SPEAKING FREELY Making sense of a mad world By Gabriel Kolko
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These are dismal days for those who attempt to run the affairs of the world.
But how should we understand it?
It would be a basic error to look at our present situation as if it were
rationally comprehensible. The limits of rational explanations
are that they assume rational men and women make decisions and that they will
respect the limits of their power and behave realistically. This has rarely
been true anywhere historically over the past century, and politics and
illusions based on ideology or wishful thinking have often been decisive. This
is especially the case with the present bunch in Washington.
We are right to fear anything, particularly a war with Iran, that would
immediately reel out of control and have catastrophic consequences not only to
the region but globally. We are also correct to see limits to the power of
irrational people, for the United States is strategically weak. It loses the
big wars, as in Korea, Vietnam, and now Afghanistan and Iraq, even though its
tactical victories often prove to be very successful but also ultimately
destabilizing and ephemeral. Had the US not overthrown the Mohammed Mossadegh
regime in Iran in 1954, it is very likely the mullahs would never have come to
power and we would not now be considering a dangerous war there.
Although the whole is far more important than the parts, the details of each
part deserve attention. Many of these aspects are known, even predictable, but
there are - to paraphrase Donald Rumsfeld - the "known unknowns and the unknown
unknowns", the "x-factor" that intercedes to surprise everyone. All of these
problems are interrelated, are interacting, and potentially aggravate or
inhibit each other, perhaps decisively, making our world very difficult both to
understand and to run.
Putting them together is a formidable challenge to thinking people outside
systems of power. It has always been this way; fascism was in large part the
result of economic crisis, and World War II was the outcome. How factors
combine is a great mystery and cannot be predicted - not by us or by those
ambitious souls who have the great task of making sure there is no chaos. We
wish to comprehend it but it is not decisive if we don't; for those who have
responsibility to manage it, this myopia will produce the end of their world -
and their privileges.
We can rule out the left, that artifact of history. Socialism ceased being a
real option long ago, perhaps as early as 1914. Since I have just published an
entire book, After Socialism, and detailed its innumerable myopias and
faults, I need not say more than that it is no longer a threat to anybody.
The fakirs who lead the parties who still use "socialism" as a justification
for their existence have only abolished defeats in the hands of the people from
the price capitalism pays for its growing follies. That confidence - the
freedom of being challenged by the unruly masses - is very important but it is
less and less sufficient to solve its countless remaining dilemmas. The system
has become increasingly vulnerable, social stability notwithstanding, since
about 1990 and the formal demise of communism.
Assume anarchy
The failure of socialist theory is much more than matched by the failure of
capitalism because the latter has the entire responsibility for keeping the
status quo functioning, and it has no intellectual basis for doing so. The
crisis that exists is that capitalism has reached a status of most
destructiveness, and no opposition to it exists.
This malaise involves foreign affairs and domestic affairs - vast greed at home
and adventure overseas. If the foreign-policy aspects are largely American in
origin, the rest of the world tolerates or sometimes collaborates with it. Its
downfall is inevitable, perhaps imminent. The chaos that exists, much less
comes, will exist in a void. No powerful force exists to challenge it, much
less replace it, and therefore it will continue to exist but at immense and
growing human cost. Visions to create alternatives are, for the moment at
least, mostly cranky.
Ingenious and precarious schemes in the world economy today have great
legitimacy, and they profit in the sense that classical economics is fast
becoming irrelevant. It is the era of the fast talker and buccaneer-snake-oil
salesmen in suits. Nothing old-fashioned has credibility. Joseph Schumpeter and
other economists worried about pirates, but they are more important today than
ever before, including than during the late 19th century when they were
immortalized in Charles Francis Adams Jr's Chapters of Erie.
The leitmotif is "innovation", and many respectables are extremely worried. I
argued in Counterpunch earlier (June 15 and July 26) that gloom prevailed among
experts responsible for overseeing national and global financial affairs,
especially the Bank for International Settlements, but I grossly underestimated
the extent of anxieties among those who know the most about these matters.
More important, over the past months officials at much higher levels have also
become much more articulate and concerned about the dominant trends in global
finance and the fact that risks are quickly growing and are now enormous.
Generally, people who think of themselves as leftists know precious little of
those questions, questions that are vital to the very health of the status quo.
But those most au courant with global financial trends have been
sounding the alarm louder and louder.
The problem is that capitalism has become more aberrant, improvised, and
self-destructive than ever. It is the age of the predator and gamblers, people
who want to get very rich very quickly and are wholly oblivious to the larger
consequences. Power exists but the theory to describe the economy that was
inherited from the 19th century bears no relationship whatsoever to the way it
operates in practice, a fact more and more recognized by those who favor a
system of privilege and inequality.
Even some senior officials at the International Monetary Fund (IMF) now
acknowledge that the theory that powerful organizations cherish is based on
outmoded 19th-century illusions. "Reconstructing economic theory virtually from
scratch" and purging economics of "neoclassical idiocies", or that its
"demonstrably false conceptual core is sustained by inertia alone", is now the
subject of very acute articles in none other than the Financial Times, the most
influential and widely read daily in the capitalist world.
Capitalism as an economic system is going crazy. In late November there were a
record US$75 billion in global mergers and acquisitions in a 24-hour period.
Global capitalism is awash with liquidity - virtually free money - and anyone
who borrows can become very rich, assuming he or she wins. The beauty of the
hedge fund is that individual risks become far smaller and one can join with
others to wager big and much more precariously.
So spectacular chances are now being taken: on the value of the US dollar, the
price of oil, real estate and countless others gambles. Amaranth Advisors lost
about $6.5 billion at the end of September on an erroneous weather prediction
and went under. At least 2,600 hedge funds were founded from the beginning of
2005 to October 2006, but 1,100 went out of business. The new financial
instruments - derivatives, hedge funds, incomprehensible financial inventions
of every sort - are growing at a phenomenal rate, but their common
characteristic, as one Financial Times writer summed it up, is that "everyone
[has] become less risk-averse".
Therein lies the danger.
Hedge funds will bet on anything, pension-fund members being only the latest
examples of their addiction to taking chances. London is fast replacing New
York as the center of this activity, and the capital market in general, because
the regulatory regime the British Labour Party established is much more
favorable to this sort of activity than what US President George W Bush's
Republican minions allow, though this may change because Wall Street does not
like losing business.
On September 12, the IMF released its report on "Global Financial Stability",
and it was unprecedented in its concern that "new and complex financial
instruments, such as structured credit products", might wreak untold havoc.
"Liberalization", which the "Washington consensus" and IMF had preached and
helped realize, now threatens the US dollar and much else. "The rapid growth of
hedge funds and credit derivative mechanisms in recent years adds to
uncertainty," and might aggravate the "market turbulence and systemic impact"
of once-benign events. Hedge funds, it warned, have already "suffered
noticeable losses".
At the end of October, Jean-Claude Trichet, head of the European Central Bank,
deplored these new financial products, which have been increasing and growing
into the trillions. He could not comprehend them, and there was scant oversight
over them. Many were pure hype, and nothing prevented them from creating
immense domino effects on the entire financial system were they to collapse,
thereby also dragging the well-regulated parts of it down. Then, at the
beginning of November, the quasi-official UK Financial Services Authority (FSA)
issued a report that detailed the existing risks to the entire world financial
structure. Despite its tone, it is dynamite.
The FSA report documents the many risks to the private-equity sector: excessive
leverage, unclear ownership of risk, market abuses and insider trading. There
were conflicts of interest of every sort, the system was opaque, hedge funds
made inherent dangers even riskier. "Given current leverage levels and recent
developments in the economic/credit cycle, the default of a large
private-equity-backed company or a cluster of smaller private-equity-backed
companies seems inevitable."
Given this growing consensus of risks, on November 13 John Gieve, the deputy
governor of the Bank of England, concluded that each national state regulating
full-blown financial crises was no longer feasible: the financial system was so
international in scope today that no national mechanism could handle it. There
have been at least 13 borderline or full-blown financial crises since the late
1970s, and some of the methods for dealing with them were "less easy to deploy"
under present conditions, which was a polite way of saying they were
irrelevant.
His conclusion: regulators "should practice coping with global crisis", "work
together" on practical examples to develop machinery, especially to avoid the
"moral hazards" of bailing out firms in trouble, including "closing down a
large firm in an orderly way".
The chances of developing a common transnational approach or rules are close to
zero, if only because nations of the world are rivals to attract financial
companies and regulation, or lack of it, is a major factor on where to
headquarter. When the next financial crisis occurs, and the likelihood of that
happening has grown by leaps and bounds, it is more likely than ever to drag
the entire global economy with it. At least the "experts" think so. They did
not before now.
So economics may foul up politics. Perhaps not, but it could become a very
important factor in the overall situation.
Power in Washington
Bush made this month's congressional election a referendum on the war in Iraq
and was badly repudiated; his party suffered a disaster. Disorientation,
depression and defeat have left the US president and the neo-conservatives
adrift. They have two more years of power, so we are at the mercy of people who
are irresponsible and dangerous.
Their rhetoric proved a recipe for disaster in Afghanistan, and Iraq has become
a surrealistic nightmare. The US public is largely anti-war (55% of those who
voted on November 7 disapproved of the Iraq war, most of them strongly); they
voted against the war and only tangentially for Democrats, most of whom vaguely
implied they would do something about the war but immediately after the
election shamelessly reaffirmed their support for its essence.
But people, and voters in particular, are such a nuisance everywhere; they more
quickly than in the past respond to reality, which means that traditional
politicians must betray them very speedily. They create certain decisive
parameters that ambitious politicians flout at greater risk than ever because
the people have shown themselves ready to vote the rascals - whether Democrats
in 1952 and 1968 or Republicans this month - out of office.
The US public is more anti-war than ever, and no one can predict what the
future holds, including some Republicans outflanking the Democrats from a sort
of anti-war left so that they can remain in, or gain, office. That the people
are subsequently cynically ignored - as they have been immediately after the
last US election - is a fact also, but their role can neither be overestimated
nor gainsaid.
Experience shows that politicians, whatever they call themselves or however
nationalist, can never be trusted. Ever. But the facts on the ground are today
very bad for those who advocate wars.
Israel: The dream comes apart
Hawks in Israel, ascendant since the founding of the Jewish state, are still
debating their 33-day war in Lebanon and the decisive limits of their
once-awesome, ultra-sophisticated modern military power that their Lebanon
adventure exposed. The Israeli press is full of accounts of ministers' sexual
offenses and corruption; Prime Minister Ehud Olmert's government is badly
divided, backbiting, and may fall soon.
The army is openly split, and Olmert would like to dump its chief of staff, Dan
Halutz, and the minister of defense. The Zionist project is increasingly
surrealistic and in an unprecedented state of disrepair and depression, with
profound demoralization taking hold. Olmert himself is a complete mediocrity, a
minor Likud politician who parlayed himself into the No 2 spot and was lucky.
His comment when he visited the US in the middle of November that America's
Iraq war had brought stability to the region either infuriated or embarrassed
everyone. He is basically a shrewd politician but a very stupid man.
The most devastating analyses of Israel's war in Lebanon have appeared in
Israel itself, and "the fact the Israeli army is at a low point", according to
a writer in Haaretz, has goaded rather than deterred Iran. "Almost every weapon
lost its significance and effectiveness as soon as it was used," Ofer Shelah
wrote in the Jaffee Center's Strategic Assessment.
The Israeli military relied on massive, overwhelming firepower delivered by the
most modern means possible, and it failed to stop incoming rockets and enemy
mobility, much less win the war. Hezbollah not only showed Syria how to defeat
the Israeli army but made Iran much more confident it can carry on what it is
doing. The entire Israeli government and army leadership was incompetent.
From its very inception there was a warrior ethic in the Zionist ideology, one
it shared with diverse reactionaries in Europe. Both its left wing as well as
the right have nourished it, and Joseph Trumpeldor, the hero of this militant
mentality, was one of the founders of Zionist socialism - a leader of Hashomer
Hatzair, the far left of this tendency. But the cult of heroism in Israel has
made way for military technocrats who read digital printouts.
Morale in Israel, and especially in the once-elitist military, has plummeted.
The arms industry there is very large, and like its US equivalents, needs
subsidies - computer-based war is very expensive and greatly helps employment.
But Lebanon only showed Israel what the Americans learned elsewhere. It loses.
There are many dangers, from fascistic politicians like Avigdor Lieberman
becoming even more powerful to yet greater emigration abroad of those Jews with
high skills. The latter is happening. Israel's ability to flout European
opinion with impunity or to have Washington embark on military adventures from
which Israel gains is increasingly limited.
France has warned Israel that should it initiate a war with Iran it would
create "a total disaster for the entire world". Oil prices would rise, the
entire Arab world would unite behind the Iranians, and Israel would be
targeted, but so would other nations. Even more important, Israeli strategists
admit that Iranian nuclear weapons would only create a stable deterrent
relationship between the two nations, and are not an "existential threat".
Repentance or rapture?
Above all, in Iraq the US government is confronting the failure of its entire
Middle East project, an illusion in which the Israelis have a profound
interest. Bush and gang are in a state of denial, but the US is going the way
of its defeat in Korea and Vietnam, and its military is increasingly
overstretched and demoralized. It has based its foreign policies on fantasies
and non-existent dangers, neo-con dreams and desires, only partially to meet
equally illusory Israeli objectives to transform the entire Middle East so that
it accepts Israel in whatever form the fickle Israeli electorate presents it.
US foreign policy has been fraught with dangers since 1945, and I have
documented them extensively, but this is the worst set of incompetents ever to
hold power in Washington. It "shocked and awed", to use the departed secretary
of defense Donald Rumsfeld's phrase, itself. Things are going disastrously for
conservative warriors.
But it is very difficult to anticipate what this administration will come up
with, though disasters over the past six years have made a number of
alternatives far less probable. In a way, that is a good thing, although the
cost in lives lost and wealth squandered has been immense. The Baker/Hamilton
bipartisan commission is deeply split and if - with emphasis on "if" - it
happens to come up with a clear alternative, the president is free to ignore
it.
The Pentagon has formulated alternatives, summed up as "go big", "go long" -
both of which would require five to 10 years to "Iraqize" the war - or "go
home", but it is divided also. One thing certain, however, is that it has
neither manpower, materiel, nor political freedom to make the same mistakes as
in Vietnam, as the first two alternatives would have it do.
There are no options in Iraq because the US has traumatized the entire nation
and created immense problems for which it has no solutions. No one can predict
what it will do in Iraq because the administration wishes to preserve the
illusion of success and is genuinely confused about how to proceed. It has
produced only chaos. Iraq is very likely to remain a tragedy, one racked by
violence, for years to come. The Bush administration has created a massive
disaster involving the lives of many millions of people.
A great deal depends on the president, whose policy has utterly failed in Iraq
and is failing in Lebanon, and one of his options is escalation, meaning war
with Iran. Israel might attack Iran to drag the US in, but by itself it can
only be a catalyst. It knows that, at least at certain levels, and Olmert and
Bush approach these issues in a remarkably similar fashion. Either way, Bush
has not ruled out war with Iran despite warnings from many military men that
such a conflict would have vast repercussions, it would probably last years,
and the US would likely lose the war, even if it used nuclear weapons.
A number of the neo-con theoreticians have repented the Iraq adventure, and
even criticized some the basic premises that motivated it, but it would be an
error to assume that this administration has some contact with reality and can
be educated - by the electorate or by alienated neo-con intellectuals.
There are still plenty of people in Washington who advocate going for broke,
who still retain fantastic illusions. There remains the imponderable factor of
rapture - fantasy and illusions mixed with desires. Is victory around the
corner if we escalate with more troops? Will the Iraqi troops the Americans
train attain victory over enemies that eluded US forces? Many much wiser
presidents have pursued such chimera. Why not Bush too? Facts on the ground,
which are much greater in constricting US power than they were six years ago,
are a critical factor. They may not be sufficient to prevent irrational
behavior. We simply cannot know.
All of these factors, and perhaps others not mentioned here, will affect one
another. The whole is very often no stronger than all the parts. All surprises
that thwart the Bush administration's freedom to act are now to be welcomed,
and while the world's financial system is the leading candidate for upsetting
the United States' calculations, it is scarcely the only one. The facts on the
ground, realities rather than decisions, are usually crucial, and here the US
is losing in its megalomaniac ambition to shape the world. It has been this way
for many nations led by men far superior in intellect to George Bush.
Wishes are not reality and the US has an endemic ability to hold on to its
wishes and fantasies as long as possible. Desire often leads to its acting
despite itself. But its resources are far more constrained now than they were
six years ago, much less during the Vietnam War, which it lost. The US public
is already deeply alienated, the world financial system is teetering, the
United States' military resources are virtually exhausted.
We shall see.
Gabriel Kolko is a leading historian of modern warfare. His latest book
is The Age of War.
Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
Please click hereif you are interested in
contributing.
