False Dawn: The Delusions of Global Capitalism in the Light of Hegemonic Stability Theory. In order to substantiate Gray s claims, it is necessary to provide evidence that American power has diminished, and continues to diminish. I would like to present an analysis, from a historical perspective, describing the concept of détente during the Cold War, and the theory of hegemonic stability. Having experienced instability in its European relations following WWI, the U.S. sought to stabilize its European relationship. Following WW II, there was an urgency to establish a foundation for post war economic recovery. The Bretton Woods Conference in 1944 was one such innovative approach. From this conference came the establishment of a gold exchange value of 35 dollars per ounce, which locked European currencies to fixed exchange rates. The most influential statesman at this conference was the British economist John Maynard Keynes, and from this same conference raised the foundations of the IMF, or World Bank. The IMF was created to facilitate monetary co-operation and policy support, and provide developmental loans for post-war reconstruction. Bretton Woods was the first step in a new world economic order envisioned by the U.S. At the same time, the U.S. organized NATO, as a hedge against the Communist bloc. to maintain its military control by providing security against the Soviet military threat. The success of the Bretton Woods Accords resulted in a stable economic environment, and at the same time, the success of NATO provided the U.S. with military dominance, and ensured the compliance of its strategic allies. The apparent success of the acceptance of the dominance of the dollar consolidated U.S. economic influence across the globe. In the post WWII, or Cold War period, two superpowers, the U.S.A and the U.S.S.R., exhibited - 295 -
hegemonic influence. According to Jackson and Sorensen, hegemony is defined as, a dominant military and economic power (Jackson and Sorensen, 2007: 195) a hegemony or dominant military, economic power is necessary for the creation and full development of a liberal world market economy (Ibid.). If such dynamics of political power do not exist, liberal rules cannot be enforced in the world. This then, is the theory of Hegemonic Stability, which Jackson and Sorenson define as follows: Hegemony, or a dominant military and economic power, is necessary to the creation and full development of a liberal world market economy, because, in the absence of such a power, liberal rules cannot be enforced around the world. That in its simplest form is the theory of hegemonic stability which is indebted to mercantilist thinking about politics controlling economics (Ibid: 307). For the U.S., one of the characteristic principles of strategic realism is the use of armed force in foreign policy. In the world economic crisis of the 1930 s, the U.S. was unwilling to take hegemonic responsibility for stabilizing a liberal economic order throughout the world. After WW Ⅱ it took a different approach, having learned from previous experience, and adopted a position of leadership in world economics. Without a hegemony liberal rules and better access to foreign markets cannot be enforced (Ibid: 196). As for the relationship between politics and economics, there is the logic of politics and the logic of economics, but economics is not entirely controlled by politics and vice versa. (Ibid: 201) McCauley divides the Cold War into four periods. (1998:1-2) The Cold War graphic is as follows: I Cold War 1-Cold War 2 The last years of Stalin, until his death in 1953 (1920-1953) Russian foreign policy: low-risk or risk averse Outline of Cold War crises (acc. S.Sweeney) 1950-53 Korean War 1953 Soviet troops suppress an uprising in the German Democratic Republic. - 296 -
False Dawn: The Delusions of Global Capitalism in the Light of Hegemonic Stability Theory. II III The period of Khrushcev (1953-1979) The period détente (1969-1979) (1979-1985 Cold War II) The high risk diplomacy of Khrushchev The outbreak of détente 1979- the Soviet invasion of Afghanistan 1956 Suez Conflict 1956 Soviet troops crush a popular rising in Budapest, Hungary 1961-Berlin Wall 1962-Cuba Missile Crisis- the U.S.SR installs nuclear missiles in Cuba. The ensuring standoff is the most dangerous episode of the entire Cold War. U.S.SR/U.S.A/Cuba 1965-74 U.S. troops relieve falling French forces in Indochina and the Vietnam War begins, ending costly defeat for the U.S. 1968 Prague Spring the Warsaw Pact invasion of Czechoslovakia (from here acc.baylis) 1973-Arab-Israeli war Egypt/Israel/Syria/U.S.A/U.S.S IV The period of Gorbachev (1983-1991) Glasnost, Perestroika The demise of the U.S.SR 1983-Exercise Able Archer U.S.SR/U.S.A/NATO The second WW witnessed the transformation of the U.S.S.R. into the dominant European military power. The Soviets only real rival was the U.S.A., and the continuity of Stalin s relationship with Washington D.C. was of vital importance. At that time, the Aid package, or Marshall Plan, which facilitated the industrial and economical recovery of Europe, was offered to European countries, including those in the Soviet sphere, but Stalin rejected the offer. He wanted to control Communist leadership and to behave like an emperor, not only in the Soviet Union, but also in the Central Eastern European countries. In 1948, the first confrontation of the cold war took place in Berlin (the former German capital). The North Atlantic Treaty Organization (NATO), was established in April of 1949. The key principle of this treaty stated that an attack on one member nation would be regarded as an attack on all. This implied the willingness of the U.S.A to use nuclear weapons to deter Soviet aggression. In 1949, the Republic of China was founded. Until 1950, the U.S. enjoyed economic domination of Europe and for a short time, was a nuclear monopoly. - 297 -
In 1955, as a counter measure to NATO, the Soviets created the Warsaw Pact, which espoused the same principles as NATO that an attack or invasion on one member would be regarded as an attack on all. The formation of these defensive alignments came to symbolize the polarization of the two opposing powers, but it was with the crisis of the Berlin Wall, in 1961, that the world was made aware of the direness of the situation. With the death of Stalin, Khruschev emerged as the leader of the U.S.S.R., declaring optimistically that a total Communist state would soon emerge. In spite of this declaration, Soviet diplomacy grew more unstable and unpredictable. In 1962, the Cuban missile crisis threatened the real possibility of nuclear war. The U.S. support of the post WW II reconstruction of Europe was followed by American expansion of direct investment in Europe. This resulted in a critical trade deficit to the U.S.. Furthermore, the deficit had ballooned to 25.2 billion dollars by 1968; hugely augmented by the Vietnam War. (Walker, 1993:142) Domestically sluggish economic growth led U.S. corporations to realize that there were more lucrative investment opportunities abroad. (The interests and profits realized, were left in Europe and reinvested in the new Eurodollar currency for the purpose of purchasing U.S. dollars.) Walker identified this phenomenon as not only the militarization, but also the internationalization of the U.S. However the U.S. share of the global economy shrunk 50 percent in 1946, and then to 25 percent by the 1980s occupying a considerably lower position in a vastly larger world economy (Ibid.). During this period the U.S. entered into the Vietnam conflict. The defeat of the U.S. in the Vietnam War resulted in a serious decline of the American economy. In 1971 Nixon had to declare a New Policy and issued a statement of the inconvertibility of dollars into gold. The Federal Reserve System (the U.S. hundred million $) Table Ⅱ 1945 1949 1958 1960 1965 1967 1968 1970 1971 Gold Reserve External (Short-Term) Debt 201 69 246 76 206 162 178 213 138 296 121 358 109 387 111 470 102 677 Based on Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, Dec.1950, Jan.1962, Jan.1975-298 -
False Dawn: The Delusions of Global Capitalism in the Light of Hegemonic Stability Theory. As Table Ⅱ illustrates, from the onset of the Vietnam War (1965) to its end (1971), the U.S. Gold Reserve dramatically decreased, while in this same time period, U.S. external debt rapidly increased. Such figures suggest to us that the U.S. invested heavily in war expenditures, which ultimately resulted in the decline of the U.S. economy. Between the years 1969-1979, détente between the two superpowers existed within a framework of negotiation and agreement. Détente had its roots in the avoidance of an uncontrolled arms race. The treaty agreements to limit nuclear arsenals, agreed upon by R. Nixon and L. Brezhnev, opted for co-existence. Détente was a form of institutionalized coexistence, and by the end of the mid-1970s, appeared to make classical realism obsolete (S.Sweeney, 2005:243). S. Sweeney suggests that attributing the Cold War bi-polar power struggle only to the IR theory of Realism is not entirely correct. We need to acknowledge a more nuanced perspective of the Cold War, in which détente undermined the traditional realist interpretation. The shift to a floating exchange rate system brought about worldwide economic instability and no confidence in a key currency. In consideration of these facts, it is no exaggeration to say that American power has diminished relatively, from its zenith of following WW Ⅱ to the present. However, when US power declined, cooperation did not break down, contrary to expectations of hegemonic stability theory (Above mentioned). Because hegemonic power itself helped establishment of cooperation in such areas as finance, trade and oil.(acc. Keohane from Jackson&Sorencon, 2007:200). As for global capitalism under an umbrella of hegemonic power, Gray argues that competitive free market agenda will lead us to an anarchic environment of disorganized global capitalism and global free market will shortly belong to an irrecoverable past (Gray, 1998:235). As marxists always criticize inequality and hierarchy in US hegemony, Gray also highlights the levels of inequality in the United States (Gray, 1998:2), and points out they resemble those of Latin American. Hegemonic stability originally played a significant role in the U.S. s support of the rebuilding of Western Europe and Japan, post WWII, and then with its providing security in the Cold War struggle with the Soviet Union. Japan was allowed to maintain a limited access - 299 -
to its domestic market; Western Europe was allowed to continue its policies of subsidy and protectionism in agriculture (Jackson&Sorenson, 2007:198). While the economy of Western Europe and Japan was being reconstructed, there rose huge trade deficits in the American economy. The U.S. began to incur continuing trade deficits, not only due to its providing security and economic assistance to Western Europe and Japan, but also due to its participation in the Vietnam War with its enormous military expenditures. (Abovementioned). Under the theory of hegemonic stability, guided by the U.S. administration, a foundation was being laid for global U.S. economic consolidation. Hegemonic stability had a decisive impact upon economic globalization and played a great role in the process of globalization. It is sufficient to say that a dominant state requires access to a number of different power resources in order to perform the role of hegemony. Across several key areas, fungible power (acc. to Strange, Nye, - this means military, economy, technology, territory) (Ibid.) resources are utilized in the acceleration of globalization. S. Sweeney (cf. S. Sweeney, 2005:267)points out that some critics have observed that the U.S. share of world trade is in decline, especially when compared to the Asian Pacific region, and that this situation has resulted from the trade imbalance with Japan-Pacific and the EU. However, one should not make the assumption that the U.S. has lost its ability to exert influence on other states. During the Vietnam War, the U.S. provided enormous orders for military equipment to Japan. With the indirect help of these special orders, several neighboring countries surrounding Vietnam were able to develop into industrialized nations. This is the fundamental success story of Asian Nies development. Although the U.S. share of world output has diminished, U.S. corporations still maintain advantages, and thus, still sustain a potential hegemonic role for the US. As Nye pointed out, the U.S. cultural soft power or cultural influence, remains a vital strength to the societies (Jackson&Sorenson, 2007:200). The acceleration of military ploys, and the arms race between the U.S. and the U.S.S.R. continued until Gorbachev proposed the questionable Sinatra doctrine and sought to negotiate with the U.S. The final phase of the Cold War lasted until the demise of the - 300 -
False Dawn: The Delusions of Global Capitalism in the Light of Hegemonic Stability Theory. U.S.S.R... McCauley states that détente ended in 1979, with the Soviet invasion of Afghanistan (McCauley, 1998:5). Early in 1981, Cold War tensions revived, resulting in an increase in military spending under the newly elected U.S. president R. Reagan. At this time, Reagan implemented the Strategic Defence Initiative. According to Weinberger reports (Weinsberger, 1984:279~), arms spending rose by 40 percent, from 5.2 to 7.0 percent of GDP. The confrontation between the United States and The Soviet Union reached a new level with Reagan calling The Soviet Union an evil empire. The early 1980s was a very precarious period, for, in addition to the intensified arms race between two superpowers, many other hostile incidents were occurring. In spite of Détente, a real danger existed in the threat of a Soviet pre-emptive strike during the second Cold War. However, it can be said, with confidence, that during the Cold War, a bipolar system provided a more stable environment, and thus provided a better guarantee of peace and security than a multipolar system (Jackson & Sorensen, 2007:95). Worrying about the emergence of a truly multipolar world (Gray, 1998: 77) struggling for the control of resources, Gray thinks that a multipolar system is unstable compared to bipolar system. However, it does not mean that Gray supports a bipolar system between the superpowers. Following the collapse of the U.S.S.R., capitalism remained the only significant economic system. At that time Francis Fukuyama made a statement, to the effect that history had come to an end in his famous 1989 essay The End of History? Fukuyama claims that liberal democracy has won an unabashed victory over other ideologies, and advocates liberalism as the only legitimate ideology remaining in the world. Early on, the Reagan administration sought to diminish the role of state, maintain social welfare at a minimum level, and pursue policies which favored private multi-corporations. This agenda promoted neoliberalist preferences based upon the concept of a Washington Consensus which favored privatization and financial deregulation, shrinking the role of the state, and encouraging foreign direct investment (Sweeney, 2005:376). Gray was skeptical of the claim made - 301 -
by the Washington Consensus that social progress is impossible without accompanying economic growth (Gray, 1998:175). He vehemently rejected this consensus, adding that the Washington Consensus will not last forever (Gray, 1998:170). He recognized that this concept results in endless market competition and an anarchical economic system. In Gray s reference to competition he stubbornly refuses unfettered market competition that leads us to the anarchic environment of disorganized global capitalism (Gray, 1998:76).He means competition as an aggressive action by which multi- national corporations could gain a huge stake in the free market system. In this sense Gray s rejection is right, and partially wrong. The reason is that every society and every market needs competition to avoid corruption. Gray is convinced that such endless competition can only result in irreparable disaster and destruction of the Earth. Despite advisory warnings, the Bush administration began attacking Iraq, justifying its actions by claiming the existence of hidden weapons of mass destruction. In retrospect, one cannot deny that the ultimate purpose of Iraqi war was to obtain oil. In the quagmire of war, approximately 5,000 American soldiers have been killed to date, Iraqi victims are too numerous to mention. Needless to say, U.S. budget and trade deficits are now skyrocketing. In addition to exorbitant military spending on the war, the problem of sub prime mortgages has created disorder in the U.S. financial environment. Gray further suggests the relationship between sovereign states and market forces (Ibid.). The original definition of a sovereign state is an entity with absolute authority over its territory and people and international independence, or is the ultimate political authority (Mclean and McMillan, 2003:502). Within the global context, the traditional understanding of sovereignty results in a decline of the role of state. However, Gray argues that sovereign states are not becoming obsolete (Ibid.), although he is convinced that market forces are too strong for any state to effectively control. Still, he insists upon the validity of the following two points: The first being the protective function of states, as citizens demand shelter from the anarchy of global capitalism (Ibid) and the second is the control of natural resources (Ibid). Especially critical at this juncture, is to note that China is in the process of seizing control of natural resources in Africa, which it deems necessary for its own economic growth. If hegemonic power has diminished, Gray argues, the necessity of economic growth - 302 -
False Dawn: The Delusions of Global Capitalism in the Light of Hegemonic Stability Theory. will draw the states into military competition (Ibid). With the evidence I have presented herein, it is clear that American power has diminished, relatively, from its zenith following WWII, and continues to do so. Nonetheless, in the long term, the reduction of U.S. power would be moderate in nature. The accumulation of power resources and knowledge are, of course, unfathomable, and one cannot underestimate the profound accumulation of American prosperity. If one focuses upon the U.S. outlay for national defence, one might conclude that munitions industries have been benefiting greatly from government spending. According to the SIPRI 2007(Yearbook), U.S. Expenditures for national defence increased by 53 percent in real terms between the years 2001 and 2006, primarily as a result of the allocation of $ 381 billion for military operations in Afghanistan, Iraq and elsewhere. It would seem then, that as long as the U.S. demand for munitions can be supplied by its own industries, the U.S. will survive. In Gray s reference to the emergence of a truly multipolar world, suggesting the examples of China or India, the current balance of world power could conceivably be destroyed, resulting in instability and chaos. (20/July/2008) References Baylis, J.and Smith, S. (Eds.) 2005 The Globalization of World Politics Oxford.Oxford University Press Gray, J. 2002 False Dawn: The Delusions of global capitalism. Cambridge Polity Jackson and Sorensen 2007 Introduction to International Relations Oxford University Press McDonald,F. and Dearden, S. 1999 European Economic Integration. Harlow: Longman. Nye,J.S.,Jr 1990 The changing nature of American Power New York; Basic. Strange, S. 1996 The Retreat of the State Cambridge University Press Sweeney, S Nation states and globalization: a case of 2002 acquiescence not powerlessness Theory and History, University of Leeds Walker, M. 1993 The Cold War Vintage Weber, C. 2005 International Relations Theory London, Routledge Weinsberger,C.. 1984 Annual Report to the Congress, Department Washington DC of Defense,Fiscal Year 1985-303 -