Thursday, February 5, 2009

The Global Political Economy and US Foreign Policy

(Excerpts from a presentation at the Deerfield Progressive Forum, Deerfield Beach, Florida, January 17, 2009)

“When people do not have sufficient access to income, tools, opportunity and ability to accumulate assets, their fundamental right to work and earn a livelihood is threatened. Around the world and in the United States, systemic injustices, disparities based on gender, race and class, market fundamentalism, reworking of trade agreements and the erosion of labor rights all contribute to the erosion of people’s ability to earn a living wage with dignity.” Unitarian Universalist Service Committee (, 2006.

We would be remiss if we failed to see the connections between the historic development of the permanent war economy and the parallel and connected developments of the global capitalist system. The global economic crisis and attendant war and terrorism in rich and poor countries alike are the direct resultant of years of unbridled, unplanned capitalist expansion on the world stage. We can plot the transformation of the global political economy, that is the parallel and combined development of economic and political institutions since World War II, to understand how and why the crisis of today emerged. And, after reflecting on world history, we can begin to see what needs to be done to overcome the crises that befall us.

Economic Crisis and Shifts Toward Financialization, Deindustrialization, and Globalization

During the period from 1945 and 1968, the so-called “golden age” of the U.S. economy, multinational corporations and banks spread across the globe while domestic consumption soared. Except for short recessions, the US economy grew steadily. The permanent war economy resulted in massive military spending, U.S. troops and bases in dozens of countries, bilateral and multinational military alliances, and deepening wars in Asia and covert operations in Africa, the Persian Gulf, and Latin America.

Underlying the global thrust of the U.S. military was an economic expansion similar in scope to the British empire of the nineteenth century. For example, US invested capital rose from $11 billion in 1950 to about $70 billion in 1969. This was so because profit margins from foreign investments were almost twice those of domestic operations. The year 1969 was illustrative as profit rates were 6.8 percent on domestic investments and 12.5 percent on foreign investments. MacEwan wrote about the significance of enlarging investments around the world when he suggested that “the absolute growth of U.S. business interests abroad is impressive, but it should be seen in the context of the establishment of overwhelming U.S. dominance in the international capitalist economy” ( in Harry R. Targ, Strategy of an Empire in Decline: Cold War II, 1986, p.32.)

The growth of international banking paralleled the growth of private investments on a worldwide basis and the United States was one of the leading financial participants. “In 1960 eight U.S. banks operated 131 overseas branches with overseas assets of $3.5 billion …By 1970 there were seventy-nine banks with 583 branches with $77.4 billion in assets…For comparison’s sake, the total assets of all U.S. commercial banks in 1960 were $255.7 billion; in 1967 $448.9 billion; and in 1974 (June) $872.0 billion. Thus while total domestic assets grew about 3 and one-half times between 1960-74, overseas assets grew about 42 times” (James Hawley in Targ, p. 35).

But, for reasons of military excess and the contradictions of global capitalism, the golden age could not last. The 1970s brought economic crisis around the world: oil shocks; inflation; high unemployment; over production; growing economic competition among the United States, European nations, Japan, and the Socialist camp. To further complicate the picture, third world revolutionary movements and demands for a New International Economic order challenged the global domination of industrial capitalist powers.

From the standpoint of U.S. corporations and banks, the most critical part of the crisis was the squeeze on profits. Public policies were adopted to promote recovery, particularly in profit rates. For example, the Nixon administration withdrew the United States from the Bretton Woods system of fixed exchange rates so that investors could speculate in currencies.

In addition, the rulers of the International Monetary Fund and private banks began a massive campaign to pressure poor countries to borrow money. At that point the debt system as we know it was launched. It opened the doors for wealthy countries, from which corporations and banks came, to impose economic policies on loan recipients. As poor countries found themselves unable to continue to import oil at draconian prices, European and U.S. banks, flush with petrodollars from oil rich countries, made funds available. In exchange, demands grew from powerful countries and leading international institutions such as the International Monetary Fund to force borrowing countries to deregulate and privatize their economies and cut taxes. Poor countries were told that they would receive loans if they transformed their economies in ways to open the doors to foreign capitalist interests. Eventually, the changes demanded of poor countries were instituted in rich countries as well. In sum, the political agenda of imperial powers was to use the economic crises, particularly the oil shocks, to reverse the forty year commitment of the capitalist world to the welfare state.

In this 1970s context of global economic crisis three interconnected components of the capitalist system were set in motion. The first, as has been suggested, was financialization. This involved the dramatic growth over the subsequent years in lending and credit, debt servicing, and speculation (stocks, bonds, hedge funds, private equity funds, and other forms of paper, e.g. “the virtual economy). The second, deindustrialization, constituted a massive movement by investors of capital out of U.S. goods-production, or manufacturing, to more profitable speculative activities or to production overseas where labor costs, wages and benefits, were significantly cheaper. Finally, globalization stimulated a qualitative increase in the integration of the U.S. into the global economy and culture with shifts to overseas production, distribution, lending, and speculation.

The period since the late 1970s and most associated with the “Reagan revolution” represented the culmination of policies relating to financialization, deindustrialization, and globalization. The United States, the international financial institutions, and other capitalist powers, vigorously promoted so-called “neoliberal policies” everywhere. Countries that needed to borrow money to continue to purchase the oil they had become addicted to were forced to downsize their governments, cut back on public services, deregulate their economies, sell-off or privatize their publicly owned enterprises, and shift to producing products for export rather than domestic consumption.

At home, there were significant reductions in government programs relating to health, welfare, and education and radical increases in military spending. Sustained campaigns were initiated to destroy the labor movement. Tax cuts targeted the wealthiest Americans and breaks were given to corporations which shifted their manufacturing facilities to other parts of the world. And foreign policies were instituted to force poor countries to embrace the neoliberal policies described above. With minor variations such policies continued through forty years of Republican and Democratic party rule. Contemporary critics of these historic developments, such as Joseph Stiglitz and Kevin Phillips, refer to the economic program as “market fundamentalism” and the political vision of limited government, “negative government,” (limiting government programs to military spending and domestic police protection).

The Global Political Economy Today

We now can consider the structure of the global economy today, the impacts of these policies, and the reaction to them from those motivated to fulfill the fundamental needs of the world’s people.

Just a few pieces of data will illustrate what this historic process of economic and political transformation has come to:

First, economic concentration at the global level has reached extraordinary proportions. By 1996, the top 200 multinational corporations had combined sales exceeding the value of the Gross National products of all but the nine wealthiest countries and by 2002, these sales equaled 28 percent of the value of all goods and services produced in the world. In 2003, 52 of the world’s largest economies were corporations and 48 were nations. The largest corporation in the world today, Wal Mart, has the 19th largest economy among states, corporations, and banks. As to banks, twenty of them had assets of $425 trillion at the dawn of the new century and only 16 accounted for 60 percent of speculation on foreign exchange markets in 1999. Financial speculative transactions, reached a dollar value of $1.5 trillion a day in the 1990s.

Second, global debt continues to grow and is paralleled by expanding national and personal debt in the United States, thus increasing the vulnerability and precariousness of all peoples. Poor countries owed the international banks, public and private, $2.5 trillion in 2004 and between 1998 and 2002 poor countries paid back interest and principle on the debt $217 billion more than they received in new loans. And in the United States since the 1990s, American indebtedness has exceeded earned income.

Third, the processes of personal remuneration are being radically transformed on a worldwide basis. Over the last 100 years, the major activities workers of all kinds have engaged in to “earn a living,” have shifted from agriculture, (providing basic sustenance), to manufacturing (in many cases earning a livable wage), to service (working for lower and barely survivable wages), to struggling in the informal sector (desperately hustling on the streets, running drugs, prostitution, gambling, and selling commodities in public markets). Almost half those who seek to earn a living in Latin America today are now in the informal sector.

Fourth, inequality is expanding between countries and within countries and economic and political marginalization, or human precariousness is spreading. United Nations and others sources report that gaps between rich and poor people have grown over the last 40 years. Eighty percent of the world’s gross domestic product is controlled by one billion people and the other five billion share the remaining twenty percent of it. Nearly one quarter of humankind lives on $1 a day and almost half, 3 billion people, live on $2 a day. African economist, Samir Amin, has a name for this mal-distribution of income and wealth. He calls it human “precariousness” (Monthly Review, October, 2003). The growing inequality in the global system is paralleled by a similar dynamic within the United States, with at least ¼ of the population poor or working poor. And African American scholar Manning Marable reminds us that the growing precariousness of existence in the United States hits people of color disproportionately (“Globalization and Racialization,”

Resistance to Empire Abroad and at Home

These and other data can be daunting, particularly if we fail to examine the varieties of resistance in global and national politics. Mass movements of workers, farmers, women, indigenous people, environmentalists, and peace activists have been mobilizing increasingly everywhere. One kind of example is the World Social fora, the annual meetings of so-called “anti-globalization” activists who meet and network every year somewhere around the world. Their rallying cry is “Another World is Possible.” For the first time, an annual meeting of the World Social Forum was held in the United States in June, 2007in Atlanta, Georgia. About 10,000 people attended, largely youth, women, people of color, and activists from or in solidarity movements with peoples of the Global South. Their energy, enthusiasm, and vision were inspiring.

At the level of governments, resistance to the global economic and political order that had been established after World War II is being challenged. Opposition is growing to rich country trade demands in the WTO, continued IMF penetration of poor countries, the debt system, and big power interference in the political and economic life of countries of the Global South.

In the United States during the recently concluded election season political interest and participation was high. Young and old became energized by the political process. Candidates were being pressured, by virtue of the mobilizations, to address issues relevant to workers, women, African Americans, and youth. They were forced, however inadequately, to address health care, the environment, racist government policies, and a neoliberal economic policy that privileges corporate and banking interests at the expense of workers in the United States and around the world.

All of these trends and forms of resistance have been highlighted within the last year by the emergence of a national and global financial crisis that has not been seen since the Great Depression of the 1930s. Global capitalism is experiencing over-production, under-consumption, rapidly declining profit rates, unrecoverable indebtedness, and massive unemployment. In addition, the very environment that sustains life is under serious challenge. It is possible that the capitalist development of the late twentieth century, including financialization, deindustrialization, and globalization, and fostered by neo-liberal policies and militarism has reached a moment in which its survival is at risk.

Whatever the future holds for the global capitalist system, progressives must work in the short-run to try to improve the physical, political, cultural, and psychological well being of the world’s citizens. In the twentieth century we saw various political movements and ideologies offering a vision of “positive government,” that is a vision that says that political (and economic) institutions can and should be created by
and for the vast majority of people. While many experiments in positive government failed, for a variety of reasons, the global movements of our own day are saying that we can establish new institutions that represent us all, and not just the rich and powerful. In the face of this deep crisis of capitalism and militarism, that is the continuing challenge of the 21st century.

Harry Targ teaches and writes on United States foreign policy and international political economy at Purdue University. He has a blog at