had exploited its fellow capitalist economies by issuing unconvertible dollars. Russia established the terms of trade with its satellites in a way highly favorable to itself, as the United States has done vis-à-vis Third World countries, although Russia exported fuels and raw materials and the United States grain and high-technology manufactures. But viewed abstractly as a body of tactics, state capitalist and bureaucratic -socialist imperialism seemed to be approaching one another in their mutual resort to intergovernmental instrumentalities. Like the United States, the Soviet Union brandished a military sword at its allies.
As Jacob Burckhardt observed over a century ago, “the state incurs debts for politics, war, and other higher causes and ‘progress’. . .. The assumption is that the future will honor this relationship in perpetuity. The state has learned from the merchants and industrialists how to exploit credit; it defies the nation ever to let it go into bankruptcy. Alongside all swindlers the state now stands there as swindler-in-chief.”8
A century ago national states were permitted to exploit only their own citizens by creating money and credit. The unique feature of this new system is that governments in Europe and Asia, the Third World and the former Soviet sphere may now tap the wealth of their citizens, only to be tapped in turn by the imperial American center, which defies the world’s creditor central banks to burst the international financial bubble and let the most open economies fall into bankruptcy. The U.S. economy remains the most self-reliant and hence readily able to insulate itself from any European and Asian breakdown, but the financial sector remains most highly leveraged, as it was in the 1920s. Suppose that in the 1980s and 1990s, when Japan and continental Europe had built up hundreds of billions in dollar claims on the United States, they had behaved in the way that America acted as creditor in the 1920s vis-à-vis Britain and its other World War I Allies. Japan and Europe would have insisted that the United States sell off its major industrial companies at distress prices, and even the contents of its art museums. This is what America asked Britain to do. It was the classical prerogative of creditor powers. It was how General de Gaulle played his cards in the 1960s.
But neither Japan nor Europe outside of France played their creditor card. Japan behaved as if it were a debtor country, accepting a U.S. request that its government artificially lower interest rates in 1984 and 1986 as its contribution to the U.S. presidential and congressional campaigns. The result was to induce Japan’s economy to run deeply into debt, creating a financial bubble that ended up obliging it to sell off its commanding heights to the Americans, even though the United States was itself a debtor to Japan. The United States thus played both sides of the creditor/debtor street.
The way to break such financial dependency is to do what America itself did as the world’s major debtor: default. This is what Europe did in 1931. But rather than taking this path, Third World countries (following the lead of General Pinochet’s Chile and Mrs. Thatcher’s Britain) have agreed to sell off their public utilities, fuel and mineral rights and other parts of their public domain. They are playing by the classical creditor rules, while America itself plays by new debtor rules against Europe and Asia. The euro for its part has not been created as a political reserve currency, but only as a unit of account to function as a satellite currency to the dollar. Russia’s rouble likewise has been dollarized.
The upshot has been to create a system in which the dollar is artificially supported by central bank capital flows offsetting those of the private sector. Capital movements in turn have become the byproduct of increasingly unstable, top-heavy stock and bond markets. It is these capital movements – mainly debt service for many countries – that determine currency values in today’s world, not relative commodity prices for exports and imports. The classical adjustment mechanism of interest rate and price changes thus have been unplugged by the Washington Consensus.
The world’s need for financial autonomy from dollarization
The Washington Consensus would not be so problematic if America used its free ride to invest in productive capital that yields future profits by putting capital in place. Unfortunately, it 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. This is what makes the international system parasitic, in contrast to the implicitly productive and profitable private enterprise imperialism depicted prior to World War I by critics and advocates alike. Far from being the engine of development that Marx, Lenin and Rosa Luxemburg imagined the imperialism of Europe’s colonialist powers to be in their day, the United States has drained the financial resources of its industrial Dollar Bloc allies while retarding the development of indebted Third World raw materials exporters and, most recently, the East Asian “Tiger Economies” and the formerly Soviet sphere. The fruits of this exploitation are not being invested in new capital formation, but dissipated in military and civilian consumption, and in a financial and real estate bubble.
The early system was supposed to grow stronger and stronger until it culminated in armed conflict, but economically developing the periphery in the process. But the tendency of today’s Washington Consensus is to retard world development by loading down the economies of almost every country with dollar-denominated debt, and to require America’s own dollar debts as the medium to settle payments imbalances in every region. The upshot is to exhaust the system until local economies assert their own sovereignty and let the chips fall where they may.
In today’s world the form of breakdown is likely to be financial, not military. Vietnam showed that neither the United States nor any other democratic nation ever again can afford the foreign exchange costs of conventional warfare, although the periphery still is kept in line by American military initiatives, most recently in Yugoslavia and Afghanistan. The lesson is that peace will be maintained by governments refusing the finance the military and other excesses of the increasingly indebted imperial power.
Yet Europe, Japan and some Third World countries have made only feeble attempts to regain control of their economic destinies since 1972, and since 1991 even Russia has relinquished its fuels and minerals, public utilities and the rest of the public domain to private holders. Its overhead in acquiescing to the Washington Consensus has been to sustain a capital flight of about $25 billion annually for the past decade. Asian and Third World countries have permitted their domestic debts to be denominated in dollars, despite the fact that domestic revenues accrue in local currencies. This creates a permanent balance-of-payments outflow as a result of the privatization sell-offs that provided governments with enough hard currency to keep current on their otherwise bad dollarized debts, but demand future interest and dividend remittances, while the state must tax labor, not these enterprises.
This is a system that cannot last. But what is to take its place?
If foreign economies are to achieve financial independence, they must create their own regulatory mechanisms. Whether they will do so depends on how thoroughly America has succeeded in making irreversible the super imperialism implicit in the Washington Consensus and its ideology.
Financial independence presupposes a political and even cultural autonomy. The economics curriculum needs to be recast away from Chicago School monetarist lines on which IMF austerity programs are based and the Harvard-style economics that rationalized Russia’s privatization disaster.
Money and credit always have been institutional products of national economic planning not objective and dictated by nature. The pretense that monetarist policies are technocratic masks the degree to which the financial austerity programs enforced by the IMF and World Bank serve U.S. trade and investment objectives, and incidentally those of Western Europe and East Asia with regard to the terms of trade between creditor and debtor economies.
A great help to promoting the Washington Consensus has been its control over the academic training of central bankers and diplomats so as to remove the dimension of political reality from the analysis of international trade, investment and finance. Economists assume, for instance, that the gains from trade are shared fully and equally. But in practice the U.S. Government has announced that its economy must get the best of any bargain, just the opposite of the situation portrayed by academic trade theorists and the idealistic assumptions of international law. Although the preambles to most international agreements contain promises of commercial reciprocity, the U.S. Government has pressed foreign