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China vs the almighty
dollar
By Henry C K Liu
The
Italian Marxist thinker Antonio Gramsci, while under
Fascist imprisonment, developed the concept of cultural
hegemony: control people's minds, and their hearts and
hands will follow. Gramsci explained how one dominant
class can establish its control over others through
ideological dominance. Whereas orthodox Marxism explains
social structure as shaped by economic forces, Gramsci
adds the crucial cultural dimension. He showed how, once
ideological authority (or "cultural hegemony") is
established, the use of overt violence to impose control
can become superfluous.
Today, the world lives
under the virtually undisputed rule of a
market-dominated, ultra-competitive (yet not fairly
competitive), globalized society with its cortege of
manifold iniquities and legalized violence. Many public
and private institutions in all nations that genuinely
believe they are working for a more equitable world have
unwittingly contributed to the violent triumph of
neoliberalism. Field evidence, however, shows that
perpetual prosperity for anyone, let alone all, under
market fundamentalism is merely an empty promise of
neoliberalism. And the time may be ripe for China, as
Asia's largest economy, to break free of a global market
economy that nears collapse.
The chairman of the
US Federal Reserve Board, Allan Greenspan, now proudly
uses the term "hegemony", in congressional testimony to
describe officially US financial preeminence and
structural advantage. Unlike ideology, politics deal not
only with moral validity, but also with power. The
ideology of neoliberalism appears empirically operative
because it has the hegemonic power to construct a "real"
world that appears internally consistent and
theoretically rational, with the aid of "scientific"
neoclassical economics theories. No matter how many
socioeconomic disasters the neoliberal globalized system
of market fundamentalism has visibly caused, no matter
what financial crises neoliberal free markets have
engendered, no matter how many losers and outcasts it
has created, market fundamentalism is still promoted as
indispensable, like the word of God, as the only
possible economic and social order available for human
salvation. Margaret Thatcher's TINA (There Is No
Alternative) explains it all. Economic slavery, though
unfortunate, is preferable to starvation, according to
neoliberal doctrine, which falsely poses slavery or
death by starvation as natural alternatives of human
civilization. The World Bank has estimated that
neoliberal globalization has created 200 million newly
poor people around the world in the past decade. Yet
claims of globalization's contribution to global
prosperity continue unabated.
Former US
president Bill Clinton's claim at the 2000 Asia Pacific
Economic Cooperation (APEC) meeting that open economies
have shown the highest growth rate is part of this
cultural hegemonic push. Clinton had it backwards: it is
the countries that have the highest growth rates
resulting from complex conditions of structural
advantage that are pushing for further selective
openness in the poorer economies. The most fundamental
flaw in the neoliberal logic is that the selective push
for full and unregulated mobility for capital across
national borders is not accompanied with the same
mobility for labor.
It is self-evident that
capital cannot exist without labor. Without labor,
capital is merely an idle asset, unable to contribute to
productivity. Until labor can move freely in the
globalized system, there is no real openness. The
current system is not true globalization. It is merely a
global expansion of US financial hegemony through dollar
hegemony: the domination of the global economy by the US
national currency.
Dollar hegemony is a
structural condition in world finance and trade in which
the US produces dollars and the rest of the world
produce things dollars can buy. In 1971, the late US
president Richard Nixon abandoned the Bretton Woods
regime of a gold-backed dollar and fixed exchange rates
to stop the gold drain from the US Treasury caused by
chronic lapses of US fiscal discipline. At that point,
the dollar, as a fiat currency, theoretically abdicated
its reserve-currency status for world trade. Yet for
more than three decades since, the dollar has remained
the reserve currency for world trade despite continued
chronic US government and trade deficits and the
transformation of the United States into the world's
most indebted nation. Notwithstanding its role as the
leading proponent of market fundamentalism, the United
States maintains a strong-dollar policy as a matter of
national interest, in defiance of market forces.
A reserve currency for world trade without the
necessary disciplinary backup is in reality a tax by the
issuing sovereign on all other sovereigns participating
in world trade via that currency.
The State
Theory of Money (Chartalism) holds that the acceptance
of a currency is based fundamentally on a government's
power to tax. It is the government's willingness to
accept the currency it issues for payment of taxes that
gives the issuance currency within a nation. The
Chartalist theory of money, as summarized by economist
Randall Wray, claims that all governments, by virtual of
their power to levy taxes payable with
government-designated legal tender, do not need external
financing and should be able to be the employer of last
resort to maintain full employment. The logic of
Chartalism reasons that an excessively low tax rate will
result in a low demand for the currency and that a
chronic budget surplus is economically counterproductive
because it drains credit from the economy. The colonial
administration in British Africa learned that land taxes
were instrumental in inducing the carefree natives into
using its currency and engaging in financial
productivity.
Thus, according to Chartalist
theory, an economy can finance its domestic
developmental needs to achieve full employment and
maximum growth with prosperity without any need for
foreign loans or investment, and without the penalty of
hyperinflation. But Chartalist theory is operative only
in closed domestic monetary regimes. Countries
participating in free trade in a globalized system,
especially in unregulated global financial and currency
markets, cannot operate on Chartalist principles because
of the foreign-exchange dilemma. Any government printing
its own currency to finance domestic needs beyond the
size of its foreign-exchange reserves will soon find its
currency under attack in the foreign-exchange markets,
regardless of whether the currency is pegged to a fixed
exchanged rate or is free-floating. Thus all economies
must accumulate dollars before they can attract foreign
capital. Even then foreign capital will only invest in
the export sector where dollar revenue can be earned.
But the dollars that Asian economies accumulate from
trade surpluses can only be invested in dollar assets in
the United States, depriving local economies of needed
capital. The only protection from such attacks on
currency is to suspend convertibility, which then will
keep foreign investment away.
Precisely to
prevent such currency attacks, tight controls on the
international flow of capital were set up by the Bretton
Woods system of fixed exchange rates pegged to a
gold-backed dollar after World War II. Drawing lessons
from the prewar 1930s Depression, economic thinking
prevalent immediately after the war had deemed
international capital flow undesirable and unnecessary.
Trade was to be mediated through fixed exchange rates
pegged to a gold-backed dollar. The fixed exchange rates
were to be adjusted only gradually and periodically to
reflect the relative strength of the participating
economies. Under principles of Chartalism, foreign
capital serves no useful domestic purpose outside of an
imperialistic agenda. Thus dollar hegemony essentially
taxes away the ability of the trading partners of the
United States to finance their own domestic development
in their own currencies, and forces them to seek foreign
loans and investment denominated in dollars, which the
US, and only the US, can print at will.
The
Mundell-Fleming thesis, for which economist Robert
Mundell won the 1999 Nobel Prize, states that in
international finance, a government has the choice
between (1) stable exchange rates, (2) capital mobility
and (3) policy autonomy (full employment/low interest
rates, counter-cyclical fiscal spending, etc). With
unregulated global markets, a government can have only
two of those three options.
Through dollar
hegemony, the United States is the only country that has
managed to defy the Mundell-Fleming thesis. For more
than a decade, the US has kept the dollar significantly
above its real economic value, attracted capital account
surpluses and exercised unilateral policy autonomy
within a globalized system dictated by dollar hegemony.
The reasons for this are complex but the single most
important reason is that all major commodities, most
notably oil, are denominated in dollars, mostly as an
extension of superpower geopolitics. This fact is the
anchor for dollar hegemony. Thus dollar hegemony makes
possible US finance hegemony, which makes possible US
exceptionism and unilateralism.
The Chinese
economy is at a point where it also can defy the
Mundell-Fleming thesis and free itself from dollar
hegemony.
China has the power to make the yuan
an alternative reserve currency in world trade by simply
denominating all Chinese export in yuan. This sovereign
action can be taken unilaterally at any time of China's
choosing. All the State Council (the Chinese
government's cabinet) has to do is to announce that as
of, say, October 1, 2002, all Chinese exports must be
paid for in yuan, making it illegal for Chinese
exporters to accept payment in any other currencies.
This will set off a frantic scramble by importers of
Chinese goods around the world to buy yuan at the State
Administration for Foreign Exchange (SAFE), making the
yuan a preferred currency with ready market demand.
Companies with yuan revenue no longer need to exchange
yuan into dollars, as the yuan, backed by the value of
Chinese exports, becomes universally accepted in trade.
Members of the Organization of Petroleum Exporting
Countries (OPEC), which import sizable amount of Chinese
goods, would accept yuan for payment for their oil.
In 2000, the United States exported US$781.1
billion (12.3 percent of world exports - 11 percent
year-to-year growth) and imported $1.2576 trillion (18.9
percent of world imports - 19 percent year-to-year
growth). Germany exported $551.5 billion (8.7 percent of
world exports - 1 percent year-to-year growth) and
imported $502.8 billion (7.5 percent of world imports -
6 percent year-to-year growth). Japan exported $479.2
billion (7.5 percent of world exports - 14 percent
year-to-year growth) and imported $379.5 billion (5.7
percent of world imports - 22 percent year-to-year
growth). France exported $298.1 billion (4.7 percent of
world exports - 1 percent year-to-year decline) and
imported $305.4 billion (4.6 percent of world imports -
4 percent year-to-year growth). The United Kingdom
exported $337 billion (5.1 percent of world export - 5
percent year-to-year growth) and imported $284.1 billion
(4.5 percent of world imports - 6 percent year-to-year
growth).
China exported $249.3 (3.9 percent of
world exports - 28 percent year-to-year growth) and
imported $225.1 billion (3.4 percent of world imports -
36 percent year-to-year growth). Hong Kong exported
$214.2 billion (3.2 percent of world exports- 19 percent
year-to-year growth) and imported $202.4 billion (3.2
percent of world imports - 16 percent year-to-year
growth).
China (including Hong Kong) exported
more than $463 billion (7.3 percent of world exports) in
2000 and imported about $428 billion, yielding a trade
surplus of around $35 billion. If all Chinese exports
are paid in yuan, China will have no need to hold
foreign reserves, which currently stand at more than
$200 billion. And if the Hong Kong dollar is pegged to
the yuan instead of the dollar, Hong Kong's $100 billion
foreign-exchange reserves can also be freed for domestic
restructuring and development.
China's
spectacular export growth has not reversed the shrinking
of world trade volume since 1997. Its growth has come at
the expense of the now wounded "tigers" of Southeast
Asia. China is on the way to becoming a world economic
giant but it has yet to assert its rightful financial
power.
There is no stopping China from being a
powerhouse in manufacturing. With the Asian economies
trapped in protracted financial crisis from excessive
foreign-currency debts and falling export revenue
resulting from predatory currency devaluation, the
International Monetary Fund, orchestrated by the US, has
come to their "rescue" with a new agenda beyond the
usual IMF austerity conditionalities to protect Group of
Seven (G7) creditors. This new agenda aims to open Asian
markets for US transnational corporations to acquire
distressed Asian companies so that their newly acquired
Asian subsidiaries can produce inside Asian national
borders. The United States, through the IMF, aims to
break down the traditionally closed financial systems
all over Asia that mobilize high national savings to
serve giant national industrial conglomerates, for
massive investment in targeted export sectors. The IMF,
controlled by the US, aims at dismantling traditional
Asian financial systems and forcing Asians to replace
them with a structurally alien global system,
characterized by open markets in products and,
crucially, in finance and financial services. The real
target is of course China. For the US knows: as China
goes, so goes the rest of Asia.
Trade flows
under neoliberal globalization have put Asian countries
in a position of unsustainable dependency on foreign
loans and capital to finance export sectors that are at
the mercy of saturated foreign markets while neglecting
domestic development to foster productive forces and to
support budding domestic consumer markets. In Asia,
outside the small circled of well-heeled compradores,
most people cannot afford the products that they produce
in abundance for export or the high-cost imports. An
average worker in Asia would have to work days making
hundreds of pairs of shoes to earn enough to buy one
McDonald's hamburger meal for his family while Asian
compradores entertain their Western backers in luxurious
five-star hotels with prime steaks imported from Omaha.
Markets outside of Asia cannot grow quickly enough to
satisfy the developmental needs of the populous Asian
economies. Thus intra-region trade to promote domestic
development within Asia needs to be the main focus of
growth if Asia is ever to rise above the level of
semi-colonial subsistence.
The Chinese economy
will move quickly up the trade-value chain, in advanced
electronics, telecommunications, and aerospace, which
are inherently "dual use" technologies with military
implications. Strategic phobia will push the United
States to exert all its influence to keep the global
market for "dual use" technologies closed to China. Thus
"free trade" for the US is not the same as freedom to
trade. Still, China will inevitably be a major global
player in the knowledge industries because of its
abundant supply of raw human potential. Even in the US,
a high percentage of its scientists are of Chinese
ethnicity. With an updated educational system, China
will be the top producer of brain power within another
decade. As China moves up the technology ladder, coupled
with rising consumer demand in tandem with a growth
economy, global trade flow will be affected, modifying
the "race to the bottom" predatory competitive game of a
decade of globalization among Asian exporters.
Asian economies will find in China an
alternative trading partner to the United States, and
possibly with more symbiotic trading terms, providing
more room to structure trade to enhance domestic
development along the path of converging regional
interest and solidarity. The rise in living standards in
all of Asia will change the path of history, restoring
Asia as a center of advanced civilization, putting an
end to two centuries of Western economic and cultural
imperialism.
The foreign-trade strategies of all
trading nations in the decade of neoliberal
globalization have contributed to the destabilizing of
the global trading system. It is not possible or
rational for all countries to export themselves out of
domestic recessions or poverty. The contradictions
between national strategic industrial policies and
neoliberal open-market systems will generate friction
between the United States and all its trading partners,
as well as among regional trade blocs and inter-region
competitors. The US engages in global trade to enhance
its superpower status, not to undermine it. Thus the US
does not seek equal partners. With economic sanctions as
a tool of foreign policy, the US government is
preventing, or trying to prevent, an increasing number
of US companies, and foreign companies trading with the
US, from doing business in an increasing number of
countries. Trade flows not where it is needed most, but
to where it best serves the US national interest.
Neoliberal globalization has promoted the
illusion that trade is a win-win transaction for all,
based on the Ricardian model of comparative advantage.
Yet economists recognize that without global full
employment, comparative advantage is merely Say's Law
internationalized (Say's Law states that supply creates
its own demand, but only under full employment, a
condition supply-siders conveniently ignore). After a
decade, this illusion has been shattered by concrete
data: 30 percent of the world's population live on less
than $1 a day, and global wages, already low to begin
with, have declined since the Asian financial crisis of
1997, and by 45 percent in Indonesia.
Yet export
to the United States under dollar hegemony is merely an
arrangement in which the exporting nations, in order to
earn dollars to buy needed commodities denominated in
dollars and to service dollar loans, are forced to
finance the consumption of US consumers by the need to
invest their trade surpluses in US assets (as
foreign-exchange reserves), giving the US a capital
account surplus to finance its current account deficit.
Furthermore, the trade surpluses are achieved
not by an advantage in the terms of trade, but by sheer
self-denial of basic domestic needs and critical
imports. Not only are the exporting nations debasing the
value of their labor, degrading their environment and
depleting their natural resources for the privilege of
running on the poverty treadmill, they are enriching the
US economy and strengthening dollar hegemony in the
process. Thus the exporting nations allow themselves to
be robbed of needed capital for critical domestic
development in such vital areas as education, health and
other social infrastructure, by assuming heavy foreign
debt to finance export, while they beg for even more
foreign investment in the export sector by offering
still more exorbitant returns and tax exemptions. Yet
many small economies around the world have no option but
to continue to serve dollar hegemony like a drug
addiction.
Japan provides the perfect proof that
even a dynamic, successful export machine does not by
itself produce a healthy economy. Japan is aware that it
needs to restructure its domestic economy, away from its
export fixation and upgrade the living standard of its
overworked population and to reorder its domestic
consumption patterns. But Japan is trapped into
helplessness by dollar hegemony.
Japan sees its
sovereign credit rating lowered by international rating
agencies while it remains the world's biggest creditor
nation. Moody's Investor Service downgraded Japanese
government bonds by two notches recently to A2, or one
grade below Botswana's, not to mention Chile and
Hungary. Japan has the world's largest foreign-exchange
reserves: $446 billion; the world's biggest domestic
savings: $11.4 trillion (US gross domestic product was
$10 trillion in 2001); and $1 trillion in overseas
investment. And 95 percent of the sovereign debt is held
by Japanese nationals, which rules out risk of default
similar to Argentina. Japan has given Botswana, where
half of the population is infected with the AIDS virus,
$12 million in grants and $102 million in loans.
Why does the New York-based rating agency prefer
Botswana to Japan? The Botswanan government budget is
controlled by the foreign diamond-mining interests to
protect their investment in the mines. Botswana does not
run a budget deficit to develop its domestic economy or
help its poverty-stricken people. Thus Botswana is
considered a good credit risk for foreign loans and
investment. Japan, on the other hand, is forced to
suffer the high interest cost of a low credit rating
because its government attempts to solve, through
deficit financing, the nation's economic woes that have
resulted from excessive focus on export. Dollar hegemony
denies a good credit rating even to the world's largest
holder of dollar reserves.
The Asia-Pacific
trade system has been structured to serve markets
outside of Asia by providing low manufacturing
production cost through the use of cheap Asian labor.
This enables the United States to consume more without
inflation and without raising domestic wages. Yet all
the trade surpluses accumulated by the Asian economies
have ended up financing the US debt bubble, which is not
even good for the US economy in the long run. Cheap
imports allow the US to keep domestic wages low and
contribute to a rising disparity of both income and
wealth within the US where consumer purchasing power
comes increasingly from capital gain rather than rising
wages. The result is that when the equity bubble of
inflated price-earning ratio finally bursts, wages are
too low to keep the economy from crashing from a
collapse of the wealth effect.
After thoroughly
impoverishing the Asian economies with financial
manipulation of crisis proportions, the US now works to
penetrate the remaining Asian markets that have stayed
relatively closed: notably Japan, China and South Korea.
Control of access to its markets has been Asia's
principal instrument for its sub-optimized trade
advantage and distorted industrial development. This
strategy had been practiced successfully first by Japan
and copied with various degree of success by the Asian
tigers. Protectionism will survive in Asian economies
long after formal accession to the World Trade
Organization (WTO).
China, with a giant
integrated market composed of a fifth of the world
population, can swap market access for technology
transfer from the world's transnational technology
corporations. Once free from dollar hegemony, China can
finance its domestic development without foreign loans
and capital. The Chinese economy then will no longer be
distorted by excessive reliance on export merely to earn
dollars that by definition must be invested in dollar
assets, not yuan assets. The aim of development is to
raise wage levels, not to push wages down to achieve
predatory competitiveness. Yet export under dollar
hegemony requires keeping wages low, a prerequisite that
condemns an economy to perpetual underdevelopment.
Terms such as "openness" need to be reconsidered
away from the distorted meanings assigned to them by
neoliberal cultural hegemony. The contradiction between
globalizing and territorially based national social and
political forces is framed in the context of past,
present and future world orders.
The emerging
world order has always been, and will again be, the
result of a struggle for the direction of structural
transformation of the current order, involving economic,
political and sociocultural changes. The prevailing
trend of the past two decades toward the marketization
and commodification of social relations has led to the
argument that socialism needs to be redefined away from
the total visions associated with Marxism-Leninism, and
toward the idea of the self-defense of society and
social choice to counter the disintegrating and
atomizing effects of globalizing and unregulated market
forces. But this is precisely a Marxist-Leninist vision:
that under globalization, national sovereignty in the
form of nation-states and governments will give way to a
pervasive socioeconomic order. In other words - the
withering away of the state.
The sole function
of government is to protect the weak, because the strong
is itself government and needs no other. This truth gave
birth to monarchism: the king's function was to protect
the peasants from aristocratic abuse. So in modern
terms, the government's function is to maintain
socialist/populists values in the context of capitalist
market fundamentalism. So the withering away of the
state prior to the end of economic exploitation is
putting the cart before the horse.
The unwitting
by-product of the rightist quest to get government off
the back of the people is a Marxist dialectic. The only
flaw is the economic structure. The right wants the
withering away of the state prior to the progressive
transformation of capitalism into socialism.
The
perpetual boom has not replaced the business cycle, new
economy or not. In the age of information and
communication, the majority interest will prevail - with
luck, without violence. Despite US fixations, majority
interest does not necessarily spell capitalism,
corporatism or representative democracy. Socialism
collapsed in the 1980s not because its economic theories
were inoperative, but because in defending the authority
to make socialist principles work, socialist governments
had to adopt a garrison-state mentality that
overshadowed all other potential benefits. On the other
hand, capitalist market fundamentalism appeared more
desirable as long as this mutation of socialism was
posed as a false alternative. Now, as the sole surviving
operative system, capitalist market fundamentalism is
faced squarely with its own internal contradictions.
Unregulated markets have produced the debt bubble and
financial manipulation and corporate fraud that
impoverish unsuspecting investors and workers who placed
their pensions in the shares of the companies that
employed them. And the war on terrorism runs the risk of
instilling in the United States the same garrison-state
mentality that brought about the demise of the Soviet
bloc.
Finance capitalism may turn out to be the
deadliest enemy of industrial capitalism, and it may
well be the last transformation of capitalism. There are
clear indications that insufficient demand is caused by
the abandonment of the labor theory of value and the
wholesale acceptance by neoliberalism of the theory of
marginal utility. Lack of demand caused by insufficient
wages is more deadly to finance capitalism than the fear
of socialism. Technology has finally turned Charlie
Chaplin's Modern Times into reality. The rhetoric
of the current political debate in the United States on
corporate fraud is more populist than those of the New
Deal, and the recession has yet to begin in earnest.
Socialism, by other names (the Wall Street Journal calls
it mass capitalism), is now about to be viewed as the
vaccine against a catastrophic implosion of the
capitalist system in its home garden.
Globalization is not a new trend. It is the
natural policy for all empire building. Globalization
under modern capitalism began with the British Empire,
marked by the repeal of the Corn Laws in 1846, five
years after the Opium War with China (I have written on the historical parallel
between the Corn Laws and WTO), and two years before the
Revolutions of 1848. Great Britain embarked on a
systemic promotion of free trade and chose to depend on
imported food, which gave a survivalist justification to
empire. France adopted free trade in 1860 and within 10
years was faced with the Paris Commune, which was
suppressed ruthlessly by the French bourgeoisie, who put
to death 20,000 workers and peasants, including
children. Despite a backlash movement toward protective
tariffs in Britain, Holland and Belgium, the global
economy of the 19th century was characterized by high
mobility of goods across political borders. As Europe
adopted political nationalism, international economic
liberalism developed in parallel, until 1914. Only World
War I, the 1929 Depression and World War II caused a
temporary halt of free trade.
Like the United
States now, Britain was a predominantly importing
economy by the close of the 18th century. Despite the
Industrial Revolution's expanded export of manufacturing
goods, import of raw material, food and consumer
amenities grew faster than export of manufacturing goods
and coal. The key factor that sustained this imbalance
was the predominance of the British pound, as it is
today with the US dollar and its impact of the trade
deficit. British hegemony of marine transportation and
financial services (cross-currency trade finance and
insurance) earned Britain vast amounts of foreign
currencies that could be sold in the London money
markets to importers of Argentine meat and Canadian
bacon. International credit and capital markets were
centered in London. The export of financial services and
capital produced the the returns which serves as hidden
surplus to cushioned the trade deficit. To enhance
financial hegemony, the British maintain separate
dependent currencies in all parts of the empire under
pound-sterling hegemony. This financial hegemony is now
centered on New York with the dollar as the base
currency. When the Asian tigers export to the United
States, all they get in return are US Treasury bills,
not direct investment in Asia. Asian labor in fact is
working at low wages mainly to finance the expansion of
the US economy.
Market fundamentalism, a modern
euphemism of capitalism, is thus made necessary by the
finance architecture imposed on the world by the
hegemonic finance power, first 19th-century Great
Britain, now the United States. When the developing
economies call for a new international finance
architecture, this is what they are really driving at.
Foreign-exchange markets ensure the endless demand for
dollar capital import by the poor exporting nations.
John A Hobson and Lenin identified the surplus of
capital in the core economies and the need for its
export to the impoverished parts of the world as the
material basis of imperialism. For neo-imperialism of
the 21st century, this remains fundamentally true.
Then and now, the international economy rests on
an international money system. Britain adopted the gold
standard in 1816, with Western Europe and the US
following in the 1870s. Until 1914, the exchange rates
of most currencies were highly stable, except in
victimized, semi-colonial economies such as Turkey and
China. The gold standard, while greatly facilitating
free trade, was hard on economies that produced no gold,
and the gold-based monetary regime was generally
deflationary (until the discovery of new gold deposits
in South Africa, California and Alaska), which favored
capital. William Jenning Bryan spoke for the world in
1896 when he declared that mankind should not be
"crucified upon this cross of gold". But the 50-year
lead time of the British gold standard firmly
established London as the world's financial center. The
world's capital was drawn to London to be redistributed
to investment of the highest return around the world.
Borrowers around the world were reduced to playing a
game of "race to the bottom".
The bulk of
economic theories within the context of capitalism were
invented to rationalize this global system as natural
truth. The fundamental shift from the labor value theory
to the marginal utility theory was a circular
self-validation of the artificial characteristics of an
artificial construct based on the sanctity of capital,
despite Karl Marx's dissection that capital cannot exit
without labor - until assets are put to use to increase
labor productivity, it remains idle assets.
Mergers and acquisitions became rampant. Small
business capitalism disappeared between 1880 and 1890.
Workers and small businesses found that they were not
competing against their neighbors, but those on other
sides of the world, operating from structurally
different socioeconomic systems. The corporation, first
used to facilitate the private ownership of railroads,
became the organization of choice for large industries
and commerce, issuing stocks and bonds to finance its
undertakings that fell beyond the normal financial
resources of individual entrepreneurs.
This
process increased the power of banks and financial
institutions and brought forth finance capitalism.
Cartels and trusts emerged, using vertical and
horizontal integration to eliminate competition and
manipulate markets and prices for entire sectors of the
economy. Middle-class membership was mainly concentrated
in salaried workers of corporations, while the working
class were hourly wage earners in factories. The 1848
Revolutions were the the first proletariat revolutions
in modern time. The creation of an integrated world
market, the financing and development of economies
outside of Europe and the consequence of rising
standards of living for Europeans were the triumphs of
the 19th-century system of unregulated capitalism. In
the 20th century, the process continued, with the center
shifting to the United States.
Friedrich List,
in his National System of Political Economy
(1841), asserted that political economy as espoused in
England at that time, far from being a valid science
universally, was merely British national opinion, suited
only to English historical conditions. List's
institutional school of economics asserted that the
doctrine of free trade was devised to keep England rich
and powerful at the expense of its trading partners and
that it had to be fought with protective tariffs and
other protective devices of economic nationalism by the
weaker countries. List influenced revolutionaries in
Asia, including Sun Yatsen, who until coming under the
influence of Marx and Lenin after the October Revolution
was primarily relying on List in formulating his policy
of economic nationalism for China. List was also the
influence behind the Meiji Reform Movement in Japan.
The current impending collapse of neoliberal
globalized market fundamentalism offers Asia a timely
opportunity to forge a fairer deal in its economic
relation with the West. The United States, as a
bicoastal nation, must begin to treat Asian-Pacific
nations as equal members of an Asian-Pacific
commonwealth in a new world economic order that makes
economic nationalism unnecessary.
China, as the
largest economy in the Asia-Pacific region, has a key
role to play in shaping this new world order. To do
that, China must look beyond its current myopic effort
to join a collapsing global market economy and provide a
model of national domestic development in which foreign
trade is reassigned to its proper place in the economy
from its current all-consuming priority. The first step
in that direction is for China to free itself from
dollar hegemony.
Henry C K Liu is
chairman of the New York-based Liu Investment Group.
(©2002 Asia Times Online Co, Ltd. All rights
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The case for an
Asian Monetary Fund
