INTERNATIONAL SOLIDARITY MISSION AGAINST US ARMED INTERVENTION IN THE PHILIPPINES TTT US Imperialism’s Economic Crisis haiti at tld Ebi cidmbiuiescbmecintsy This paper was written by Sonny Africa* and Paul Quintos* as part of a coming book on US Imperialism. Organizers of the International Solidarity Mission (SIM) Against U.S. Armed Intervention were given permission by the writers to reproduce the paper. July 24-31, 2002 + Philippines *Mr, Africa is the Legislative Staff for Economic Affairs of Party-ist Representative Satur Ocampo “Mr. Paul Quintos is the Deputy Executive Director of the Ecumenical Institute for Labor Education and ResearchUS Imperiaism's Economic Crisis 2 1 Introduction ‘The United States of America (US) has been the world’s pre-eminent imperialist superpower for over half a century. In that time US monopoly capital has protected and promoted its interests in various ways. Eschewing the outdated colonial method of carving out exclusive territories or spheres of influence, it has relied on its preponderant economic and political might to dominate the neocolonies and its imperialist Yet US imperialism has also liberally used direct armed interventions and wars to create the political and economic conditions most conducive for American business.' On the home front, US monopoly capital has wielded both the state and the “free market” as expedient. ‘Things are no different today. Amidst deepening domestic and global crises, US imperialism is ‘maneuvering to surmount its grave economic problems. The 9/11 terrorist attacks and the US” self- declared and -led “war on terrorism” are just the pretext for its most recent campaign to consolidate its hegemony and get through economic crisis. The campaign has two fronts: domestically, the dominant faction of the monopoly bourgeoisie has become more brazen in manipulating economic policy in its favor; overseas, there is a greater push to open foreign markets to US trade and investment. However its options two and a half decades into the deepening of the crisis of overproduction since the 1970s are severely constrained. Between the imperialist G7 countries (US, Germany, Japan, France, Italy, United Kingdom, and Canada), China, Russia and the East Asian newly-industrialized countries (NICs), global industrial overcapacity is unprecedented. Neoliberal globalization has mired the neocolonies in ever deeper crises and sparked resistance. Financial markets are wracked by bubbles and enormous instability. ‘The problem is that the world capitalist system is in a particularly brutal episode of the periodic eruptions of severe economic crises characteristic of monopoly capitalism’s chronic crisis of overproduction — the so-called “booms and busts”. An extended global recession is certain and, to be sure, the possibility of a new global depression is greater than ever. As US imperialism strives to cope, the ground is laid for ever- greater economic and social upheavals. 2. US imperialism and the chronic crisis of overproduction 2.1 Growth from destruction US imperialism’s most fundamental aim is to protect, advance and promote the interests of US monopoly capital. This is at the core of its foreign and domestic economic policies. Its basic tack to achieve: since the end of the Second World War has been for a hegemonic double-standard: pressure the rest of the world to adopt trade and investment policies that allow the US to exploit its economic strengths yet, at the same time, protect critical sectors of the domestic economy as necessary while progressively intensifying the exploitation of the U.S. working class. It’s the objective economic tendencies resulting from these and, more generally, the workings of ‘monopoly capitalism that keep the world in seemingly endless cycles of crises, some worse than others.” " Since 1946, the US has conducted hundreds of mitary operations in over 70 counties Congressional Research Service (1996), US. Uses of Fore, 1870-1095. 2 The bourgeosie's dive for profs basically means increasing investments in productive capacily, on one hand, and decreasing wages pi, ‘on the other. The eventual resutof thsi that excess capacity builds up as, overal, th growth of productive potential outpaces the growth of oople's capacity to buy. At some pint further investment and production becomes excessively unprofitable (Le. suplus value cant be realized) and soar roled bac resulting in economic stagnation and, in severe cases of overproduction, recessions. The excess capacity has tobe reduced (i.e. productive forces have tobe destoyed) on a scale suficient to make investment and production proftabe agin, TheUS imperiaism's Economic Crisis. 3 The vicious logic is that overcapacity always develops and renewed growth only occurs after a round of destruction of productive capacity: factory closures, business bankruptcies and job losses. Although the specific way in which this process unravels varies with any given episode, with different proximate ‘economic shocks or triggers, the underlying dynamic is constant as the last half century makes clear. The post-war “boom” ‘Years of what was truly a world war devastated productive forces on a massive scale. In the European, Asian and African theaters of inter-imperialist war, millions of the working class were killed and factories, farms, machinery, roads, buildings, ports and other productive infrastructure were destroyed. In the aftermath US imperialism alone among the major powers was unscathed. And mere than that, it was stronger than ever. ‘The war years saw profitable trade in armaments and in the consumer and producer goods which war- ravaged economies elsewhere could no longer produce. US industry and agriculture so flourished that its economy doubled in size between 1939 and 1945. By the end of the war US imperialism held two-thirds of the world’s gold stock and had unquestionable primacy in arms, finance and productive capacity. With hegemonic self-confidence it set about constructing a global trading and investment environment ‘multilateralist in form but essentially one that it could dominate with its unparalleled economic and military might. Two things were important for favorable trading conditions for the US: first, more or less stable exchange rates which meant precluding competitive devaluations and restricting potentially destabilizing capital flows; and, second, dismantling the pre-war system of tariff barriers. These were achieved through the fixed exchange rate regime set up by the Bretton Woods conference — which also created the International Monetary Fund (IMF) and the World Bank (WB) — and the General Agreement on Tariffs and Trade (GATT), Bretton Woods in particular enshrined the unique place of the US dollar in global finance.’ The Marshall Plan for European reconstruction, in addition, paved the way for US investments in an area which had Socialist revolution knocking on its eastern front. Elsewhere, unilateral threats of economic sanctions and various bilateral treaties were also used. ‘At home the US fostered monopoly practices and market controls put in place in the 1930s and built up during the war years. Big business interests profited from state protection or regulation of key sectors of the economy — manufacturing, railroads, air transportation, trucking, oil, electricity, telecommunications, mining, agriculture and financial markets — and from labor repression * ‘Thus did the US lay the foundations for the so-called “golden age”. Commerce and investment boomed as post-war reconstruction took place. The combination of expanding trade, dampened wages and low commodity prices made per capita output in the advanced capitalist countries, especially Japan's, rise spectacularly in the years until 1973. The Soviet Union, Eastern Europe and China likewise grew although for very different reasons (and, especially in the case of China, in a much more broad-based manner). The neocolonies of Latin America and Asia had much more moderate growth, however, while Africa vacillated between stagnation and decline.’ condos having been solid, another set smting cycle of growth and destruction begins. The most powerul snive and grow 2s monopotis. 2 The US doar was (ands) the work's Key cuency fora complex of reasons: the US the wort’ single largest trating nation and among ‘the words bigest savers and sources of investment funds; the bu of counties’ foreign exchange reserves aein US dors; lis main priced in dlrs; the US is seen as the wor’ strongest economy and the safest haven fo captal. These efectvely enaie the US to un bedance of payments (BoP) defi fr far longer han would be the case for “lesser cumencies, including the Yen or Mak. # Samuelson, 2, Ch. 24, Big Business and Public Plcy 5 Chapter V, IMF Word Economic Outook, Api 2002US imperialism’s Economic Crisis 4 ‘The US advanced but even so went into relative decline against its imperialist rivals. The Cold War drag ‘of heavy military production and global military deployments — with “defense” spending averaging 9.5% of gross national product (GNP) between 1950 and 1970 — diverted resources and caused a long-term slowdown in capital accumulation.* The US committed less of its GNP to investment in fixed capital than its imperialist rivals in the post-war years: about half as much as Japan and about two-thirds as much as Germany.” The annual rate of growth of its manufacturing capital stock of 3.1% from 1960-73 was less than half that of Germany’s 6.5% and less than a quarter of Japan’s 12.8%. The US’ rivals also took advantage of the market access and technology transfers the US granted them as strategic frontlines against the advancing Socialist bloc (as did, later, the East Asian NICs). Post-war reconstruction was basically completed by the start of the 1960s which started the exhaustion of profitable opportunities for production and investment. By the 1970s Western Europe, especially Germany, and Japan were directly competing with the US in a wide range of manufactures in home ‘markets and abroad. First it was in labor-intensive products like textiles and clothing but soon included ‘more capital-intensive goods like steel, cars, chemicals, machinery, electronics and agricultural equipment. They began to capture increasing shares of the world market for manufactures at the expense of US producers and also started to challenge US primacy in global finance. Germany for instance increased its share in world exports almost four-fold from 3.3% in 1950 to 11.5% in 19732 Deepened crisis since the 1970s ‘That time was a watershed not only for US imperialism but also the world capitalist system as mounting industrial overcapacity induced a system-wide crisis of profitability. Between 1965 and 1973, the ‘manufacturing sectors of the G7 as a whole experienced a fall inthe rate of profit on its capital stock of about 25%; for the US, profitability declined 43.5%."° The “win-win” situation for the imperialists of the first years of the post-war era had turned into a zero-sum game. The fixed exchange rate regime that played such an important role in facilitating global trade was also under pressure. US current account and balance of payments (BoP) deficits began to soar, especially in the late 1960s, because of mounting industrial competition and imports, increasing overseas direct investments, support to client states, maintenance of overseas military bases, and Vietnam war-related military expenditures. It had a cumulative BoP deficit of US$31.6 billion in the years 1950-70 or about USS1.5 billion annually. World financial markets were gravely imbalanced as claims against the dollar far ‘outstripped the US gold reserves that supposedly backed these. The limits of the post-war order had been reached. The only way to restore balance in the Bretton Woods system was for the US to reverse on the main sources of pressure, meaning significantly deflating its economy to decrease imports, reining in overseas investments and checking its runaway militarism. These ‘would have worsened US imperialism’s international position though so, exercising a luxury available only to the world’s biggest superpower, it instead initiated the breakdown of the Bretton Woods system in 1971-73. ‘The move to flexible exchange rates was a boon to the US and an important factor in giving it unprecedented economic room to maneuver. The US dollar sharply devalued — and, correspondingly, the yen and mark revalued — boosting US manufacturing at the expense of its rivals. The US dollar turned from being “as good as gold” to being “better than gold”. It remained the world’s key currency and, sans ‘Congressional Research Service (2002), Table 11, p. 20, Defense Budget for FY2003: Data Summary, March 29, 2002 1 Samuelson, 2, p. 801, Ch. 28, The Key Curency in Trouble Bruno, M and Sachs, J (1985), Table 8.1, p. 163, Economics of Worldwide tagfation * Federal Ministy of Economics (1963), "Listing in Zalen” (Statistics of Performance) "Brenner, R (2002), p. 17, The Boom and the Bubble: The US inthe Word EconomyUS imperatism's Economic Crisis 5 the constraint of a dollar-gold link, the US could now create its currency at will and essentially finance unlimited trade deficits with the rest of the world." Industrial overcapacity bore heavily on all the imperialist powers but it was the US that was best able to turn this to its advantage. To stimulate the domestic economy, it undertook expansionary monetary and fiscal policies unrestrained by any concerns about reducing overseas deficits. It persistently devalued the US dollar, by 17% between 1973 and 1979, to boost manufacturing competitiveness at the expense of its rivals, ‘New trade barriers were also raised. The International Multi-Fiber Arrangement was set up in 1973 to restrict the entry of textiles and clothing from neocolonial producers. The Trade Act of 1974 and its infamous Section 301 set up the mechanism for the US to take punitive action against “unfair” traders, usually resulting in the notorious “voluntary export restraints” (VERS) forced by the US on its trading partners. Japanese steel and cars were among the most important targets." As a result of these moves, in stark contrast to the 1960-73 period, the annual rate of growth of the US’ manufacturing capital stock of 4.3% in 1973-80 was more than double Germany’s 2.1% and nearly at par with Japan’s 5.5%." The US was able to consolidate and, beleaguered, Western Europe’s and Japan’s decades-running catch-up to it ground to a halt. Nonetheless it was a time of deep crisis all around, even if less so for US imperialism than others, that ‘categorically established the shift of the world capitalist system into a new and higher level of its general crisis. The oil price shock-induced worldwide recession of 1974-75 segued into years of sustained rising, unemployment, slow growth and continued high inflation until the next deep recession in the early 1980s. Comparing the 1960-73 to the 1973-81 period, unemployment in the Organization for economic ‘Cooperation and Development (OECD) countries increased from 3.2% to 5.5%, inflation more than doubled from 3.9% to 10.4%, GNP growth halved from 5.0% to 2.4%, and productivity growth more than halved from 3.9% to 1.4%,"* In the imper G7 countries, average annual gross manufacturing output growth slowed drastically from 6.4% in 1960-73 to 2.5% in 1973-79; productivity growth also slowed, from 5.2% to 3.8%." In any case US efforts to revitalize its manufacturing through protection, easing of monetary policy, competitive devaluations and deficit spending resulted not in a generalized increase in profitability but in ‘over-investment, runaway inflation that was the highest among the three major powers, and record current account deficits. Average profit rates in manufacturing still fell from 16.6% in 1969-73 to 14.0% in 1973- 79.'° The unemployment rate more than tripled from an average of 2.9% over 1965-73 to 9.0% in 1982." Finance capital unleashed ‘Significantly, it was also around this time that capital flows were freed and that international financial markets started to become such a destabilizing factor on the economic landscape. US finance capital started to more actively seek returns outside of the increasingly exhausted industrial sectors. The US prodded the expansion of international financial markets when it sanctioned the creation of the ‘unregulated Eurodollar market in the late 1960s and removed capital controls in 1974. The first significant attempt to exploit these was when a handful of US and other international banks cornered Wade, RH (2002), The American Empie and its Limits", nemationl Hera Tbune, January 3, 2002 Brenner (2002), p. 30 ‘Bruno and Sachs (1965), Table 6.10, p, 163 ‘ib, Table 1.1, p. 2 and Table 8, p. 195 ‘Brenner (2002), Tele 17, p. 30, ‘ibid, Table 12, p. 21 ib, Table 83, p. 157US Imperiatism's Economic Crisis 6 idea being to make profits from extending the loans as well as from the increased exports to the neocolonies these financed. "* Late 1970s stagflation, however, turned real interest rates negative and cut deeply into US finance capital's profits. With litle prospects for spurring higher returns through expanding industrial output, US policy instead relied on a sharp turn to high interest rates to increase retums to US financial interests and, by stifling productive investment and forcing unemployment, reduces overcapacity. Treasury Bill rates rose from 10.0% in 1979 to 14.0% in 1981 and bank prime rates from 12.7% to 18.9%, the largest such increases in the post-war era. ‘The resulting 1981-1982 recession was the deepest since the 1930s. In the US, quarterly negative growth rates of 6% to over 7% were registered between 1980 and 1982, and unemployment increased from 6.1 million in 1979 to 10.7 million in 1982. The debt crisis triggered — where some US$750 billion out of USS15 trillion in loans were suddenly regarded as high risk — also left a swathe of industrial destruction in the neocolonies."” ‘The US aimed for recovery from the industrial shake-out through unprecedented peacetime military spending. Defense spending of US$324.5 billion in 1981 steadily and rapidly increased to a peak of 'US$440.9 billion in 1987, compared to the Korean War high of US$469.9 billion (1953) and Vietnam War high of US$460.0 billion (1968). Industrial interventions were also commonplace with, for instance, billion-dollar bailouts for mega-companies Lockheed defense corporation and Chrysler auto corporation and federal takeovers of the railroads of the northeast and their merger into Conrail. The debt crisis was also used as a springboard to increase entry into neocolonial markets through the IMF and the World Bank. So-called “stabilization” and “structural adjustment programs” were imposed to gain sources of cheap raw materials and labor, provide trade and investment opportunities and ensure continued debt repayments, But global overproduction still persisted. Manufacturing net profit rates in the US, Germany and Japan increased after 1981 but the peak rate in 1988 was lower than was achieved at anytime in the entire 1948- 1970 period, and barely half the peaks achieved then (in 1951 and 1965)."" The US comered much of these benefits at the expense of Germany and Japan. Key to its being able to do this were: first, extracting a dollar devaluation with the Plaza Accord in 1985 (between 1985 and 1990, the yen and the mark appreciated against the dollar at average annual rates of 10.5% and 12.7%, respectively); and secondly, suppressing real wages (average annual increase in real hourly manufacturing wages was 0.15% in the US, 2.85% in Germany and 2.90% in Japan).” Higher returns were also sought in speculative activities with corporations increasingly relying on financial operations to generate profits. As much as 75% of total returns in the US and Britain since the start of the 1980s resulted from capital gains rather than earnings i. in an appreciation of the market value of securities rather than dividends or interest plus reinvested profits” Between 1984 and 1989, US. non-financial corporations spent an annual average of US$184 billion on mergers and acquisitions ‘compared to just USS84 billion on non-residential fixed investment (a high-estimate proxy for ‘Tota deposits inthe intemational banking system grew from only about USSE0 biion in 1968 to over USS. tilion n 1985. Samuelson, 2, . 800, Ch. 39, The inemational Financial System * Today, two decades later, the neoclonial debt overhang remains and has grown to over US$24 tlfon, 2 Al figures in constant FY2003 doar. Congressional Research Service (2002), Defense Budget for FY2008: Data Summary, March 28, 202 *\ Brenner (2002), Fig. 1.1, .19 2 ibid, Ch. 2, The American Economic Revival 2 Shui, H (2001), p. 124, The Trouble with CaptasmUS imperiaism’s Economic Crisis 6 ‘hundreds of billions of dollars in Arab oil surpluses for recycling towards neocolonial governments — the idea being to accelerate the turnover of capital and rake in profits from extending the loans as well as from the increased exports to the neocolonies these financed.'* Late 1970s stagflation, however, turned real interest rates negative and cut deeply into US finance capital's profits. With litle prospects for spurring higher returns through expanding industrial output, US policy instead relied on a sharp turn to high interest rates to increase retums to US financial interests and, by stifling productive investment and forcing unemployment, reduces overcapacity. Treasury Bill rates. rose from 10.0% in 1979 to 14.0% in 1981 and bank prime rates from 12.7% to 18.9%, the largest such increases in the post-war era. The resulting 1981-1982 recession was the deepest since the 1930s. In the US, quarterly negative growth rates of 6% to over 7% were registered between 1980 and 1982, and unemployment increased from 6.1 million in 1979 to 10.7 million in 1982. The debt crisis triggered ~ where some US$750 billion out of USS1.5 trillion in loans were suddenly regarded as high risk — also left a swathe of industrial destruction in the neocolonies.”” The US aimed for recovery from the industrial shake-out through unprecedented peacetime military spending, Defense spending of US$324.5 billion in 1981 steadily and rapidly increased to a peak of US$440.9 billion in 1987, compared to the Korean War high of US$469.9 billion (1953) and Vietnam War high of US$460.0 billion (1968).” Industrial interventions were also commonplace with, for instance, billion-dollar bailouts for mega-companies Lockheed defense corporation and Chrysler auto corporation and federal takeovers of the railroads of the northeast and their merger into Conrail. The debt crisis was also used as a springboard to increase entry into neocolonial markets through the IMF and the World Bank. So-called “stabilization” and “structural adjustment programs” were imposed to gain sources of cheap raw materials and labor, provide trade and investment opportunities and ensure continued debt repayments. But global overproduction still persisted. Manufacturing net profit rates in the US, Germany and Japan increased after 1981 but the peak rate in 1988 was lower than was achieved at anytime in the entire 1948- 1970 period, and barely half the peaks achieved then (in 1951 and 1965)." The US cornered much of these benefits at the expense of Germany and Japan. Key to its being able to do this were: first, extracting a dollar devaluation with the Plaza Accord in 1985 (between 1985 and 1990, the yen and the mark appreciated against the dollar at average annual rates of 10.5% and 12.7%, respectively); and secondly, suppressing real wages (average annual increase in real hourly manufacturing wages was 0.15% in the US, 2.85% in Germany and 2.90% in Japan)” Higher returns were also sought in speculative activities with corporations increasingly relying on financial operations to generate profits. As much as 75% of total returns in the US and Britain since the start of the 1980s resulted from capital gains rather than earnings — i.e. in an appreciation of the market value of securities rather than dividends or interest plus reinvested profits” Between 1984 and 1989, US non-financial corporations spent an annual average of USS184 billion on mergers and acquisitions compared to just US$84 billion on non-residential fixed investment (a high-estimate proxy for ‘Total depostin the infematonal banking syst grew fom only about USSSO ion in 196 to over USS tilion in 1965. Samuelson, 2, 800, Ch 3, The Intemational Financial System Today, two decades later, the neocolonial debt overhang remains and hes grown to over US$24 tition 2A fgmsn coe F203 dle, Cones Raroeh Save (202, Dtre Budo FIG: Data Sma, Mar 2, 2 Brenner (2002), Fig. 1.1, p18 Zid, Ch, 2, The American Economic Revival 2 Shut, H (2001), p. 124, The Trouble wth CapitalismUS Imperiaism's Economic Crisis, 7 manufacturing investment).™ Huge financial bubbles developed, fueling leveraged buyouts and stock buybacks, which inflated debt and bubbles further. International finance also boomed with the world bond market of around USS1 trillion in 1970 doubling to USS2 trillion in 1980 and then growing six-fold to US$12 trillion in 1990." There were ever-greater cross-border capital movements. In 1976, over 80.0% of all international transactions involved the buying and selling of goods and services. This dropped steeply through the 1980s and by 1997 was a scant 2.5% i.e, some 97.5% of transactions went to speculation in currencies, equities, bonds, financial derivatives and more. Real interest rates dropped as finance capital found other means of generating profits and, in addition, to spur manufacturing investment. But the process of using financial resources to generate fictitious profits could only go so far in the face of diminishing opportunities for profitable productive investment and US equity markets eventually crashed in 1987, precipitating the global recession of the early 1990s. In 1991- 93 the US business failure rate exceeded the previous record post-war levels ofthe first half ofthe 1980s.’ 2.2 The trouble with the US bubble No “New Economy” A “New Economy” in the US was spoken of because its rapid growth in gross domestic product (GDP), investment, employment and productivity in the second half of the 1990s were better than in any ‘comparable period since the start of the global slowdown in the early 1970s (yet still worse than at any time during the post-war “boom”). By now it’s clear that there was no such transformation and the forces ‘behind the prolonged stagnation of the capitalist world economy since the mid-1970s remain — all the US has been doing, in effect, is maneuver more or less around that general trend. (On one hand, US monopoly capital exploited opportunities opened up with the collapse of the Soviet bloc in the late 1980s. It capitalized on the capitalist triumphalism following the end of the Cold War and mobilized its vast economic policy-making and -influencing arsenal to place countries on the “free market” footing that works so well to the US” advantage” so-called neoliberal globalization. The premiere instruments were the multilateral IMF-WB and, since 1995, the World Trade Organization (WTO), backstopped by regional arrangements like the North American Free Trade Area (NAFTA) and Asia Pacific Economie Cooperation (APEC), and bolstered further by diverse bilateral, business and diplomatic offensives on a country-to-country basis. In less than a decade, the US crafted more than 300 trade and investment agreements including NAFTA, GATT-WTO, the accord establishing permanent normal trade relations with China, the international moratorium on tariffs on e-commerce, and multilateral agreements in telecommunications, information technology equipment, and financial services.”” Between 1993 and 1997, US manufacturing export srowth averaged 11.2% raising the ratio of manufacturing exports to manufacturing value-added from around 32% to 42%. The strongest growth especially after 1996 was in capital goods promoted by the “New Economy” hype: computers, semiconductors, and telecommunications equipment. 2 Polin,R (1994), p.4,"Borowing More but Investing Less: Economic Stagnation andthe Rise of Corporate Takeovers inthe US, unpublished ‘manuscript, December 1994, ced in Brenner (2002) 2 Increasing stil to USS20 tilfon in 1995 and USS25 tilion in 1998. Beams, N (2002), ‘The Word Economic Crisis: 1991-2001, March 14, 22 Bremer (2002), p. 68 7 Offs fhe President (2001, . 250, Econom Report ofthe Present o Cons, Jen 2001 Ii, p78Us Imperiaism’s Economic Crisis 8 Such exports were partly compromised with the reverse Plaza Accord and the engineered appreciation of the US dollar of 20% against the mark and by 50% against the yen between the spring of 1995 and 1998. But this was more than offset by the unprecedented financial bubble of the second half of the 1990s, facilitated by US financial deregulation in the early 1990s and very much fueled by the “stronger” dollar. ‘A virtuous cycle of paper capital and wealth was in motion: irrational stock market valuations especially of technology and telecommunications firms, falsified corporate profits, reckless growth in household and corporate debt, rising consumption, and unjustifiable investments all fed off each other in a ‘speculative frenzy that, certainly, was reflected in “New Economy” macroeconomic performance. ‘Stock market capitalization also shot up from US$6.3 trillion in 1994 to US$19.6 trillion in early 2000, ‘The over-the-counter (OTC) derivatives market in swaps and options grew from $8 trillion of OTC derivatives outstanding in 1993 to over $50 trillion in 1998.” ‘But it was all flash and little substance. The financial wizardry obscured swelling industrial overcapacity for a time especially since it was the behemoth US economy, long the world’s consumer and capital haven of last resort, at work. Equity prices soared with less and less relation to real economy corporate profits which, despite low real wages, remained stifled by the underlying crisis of overproduction. ‘American households breached a debt threshold in 1999 when, for the first time ever, they had more debt than disposable income: their debt as a percentage of disposable income was about 62% in 1978, 102% in 1999 and over 120% by the beginning of 2001." Corporate debt in turn doubled since its levels in the mid-1990s to a record high of almost twelve times corporate profits today.” It’s significant that foreign capital played a big part in fueling the investment and stock market boom where over USS2.5 trillion flowed into the US since the early 1980s. The US has become the world’s biggest debtor: US net international debt reached $1.2 trillion at the end of 1998 and is estimated to reach $3.8 trillion by 2005. In 2000, there were some US$6.6 trillion in foreign-owned assets in the US including US$3.6 trillion in US treasury bonds (two-fifths of the total), corporate bonds (one-fourth) and equities (over a tenth). Counting US assets held by foreign governments brings the total to over US$8 trillion or over 80% of US GDP. Bubbles always burst ‘The signal bursts of the brewing global erisis started in Mexico in 1994, Asia in 1997, and Russia and Brazil in 1998 before landing in the US with the collapse of the US$3.6 billion hedge fund Long Term Capital Management (LTCM). With one last gasp, US stock market indices peaked in early 2000 and then collapsed — with over US$7 trillion wiped off the value of shares so far.*” Growth slowed by the middle of 2000 and business equipment investment, after expanding at a double ligt pace for eight years, collapsed and turned negative in the fourth quarter. Manufacturing was hit particularly hard: in the five quarters starting in the summer of 2000, the manufacturing sector lost some 1.4 million jobs.” But that was only the beginning and the US economy remains in a precarious state. Overeapacity in the world economy — the gap between actual output and its potential — is still at its widest level since the 2 Pender, J (1090), The bankers’ black hole’, Fnancil Times, July 22,1988 Dowd, D (2002), Bankers and Gobalzaton, Past and Present: From Pinstiped Conservatism to 7/24 Speculation tak deivered tothe “ Congressional Research Service (2007), Defense Budget for FY2003: Data Summary, March 28,2002 ‘© Al figures in constant FY2008 dolars, id © US§396.1bilfon (FY2003, including US$16.8 bition inthe Department of Energy budget or the production of nuclear warheads) versus sjobal spending of US$B12 bilion (2000) and Russias USSB0 bllon (2000). Center or Defense Information website (2002), waw.cd.og, ‘accessed June 16, 2002 5 Next year some US$36 bition wil go to nations "cooperating in the US 4d campaign agains teorism,” covering among others the State Department's Foreign Mitary Financing (FMF) program and the Department of Defense for payments for “Togstical and miltay support. Office of Management and BudgetOfice ofthe President (2002), Budget of the United States Goverment FY2003. 5 Hartung, W D (1968), Welfare fr Weapons Dealers 1998: The Hidden Costs of NATO Expansion, World Pocy Institute, March 1908 *2Offce of Management and Budget, Office of the President (2002), Budget o the Unted States Government FY2003, bidUS Imperialism's Economic Crisis 13 ‘Agricultural support, as is already well known, is on the increase. The Agricultural Act of 2001 was renamed the Farm Security Act of 2002 — by any name, the farm bill raises the level of federal subsidies by over 80%, an additional US$82 billion over 10 years. These are on top of annual agricultural subsidies of some US$ 60 billion already and US subsidies per farm may soon be thrice or four times European levels. Maybe less well known is that the growth in discretionary budget authority of the US Department of Agriculture had earlier already leaped three-fold from 4% in 1999 and 2000 to 13% in 2001, or before the 9/11 attacks.* Multi-billion dollar airline bail-outs in late September only vaguely connected with the 9/11 attacks are due to be followed with a US$4.5 billion funding bill for Amtrak recently repackaged as the National Defense Rail Act of 2002. ‘There is also other civilian spending justified by a national security veneer. Only rough orders of ‘magnitude are possible but some idea may be given by markedly higher levels of federal grants to state and local governments. Comparing the periods 1996-2001 with 2002-2007 these shoot up an unprecedented 33%, from USSI1.5 trillion to US82.0 trillion or an increase from 2.9% to 3.4% of GDP. Building barriers Reaffirming the strategic significance of steel, the US has also raised tariffs and imposed quotas on imports of steel, affecting Europe, Japan, China and South Korea steel exporters particularly hard. Besieged, the US stee! industry lost more than 20,000 jobs in the past four years and 30 companies have ‘gone bankrupt. Ten stee! byproducts are covered and the tariffs, ranging from 8-30%, will remain in effect at least until 2004, So far there is little indication of more direct measures at regulating the economy such as in the outright state distribution of raw materials and energy. Yet it could be read as ominous that there are moves to place the “security” of key utilities and infrastructure ~ such as power plents and water systems ~ under ‘coordinated federal and state control, especially under the purview of the newly-created Office of Homeland Defense. 3.2 The global offensive With the worsening crisis and increasing competition from rival imperialist powers and “peer competitors”, the imperative for US imperialism to secure its sources of cheap raw materials and labor, ‘markets for surplus goods and services, and outlets for recycling surplus capital becomes greater than ever. Judicious and even aggressive protection at home has always been complemented by creating trading and investment links that allow US imperialism to exploit and retsin its monopoly advantages. Raw materials ‘Monopoly capitalist excesses make the US a voracious consumer of energy and mineral resources, It’s the world’s largest energy producer, consumer, and net importer. The US imports between 50-60% of its oil needs, about a quarter of which comes from the Persian Gulf (fully explaining US policy towards not only the oil-rich monarchies of Saudi Arabia and Kuwait but also Israel) and another quarter from US rigs in Venezuela and Mexico. It’s also the largest importer of minerals in the world. Nearly all of the US? aluminum needs and more than 70% of its nickel, chromium and tin come from abroad. Latin America’s importance is clear in this i, bidUS Imperilism's Economic Crisis. “4 regard: in 2000, the region produced 43% of the world’s copper, 41% of tin, 39% of silver, and 26% of bauxite; it also produced 24% of iron ore, 19% of zine, 17% of nickel, 15% of gold, and 14% of lead. (Incidentally, there is a simitar situation with the US’ imperialist junior partners: Australia and Canada. ‘They are among the world’s largest producers of industrial metals, minerals and fossil fuels and are the world’s largest exporters of metals and minerals. Not coincidentally, mineral and mineral-product trade between the US and Canada and between the US and Australia each exceeds that of any other two countries in the world.) ‘Among the US’ largest trade deficit items it’s then crude petroleum, natural gas and minerals in which its capacity is most limited, being natural endowments set by geographical circumstance Still, the US is far from deficient in these: it ranks twelfth worldwide in reserves of oil, sixth in natural gas, and first in coal. It’s already the world’s second biggest producer of copper and gold, for instance, and recent geological surveys even estimate that 37% to 68% of the world’s presently mineable resources of gold, silver, copper, lead and zinc may even be within its borders. In any case, the US war against Afghanistan yields vast direct economic benefits for the US, apart from being a key effort in its global geopolitical and security strategy. The former Soviet republics in Central Asia directly encompass or facilitate access to huge untapped oil and natural gas rescurces. The US Energy Information Agency (EIA) estimates a good chance that the Caspian region’s proven crude oil reserves could rival the amount now held by Saudi Arabia and come to 20-25% of total world proven reserves and that of natural gas may at least equal present US and Saudi Arabian reserves.” US policy towards Afghanistan is intimately tied up with this where it aims to outmaneuver Germany, France, Britain, Russia and China in staking a claim. Open markets US monopoly capital needs to sell its products to be able to realize their surplus value and, therefore, its profits which is why it’s so pressing for it to be able to open other countries to its trade and investment. Most important in this regard are Europe, Japan and China — each in their own way the world’s biggest markets. The imperialist European countries and Japan are far and away the world’s richest markets. The EUIS accounts for 23% of world GDP and has a population of 379 million with a per capita income of 'US$20,800. Japan in turn takes up 14% of world GDP and has a population of 126 million and a per capita income of USS26,484. Maybe half of the US’ total trade is with the EU and Jepan. The US? investment interests are also substantial for penetrating these markets and to establish its global production base. In 2000, US$573.4 billion or 46.1% of total US FDI abroad were in the EU compared to 10.2% in Canada and just 4.5% in Japan. Conversely, the EU has US$802.7 billion in FDI in the US or 64.8% of the total compared to Japan’s US$163.2 billion or 15.1%.** China, however, will become the world’s largest market for consumer goods and services and a major market for luxury goods if projections that it will have more than 230 million “middle-income consumers” whose combined retail spending will exceed US$900 billion, are sound.” The US is also keen on meeting infrastructural needs for capital, experience and equipment — ie. construction machinery, roadworks, water, and communications utilities ~ estimated by Chinese officials to be worth as much as US$I.5 trillion between 1999-2005. $s Geological Suvey, US Deparient of the Inrr (1898), National Minera Resource Assessment 1806, 57 US Deparment of Energy, Enary Information Administraon (2002), Caspian Sea Region County Analysis Bri, Februry 2002 5 Haitonen, | (200), The European Union and Worl Trad’, Speaters Buea, European Union, March 2002 $ Nenisson W 200, 'US Cina Trade Raion, Congressional Research Senice, May 28, 202 © Lum, T (200), China's Trade wi the US and the Wert, Congressional Research Service, May 3, 2002US Imperialism's Economic Crisis 5 US exports to China are growing but still relatively small and in 2000 totaled just US$19.2 billion or 2.8% of total US exports to the world, making China the ninth largest market for US exports (though counting US imports as well makes China the US’ fourth largest trading partner). The US in turn is ‘China’s second largest trading partner, largest export market, and largest source of foreign investment.*' ‘The US push for Chinese membership in the WTO especially since the late 1990s is aimed at increasing its leverage against the still belligerent and protectionist behemoth by augmenting the threat of unilateral US sanctions with multilateral rules. Free Trade Areas (FTAs) are significant recent additions to the US’ policy-imposing arsenal especially as more manageable mechanisms than multilateral measures like the WTO.” The US has had an FTA with Israel since 1985 and one with Canada since 1989 which became the NAFTA when Mexico entered in 1994. The US has particularly been pushing in recent years for an FAA covering 33 Western Hemispheric countries by 2005, as well as maintaining interest in APEC for free trade and investment in the Asia-Pacific by 2020. FTAs also serve the political objective of tightening relations with the US. ‘There is a clear surge in interest by US imperialism in FTAs since the onset ofthe crisis in 2000 and especially with Japan and the EU also forming FTAs with other countries. The US completed an FTA with Jordan in 2000 and began negotiations with Singapore and Chile. In the last two years, legislation has been introduced for FTAs covering Chile, Korea, Taiwan, the Philippines, Australia, New Zealand and the UK. Part also of US imperialism’s global offensive is the attack on the dependent capitalism of the so-called East Asian NICs, particularly South Korea and Taiwan. US imperialism subordinated the immediate interests of its monopoly corporations in the 1950s and 1960s and effectively allowed a restricted sort of capitalism to take root in these frontlines against Communism. Bourgeois-dominated land reforms were ‘enforced, generous financial support extended, blatant piracy of technologies tolerated, and access to the vast US and Japanese markets granted for their products. But the end of the Cold War, altered geo-strategic conditions, and a growing global glut in manufactured ‘g00ds has made US imperialism intolerant of industrial upstarts. There has been a determined campaign to pry open the East Asian NICs” trade and investment barriers since the last half of the 1980s. The effort advanced greatly with the so-called Asian financial crisis and the resurgent leverage of the IMF which the US was quick to exploit. IMF conditionalities in its stabilization programs pushed through long-standing US demands for more complete financial and capital market liberalization, dismantling of controls on trade in goods and services, and an end to state-directed industrial policies (not only in the NICs but across all of East Asia). US imperialism is also pushing greater finance sector liberalization to expand global outlets to be able to recycle its surplus finance capital and, audaciously (considering what the US financial bubble has ‘wrought, to generate momentary sources of pseudo-growth in a manner mimicking the US bubble-driven economy. Neocolonies in particular are the target of US banking, insurance and other financial institutions under the rhetoric of promoting "well developed and competitive financial sectors [that] must be the engines of growth in this decade." id, FTAs are arangoments ofthe US with two or more counties where tas and noni bates on trade in goods are eliminated. The US ‘also commonly pushes for res on foreign investment, intelectual property fghs protection retment of labor and environment, and trade in services. Cooper, W H (2002), ‘Fee Trade Agreements: Impact on U.S. Trade and implications fr U.S. Trade Policy’, Apri 29, 2002 5 US Deputy Secretary of the Treasury Kenneth W. Dam to reporters at a press conference hel atthe U.S. embassy in Kuala Lumpur, Malaysia, May 7, 2002,US Imperiaism's Economic Crisis 16 4. Inevitably deeper crisis ‘The sources of the US" apparent strengths are also the wellsprings of its greatest weaknesses. These are all critical flashpoints for US imperialism. ‘The US’ global spread is far-reaching. But it stands to become over-extended in its concerted effort to simultaneously secure its grip over its neocolonies, expand its hold over new ones, and prevent European and Japanese imperialism from increasing their economic leverage over the US. Raging economic crises and resurgent people’s struggles and social movements — are laying the basis for assertions of independence from US imperialist control in the neocolonies and intensifying rivalry with potential so- called “peer competitors” and imperialist rivals. Although still very considerable, US economic dominance is much diminished from what it was in the early post-war era. The US domestic economy already rests on a precarious financial house of cards ‘whose stability increasingly depends on US imperialism being able to convince the rest of the world that it is the safest haven for capital bar none. But the escalation of state monopoly capitalism will aggravate deep-seated problems of exploitation as the American working class are made to buoy monopolists” profits through higher taxes and the pillage of their social security funds. The attempts to increase Profitability in some sectors, such as the arms industry, may backfire over the long-term as competitiveness and productive capacity elsewhere in the economy degrade and become more vulnerable to overseas industrial competition. There is undoubtedly a considerable increase in war-related and -justfied spending and economic regulation, even if the manufactured “terrorist” threat and the overall political environment do not yet allow for a full-scale wartime mobilization. But no matter how massive, bourgeois economics’ bag of ‘economic tools is limited by the overriding concem of protecting monopoly capital’s profits. Since they are profoundly unable to resolve the basic contradictions of monopoly capitalism — nor are they designed to — the inevitable outcome will be as it always has been with the crisis of overproduction. The widespread destruction of productive forces hitting the uncounted masses of poor, hungry, sick and maleducated the worst. ‘The urgency for a more liberating, democratic and humane alternative remains. # ‘The US-based Citizens fr Tax Justice note that of the US$10 bitin in programmed tax cuts, comprising accelerated tax beaks and capa ‘ns cts, 41% would goo the chest 1% of taxpayers and ast three-quarters the lop 10%. Pyrl taxes on the other hand ae expected to increase.