Page 2 of 5 SUPER
CAPITALISM, SUPER
IMPERIALISM PART 1: A Structural
Link By Henry C K Liu
international trade because oil continues
to be denominated in fiat dollars as a result of
superpower geopolitics, leading to dollar hegemony
in 1993 with the globalization of deregulated
financial markets.
Three causal
developments allowed dollar hegemony to emerge
over a span of two decades after 1973 and finally
take hold in 1993. US fiscal deficits from
overseas spending since the 1950s
caused
a massive drain in US gold holdings, forcing the
US in 1971 to abandon the 1945 Bretton Woods
regime of fixed exchange rate based on a
gold-backed dollar. Under that international
financial architecture, cross-border flow of funds
was not considered necessary or desirable for
promoting international trade or domestic
development. The collapse of the 1945 Bretton
Woods regime in 1971 was the initial development
toward dollar hegemony.
The second
development was the denomination of oil in dollars
after the 1973 Middle East oil crisis. The
emergence of petrodollars was the price the US,
still only one of two contending superpowers in
1973, extracted from defenseless oil-producing
nations for allowing them to nationalize the
Western-owned oil industry on their soil. As long
as oil transactions are denominated in fiat
dollars, the US essentially controls all the oil
in the world financially regardless of specific
ownership, reducing all oil producing nations to
the status of commodity agents of dollar hegemony.
The third development was the global
deregulation of financial markets after the Cold
War, making cross-border flow of funds routine,
and a general relaxation of capital and foreign
exchange control by most governments involved in
international trade. This neo-liberal trade regime
brought into existence a foreign exchange market
in which free-floating exchange rates made
computerized speculative attacks on weak
currencies a regular occurrence. These three
developments permitted the emergence of dollar
hegemony after 1994 and helped the US win the Cold
War with financial power derived from fiat money.
Dollar hegemony advanced super imperialism
one stage further from the financial to the
monetary front. Industrial imperialism sought to
achieve a trade surplus by exporting manufactured
good to the colonies for gold to fund investment
for more productive plants at home. Super
imperialism sought to extract real wealth from the
colonies by paying for it with fiat dollars to
sustain a balance of payments out of an imbalance
in the exchange of commodities. Monetary
imperialism under dollar hegemony exports debt
denominated in fiat dollars through a permissive
trade deficit with the new colonies, only to
re-import the debt back to the US as capital
account surplus to finance the US debt bubble.
The circular recycling of
dollar-denominated debt was made operative by the
dollar, a fiat currency that only the US can print
at will, continuing as the world's prime reserve
currency for international trade and finance,
backed by US geopolitical superpower. Dollars are
accepted universally because oil is denominated in
dollars and everyone needs oil and thus needs
dollars to buy oil. Any nation that seeks to
denominate key commodities, such as oil, in
currencies other than the dollar will soon find
itself invaded by the sole superpower. Thus the
war on Iraq is not about oil, as former Federal
Reserve chairman Alan Greenspan suggested
recently. It is about keeping oil denominated in
dollars to protect dollar hegemony. The difference
is subtle but of essential importance.
Since 1993, central banks of all trading
nations around the world, with the exception of
the US Federal Reserve, have been forced to hold
more dollar reserves than they otherwise need to
ward off the potential of sudden speculative
attacks on their currencies in unregulated global
financial markets. Thus "dollar hegemony" prevents
the exporting nations, such as the Asian Tigers,
from spending domestically the dollars they earn
from the US trade deficit and forces them to fund
the US capital account surplus, shipping real
wealth to the US in exchange for the privilege of
financing further growth of the US debt economy.
Not only do these exporting nations have
to compete by keeping their domestic wages down
and by prostituting their environment, the dollars
that they earn cannot be spent at home without
causing a monetary crisis in their own currencies
because the dollars they earn have to be exchanged
into local currencies before they can be spent
domestically, causing an excessive rise in their
domestic money supply which in turn causes
domestic inflation-pushed bubbles. While the
trade-surplus nations are forced to lend their
export earnings back to the US, these same nations
are starved for capital, as global capital
denominated in dollars will only invest in their
export sectors to earn more dollars. The domestic
sector with local currency earnings remains of
little interest to global capital denominated in
dollars. As a result, domestic development
stagnates for lack of capital.
Dollar
hegemony permits the US to transform itself from a
competitor in world markets to earn hard money, to
a fiat-money-making monopoly with fiat dollars
that only it can print at will. Every other
trading nation has to exchange low-wage goods for
dollars that the US alone can print freely and
that can be spent only in the dollar economy
without monetary penalty.
The
victimization of Japan and China Japan is a
classic victim of monetary imperialism. In 1990,
as a result of Japanese export prowess, the
Industrial Bank of Japan was the largest bank in
the world, with a market capitalization of $57
billion. The top nine of the 10 largest banks then
were all Japanese, trailed by Canadian Alliance in
10th place. No US bank made the top-10 list. By
2001, the effects of dollar hegemony have pushed
Citigroup into first place with a market
capitalization of $260 billion. Seven of the top
10 largest financial institutions in the world in
2001 were US-based, with descending ranking in
market capitalization: Citigroup ($260 billion),
AIG ($209 billion), HSBC (British-$110 billion),
Berkshire Hathaway ($100 billion), Bank of America
($99 billion), Fanny Mae ($80 billion), Wells
Fargo ($74 billion), JP Morgan Chase ($72
billion), RBS (British-$70 billion) and UBS
(Swiss-$67 billion). No Japanese bank survived on
the list.
China is a neoclassic case of
dollar hegemony victimization even though its
domestic financial markets are still not open and
the yuan is still not freely convertible. With
over $1.4 trillion in foreign exchange reserves
earned at a previously lower fixed exchange rate
of 8.2 to a dollar set in 1985, now growing at the
rate of $1 billion a day at a narrow-range
floating exchange rate of around 7.5 since July
2005, China cannot spend much of it dollar
holdings on domestic development without domestic
inflation caused by excessive expansion of its
yuan money supply. The Chinese economy is
overheating because the bulk of its surplus
revenue is in dollars from exports that cannot be
spent inside China without monetary penalty.
Chinese wages are too low to absorb sudden
expansion of yuan money supply to develop the
domestic economy. And with over $1.4 trillion in
foreign exchange reserves, equal to its annual
GDP, China cannot even divest from the dollar
without having the market effect of a falling
dollar moving against its remaining holdings.
The People's Bank of China announced on
July 20, 2005 that effective immediately the yuan
exchange rate would go up by 2.1% to 8.11 yuan to
the US dollar and that China would drop the dollar
peg to its currency. In its place, China would
move to a "managed float" of the yuan, pegging the
currency's exchange value to an undisclosed basket
of currencies linked to its global trade. In an
effort to limit the amount of volatility, China
would not allow the currency to fluctuate by more
than 0.3% in any one trading day. Linking the yuan
to a basket of currencies means China's currency
is relatively free from market forces acting on
the dollar, shifting to market forces acting on a
basket of currencies of China's key trading
partners. The basket is composed of the euro, yen
and other Asian currencies as well as the dollar.
Though the precise composition of the basket was
not disclosed, it can nevertheless be deduced by
China's trade volume with key trading partners and
by mathematical calculation from the set-daily
exchange rate.
Thus China is trapped in a
trade regime operating on an international
monetary architecture in which it must continue to
export real wealth in the form of underpaid labor
and polluted environment in exchange for dollars
that it must reinvest in the US. Ironically, the
recent rise of anti-trade sentiment in US domestic
politics offers China a convenient, opportune
escape from dollar hegemony to reduce its
dependence on export to concentrate on domestic
development. Chinese domestic special interest
groups in the export sector would otherwise oppose
any policy to slow the growth in export if not for
the rise of US protectionism which causes
shot-term pain for China but long-term benefit in
China's need to restructure its economy toward
domestic development. Further trade surplus
denominated in dollar is of no advantage to China.
Emerging markets are new colonies of
monetary imperialism Even as the domestic
US economy declined after the onset of
globalization in the early 1990s, US dominance in
global finance has continued to this day on
account of dollar hegemony. It should not be
surprising that the nation that can print at will
the world's reserve currency for international
trade should come up on top in deregulated global
financial markets. The so-called emerging markets
around the world are the new colonies of monetary
imperialism in a global neo-liberal trading regime
operating under dollar hegemony geopolitically
dominated by the US as the world's sole remaining
superpower.
Denial of corporate social
responsibility In Supercapitalism,
Reich identifies corporate social responsibility
as a diversion from economic efficiency and an
un-capitalistic illusion. Of course the late
Milton Friedman had asserted that the only social
responsibility of corporations is to maximize
profit, rather than to generate economic
well-being and balanced growth through fair
profits. There is ample evidence to suggest that a
single-minded quest for maximizing global
corporate profit can lead to domestic economic
decline in even the world's sole remaining
superpower. The US public is encouraged to blame
such decline on the misbehaving trading partners
of the US rather than US trade policy that permits
US transnational corporation to
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