http://indonesiaberjuang-gerpindo.blogspot.nl/2013/05/financial-empire-and-global-debtors.html
Financial Empire and the global debtors’
prison
By Jerome
Roos
ROARMAG.org On May 6, 2013
Let there be no doubt
about it: we live in the era of Financial Empire. Unlike the military conquests that drove the territorial expansions of the
empires of old, contemporary Financial Empire consists not in the highly
visible exercise of a Big
Stick ideology (although military imperialism undoubtedly
continues today), but rather takes the shape of an Invisible Hand. Where in the late 19th and early
20th centuries the logic of domination was driven by the instrumental power of
imperial states, the Empire of the 21st century no longer needs any sticks to
enforce the submission of sovereign states: through the global enforcement
mechanisms of market discipline and IMF conditionality, the structural power of
finance capital now ensures that all shall bow before the money markets.
In The
Accumulation of Capital (1913), Rosa Luxemburg noted that, “though foreign loans are
indispensable for the emancipation of rising capitalist states, they are yet
the surest ties by which the old capitalist states maintain their influence,
exercise financial control and exert pressure on the customs, foreign and
commercial policy of the young capitalist states.” So great was this financial
control that in the First Wave of Globalization, which ran from 1870 until the
onset of WWI in 1914, defaulting countries faced a 40 percent chance of being invaded, subjected
to gunboat diplomacy, or having foreign control imposed on their domestic
finances under threat of a naval blockade. In a telling and ironic sign of the
times, even the Hague Peace Conference of 1906 recognized the legitimacy of the use of force
in settling sovereign debt disputes.
Enforcing Debtor
Discipline: the Era of Gunboat Diplomacy
The late 19th and early
20th century logic of imperialism thus took a military form that ultimately
relied upon the instrumental power of the imperial states themselves. In 1882,
for instance, following the Urabi
revolt in Egypt, which had just deposed the French and British
administrators who had taken control of Egypt’s finances in the wake of the
1870s debt crisis, Britain summarily invaded the country and incorporated it
into the British Empire as a protectorate. Fast-forward some 130 years, and we
have the foreign administrators of the IMF moving in on the heels of yet another
popular uprising to make sure that Egypt does not default on its debts to
Western banks. Today’s creditors no longer need to resort to the military force
of their own governments to enforce their loan contracts: as a global
disciplinarian, the IMF will do it for them.
The Ottoman Empire
similarly defaulted in the 1870s, and although it was still powerful enough to
withstand an outright European invasion, the Turkish government had to submit
itself to a humiliating agreement with its foreign creditors: a Council of Foreign Bondholders, made up of
representatives of the largest European banks, took control over its tax and customs
offices. According to one member of the Council, Edgar Vincent, “There is
no instance in which powers so extended have been granted to a foreign
organization in a Sovereign state.” Fast-forward 130 years once more, and
Turkey yet again finds itself in dire straits financially. The IMF is called
upon in 1998 and thoroughly restructures the economy, marginalizing millions of
poor Turks and leaving the Bretton Woods Project to conclude that,
“over its long decade with the IMF, Turkey managed to replace public deficits
with a democracy deficit.”
In 1898, Greece also fell
under foreign financial control after defaulting on the debts it accrued during
its war with Turkey. Mitchener and Weidenmier recountthat, “As terms of the peace treaty,
European powers were given authority to assume the administration of revenues
on behalf of existing creditors and to effectuate payment of the war
indemnity.” The historical parallels between the Greek debt crisis of 1898 and
the one of today are striking. Since Germany had been the “major player in
arranging the protection of foreign bondholders’ interests” in 1898, “it was
given authority by the other European countries to come to terms with Greece
about the operation and control over Greek finance as well as the terms of the
debt settlement.” These terms were laid out in a new law; but, as Mitchener and
Weidenmier stress, the approval of this law — just like today’s austerity
memorandum — “was a sovereign act in appearance only.”
A few years later, in
1902, President Cipriano Castro of Venezuela refused to compensate European
investors for the losses they made during the revolutionary upheaval that had
brought him to power. The creditor response was swift and decisive: for four
months, German, British and Italian gunboats shelled Venezuela’s coastal
defenses and blockaded its main ports in order to force Castro to repay the
debt in full. Two years later, largely in response to this blatant display of
European imperialism in the Western hemisphere, President Theodore Roosevelt
announced his infamous Roosevelt corollary to the Monroe Doctrine, which held
that — rather than having the European powers messing around in its backyard —
the US would now enforce the legitimate debt contracts of European financiers
in Latin America and the Caribbean itself. Announcing his new foreign policy
doctrine, Roosevelt issued a thinly veiled threat to his neighbors: “If a
nation shows that it knows how to act with reasonable efficiency and decency in
social and political matters, if it keeps order and pays its obligations, it
need fear no interference from the United States.”
A year later, in 1905, US
Marines invaded the Dominican Republic after it tried to default on its debts,
taking over the country’s customs revenues to ensure full repayment to private
bondholders. Nicaragua befell a similar fate in 1911-’12. Fast-forward another
couple of decades, to 1982, and the United States is once again mingling in the
sovereign affairs of its Latin American neighbors, sending in the IMF and World Bank on behalf
of powerful private creditors. In Venezuela, seven years of IMF-sanctioned
austerity measures eventually reach a dramatic apotheosis in the massive Caracazo protests
of February 27, 1989, in which hundreds of thousands demonstrate against cuts
in fuel and food subsidies that are part of the government’s agreement with the
IMF. This time around, instead of having to fall back onto the gunboats of the
US government, Wall Street bankers can rely fully on the internalized debtor
discipline of the Venezuelan government: security forces open fire on the
protesters and kill over 3,000 people. The debt, of course, is largely repaid.
Enforcing Debtor
Discipline in the Era of Financial Empire
Today, the imperial era
of gunboat diplomacy may have come to an ignominious end, but the era
of Financial Empire is still in full swing. What the ongoing European debt
crisis confirms once more is that financial capitalism, once fully developed
and globalized, has no need for debtors’ prisons, gunboat diplomacy or US
marines to enforce debtor discipline. The iron bars of the debtors’ prison are
replaced with the global flows of finance capital; the gunboats have long since
made way for what Warren Buffet called the financial weapons of mass destruction; and the
foreign administrators of tax and customs offices no longer wear military suits
but carry IMF suitcases. Through its control over capital flows and its ability
to withhold much-needed credit, the global bankers’ alliance (made up of the
big banks and institutional investors, along with international financial
institutions and the financial and monetary authorities of the dominant
capitalist states) has obtained a form of structural power that allows it to
discipline the behavior of indebted countries without having to resort to
military coercion. It is this discipline enforced by global capital markets and
financial institutions that forms the backbone of Financial Empire.
When talking about
Empire, Hardt and Negri remind us, we should not be fooled into thinking
that we are referring to a metaphor. It is not that the abolition of Greek
monetary and fiscal sovereignty is somehow reminiscent of the Nazi invasion, as
both left-wing and right-wing protesters in Greece seem to claim;
unfortunately, the reality is both more complex and more subversive than that.
Rather than falling into the trap of making simple historical allegories
between the territorial empires of old and the Financial Empire of today, we
should conceive of Empire as a concept; a concept which, in Hardt
and Negri’s words, “is characterized fundamentally by a lack of boundaries.” In
this sense, the rule of Financial Empire — unlike that of the
Third Reich or the British Empire — has no limits. Unlike Nazi troops
or British navy vessels, finance capital cannot simply be expelled from
Greece’s sovereign territory. Rather than posing a territorial threat to
national sovereignty as an occupying force, Financial Empiredissolves the
notion of national sovereignty altogether by subverting the power base and
popular legitimacy upon which the modern state ultimately depends: its ability
to direct the flow of capital through monetary and fiscal policy.
To an extent, capital
always-already operated beyond the boundaries of the modern nation state. As
Marx and Engels observed in the Communist Manifesto, “The bourgeoisie has
through its exploitation of the world market given a cosmopolitan character to
production and consumption in every country.” But with the resurgence of global
finance from 1973 onward, the state’s structural dependence on globally-mobile
capital has been greatly increased. The state, which continues to exist in its
territorial realm, is gradually stripped of its ability to control the
de-territorialized flows of investment upon which it relies for its continued
existence. As a result, Subcomandante Marcos, who in 1994 led the Zapatista
uprising against the Mexican state — which had by that point become fully
incorporated into Financial Empire – poetically remarked that,
“in the cabaret of globalization, the state appears as a table dancer that
strips off everything until it is left with only the minimum indispensable
garments: the repressive force.” Thus the creditors’ need to exercise physical
repression is greatly reduced: by stripping down the state and exposing its
naked essence of institutionalized violence, the process of globalization
serves to internalize debtor discipline into the state apparatus,
rendering state managers structurally subservient to the logic of global
capital.
In 1982, with the
structural power of capital firmly on the rise following the collapse of the Bretton Woods regime, the American political scientist Charles
Lindblom wrote a controversial article in the Journal of Politics in
which he compared the market to a prison. By allowing private investors to
withhold much-needed capital from the state and the economy, Lindblom observed,
the market effectively functions as a disciplinary mechanism for state
managers: you want to raise environmental standards? You’ll have to take into
account the impact on business investment — and thus on jobs and your approval
rating as a politician. Want to regulate the financial sector? You’ll have to
worry about big banks simply moving their assets to another country. Want to
raise taxes on the wealthy? You’ll have to consider the fact that your famous
movie stars mightmove to Russia. Whatever you want to do as a
politician, as soon as you’re in power, the first thing you have to contend
with are business interests, and the punishments businessmen can bring to bear
by withholding investment if they don’t like your policies. Most remarkably,
Lindblom noted, “this punishment is not dependent on conspiracy or intention to
punish … Simply minding one’s own business is the formula for an extraordinary
system for repressing change.”
Lindblom’s notion of the
market as prison can easily be extended to the global capital markets of today.
As Robert Kuttner recently put it in his review of David Graeber’s Debt: The
First 5,000 Years, “entire economies abroad, indentured to past debts, find
themselves in a metaphoric debtors’ prison where they can neither repay
creditors nor resume productive livelihoods.” Similarly, financial lawyer Ross
Buckley has written that “we still have something very
like debtors’ prisons for highly indebted nations.” As we saw in Greece and
Italy in 2011, the automatic disciplinary mechanism of global capital markets
ultimately serves to undermine democratic procedures, replacing them with
technocratic administration. In the process, politicians are reduced to the role
of temporary managers of the state apparatus in the name of
financial capital; an arrangement that is ultimately much more convenient and
much less costly to the global bankers’ alliance than sending in gunboats or
physically occupying a country. In this sense, today’s Financial Empire is
really not just a metaphor: it is the culmination of capitalist development
into the perfected form of imperialism — one that hardly requires any bloodshed
on the part of capital while still ensuring a massive upwards wealth
redistribution from the poor to the rich.
We Are All Debt Prisoners
Now
But for some, even the
overwhelming structural power of finance capital does not appear to be good
enough. Even though default has already been ruled out a priori as
a “legitimate” policy option in the management of international debt crises,
there are still voices going up for further intervention into the sovereign
affairs of indebted countries. In the wake of Argentina’s 2001 default, for
instance, MIT economists Ricardo Caballero and Rudi Dornbusch argued that “Argentina cannot be trusted” and
“Somebody has to run the country with a tight grip.” Stopping short of
promoting an outright CIA-assisted military coup — the preferred solution of
US-based capital throughout the Cold War era — the authors suggested that
“Argentina now must give up much of its monetary, fiscal, regulatory and asset
management sovereignty for an extended period, say five years,” and allow
foreign commissioners to take over financial management of the country.
“Specifically,” they stressed, “a board of experienced foreign central bankers
should take control of Argentina’s monetary policy.”
Similarly, Mitchener and
Weidenmier, two economists who went to great lengths to emphasize the efficacy
of military coercion in deterring sovereign debt default between 1870 and 1913, suggest that today “some type of fiscal or
monetary control by an external financial committee may impose needed
discipline on recalcitrant debtors.” One prominent conservative commentator on
the Latin American debt crisis of the 1980s, whose book was notably praised by
IMF Managing Director Jacques De Larosière, Federal Reserve Chairman Paul
Volcker, and leading banker Charles Dallara, even went so far as to propose the
somewhat frightening notion that “gunboats are the borrowers’ best friend.” Not
surprisingly, similar calls for the abolition of fiscal sovereignty are being
echoed in European policy-making circles today. In 2011, for instance, one
leading member of Angela Merkel’s conservative party argued that “Greece must give up something,
like some of its national sovereignty — at least temporarily,” to allow private
creditors to be fully repaid.
During the negotiations
between Greece and its private creditors last year, Larry Elliot, the economics
editor of The Guardian, rightly observed that, even though “the warships have
been replaced by spreadsheets … the Troika’s gunboats will [still] get their
way.” The real pressure, he observed, now “comes from banks, hedge funds and
the team of officials of the International Monetary Fund, the European Central
Bank and the EU.” Perhaps, then, we are not as far from the imperial era as we
would like to think — and while the use of military force may be considered off
bounds today, its real absence is not just the result of some enlightened
liberal morality but rather a product of the high costs of military
intervention compared to the much more effective methods of financial
interventionism that replaced it. Even though one-third of US states still allow citizens
to be imprisoned for failure to repay their debts, the general tendency in
Financial Empire has been to move away from the direct exercise of punishment
towards more structural forms of domination. In this sense, debtors’
prison is no longer just a physical place where “recalcitrant debtors” are
locked away from the rest of society; it has become a de-territorialized
disciplinary mechanism that encompasses the globe as a whole. We are all debt
prisoners now.
Luckily, the structural
power of finance capital can never be complete. In fact, those who are willing
to take a closer look can already see the cracks in the prison walls – some of them
made by the countless escape attempts of the prisoners themselves, as they
desperately try to break their way out; others caused simply by the inability
of the global financial architecture to support the unbearable weight of the
debt load that states, firms and households have accrued over the years. As
Lindblom himself importantly stressed, wherever there are prisons, there will
also be prison breaks, and the crumbling system of market discipline that
sustains Financial Empire is clearly far from escape-proof. The Argentine
experience of 2001 is a case in point. While there is no need to romanticize
Argentina’s widely-discussed default — rather than a revolutionary act of
defiance, it was simply a desperate (and successful) populist attempt by the
established Peronist elite to cling on to power in the face of massive social
unrest — the most important lesson to emerge from Argentina is that, in the
face of a spontaneous and sustained popular uprising, even the strongest walls
will eventually cave in.
Indeed, Financial Empire
may have reduced us all to modern-day debt prisoners, but we can still become
the social protagonists of history’s
greatest-ever prison break — as long as we draw the right lessons from the long
history of imperial domination that led us to this defining point in human
history.
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2 comments… read them
below or add one
It would
be more accurate to say that we live at the end of the era of financial empire.
The present crisis is the death agony of the deregulated economic environment
introduced in the US in the 1980s and rammed down the throats of the rest of
the world by American power. It has proved to be a failure and the ongoing
collpase of American power will indeed allow a large-scale escape from that
system. For us in Europe, we will probably return to something like the social
market economy of the 1960s and 70s, which actually worked quite well until the
Americans started bullying us into dismantling it. The fact that the high
priestess in Europe of that American ideology, Margaret Thatcher, was so
hostile to the EU should give us a clue as to how best to defend ourselves in
the future.
Jct:
Argentine went from bank crash in 2001 to all foreign debt paid off in 2006.
How’d they do that? Didn’t make the news? They used the Argentine Solution.
Unions demanded to be paid in with small-denomination bonds everyone could use
to pay for taxes, power, medical and licenses. No lay-offs, more employment,
all foreign debt paid off in 5 years. Russia survived its 1990s bank crash when
750 states and cities paid employees with bond bucks and when 25,000
corporatino issued their own Corporate Cash: Shell Rubles, MacDonald Rubles,
and that worked too. Portugal has now proposed paying employees one month’s
worth of Treasury Notes. The Kucinich Bill 2990 proposed ending the FED
and using Treasury Greenbacks like Lincoln had. So no reason for the debtors to
despair, interest-free UNILETS timebanking is on the horizon.
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