The dictatorship of US$ and Wall Street
The Global Gamble: Washington's Faustian Bid for World Dominance
By Peter Gowan
Verso, 1999
320 pp., $39.95
Review by Eva Cheng
Guns and tanks are usually very visible, but those who control the world also do so by more subtle, less readily identifiable, means. One of the least noticeable ways in which the ruling class undermines our interests is through the manipulation of "macro-economic" matters — such as interest rates and inflation.
Such manipulation also takes place between nations or, more accurately, by the dominant nations at the expense of the weaker ones. This level of manoeuvring is even harder to follow, yet it can have widespread and very damaging consequences.
For example, due to the deformation of their economic structures imposed since the colonial era, most Third World countries rely on the export of a few cash crops or natural resources to pay for crucial imports, thereby losing the ability to produce their subsistence relatively independently. Some managed to break into manufacturing for export, but were forced to confine themselves to products subordinate to the imperialist Big Brothers.
Their prices of Third World exports fell prey to the manipulation of transnational conglomerates. Most of these countries therefore persistently earned less than they needed to pay for essential imports and had to borrow in an internationally accepted currency, mainly from imperialist banks, to bridge the gap.
In the 1970s, many such countries were lured, or their corrupt officials were bribed, into borrowing heavily from cash-rich imperialist banks, which sought new business by offering real negative interest rates (i.e. nominal rates lower than inflation). When the US jacked up its basic interest rate (on which most cross-border loans are based) from around 3% to 20% in late 1979, the creditor banks raked in a windfall.
This was a devastating blow to the debtor countries, imposing a crippling debt servicing bill. Most of them are still suffering from the downward spiral set off then, their continuing subjugation being ensured and policed by the International Monetary Fund and the World Bank (controlled by the key imperialist powers). The resulting human suffering, especially of the most vulnerable, has been enormous.
More recently, the world economic crisis which started in Asia in 1997 has been wrecking the lives of hundreds of million of people in Thailand, Indonesia, South Korea, Russia and Brazil.
The most popular explanations of the crisis were woven around the proposition that in an increasingly "globalised" world driven by technology and the might of highly concentrated capital, capital owners, when using their capital productively, can dictate the terms vis-a-vis labour or, when speculating in the financial market, can sway prices or even topple an emerging (Third World) market. It was alleged that excessive borrowing, especially short-term, corruption and economic mismanagement of Third World governments had increased their vulnerability when "risk-averse" capital took flight. Hence, it was claimed, currencies collapsed in one country after the other.
In Global Gamble, Peter Gowan rejects this explanation of the crisis. He doesn't see the Asian crisis as an accidental outcome of the stampede of footloose/stateless "international" capital out of mismanaged economies.
Instead, he argues that it's only the latest in a long series of financial crises beginning in the early 1970s (including those in imperialist Europe and Japan), which were essentially planned and engineered to serve the interests of the biggest imperialist power — Washington and the private US financial institutions (firstly banks, then hedge funds).
Using IMF data, he notes that two-thirds of this body's 180 or so member countries have experienced severe financial crises since 1980, some more than once. Gowan illustrates how, by making active use of the IMF and the World Bank, Washington was able to reap the gains from such crises, while spreading their costs across other countries.
Coming from a progressive intellectual framework, Gowan recognises the hierarchy of economies dominated by the core, the imposed structural dependence of the peripheral economies and the unequal terms of trade from which they continue to suffer. Without going into the origin of all these (colonialism, neo-colonialism and all the rest), Gowan starts his central analysis from the end of the second world war, focusing on the new international monetary order being erected then and examining how, by affirming the US dollar's role as the quasi-anchor of this system, it has given the US the upper hand over other imperialist powers.
In exchange for that privileged role, the US was obliged to provide gold for any US dollar presented to it for redemption at a guaranteed rate. Washington's edge became decisive after 1971, when it stopped honouring that obligation. Given the absence of an alternative arrangement, this made the US dollar the full anchor of the world monetary order. The US profits from the fact that the dollar is the dominant means of international payment and reserve.
Washington thus gained the unique privileges of being able to run deficits in its international accounts and sway the price of its dollar at other countries' expense (especially Europe and Japan) with few costs.
Hence, it has at its disposal an extremely powerful political lever which, as Gowan tries to prove, Washington has actively exploited, especially since the end of the Cold War, at the expense of its west European and Japanese competitors and the new growth centre in east and south-east Asia.
Gowan calls this new institution-cum-power framework the "Dollar-Wall Street Regime", reviewing its evolution with close reference, backed by useful footnotes, to major developments in the world economy during this period. As he admits, there isn't — can't be — conclusive proofs for many of his propositions. But he has put forward strong circumstantial evidence to back his point.
You don't have to agree with Gowan's main thesis to appreciate his book, which is intellectually stimulating and tackles, in a serious manner, a subject of great importance to the left. He has revealed a good working knowledge of the operation of the financial market, having the ability to explain its essential contours and mechanics with clarity, making it very accessible even to readers with little background in economics.
Gowan recognises the stagnation of the "core" countries since the 1970s but declines to examine the reasons for it. However, he briefly registers the argument (subscribed to by a key part of the left as a cornerstone of their analysis of capitalism) that overcapacity, inherent in capitalism in its current regressive phase, is the root cause. He then dismisses it lightly without putting up a serious argument. This is regrettable.
Also, his view of the potentially progressive and pivotal role of the social democratic parties in western Europe to counter US imperialism is hard to swallow.
The second half of The Global Gamble, which seeks to provide a political illustration of his thesis, is a reprint of five of his articles published in New Left Review and Labour Focus on Eastern Europe between 1991 and 1997. They feature the 1991 Gulf War and Iraq, eastern Europe and liberalism and the impact of "civil society" theory there, the European Union and the dynamics of the enlargement of NATO. They are informative and provide useful background on the issues involved, but are much less tightly linked than the first half of the book.
The lack of an index for a book of such complexity is surprising and unhelpful.
Gowan's hypothesis of the Dollar-Wall Street Regime, which forms the first half of The Global Gamble, sets the book's character. The section on the Asian economic crisis and the hedge funds, backed by useful information, makes the book particularly current and relevant to those who are seeking to monitor this crisis, which is far from a conclusion, and interpret what it means for working-class struggle today.