Re: [A-List] Western Europe: Armed And Dangerous

["Anyutka" <annewilliamson@xxxxxxx>]

Sanders Research Associates

Chris Sanders

Servile Politics

February 16, 2004



It is.a truth, indeed a truism, that nothing exists in the public world, and
nothing happens in the public world, apart from the deeds of men.

Walter Karp, Indispensable Enemies, 1993, New York, Franklin Square Press,
p.3



To attribute the results of political action to immanent "laws" is a corrupt
politician's first line of defense.

Ibid. p. 191




One country's terrorist is another country's foreign minister

German foreign minister Joschka Fischer gave a speech over the weekend at
the annual Munich Conference on Security Policy. He created a minor
sensation by proposing a joint EU/NATO "greater Middle East" initiative for
the purpose of eradicating "Jihadist terrorism," which he termed
"totalitarian." Leaving aside the absurdity of Fischer's statement and his
own youthful flirtation with terrorism in Europe during the 60s[i], what
seems to have interested people most about this initiative is that EU/NATO
appears to mean "not controlled by NATO," i.e. the United States.

Fischer emphasised that although his government had opposed the coalition
invasion of Iraq, the important thing now is to make sure that the coalition
"succeeded." This is a useful clarification on the foreign minister's part,
putting to rest any lingering ideas that European opposition to the war was
anything more than trying to preserve a perceived advantage in relations
with Saddam Hussein's regime.

Fischer's Munich gambit represents another step in Europe's attempts to gain
some sort of freedom of action independent of American control. The new
Anglo-French-German rapid deployment battle groups, independent but not
separate from NATO (or is it separate but not independent?) are part of the
same strategy. How independent of the Americans any rapid deployment battle
group that includes the British can be of the Americans is unclear to us,
considering that Britain does not even possess the right to independently
target its own nuclear warheads.



Japan, an American Colony

Japan, which has just sent troops to Iraq (pictured recently armed to the
teeth in the international Herald Tribune at the start of their
"humanitarian" mission), is also doing interesting things. It agreed late
last year to purchase a missile defence system from the US that is nominally
intended to protect Japan from North Korea. Japan, which builds the world's
largest lift vehicle and could produce nukes in a trice if it has not
already done so, is no more threatened by North Korea than Guatemala is, but
Japan is a close American ally. The Patriot system that it is buying is,
like all existing missile defence technology, expensive and unreliable, but
American allies need them. Just ask Israel and Saudi Arabia.

The first point here is that the G7 are basically united in their need for
energy in the age of peak oil, and no one is going to willingly opt out of
cooperation with the occupier of the biggest pools whose aim is, or ought to
be, to become the world's price setter for petroleum. The second point
follows logically from the first. The United States is for the time being in
a position to dictate behaviour to a wide spectrum of states.

For this reason the outcome of the last G8 economic meeting in Boca Raton is
bemusing. Most market journalists and many traders assume that Washington
wants dollar devaluation. As our regular readers know, we think that could
not be further from the truth. Falling against the euro is one thing,
because it does not upset anything fundamental to the ability of the US to
fund its debt. On the other hand, a significant devaluation against Asia
would upset things mightily. The Japan that is sending troops to Iraq and
buying Patriot missile systems is unlikely to stop mobilising its savings
system to fund the American borrowing that is financing increased military
spending.



The American colonial system (beats the British hands down)

The US has ever since the Second World War traded access to its economy for
cheap financing and for political and strategic collaboration. It is a
simple system; the US buys the exports of its allies who lend it the money
with which to make the purchases. The mechanism of the lending at the macro
economic level is also simple: the US simply creates the dollars with which
to settle its net international obligations. It is able to do this because
there are no credible alternatives to American system,[ii] at least
yet.[iii] Rising American net foreign indebtedness is the inevitable
consequence of this ordering of affairs. The US current account deficit
represents the annual increase in foreign borrowing required to keep things
going. And Japan's behaviour in recent years is nothing more or less than
the manifestation of its determination to be a good citizen of the
contemporary international order. Private sector economists tend to focus
naturally on the private sector's demand for imports, but the military is
also an important part of this circular flow of goods and capital. M ilitary
exports from the United States, both arms and the "services" component
(troops based abroad and paid for under nation to nation "status of forces
agreements," i.e. largely by the host nation) have historically been an
important source of US export earnings. Increasingly, this largesse is being
shared with allies in the form of joint venture agreements, particularly on
big-ticket items such as aircraft and missiles and so on. But it includes
less glamorous items too such as the manufacture of berets and uniforms in
China for export to the United States.

Hence the proliferation of international "security" conferences such as the
Munich conference referenced above and hence also the need for a enemies,
the existence of whom is necessary as a fig leaf to cover what amounts to a
complex international system of graft and political patronage. A few moments
reflection makes clear that the conventional way we have of looking at the
international system as nation states is wholly inadequate to understanding
and analysing the real political economy. Countries in such a system are
important for many reasons but less so as entities in their own right and
more so as what we might term tax farms that proved a basis for financing a
seat at the negotiating table. Understood in this way, for example, the
raison d'etre of the Eurozone is very clear, and the confusion of Britain's
international behaviour - not i n the Eurozone and acting as an American
surrogate on the one hand but doing side deals with Germany and France on
the other - becomes easier to understand.



Debt up, wages down

The inflationary implications of such a system are obvious, given the
absence of any check to money creation. The preferred way to keep inflation
in the system from exploding is to get the cost of labour down, the better
to keep profits up. And the way to do this is to promote the idea of one
global economy with freely mobile capital, trade, and all factor inputs,
most importantly including labour. It is no accident that US unit labour
costs from 1990 have fallen further and longer than in any period since the
Second World War. The drive to push the cost of labour down is
international, and embraces most, if not all, of the industrial world. In
the EU and in Japan as well as the United States, workers are being forced
to bear the cost of adjustment to the post Cold War order. There is
certainly not much national fellow feeling here. And it is likewise no
accident tha t over time the countries that have been the most ardent
proponents of free trade are those like the United States that have had
financial and political structures heavily dependent on the ability to
generate debt.[iv]



The result of all this is expressed in the formula: debt up, labour costs
down.[v] There is nothing new about this; it is a time-tested and true
management technique. Indebted labour is supplicant labour and more
dependent on favour and consequently harder to organise. And holding wage
growth down to approximately the level of inflation (the measurement of
which is both arbitrary and controlled) ensures that profits are monopolised
by those that own the system. Thus, the importance of internationally free
labour markets is clear. Not only mu st workers be allowed to move across
borders[vi] but companies must be allowed to locate production wherever the
cost of labour is lowest. This replicates on a global scale an old fault
line in American politics. Since almost the beginning of the original
colonisation of the eastern seaboard, a division has existed between the
treatment of labour in the south, and later the west, as opposed to the
north and central parts of the country. In the latter, unions grew (and were
quickly controlled) while in the former "right to work" laws prohibiting
union closed shops ensured that wages stayed low. In the 60s, 70s and 80s
company after company migrated south and west precisely because of this,
contributing greatly to the increasingly "conservative" and right wing drift
in American politics. This has been nothing so much as a migration of
interests, gutting in the process the tax base of the old north east and
north central industrial and manufacturing heartland of the country, and
proving in the process that there is no such thing as community in the
division of profit, only interest. And now, what was done regionally is
being dome nationally.



Diana Farrell, thought slave

This leads to some astonishing circumlocutions on the part of economists
paid to rationalise a simple exercise in monopolising profit. Diana Farrell,
director of the Mckinsey Global Institute, and co-author of Market Unbound:
Unleashing Global Capitalism, wrote an admirably well written if
conventional apologia for monopoly capital's treatment of labour in the
International Herald Tribune of February 6th. She was presumably
straight-faced when she wrote, "For example, firms pass on savings to
consumers through lower prices and to investors through higher profits." I
must confess that I at least found it impossible to keep a straight face
when readin g this risible piece of puffery, but then she works for the
owners, not the workers. Much more interesting was the reaction of readers,
who were not fooled for an instant. Investors wiped out in the stock
collapse of 2000 and similar pump and dumps may take issue with Farrell,
never mind that firms over the last thirty years have distributed less and
less of their earnings stream in the way of dividends. Owners have far
preferred to control the price action of the stocks themselves, with the
entire market today being run more closely in line with Jay Gould's
management of the Erie Railroad in the 1860s and 1870s. As for workers, the
IHT reader who, responding to Farrell's piece, wrote, "We forget at our
peril that a country is more than its economy," was only speaking truth.



Worried Greenspan

In his testimony before the House Committee on Financial Services on
February 11, Federal Reserve Chairman Alan Greenspan delivered an
astonishingly belligerent diatribe on behalf of free markets. "Creeping
protectionism must be thwarted and reversed," intoned the Chairman. He made
it clear that the reason for this is the large and growing US dependence on
foreign finance. If anyone is in a position to know, it is him. The US
Treasury this week managed to float another of its stupendous bond offerings
at near record low yields largely thanks to the Chairman's timely address to
the House committee on Wednesday just bef ore the 10 year note auction the
following day. But more important, it is the Asian countries that the US is
transferring jobs and wealth to that are recycling that wealth back to the
US by buying Treasury and agency debt.[vii] Globalisation has already
occurred and Greenspan is right to worry about the political backlash, for
it will surely come. The Diana Farrells of the world can vaporise all they
like about the impersonal economic forces at work that make all this
"inevitable," but Greenspan certainly understands, as do we, that at bottom
it is men who act and it is men who react.

In other words, they will fight.



Chris Sanders





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[i]Fischer's early political career as a leftist tough has bee written about
extensively in Paul Berman's New Republic article The Passion of Joschka
Fischer. Also see BBC Online, Joschka Fischer's three lives.

[ii]The Communist bloc offered an alternative for many decades. Its collapse
made possible the creation for the first time in history of a closed global
monetary system. This significant development is recognised mainly in the
breach and by the creation of the euro as an embryonic competitive
alternative to the dollar system. The massive benefits conferred on the
country at the centre of the system are a cause of international instability
and conflict. The problem is brilliantly described by Robert Skidelsky in
the third volume of his biography of John Maynard Keynes, Fighting for
Britain.  Britain enjoyed the ability to borrow cheaply from its colonial
"allies" Egypt and Britain by creating the "sterling area," which simply
meant that they had to keep the proceeds of their exports to Britain in
sterling. This was completely unworkable because of the existence of the
dollar alternative backed by a substantial American gold reserves and a huge
industrial base. The book is basically the story of Keynes's losing fight to
keep British financial and economic independence from the Americans.

[iii]Obviously the euro represents an attempt to create such an alternative.

[iv]Venice, Holland, and Britain are the most obvious examples to come to
mind.

[v]Current reported consumer price inflation in the United States is well
below the rate of wage and salary growth, and that benefits compensation
growth rates are much higher still. This has led some economists to opine
that labour is doing quite well enough. As the chart shows, however, the
real growth rate of household debt has grown much faster than the wage and
salary income that services it. As we have pointed out recently (Commentary,
February 2, 2004) it is cash compensation that really counts; swapping work
for paper promises is a poor second. Household's balance sheet s have
deteriorated greatly and are now much more sensitive to any rise in interest
rates.

[vi]Immigration has been used since earliest colonial days in the US to
render organised labour impotent. Today it is impossible to take seriously
government protestations about controlling the tide of workers from Mexico
and Central America into the United States. Likewise in Britain, however
much anti-immigration feeling there may be, the government still is pushing
for a relaxation of immigration from Central and Eastern Europe.

[vii]As the following chart shows clearly, the US debt market has become
highly dependent on Japanese and other Asian official purchases of Treasury
and Agency debt. With current projections forecasting deficits into the
indefinite future, this dependence can only be expected to increase.