This paper proposes that the US, situated globally as economic hegemon, is at a crossroad; a position that increasingly forces it to re-evaluate its international goals, policies and strategies. That is, its foreign policies in a global arena that places it in a position that is dominant – economically, militarily and politically.
The classical Gold Standard and post-WWII Bretton Woods Accords provide the foundation for the current global economic system role. The current status and role of the United States within this system is central to discussions of global political economy and current globalisation trends.Since the close of WWII in 1945 the US has steadily risen to its current global status as a powerhouse founded on liberalism. On that basis, as an economic hegemonic power, it’s driven by neo-liberal ideologies that are necessary to the maintenance of its global economic status. The emergence and continuing growth of regional trade blocs, such as NAFTA and the E.U. and the rise of global opposition to its power by some, increasingly highlight the myriad dimensions and consequences that such alliances entail, appear to pose threats to the U.S economic hegemony. As a consequence, the U.S is becoming more reactive to global pressures in the face of a need to provide the global leadership that is to be expected from a nation in its current position.
To maintain its current political and economic status, the U.S must then engage in substantive dialogues with its allies, supporters and detractors alike. Its failure to resolve a variety of international issues holds the potential to result in a global economy that is as fractured or as fractious as it’s today. There is also the potential for some global military conflict; an area, it should be noted, in which the U.S holds a significant advantage, as well.
A historical look of the economic and political foundations of the current global monetary system, such as it exists, and liberal democracy ideologies of the 19th century, form the basis for my overview of the origins of the current global Banking System that’s heavily influenced by U.S domestic, foreign or economic policies.
The classical Gold Standard as a monetary regime, while not perfect, allowed for cyclical marketplace fluctuations, or relatively minor booms and busts, while keeping business cycles in check, as a whole. This enabled rapid development and eventual liberalisation of the international marketplace for trade in goods, services, exchange and investments. The Gold Standard of exchange also provided an automatic mechanism that kept the inflationary potential of the market under control and the balance of payments of each country in equilibrium. That is, if a nation’s increase in its supply of paper currency resulted in local inflation and rising prices it faced devaluation abroad. Decreases in local income or consumer spending power often result in increased imports of goods and services. As domestic prices rise and incomes decrease or stagnate it discourages local production and lowers consumption, while increasing the dependency on foreign imports that result in national deficits and balance of payments issues around servicing such national debts.
Increased gold outflows often mean that a country eventually resort to contracting local currency supplies. This then feeds inflation as loss of national gold reserves to external creditors, manufacturers and producers increases. Such domestic inflationary pressures also see banks reducing the level of lending and encouraging savings through increased rates of return – to stave off foreign creditors or suppliers who seek to redeem currencies and credit notes.
Late 19th century government interventions in the marketplace weakened the mechanisms that the gold standard created within the economic system. Each time governments intervene, such as through controlling mints, treasuries, reserves, setting legal tender laws, increasing or decreasing circulation of paper currencies, it results in additional cycles of inflation or recession that now exist within the Gold Exchange Standard framework of global economics.
The establishment of centralised repositories of gold reserves in the post-Gold Standard era became the basis for a global Central Banking System that allows gold warehouses to flourish and function in money
markets, in much the same way that other types of warehouses do. That is, all goods and services require a centralized system of accumulation and distribution before passing into a consumptive form – where it’s used up in some manner that is utilitarian.
Profit earned by the provider of warehousing services or facilities is no different from any other earned —such as, charges for storage or sundry services. This is the nature of the modern marketplace and the financial basis for most monetary systems: warehouse receipts for money have become functional money substitutes where fewer transactions or actual movement of gold occur. Increasingly, paper titles to the gold stored are used to establish ownership; and as the marketplace develops it imposes limits to the advancement of this substitution process. 1
Money, on the other hand, is not used in the same sense or fashion. Rather, it is used or put into circulation in exchange for goods or services that lie in wait for such exchanges to occur at some future time. Thus, money is not used up, inasmuch as it is transferred from one person to another in exchange for some goods or service; and this is, essentially, the nature of any marketplace. Some firms become successful in such an environment by providing warehousing services; and, as in the case of all warehouses, the owner’s right to the stored goods is established by a receipt which he receives in exchange for the storing of his goods or provision of some service. The receipt entitles the owner to claim his goods at any time he desires.
We see that as banks and financial institutions grow clients develop a confidence in them that is based on both convenience and a confidence that their rights (as contained within paper receipts) keep their titles through such financial mechanisms as open books, bank accounts or deposits. In time, within such a system the transference of paper receipts become the means by which clients lay claim to their property as the exchange of notes authorises a warehouse to transfer a portion of one account into that of another. So, clearly, there’s no difference between a bank note or a deposit: both represent claims to ownership of something of value.
It’s on this basis that current banking policies and other financial practices allow for the charging of service fees for the handling of electronic/online transactions of customers, illustrating the degree of confidence clients have developed in current banking and financial institutions. It should be noted that, apart from the producers of actual gold nuggets and other precious metals, those who refine, store and tally the global reserves of gold ingots and bullions in secured repositories constitute an industrial or mercantile class within the financial marketplaces of the 21st century. The societal need to derive financial profits is driven by capitalistic means of production and distribution of labour, goods and services. Wealth, as such, has no other source of value.
What appears as an acceleration of the global economy towards one based on a paperless, moneyless or purely electronic financial system of commercial transactions has become the foundation upon which the next global financial regime expects to establish itself. The impact or influence that state governments will have over such a system remains to be seen. What is known, however, is that when governments meddle with the marketplace the impact is felt in the form of domestic or global inflationary pressures.
Inflation provides no general social benefit. It simply redistributes wealth on a ‘first-come-first-served’ basis. It’s a race to see who can acquire new or ‘free’ money the most and earliest in a fluctuating marketplace. Inflation also distorts key business calculations upon which national economies depend; and since prices do not all change uniformly or at the same speed businesses often misread potential impacts, find it difficult to separate the lasting from the transitional fluxes and misjudge either the demands of consumers or the cost of operations. In the end, both businesses and consumers may over-spend their gains without realising that they are, in fact, consuming their capital investments.
At the other end of the inflationary spectrum is economic depression where newly minted and distributed money is provided as loans and investments to business as governments attempt to ‘wrestle inflation to the ground’. What such government intervention does is cause normal business cycles to further fluctuate by inducing the banking system and other financial institutions to distribute new money and credits under the direction and guidance of governments, through central banks.
When the incentives of the financial marketplace is to borrow and repay later rather than save , inflation penalises thrift and encourages indebtedness. Ultimately, inflation leads to a lowering of the general standard of living and creates a false sense of economic prosperity. The resulting illusory profits produce economic calculations that are distorted by inflation. The marketplace’s inability to penalise inefficient businesses and reward enterprising ones leave it hamstrung. The result is often stagnation or declining economies
In the absence of a current, stable and effective global monetary regime on which to base future global financial or economic policies that governs trade in goods and services institutional finance managers, planners and policy-makers must regain control over current monetary systems and institutions, if it’s to be generally accepted or successful at a global level.
The removal of the marketplace checks on inflation occurred when centralised banking was elevated to the political position of being national governments’ control of the marketplace through the issuance of bank or credit notes on the basis of national gold reserves. Prior to this, banks were nominally owned by individuals or jointly by groups of private individuals. But under the direction of government-appointed officials private banks and bankers were steered toward implementation of governments’ fiscal or monetary policies. When the United States adopted the Federal Reserve System of centralised banking in 1913 it was perceived as putting it in the ranks of advanced nations.
In a banking system beset by inflation, any one bank demanding redemption of another bank, banker debtors can only be contained by the introduction of more money from reserves into all the private banks since centralised bank seeks to ensure that private banks expand at a uniform rate. When all banks expand simultaneously there is a minimalising of the potential for one bank to develop at the expense of another that is not beneficial to the state as a region. That is, the limits on bank expansion are increased from the clients of each bank to that of the whole banking system.
The Bretton Woods accords and the Gold Exchange Standard (1945-1968), conceived as a new international monetary regime, was promoted by the United States at the International Monetary Conference around mid-1944. Policies that came out of the conference were ratified by the U.S Congress in 1945. It was a system, typified as the gold-exchange standard, in which the U.S dollar displaced the British pound sterling as a key international currency. Its purpose was, essentially, to act as an anti-inflationary buffer to fluctuating global marketplace forces. In addition, the Bretton Woods system allowed the United States to valuate its paper currencies and bank deposits on the basis of the large amount of gold it held in national reserves.
The United States began the post-WWII period with an estimated gold reserve valued at around $25 billion. And so, the Bretton Woods accords worked as long as all the world’s currencies used the new system to return to a pre-WWII economic level. The weakness within the system, however, was the imbalance that resulted from an inability to define the worth of depreciated currencies. That is, some currencies, such as the British Pound Sterling, were worth far less in terms of purchasing power in the marketplace because of minimal gold reserves to underwrite the existing Pound Sterling currencies.
As the 1970s approached, some Western European nations (as well as Japan), chaffing under the inflationary burden of a global economic system dependent on a stable U.S dollar and non-inflationary fiscal policies of the U.S administration sought options other than the continued stock-piling of U.S dollars in national treasuries with reserve currencies that became increasingly overvalued; and negatively impacted national and international purchasing power). And, as the global value of U.S dollars fell the cycles of inflation or recession were further fueled by governments implementing fiscal or monetary policies that drew their economic assumptions from the Bretton Woods accords.
Thus, locked into the global economic system that was dominated by the U.S, Europeans and Japan were forced to confront the long-term consequences of the Bretton Woods accords; as well as their wartime and legal obligations to abide by its terms. Europe was fortunate in that it had the legal option to request redemption of it dollar reserves in gold, at $35 per oz. As the dollar became increasingly overvalued in terms of hard currencies and gold European governments increasingly exercised this option. This resulted in policies by the U.S to insert checks (market mechanisms) that would stem the outflow of gold from U.S treasuries and reserves. In fact, U.S. gold stockpiles shrunk over a two decade period from approximately $20 to $9 billion U.S.
And so, with the U.S dollar inflating against a shrinking gold reserves base the U.S. maintained global economic engine and cornerstones of the Bretton Woods system began to falter. Serious instability developed in the form of about $80 billion in unwanted U.S dollars floating through Europe and Japan. The U.S. government, exerting political pressure on European governments to stop European redemption of dollars into gold failed to stem the tide of economic decay in much the same way as the British attempts in the 1930s to convince France not to redeem its outstanding credit notes failed to maintain the status that the Pound sterling once enjoyed. By 1968 the Bretton Woods accords had ceased to be effective as a global economic regime.
Special Drawing Rights (SDRs) emerged out of the global economic crisis that pushed the U.S to seek the establishment of a new kind of world currency reserve. The hope was that it would replace gold and provide the basis for payment for trade and other international commercial and financial transactions. SDRs would be issued by a World Reserve Bank, of some sort. Global opposition to such a system, however, developed out of fear that such a system would also establish the U.S. as a dominant economic power – on the basis of its existing gold and outstanding credit notes. Consequently, SDRs have been intensely opposed by Western Europe and other countries that depend on or thrive on hard-money, such as gold, supplemented by smaller amounts of U.S and other stable currencies.
Yet, gold prices have never fallen below $35. By early 1973, the price of gold had steadily climbed upward. Today, (as of March 2004) it sells for more than $393.00 /oz U.S. So, rather than establishing a new monetary system, the two-tier gold market turned out to have been just a stop-gap measure against continuously inflated U.S dollar and the deficits that it leaves in its wake.
Other strong currencies did manage to emerge, such as the Eurodollar and Japanese Yen and Deutche Mark, even as gold continued to flow outward at higher free-market prices. This then resulted in a global recognition that, with the accelerated loss of world confidence in the U.S and attempts at a two-tier global economic system, the Bretton Woods accords had outlived their economic, monetary, fiscal and political usefulness and should be dissolved.
Admittedly, this is a scant sketch of economic practices of western democratic and liberal societies – where capitalism is the central cog to all economic activity and transactions. But when applied to the U.S and the global economic trends of the 21st century it becomes increasingly apparent why and how the U.S manages to maintain its current status and political clout in global affairs. It’s for those very same reasons that many question the perceived economic hegemonic stranglehold the United States exercises globally.
Is there a normative deficit in the theory of hegemony? This is a question posed by Simon Critchley. Politics – that realm of decision-making and actions in the social world (what Gramsci calls hegemonisation) – is understood as actions that attempt to establish the meaning of social relationships. Thus, if conceived of as category within hegemony, then politics which act as a power, force or will that is contingent on preceding factors). Hegemony then:
” …. reveals politics to be the realm of contingent decisions by virtue of which subjects (whether persons, parties or social movements) attempt to articulate and propagate meanings of the social. At its deepest level, the category of hegemony discloses the political logic of the social; that is, civil society is politically constituted through contingent decisions”. 2
This is a key concept in Laclau’s work on ‘hegemonic universality’ where political is action motivated by or orientated around universal terms such as equality, human rights, justice, individual freedom or liberty. Yet, that universality is always contaminated by the particularity or specificity of social context that is endemic to all terms and their derived meanings. That is, political decisions attempt to erase their traces of power, force, will and contingency by naturalising or essentialising their contents. For example,
“Kosovo is, was and always will be Serbian, or Macedonia is, was, and always will be Greek, …. politics try to render itself and its operations of power invisible by reference to customs and traditions.” 3
From the perspective of historical structural theorists, nationalism and its underlying social or political contexts reveal that hegemony is like democracy and liberalism: opposite sides of the same coin. Perceived in this manner, communism and socialism are then related ideas that grew out of preceding historical and social conditions.
In a sense, hegemony is the ideological equivalent or answer to questions about the nature of national politics? In my view, they are co-joined or inter-related in the same way as democracy and liberalism or communism and socialism are related to describing particular social conditions within a particular region or political state. That is, they represent ideas that have grown out of social conditions about ideologies that strive to define the basis of existing human social conditions.
Marxist theorists, such as Antonio Gramsci use the hegemony to denote a predominance of one social class over others (e.g. bourgeois hegemony). For them, hegemony represents not only political and economic control, but also the “ability to dominante and project one’s own way of seeing the world so that those who are subordinated accept it as ‘common sense’ and ‘natural’ 4
Further, such theorists attempt to define hegemony in terms that bring into question the nature of the State, its role and responsibility to its citizens. Gramscians perceive and articulate the state-centric aspects of hegemony as being applicable in this sense when they attempt to encapsulate the “complex of ideas that social groups use to assert their legitimacy and authority”. When applied to ideas such as capitalism and the issue of pre-dominance of American culture at global level, Gramscians see hegemony as the emergence of ‘trans-national capitalist’ classes that are establishing themselves at a global level and working to ensure that ‘all impediments to the free-flow of capital around the world are removed’. 5 In other words, the existing economic, political and cultural conditions at the global level have helped to establish an emergent ‘trans-national class of capitalists’. Examples of trade, foreign investments and finance are cites as ways of discerning and measuring the impact of global trade and economic liberalisation on marketplace capitalism.
Other criticism of hegemonic theories centre on how it’s defined, measured or quantified. Some argue that too much focus is placed on just military, political, economic or cultural aspects of various nation states and how they stack up or is measured at the global level. That is, none seem to offer a universal way of identifying a hegemon that is not constrained by the particulars of nationalism in any of its forms. But, regardless of the perspective or approach taken, the basis of any hegemonic theory is the premise that, in intra-national affairs, the distribution of power seldom exists in an easily quantifiable manner. That is, it derives its essence from the nature of international relationships between the nation states. Such relationships can be shown to be quantitatively unequal in that some states increase in stature (economically, politically, militarily or culturally) while others decline in a concurrent fashion over measurable periods of time.
Hegemony, therefore, should focus on those global relationships where it can be quantitatively demonstrated that the global distribution of power in any or all areas of interaction is measurably and statistically skewed in favour on one (or combination of) state or regional bloc. That is, hegemonic theories should strive to establish the political boundaries or extent of the relationship between nation states. Currently such relationships appears to be unbalanced to a significant degree in favour of one state or regional bloc with the power to “ …. impose its rules and wishes, at the very least, by veto power, in the economic, political, military, diplomatic and cultural arenas …. ”; at which point it’s said that a hegemon exists.
From a somewhat liberal and ideological perspective, benevolent hegemons offer benefits that are derived from its willingness to take on an undue share of the burdens of the systems it enters into, willingly. It’s “willing to provide public goods in order to create and maintain open, stable economic regimes”. The benefits of public goods being that they characteristically are ‘non-excludable and non-rival’. Meaning, ‘others can benefit from the good even when they do not contribute to its creation or production’. As an example of such benevolence, the U.S is often seen as willing to provide a wide range of public goods or services to ensure that there is global economic openness and stability when it:
“permits its currency to be used as the principal reserve assets, supplies U.S dollars to permit growth of international trade and financing of economic growth of Third World countries; and maintains a relatively open market for other countries’ exports”. 6
Others, however, point out that a hegemon assumes a position of leadership, not as a means of promoting general good, to further its national self-interests. If those interests require an open global system that stimulates economic growth, national income and political power then those are policies and ideas that it will active seek to promote at the global level. When those interests diverge from its own national objectives and agendas, it opposes and may resort to coercive methods – threatening to ‘cut of trade, investment and foreign aid’ – to bring about compliance necessary to maintaining its existing dominant position within the global community.
Historical structuralists, consequently, rather than seeing a hegemon as being benevolent, argue that a hegemon, such as the U.S, “co-ordinates the responses of the developed states in the core global economy, enabling them to solidify their dominance over the LDCs on the periphery. When hegemonic power declines within the leading capitalist states it undermines their ability to continue extracting surplus from the peripheral regions”. 7
This contrasts with those hegemonic stability theorists who maintain that “the existence of a hegemonic state increases the likelihood that there will be an open and stable international economy”. This, they argue, is exactly what the U.S has done:
“ It has played a major role in creating and maintaining open and stable monetary, trade and aid regimes since the end of WWII. Through the provision of public goods and rewards and the use of coercion, the U.S as a global leader, gives other states incentives to abide by regime principles, norms and rules.” 8
Hegemonic stability theorists argue that stable economic regimes are difficult to maintain if conditions necessary to doing so do not first exist. That is, if there is no hegemon or an existing hegemon is in decline then stability of existing economic systems are adversely affected by frequent and wild marketplace fluctuations of the global economy. As an example, they point to the rise and fall of the British Empire, its previous hegemonic status, its leadership and contributions made to trade liberalisation. It was not until the end of WWII when the U.S emerged as the dominant global leader that international economies re-emerged on a footing that was, once again, open and stable.
But critics of hegemonic stability theories argue – while conceding that a hegemonic state plays a important role in the development of an open and liberal international regime – that monetary regimes don’t necessarily weaken or disappear with the decline of a hegemon. That is, major states that benefit from the existence of an economic hegemon, by necessity, become dependent upon the regimes that emerge during the lifespan of the hegemon; and, as such, they have vested interests in seeking to maintain the regime after the hegemon declines in status. Others point out, as well, that domestic opponents to the powers of the hegemonic state, if powerful enough on the national stage, can force some national government to enact policies and strategies that become protectionist in implementation, if not in purpose.
So, is the U.S a hegemon, with significant economic resources to dominate and direct the direction of the global economy? If it’s, then is U.S hegemonic status on the rise or the decline? How is this to be measured? U.S mass media products (such as tv programming, music, movies, books and magazines) are widespread enough that they significantly impact global cultural tastes and habits; this in spite of efforts by some governments to limit or minimalise such influences. In military matters, the U.S dictates the nature of global security. In addition, its military might allows it to exercise economic control in areas where military strategies and solutions would be economically counter-productive.
So, not only must a hegemonic state be willing and able to provide leadership and pursue policies necessary to the creation and maintenance of a global economic order, it is most likely to be successful if it implements and follow policies that “other major actors believe are, relatively, beneficial. When a global hegemon is lacking or declining in power, economic openness and stability are more difficult … to maintain”. 9
The United States’ shift from military to economic priorities help us better understand its current position in global affairs. The positions of the U.S is, perhaps, best recalled by through the Cold War period when the U.S.S.R was its biggest opponent in international affairs.
For example, former National Security Advisor, Zbigniew Brzezinski, of the Jimmy Carter Administration and Director of the Trilateral Commission is quoted by Joseph Gerson, Director of Programs of AFSC in New England, as having said:
“America’s global supremacy is reminiscent in some ways of earlier empires…the scope and persuasiveness of American global powerare unique. Not only does the United States control all of the world’s oceans and seas… Its military legions are firmly perched on the western and eastern extremities of Eurasia, and they also control the Persian Gulf. American vassals and tributaries…dot the entire Eurasian continent. 10
Secretary of Defense Cohen reported said in his “Annual Report to the President“:
U.S. military doctrine is built around three priorities: “shaping the international environment”, “responding to the full spectrum of crises… to demonstrate U.S. resolve and reaffirm the nation’s role as global leader”, and to “prepare for an uncertain future.” 11
And in remarks on the Globalisation of Business Cohen stated:
“From a national security point of view …. it favors us. I have found, that when we have a constructive engagement with China, willing to challenge them on issues …. Willing to find areas of compromise …. That solidifies our bilateral relations with virtually every other country in the Asia-Pacific region …. so it is in our national security interest to engage China in a positive way. From my perspective, given the economic arguments that are made, a rejection would send a very strong signal that we intend to treat China as a potential adversary; and as the new cold warrior of the 21st Century. That will not be in our national security interest to do so.
Our national security strategy is captured in three words: shape, respond, prepare. We try to shape the political international environment in ways that are favorable to the interests of the United States and that of our allies by being forward deployed. That’s why we have the 100,000 in Asian Pacific and why we have the 100,000 in Europe and why we are deployed in the Gulf; and also maintaining strong bilateral relations with Australia and others.” 12
Gerson also quotes Brzezinski as having said:
“The European Union, Japan and Russia are also seen as potential “peer competitors”. From their beginnings in 1949 and 1951, NATO and the U.S.-Japan alliance have been designed to contain German and Japanese military power reconstructed at the behest of Washington, as well as the Soviet Union (now Russia) and China. Containing these potential regional and global rivals, not only impoverished “rogue” states like North Korea and Iraq, it explains the enormity and the continued growth of the U.S. military budget. “ 13
Theodore Cohn points out that Hegemonic Stability theory,
“ …. asserts that a relatively open and stable international economic system is most likely when there is a single dominant or hegemonic state with two characteristics: it has a sufficiently large share of resources that it is able to provide leadership and it is willing to pursue policies necessary to create and maintain a liberal economic order.” 14
For the U.S.A, the shift from military to economic priorities began in earnest with the fall of the USSR and communism in the mid-1980s. From this emerged recognition that global economic stability within the context of international relations created by the disappearance of the military aspects of the Cold War relationship between the Superpowers (U.S and U.S.S.R) and alliances among the lesser nations of the world, created a vacuum that shapes foreign and domestic policies of all nations inter-acting at a global level.
And so, in this context, the Cold War period between 1945 -1990 represented an ideological conflict between the West (the U.S and its NATO allies) and the Eastern Bloc (former U.S.S.R and its Warsaw Pact allies). The conflicts revolved primarily around economic, philosophic, cultural, social, and political ideologies. The West criticised the East as being an embodiment of undemocratic totalitarian and communist dictatorial principles. The Eastern Bloc criticised the West for promoting capitalism that sidelined workers; and accused it of imperialistic designs.
The Cold War era typified the relationship between the two Super Powers and the ideologies that informed and shaped their national and foreign policies (as well as the rest of the world) in the form of alliances. Often, this sometimes took the form of armed conflicts conducted by or against surrogates; and through the use of spies and traitors who arranged arms or funding. That part of the Cold War period often had a less direct impact on the populations of the major powers behind the armed conflicts. In addition, part of the strategic conflicts took place in the area of technological advancements that required the existence or development of a strong national or a global economies in support of the opposing political ideologies.
It’s here that Nationalism finds its voice as the alternative to the imperatives of globalisation that is seen as threats to nation states that pursue capitalist objectives of economic and political stability through liberalisation of trade, finance and commercial services. For, within each country are various political (social groups) movements that play pivotal roles through their demands that seek to retain the cultural particularity that defines each state, territory or region. This is encompassed by the region peoples’ sense of national identity which is derived from their involuntary membership within an inclusive social category.
Some may call this the basis for tribalism and outdated thinking. But it’s central to notions of nationalism since it denies sovereignty to entities other than nations or peoples. This sense of national sovereignty or identity manifest itself as internal pressures for cultural, social, political and economic unity that is super-imposed upon national policies and objectives. It is this need for nation states and their citizens to subscribe to and share a common sense of national identity that seem to get in the way of the push towards a World Government through globalisation.
At the national (and most political of levels) globalisation is seen as seeking to establish a state with planetary authority that will then exercise a monopoly control over the people who inhabit national/political regions of the globe. That is, under widespread globalisation, any nationalistic claims would be subsumed to the objectives of the Global state which, by reason of being humans inhabiting the planet, would make all global or world citizens. There’d no choice in the matter. And so, it is in this sense that, at the political level, nationalistic policies and strategies often turn to protectionism or barriers to trade when confronted by the consequences of globalisation and the liberalising of national economies and borders.
It would seem that a potential answer to the political concerns aroused by the drive towards economic liberalisation and institutional globalisation would be the development of a worldwide federated and democratic institution capable of responding to and transcending demands for the right to national self- determination and sovereignty of regional ethnic groups.
Some who oppose globalisation often do so because of what they perceive as the potential to ‘de-ethnicise’ countries and citizens. They argue that the establishment of any supra-national institution must be structured on its ability, not only to address social issues that arise from the ideas that surround the organisation of human collectivities but also the newer ideas and trends that accompany emerging socio-economic relationships; and the attendant ‘new economic classes’ that will appear as a result. That is, they currently see a failure of current international institutions to respond in a socially responsible manner to the global needs of men and women due to the nationalistic limitations inherent in notions about national boundaries and cultural identities.
So, at a global level, the world’s people and governments find themselves faced with calls for radical alternatives and transformative social, political and economic actions. This perspective is often emphasised in alternative global development models. Such views and models assert that they are “informed and influenced by normative convictions, cultural sensitivities, ecological concern and an awareness of gross injustices being committed against to the majority of the world’s people who do not receive their fair share in the current world system and societal arrangements”. 15
Ultimately, this means that any attempt to establish a ‘liberal, global, democratic political movement or institution capable of responding to demands for retention of national sovereignty and right to the self-determination of regions and ethnic groups must also adequately address the underlying social issues and costs such development. Before a Supra-national institution can evolve to the point where it can deal with the socio-economic and political needs of an international citizenry it must first ‘break down the walls’ that currently serve to define nation states. The importance of resolving such issues is derived from the fact that individual citizens attach a particular individuality to their sense of ‘national identity’. These, apparently, are issues that are embedded in notions about World Citizens or citizens of the world.
Increasingly high foreign debt loads and balances have changed international perception of the United States’ status in global affairs. International indebtedness of the U.S directly impacts the stability and performance of the national and international economic systems. This has consequences for the development and evolution of a dynamic, strong, liberal and stable economic regime that’s driven by global market forces rather government or political agendas.
This is a far cry from Laissez Faire capitalism which required that government leave the people (market-place) alone regarding all economic activities (a ‘separation of economy and state’ approach to liberalising the marketplace and dependent economies, as it were). There are two ways in which a government, typically, interfere with the economy. The first is through the initiation or use of force; the second is through socialized industries and institutions. Capitalism, on the other hand, normatively defined in economic terms of being an economic system in which the means of production, distribution (privately or corporately owned) and development is proportionate to the accumulation and reinvestment of profits gained within a free market system.
But from a purely political perspective, Capitalism is a social system based on principles that derive from notions about individual rights. That is, to have an economic system in which the means of production and distribution are privately or corporately owned means that there must first be individual rights. Such rights would encompass and supercede property rights and privileges. In addition, political or social rights are subordinated rights that evolve from the natural and legal rights of individuals in a civil society. Consequently, to oppose a liberal or free-market economy is to be in opposition to private and corporate property rights.
The normative free market economy is epitomised as one in which buyers and sellers carry out transactions based on mutual agreement on price, without government intervention – in the form of taxes, subsidies, regulations or state ownership of goods or services. For free market proponents, libertarianism and Western Capitalistic ideologies provide the basis upon which it’s acceptable to oppose ideas that espouse communism or socialistic variants. But, blind acceptance of such ideological positions often fail to reveal internal contradictions and paradoxes endemic and symptomatic of an unrestrained or free marketplace that’s beyond the reach of governmental control. For, in a democratic society, government is for and by the people. This means that, ultimately, the ‘people’, as represented by the elected government, is the source of all social or legal authority within a nation state. Or a tribe.
In the ideal free market, the theoretical laws of Supply and Demand dominate and influence pricing with a view toward achieving an equilibrium that balances the demands for available products and services against the ability to provide and maintain efficient systems of distribution. As prices equalise the marketplace (theoretically) distributes the products to the purchasers according to the requirement of each purchaser and utility of each product which consistently stays within the relative limits of each buyer’s purchasing power. That is, no purchaser could have their purchasing requirements filled in a way more useful to them without also reducing the usefulness of some other purchaser’s selection of products. Thus, the forces that dictate the functioning of the marketplace is dependent on consumers with the ability to make purchases of products (distribution and consumption).
Consequently, the distribution of purchasing power in an economy depends, to a large extent on such marketplace conditions such as large consumer base, labour and financial markets, familial relationships, inheritance, gifts and so forth. Thus, a ‘free market’ does not adequately explain the particulars that go into the the performance of the actual marketplace or economy. What it does is provide an explaination of the marketplace from the position of Supply (products, goods and services) and Demand (consumer distribution or consumption) proponents.
The application of 19th century theoretical concepts to 21st century economic and political theories has led to ideas under the umbrella of neo-liberalism. Here laissez-faire schools of thought on libertarianism and capitalism still advocates that the economy works best when left to its own devices or marketplace conditions that is free of government, state or institutionalised intervention. The expectation remains that this will remove inefficiencies within the economic system in a deliberate and quick manner than any governing body is capable of doing. And so, we see that Laissez-Faire economic theories of the early19th and 20th centuries dominating 21st economic thinking; as much as it did before it fell into disrepute through its failure to prevent WWI or the Great Depression of the 1930s.
A country with a current account deficit, where its payments to foreign creditors are greater than what it receives, is often forced to make structural adjustments by either seeking credit from foreign sources decrease its foreign debt by reducing imports which depletes its foreign exchange reserves. Further borrowing burdens governments, in much the same way that individual debtors can be inundated by unwieldy personal debts through unrestrained credit purchases.
While the amount of a country’s outstanding national debt is not the primary factor in determining its potential for financial insolvency, the United States had a foreign debt load of approximately #370 billion in 1971; and has since become the world’s most financially indebted nation. In contrast, in 1991 the total foreign debt by all LDCs in the Western Hemisphere amounted to $434 billion. But while the U.S net foreign debt amounted to 6.4% of its GNP it was 40% of GNP for the collective net foreign debt load of Western LDCs. That is to say, it’s not only the size of the foreign debt that should be looked at in deciding if a national debt crisis exists within the U.S or any other nation state.
The severity of a nation’s financial indebtedness is generally determined or signified by the country’s ability and commitment to servicing its debt repayments. A crisis arises when a country lacks sufficient foreign exchange reserves to make principal or interest payments on its debt obligations; and debt severity is determined by the length of time and types of measures that is required to bring about a resolution that is, primarily, satisfactory to the creditors.
To some, the international debt crisis of the 1980s began when Mexico announced that it was incapable of servicing its $78 billion public sector debt. But there were earlier signs – such as when Argentina, Peru, Sudan began rescheduling negotiations. The international monetary system was being overstressed when the amount of foreign debt incurred by LDCs (including Eastern Europe foreign indebtedness) had surpassed $500 billion decade between 1971 –1981. The cause of the financial crises is open to debate and dependent on ideological perspectives. There is general agreement, however, that these global financial crises were accelerated by the changes in the economic system that allowed for the irresponsible behaviour of lenders and debtor nations, especially those of the Third World that had become overly dependent on advanced nations for their own national and economic welfare.
The shock to the international economic system was heightened by OPEC’s oil production and distribution strategies. This served to bring about structural rethinking of the global economic system. Some countries sought ways to diversify their industrial sectors, national economies and reduce their level of dependency on foreign imports that incurred further debt and led to national crises during marketplace fluctuations outside their borders.
There was also a global realisation of the extent to which both developed and developing countries had become dependent upon the exporting or importing of natural resources, such as mid-eastern oil reserves and industrial production or services to power their respective economies. Were it not for the reserves and financial stability of the U.S, the world may have experienced yet another global financial calamity as the economies of each nation have become intricately interconnected through international trade and financial relationships which made some nations overly dependent on the vitality and stability of foreign economies for their own economic and political survival. Politics had become intertwined with economics at a global level.
Overall, the 1980s foreign-debt issues became nested within a balance of payment framework with attendant problems about servicing them. As Cohn points out that:
” ….the pressures resulting from 1980s debt crisis produced more coordinated, longer term efforts to establish rules and decision-making procedures that we normally associate with an international regime.
A basic principle underlying balance-of-payments regimes is that an adequate but not unlimited amount of supplementary financing should be available to states dealing with their balance of payment deficits. A second principle is that those providing this financing may attach conditions to the funding that they believe will correct the recipient states’ balance-of-payment problems. The rules for balance-of-payment financing include the explicit conditions that the IMF places on its borrowers”. 16 (pg195)
During the 1980s, private bank loans accounted for 6% of the debt of LICs, 38% for MICs and 65% for NIEs. ODAs accounted for 67% for LIC debt load in 1980, 25% for MIC and 4% for NIE. This demonstrated that the willingness of private lenders and bankers to provide loans and other funds to the more credit-worthy of the LDCs removed the IMF or World Bank’s ability to impose and enforce all its conditions on all LDCs in an equal manner. 17 (pg 195-196)
Within the financial markets, however, private banks made readjustments to their lending policies to limit their exposure to LDCs or overly indebted nations that represented potential financial risks. Prior to the financial crises 1980s, LDCs with questionable creditworthiness an incapable of acquiring loans and funds from private lenders, banks or financial institutions had also demonstrated their inability to qualify for loans or aid from international organisations such as the World Bank or IMF.
And so, by the 1980s, global foreign debt management had been undermined by the availability of petro-dollars and private banks. This allowed debtor nations to increase their foreign debt balances at low interest rates and with minimal borrowing conditions. But, unlike MICs and NIEs that were not constrained by the lending regimes and controls of the IMF, World Bank or donor states, the less credit-worthy of the LDCs became further dependent on foreign loans or aid from any and all possible sources available to them in the global marketplace.
It was these very same global market-place conditions that provided international lending institutions such as the IMF and the World Bank and the U.S with leverage needed to develop a Foreign Debt Regime; seen as a response to the international debt crisis of the 1980s. The basic principle of which was conditionality: new loans and debt rescheduling were to be contingent on debtor countries willingness and commitment to market-oriented reforms. The difference between this regime and the pre-1970s one was that the IMF assumed the role of imposing pressure on private bankers and lenders. The result was that commercial private banks continued to provide loans to even the most indebted of LDCs. This was in keeping with the IMF and World Bank’s stated objectives of bringing about economic stability of debtor nations through the imposition of structural adjustments tied to loans and other forms of foreign aid. Conditional to these types of SALs was the requirement that recipients adopt liberal economic and political reforms that included deregulation, privitisation and opening up of their markets open to foreign trade and investments. 18. (pg 195)
Conclusion & Summary:
My position is that the United States currently in a mode where it must re-evaluate and retrench at a global level, in the absence of a single, stable global economic system as there was during the earlier International Gold Standard and the goals of the Bretton Woods accords. The dissolution of the former Soviet Union in the 1980s, emerging global economic and political trends since the 1990s threaten to alter the role and status of the United States in global affairs. And so, it is possible that:
The U.S will see its global political/economic might reduced in some capacity over the next decade or so as it re-evaluates its hegemonic position, in terms of status on the stage of international affairs.
Any such alteration in that status will result in other nations or blocs (based on trade or economic relationships rather than on pure political ideologies) emerging as significant political/economic counter-points to U.S global economic hegemony
If its current position/status significantly threatened (economically or politically) the will be confronted with the choice of resorting to military force to secure or maintain its position.
This would provide a historical contrast or comparison to the previous Cold War alignment that saw global power distributed between the U.S and former U.S.S.R along a rough East-West axis, mostly based on military and ideological clashes rather than the type of global economic and political conditions that are currently driving Global economics and political alliances. So, to what can current global economic and political conditions be attributed?
The rise and fall of both the Gold Standard and the Bretton Woods Accords, as the basis of global monetary regimes.
The (almost) unchallenged global status of the U.S throughout both monetary periods that drove changes to economic regimes at a global level.
A liberal democracy, beholden to free-market capitalism and minimal government intervention in dynamics of the marketplace.
The U.S often appears reluctant to fully liberalise its own national economy to foreigners (while seeking ways and means to have other nations liberalise theirs to American capitalists). And, in the process, since the end of WWII, the U.S has been allowed to fundamentally alter the basis of global economics (free marketplaces) in ways that thwart or impede attempts by other nations to establish a new global economic system that would allow them to compete in a global marketplace that’s outside dictates or control of the U.S.
It would appear to fly in the face of either political ideology or economic theory – but for the United States to successfully maintain its current global status among all member states and nations of the world it must, and will eventually, become an imperial coloniser. How long it would be able to sustain such a position resides in whether it chooses to wield its superior military might or its economic clout for self-serving nation or empire-building or political interests. Either way, it must decide whether to use the iron fist of domination or the velvet glove of compassion; or a combination of each.
And, as the dominant nation leading the world forward into the 21st Century, the verdict on American brand of Democracy will be rendered – without the ghosts of Communism lingering on its death-bed – except, perhaps in such as in places like Cuba or North Korea, or the spectre of imminent nuclear destruction triggered by some megalo-maniacal madmen (or women). Neither extreme of communism nor socialism, it would seem, is sustainable in the longer term against the twin components of democracy – liberalism and free-markets. Is there, then, any sustainable alternatives to Democracy and free-Markets?
As an economic hegemon, and under global pressures since the decline of the former Soviet Union, the United States as a world leader appears poised to take the rest of the global community kicking and screaming onward through the rest of the 21st century.
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