[OPE-L:8709] "US Imperialism, Oil, and Finance" by Joseph Halevi

From: gerald_a_levy (gerald_a_levy@msn.com)
Date: Fri Apr 04 2003 - 08:29:23 EST

The following is a  longer, more detailed, and better developed
presentation of Joseph Halevi's perspective on this subject  than the
short article on "Oil and Imperialism" that was reported on in [8492]
(see http://www.users.bigpond.com/pbtoms/Halevi.htm ).   He
presented this paper recently in Bergamo and Riccardo B. heard the
talk and recommended it highly.  This is the first time that this paper
has been published on the Internet.

In solidarity, Jerry


US Imperialism, Oil, and Finance

Joseph Halevi

Political Economy, University of Sydney

UFR Sciences é conomiques, Université Pierre Mendès France, Grenoble


Economic theories of imperialism were developed when, (a) large
corporations began to dominate production and markets thereby bringing to an
end the vision according to which economies expand endogenously by means of
competitive accumulation in the Smithian and early Marxian sense, (b) when
the issue of surplus production and capital, connected to the phenomenon
described in (a), began to seriously occupy the minds and action of policy
makers and related institutional bodies. In this respect the United States
occupies a special place as it was a trail blazer in imperialism and its
manifestation as a quest for markets and capital outlets. By the end of the
19th century Britain was already on her way to become a rentier oriented
economy and her main concern was, by using the crucial role of Indian net
exports to the world in order to effect a transfer back to the British
metropolis, how to manage international capital flows in order to sustain a
deepening balance of payments deficit. In the same period however the United
States’ concern centred on how to guarantee an appropriate level of
international effective demand to its output. The latter was deemed to be
chronically in surplus relatively to the domestic size of demand. No one
better that the State Department expressed the above preoccupation in a
memorandum dated 1898, the year of the American-Spanish war which was to
bring Washington into Asia through the occupation of the Philippines.

It seems to be conceded that every year we shall be confronted with an
increasing surplus of manufactured goods for sale in foreign markets if
American operatives and artisans are to be kept employed the year around.
The enlargement of foreign consumption of the products of our mills and
workshops has, therefore, become a serious problem of statesmanship as well
as of commerce (quoted from Zinn, 1998, p.5).

In Europe the conceptualisation of the political economy of imperialism is
ascribed to Hobson, Hilferding, Luxemburg, but in the United States the
process started earlier and involved, in a fashion sympathetic to
imperialist expansion especially towards Asia, economists of an
institutionalist orientation. Charles Conant for instance theorised both the
system of administered prices in industry and the open door policy towards
China in alternative to the strategy pursued by the Continental powers and
by Britain involving the carving out of special areas of control within that
country (Sklar, 1988). Investment he argued can be expanded only by securing
a firm price basis as opposed to the price cutting wars which characterised
the period leading to the formation of trusts and cartels. To a very large
extent Conant’s approach is more advanced than that of Hilferding.  For
Conant the internationalisation process is not the autonomous by product of
private decisions. Instead it must go through State relations otherwise the
appropriate mechanisms required to enable international investment would not
be set in place. In practice, and with both eyes on China, he advocated
direct intervention to bring about the modernisation of non-capitalist areas
in order to usher in an expansion of investment and exports from the
industrial centres.  Such an intervention should be agreed upon by all the
industrial countries who should also cooperate to allocate to themselves
shares of world development in proportion to their own productive capacity.
Needless to say that the largest share would have had to accrue to the
United States.

Those ideas were part and parcel of the mind-set of the political and
economic establishment in the USA caught between the intense expansion of
the nation’s productive capacity since the end of the Civil War and the
persistence of excess capacity expressed in the long depression of the
1890s. China became the concrete target and terrain of the above economic,
political and institutional views thereby starting, slowly but surely, the
trajectory leading to the clash with Japan (La Feber, 1997). The United
States did in fact reach the status of a superimperialist power but in 1945
and in such a way as to systematically undo its coordinating role for the
world capitalist system. More than a century after the American-Spanish
war - which saw the emergence of the USA as a world imperialist country
motivated to create market outlets for its surplus capacity - the United
States’ predicament is closer to that of Britain one hundred years ago. It
is governed by the necessity to sustain its growing balance of payments
deficit lest the country be plunged into a debt deflation crisis. Yet the
world cannot be to the USA what India was to Britain. India produced primary
commodities exported them and was kept in a state of underdevelopment.
Britain used the Home Charges (taxes paid by India to London), protectionism
against Indian exports to the UK and the free access to the Indian market by
British industries, and, last but not least, the control over the London
discount rate, to siphon off the Indian external surplus.

By definition the rest of the world has no external surplus to be siphoned
off to the US unless it has net exports to the Moon or some other planet.
The only way in which the USA can avoid deflating to adjust the external
balance is by compelling the rest of the world to keep financing that very
deficit. Thus the instruments used to guarantee the international financial
position of the USA are primarily political and military. It will be pointed
out that oil and the military industrial complex are essential ingredients
of that ‘policy mix’. Moreover it will be argued that while past US military
Keynesianism led to a rising tide for all the advanced capitalist boats,
enabling also, through the expenditure of the Vietnam war, the launching of
new ones such as South Korea and Taiwan, to day Washington is pursuing a
policy of global deflation.  The American deficit does create effective
demand for the other countries’ production, but in order to make those
countries willing to refinance the deficit indefinitely, i.e. independently
from whether the bond and stock markets are good or bad, the rest of the
world has to be desperate to export thereby accepting any flow of dollars.
This can happen only in a context of widespread deflation, unemployment, and
crisis. For the US corporations and financial institutions to be in a buyer’
s market the world must be in a chronic state of recession and stagnation.
At the same time the structural long term transformation of the US national
economy into a globally importing economy has gutted the American industrial
sectors. Million of people in the US are in an almost free fall, producing a
general weakening of wages, constantly competing against fellow workers from
Mexico to Malaysia and, in the computer industry, even India (Galbraith,
1998). Since in the end domestic profits depend upon domestic investment,
stagnant incomes bring about stagnant domestic investment and profits for
the civilian economy. This bleak prospect can be circumvented if companies
can further relocate and subcontract taking advantage of the endemic poverty
of still more million of people around the world. Hence the higher rate of
exploitation translates itself into profits for the corporations and in
affordable prices for the bulk of the now poorer American population. It
follows that international deflation as a condition for the refinancing of
the US deficit, and the destructuring of the US domestic economy are part
and parcel of the same process.

Oil, raw materials and military Keynesianism

This sector was the best placed to enhance the corporate expansion of US
corporate interests in the world. In America the use of oil was more
widespread than elsewhere given the British and German reliance on domestic
coal. Furthermore Rockefeller’s strategies generated, already by the end of
the 19th century, a significant oligopolistic consolidation among the oil
companies (Wheewlright, 1991). Immediately after WW1 the US ambassador to
London, an oil man, demanded and obtained that Britain allow in the Middle
East a space for the interests of American oil companies. Unlike to day, the
United States did not need to import oil being in fact by far the largest
world exporter. In 1928 American, British and French companies signed an
agreement about sharing any new oil development in the area. In 1947 when
massive reserves were discovered in Saudi Arabia, American companies
successfully evicted the British ones by obtaining the Saudi concession and
denounced as collusive the 1928 agreement (Shalom,1990). The crux of the
matter was lucidly expressed by the then Secretary of the Navy James
Forrestal to the Secretary of State Byrnes, "I don't care which American
company or companies develop the Arabian reserves, but I think most
emphatically that it should be American” (Quoted from Shalom, 1990). Few
years later in 1953, after a CIA led coup ousted Prime Minister Mossadegh of
Iran who nationalised the Anglo-Iranian Petroleum Company, US companies
acquired 40% of Iran’s concessions which prior to the nationalisation where
wholly British.

These developments compel us to pause a moment in order to evaluate them
in the context of global, not just oil based, American policies. Forrestal
and Byrnes were, with George Kennan, the architects of post war US
globalism. They are the ones who, after the collapse of the pound sterling
in 1947 and the humiliating flight of Britain to non convertibility, decided
to forcefully shift the US strategy away from Britain as a junior partner
focusing it, instead, on Germany in Europe and on Japan in Asia. Quite early
in the piece they envisaged a German rearmament as well as the restoration
to power of the Japanese monopolistic Zaibatsus (Schaller, 1985). Their
strategy was aimed at creating two regional growth poles both tied to the
United States. Such a policy was also based on the dismantling of the
British position internationally and its replacement by the United States.
London’s balance of payments crisis of 1947 was itself created by Washington
’s refusal to extend further credit to Britain in order to meet the payments
due on the debt accumulated during the wartime lend and lease programme.
>From 1947 to 1955 Washington steadily evicted Britain form its areas of
economic and political influence: from the crucial oil fields in the Middle
East to the coup de grace of Japan’s asymmetrical admission to GATT which
caused the disintegration of the British system of the formerly imperial

This line of conduct reflected US conception about globalism as both an
end and as a means. The reconstruction of world – Japan and a European
continent tied to Germany – fell exclusively upon the United States as a
provider of credit, direct investment (in Europe not in Japan), capital
goods, food, and as a guarantor of the supply of raw materials, oil above
all. This outlook unified the interest of finance with those of
multinational companies in the energy sector and tied them both to the
rising military-industrial complex. As long as the United States ran a net
export balance, domestic producers went happily along with those policies
although some branches such as textiles and apparel grumbled especially in
relation to Japan. Raw materials played and important part in this strategy
(Rotter, 1987). Indeed, the raw material question paved the road to war in
Asia and to intervention in the Middle East (Lebanon 1958). The third world
was supposed to remain in a situation of neocolonial dependency, so clearly
described by Prebish and Singer of ECLA, by providing cheap raw materials to
the centres. Production costs had to be kept really low in order to allow
corporations to charge a good profit margin on them. Think for example of
the tight oligopolistic structure of the seven Sisters in the 1950s. Hence,
as elucidated by Gabriel Kolko, the USA ended up clashing with third world
developmentalist movements, from Iran to Indonesia, to Vietnam, to the
Belgian Congo. They also clashed with those organisations, such as Italy’s
state owned ENI whose CEO, Enrico Mattei, died in a mysterious accident
while battling the Seven Sisters, of the Western countries which attempted
to establish a direct link with the producing countries.

The above paragraph contains the central features of what Joan Robinson
aptly called military Keynesianism. Its demise has been widely analysed in
the literature. It is important to stress however that in order to be
effective military Keynesianism requires both global rearmament and intense
large scale warfare and even that does not always suffice. The Korean war
launched Japan and helped Germany which was also benefiting from the
prolongation of the Marshall Plan into the US funded NATO Plan. Yet the
Korean war sustained an American boom only up to 1953. From that year to
1962 the US economy went through three recessions with unemployment rising
in each. During the 1960s the US had three large public expenditure
programmes two of which were military. The ICBM programme, the Vietnam war
and Johnson’s Great Society. In other words the first two were monopoly
capital programmes and from their bosom emerged what is now known as the
Aeronautic-Computer-Electronics complex (ACE) largely divorced from the rest
of the economy (Markusen and Yudken, 1992; Melman, 1997).

At this juncture two points must be remembered for a proper historical
understanding of the predicament of the US economy. By the 1980s the
military industrial complex mutated into ACE becoming very specific with
products and technologies which cannot connect to the rest of the economy.
In that sense the ACE sectors can prosper, as they are always bailed out of
crises and given government contracts, credits and exports subsidies, but
the general technological and productive strength of economy declines. ACE
cuts across corporations. An auto multinational may have a division in ACE
and yet may decide to relocate, say to Mexico, factories operating for the
civilian economy. The research by Seymour Melman, Ann Markusen and Joel
Yudken, tallies at the sectoral level with James Galbraith findings on the
workforce. The latter is best paid and protected in the equivalent of the
ACE sectors, while its free fall status increases as we move closer to
sectors producing capital and consumption goods and retail services for the
civilian economy. The implication of the autonomy of the ACE sectors for the
well being of the American working population is far reaching. It means that
investment in ACE may be significant in providing direct employment in good
jobs but not so much in generating an overall expansion of demand and
investment. In other words, in to day’s ACE the impact of military
Keynesianism would no longer be as strong as in the past for a given dollar
spent. The second point to bear in mind relates to the hollowing out of US
industry through the actions of the multinationals. The issue was already
raised by Baran and Sweezy in their celebrated Monopoly Capital book, when
military Keynesianism was in full swing. The question of the balance of
payments position of the United States must be put in this context.

There are four major legacies from the period of military Keynesianism.
The first is that it is not socially practicable over an extended period.
Despite full employment and wages rising above productivity growth the
American society was torn apart with white kids, expecting a high income
after schooling, refusing to die or be maimed in the jungle while black boys
resented being the ones who had to be the killers and the eventual
casualties without being allowed the mirage of a rising income. Thus the
societies that benefited from American international military spending were
Europe and, especially, Japan. The Forrestal-Kennan-Byrnes strategy did come
about but in a very different form from that envisaged by its architects.
The growth of other capitalist centres far from being in harmony with the
position of the United States was, in the light of the American quagmire in
the third world, which was globally generating the quantitative conditions
for that very growth, giving rise to a renewed intercapitalist rivalry which
at that time manifested itself in a lack of confidence in the dollar imputed
to the US balance of payments deficit. From 1971 till the Volcker-Reagan
policies US authorities tackled the problems emerging from the end of
military Keynesianism in contradictory terms. In order to maintain their
international military position and their support to client states,
particularly Israel, Iran, Turkey, Pakistan, Indonesia and South Korea,
entailing persistent monetary outflows as well asymmetric imports
concessions, they moved towards the deregulation of capital movements so as
to cover for the growing current account deficit. Under the pressure of
domestic producers who perceived a threat from Japanese exports, initially
in textiles and steel but later in the 1970s in autos and other big ticket
items, they pushed for a devaluation of the dollar. During the tenure of
Presidents Ford and Carter the target was also to regain net exports. This
objective stemmed from the fact that the specific form of globalisation
followed by American corporations, through peripheral subcontracting and
relocation, was still its early stages. Thus the American economy still
appeared to be a structurally coherent national system in terms of its
intersectoral linkages.  Finally they also aimed at reinstating unilaterally
the international role of the dollar using in particular the fact - and this
is the second legacy – that the dollar became the undisputed currency in the
financial flows stemming from the raw materials sector thereby contributing
to the hegemonic globalisation of US financial corporations. Such a scenario
could arise only thanks to US multinational control of most of the
capitalist world oil, a situation connected with the support to client

To the macroeconomist these objectives may have appeared as conflicting
with each other emanating just from the political interests of the
authorities in charge. Yet they coherently expressed the contradictions, in
the Marxian sense, inherent in the international stance of US monopolistic
capitalism. Henry Kissinger constitutes the most cynical synthesis of that
stance. With the United States bogged down by a losing war in Vietnam, the
US State Department moved, during 1969-70, towards a solution of the Middle
East conflict consistent with UN Resolution 242 requiring Israel to withdraw
from all the areas occupied in the June 1967 war, including the illegally
annexed Eastern part of Jerusalem (Shlaim, 2000). The policy was gradually
obtaining also the consensus of the USSR for whom the Middle East conflict
was becoming a serious problem in the context of the worsening relations
with China. In his capacity as the chief presidential security adviser,
Kissinger scuttled the State Department’s orientations emphasising the
building up of strategic links with Israel and further increasing the
American involvement in the Middle East to the great pleasure and relief of
the oil companies. When Nixon appointed him Secretary of State that became
Washington’s official policy. Hence the road to the October 1973 war had
been paved with reinforced concrete. It must be stressed that Kissinger’s
policy was not a random shift caused by the Vietnam crisis. Instead it was
the response to both the Vietnam crisis and the economic-financial crisis.
Out of Kissinger’s policy came the October war and the oil embargo leading
to what economists inappropriately call the oil shock. The United States,
through Kissinger,  was quick to seize upon the embargo to push for a sharp
increase in oil prices, well beyond anything demanded by OPEC, believing
that the impact would be felt more sorely by the real sectors of Europe and
Japan while, at the same time counting on the shift in international
balances towards the petrodollars to strengthen the global position of the
US financial system. Here lie the seeds of the debt crisis in the third
world and in the consequent emergence of the interventionist powers by the
IMF as a world debt collector.

The third permanent legacy of the era of military Keynesianism consists in
the accelerated divorce of US multinational corporations from their domestic
productive basis. The transformation would manifests itself at a high speed
and relentlessly from the 1980s onward in the wake of the stagflation of the
1970s and the anti-inflationary policies initiated in 1980 by Volcker,  but
the prerequisites were laid down during the 1950s and 1960s. In those
decades US multinationals invested abroad by taking advantage of the growth
rates in the foreign countries, excluding Japan. In Europe they also became
structurally and technologically independent from the home country. Yet they
serviced mostly the foreign markets and followed the export patterns of the
foreign countries to third parties. Very little was exported back to the
United States. In the mid 1960s 82% of total sales of foreign affiliates of
US multinationals was in the respective host countries, 13% was exported to
third countries and 4% to the USA (Magdoff, 1978, p.134). By 1995 the share
reimported into the United States had risen to 10%. The most significant
stride to export back to the USA occurred in Latin America where from 1.5%
of the affiliates’ sales, the share exported back to the USA reached 18%.
Only in Europe the affiliates did not expand their exports to the USA
(Zupnick, 1999, p. 120). Thus the behaviour of US multinationals has been
that of gutting themselves out of their own American basis in order to
benefit both from lower costs and from the size of the US market.

The fourth legacy, already clear in the 1970s but becoming ever more
pronounced with the invention of what Markusen and Yudken called post modern
war strategies and technologies, is the parallel separation of the
military-industrial complex, turned ACE, from the civilian economy. Thus the
most important power groups in the USA, the military ACE, the multinationals
and the resource and energy companies have greatly weakened their links with
the domestic economy but they want US institutions, political, military and
monetary, to guarantee their interests world wide.

Structural right turn: a globally dislocated economy

By the end of the 1970s it was becoming apparent that stagnation and
inflationary tendencies were not abating. Petrodollar expansion helped the
flow position of US financial institutions yet inflation undermined their
asset’s values. More ominously as long as post war institutions and social
contract remained in place, albeit in the mild form of the US system, even a
6% unemployment rate was not enough to discipline wages and benefits. Carter
’s policy of devaluing the US dollar, coupled with low growth, did produce a
reduction in the external deficit but mostly in relation to services not to
merchandise where the gap actually grew. Thus, the strength of the US system
internationally appeared to rest on finance, which was however undermined by
inflation, and related services, on the profitability of US corporate
investment abroad which did well also during the stagnant 1970s, and,
finally, on the Federal Military Sales Program whose deliveries kept rising
until the collapse of the Shah in Iran (they recovered sharply in the
1980s). Yet these strong points, in particular the connection – in which oil
 interests play the major role – between armaments and the US position in
the third world did create its own problems as typified by the fall of the
Shah in Iran so that “even as military assistance and arms sales rocketed
upward in the 1970s, many American business figures pressed for an enhanced
American capacity for direct intervention abroad” (Ferguson and Rogers,
1986, p.97).

The antinflationary monetary policies of the Volcker-Reagan period are to
be seen not in relation to their macroeconomic principles to be countered by
this or that alternative (Post-Keynesian?) theory, but as a set of class
decisions aimed at decimating the material – and therefore political – basis
of social compromise. Joan Robinson coined the term military Keynesianism in
a disparaging way. “Keynesian” effects were obtained not as a result of
deliberate and thought out policies relatively to maintaining full
employment and all the rest. They rather stemmed from the requirements of
the Forrestal-Kennan-Byrnes globalism leading onto the Vietnam path. There
was no “Keynesian” plan in relation to Japan, the “Keynesian” effect came
from the Special Procurement Policies set up during the Korean war, and so
on. They were simply rationalised by “Keynesian” academics after the fact.
Similarly,  the roots of the Volckers – Reagan actions are to be understood
in the coagulation of class and corporate interests deliberately oriented to
attacking the domestic basis of production, and with it the people’s
standard of living. The not disguised  beneficiaries  were and still are
three main groups of businesses formed by oil companies, other
multinationals, finance, and the ACE group. The rest will have to adjust. If
it pays to companies and large retailers to subcontract and import garments
from Costarica or Indonesia at the expense of domestic employment, so be it.
The textile workers in free fall can become janitors in office building
suffering pay cuts and the loss of benefits. Exactly as the domestic
civilian economy has to adjust, the world also has to adjust to American
deficits. What is important is that the three groups do not suffer.

In relation to the third world the adjustment is not difficult to obtain.
It comes naturally through the debt crises that devastate those countries,
periodically pushing them back into hyperdeflation. The tighter the country
is linked to the USA and its institutions such as the IMF, the stronger are
the hyperdeflationary crises. Workers in Mexico will have no chance to earn
competitive salaries vis à vis their American colleagues not as a result of
differential productivity rates and of different levels of development.
These are physiological gaps. The crucial gaps are the pathological ones.
Mexico has been industrialising for at least 40 years. It has a modern
productive capacity greater than that of a medium size EU country. Yet the
earnings gap with the USA has actually widened not because the earnings of
American workers have improved but because the Mexicans fared much, much
worse. The reason for that does not lie in production. In fact Mexican
production has expanded more than in the United States with the country
becoming an export base for the multinationals operating towards the North
American market. The systemic plunge into deflation is caused by debt which
resolves itself into a balance of payments crisis due the impossibility of
servicing it. This happens also when the current account on merchandise
trade is booming (Halevi, 2002). Given that these kind of economies are
quasi dollarised, the adjustment happens naturally through a domestic social
catastrophe. At each crisis the leverage over these countries’ resources by
the US government, businesses and financial institutions expands enormously.
The plan Free Trade for the Americas is nothing but a strategy in which the
whole Latin American continent (450 million people) will have to adjust in
the afore mentioned manner creating a permanent and deepening anti-wage and
anti-inflationary framework within the United States. Thus the booming
Mexican exports to North America can be seen as an ideal deflationary demand
creation. The demand for Mexican products rises, partly at the expense of
American made products, thereby reducing the value of the American workers.
In turn the debt dependency of Mexico generates the catastrophic adjustment
which now devalues Mexican workers even more. The cycle starts all over
again with a new batch of American workers being readied for devaluation.

This adjustment can successfully work, until people say enough is enough,
thanks to debt dependency and the ensuing lack of credibility in the local
currency and financial system. In relation to the developed economies and to
China the story is different but the necessity to make those countries
adjust is no less compelling. In fact Japan, and Taiwan province of China
hold a great deal of US debt and, with China, they run the largest current
account surpluses with the US. Thus their behaviour is crucial in relation
to the refinancing of the American deficit and in keeping the American
financial system afloat. China is at the moment interested in exporting and
in accumulating reserves since her policy is a huge NEP
import-substitution-by-means- of-exports strategy. For the United States
China is, like Mexico, a source of low cost imports to the delight of retail
chains, intermediaries and, in principle, of multinational companies. I said
in principle because China does not and will not liberalise the capital
account. Even for multinationals is not easy to export their profits back to
the Western world or to Japan.  This shows that China is not Mexico, and it
will not partake for ever in the deflationary demand creation process. They
will not adjust the way debt dependent countries have to. For them the
present stage is part of a process aimed at becoming a strong country
industrially and militarily. The more they will accumulate American debt,
the more they will condition and exercise pressure on American policies on
all fronts, on the oil and energy fronts in particular. Very slowly yet
unflinchingly they are moving toward that direction. United States’
officials know that also. Just after September 11 Colin Powell was asked
about the US-China relations. His answer must be remembered by heart: they
are far too complex to be described in one way or the other, he said.

The China issue is one of the reasons, perhaps politically the main one,
why Washington absolutely must tie up the rest of Latin America in the Free
Trade for the Americas pact. From the point of view of American dislocated
capitalism the sooner they reach a formal decision the better. The protocols
of the Free Trade for the Americas will be tailored made to the exigencies
of US multinationals where the balancing act will mostly be in relation to
mediating the differences among US companies.  The protocols will reflect US
priorities in virtually every sector and in matters of investment, legally
binding the other Latin countries to them. This will form a coherent
political-legislative bloc within the WTO conditioning also China’s
policies. Yet oil and energy are the essential immediate instrument to meet
China’s growth strategy In 1998 John Maresca, Vice President of the oil
company UNOCAL, gave a fundamental testimony at a Congressional hearing on
Afghanistan (Maresca, 1998). In his presentation, the whole rationale given
for getting into Afghanistan and take over Central Asia’s resources had to
do with Chinese development which has to be both abetted and controlled. The
best way to do it is to monopolise the supply of energy and to acquire the
resources around China. Notice that if China’s energy requirements are
successfully wrapped up by American companies, the country’s and with it the
world’s dollar dependency will rise quite a part from any worsening of the
US balance of payments deficit.

As to Japan their willingness to refinance the deficit lies purely and
simply in the stagnation of the economy. This makes Japan even more export
dependent upon the United Sates. The greater compliance of Japan is obtained
however by preventing it from developing its own international financial
policy and establishing new international bodies in managing financial
volatility. When Tokyo meekly suggested such a move during the Asian crisis
of 1997-98, which was well received in Asia, the US Treasury and the IMF
attacked it vehemently while the State and Defense department whipped up
again the Taiwan issue against China sending navy ships in the area. Also
the recent security treaty signed with Japan and the strategy of making the
latter into an advanced frontier of the renewed drive for a star war like
missile shield (aimed at China), is part of the financial locking in of both
China and Japan. In all these cases as in Afghanistan and the Middle East we
have the same sectors joining forces together: energy multinationals,
financial companies, the ACE industries. All of them happily free from
domestic economy and not even terribly interested in it.


The above are the real economic policies of the United States to which
everything else has been subordinated. The possibility of carrying them out
depends on the control of oil. Such a control compels countries to hold
large dollar reserves for transaction, precautionary and speculative
reasons. To the extent to which their own currencies are non oil currencies
the holding of large dollar reserves will be considered necessary for
defence against speculation. Theoretically there are some alternatives to
the dollar-oil based system but they are only hypothetical. If an Asian
monetary fund is set up it will comprise the countries with the largest
dollar surpluses. It will not have to depend on US official injections
unlike what happened to the European Payments Union during the post war
reconstruction. But Washington will not allow, even to the point of starting
a war, an alternative financial centre made of China and Japan. Also Europe
does not have many possibilities to become an alternative currency system.
On the surface the EURO appears to be an alternative currency given the size
of European demand nominally only slightly smaller than that of the US. Yet
in relation to 30 years ago the strategic dollar dependency of Europe has
increased not declined. Europe is in stagnation since 1982 and needs to
export, it has not dislocated itself the way the USA has done nor do they
have such a chasm in the connection between sectors and the domestic
economies. More importantly, from the mid 1970s onward the EEC was quietly
diversifying its energy supplies away from dollar based oil to energy
projects and delivery contracts with the USSR denominated in European
currencies. This is why  in the 1970s the talk about finding an alternative
to the dollar, which led to France’s proposal to set up a group of five
countries (G5, later G7), was aired in an open manner.  It is the USSR that
helped expand energy dollarisation in Eastern Europe by asking, under
Gorbachev, that the CMEA countries move to settle oil imports from the
Soviet Union in dollars. With the end of the USSR the energy products of the
former republics have been dollarised and the US government and military are
present from Georgia to Central Asia along with their multinationals. .So
far the only country that has asked to be paid in Euros is Iraq. After the
coming war the American companies who, like in Iran in 1953, will end up
controlling most of Iraq’s oil will sell it for dollars. Furthermore the
role of the rest of the world, of Europe, China, and Japan, in sustaining
the American financial system is not confined to the external deficit. By
continuously validating US IOUs, the rest of the world must protect the
American financial system against the eventuality of a domestic debt
deflation brought about by the rising levels of household and corporate net

This sort of compliance can be obtained only by forcing the issues. In
matters of State, and economics is a matter of State not of objective laws,
there is always a limit to force which usually appears with the emergence of
a counterforce not notionally but concretely in active military terms.


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