a tax imposed at the entire globe’s expense.
U.S. economic interest lies supporting a world monetary order that permits it to run even more deeply into debt without foreign constraint. European and Asian attempts to create alternative regional currency clearing blocs accordingly are opposed. Foreign countries are to dollarize their economies, Argentina-style.
A second flowering of seeds planted in the early 1970s has been the use of the International Monetary Fund and World Bank to use Third World, Russian and East Asian debt as a lever to force debtor economies to pursue lines promoted by the Washington Consensus. To promote this objective U.S. diplomats oppose reform of these institutions and their replacement by new global institutions with an economic philosophy that would promote domestic or regional self-sufficiency rather than continued agricultural, financial and technological as well as political and military dependence on the United States.
A third dynamic has been an increasing domination of economic life by government, despite the recent wave of privatizations throughout the world. In fact, these privatizations reflect foreign government obedience to the Washington Consensus. The rhetoric is free enterprise, but the market is to be shaped and defined by bilateral diplomacy with U.S. planners. America would like to mobilize multilateral foreign aid through the IMF and World Bank to continue subsidizing client oligarchies and political parties whose policies serve U.S. interests rather than those of their own nationals. Landmarks in U.S. influence obliging foreign governments to warp their economies to serve U.S. designs include the Plaza Accord with Japan and Europe in 1985 and the ensuing Louvre Accord. These agreements triggered Japan’s Bubble Economy and broke the “Japanese challenge.” The most recent disaster has been the Russian reforms imposed by the U.S. client Yeltsin–Chubais families. They are the antithesis of weak government, acting as they do on behalf of the Washington Consensus. The government in question is simply that of the United States.
A fourth characteristic of U.S. diplomatic strong-arming has been the shift of world trade toward bilateral “orderly market-sharing agreements” in which foreign economies guarantee a fixed or rising market share to U.S. suppliers, regardless of growth in their own domestic production capacity. Dependency policies are to be pursued, not self-sufficiency in food, technology or other vital sectors.
Other tendencies that seemed likely to gain momentum in 1972 have passed their crest and are now being superseded. The New International Economic Order aimed at resisting U.S. initiatives in the 1970s, but was successfully countered by American diplomats in the 1980s. Declining terms of trade for raw materials exporters were reversed temporarily following the 1973 Oil War, and negotiations to stabilize commodity prices favorable to Third World exporters began, but quickly collapsed. The fact that most commodities are now priced in dollars that are depreciating in value aggravates the terms of trade for Third World countries.
No serious alternative is now being proposed to the American-centered financial system and the debt deflation its monetarist policies are imposing on debtor economies outside of the United States. The euro has not been put forth as a political alternative to the dollar, nor has a Yen Area materialized in Asia.
Europe’s tendency to buckle at each new U.S. diplomatic initiative was potentially stemmed by formation of the European Council and coordinated European Community foreign policy preparing for unification in the 1990s. But despite the euro’s introduction there still is much opposition to a full-fledged United States of Europe. Britain is leading the opposition as usual, acting as America’s Trojan horse as it did during and after World War II in reaching agreements with the U.S. Treasury that were adverse to its own interests. Lacking a common power to tax and create credit, the euro is no more on a par with the dollar than is the yen. The European Commission seems to be functioning virtually as an arm of U.S. diplomacy in curtailing the power of governments to take an independent monetary stance from the United States.
The upshot is that although the world seems to be consolidating into five major regions, each with its own north–south tensions, each region is heavily U.S.-centered: 1) a Western Hemisphere Dollar Bloc dominated by the United States, including Canada via NAFTA and Latin America; 2) a Japanese-dominated Yen Area, whose surplus are turned over to the U.S. as reserves kept in Treasury bills, while savings have been turned over to U.S. brokerage firms and money managers following Japan’s Big Bang of 1998; 3) an emerging Mediterranean triangle including the European Community, the Near East and North Africa; 4) the former Soviet Union and associated COMECON economies, which have all but adopted the U.S. dollar as their currency as a result of adopting crippling U.S. economic recommendations; and 5) China, whose application to join the World Trade Organization does not yet indicate just what position it may end up taking.
I have analyzed the system that might have emerged out of these tendencies in Global Fracture (1977). The present book describes how the proposed New International Economic Order originated as a response to America’s aggressive world economic diplomacy, and how U.S. strategy has provided other nations with a learning curve that they may follow in pressing their own national and regional interests.
Michael Hudson
2002
Introduction
It would be simplistic to view the United States’ rise to world dominance as following the European model characterized by the drives of private finance capital. One must do more than merely read John Hobson and V. I. Lenin to perceive the dynamics of U.S. diplomacy over the past eight decades. The United States has achieved its global position through novel policies that were not anticipated by economists writing prior to World War I, or indeed prior to the 1970s.
One lesson of U.S. experience is that the national diplomacy, embodied in what now is called the Washington Consensus, is not simply an extension of business drives. It has been shaped by overriding concerns for world power (euphemized as national security) and economic advantage as perceived by American strategists quite apart from the profit motives of private investors. Although the roots of imperialism and its diplomatic rivalries always have been economic in character, these roots – and especially their tactics – are not the same for all nations in all periods.
To explain the principles and strategies at work, this book describes how the United States’ ascent to world creditor status after World War I resulted from the unprecedented terms on which its government extended armaments and reconstruction loans to its wartime allies. In administering these Inter-Ally debts, U.S. Government aims and objectives were different from those of the private sector investment capital on which Hobson and Lenin had focused in their analysis of Europe’s imperial conflicts. The United States had a unique perception of its place and role in the world, and hence of its self-interest.
The United States’ isolationist and often messianic ethic can be traced back to the 1840s, although Republicans expressed it in a different way from Democrats. (I describe this social philosophy in my 1975 survey of Economics and Technology in 19th-Century American Thought.) Spokesmen for American industrialists prior to the Civil War – the American School of political economy led by Henry Carey, E. Peshine Smith and their followers – believed that their nation’s rise to world power would be achieved by protecting their economy from that of Britain and other European nations. The objective was to create nothing less than a new civilization, one based on high wages as a precondition for achieving even higher productivity. The result would be a society of abundance rather than one whose cultural and political principles were based on the phenomenon of scarcity.
The idea that America needed an ever-receding western frontier was voiced by Democrats motivated largely by the Slave Power’s desire to expand cotton cultivation southward, while promoting westward territorial expansion to extend wheat-growing to provide food. The Democratic Party’s agenda was to expand foreign trade by reducing tariffs and relying largely on food and raw materials exports to buy manufactures from abroad (mainly from Britain). By contrast, Republican protectionists sought to build up a domestic market for manufactures behind tariff walls. The party’s industrial advocates focused on technological modernization in the eastern urban centers.
Whereas the Democratic Party was Anglophile, Republican strategists had a long history of Anglophobia, above all in their opposition to British free