Triumphing toward International Disaster: The Impasse in American Grand Strategy

by Peter Gowan

ABSTRACT : This article situates the Bush administration’s new strategy in the historical context of the international capitalist order established by the United States at the end of the 1940s and argues that this order, though extraordinarily successful for some decades, is now in crisis. The unique capitalist international community that the United States established under its primacy revived international capitalism while preventing geopolitical rivalries between the main capitalist centers. The leading sectors of U.S. business have become dependent on the preservation of the unipolar primacy order for its own economic security and expansion while the American domestic political economy has failed to revive as an industrial economy meeting the rules of international economics, exhibiting growing problems with current account deficits and rising levels of debt. To manage the resulting tensions between the orientation of American transnational sectors and problems in the domestic American political economy, the United States has developed an international monetary and financial regime that is destabilizing and dependent upon the preservation of American political primacy over the capitalist world. But the Soviet collapse has destabilized the primacy system, while the dominant sections of American capitalism are committed to rebuilding it. The Bush administration is seeking to rebuild U.S. primacy, using U.S. military dominance. But this carries very high risks.

The turn of American global policy undertaken by the Bush administration poses sharply fundamental questions about the nature of the American state, about the impulses emerging from it, and about its relationship with the rest of the world. This article seeks to explore these issues by trying to characterize the evolving shape of American capitalism as a social system (both political and economic), analyzing its extraordinarily successful organization of the capitalist world during the cold war, and then attempting to grasp the challenges it has faced in the recent past in attempting to find a fit between its own shape and the political and economic structures of the rest of the capitalist world. 1 These explorations thus give us the possibility of assessing the new Bush strategy. The paper concludes by exploring the likely consequences of the Bush strategy.

Part 1: The Configuration of American Capitalism

The Distinctive Features of the American State

Each capitalist society is politically organized in a specific way since its state has been shaped by distinctive social power struggles involving the various main classes in its internal and external environment through time.
The twentieth-century American form of state organization has been strikingly original: a unique formation that could be called a business democracy — a state with universal suffrage, which celebrates and accepts the world view and values of only one class, the business class, and which gives the business class extraordinary sway over public policy formation. 3 Other capitalist states have sought political cohesion by claiming the supposed ethnic unity of all classes or by claiming to be heirs of an ancient civilization, by dressing up in the garb of ancient monarchies or aristocracies or by claiming to be a social partnership state of labor as well as business. But not the United States. The American dream is one-dimensional: business success. The core American value is freedom-defined-as-free market opportunities. Both the mainstream American parties celebrate these values of the American business class.

And these values reinforce and are reinforced by the institutional mechanisms and processes of the American political system. Thus, business groups directly control the American party system and the other institutions of the American state in a more or less unmediated way. Candidates in elections are funded by business as are the mainstream parties. The serious work of policy analysis, debate, and formulation is carried out in think tanks funded by big business. And the state executive is directly staffed and managed by leaders of the business class — inners-and-outers from the corporate world, corporate law, and the financial sector — as well as by specialist intellectuals from the think tanks funded by big business. 5 The origins of the characteristic contemporary forms of this American business state seem to lie in the McKinley election of 1896, when the farmer-populist movement’s candidate, William Jennings Bryan, was defeated. McKinley’s business coalition then embarked upon vigorous efforts to restructure American politics to shore up business dominance, demobilizing other major classes. 6 At about this time also the formation of institutions for concentrating strategic policy debate in business-class institutional networks distinct from the electoral and party system sphere emerges, along with efforts to systematically select and train political-managerial leaders for the business class — an informal but very powerful “establishment.” 7

This character of the American state must, of course, be maintained through a constant struggle, which involves both meeting and defeating the aspirations and demands of other social classes through methods and policies that at least officially affirm the principles of the American state. Even the New Deal was no more than pragmatic amendments rather than a new principle of social organization. And throughout the postwar period the business state principles have been maintained, despite the momentary wobble of Lyndon Johnson’s Great Society idea of the late 1960s, an attempted amendment quickly swept away in the mid 1970s as large segments of the business class embarked on a long drive to fund and promote conservative political ideas and policy solutions. Indeed this great revivalist movement made a decisive breakthrough with the Reagan presidency and has continued to gain in social and political strength right up to the present. The Clinton presidency presided over an extraordinarily triumphant affirmation of the capitalist business state, on a scale probably not seen since the 1920s. And despite all sorts of strains in the American polity at the present time, the political form of the American state at the level of its basic business values and institutional structures faces no serious challenge.

Of course, it is far from obvious that a state devoted officially to the social power and values of the business class and openly and directly controlled by the leaders of that class is actually the optimal form of capitalist state. It can, instead, become a state devoted to the immediate gratification of the desires of business people to the exclusion of all the other considerations that a capitalist state should concern itself with. There are plenty of symptoms of this kind of problem at the present time. The emergence of leaderships capable of resisting immediate gratification of the business class in the name of longer-term goals that require reorganizations unpalatable to powerful business coalitions is very difficult in the United States. 8

There are other distinctive features of the American state. The great power of Congress and loose party disciplines have facilitated the political integration of very diverse regions, while making the control of foreign policy by the executive — typical of other advanced capitalist countries — much more difficult. Another distinctive feature is the large role played by various kinds of Christian religion in American civic life and in American politics — perhaps a compensating mechanism for the narrowness of an official state ideology of individual enrichment through action in the market.

At the same time, the American state of the late twentieth century was shaped not only by the outcome of domestic social conflicts, but also by the way in which it related to other social forces on an international scale as the leadership of the United States built its dominance over the capitalist world after 1945.

The Cold War Alliance System as a Positive American World Order

The forms of American state leadership of the capitalist world during the cold war are conventionally viewed as being a by-product of the polarization between the capitalist world and the Soviet Bloc and Communism. Yet cause and effect were more complicated than this conventional account suggests.

Controlling the Geopolitical Orientations of Allies

Antagonism between the USSR and the United States was surely absolutely inevitable because these two centers represented alternative, rival modernization projects. America’s character, after all, as a private business-led state championing freedom-defined-as-free market opportunities was bound to be deeply hostile to Communism, even though both systems did emerge from some common Western modernist historical sources. And the capitalist classes of Germany and Japan as well as of other Eurasian capitalisms were also bound to be hostile to Communism. But as the name cold war implies, the polarization took a specific, militarized form and this was far from inevitable: it was consolidated only at the end of the 1940s, especially with NSC-68 in 1950, with its insistence on tripling the U.S. military budget and thus exerting maximum military pressure on the USSR and its allies. Some have viewed NSC-68 as merely a quantitative intensification of preexisting trends expressed by containment. 9 But as George Kennan (architect of the Containment Doctrine but strong opponent of the Acheson-Nitze project, see below) saw at the time, this misses the point. 10 The intensification turned quantity into quality. It mounted a huge military challenge to the Soviet Bloc, impelling the USSR to adopt the only deterrent option available to it at the time: the threat to overrun Western Europe. This, in turn, bound the West European allies, utterly dependent on U.S. strategic nuclear forces, to the United States, justified an integrated military command structure, mobilized the American population for a permanent commitment of resources to American world leadership and provided the American economy not only with a strongly militarized component but with a brand of military Keynes­ianism after the serious recession of 1949. NSC-68 also ensured that anticom­munism and anti-Sovietism would become what Zbigniew Brzezinski has called a quasi-­religious ideology of the West cementing the new American-centered world order. 11

It remains standard to explain this militarized cold war as the result of the U.S.-Soviet conflict. Yet Paul Nitze, the author of NSC-68 and Dean Acheson’s key lieutenant in organizing the militarized cold war, disputes this explanation. In an essay called “Coalition Policy and the Concept of World Order,” which he wrote for a book by Arnold Wolfers at the end of the 1950s, 12 Nitze criticized the idea that America’s postwar alliances were negatively generated by the Soviet threat. He accused John Foster Dulles of being “sometimes but not always a member” of that negative school that saw the U.S. alliances as mainly generated by the conflict with the USSR. Nitze stressed that there was a second school of which he was a member. This school believes that “United States foreign policy is, or should be, positive and not merely negative and defensive. It maintains that United States interests and United States security have become directly dependent on the creation of some form of world order compatible with our continued development as the kind of nation we are.” And he explained that the construction of this positive world order began in 1946 and continued until it was completed in 1953.

Building the new world order centered on the construction of a system of regional alliances. The distinctive positive feature of these alliances lay in the fact that they gave the United States direct command of the geopolitical orientations of all the other main capitalist centers and indeed of their national security policies. This was historically unprecedented. It unified the geopolitics of the entire advanced capitalist world under U.S. leadership. The means for establishing this positive order was the militarized confrontation with the USSR. The encirclement and the build-up of military pressure on the USSR at the start of the 1950s gave Moscow only one effective deterrent at the time: the threat of conventional retaliation against Western Europe and Japan. This in turn made these centers entirely dependent for their security upon American (nuclear) strategic services. And in return for offering such protective services, the United States took command of the external orientations of the states concerned, especially West Germany and Japan.

On this reading, the militarized confrontation with the USSR should be seen as the means for constructing a positive American world order. Later, of course, the USSR acquired its own strategic nuclear capacity, but since West Germany and Japan were not allowed their own nuclear weapons, they still remained dependent on U.S. tutelage.

Nitze’s view has the merit of being, so to speak, from the horse’s mouth and it also corresponds to what we now know about perceptions and motivations among American leaders when the alliance system was being constructed. As Melvyn Leffler has shown, none of these leaders believed the Soviet Union was planning an attack against the West. 13 Nitze’s suggestion that the militarized cold war system should not be seen as an effect of the Soviet confrontation seems well founded. With the collapse of the Soviet Bloc and with the Chinese turn toward capitalism, the Nitze thesis has passed what we might call an empirical test. These new events have not led the United States to dismantle its military alliance systems at each end of Eurasia; they have led, instead, to attempts to revitalize them.

Entering the Political Economies of the Allies and Homogenizing Their Internal Political Systems

But if U.S. control over the geopolitical orientations of the other main capitalist powers was one result of Nitze’s positive, U.S. alliance-based world order, Huntington points to another. The way the United States used the alliances to open up the allies’ societies to U.S. organizations. An important article by Samuel Huntington in 1973 gives us a sense of the social substance encased within the U.S.-led postwar security alliances. As he put it:

Throughout the two decades after World War II, the power of the United States government in world politics, and its interests in developing a system of alliances with other governments against the Soviet Union, China and Communism, produced the underlying political condition which made the rise of [business] transnationalism possible. Western Europe, Latin America, East Asia and much of South Asia, the Middle East, and Africa fell within what was euphemistically referred to as “the Free World,” and what was in fact a security zone. The governments of countries within this zone found it in their interests: (a) to accept an explicit or implicit guarantee by Washington of the independence of their country and, in some cases, of the authority of the government; and (b) to permit access to their territory by a variety of U.S. governmental and non-governmental organizations pursuing goals which those organizations considered important.…The “Pax Americana,” as I.F. Stone put it, “is the ‘internationalism’ of Standard Oil, Chase Manhattan, and the Pentagon.” 14

It is worth noting an important variation here in U.S. policy. In the early days of the alliances, the emphasis on opening allied political economies to U.S. capitals was much stronger in the case of Western Europe than in the case of East Asia. Gaining access to Western Europe’s product markets and labor markets (for U.S. foreign direct investment [FDI]) was considered crucial for American capitalism. In Japan, South Korea, and elsewhere in East Asia the stress was first on capitalist economic revival rather than on strong efforts to open the domestic economies there. The drive to open Japan and then South Korea and elsewhere in that region came much later, in the 1980s and 1990s.

The sociopolitical depth of the U.S. alliance order within the societies of the U.S. system is also important to stress. The cold war cleavage operated not only in the field of geopolitics but also in the sociopolitical field within each alliance state — through its “freedom” versus “Communism” dimension. This dimension of the cold war cleavage was officially thematized as “democracy” versus “Communism,” but it was actually a cleavage between the “freedom-of-capitalism” and socialist challenges to capitalism. Where freedom-as-capitalism could safely be organized in a liberal democracy, well and good. But where this was judged unsafe, then authoritarian rule was the preferred Alliance domestic arrangement. This was the case for most of the cold war in South Korea and Taiwan and along much of the north shore of the Mediterranean for much of the cold war: Spain and Portugal until the mid-1970s, Greece, most openly under the Colonels’ dictatorship from the mid-1960s until the mid-1970s, Turkey, where the United States openly favored bouts of military dictatorship, and, in the Italian case, a façade democracy with strong, authoritarian elements.

But in all cases, the officially legitimate politics was that which was strongly committed to capitalism rather than socialist transformation and was also strongly committed to the U.S.-led alliance system against the USSR. The result was that any domestic political leaderships that wished to oppose the U.S. alliance principle or wished to move beyond capitalism would face very strong internal forces of resistance even without active U.S. intervention.

This homogenization of the domestic mass politics of the whole core (in a way that buttressed U.S. leadership) was a very important political change in comparison with the earlier period of European dominance. The European order had been plagued by the misfit of domestic political systems, whereby the political right in the main states sought to maintain the dominance of the propertied classes domestically through an international politics of nationalist hostility to the other European powers.

There was, of course, a partial dissident amongst the other core powers: France under de Gaulle and his successors. France’s withdrawal from the military side of NATO, its insistence on retaining its autonomy in its geopolitical orientations and its internal political system involving a nationalist party dominating the center-right, made it a dissident force within the protectorate structure. But France was isolated amongst the significant core powers in its dissent and at the same time its dissent was only partial.

The Transformation of the American State and Political System Itself

This postwar construction of the new American-centered order in the capitalist world also transformed important features of the American state itself. In the first place, the domestic political mainstream became anchored to American “internationalism” — in other words to a commitment to the measures necessary to maintain this global power structure. Both the main parties swung behind cold war internationalism, and anticommunism gave the American state a new mission and identity — that of defending and extending the Free World in the fight against Communism. This mission did indeed dovetail well with the freedom-as-free market ideology of the American business state.

At the same time, the new mission involved a permanent militarization of the American state. This was a new and a major material transformation. It was an inevitable consequence of NSC-68, but one with profound implications for both American domestic politics and economics. Some of these can be listed:

The military budget has acted as a crucial counter-cyclical fiscal policy tool in macroeconomic management — a functional alternative to a large welfare state repertoire of instruments.

Military spending has also acted as an important lever of industrial policy by offering a protected state market for large industrial sectors, ranging from aircraft manufacturers like Boeing to the big car companies and many other, largely civilian sectors, as well as armaments contractors.

Military spending has also acted as a very important center of state research and development (R&D) spending, which, though formally devoted to military R&D (plus “dual use” R&D during the Clinton period), in reality provides a central mechanism for generating new high-tech sectors in the national civilian economy.

Military spending has also been an important way of binding the American South into the American state through the large role of southerners in the military, the large numbers of U.S. bases in the South and Sun-Belt states, and the significant military-industrial activity in the South/Sun-Belt (in addition to California). 15

The defeat in Vietnam did lead to a serious split in the governing elites of the American state in the 1970s, but the militarization of the United States was not, in the end, reversed. On the contrary, it was eventually reinforced by the Reagan administration in the early 1980s.

The American Order as a Political System

The postwar arrangements for the capitalist world established at the end of the 1940s proved remarkably robust; the hub-and-spokes alliance systems indeed outlasted the Soviet Bloc and became institutionalized. They were presented publicly as systems of cooperative security amongst equals and their watchwords were those of partnership resting on shared values. As descriptions of the subjectivity of this system, there is a great deal of truth in these phrases. The American-centered order was broadly accepted by the state and business elites of the subaltern allies. And it is important to recognize that Washington itself treated the allies as a community of capitalisms under its leadership, a community that Washington should work hard to keep satisfied.

But at the same time, the system’s power structure was unipolar, not collegial, and Washington, as the hub of each alliance relationship, had the right to take unilateral decisions, if necessary, on the big political issues facing the security zones under its protection. Indeed, the two poles of community and uni­polarity were structurally related. American leaders in the late 1940s grasped that the dynamism and vibrancy of American capitalism could best be assured by generating dynamic capital accumulation in the other main centers — especially Western Europe but also Japan and East Asia. Yet the risk in such a project was that, once revived, these other centers would have the resources to construct their own geopolitical spheres of influence or regions, which could close up and possibly mount another challenge to American power. So by directly taking over unipolar control of the geopolitical orientations of the other main centers, this risk was neutralized. And precisely those centers designated as regional industrial hubs — West Germany and Japan — were to be the centers whose geopolitics was most tightly controlled. A very elegant arrangement.

True, from 1947, successive American administrations promoted “West European Integration,” often referring even to “European Unity” as the U.S. goal. Yet such discourse referred strictly to a political-economy project for Western Europe, not a project for the building of a West European state or even a West European political alliance in international politics. Far from it. Within NATO Western Europe remained a fragmented nonentity, and attempts at various times by West European leaders to form such caucuses were firmly slapped down by Washington: the de Gaulle-Adenauer attempt in the early 1960s, the efforts by Brandt, Pompidou, and Heath vis-à-vis the Middle East crisis in the early 1970s, and the attempt, led by the French, to revive the Western European Union in 1984.

This was a political order over the capitalist core that could be described, in the jargon of American Grand Strategy, as a system of U.S. primacy. 16 Unlike the British in the nineteenth century, which played a game of “offshore balancing” vis-à-vis Europe — a strategy that some U.S. strategists like Kennan favored 17 — the primacy system involves the United States taking command of the geo­political strategies of the other core powers.

Another way of thinking about this primacy system would be to think of it as a type of empire, organized on three axes: first, the geopolitical alliance system under U.S. primacy, turning the other advanced capitalist centers into quasi-­protectorates; second, the internal regime frameworks of the quasi-protectorates — they would not be allowed to go socialist or to produce regimes on the right seeking to switch alliances to the USSR; and third, an axis involving economics and economic regimes, assuring an expansive and leading position for American capitalism, as the quote from Samuel Huntington indicated above. We will examine this third axis in more detail below.

The alliance systems can be seen as the heart of the empire structure and since the alliances were formalized in treaties, it would be wrong to characterize this imperial structure as “informal.” But it is also wrong to see empire as resting simply on such treaties plus some sort of coercive imposition by Washington. It rested rather on Washington’s ability to shape the environment of the protectorates to ensure that they did cleave to Washington’s leadership. The crucial part of the environment that was so shaped was the Soviet Bloc itself: by pressing it militarily, the United States made it a military threat to its protectorates (especially the nonnuclear ones). But another part of the way that Washington shaped the environment to ensure dependency on the part of its allies was through its willingness to project its power also into the South. Using bases within its protectorates, the United States then took upon itself to protect the key zones for raw materials (including energy) and markets in the South of its allies. As they grew and expanded outwards, they thus became increasingly dependent on this other aspect of U.S. power projection. 18 This aspect of Washington’s commitment, of course, landed it in serious problems both in Vietnam and in other parts of the South, such as Iran, during the cold war.

Fitting the Expansion of American Capitals into a Capitalist World Economic Order

A basic issue in the international relations of capitalism is the fact that the capitalists of one state can extend one or more parts of their circuits of capital accumulation abroad, into other jurisdictions. Economic assets themselves (capital) being able to exist in many different forms (money, fixed physical assets, plus labor and raw materials and commodities) are mobile. Capitalisms have, therefore, been able expand abroad on a far broader front than earlier systems of production and extraction. 19 No capitalist state has understood this key feature of international capitalism as well as the American business state with its staffs of corporate lawyers and bankers from Wall Street working in the executive and seeking ways to extend the circuits of American capital accumulation outwards into other jurisdictions.

With both ends of Eurasia devastated by war in 1945 and with U.S. capitalism at a qualitatively higher level of industrial technology and capacity, the task of managing economic growth in the other centers and assuring U.S. capitalist ascendancy was straightforward enough. But when, by the 1970s, the rest of the core industrial centers had revived and were challenging the United States for market share, the task of managing both international capitalist growth and American ascendancy within it became much more difficult.
Officially, the tensions are resolved through the application of liberal principles that in turn offer optimal outcomes for all in a positive-sum game: the multilateral free trade principle, policed through the GATT, undergirded by the multilateral Most Favored Nation (MFN) principle. But the United States has never, in fact, been a principled free trader state. Nor did it ever legally join the GATT. And a study of international trade law suggests that the legal rules consist of thickets of positive law, rather than norm-based rules. Successive U.S. governments have used multilateral free trade ideology to legitimate quite different approaches, namely, opening other markets to the new growth sectors in the American economy (while leaving some sectors of the U.S. economy protected in various ways).

But it is also important to note that while trade in goods was very important for other capitalisms in the postwar period, for the United States FDI was always more important in quantitative terms. Today U.S. sales from American subsidiaries producing and selling overseas are five times larger than total U.S. export sales. Thus the U.S. executive has been able to be much more relaxed about goods trade issues, provided that its companies have had access to foreign jurisdictions for FDI. By gaining completely free access to the Federal Republic of Germany (FRG) for FDI, for example, under the 1955 Economic Agreement, and by gaining the treaty-based right of all capitals in the FRG to sell their products through the EEC, the United States assured its industrial capitals completely unrestricted access to the EEC, whatever its external trade regime. The fact that much of East Asia was far less open to U.S. FDI than Western Europe led to substantial tensions with the United States in the 1980s.

But the main way in which the United States has sought to assure the international ascendancy of its capitals has been through trying to generate new growth sectors within the United States and then through opening all other ju risdictions to those new growth sectors. An important feature here is its use of its huge military sector and military budget for industrial policy and for R&D to generate new growth sectors. And this has been remarkably successful right up through the information technology (IT) and telecoms transformations. Another important U.S. advantage has been the scale of its own domestic economy, giving it a big home base for launching new sectors. And in those sectors where the United States leads internationally, it does champion free trade and accept a procedural rule-based approach. This enables other centers to try to enter and compete in the new growth sector being established by the United States.

Where major capitalist centers resist opening their markets to U.S. growth sectors that Washington considers basic to its international strength, Washington will react with great vigor. In the face of German (and other European) reluctance to open their telecoms systems to American capital, the Clinton administration made it clear to the Europeans that this was a national security issue for the United States — an issue, in other words, determining whether the United States would continue to view them as an ally in the military-political field. Germany then buckled, citing the 1955 Economic Agreement ending the occupation of Germany as the reason.

And it is in high tech, new growth-sector fields that the United States reacts most aggressively when it perceives a challenge from other centers, particularly in the field of capital goods for the world economy. This was the great U.S. fear in the 1980s over Japanese electronics and semiconductors. In such conditions, the United States has been ready to insist upon bilateral, managed-trade deals.

Another, key dimension of concern for the United States has been the emergence of new growth centers, such as those in East and Southeast Asia. Washington will go to great lengths to ensure an opening of these new centers to penetration by U.S. capitals on the widest possible front.

In all these areas of potential conflict, Washington’s role as the security protector power over relevant states has given it extra leverage for pressing its economic interests upon the states concerned.

Part 2: The Bifurcation of American Capitalism
and Its New Regime Requirements for the World Economy

The establishment of a community-under-primacy embracing the entire capitalist core after 1945 provided American business with security to expand abroad greatly, knowing that the American state can ensure the safety and the interests of very large American private economic assets abroad. But there have been a number of important consequences of this international expansion.

The Bifurcation of American Capitalism

A striking result of American capitalism’s postwar expansion has been the emergence of a social division within American capitalism. Insight into this division is provided by an exploration of the sources of profits for American business.

In the year 2000, the domestic American economy’s GDP was roughly $9 trillion in sales, of which perhaps $8 trillion were sales of American corporations; about $0.7 trillion of output was exported abroad and the profits from these exports thus depended upon foreign markets. To this we should add about $3 trillion of output and sales by some 24,000 U.S. affiliates abroad — nearly half of the output and sales ($1.4 trillion) were in Europe. 20 If we then add the earnings of the U.S. financial sector (commercial banks, investment banks, insurance, etc.) and U.S.-based rentiers from foreign debt and portfolio capital, we get a further large flow to U.S. capitalists from overseas financial operations, probably worth about $0.5 trillion per annum in profits. These figures are simply illustrations of the fact that the profits-generating fields for U.S. transnational capitalist organizations and for the U.S. social classes ultimately receiving the profits can no longer be equated with the field represented by the U.S. domestic economy. Perhaps 40 percent of the streams of value accruing to the American corporate sector may be realized abroad. We could call the groups of capitals to which this applies American transnational capitalism, in contrast to American capitalists and other American social groups whose incomes are overwhelmingly domestically derived; these could be called American domestic market forces. These two groupings are, of course, more two ends of a spectrum rather than neatly separated groups. But they are nevertheless increasingly polarized in terms of economic policy, social interests, and, indeed, political stances within the United States.

It has been fashionable amongst some globalization theorists to claim that the transnational capitalists have broken with their own “territorial” state. This seems very wide of the mark as far as the relations between American transnational capitalism and the American state are concerned. This sector of American capitalists has, through its representatives, controlled the American state for decades, has invested large amounts of money in politics to maintain this control, and has shown something like hysteria at the prospect of political forces hostile to its transnational interests gaining power within the United States.

And this political posture has surely been a rational one from their angle. After all, the American state has worked tirelessly to open other jurisdictions to these internationalist American capitals, to further their implantation abroad and their interests abroad in a thousand ways. And if history has taught capitalists one thing about investments abroad, it has surely taught the importance of projecting the power of their state to protect their capitals from hostile forces in other states. All this suggests that the relationship between American transnational capitalists and the American state remains that of robust, mutual loyalty. One key empirical test of this would surely be to see whether this (dominant) wing of the American capitalist class has worked to build new, supranational institutions for enforcing their property rights internationally, over and above the American state. There is not the slightest evidence of this. Another would be to see whether the American state has worked to penalize the transnational expansion of American capitals. Again, no evidence of this exists.

The IMF proves exactly the contrary. The IMF has been a public insurance company for U.S. financial operators’ investments abroad. But it has performed this role under the tight control of the U.S. Treasury and time and again this has proved extremely valuable to American international financial operators. They would not have got some $25 billion of European money for the Mexican blowout of 1994-5 but for the breathtaking maneuvers of the U.S. Treasury, nor would U.S. banks have led the negotiations with South Korea in 1998 without the U.S. Treasury’s muscle. 21 And the Brazilian bailout later would not have occurred without U.S. Treasury muscle. The story of the value for U.S. transnational capitals of the U.S. state’s dominance over international institutions is repeated across the spectrum of such institutions. The complete absence of efforts by U.S. international capitalist groups to break up this structure for cosmopolitan regimes above Washington surely speaks volumes.

Of course, in states that do not exert political primacy over the entire capitalist world, a tension between the expansionist interests of their transnational capitals and the state’s geopolitical orientation can exist. When J.P. Morgan facilitated tens of millions of dollars of investment in Japan and Germany well into the 1930s, it was objectively aiding the future enemy of the American state. 22 Morgan was either naively globalist or profits-first in the interwar period. Some might say the same folly is being committed today with the flood of American investment into China. Yet today the extraordinary power and reach of the American state makes it unlikely, to say the least, to imagine that China will take the same road taken by Japan in the late 1930s. 23 In short, the global reach of American capitals today does not contradict American state power and its reach; it may, rather, presuppose it.

On the other hand, there are tensions and trade-offs of a different kind. Not between globalizing capital and the American state, but between two kinds of American economic groups: those who depend upon growth and dynamism in the American domestic productive economy and those Americans who profit from the extractive operations abroad of American capitals.

But before examining these tensions and how they have been managed we should outline the main transformations in the nature of American transnational capitalism since the crisis of the 1970s.

The Changing Patterns of American Capital Accumulation

After facing a series of defeats of its once dominant industrial capitals at the hands of international competitors in the 1970s and 1980s, American capitalism underwent a profound set of transformations. Although the information and telecoms sectors have often been held up as the leading edge of the new American transnational capitalism, by far the most important structural transformation was that placing the financial sector in the lead.

The Transnational Sector

American banks, investment banks, brokerage houses, insurance companies, and pensions and mutual funds have massively expanded their transna tional activities since the 1980s and now dominate the huge expansion of the internationally open U.S. financial markets as well as their satellite financial markets in London.

The American transnational financial sector provides services to capitalists in other countries. It can supply them with access to capital markets and thus bond issues, access to bank loans, hedging instruments, offshore tax havens, and ways of parking their property abroad through capital flight, attractive investment opportunities in securities of various kinds, foreign exchange speculation, etc. It also supplies this range of services to a huge new market that has arisen since the 1970s: the governments of the world, typically keen, if not desperate, to borrow.

The American state vigorously backs this international expansion by American financial operators, demanding both the dismantling everywhere of capital controls and the complete freedom of entry and exits by U.S. financial operators along with national treatment for them. It also pushes for institutional arrangements on corporate governance, banking regulation, and stock market construction — all of which assure U.S. capitals decisive local competitive advantages.

It is striking that although the Clinton administration’s international economic policy was seen as par excellence a policy prioritizing Wall Street’s interests and international expansion, the centrality of this orientation has been maintained by the Bush administration, even forming an important part of the National Security Strategy of September 2002 and being a central demand in the administration’s drive for so-called Free Trade Agreements.

The ascendancy of the U.S. financial sector internationally is not inimical to the expansion of the nonfinancial U.S. corporations. Their expansion abroad has increasingly altered its form in the 1990s. They now expand abroad not so much by Greenfield investment in new productive assets but through mergers and acquisitions (M&As) — gobbling up other existing capitals and centralizing ownership in American hands. Insofar as American commercial banks and investment banks gain central places within other financial systems, they can quickly acquire insight into the whole business structure of the economy concerned and can assist their American corporate clients to acquire openings for M&A activities in the country concerned.

Here again the American state plays a central role in pressing other states to adopt corporate governance systems that are stock market based and oriented to “shareholder value” to ensure that hostile takeovers are possible.

In principle, this raises the possibility of opening up other capitalist systems, say in China and other growth centers in East and Southeast Asia, to the extent that American capital can in large part concentrate its efforts on acquiring the industrial and banking assets of these countries, profit from the pools of cheap labor in these centers, and abandon efforts to build up the domestic American industrial base. American finance and American rentiers could become the owners of and destinations of the value-creating labor of the East Asian working class, just as the New York financial operators at the heart of the trusts in late nineteenth-century America became the recipients of the profits of industrial operations far to the West.

In both Germany and Japan there has been strong resistance to these drives from the U.S. financial and nonfinancial corporate sectors. Both these centers remain predominantly industrial capitalisms in their most advanced sectors and resist having their industrial sectors chewed up in waves of American-led M&As. Resistance has proved much more difficult in weaker capitalisms or in states like South Korea that were hit by the East Asian financial crisis and then opened up by the U.S. Treasury. 24

Financial penetration and rentier capitalism on a transnational scale would be utterly dependent upon the legal arrangements within the overseas states concerned. The ingenuity of corporate lawyers is indispensable. But even if law is indispensable, it is also fragile: extremely vulnerable to political shifts. A political movement within a state could sweep into the dustbin overnight a whole raft of laws on which American financial operators depend. In other words, it would depend upon the political leverage of the American state over the regimes in the target states concerned.

The Domestic American Economy

Since the 1970s, the American domestic economy has been de-industrializing instead of re-industrializing. This trend is often presented as a natural and inevitable one. It was not. Indeed, there were evident hopes that the massive restructuring efforts of the 1970s and 1980s would revive the United States as a great modernized industrial power. But this did not happen. The reasons for this are no doubt complex, but one central reason must surely have to do with the political structure of the American state, which was structured to be able to hit labor hard — much harder than any other advanced capitalist country, because of the great, monopolistic political ascendancy of the business class within the state. The American way to restructuring was simply to hammer labor with huge layoffs, downsizing, and pay cuts, while liberating capital from every conceivable form of restraint — in taxation, accounting standards, executive perks, and other regulatory restraints. Capital was encouraged to go offshore and to enrich itself.

Since the domestic economy still depended upon rising consumer spending — with wage rates held down —expansion required expansion of consumer debt. To counterbalance fears of indebtedness, wealth effects were generated through the state-backed Savings and Loans (S&Ls) then Fannie Mae and Fred­die Mac, generating housing booms and re-mortgagings; wealth effects were also generated through the great stock-market boom.

Yet the result was not a revived, modernized industrial giant. It was a deep financialization of the domestic economy, the rise of a rentier/bondholding class, 25 and an expanding sector of personal services that cater to the consumer needs of the top 20 percent of U.S. wealth-holders. A striking feature has been the way in which the executives of industrial corporations have turned themselves into rentiers, gearing their industrial policies to self-enrichment, often at the expense of product innovation and future industrial growth. 26 The entertainment industries flourished as did the IT and telecoms sectors, but these have not, it seems, laid the basis for a new industrial revolution. There has been a dramatic modernization of the military industries but these do not constitute an adequate growth motor for the whole economy. Meanwhile, U.S. corporations have shifted large parts of their production activity abroad in search of cheaper labor.

The consequences of these trends have been shown in the structural tendency of the American economy to breach the rules of the international economy. These rules say that the national balance of payments matters. The trade balance indicates whether the given state is buying from the world more than it sells. The U.S. has long been doing just that. With the (American) scrapping of the Bretton Woods system this test has become less critical. With the free movement of private finance, the key question has become credit-worthiness. Insofar as the state is creditworthy, it can simply borrow, making up for its current account deficit on the capital account. A serious crisis arises only if a chronic current account deficit is combined with a loss of creditworthiness. The crisis in a typical state can take both a financial form (the inability to borrow more finance) and a monetary form (the inability to acquire the currencies required to pay the creditors). Typically, then, the government concerned is required to devalue its currency and simultaneously extract large resources from social groups within the country to pay off its creditors.

The American state has, since the start of the 1980s, been falling steadily into ever greater levels of foreign debt. As a proportion of GDP, American international debt levels have not reached crisis proportions by any means, but the trend continues and deepens, without any reversal in sight. Other things being equal, this trend could not continue indefinitely. A point should be reached when foreign creditors will say: Enough is enough — we will not continue to lend, because we have lost confidence that the American state will continue to honor its debt obligations; we fear that like Russia in 1998 or Argentina in 2002 Washington will default, repudiating its debts to foreign bondholders.

The result could be a fear of a dollar collapse leading foreigners to dump the dollar, making it fall massively (given the huge international overhang of dollars) while simultaneous efforts by the U.S. Federal Reserve to stabilize the dollar by sharply raising interest rates could produce domestic debt deflation within the United States.

Another symptom of serious problems in the American domestic political economy has been the chronic tendency toward budget deficits, only very briefly checked by the Clinton administration’s effort to reverse the trend. Budget deficits have been driven both by tax cuts and by an inability to rein in federal spending programs, both in the military and other fields. The ballooning levels of public sector debt have been funded mainly by borrowing on the Treasury bond market, which has expanded enormously since the start of the 1980s. Tax cuts for the rich have enabled the increasingly wealthy rentier class to buy and profit from the Treasury bonds, 27 but increasingly the budget deficits are also being funded by foreign borrowers, above all the Japanese and Chinese Central Banks.

It would thus seem that federal governments are able neither to meet all domestic claims on the budget by expanding taxation, nor to cut back on spending programs to bring them into line with revenues. This is a symptom of an incipient sociopolitical crisis within the United States in coming years, if these trends continue.

Squaring the Circle at the Expense of a Global Regime for Stable Capital Accumulation: The Dollar-Wall Street Regime

The American state has not been standing idly by in the face of the domestic economy structural imbalances and the new financial thrust of American transnational capitalism. It has been reorganizing central pillars of the international political economy to compensate for the former and enhance the latter.

The first big move was to destroy the existence of a homogeneous global monetary unit by closing the gold window in 1972; 28 rejecting a stable international exchange-rate regime later in the 1970s; 29 and subordinating international monetary management to exclusively American goals in the 1980s. 30 The stable and secure extension of business operations across the core capitalist countries requires a homogeneous monetary unit embracing the whole capitalist world. 31 While the European empires imposed their fiat money on their colonies, they were always concerned to provide such a homogeneous money for economic linkages amongst their core capitalist economic operators, namely, the gold standard. This principle, which was maintained by Bretton Woods, enabled any capitalist anywhere to calculate the value of his/her assets and to make rational calculations about any foreign operations (investment, trade, etc.).

By breaking with the gold standard, imposing the dollar as a fiat currency on the world, and refusing any exchange rate coordination for stability, the U.S. authorities broke decisively with the idea of a stable international monetary framework for the international economy. It then proceeded to work with the money market and bond market on Wall Street to swing the dollar up and down in great arcs against the other main currencies in line with its economic strategy for the American (political) economy.

The second large move was the drive to sweep away capital controls and allow completely free movement of all types of financial flows in and out of national economies, while also pushing for the complete freedom of U.S. financial operators to enter and exit from other countries’ financial systems.

Third, it turned the IMF and the World Bank into instruments for assisting these changes, not only by ensuring that they reorganized domestic political economies to fit with the new regime but also by turning the IMF into a public insurance organization for American (and, to a lesser extent) European financial operators and speculators.

These changes, taken together, have produced great insecurities in international economic relations and have plunged emerging market economies in the South into endemic instabilities and crises. But they have simultaneously both reduced the vulnerabilities of the American domestic economy and enhanced the expansion of American transnational capitalism.

The dollar as global fiat currency meant all countries had to enlarge their dollar reserves, in other words send large flows of funds into the U.S. Treasury bond market (soaking up American debt). The unstable exchange rate environment and the rapid, lethal switches of hot money across the globe forced states to massively increase their (dollar) foreign exchange reserves, thus further increasing the inflows of funds into U.S. debt. Endemic and often devastating financial blowouts (in some two-thirds of IMF members since 1980) generated new injections of capital flight into the New York debt market. The local propertied classes in unstable economies now had the option of shifting their property out of the country into New York and London and they took this opportunity to the tune of hundreds of billions of dollars of inflows into these centers.

Simultaneously, all such instabilities and every currency or capital account crisis in Latin America or East and Southeast Asia or the former Soviet Bloc were new opportunities for the U.S. Treasury, working through the IMF and World Bank, to open up the distressed political economy further to American (and other) core capitals.

The Relation of Other Parts of the World to the New Rhythms of American Capitalism

It is widely believed that the other core capitalist centers both benefit greatly from and fully support these metamorphoses of the relations between American capitalism and the rest of the international political economy.

There is some truth in this, but not as much as may be supposed. It is perfectly true that the European banks and financial operators have participated heavily in the array of new processes structured by the Dollar-Wall Street Regime and the U.S. international financial drive. The European banks were heavily engaged in East Asia before the crisis hit and were thankful for the free insurance provided by the IMF. There has also been broad support for the “structural adjustment” operations of the IMF and World Bank since the debt crisis struck in the early 1980s. And the West Europeans have engaged in their own variant of heavily coercive socioeconomic reengineering in East Central Europe over the last thirteen years with strongly baleful effects on the capacity of those economies to engage in sustained growth. More broadly, the West European capital­isms share the general problematic of expelling problems and internal social tensions outwards from the core onto the South as much as possible.

The American state has also offered other capitalist classes a series of fresh ideas for living with the American-centered system for the world economy: new domestic fields for capital accumulation through privatizing social services, utilities, transport systems, pension rights, etc. There have also been lots of ideas for giving very large pecuniary advantages for the business class through enriching themselves as rentiers (through stock options, stock market bubbles, junk bond buyouts, and waves of M&As organized by Wall Street investment banks to give extremely lucrative payouts to private groups, even if the M&A activity typically brings no more rational business system after it). All such themes and tricks are thematized programmatically through what Philip Bobbitt calls the goal of building a “market state.”

Yet the Eurozone political economy sticks to the rules of an international economy by guarding its payments position. And the German heartland remains predominantly structured as an industrial capitalism producing capital goods for export; it and the Eurozone do not need the unstable monetary and financial regime that Washington requires. An end to hot money flows, for example, would be perfectly acceptable. And the construction of the Dmark zone and then Euroland was not only about restructuring capitalism within Western Europe; it was also about constructing a shield against what was viewed as an irresponsible and even “imperial” transformation of the international monetary system by the United States. Furthermore, the Eurozone states have been very hostile to the U.S. Treasury’s manipulations of the IMF for purely U.S. national goals, as in the Mexican crisis in 1994-95 and the Brazilian crisis in 1998. Finally, the efforts to consolidate and expand the Eurozone in effect take regions and countries out of the U.S.-Treasury-IMF remit into that of the European Central Bank and economic authorities. Thus overall, the West European concert of capital­isms is responding to the Dollar-Wall Street Regime by building a regional base and seeking to expand its sway eastwards collectively from that base.

The more astute European business leaders also remain agnostic as to the viability of much of the Anglo-American bag of tricks thematized as the “market state” program. A glance at the British model of this program raises questions as to whether the bag of tricks is actually capable of stabilizing new institutionalized arrangements. The unstable and near-chaotic problems of the British private pensions sector, health system, education system, transport system, burgeoning American-style prison population, and rising crime statistics, as well as the increasing polarization between rich and poor, do not command wide admiration in the Eurozone.

Britain is distinctive in comparison with the Eurozone: London operates as a satellite center of the Dollar-Wall Street Regime. The social groups in Britain benefiting from this status are very influential and tend to see Britain’s role as expanding in the slipstream of U.S. operations. London is inhibited mainly by the fear of being locked out of an increasingly cohesive new European center. Spain, too, whose banks are extremely powerful, has participated very strongly in expansion into Latin America over the last ten years and has operated, in many ways, in partnership with Washington in that region (in politics as well as economics).

As far as the Japanese are concerned, the Dollar-Wall Street Regime and other aspects of American economic policy since the 1980s have been very difficult and even dangerous. Japan is thus very vulnerable and needs a regional frame work. But Japan has been unable (politically) to construct the kind of protective shield enjoyed by Germany. In the rest of East and Southeast Asia there is great suspicion of Washington’s operations in the international political economy as a result of the U.S. Treasury’s operations in the East Asian crisis. But regional solutions, widely discussed, are difficult to achieve. One key reason has been that while the European and North American regions mainly trade with themselves (internally), East and Southeast Asia still trades outwards, for the most part, beyond its own region and often in competition with other economies in the region. But insofar as China increasingly becomes the center of gravity of economic linkages of the other main East Asian economies that problem could be overcome.

Thus the international economic strategy of the American state is very far from being “hegemonic” in the rest of the core. Its main supports lie in the negative consequences of failing to cooperate in the preservation of the system. One key negative consequence would be the international macroeconomic consequences of a collapse of the dollar and a debt depression in the United States, given the size of the American economy, its importance as a product market for the world’s new growth center in East Asia, and the stagnationist trends in both Japan and Western Europe. But if these patterns change, the U.S. posture would become much more vulnerable.

Behind all these issues of the American-international linkages in the international political economy lies the question of political power frameworks. The fiat dollar regime could not have been implemented and consolidated without U.S. political primacy over the core in the cold war. And the security of the Dollar-Wall Street Regime today depends crucially on America’s political leverage internationally. (continued)