system, adjustment
is enforced by some more or less brutal combination of capital flight,
pressure by international creditors, usually through the Bretton Woods
institutions or the governments of the Europe, North America and Japan,
through such bodies as the Paris Club
( http://www.clubdeparis.org/en/index.php ).

On more powerful states in Asia and for the larger members of the
European Union, pressure to adjust traditionally comes by such means
as `reviews' by credit agencies, whose hallowed decisions, the
credit ratings, are based on supposedly neutral technical criteria.
That the techocrats and institutions responsible for drawing up and
selecting the criteria are usually based in North America and more or
less embedded in its financial structures, is not generally considered
sufficiently important to be remarked upon.

Given the near universal pressure on states to adjust their
domestic economies the demands of international creditors, financial
institutions and speculators, or face capital flight, precipitous
devaluation and financial crises, we might well ask what lies behind
the nonchalance of the US Treasury faced with the its own ballooning
balance-of-payments  and fiscal deficits. This question becomes
especially sticky if we consider that the US Treasury and Wall Street
rarely miss an opportunity to impose adjustment, whether through the
Bretton Woods institutions, credit agencies, speculators, political
pressure or some combination of each, on any other state deemed to
have violated the strictures of the Washington Consensus.

Some economists, like Stephen Roach of Morgan Stanley have issued
increasingly dire warnings about the `ever-widening disparities in the
world's external accounts,' stating that the US  which `squandering
its already depleted national saving' will not only be `unable to
continue to finance an ever-widening expansion of its military
superiority' but will probably face an adjustment process of sorts
when `prices of dollar-denominated assets compared to those of
non-dollar-denominated assets' fall drastically, as they inevitably
will soon. Roach anticipates `a 20%  drop in real exchange rates and
nearly double that in nominal terms, higher real interest rates, reduced
growth in domestic demand, and faster growth overseas.' These
conclusions of Roach are quoted with approval by Immanuel Wallerstein
who uses them to support his thesis that the chronic fiscal and trade
deficits are  a sign that US hegemony is in irreversible relative
decline: `the market is not all-powerful, but it is not helpless
either. When the dollar collapses, and it will collapse, everything
will change geopolitically. . . . [America] will be a vastly different
U.S. once the dollar collapses. The U.S. will no  longer be able to
live far beyond its means, to consume at the rest of the world's
expense. Americans may begin to feel what countries in the Third World
feel when faced by IMF-imposed structural readjustment - a sharp
downward thrust of their standard of living.'
(http://fbc.binghamton.edu/113en.htm ) Wallerstein adds that the
fiscal recklesness and the `macho militarism' of the present
U.S. administration, far from strengthening the U.S. position, will
further undermine it economically, exacerbating its
balance-of-payments problem and accelerating its as from its position
as the dominant power in the global system.

Michael Hudson's thesis on the other hand is that far from being an an
aberration which might be subject to the normal technical corrective
measures anticipated by writers like Roach and Wallerstein, US trade
and fiscal defits are been built into the very system of international
trade and finance since the late 1960's: `Rather than the American
debtor position being an element of weakness, Americas seeming
weakness has become the foundation of the world's monetary and
financial system' and `to change this system in a way adverse to the
United States would bring down the system's creditors to America,' the
largest of whom are Europe, Japan and China. Against its creditors,
`the US has learned to apply a new, unprecedented form of coercion. It
dared the rest of the world to call its bluff and plunge the
international economy into monetary crisis.'

Since the early 1970's the US debtor strategy of financial domination
has operated  according to the following brief sketch: since most
international transactions are denominated in U.S. dollars, the
chronic U.S. trade deficit necessitates a flood of U.S. dollars into
Europe and Asia, the regions with the largest balance-of-payments
surpluses. The central banks in these regions are obliged to purchase
these dollars, as `failure to absorb these dollars would lead the
dollar's value to fall vis-a-vis foreign currencies, as the supply of
dollars greatly exceeded the demand.' The hands of the European and
Asian central banks ar forced by the fact that `a depreciating dollar
would have provided U.S. exporters with a competive devaluation, and
and also would have reduced the domestic currency value of foreign
dollar holdings.' The foreign hoards of U.S. dollars are then recycled
by the respective central banks who invest them in U.S. treasury
securities, thereby `financing simultaneously the U.S. balance of
payments deficit and the domestic federal budget deficit.'

Thus, where nations had historically been obliged `to raise interest
rates to attract foreign capital to finance their deficits, in
America's case it was the balance-of-payments deficit that supplied
the `foreign' capital, as foreign central banks recycled their dollar
outflows -- that is, their own dollar inflows -- into U.S. treasury
securities.' The virtuous spiral (virtuous from the point of the
U.S. that is) continued as lower interest rates spurred yet further
capital outflows to Europe and Asia. Part of this outflow is
attributable to the dollars spent as `investment' by U.S. corporations
in the process of acquiring key productive sectors of the Asian and
European economies.

Since 1972, the U.S. payments deficit has been `wielded as an
increasingly conscious and deliberately exploitative financial lever.'
Hudson calls this U.S. strategy a `new state capitalist form of
imperialism,' distinguished by the fact that `it is the state itself
that is syphoning off economic surpluses' and that `central banks
are the vehicle for balance-of-payments exploitation via today's
currency standard, not private firms.' Under this system, the central
bank which issues the key-currency (that is U.S. dollars today) has
the unique ability to create its own credit to buy up the assets and
exports of foreign financial satellites.

Hudson shows that the sustainability of U.S. hegemony and its
financial aspects like the function of the U.S. dollar as
international key-currency through which the U.S. finances
simultaneously its balance-of-payments and fiscal deficits, cannot be
regarded as technical questions in the sphere of `pure economics' and
its `corrective measures' in the sense that Roach and, to a lesser
degree, Wallerstein seem to argue. The political dimension to this
reality, exposed by Hudson, is that the industrial powers in
Europe and Asia nor the third  world bloc have barely made the
`feeblest of attempts'  to break out of their subservience to
Washington or their dependency on the trade and financial structures
through which the U.S. appropriates their respective surpluses.
However, while Hudson attributes this to a political failure on the
part of the Europeans and the Japanese particularly, one might also
hightlight the success of the U.S. strategy in building after WWII a
deep and enduring network of international class alliances with
capitalist elites in the defeated Axis powers and with the comprador
classes and clients in the periphery. Indeed, as Hudson notes in his
2002 preface to the second edition, `no serious alternative is now
being proposed to the the American-centred financial sysetm and the
debt deflation its monetarist policies are imposing on debtor
economies outside of the United States'.

Hudson makes a contrast between the modern `state capitalist form of
imperialism' represented by U.S. hegemony and the forms of imperialism
analysed by John Hobson and Vladimir Lenin during the belle epoque of
European capitalism prior to WWI. While the earlier European model of
imperialism was `characterised by the drives  of private finance
capital,' the forms of domination and exploitation that have been
perfected under the Washington consensus cannot be seen as simply an
extension of the drives of U.S. private capital since U.S. policy `has
been shaped by overriding concerns for world power (euphemised as
national security) and economic advantage quite apart from the profit
motives of private investors.' According to Hudson, the U.S. sits atop
a pyramidal exploitative structure whose imperatives are not those of
U.S. private capital so much as those of the U.S. state.

Expanding on these differences, Hudson states that `the early system
[described by Lenin and Hobson] was supposed to grow stronger and
stronger until it culminated in armed conflict, [it] economically
developed the periphery in the process.' In contrast, the windfall of
America's free financial ride have not been invested in productive
capital that yields future profits; the U.S. has `pursued the less
productive policy of maintaining an imperial military and bureaucratic
superstructure that imposes dependency rather than self sufficiency on
its client countries' and the fruits of U.S. exploitation, rather than
being invested in new capital formation are being `dissipated in
military and civilian consumption and in a financial and real estate
bubble.'

While I find Hudson's analysis of the curcuits of international
finance to be sound, and his description of the manipulation of these
circuits as a pillar of U.S. global hegemony to be convincing, there
is reason to take issue with his description of the Washington
consensus as a `new state capitalist form of imperialism' that marks
an historic break with the older European forms of imperialism driven
by the imperatives of private capital as described by Lenin and
Hobson. Further, while Hudson's observation that U.S. hegemony imposes
economic dependency on its clients is well supported, one might take
issue with the view that either European imperialism was historically
more benign in the sense  that it `developed the peripheries'.

Hudson is undoubtedly correct to see the U.S. state and its
institutions as playing a central part in the global political
economy. It is questionable however whether the political and economic
imperialism in which the U.S. state has played such a key role in
building, can be separated from the interests of U.S. private capital
to the degree which Hudson suggests. Indeed, from my own reading of
Hudson it seems that U.S. private capital finds itself singularly
advantaged by the privileged position of the U.S. state in the global
system. To cite but one example: `When Truman insisted in March 1946
that ``World trade must be restored -- and it must be restored to
private enterprise,'' this was a way of saying that its regulation must
be taken away from foreign governments that might be tempted to try to
recover their prewar power at the expense of U.S. exporters and
investors' (Hudson, p.10); thus where Hudson argues that `the
intrusion of the U.S. government into the global marketplace
was often aimed at promoting the interests of U.S. corporations, the
underlying motive was the perception that the regulated activities of
these companies promoted U.S. national interests, above all the
geopolitical interests of Cold War diplomacy with regard to the
balance of payments,' one could again note that the Cold War
diplomacy of the U.S. government  was in large part aimed at ensuring
-- in the words of Truman -- that foreign governments did not `try to
recover their prewar power at the expense of U.S. exporters and
investors.' To make this more immediate, nobody is surprised today
when the contracts for Iraqi `reconstruction' are granted to
U.S. corporations like Brechtel and Halliburton or that these
corporations have representatives at the highest levels in the
U.S. state. Nor was anyone particularly surprised that the Secretary
of the Treasury (and de-facto head of the World Bank and IMF) in the
1990's was a Goldman-Sachs banker.

It is my view, in otherwords, the central role of the U.S. state
notwithstanding, the relationship between the imperatives of
U.S. capital and the policies of the U.S. is probably far more
symbiotic than Hudson makes allows in his book.

Turning to the historic role of European imperialism, Hudson writes:
`In the nineteenth century Britain took on the position of world
banker in no small measure to provide its colonies and dependencies
with the credit necessary to sustian the specialisation of production
by British industry' (Hudson p. 4) and `Britiain governed its empire
not only through its position as world banker, but because as world
banker it took responsibility for insuring an equitable payments
mechanism that worked on long-understood lines that were deemed to be
equitable to its users' (Hudson, p. 386).  How well is Hudson's rather
benign view of the British state as world banker borne out?

Giovanni Arrighi (New Left Review, Mar-Apr 2003) draws a close
connection between Britain's adherence to the gold standard and its
extraction of tribute from the Indian Subcontinent:

   Britain's Indian empire was crucial in two main respects. First,
   militarily: in Lord Salisbury's words, `India was an English barrack
   in the Oriental seas from which we may draw any number of troops
   without paying for them.' Funded entirely by the Indian taxpayer,
   these forces were organised in an European-style colonial army and
   used regularly in the endless series of wars through which Britain
   opened up Asia and Africa to Western trade, investment and
   influence. They were `the iron fist in the velvet glove of Victorian
   expansionism . . . . the major coercive force behind the
   internationalisation of industrial capitalism.'

   Second, and equally important, the infamous Home Charges and the
   bank of England's control over India's foreign-exchange reserves
   jointly turned india into the `pivot' of Britain's financial and
   commercial supremacy. India's balance-of-payments deficit with
   Britain, and surplus with all other countries, enabled Britain to
   settle its deficit on the current account with the rest of the
   world. Without India's forcible contribution to the balance of
   payments of imperial Britain, it would have been impossible for the
   latter `to use the income from her overseas investment abroad, and
   to give back to the international monetary system the liquidity she
   absorbed as investment income.' Moreover, Indian monetary reserves
   `provided a large masse de manoeuvre which British monetary
   authorities could use to supplement their own reserves and to keep
   London the centre of the international monetary system'.
   (Arrighi, p.45).

On the a similar theme, Hudson criticises the U.S. government for its
shortsighted and rigid administration of intergovermental debts owed
to it by Europe as result of arms purchases and reconstruction loans
during and after WWI.

   An enlightened imperialism would have sought to turn other
   countries into economic satellites of the United States. But the
   United States did not want European exports, nor were its investors
   particularly interested in Europe after its own stock markets
   out-performed those of Europe. (Hudson p.5)

Instead, of acting as ursurer to Europe in the inter-war period,
destabilising the European economies, Hudson implies that it might
have chosen to act as it did after WWII when it gave reconstruction
loans to Europe and Japan while allowing them to re-pay these loans
through exports of manufactures to the U.S. The problem with this
scenario, is that Hudson does not make clear the contradictory nature
and effects of U.S. strategy post WWII and during the cold war; by
successfuly rebuilding European and Japanes industrial bases, in large
measure to avert foment and revolution these regions, the U.S. was at
the same time building economic rivals, contributing to the twin
problems of global overcapacity that began to plague the capitalist
economies in the late 1960's and of the U.S. balance-of-payments
deficits that forced the U.S. into choice of abandoning either its
preeminent global position or the gold standard (see Brenner, The Boom
and the Bubble, and Peter Gowan, The Global Gamble).

Differences like the above, over matters of emphasis and
interpretation like this aside, Hudson's book is an exemplary piece of
detailed scholarship and an invaluable resource adding greatly to our
understanding of the historical evolution and current juncture of
U.S. imperialism and world capitialism.

\end{document}