The Making of Global Capitalism

Posted on Jan 31, 2013

Verso Books

(Page 2)

For most states, any attempt at fiscal stimulus aggravates the fears of bond holders that they won’t be repaid, and the increased rate of interest on the bonds necessary to fund fiscal and trade deficits requires restructuring state expenditure to prioritize interest payments over social expenditures, infrastructure development and public employment - thereby negating the very attempt at stimulus.  This is the less the case for the US itself due to the ‘safe haven’ Treasury bonds represent, the appreciation of which is inseparable from the role of the American state as the ultimate guarantor of global capitalist interests. But the US faces its own policy dilemmas in terms of economic stimulus.  The one immediate measure the US administration could take on its own to quickly revive effective demand, instructing the US housing agencies it directly controls to write off mortgage debt above the current value of existing homes, has been ruled out because it would reduce the banks’ mandated capital adequacy just as they are being required to raise it, and lower their revenues as homeowners made smaller monthly payments. This once again reveals the structural relationship between Wall Street and Washington: what makes such a move impossible is not that the votes in Congress are not there, but that it would threaten the solvency of some of the very large banks who are more than ever ‘too big to fail’ because their failure would trigger the failures of other financial institutions, not only in the US but around the world.

To be sure, the conflict between Congress and the administration, reflecting the internal contradiction which the American state faces between acting as both the state of the United States, and as the ‘indispensable’ state of global capitalism, has certainly worried leading capitalists and officials.  The CEO of Caterpillar, the world’s largest manufacturer of construction and mining equipment, called Washington’s debt ceiling saga in the summer of 2011 not only ‘ugly’ but also ‘a red herring’ which got in the way of Congress’s ratification of outstanding free trade agreements, as well as much-needed domestic infrastructure programs. The Fed’s Ben Bernanke, noting that Congress had ‘disrupted financial markets’, warned that ‘similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.’ Yet although it was precisely on these grounds that the credit rating agency Standard & Poor’s downgraded US Treasury bonds, what was especially remarkable was that the appetite for these bonds, even at record low interest rates, far from abating, increased. Ruminations about an alternative reserve currency went nowhere, especially as the smouldering crisis in Europe’s interbank markets burst into flames, sending the widespread earlier expectations that the Euro would challenge the dollar up in smoke.

Much like Germany in the crisis of the 1970s, even China today explicitly speaks in terms of the US’s unique responsibilities for ‘the world’s economic soundness’ given its status as ‘the world’s largest economy and the issuer of the dominant international reserve currency’. American political leaders were reminded that ‘political brinkmanship in Washington is dangerously irresponsible… It risks, among other consequences, strangling the still fragile economic recovery of not only the United States but also the world as a whole.’ Similarly, the concerns of capitalists in developing capitalist states were that the US might now abandon them. The extent to which they continued to look to the American state to help them restructure their own states was seen when Obama visited India in November 2010, accompanied by the largest ever entourage of US businessmen on such a trip, and told an assembly of Mumbai capitalists: ‘We don’t simply welcome your rise, we ardently support it. We want to invest in it.’ The importance of this to Indian capitalists was made very clear by the co-founder of India’s National Association of Software and Service Companies, who recalled that the US ‘was the one who said to us… “Go for free trade and open markets.”’ This was crucial to his industry’s success in ‘pushing our government to open our markets for American imports, 100 percent foreign ownership of companies and tough copyright laws when it wasn’t fashionable.’ Stressing the continuing importance of the US in overcoming ‘the socialist/protectionists among India’s bureaucrats’, he emphasized that ‘We don’t want America to lose self-confidence… there is nobody else to take that leadership. Do we want China as the world’s moral leader? No. We desperately want America to succeed.’

There were deep structural factors at work here, reflecting not only the extensive networks that link the world’s capitalists to US MNCs, but to US financial, legal and business services more generally. The enormous demand for US Treasury bonds showed the extent to which the world remained on the dollar standard and the American state continued to be regarded as the main underwriter of value. The US Treasury and Fed’s central role in global crisis management – from currency swaps to provide other states with much needed dollars, to overseeing policy cooperation among the G20 as well as G7 central banks and finance ministries – was also confirmed. It was the formerly highly-touted supranational system of European governance – exposed in the crisis for its lack of central authority over taxation, bond issuance and budget approval – which now appeared most dysfunctional for the management of global capitalism.

The eurozone crisis was not something that cheered the American state. The Fed’s provision of liquidity to US financial institutions was undertaken with one eye to their passing that liquidity to Europe through the interbank market. The Treasury was intimately involved in policy discussions, directly as well as through the IMF, with Geithner ‘pressing Europe to take more decisive action’ at the regular conference calls of the G7 finance ministers now taking place almost weekly. It was a sign of ‘the growing concern in Washington at Europe’s handling of its debt crisis’ by the fall of 2011 that Geithner flew over to attend meetings of European finance ministers. Particularly frustrating was the limited extent to which the European Central Bank was prepared to act as lender of last resort. But behind this lay a frustration with the European states themselves. At a meeting in Washington an ECB official was greeted by his American host who ‘brandished the Articles of Confederation, the 1781 precursor to the United States Constitution, to use as an example of why stronger unions become necessary’.

New and Improved Comments

If you have trouble leaving a comment, review this help page. Still having problems? Let us know. If you find yourself moderated, take a moment to review our comment policy.