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The “War against Terrorism” and the Future of Capitalism
by Jim Devine
As a professional economist, I cannot and should not claim to be able to
predict the future. But we can see the contours of what might happen during
the near future (the next year or so) due to the attacks on the World Trade
Center and Pentagon and the resulting “war against global terrorism.” Many
of these trends could be seen before September 11, 2001 but have been
intensified since, partly by the attacks. Key issues concern globalization,
recession, and deregulation.
1. Will this war accelerate the move towards greater globalization or
The answer, of course, depends on what one means by the main noun. To me,
“globalization” refers to the worldwide spread of capitalism as a social
system. It does not mean “free trade” in final goods and services as much
as the internationalization of production processes under the domination of
capitalists specifically, transnational corporations and the worldwide
movement by industrial capital to find the highest possible profit rate
(and the most pliable labor forces, the lowest taxes, the most flexible
environmental standards, etc.) In addition, this internationalization
involves the easy mobility of financial capital. “Globalization” is
short-hand for corporate globalization.
But just as the development of national markets went along with the growth
of the national state, concomitant with economic globalization is the
development of the currently-embryonic world government, centered on the
hegemony of the United States, its allies in NATO, and its financial
organizations, the International Monetary Fund, and the World Bank.
Capitalism needs centralized organizations that fit the scale of the
economy and its failures. Of course, the economy and the political system
do not automatically develop in sync, but instead typically do so unevenly.
This is partly because, as with the case of the steel industry, the U.S.
interest in globalization do not coincide with the political power of some
At first blush, the war will probably reinforce the globalization of
production, since it seems to reinforce the hegemony of the United States,
a major proponent of this trend. As long as the war goes reasonably well
for the U.S., countries in the Middle East are more likely to be open to
foreign direct investment by “Western” corporations. Greater industrial
investment in the Middle East in search of low wages and the like may extra
weight to the general downward competition of wages (relative to labor
productivity) and of global environmental quality that has been occurring
during recent decades (led by China).
However, this tendency is likely not to be realized in the near future.
This is because, for example, the inflow of capital funds may hit
resistance from Islamic banking practices, which rule out interest
payments. Further, and more importantly, Middle Eastern countries may use
the U.S. need for their support in the war along with their oil wealth as
leverage to protect their financial systems and many other aspects of their
societies from “Western” penetration. For example, most of them are quite
likely to strive to prevent any move toward encouraging a more “Western”
social role for women. In light of this, the Bush leadership has shifted
very clearly away from ideas of a “crusade” was against Islam per se to a
mere “war” against the extremists, such as the Taliban. In addition, there
may be a rough patch for the globalization of finance, as part of the
efforts to prevent the funneling of funds to terrorist “cells.”
I would guess and that’s the crucial verb that the war is most likely to
promote the solidity and the breadth of the development of the
U.S.-dominated World State (assuming that the U.S. wins). War is always a
state-guided action. It’s only in the longer run, after the “war” ends,
either in a bang or a whimper (or both), that the U.S. and its close allies
will use their new political power to push for more economic globalization.
2. Will the “war” reverse the tide towards recession or accentuate it?
Though the September 11 events have sparked a sudden increase in economic
gloom, evidence suggests that a full-scale recession had already begun.
Among other things, the usually conservative London Economist [August 25,
2001] pointed to a fall in the world economy, even though the U.S. was not
officially in recession. The U.S., they note, had “exported its recession”
to the rest of the world, by lowering its imports. More recently, Kenneth
Rogoff, a lead economist at the IMF has labeled a U.S. recession a “done
deal” (though he tried to moderate his implication).
It is useful to examine the background. In very simple terms, the U.S.
high-tech and industrial economies have been declining rapidly, along with
fixed productive investment, though the U.S. economy as a whole was being
held up by consumer demand for housing, autos, and services. Digging
deeper, we can say that the U.S. economy was being held up by the
extravagant accumulation of debt by consumers and to a lesser extent, by
corporations. Given the low spending by (or high taxes of) the U.S.
government, which pushes the economy toward recession, this
bankruptcy-risking behavior kept the boom going. Of course, the private
sector’s debt accumulation was financed by a large inflow of foreign funds,
i.e., a rapid increase in the U.S. external debt. This rising indebtedness
corresponded to the U.S. being the world’s “consumer of last resort,”
compensating for and sometimes more than compensating for the depressive
tendencies resulting from the world-wide tendency for wages and thus
consumer demand to stagnate relative to productivity and the more general
“competitive austerity” programs encouraged by the IMF and by the way in
which transnational capital plays one country against another.
Then in 2001, the implosion of the high tech bubble and the declining stock
market encouraged the U.S. slowdown, which was so precipitous that it
shocked the economic forecasters to the core. (They predict a recovery next
year, but that’s their job.) The important anchor of the so-called “new
economy” and the whole telecommunications sector went into recession,
while many well-to-do borrowers found that much of their collateral high
stock valuations didn’t exist. This encouraged rising pessimism, massive
cutbacks in consumer spending, and now, GDP declines.
In early 2001, however, the U.S. Federal Reserve rode to the rescue,
cutting interest rates repeatedly and dramatically (and sometimes in what
seemed a panicked way). So many problems like what to do about poor single
mothers who have been pushed by “welfare reform” into the labor market to
support their kids are going to be much worse with the end of the boom
that something had to be done. This expansionary policy has worked, but not
well enough to satisfy most observers, especially when layoffs and
unemployment are beginning to soar.
The problem is that cutting interest rates works poorly when business faces
unused capacity and excessive debt and is thus pessimistic about future
profitability. But the Fed’s policies have worked to slow the slump by
counteracting the the stock market “asset deflation” by the continued rise
in the price of housing, which has boosted the wealth of home-owners and
encouraged continued spending. The problem, of course, is that it’s hard to
imagine the housing bubble continuing in the midst of a growing world
recession. New house construction is stumbling, while housing prices seem
to have peaked.
Fed chair Alan Greenspan has lost his image of omniscience and omnipotence
and even his self-confidence. The stock market, often seen by rich folks
(and thus the media) as the economy’s most important barometer, was falling
or in the doldrums. So, at least from this perspective, the bombings of the
World Trade Center and the Pentagon occurred exactly on time. They
unleashed a new version of military Keynesianism. I don’t believe for a
moment that the bombings were in any way a part of some sort of plot to
stimulate the economy, but that’s exactly the result they have had.
The two pillars of the program are summarized by its name. “Keynesianism”
refers either to the use of government deficit spending to stimulate the
economy or to the stability of a large military budget, acting as a
“balance wheel” on the economy, moderating its fluctuations. Examples of
the first sort include the way in which the build-up to World War II
boosted the U.S. and the world out of the global depression and the way in
which President Reagan’s program eventually encouraged economic recovery.
The “balance wheel” role was played during most of the post-World War II
era. Why do we need Military Keynesianism, then? In the United States,
unlike in most of the rich capitalist world, the working class and other
non-capitalist forces were too weak to counteract the power of the
capitalists, so that only an anemic welfare state resulted. That is, only
military spending which does not compete with existing civilian industries
and creates profits for many was politically correct.
In the late 1990s, 2000, and early 2001, the economic moderation encouraged
by Military Keynesianism negated by the rise of the government’s budget
surplus. The government surplus was dragging down the U.S. economy. But
now, with the war and the need for rebuilding and for tighter
security the government’s balanced-budget strictures have melted away.
More and more calls for fiscal stimulus are heard in Washington.
Whether this will work or not depends partly on the nature of the war. If
the war is high-tech, capital-intensive, and uses only elite forces, will
have only limited stimulative effect, as with the Gulf War of 1990-91. On
the other hand, a full-scale World War II-type conflict is more likely to
bog down and cause opposition. Though Bush may want to end the “Vietnam
syndrome” (the fear of U.S. casualties and the draft) it will not go away
3. Assuming a war economy footing, will this halt the trend towards
deregulation and how does this fit the neo-liberal corporate agenda?
According to Larry Elliot the British Guardian [Sept. 20, 2001], the “free
market tide has turned.” Not only has Keynesianism been revived, but as he
continues “Curbs on the freedom of markets are back in fashion. The new
enemies for governments are speculators trying to destabilise financial
markets [and] the tax havens that facilitate the movement of funds to
finance terrorism …” He also points to the government efforts (in all the
rich countries) to save the private airlines and to shore up the New York
stock market when it reopened.
All of this is true, but little is new. In theory, neo-liberalism (or
laissez-faire) involves letting the airlines go under rather than stepping
in to save them (for example). But in practice, this theory has always
meant aid to the rich and powerful and laissez-faire for the poor and
working classes. The IMF has been bailing out the rich creditors while
punishing the debtor nations’ working people (but usually not the elites).
That said, there does seem to be a shift toward increased statism, as is
usual during wars. But statism is not always a good thing, as seen by the
extreme case of fascism. State intervention in markets and the affairs of
business in a word, regulation will only be a good thing when
non-capitalist political forces can marshal enough political pressure to
counteract the power of moneyed interests in government.