Authorities cut imports to conserve dwindling funds and businesses struggle to stay afloat
Authorities cut imports to conserve dwindling funds and businesses struggle to stay afloat
AS THE LATE Samir Amin wrote in 2006, “the challenges with which the construction of a real multipolar world is confronted are more serious than many ‘alterglobalists’ think.” Sixteen years later, Amin’s call for nations to “delink” from the Western-led economic order appears more ignored by state elites in the global South now than ever before. Earlier this year in a speech at Davos, Xi Jinping reaffirmed that “China will continue to let the market play a decisive role in resource allocation,” while “uphold[ing] the multilateral trading system with the World Trade Organization at its center.” And Russia’s assaults on Syria and Ukraine, financially supported by its plunders in regions like Sudan, serve as a reminder that the rise of national powers supposedly challenging US hegemony provides no guarantee that conditions will be more favorable to the international left. Thus, as Aziz Rana recently noted, the left needs an internationalist framework that “universally and effectively joins anti-imperial and anti-authoritarian ethics,” and refuses both “an old, broken Pax Americana” and “a new multipolar order dictated by competing capitalist authoritarianisms.”
But praxis can only emerge from a precise theoretical understanding of the objective conditions of imperialism today. What characterizes this new multipolar order and the nature of inter-capitalist competition? As a whole, this emerging multipolar world of bourgeois states does not create better conditions to challenge global imperialism, but merely preserves and even heightens these capitalist dynamics. Martín Arboleda cautions against “fetishizing” the role of the state in facilitating imperialism today at the expense of accounting for the role of international actors, and so conversely, we must also not overstate the capacity of the state—even developmentalist ones—in resisting imperialism.(1) The decline of US imperial power and the rise of multiple “poles” on the global stage only reshuffles which states are mediating the existing global relations of production, without reorganizing the latter differently, and without fundamentally empowering independent movements in each region. Identifying the most effective strategy for the global left to build power requires understanding how this new expression of imperialism works. Rather than seeing multipolarity as opening up space for revolutionary struggles against imperialism, I contend that contemporary multipolarity functions as a new stage of the global imperialist system, a departure from unipolar US hegemony without neatly falling back into the traditional mode of inter-imperialist rivalry as described by Vladimir Lenin and Nikolai Bukharin commenting on the last century.
Today’s multipolar imperialism represents an intensification of the world-system sketched out by Bukharin, which sees the internationalization of finance capital and the development of national capitalist groups as two aspects of the same process. While national economic blocs have been increasingly sidelined in favor of multinational institutions by neoliberal globalization, nonetheless we see the strengthening of the power of nation-states to help facilitate financial capital in further containing the working class. A Marxist theory of imperialism today must thus not overstate the dynamic of inter-imperialist rivalry without endorsing a perspective that capitalist states are now entering a stage of peaceful co-existence enabled by financial interdependence, or what Karl Kautsky called “ultra-imperialism.” This deeper intertwining of state and capital enables new and more complex dynamics between ruling elites. Even as value transfer from peripheries to core remains intact, we can now witness multiple geographies of inter-imperial relations, with different cycles and layers of collaboration and competition between different sectors of the ruling class. Now joined by an often invisible class of institutional investors, state elites draw from more sophisticated technologies of repression and control across geopolitical blocs, leading to an uneven development of global authoritarianisms to counter independent and popular movements. This widespread erosion of political democracy, as it takes diverse forms, is thus a central policy of imperialism today.
All this would not be surprising to Amin and other left-wing advocates of multipolarity. But we need conceptions of world revolution that creatively expand on what Amin calls “national, popular, democratic front[s].”(2) This entails leaving behind a conception of geopolitics that sees multipolarity as it exists as a necessary prerequisite for global decolonization and democratization. A genuinely democratic alternative to imperialism requires building new relationships among various anti-authoritarian movements that may not be readily seen as commensurable, from Indigenous struggles against transnational corporations to the left-wing of pro-democracy movements. Struggles from below must work toward institutionalization and international cooperation in some form, but we must also understand how a new “Bandung” of the 21st century must move beyond the limits of national liberation. Revolutionary socialist democracy can emerge from an organized plurality of different anti-authoritarian forces across regions that promotes democratic assembly and governance to force the global imperialist system to its limits—be it a unipolar or multipolar world of imperial states.
Left-wing defense of multipolarity has become the implicit political framework for most Western anti-war organizations. Most are under no illusion that multipolarity in itself would produce the right conditions for global socialism. Rather, they believe that multipolarity would open up more space for independent struggles for sovereignty and self-determination. As Ignatz Maria describes it, “multipolarity has allowed for an intensified responsiveness to local conditions on the ground,” with multipolarity treated as a kind of “positive neutrality” allowing space for popular movements to blossom. This perspective tends to cite postwar decolonization movements as historical precedents for such a logic.
But there was never any guarantee that the progression of history toward a multipolar world necessarily expanded the room for struggle for democratic movements: most of the Third World states of the past have failed to endure, while modern-day multipolarity by and large fails to express the diversity that the anti-colonial states of the last century embodied. One cannot create simple parallels between the opportunities afforded to working-class movements from the latest pink tide in Latin America and the political developments within regimes across Asia championing anti-Western rhetoric. Some left-wing pundits uphold the likes of China and Vietnam as models for public health management in those regimes’ handling of the COVID-19 pandemic in 2020, but the relatively successful management of the pandemic was by no means exclusive to members of an anti-Western coalition.
In fact, countries that have openly decried US unipolarity align far more with its global imperial order than any supposed multipolarity. States from different geopolitical blocs have designed policies modeled after the US-led “War on Terror.” Some countries are establishing relations of domination toward racialized minorities within the boundaries of the state, or what Pablo Gonzalez Casanova calls “internal colonialism.” Ethiopia, for one, has closely supported the US during its Iraq War operations, now rebranding “War on Terror” rhetoric in a genocidal offense against Tigrayans. It does so by peddling anti-Western rhetoric out of one corner of its mouth while demanding more debt restructuring from the World Bank from the other. Meanwhile, China is incorporating former Blackwater associates into Xinjiang security centers while adopting Israeli counter-insurgency methods to police Uyghur and ethnic minorities in Xinjiang. The technologies that emerged from China’s brand of “War on Terror” are also now used by the Malaysian government to surveil undocumented Muslim migrants.
These regimes are often seen as part of an anti-imperialist bloc opposed to the US, but as Salar Mohandesi remarks, “it is precisely because the state is so thoroughly riddled with contradictions that imperialism often takes such contradictory forms.” But while Mohandesi cautions against assuming that imperialism can be reducible to traditional forms of capital accumulation, his case may be overstated. Much more than ever, we see new, intertwining relationships between state and capital, which should call for us to update how and where we can locate expressions of imperialism in these new configurations. For one, China’s desire to entrench itself in the global neoliberal system drives the country closer to international multilateral institutions (a reality that Amin predicted), which comes into tension with China’s fiery rhetoric against the US and the West. Touted pro-global South programs like the New Development Bank co-finances most of its projects with the financial entities that it purports to challenge, while promoting corrupt loan deals while systematically neglecting to consult populations in need. The World Bank-led Debt Service Suspension Initiative (DSSI) has been one of China’s main solutions for African countries like Zambia and Angola that are heavily indebted to it since the pandemic: merely offering debt suspension, not relief. And while the debt relief China recently promised to African countries is welcome, the fundamental structure of financial extraction of African countries for global capital accumulation remains untouched. The details of Chinese loans have always been obscured as they often go toward funding developmental projects with minimal environmental or labor standards. As Beijing now courts such countries like Saudi Arabia to join BRICS, any coherent conceptions of progressive multipolarity – even by the lowest standards, as political economist Patrick Bond describes – threaten to crumble into “an ideological and functional member-mishmash beyond any logical comprehension.”
Not only has a more equitable multipolar world failed to emerge, but this new configuration of global imperialism is also innovating techniques centered on the managing power of “infrastructure-led development,” from China to various regional and mid-sized states. In other words, not only is the state form—including in the Third World—failing to serve as a vehicle to develop anti-colonial sovereignty of oppressed peoples, but is actively being pulled to facilitate new forces of global capital accumulation. As Ilias Alami, Adam Dixon, and Emma Mawdsley observe observe (building on what Daniela Gabor labels “the Wall Street Consensus”), the “global dynamics of capital accumulation” have pushed the state further “as promoter, supervisor, and owner of capital,” in the form of “modernising state-capital hybrids … that mimic the practices and organisational goals of comparable private-sector entities, adopt the techniques of liberal governance, and are broadly market-confirming.” This attempt to “preserve and further enshrine the centrality of market regulation in Development in an age of rising state capitalism and turbulent geopolitical reordering [require] the uneven and combined development of more muscular forms of statism and the expansion of state-capital hybrids.” And so, what we see is the increased role of sub-imperial actors in helping to bolster the functions of capital in the name of public-private partnerships and other developmental innovations.
Rather than reversing the global structures of inequality, these developments signal new technologies of exploitation to the working-class. Alami and Dixon note how what they term “uneven and combined state capitalist development” has become an increasingly preferred mode for nation-states to help expand the operations of capital. More precisely, many states are increasingly willing to assume financial risks to bolster the power of institutional investors directly within national development projects to manage and contain labor power. In recent years, the central levers of global capital accumulation have shifted from shareholders into a few asset managers, like Blackrock and Vanguard, the latter now being one of the largest shareholder blocs in both Exxon and the Chinese state-owned Sinopec. Not only do infrastructural development projects like the Belt and Road Initiative fail to challenge global imperialism, but they also represent new forms of financial capital that work hand in hand with various nation-states and their state banks (such as public-private partnerships). The even larger implication is that the left’s opposition to multipolar imperialism should not only address the role of the Great Powers, but also mid-sized and regional powers as key facilitators of global imperialism.
What Alami, Dixon, and Mawdsley see as growing but unevenly “muscular forms of statism” points to a fundamental motor of imperialism that Amin and many others have observed but failed to rigorously address: authoritarianism. While Amin recognizes democratization as fundamental for socialist multipolarity, his political recommendations focus purely on economic policy adjustments. However, he correctly notes that “authoritarian structures here favour comprador fractions whose interests are bound up with the expansion of global imperialist capitalism.”(3) Indeed, this perspective has been consistently downplayed in many contemporary Marxist discussions of imperialism, especially among those who are keen on maintaining the traditionally imperialist transfer of value from the peripheries to core. Instead, we must recognize how growing authoritarianisms around the world are a symptom of inter-imperialist competition between nation-states. In order to maintain their positions in an imperialist world-system, each of these nations are compelled to exploit workers, at times strengthen austerity measures, and contain their independent movements to benefit from the developing global dynamics of capital accumulation.
The refusal to actively resist the authoritarian tendencies of regimes like China, Russia, Syria, Venezuela, Nicaragua, and Iran structurally prohibits us from organizing against imperialism as a global system. Focusing on only certain aspects of US influence at the expense of addressing the complicity of other states in the global economy—working alongside the US’s other aspects of dominance—only selectively critiques global imperialism. Indeed, the mainstays of the anti-war left are forced into a position that centers only on dismantling US militarism while unable to offer positive support to democratic movements in other regimes as they grow closer to capitalist economic integration. Holding onto an analysis of “delinking” from the global economy without an understanding of political democracy would fail to check the growing forces of authoritarianism that make it difficult to promote a more democratic multipolar world. For one, the autocratic Eritrean state, which had been militarily assisting Ethiopia’s genocidal campaign against Tigrayans, has received praise from some pro-state overseas Eritreans. “Anti-war” outlets like Black Agenda Report and Black Alliance for Peace praise Eritrea as one of the few African countries to reject the US and other forms of Western aid and influence, lauding its “anti-imperialist” stance. Their failure to account for the Eritrean regime’s gross autocratic excesses demonstrates the limits of such anti-imperialism that remains silent on this regime’s containment of independent working-class power.
Since, to cite Mohandesi again, imperial relations are “always conditioned and propelled by a plurality of other, often contradictory, forces,” and thus “many nation-states trying to free themselves from imperialism often found themselves exhibiting behavior that came dangerously close to the very imperialism they sought to abolish.” Such a regime is unsustainable as its political legitimacy derives solely from its head of state–in the case of Eritrea, Isaias Afwerki. And with independent organizations and civil society nearly completely neutralized by the state, the likeliest political future for Eritrea after Afwerki’s reign would be the same neoliberal playbook dictated by the IMF and other global financial actors.
Our alternative is not subscribing to the Western establishment’s line of demarcating Western liberal “democracies” from the “authoritarian” regimes of the global South. Instead, we must recognize the uneven adoption and development of authoritarian strategies of governance across geopolitical milieus—much as the incorporation of “War on Terror” counter-insurgency across diverse national contexts shows. Recognizing this unevenness is important because different kinds of authoritarianism require different movements and strategies to combat them. Building on Alami, Dixon, and Mawdsley’s analysis of the development of statism in the global capitalist economy, a genuine anti-imperialist praxis should take into account how states learn from each other and develop their own repressive regimes of control. China’s wholesale attack on civil liberties structures the state’s relationship to capital in its own way that differs only in degree and method from the US’s targeted and unstable disenfranchisement of minorities. Both find a common denominator, to borrow from Trotsky, in “frustrat[ing] the independent crystallization of the proletariat.” This containment of mass movements from both sides helps stabilize global capitalism. However, each customizes its methods of control according to a complex confluence of factors at a given time: their particular relationship to global supply chains, the strength of domestic or local independent mass organizations, and the scale and expression of unrest among its people.
From this analysis of authoritarianism and imperialism, we can imagine what a genuinely socialist “multipolarity” can look like: assembling anti-authoritarian movements together to strengthen democratic institutions from the global to the local. This goal demands more than simply statist forms of sovereignty or relying on the reshuffling of power between nation-states against the backdrop of declining US hegemony. It is imperative to build alliances between movements struggling against different forms of rising authoritarianism. At the same time, we must understand that for movements acting within illiberal, authoritarian states, the latter becomes nearly impossible without the basic freedoms afforded by bourgeois democracy. In such cases, like in Russia or Hong Kong under the national security laws, those in the global North with more resources and freedoms can develop more meaningful forms of support with those movements beyond a gestural slogan or statement of solidarity.
And just as we do not hold onto a rigid definition of authoritarianism, such an assembly of anti-authoritarian movements should not be conceptualized in utopian terms. As Hong Kong’s anti-extradition bill protests, Myanmar’s anti-junta mass resistance, Ukraine’s military self-defense against Russia, and Sri Lanka’s movement against the Rajapaksas all reveal, ethnic tensions and political prejudices have plagued such movements from the start. Efforts by the US empire to assert influence, from NATO military support to National Endowment for Democracy grants, have continued unabated. How then do we locate independent forces to support? In such cases, we must define independence not as a zero-sum space (since none can exist in geopolitics), but as a spectrum. Where can we locate the freest site for the movements to act and expand their power and capacity—under the least coercive conditions—in each precise historical conjuncture? One cannot answer this question preemptively, especially when different reactionary forces are present on different sides of the conflict; and should instead critically discern relations of force on their own terms.
A brief survey of some more recent uprisings demonstrates that no one model of struggle can be generalized. Under the state apparatus controlled by the Myanmar military junta or Hong Kong government, there is minimal flexibility for movements to maneuver. Recent mass struggles in China and Iran compeled their regimes to entertain some reforms, but it remains difficult for such movements to be sustained in any legal or institutional level as key activists have been swiftly incapacitated. The current insurgency in Sudan has given rise to politically diverse resistance committees with the future of the movement still being determined. While some like the committees in Mayurnu advocate for building autonomous revolutionary governance outside of the state, others call for institutionalizing new democratic infrastructures by rebuilding the existing state. In all instances, the left should focus on cultivating forces as independent as possible from the political leadership of bourgeois or national liberation movements, differentiating between what Hal Draper calls “military support” from “political support” of movements with prominent bourgeois elements asserting control. At every turn, we must try to out-organize reactionary components of social movements, from right-wing national chauvinists to US imperialist affiliates, without abandoning the mass movement completely.
And thus, we must strengthen alliances between forces resisting authoritarian challenges to liberal democracies and those resisting authoritarian regimes from the outside. As described above, the current objective trend of global imperialism compels states across the board to further consolidate their anti-democratic power in service of financial capital. In addition, the last historical instantiation of the multipolarity of bourgeois states generated a landscape of inter-imperial rivalry that resulted in an extraordinary human cost. To advocate for similar conditions—even as a transitional stage—would only be intransigent accelerationism that would crush, not empower, what is left of independent movements in some regions. Positive developments for movements in select regions of Latin America do not signal a similar fate in other regions under this developing world of multipolarity, as struggling dissident movements in regions like China and Iran can bear witness. Even Amin admits that “necessary economic options and political instruments [for socialist multipolarity] will have to be developed in accordance with a coherent plan; they will not arise spontaneously within the current models influenced by capitalist, neoliberal dogma.”(4)
Furthermore, the development of new authoritarian state capitalisms should make us even more skeptical of uncritically relying on state-led development as an antidote to capitalism today. As Iraqi socialist Muhammed Ja’far writes in a critique of Amin in 1979, “it is only possible to understand national formation as the social counterpart of the capitalist mode of economic production.” Alami updates and nuances this analysis further, explaining that for the state to “secure its own reproduction as well as that of money, it is forced to … channel [financial] flows and manipulate their class content for the purpose of managing class relations … in ways compatible with global capital accumulation.”(5) This is not to rule out engagement within any states wholesale, but to recognize that in the last instance, the infrastructure of the nation-state today necessarily serves the interests of global capital accumulation. Even movements operating in the terrain of the state must understand that they are only present there because it contingently offers the most room to thrive only in very specific political conditions that can transform quickly. On the other hand, movements pushed outside of the state through authoritarian repression can find themselves in more favorable conditions vis à vis the state as quickly as they were isolated from it.
And thus, the way to resist this new instantiation of multipolar imperialism is to objectively analyze where and in what forms independent mass movements emerge today, and to find new ways to institutionalize solidarity beyond models that privilege state elites. For one, inter-imperial rivalry in the last century in itself did not determine the gains for independent movements for decolonization in a vacuum—we must not overlook the subjective role of the latter in changing the course of history. While some of those movements can serve as inspiration today, we must not be dogmatically nostalgic about their historical expressions. New forms of working-class and popular mass organization are required as the same imperialist division of global labor becomes mediated by different states—a change only in form, but not in content.
A truly emancipatory form of multipolarity would provide an infrastructure to a highly variegated terrain of independent movements, with each developing to maximize its fullest power to act to democratize its capacity for self-determination. These movements can assume a number of forms, from resistance committees and trade unions to mass socialist parties. Each embodies different levels of political consciousness, but can be stimulated in different ways to militate against different aspects of the global capitalist system, though success or failure can never be pre-determined. In this sense, self-determination against global imperialism entails creating platforms for democratic assembly and deliberation for independent movements. These spaces can advance revolutionary demands that are incompatible with current regimes, but in the meantime, can build power by exposing the limits of the degenerate forms of governance today from bourgeois parliamentarism to illiberal authoritarianism. This difficult balancing act, as Devaka Gunawardena puts it, means both refusing to accept that bourgeois democracy is “sufficient” and being open to “draw on elements of actually existing socialist states to critique it—but that pushing the boundaries of democracy as it currently exists requires engaging seriously with its own internal contradictions and limitations.”
How does this exactly change our strategy around international solidarity as socialists? We must rethink what “the main enemy is at home” means in practice. Of course, this is not to abandon the struggle against imperialism in the West, but to expand our horizons to target sites where different states intersect with each other and international institutions. Here are some examples of opportunities for solidarity. Ukrainian socialists from Sotsialnyi Rukh’s demand the “democratisation of the international security order” to safeguard minority and oppressed peoples can be connected to other struggles against colonialism like in West Papua. BRICS from Below and other grassroots initiatives can continue to be strengthened with local movements to pressure against debt and financial institutions. The current situation in Ethiopia shows that rival countries from Iran to Israel work side by side to fund Ethiopia’s war on Tigrayans, calling for the need for globally-coordinated campaigns against “War on Terror” policies by different regimes. These can build from active campaigns for abolition by Black and Muslim organizers, like the work of Muslim Abolitionist Futures. We can also help bridge movements fighting the intersections of different national capitals, from the Tagaeri and Taromenane peoples struggling against the Ecuadorian government and Chinese companies’ encroachment on their self-isolated existence to anti-gentrification struggles in Flushing, New York, where major US corporate developments are bankrolled with the aid of Chinese bank capital. Socialist parties and organizations can help to formalize these bridges while respecting the autonomous existence of each struggle, building power pluralistically without subsuming them all under the former’s ranks. More so than ever, reflecting on the socialist left’s failures in the 20th century should further vindicate Ernest Mandel’s principle today: that socialist vanguards should not “subordinate the interests of the class as a whole to the interests of any sect, any chapel, any separate organization.”
While Amin believed that “social forces and projects [must] first take shape at the national level as a vehicle for the necessary reforms,” the idea of distinct national levels of struggle and development becomes more and more difficult to isolate with imperialism’s shifting face.6 With the ever-increasing threat of climate disaster in the midst of a failing economic system that provides no solutions, we must continue to build mass organizations to fight for democratic institutions with programmatic clarity wherever possible. But placing our faith in the reshuffling of the US hegemon’s power to a multipolarity of national elites to unlock better conditions of struggle would be idealism in its own right. Revolutionary anti-imperialist struggles must remain vigilantly pluralist and anti-authoritarian, and see multipolarity without socialist democracy as merely another expression of imperialism, rather than its death knell.
Spectre, January 6, 2023
The monetary order is already being challenged by de-dollarisation efforts and central bank digital currencies
Sisi needs to shrink the role of the state and military-owned companies
Developing countries take advantage of brightening sentiment to kick off 2023 with hefty international debt sales
As interlinked extreme heat and drought events grow in intensity and frequency amid the ruling class’ ongoing failure to adequately slash planet-heating fossil fuel pollution, over 90% of the global population is projected to suffer the consequences in the coming decades, according to peer-reviewed research published Thursday in Nature Sustainability.
Compound drought-heatwave (CDHW) events are “one of the worst climatic stressors for global sustainable development,” states the paper, but their “physical mechanisms” and “impacts on socio-ecosystem productivity remain poorly understood.”
“Using simulations from a large climate-hydrology model,” nine scholars—working at universities in China, the United States, the United Kingdom, and Japan—found that “the frequency of extreme CDHWs is projected to increase by tenfold globally under the highest emissions scenario, along with a disproportionate negative impact on vegetation and socio-economic productivity by the late 21st century.”
According to the study: “Terrestrial water storage and temperature are negatively coupled, probably driven by similar atmospheric conditions (for example, water vapor deficit and energy demand). Limits on water availability are likely to play a more important role in constraining the terrestrial carbon sink than temperature extremes.”
Put plainly, drought and extreme heat are intertwined. Increasingly arid and hot conditions are undermining the capacity of land-based ecosystems to absorb carbon dioxide, with a lack of water considered even more consequential than higher temperatures.
Not only are CDHWs hurting the ability of biodiverse regions to absorb a key greenhouse gas but these increasingly intense and frequent events also threaten to exacerbate socioeconomic inequalities.
The study estimates that even under the lowest emission scenario, “over 90% of the global population and gross domestic product could be exposed to increasing CDHW risks in the future, with more severe impacts in poorer and more rural areas.”
u201cOur new paper on global compound hazards has been published on Nature Sustainability today (https://t.co/v9CXNnNEPl). Thank our contributors @PierreGentine @DrLouiseSlater @LeiguSs @PokhrelYadu @NaotaHanasaki @WolframSchlenkeru201d
— Jiabo Yin (@Jiabo Yin)
Lead author Jiabo Yin, an associate professor of hydrology at Wuhan University and visiting researcher at Oxford University, explained in a statement that quantifying “the response of ecosystem productivity to heat and water stressors at the global scale” shows that the joint threats of dangerously hot temperatures and drought pose substantially greater risks to society and the environment when assessed together rather than independently.
The effects of rising temperatures and declining terrestrial water storage combine to weaken the capacity of “carbon sinks” to absorb heat-trapping emissions and release oxygen, Yin noted.
Co-author Lousie Slater, associate professor of physical geography at the University of Oxford, said that “understanding compounding hazards in a warming Earth is essential for the implementation of the U.N. Sustainable Development Goals (SDGs), in particular SDG13 that aims to combat climate change and its impacts.”
“By combining atmospheric dynamics and hydrology, we explore the role of water and energy budgets in causing these extremes,” said Slater.
The new research, which is aimed at “assessing and mitigating adverse effects of compound hazards on ecosystems and human well-being,” comes in the wake of record-breaking extreme heat and historic droughts around the world in 2022.
The life-threatening impacts of the global climate emergency have only continued to reverberate in 2023, underscoring the need to expedite the clean energy transition, among other necessary transformations.
Cairo says banks will soon be able to help importers clear backlog of goods at ports worth $9.5bn
Return of great power rivalry brings some opportunities for those in between
Christine Lagarde, president of the European Central Bank, at a news conference in Frankfurt, Germany, December 15, 2022. (Alex Kraus / Bloomberg via Getty Images)
The current policies of the European Central Bank (ECB) and the Federal Reserve are being sold by bankers and most economists with the argument that they lack any alternative. After more than ten years of lax monetary policy that guided as much money into markets as possible, increased liquidity, and stimulated inflation, a shift is underway. Now money is actively being withdrawn from markets to fight inflation.
Advocates of this shift ignore that other instruments of economic policy — notably, comprehensive price caps, taxes on corporate profits, and redistributive measures — are far better suited to fighting inflation than the current focus on monetary policy.
In light of this, it is hardly surprising that, outside of the business press, the impact of monetary policy decisions in the Global North on the states of the Global South are rarely even mentioned, let alone debated. When currencies of the Global North, and especially the US dollar, become stronger (the stated goal of the current policy shift), states in the Global South come under pressure, as their currencies become comparatively less valuable.
As a result, many of these states lose the ability to service large outstanding international debts, and thus find themselves forced to take on new debts under ever-worsening conditions. All the while, they are pressured by international institutions to implement austerity measures — if they aren’t already ruled by neoliberal governments happy to cut public goods and services on their own.
While history never repeats itself perfectly, a look to the past paints the current monetary policy shift in a troubling light. When central banks in the Global North tightened the monetary reins in the 1970s in response to low growth and high inflation, Latin America (along with other parts of the Global South) was hit by an unprecedented sovereign debt crisis that plunged the continent into a nearly decade-long economic crisis. And as is so often the case, wage workers, indigenous people, and the poor were hit the hardest.
In many ways, the political-economic conjuncture of 1979 is similar to our present. Although COVID-19 did not exist, and most imperial wars of aggression were still waged by the US, the situation in the Global North was just as much a product of low growth and high inflation as it is today. These factors stemmed, among other things, from the collapse of the Bretton Woods system.
Though the Bretton Woods Agreement foresaw the establishment of the International Monetary Fund (IMF) and the World Bank, two institutions that exacerbate global inequality, it also created a system of fixed exchange rates. Based on the gold standard, this system played a major role in stabilizing the global economy following World War II. When Richard Nixon abandoned Bretton Woods in 1971, partly to combat recession in the Global North and financial speculation, exchange rates became increasingly unstable, as mountains of yield-hungry capital were unleashed on the Global South.
At first, this produced a fairly comfortable situation for many Latin American states. Although exchange rate fluctuations caused some problems, interest rates on loans were generally favorable because of the glut of capital from the Global North — seemingly decent parameters for states whose governments were working to industrialize. After 1975 in particular, many corporations, banks, and governments took out loans offered by Global North banks on conditions that appeared solid. But during this period of relative stability in Latin America, the economic climate in the United States grew more complicated.
In response to the oil crisis, growing pressure on the US dollar from currency speculators, and the resulting slowdown in economic growth, US economic technocrats were forced to loosen monetary policy to prevent low growth rates, as the stability of capitalist economies depends on high growth. At the time, so the thinking went, lowering key interest rates would give firms easier access credit, which would in turn make the economy more productive, increase exports, and ultimately raise the value of the US dollar relative to other currencies. However, the intended effect was not achieved: economic growth remained lacking, and inflation kept rising anyway.
In 1979, Jimmy Carter appointed Paul Volcker as chairman of the Federal Reserve. As soon as he took office, Volcker instituted a drastic and unprecedented key interest rate hike. The consequences were predictable: the US economy collapsed, and millions of people were forced into unemployment. As we now know, this could have been avoided.
Yet the consequences were even graver in Latin America. As the relative value of the US dollar shot up in response to the rapid key interest rate hike, the costs of tending to debts exploded for countries such as Brazil. Not only were their currencies suddenly worth less in comparison but the interest rates on their debts skyrocketed, as most of their loans had been borrowed with flexible interest rates linked directly to monetary policy in the Global North.
In theory, states that could no longer afford to service their debts had a variety of options. Indeed, in financial crises before 1981, it was common for them simply to not repay loans when they couldn’t. This was exactly the course of action taken by the Mexican government in 1981. Yet as many now believed the financial markets spelled risk for their investment returns, borrowing conditions for Latin American states deteriorated considerably. After all, this crisis was different: the amount of loans extended to Latin America was so great that a series of defaults could have meant the collapse of the US banking system.
For this reason, the US banking sector and government put massive pressure on Latin American governments to repay their national debts — including by taking on new debts if necessary, either from major US banks on conditions that were economically miserable or from the IMF on conditions that were politically miserable to boot. Though the emergency credit offered by the IMF for repaying debts seemed generous, it was in fact contingent on so-called structural adjustment programs.
Structural adjustment programs force states to open their financial markets to foreign capital, slash social spending, and sell off public assets to private firms and individuals. In the late 1970s and the 1980s, many Latin American states spent multiple years trapped in situations where they had to implement them. The consequences for their populations were so severe that this period is now known as the “lost decade.” At the same time, Volcker’s policy also drove masses of working-class people in the US into unemployment and personal debt — the effects of which can still be felt today.
Much about the current situation recalls the year 1979. Due to the shutdowns in response to the COVID pandemic, states around the world took on a considerable amount of debt to keep their economies up and running — just as many had already done following the 2007–8 financial crisis. In the ten largest Latin American economies (excluding Venezuela), the ratio of national debt to economic output has increased on average by 22.7 percent since 2007.
In the last two years, the costs of national debts in Latin America have gone through the roof: Argentina is now paying 21.5 percent more interest on government bonds than Germany, whereas the rates faced by Ecuador and Venezuela, respectively, are as much as 46.8 and 89.4 percent higher. On average, the ten largest Latin American economies pay 25.5 percent greater interest than Germany — money that has to be obtained through new debts or spending cuts, or extracted from national economies through taxes.
At 8.3 percent in the United States and 10 percent in the eurozone, inflation is at similarly high levels to 1979. Moreover, just as was the case at the time of the Volcker Shock, economic growth in the United States and EU is low, and federal banks in both are again tightening monetary policy. Today, among other things, this means raising key interest rates. In the last two years, the Federal Reserve and the ECB have increased their respective key interest rates by 3 and 2 percent.
Yet we don’t live in the same world as forty years ago. Progressive forces in the Global South have sought and found ways to defend themselves against exploitation by the Global North. For example, many states have deliberately reduced their foreign currency debts. In Brazil, 3.3 percent of the total debt is now in foreign currency, compared to 22.5 percent in Mexico and 49.6 percent in Chile — significantly smaller figures than in 1979.
Many states have developed mechanisms for responding to fluctuating exchange rates. In Latin America, countries such as Colombia and Chile have compiled large reserves of foreign currencies, which they can sell to stabilize their own currencies in periods of economic turbulence. Central banks in Brazil, Mexico, Peru, Chile, and Colombia have kept their financial markets liquid with asset purchase programs. Financial sector regulations have become tougher throughout the continent, with oversight power allocated to central banks. Brazil and Mexico now also have direct access to US dollar liquidity from the Federal Reserve, which allows them to absorb exchange rate fluctuations.
Yet since the 2007 financial crisis, the financial markets of the euro and the US dollar have only been propped up by massive interventions from central banks. By buying government bonds and other assets, central banks have maintained the stability of both prices and the shadow banking system.
Since 2007, central bankers and economists have been developing new instruments for dealing with the effects of the financial crisis, the European debt crisis, and the COVID-19 pandemic. Little by little, these instruments have now become normalized. Most prominent among them are bond purchasing programs, where central banks buy up bonds mostly from governments but also from private firms in order to stabilize financing costs and stimulate inflation. This has happened to such an extent that the ECB’s assets are now worth as much as a third of the EU’s annual economic output. The situation in the United States is similar. The point of these programs has been to give unregulated financial actors, or so-called shadow banks, access to short-term liquidity.
Today, scholars are warning that more than fifty states in the Global South are on the verge of defaulting on their debts. Meanwhile, inflation is rising not only in the Global North but also in Latin America. In response, central banks in the region are raising key interest rates, which is supposed to stabilize currency values by reducing borrowing and thus inflation. Although interest rate hikes often don’t achieve this stated goal, they do entail a number of side effects — such as causing economies to shrink. In capitalism, this means increased unemployment, reduced state revenue, and cuts to public spending.
In spite of current economic insecurity and instability, the Federal Reserve and ECB are proceeding in an extremely risky manner by simultaneously reintroducing stabilization programs and raising key interest rates. Back in 2013, a simple announcement that the Federal Reserve would reduce asset purchase programs was enough to send the costs of Latin American debt through the roof. What we are currently witnessing is a policy that not only repeats the mistakes of 1979 but combines them with those of 2013. What the exact consequences of this policy will be, and whether the tool kit of central bankers and economic policymakers in the Global South will be sufficient to deal with the expected shock, is anyone’s best guess.
This real-world experiment in economic policy being pushed by central bankers and neoliberal economists has no historical precedent. What makes it so insidious is that little can be done about it in the short term, as the major central banks of the Global North now stand above any kind of parliamentary influence — the consequence of a successful campaign waged by libertarians since the 1970s to push “central bank independence” while selling central bank policy as a purely technocratic matter. Even if elected politicians were to recognize the risks of the central banks’ line, forcing a change would take time.
Since the formal end of colonialism, activists and politicians of the Global South, such as Thomas Sankara, have been struggling against the dependencies of the global financial system, conscious that the political enemy and cause of economic crises resides in the Global North. Today, this struggle is being carried on by organizations like Debt for Climate, a movement initiated by the Global South that blockaded a joint meeting of the IMF and World Bank in Washington, DC, on October 14 and occupied Germany’s Ministry of Finance on October 17. Demanding debt relief for states in the Global South, this movement asserts that the payments demanded by the Global North are not legitimate but the legacy of a power disparity tracing back to the colonial era.
Though debt relief is important, it alone cannot end neocolonial economic relationships. This would require fundamentally rethinking monetary and economic policy while rejecting the economic status quo — which has proven both insufficient in tackling economic crises in the Global North and a catastrophe for the Global South with respect to both sovereign debt and trade relations. Ultimately, monetary policy must be seen not as a technical question but a political one that determines how material resources are distributed.
Those seeking to reshape the international economic order face a difficult struggle. Colombia’s prime minister, Gustavo Petro, knows this. In a public address this October 19, he highlighted that US monetary policy is intentionally destroying the global economy — and called on Latin American states to develop a plan for responding to the actions of the United States with unity and resolve. Such an undertaking is sure to have the support of progressive movements and political forces in Brazil, Bolivia, Chile, Mexico, Peru, and beyond. Let’s hope that the old slogan proves true and “the people united will never be defeated” — not even by the architecture of international financial markets.