Part I
2
We advance here a crisis theory of financialization and imperial geo-politics in order to recast key concepts and causal parameters related to the sources of debt and the way in which the Euro-Atlantic area is in danger of complete disintegration. Our central thesis is that ‘debt’ is not just a category of political economy that can be theorized, but also a geo-political notion that can be examined alongside an analysis of imperial politics and the state. We unravel the deeper connection and inter-penetration between capital, imperial geo-politics and the political economy of financialization. In this context, we show how the present crisis in the eurozone is a manifestation of deeper disintegrative tendencies embedded in the hub-and-spoke system of neo-imperial governance built by the USA in Western Europe, the Middle/Near East and East Asia in the aftermath of World War II. This crisis process exposes the weakness of the USA to contain Europe’s economic woes, while elevating Germany as a powerful, monetarist imperial power within the EU. Yet the picture is truly global and not just Euro-Atlantic. We contend that, historically, the crisis dynamics of the current international order can be best understood in terms of a power-shift to other centres and caucuses of capital accumulation, mainly in Asia. Let us be more analytical.
Germany has every reason to want to reshape the political and economic contours of Europe after its own model of capitalism, especially now that the USA, a debtor power, is not in a position to impose across the globe and Europe its own economic and political arrangements as it did after the end of World War II, when it was a creditor power. The plates of global economic power structures have for some time now been shifting from the Euro-Atlantic heartland to the ‘global East’ (China, India, Brazil, Russia, Germany, Indonesia, South Africa, etc.). This is a structural-historical process that the USA cannot arrest. It can only be delayed. This shift is dangerous because, as Lenin noted almost a century ago well before the appearance of any systematic realist thinking in the discipline of IR, ‘when the relation of forces is changed, how else, under capitalism, can the solution of contradictions be found, except by resorting to violence?’ (emphasis by Lenin).1 Germany’s endaimin Europeis not far off the mark. It is fruitless and dangerous. It is fruitless because, as we show below, regional and global fault-lines, working in tandem with asymmetries generated by the ‘law of value’, prevent Germany from accomplishing her objective of outright monetary and even political domination of the EU. The metrics of violence in Europe, at least for the time being, are not a European cum global war as in 1914 or 1940. They are, under Germany’s tutelage, the transformation of the European polities, especially in the periphery (Greece, Portugal, Spain, Italy and Ireland), into coercive and predator policy-making machines that have imposed untold austerity measures upon their citizens and destroyed entire societies and communities on the altar of ‘debt repayment’ and ‘bank recapitalisation’. This is as dangerous as war can be.
2.1 Preliminary remarks
Let us make some further preliminary comments on the structure and presentation order of the theoretical essays here, thus facilitating reading and removing some conceptual and other obstacles.
The notion of ‘hub-and-spoke (informal) imperialism’ occupies a key position in our analyses. In its ideal-typical form, it is a method of imperial governance put forth and exercised by the USA in the aftermath of World War II in order to deal with the inadequacies of previous European imperialisms that had been unable to tame the contradictions caused by the uneven flows of capital and labour across time and space, what Marx has theorized as ‘the law of value’. Hub-and-spoke arrangements came to replace the imperialism of finance capital, substantiated by the merger between industrial and banking capital under the aegis of specific imperial currency blocs (the British, the French, the German, etc.). Hub-and-spoke imperialism is what diversifies US post-war informal imperialism with all previous modern, and mainly formal, imperialisms, which have been analysed by John Hobson, Rudolf Hilferding, Nicolai Bukharin and V.I. Lenin. In their ideal-typical form, the great virtue of hub-and-spoke arrangements is that the central imperial power of the international system is in a position to dominate all major components of international relations: the field of international political economy – i.e. the centrality of the dollar in global currency markets and commerce that is institutionalized via a number of international organizations and institutions;2 the field of domestic politics – i.e. building structures of dependency within the polities of both the core and the periphery; the ideational field of ‘friend-enemy’ binary in order to placate allies and consolidate its grip on them – i.e. the ‘war on evil Communism’ during the Cold War, which rallied European states against the Soviet bloc; and the important field of geo-politics where, for example, the USA became the dominant force in key parts of Eastern, Western and central Eurasia.
Hub-and-spoke arrangements indicate subordination to the master of all other lesser powers of the core, because the arrangement dictated by the arch-imperial master can supersede or override in depth and strategic significance any other bilateral relation cultivated by these lesser state powers. For instance, and for a number of reasons, the USA’s bilateral relation with Germany, today, as in the past, cannot be outflanked by whatever policy ties bind Germany together with France within the EU.3 This is how the USA mastered and managed its primacy in international relations.
Josef Joffe believes that this had also been the grand strategy of Bismarck:
Imperial Britain’s strategy was to capitalise on its great advantage of insularity – to stay aloof from the quarrels of Europe, if possible, and to intervene against the hegemonist of the day when necessary [ ... ]. Bismarck’s grand strategy was the opposite extreme: not intermittent intervention but permanent engagement. To banish his ‘nightmare coalitions’ the Iron Chancellor sought to cement better relations with all contenders than they might establish among them. As long as these relationships converged like spokes in a hub, Germany would be the manager, not the victim of European diplomacy [ ... ]. The US’s global game is essentially a Bismarckian one, and that explains why the rest of the world is not moving in on the US [ ... ]. The appropriate metaphor is that of hub and spoke. The hub is Washington, and all the spokes are Western Europe, Japan, China, Russia and the Middle East. For all their antagonisms towards the US, their association with the hub is more important to them than are their ties to one another.4
Whether Joffe is right or not is besides the point. The fact of the matter is that Germany is trying to build this type of governance across the EU today at a time when this method of governance is disintegrating at the Euro-Atlantic level. Germany’s effort is becoming hopeless not just because of the divergent rate of development within the EU, which means that the ‘law of value’ has not lost an iota of its validity, but especially because it is trying to build such relations on the basis of monetary and anti-inflationist economics alone, lacking pan-European political power tools and robust, demand-led components. The crisis theory of debt we present here is tested in this context. But why is such a theorization important?
Theory abstracts from reality, so it is an abstraction but, we argue, an abstraction that has the potential to describe reality better than any description. Most theoreticians claim that they can predict the future, whereas historians, whose craft is to study and interpret the past, doubt predictions.5 Whatever the case, social theories, in general, and political and international theories, in particular, have limits for a number of reasons of which two stand out: first, they can be put together only in specific historical, both global and regional, contexts; second, the intellectual power of abstraction tends to create a permanent gap between policy environments and theoretical postulation, vindicating the late Nicos Poulantzas’s thesis that ‘there is always a structural distance between theory and practice, between theory and the real’.6 Leo Panitch and Sam Gindin are perfectly aware of this discussion when they write:
[political economists working within a historical-materialist framework] have often been hampered by Marxism’s inclinations to analyse the trajectory of capitalism as derivative of abstract economic laws. The conceptual categories Marx developed to define the structural relationships and economic dynamics distinctive to capitalism can be enormously valuable, but only if they guide an understanding of the choices made, and the specific institutions created, by specific historical actors.7
Having said this, a crisis theory of debt comprises the ways in which debt is ramified across the domestic and international environments of the state per se as an expression of the asymmetrical circulation of values in the real (e.g., industrial commodities) and fictitious (e.g., financial derivatives) markets. We limit ourselves to presenting the theoretical underpinnings of debt/liquidity crises under capitalism in general and the way in which these crises articulate their effects on the state apparatuses in the periphery, significantly altering the means by which the dominant class fraction within the periphery state exercises hegemony. Impossible to be absorbed or regulated by the state machine, debt and fiscal crises tend to shift governmental power from parliament and other formal representative bodies (e.g., tripartite representative or consultative corporatist structures) to the executive, featuring what the late Poulantzas called ‘authoritarian statism’. But whereas Poulantzas’s concept in the late 1970s was capturing the manifestations of the first phase of neo-liberalism cum financialization that needed to amass the state’s coercive apparatuses to effect its first victories on organized labour power (the beginnings of privatizations, welfare retrenchment, etc.), today the concept can be used to support the latest phase of the neo-liberal project, which is the result of its global, structural crisis. In the 1970s, we witnessed a fiscal crisis of the state in the core, whereas today we are faced with a generalized debt crisis, both sovereign and banking, in both the core and the periphery.8 In peripheral states, such as Greece, where political and social institutions are anything but solid and robust, even the executive seems to be disintegrating as the dominant political factions within it seem to be unable to form stable cabinets so that the austerity policy imposed by the creditors can be implemented. Today’s crisis, moreover, is accompanied by ‘shock therapy’ austerity measures in the periphery, and with measured austerity programmes in the core. This precipitates the undermining of the welfare of the middle classes in the periphery initiating a new, radical political phase, whereas the core is experiencing a more protracted process of political disintegration cum radicalization. We are interested here in the complex articulation between capital, geo-politics and the state in the periphery in order to capture theoretically the specificity of Greece in European, Balkan, Middle Eastern and global contexts.
Under capitalism, crises seem to be emanating structurally (e.g., economic crisis) and ‘healed’ by agencies (e.g., state policy). This may create theoretical delusions. The celebrated agency/structure binary is but a methodological projection reflecting organizational forms of politics (e.g., state bureaucracy), which is necessary for the reproduction of capital as a social relation and a process. This, at the same time, justifies an examination of those distinct organizational forms as separate subjects of inquiry. In reality, however, they are an organic component of capitalism as a social system. For both capital and the capitalist state are structures and agencies alike and, as such, they result from and are consubstantial with the social/technical division of labour and the extended reproduction of this division across time and space, nationally and internationally.9 Along with the capitalist relations of production and exchange, the state itself generates crises as much as it fails to solve them. Today’s harsh austerity policy, for example, especially in the European periphery, spearheaded by the Euro-Atlantic ruling elites as a means to restore confidence in financial markets and re-launch neoliberalism and globalization, is a delusion of extraordinary proportions, inasmuch as the capitalist state and its managerial political classes are organic components of the socio-economic conditions that caused this crisis.10 The capitalist, as Marx more than once put it in Capital, is capital personified yet he/she is unable to control capitalism and its cyclical crises. As we shall see in more detail below, all the ruling classes can do is to plan how to switch from one crisis accumulation regime to another, especially from Keynesian planning to liberal financialization regimes (we dwell extensively on this below). From this perspective, Karl Polanyi’s formulation in 1944 reads with interest:
There was nothing natural about laissez-faire; free markets could have never come into being merely by allowing things to take their course. Just as cotton manufactures – the leading free trade industry – were created by the help of protective tariffs, export bounties, and indirect wage subsidies, laissez-faire itself was enforced by the state [ ... ]; laissez-faire was not a method to achieve a thing, it was the thing to be achieved [ ... ]. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not.11
One could argue, therefore, that what constitutes the structural weakness of capital making it liable to frequent and periodic crises, is exactly what makes it and, by extension, capitalism, resilient in time and space. Credit and debt are mechanisms providing oxygen for capitalism as a social system, guaranteeing the flow of capital and services, especially via the creation of fictitious money and values. As we shall analyse in more detail below, capital has the means to appropriate credit instruments escaping to banking and finance each time it is faced with a (over-accumulation) crisis in industry and real commodity production – read: ‘real economy’. This is what David Harvey has called ‘the enigma of capital’, for which we have reserved the term ‘sinews of capital’.12 But the sinews of capital should also be searched outside of capital’s social relation itself.
Capital and capitalism can bounce back or rejuvenate not just because of economic reasons. Capital and the state prove resilient because, among other reasons, they alternate the use of coercion and consent in periods of prosperity and upswings, while pursuing primarily coercion in periods of austerity and abrupt downturns, sapping resilience and making capitalism and the state even more vulnerable. In general, the more austerity measures deepen, the more social and class polarization deepen and the more likely it is for the state to employ harsh coercion and violence – even to a point of declaring a ‘state of emergency’. In other instances, the liberal state is keen on compromising liberal democracy in order to exclude labour from assuming key positions within the state apparatuses proper – the case of Greece and other Latin American countries after World War II. These observations apply to the domestic environment of the state. But capital and the state occupy a geo-political space which is hard to de-territorialize. Thus, both capital and the (capitalist) state may well mobilize coercion and declare a state of emergency due to perceived or real threats emanating not from inside the territory of the state in question but from the state’s own geo-political immediacy or international environment. Such conditions, whether manufactured by the ruling classes or not, are regressive and reactionary. They ‘heal’ organic crises of any regime of accumulation and convert political and social struggles into defensive/aggressive nationalism.13 Under capitalism, the economic instance is not autonomous. It is rather always embedded in politics, social relations and ideational and geo-political regimes and situations. That is why we insist here on the role of state security and geo-politics, which we see as co-constitutive variables in any crisis theory of debt. Geo-politics has the same function as other forms and factors that both sustain and sap the capital relation, such as forms of credit. As such, geo-politics both serves and undermines the resilience of capital. It is, therefore, a substantial part of what we call here the sinews of capital. It should be clear by now that the state is not just a class relation alternating coercion and consent at the behest of the dominant faction of the capitalist class; nor is it simply a terrain of social struggle translating social demands for justice, high wages and welfare into redistribution policies, thus balancing out capital-labour relations – the key substantive claim in Poulantzas’s work on the capitalist state and a claim that one can also find in the Marxism of the Second International, and especially in Austro-Marxism.
Poised to recast here some insights put forth by David Harvey, we should also view the state and its articulation with the economic sphere as a geographical site constantly seeking adaptation and ‘spatial fix’ due to the ways in which capital accumulation shapes global and regional time and spatiality. With very few exceptions, the fundamental concern of all ‘national-liberal’ bourgeois revolutions has been how to increase the spatiality of the state in order to assist accumulation and manage the transition from simple to extended reproduction of capital, thus facilitating ‘economies of scale’. No doubt, this was the case with all bourgeois/industrial revolutions in Europe, North America and elsewhere, and this was definitely the case with Eleftherios Venizelos, Greece’s early 20th century celebrated liberal-nationalist politician par excellence. But whereas Harvey perceptively integrates geography into the analysis of capital as a social relation and a process, he falls short of embracing geo-politics and security as co-constitutive analytical variables of capital formation and flows, thus capturing their effects on the structure of capital and, for that matter, the territorial state. From this perspective, the capitalist state enjoys two paramount features that are, or should be, strictly interlinked so that it can enjoy a balanced position in international politics, enabling it to absorb organically crises of over-accumulation and, if need be, project power in order to devalue. The first such feature is related to the robustness of its (capitalist) political economy; the second to the geo-strategic and geo-political significance of the area it occupies and in which its political economy connects it with its region and the globe. Nicholas J. Spykman, whose work influenced the formation of US grand strategy and neo-imperial hub-and-spoke arrangements after World War II, has convincingly argued that a state’s foreign policy must reckon with geography and geographic facts: ‘It can deal with them skillfully or ineptly; it can modify them; but it can not ignore them. For geography does not argue. It simply is.’14
We, therefore, propose to factor in security and geo-politics as co-constitutive, interactive variables and not just as appendages to capital accumulation, as Harvey’s, otherwise important, work does. In this regard, Greece has been – and is – enjoying a substantial geo-strategic value in the Eastern Mediterranean, which outstrips its overall capital formation. Its Aegean Sea, Balkan and Near Eastern location and approaches, coupled with its influence in Cyprus, provide Greece with a geography and a cumulative space (land, sea and air) that it is hard for any imperial power to ignore, regardless of the global alliance system in operation.15 The country, therefore, sits on the fault-lines of a weak political economy and strong geo-politics. Pantelis Pouliopoulos, the first general secretary of the Greek Communist Party at the age of 24, and whose work and life are largely unknown not only internationally but also in Greece proper, sensed all this when he wrote in 1934:
[Thus] the Greek economy contains in its very existence these two, historically inextricably, unbridled trends: that of the capitalist East, on the one hand, and of the capitalist West, on the other. A double ‘barbarism’: the former is ‘uncivilized’, the latter is too much ‘civilized’. In this context, what seems to be a dawn from the one side, comes as twilight from the other.16
We have laid down the general framework within which our analyses will take place. First, drawing from Marx’s and Harvey’s works, we will focus on the relationship between ‘real’ and ‘fictitious’ capital, the crises they generate, and the way in which the capitalist state articulates its policy as a constitutive part of those two forms of capital staving off crisis. We examine Harvey’s ‘second’ – the primary locus being finance – and ‘third cut’ crisis theories (‘spatial fix’ and ‘accumulation by dispossession’), the ‘first cut’ crisis theory being Marx’s own crisis theory of over-accumulation. We then wrap up this discussion via Giovanni Arrighi’s and Robert Brenner’s work, thus rendering our narrative with a macro-historical perspective. This approach is very pertinent when examining the case of Greece, especially in capturing the country’s defaults on its debt obligations during the course of its modern history. We then examine the way in which imperial geo-politics and global/regional fault-lines act as originators of debt as they straddle the very contradictions of capital formation and its asymmetrical/uneven rate of development. In this way, we address the two key objectives set out in the beginning of this theoretical section: first, to recast a crisis theory of debt creation by way of factoring in imperial geo-politics as a constitutive variable of capital formation and its crises; second, to show that the underlying cause of the severe crisis that erupted in summer 2007 in the Anglo-American world, and then spread to the eurozone and its periphery, is due to the terminal crisis of the huband-spoke system of global neo-imperial governance built by the USA in the 1940s, and which Germany’s monetary and anti-inflationist policy is trying to recast in the eurozone today in vain. Thus, it seems to us that Marx’s own value theory is still relevant, especially in capturing the qualitative dimensions of the present crisis, hence the acknowledgement on our part of the utility of the concept of ‘uneven (and combined) development’. But our type of ‘injection’ of geo-politics and security in the discussion, as well as ideational/geo-cultural aspects of the political game, allow us to go beyond that concept preferring in its stead that of ‘global fault-lines’. Herein lie the severe disintegrative tendencies of the Euro-Atlantic political economies and imperial geo-politics and the political logic that underpins them – neo-liberalism and financialization/globalization. These claims will be further substantiated in the narrative that follows.
2.2 ‘Real’ capital, ‘fictitious’ capital and uneven (and combined) development
Capitalism is susceptible to crises. When the prevailing forms of political economy under capitalism are industrial and commercial pertaining to the form M-C-M’ (Money-Commodity-Money’), then crises manifest themselves primarily in the ‘real’ economy, that is the sphere of production and circulation of commodities that bear social value expended in them by labour-power.17 A well-known historical form of this type of crisis is the severe crisis of over-accumulation in the 1970s. Another is the one that hit the industrial world in the 1890s. But when the prevailing form of capital activity takes place primarily in the sphere of circulation of money-capital pertaining to the form M-M’ – for instance, a rentier earning interest on a large deposit of capital, what Marx used to call ‘money which begets money’ – then crises first manifest themselves in the institutional sphere of production and circulation of paper, which is the sphere of ‘fictitious’ or imaginary capital par excellence. Cracks in the composition of the money form of capital and the credit system in the 20th century first appeared typically in the financial crisis of 1929–33. The global financial and eurozone crises today also fall into that category. Marx sees both these crisis processes of the ‘real’ and ‘fictitious’ economies as organically composed and opposed within the ensemble of social capital:
The real difference between profit and interest exists as the difference between a moneyed class of capitalists and an industrial class of capitalists. But in order that two such classes may come to confront one another, their double existence presupposes a divergence within the surplus value posited by capital.18
David Harvey’s classic work, The Limits to Capital, argues that Marx developed a ‘first-cut’ theory of crises and that this is his theory of over-accumulation and the falling tendency of the rate of profit that apply to capitalist production and exchange. He then goes on to argue, by way of building on Marx’s own work, for a ‘second-cut’ theory that examines ‘temporal dynamics’ as these are shaped by a more integrated view of the relationship between the ‘fictitious’ money generated by financial/monetary arrangements and material production. Harvey, a geographer, also sets out the parameters of a ‘third-cut’ theory, in which he considers the ‘geography of uneven development into the theory of crisis’. If capital breaks out of its (national or regional) shell, so to speak, seeking investment outlets in various parts of the globe, then capital, whether industrial (‘real’) or financial (‘fictitious’), is seeking a ‘spatial fix’.19 We must now elaborate on these propositions, as they are crucial in understanding the crisis in Greece and the eurozone, while grasping the significance of our ‘global fault-lines’ argument.
Capital, whether ‘fictitious’ or ‘real’, perpetually requires market space, investment opportunities and new geographies and, as such, it needs political and even military backing. In other words, in theory, capital is consubstantial with political-expansionist undertakings, while it is concerned about the security of its investments, actual or planned. But because it cannot do all that by itself, it requires a state in the form of an imperial state. Thus, every capitalist state is, potentially, an imperial state. An ideal-typical explanation of a crisis of over-accumulation goes as follows. Because capital faces competition from other capitals – horizontal forms of social struggle – and also competition from workers – vertical forms of social struggle – and because its raison d’être is how to make profit, it is forced to invest in technological innovation, new plantation, etc. This is done in order to undercut competitors, but it is problematic because it tends to reduce the presence of labour-power in material production, which is the only source from which value and surplus-value are extracted (according to Marx, no value and surplus-value are created in the process of circulation, because the sphere of circulation of commodities, whether real or fictitious, is assumed to be essentially exchanges of equivalent values). Put differently, capital has as a result an increase of the total investment at the expense of labour-power, the latter being the sole producer of value and surplus value.20 Thus, the capitalist, that is the personification of capital, is entrapped. By investing in technological innovation to compete with other capitals nationally and internationally, capital pushes workers out of material production and this results in the rate of profit – the ratio of surplus-value to the total capital – to fall.21 The former is facing losses in profitability, the latter faces unemployment, precarious work and pauperization. Thus, capital, as well as labour, tends to migrate. New caucuses of capital accumulation are formed around the globe and capitalism spreads worldwide. Typically, this is Marx’s theory of over-accumulation crisis and of the tendency of the rate of profit to fall, which can be found in full in Capital, v. 3, Part 3.Parts of the Grundrisse and of the Theories of Surplus-Value are also extremely useful in understanding crises of over-accumulation in capitalist history.22 Capital’s agony to survive pushes it to become even more aggressive, global and expansionist, in fact imperialistic. ‘The export of capital from a country’, Bukharin says, ‘presupposes an overproduction of capital in that country, an over-accumulation of capital’.23
Marx and Harvey concur that the separation of ‘real’ and ‘fictitious’ capital is internal to the composition of capital as a social relation and process. ‘Real’ and ‘fictitious’ forms of capital are inextricably connected and Leo Panitch and others working around the important review, Socialist Register, are correct in pointing this out. But to understand this connection, as well as the problems resulting from it, we need to grasp the way in which credit operates.24 As Marx has shown in the third volume of Capital and elsewhere, credit is consubstantial with the functional operation of capitalism as a dynamic social system. As capitalists need to borrow in order to invest in production and technological innovation – thus intensifying the extraction of relative surplus-value – the credit they receive is but an anticipation of future value production as a counter-value, hence its ‘fictitious’ nature. However, this is a risky affair, because capital’s investment strategy, which now depends on borrowed money, may be unsuccessful. Capitalism tried to solve this problem with the merging of industrial and banking capital, what Rudolf Hilferding called finance capital, which, according to Lenin and Bukharin, corresponds to the imperialist phase of capitalist development.25 The merging of industrial and banking capital induced further concentration/centralization on a global scale, leading some Marxists of the Second International, such as Karl Kautsky, to put forth the theory of ‘ultra-imperialism’.26 But these were vain attempts. Capital, as we saw earlier, continues to face opposition from workers and from other capitals, both nationally and internationally. This struggle saps the ability of capital to produce the use values and money required to compensate for the capital borrowed/merged, and this regardless of the degree of merger between banking and industrial capital and the tendency towards concentration/centralization at the global level. ‘Fictitious’ capital is always an organic part of the credit form and the asymmetrical functioning of the value-form supersedes its tendency towards concentration/centralization. Thus, there is no guarantee whatsoever that the future will generate the value promised as a collateral, the result being an increase in the gap between ‘real’ and ‘fictitious’ values and a surrender of the processes of ‘ultra-imperialism’ or ‘global (capitalist) governance’ to that of uneven (and combined) development. These processes multiply in periods in which crises of over-accumulation in real economy lead to severe disruption and falls in the rate of profit, thus pushing capitalists to diversify and embrace financialization (easy profiteering through paper and bond trading, currency speculation, real estate speculation, insurance, etc.).
According to Hilferding, financial capital, as opposed to finance capital (the fusion of banking and industrial capital), corresponds to the competitive stage of capitalism in which credit institutions and banks institutionalize usury, lend money and pursue all sort of activities whether related to material production or not. Financial capital tends to see money not as a means to investing in real economy in order to (re)generate profitability, but rather as an end in itself. But whereas this was mainly the case in the 19th century, contemporary forms of operations by financial capital especially from the 1970s onwards – i.e., after the fall of the Bretton Woods system and the introduction of fiat money – have been extremely complicated and globalized. Today’s globalization (i.e., financialization, the dominance of new and largely uncommitted financial capital) has assumed an increased, and complex, institutional independence as speculative and profiteering economic activity (shadow banking, speculative arbitrage, stock market speculation, property speculation, buying and selling paper and bonds, money trading and speculation, insurance, dot.com bubbles, proliferation of derivatives, e-commerce, digitization and complex mathematical formulas, etc.), flanked by powerful credit agencies, and moving more and more away from material production.27 In other words, if finance capital is mostly directly committed to material production and growth strategies, financial capital is most likely to be wholly uncommitted to them. More to the point, in the conditions of extreme financialization and neo-liberalism that prevailed from the 1980s onwards, i.e., after what Leo Panitch and Sam Gindin called ‘the Volcker shock’, financial capital has become a rather Ponzi development scheme undermining the fundamentals of capitalist production and (relative) surplus-value extraction.28 Financialization, as its recent crisis in the Anglo-Saxon world and the eurozone has shown, is an extreme form of operation of financial, uncommitted capital. Richard Duncan would go as far as to say that this should not really be called ‘capitalism’ but rather ‘creditism’:
Once the constraint [the gold fetter] was removed [ ... ], it also lifted any constraint on how much credit could be created. It has been easy for the US to maintain gold backing in the first post-war decades, because it owned most of the world’s gold [ ... ]. Credit and debt are two sides of the same coin. In the US total debt – government, household, corporate and financial-sector debt, combined – expanded from $1 trillion in 1964 to over $50 trillion by 2007. Credit growth on this scale has been taken for granted as natural; but in fact it is something entirely new under the sun – only made possible because the US broke the link between dollars and gold. The explosion of credit created today’s world [ ... ]. I call it ‘creditism’.29
Furthermore, financialization/creditism’ occurs in conditions of neoliberalism whereby deficits and debts are transferred from the state onto the taxpayer, a key feature of neo-liberal economics which Robert Brenner, perhaps misleadingly, calls ‘asset price Keynesianism’. Yet even this seems unable to solve the fiscal crisis of the state and the mounting debt and banking crises, hence the cock-up ‘strategy’ of present-day elites for more austerity and welfare state retrenchment in order to stave off the crisis. Overall, the use of financial instruments is the riskiest form of profit generation under capitalism, one that leads constantly to bubbles and ‘boom and bust’ cycles.30 Unsurprisingly, the operations of financial capital always disturbed John Maynard Keynes, whose primary and sincere worry was the survival of capitalism by achieving ‘an aggregate volume of output corresponding to full employment as nearly as practicable’. Keynes, quite rightly, thought that financial exuberance harms the well-being of capitalism as a social system:
Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.31
All in all, ‘the credit system internalises the contradictions of capitalism and does not abolish them’,32 and a ‘moneyed capitalist’, as Marx put it, will confront an ‘industrial capitalist’ within the remit of ‘divergence of surplus value posited by capital’. Marxisant and heterodox discourses are in broad accord with the narrative discussed above and the imbalances that can be caused in the (national and global) cycles and flows of capital accumulation if the monies and pieces of paper in circulation do not correspond to the real values produced. Claims on future revenues are not real forms of capital and the M-M’ relation (‘money begetting money’), taken in its extremes as speculative arbitrage, shadow banking and other forms of Ponzi finance, generates more problems for capitalism than it solves. ‘If all money capital invests in appropriation’, Harvey says, ‘then capitalism is not long for this world’.33 When capitalists, that is, the personification of capital, migrate to finance to make up their profit losses from real production and commerce becoming instead ‘asset managers’, ‘investment bankers’ and derivatives speculators, then capitalism is indeed in its most vulnerable phase of operation.
We can now shed light on the interpenetration of, and contradiction between, monetary and financial systems, an area in which Harvey’s ‘second’ and ‘third-cut’ crisis theory tackles well. This is of great significance, because it reveals one of the key sources of debt (both private and public). Money is not only a measure of value and a medium of circulation/exhange; it is also a form of capital – e.g., the circulation of money via banks as capital – and, as such, it possesses both ‘real’ and ‘fictitious’ dimensions. Once money becomes capital with the mediation of the banking system, then it is potentially interest-bearing capital, institutionalizing its properties via law: it can either be lent out as capital in return for interest, while at the same time ‘staying’ in the bank and receiving interest. This is the first step for somebody to understand the way in which capitalism has institutionalized usury. But capitalism is a dynamic system because it operates via credit institutions with a keen propensity to lend. Capitalism encourages risk and innovation and, in its ideal-typical form, needs a constraint-free environment. The more exchange relations in commerce, banking and finance proliferate, and the more technological innovation is introduced in both markets and production, the more complicated and contradictory becomes the relationship between real value creation and imaginary value creation, between the sound base of the monetary system reflecting the circulation of real commodities and the financial operations mediated by the banking system, stock market, bond trading and ‘asset management’, etc., i.e., fictitious values. Banks create fictitious money and fictitious money, as we saw earlier, is as important for capitalism to survive as any other form of capital. However, as we also saw earlier, there are risks in the supply of money capital ahead of real value production. These risks increase substantially when interest-bearing forms of capital operate in conditions of generalized financialization with transactions accomplished through the inter-banking system of commercial, investment and shadow banking. It is this that brings about a fundamental and irreconcilable contradiction in the system, a key imbalance between the monetary/money base of the system – the use of money as a measure of real value – and its financial institutions/operations – the use of money as a medium of exchange and profiteering.34 Obviously, this represents only a tendency. As Harvey points out, the monetary and financial systems are united within the banking system, and, within the nation state, the central bank becomes the supreme regulatory power guaranteeing the quality of money as a lender of last resort. This is why Joseph Schumpeter called the money markets and the banks the ‘headquarters of the capitalist system’.35
We can now understand better why the eurozone is facing the insuperable difficulties it has been facing since at least 2009: once the financial crisis, first manifested in the Anglo-Saxon world, kicked in and trickled down to the eurozone’s banking sector and national sovereigns, the contradiction between the monetary base of the euro-system – in theory, the quantity of euro-money tied to real production and commodity values – and its leveraged financial institutions, both sovereign and private, imploded beyond proportion. No doubt, the crisis became so unmanageable because, unlike the cases of the USA and the UK, the EU is not a state. It lacks a (European) Ministry of Finance, which would have coordinated de-leveraging and provided (interest-free) liquidity to its embattled banks and sovereigns to stave off the crisis. That is why the eurozone has suffered a massive banking crisis and a sovereign debt crisis, with its periphery states unable to arrest Germany’s recycling of financial surpluses, producing and reproducing asymmetrical/disintegrative tendencies within the EU via constant sovereign debt creation and bank liquidity crises. The European Central Bank (ECB) is a bank, managing the euro as a promisory note and controlling the interest rates on short-term euro-deposits. It also controls the supply of money because it has its own printing press. As such, it can only lend interest-bearing money to sovereigns or other banks. The ECB can also buy government bonds – which is one of the so many plans put forth to avert the collapse of the eurozone. But this will increase its liabilities as it will have to print more money. Any acquisition of (fictitious) assets requires the printing of money (liabilities), thus raising the spectre of Europe-wide unstoppable inflation. The eurozone seems to be managing its business without real value creation justifying debt, that is fictitious, activity. This hardly heals financial and monetary asymmetries across the EU, as well as within EU nation states themselves, especially peripheral states, such as Greece or Portugal. Moreover, at a theoretical level, this is because in the periphery the asymmetry between the monetary system and the financial system, or, put differently, the cleavage between real and fictitious capital/economy has been and is much larger as the periphery, and first and foremost Greece and Cyprus, lack a large material production base to compensate for the fictitious economic activities of extreme financialization. On the contrary, Germany’s gap between real value production and the level of debt is much smaller. The use values circulating in Germany are not reflecting the same monetary conditions in Greece and elsewhere and a euro used in Germany does not buy the same equivalent in Greece, and vice versa. A euro circulating in Germany is not the same as a euro circulating in Greece or Holland. Thus, trade and financial relations between Germany, Holland and other core countries, on the one hand, and periphery/Greece, on the other, tend to widen the gap between Germany’s export-led growth and Greece’s borrowing requirements needed to boost domestic demand and consumption in neo-liberal times. This accounts for Greece’s large current account deficits – an important source of the country’s debt. The inability of the debtor countries to devalue in a common currency bloc is a key structural cause that perpetuates and even enhances the gap between the core and the periphery.
There is an expressed and visible divergence at all monetary and macro-economic levels: prices, inflation, interest rates, pensions, debt. Value and inflation differentials are reflected in currency differentials and locking up so many different currencies together made the eurozone implode. The core is exporting capital goods and advanced commodities, whether ‘real’ or ‘fictitious’, and the periphery is importing them. For instance, the higher rate of Greek inflation made Greek goods more expensive to Germans, while making German goods cheaper to Greeks. This leads to Germany’s over-exporting capacity and Greece’s over-importing consumption need and reflects the different magnitudes of values circulating in Germany and Greece. In other words, the German economy is quantitatively and qualitatively bigger and superior to the Greek and indeed any other eurozone economy. This is the fundamental reason for Germany dominating the political economy of the euro. The eurozone crisis reveals Germany as an imperial power, the true leader of the EU’s monetary, anti-inflationist, multi-tier economic project of expansion cum integration, what German officials from the early 1990s used to call, rather euphemistically, ‘variable geometry’.36 There is also a political dimension to this, in terms of decision-making. ‘The fate of Europe’, Martin Wolf said in May 2012, ‘hangs on choices to be made in Berlin’,37 insinuating that Germany turned imperial. Before the crisis, the issue of German financial/monetary supremacy within and outside Europe could somehow be covered up under the façade of a ‘French-German axis’, European elections and pan-European institution-build-up (common fisheries policies, Common Agricultural Policy and so on).38 During the crisis, this proved impossible. In other words, the euro is but an imperial currency dominated by Germany’s monetary/material economic base. It is the superstructure rising above Germany’s robust industrial and technological base. Yet it cannot survive without a state regulating the debt levels of the banks in the periphery, as well as the periphery’s sovereign debt. In addition, it cannot survive without continuous welfare retrenchment and wage freezing, which was a key factor boosting Germany’s export-led performance at the expense of its EU partners and especially of the periphery.
From 1999/2001 onwards, a lot of bad money (e.g., paper debt) has been circulating in the European periphery creating false impressions of growth. It has been mediated by a credit system whose fault-lines between real and fictitious economy proved unmanageable due to the lack of a strategic centre, i.e., a state political form, which would have addressed the problem in a somewhat satisfactory manner reviving European capitalism. ‘Crises of every kind’, Lenin wrote, and ‘economic crises more frequently but not only these, in their turn increase very considerably the tendency towards concentration and monopoly’.39 Germany may well steer developments towards, on the one hand, a euro-core dominated by its industrial and monetary power, turning the euro into a relatively hard and stable global currency and, on the other, towards an impoverished periphery seeking ‘special’ subaltern arrangements with the core. But even in this scenario of German power ‘concentration and monopoly’, as Lenin would call it, structural problems will remain, as no capitalist system can ever solve crises of over-accumulation and the tension between the monetary base of the system and its financial operations. We can now move on to shed light on Harvey’s ‘third-cut’ crisis theory.
From the perspective of uneven global and regional class relations, one could argue that a notional source of debt is caused by a straightforward exploitation of the periphery and semi-periphery by the imperial core. In this context, and in absence of a successful and robust import-substitution policy, peripheral states such as Greece or Chile always lag behind and have always to borrow from the core in order to offset disadvantages in technology, innovation, infrastructure and skills. Imperialism, in this respect, was and remains appropriation of international value.40 But the notion of ‘periphery’ and/or ‘semi-periphery’ is spatial, dynamic and geo-political, not topological, static and geographic. It is to be found within states in the form of a geographical split (e.g., Italy’s advanced North and underdeveloped South), or in the form of the cleavage between ‘city’ and the ‘countryside’. In a sense, it also applies to the entire globe, as pockets of advanced industrial and service sectors may be concentrated, in specific periods of time, in some parts of the world and not others (e.g., the Euro-Atlantic core, Japan and Australia/New Zealand as opposed to the ‘Third World’). What could be considered as periphery in 1960 – weak industrial and technological base, under-developed liberal political institutions, concentration of poverty, etc. – may not be a periphery in 2010 and vice versa: massive elements of under-development, poverty and deprivation have always existed within the core and the industrial cities of the core, from England’s Manchester during the era of industrial revolution and after to present-day New York and Los Angeles. But if this is the way in which capital’s uneven (and combined) development operates nationally, regionally and globally, we should also take into account something already pointed out earlier, namely that capital has an opposite, innate tendency towards centralization/concentration in order to offset competition with other capitals of the core and to outflank working-class resistance. This contradiction is worth noting and we must provide some analysis of it.
In the structural context of fierce (horizontal and vertical) competition, capital is ramifying its own crises, both nationally and internationally, along the lines of uneven (and combined) development.41 Building on the important work and findings carried out in the 1980s by Andrew Glynn, Philip Armstrong, John Harrison and others, Robert Brenner argues that the financial crisis that began in 2007 has at its roots the inability of the US non-financial corporate sector to return to pre-1970 levels of profitability. According to Brenner, ‘from the start of the long downturn in 1973, economic authorities staved off the kind of crises that had historically plagued the capitalist system by resorting to ever greater borrowing, public and private, subsidizing demand’.42 There had been a ‘persistent stagnation’ from 1973 to 1993 that the Clinton administration had only partially managed to stop, as indeed under Clinton, briefly, a return to profitability and growth seemed to be in hand. But Clinton’s experiment did not take root, and for all intents and purposes it never matched, or even came close to, the so-called ‘Golden Age of Capitalism’ of the 1950s and 1960s. Brenner tells us that both the Golden Age and the crisis of what he calls ‘overcapacity/overproduction’ was the result of uneven development:
From the very beginning, then, uneven economic development did entail the relative decline of the US domestic economy. But it was also a precondition for the continued vitality of the dominant forces within the US political economy. US multinational corporations and international banks, aiming to expand overseas, needed profitable outlets for their foreign direct investment. Domestically based manufacturers, needing to increase exports, required fast-growing overseas demand for their goods. An imperial US state, bent on ‘containing communism’ and keeping the world safe for free enterprise, sought economic success for its allies and competitors as the foundation for the political consolidation of the post-war capitalist order, in the face of the anaemia of domestic ruling classes sapped by war, occupation, collaboration and defeat. All these forces thus depended upon the economic dynamism of Europe and Japan for the realization of their own goals.43
In other words, the profit squeeze and stagflation (high inflation accompanied by stagnation) of the 1970s was not due to high wages as neo-liberal orthodoxy argued, but the result of global inter-capitalist competition. Moreover, and whereas Nicos Poulantzas, Michel Aglietta and others in France and Germany writing in the 1970s discerned the state to act as a counter-tendency to the tendency of the rate of profit to fall, Brenner confirms that state intervention, and the US state intervention in particular, failed not only to stave off the crisis of – what he calls – ‘over-capacity/over-production’, but also to set capitalist states and economically integrating zones one against the other (USA – Western Europe – Japan). In other words, the new strong capitalist-economic caucuses that flourished at each end of Eurasia during the ‘Golden Age’ began undermining the supremacy of the USA in international political economy. The result of this global capitalist competition was stagnation, falling rates of profit and a ‘long downturn’, the sole exception being the brief Clinton years, which registered a growth in manufacturing induced by increased levels of borrowing.
All in all, the tendency of capital towards uneven and combined development is as unstoppable as its tendency towards centralization/concentration. Ernst Mandel put it as follows:
[Thus] even in the ideal case of a homogeneous beginning, capitalist economic growth, extended reproduction and accumulation of capital are still synonymous with the juxtaposition and constant combination of development and underdevelopment. The accumulation of capital itself produces development and underdevelopment as mutually determining moments of the uneven and combined movement of capital. The lack of homogeneity in the capitalist economy is a necessary outcome of the unfolding laws of motion of capitalism itself (emphasis by Mandel).44
Having said that, it is safe to argue that combined and uneven development applies to both ‘core-core relations’ and ‘core-periphery relations’, precisely because the ‘law of value’ applies to all capitalist economies, whether ‘developed’ or ‘under-developed’. This is very important because we are confronting again the following contradiction: on the one hand, capital’s motion pertains to uneven/asymmetrical development, hence a unification of the world or a specific region under a supra-national governance is an impossible undertaking; on the other, capital, in its effort to outflank and out-compete other rival capitals, has a tendency to concentrate/centralize, hence its attempts to create regulatory institutions of ‘global/regional governance’ – the ‘Concert of Europe’ in the 19th century, the League of Nations between the wars, IMF, WTO, the UN, the EU, ASEAN, etc. The list is endless. When Lenin was confronted with this innate contradiction of capital and imperialism, he always took sides with the ‘law of uneven development’.45 At the same time, however, as we saw earlier, he did not fail to note that economic and political crises increase ‘the tendency towards concentration and monopoly’. Bukharin is equally explicit:
Kautsky and his followers assert that the very process of capitalist development is favourable to the growth of elements that can serve as a support for ultra-imperialism. The growth of international interdependence of capital, they say, creates a tendency towards eliminating competition among the various ‘national’ capitalist groups. This ‘peaceful tendency, they say, is strengthened by pressure from below, and in this way rapacious imperialism is replaced by gentle ultra-imperialism.46
This tension within Marxist and Marxisant theorizations of imperialism and neo-imperialism can also be found, certainly under different shapes, forms and concepts, within mainstream Anglo-Saxon scholarship in the field of IR and International Political Economy (IPE). This is not the place to review these approaches in detail, but it is worth pondering over them to the extent that such an effort serves the purposes of grasping a wider gamut of approaches on the subject of trade imbalances and imperialism, as well as their substantive deficiencies.
The broad divide here is between liberal/cosmopolitan/‘democratic peace’ theories of globalization and inter-dependence, on the one hand, and realist and neo-realist theories, on the other. The first cluster seems to somewhat match the ultra-imperialist – ‘social democratic’, so to speak – current within Marxism, whereas the realism/neo-realism cluster corresponds better to those Marxists and Marxisants who subscribe to the theory of uneven (and combined) development. Liberals and globalizers see the increase in the volume of trade transaction across the globe as a requisite for further cooperation and inter-dependence among states, a process that demands more and more ‘issue-specific international regimes’ regulating these complex inter-dependency processes.47
The premise for realists and neo-realists is that the international system is anarchic and, as such, it is prone to conflict with all states agonizing about how best to survive. They insist on the centrality of the state in international politics and trade and see national economic and political interests and unequal/uneven balance (and distribution) of power as causes of war and conflict.48
However, none of those approaches can match the analytical and critical rigour of their ‘respective’ pairs within the Marxist tradition, broadly understood. As far as the liberals/globalists are concerned, their analyses are flawed by the emphasis they give to trade relations and markets – whether ‘real’ or ‘fictitious’ – as permanent, historical factors of integration leading to ‘global governance’, ‘global civil society’ and peace. Their ‘political-theoretical’ approach is often tainted by ‘human rights’ discourses used by USA and NATO elites to justify military interventions across Eurasia after the collapse of the Soviet bloc. Some realists and neo-realists, on the other hand, work on the false assumption of an anarchic global political market composed of state units and great powers constantly trying to maximize their power-share in the international system, something which causes war and the demise of those powers. Such, for example, is the position of prominent ‘offensive realist’, John Mearsheimer. In this internecine battle for power maximization and survival, the winner, presumably, destroys the loser. Yet, this is empirically flawed: the USA did not destroy Japan or Western Germany after it defeated them in World War II. Quite the opposite: it reconstructed them because the aim was to create open markets and consumers for its own capital surpluses, thus creating a political economy abroad after its own home image.49 Eventually, both liberals/globalizers and realists can be seen as the flip side of the same coin: the former see the dominance of markets and trade as units of integration and cooperation, both regionally and globally; the latter see the dominance of the global political market, which is composed of (classless) state units in an anarchic international system, with a propensity to developing and distributing power unevenly. Arguably, the concept of the market dominates both approaches and this is not the case within the Marxist tradition, broadly conceived.
Capital looks for investment opportunities not in saturated markets but in new markets and these markets can be found anywhere, not necessarily in the developed core alone or exclusively in the under-developed zones of the global South. Thus, the geography of uneven (and combined) development sets in and capital displaces its crisis. This is the point in which Harvey goes beyond Marx: by way of appropriating new production and regional and global distribution sites, capital is effecting a ‘spatial-temporal fix’, reducing its crises to ‘minor switching crises as flows of capital and labour switch from one region to another, or even reverse themselves, and spark regional devaluation’.50 This is only temporary, Harvey says:
The problem, of course, is that the more capitalism develops, the more it intends to succumb to forces making for geographical inertia. We here encounter a version of that contradiction that Marx described as the domination of dead over living labour. The circulation of capital is increasingly imprisoned within immobile physical and social infrastructures which are crafted to support certain kinds of production, certain kinds of labour, processes, distributional arrangements, consumption patterns, and so on. Increasing quantities of fixed capital and longer turnover times on production check uninhibited mobility. The growth of productive forces, in short, acts as a barrier to rapid geographical re-structuring in exactly the same way as it hinders the dynamic of future accumulation by the imposition of the dead weight of past investments. Territorial alliances, which often became increasingly powerful and more deeply entrenched, arise to protect and enhance the value of capital already committed within the region.51
Let us look at the key ingredient of the USA’s international policy since at least the 1890s. When US Secretary of State, John Hay, promulgated an Open Door policy in 1899 for the USA challenging the monopoly of China’s market by Europe’s imperial powers, he did so under pressure from big individual capitals at home, which required substantial overseas expansion to overcome their crisis of over-accumulation and profitability in the 1890s.52 Open Door has since been a structural feature of US foreign policy projected across the globe and not just in Europe or Japan. Since the 1890s, Open Door has been a key component of the strategic culture of US policy-makers. It is an expression of the domestic needs of US capital, whether industrial/technological or financial, real or fictitious, that seeks investment outlets abroad and unfettered, unprotected markets. It is a policy that goes pari passu with that of ‘expanding liberal democracy abroad’ and ‘defending human rights’, inasmuch as if liberal and democratic principles are not adopted across the world, then American democracy is in danger at home – or at least that is how US elites perceive global and regional realities.53 Open, unprotected markets free of state intervention and open, liberal polities are the ideal conditions for US capital and political and military agencies to penetrate and establish themselves within the polities and economies of other capitalisms in order to determine their direction. Free markets, whether industrial, corporate or banking/financial, and open polities friendly and subservient to the hegemonic power underscore perfect conditions for the exploitation of labour and, importantly, perfect conditions for US capital to overcome its over-accumulation crises. This is what capital wants and seeks abroad if it cannot find it at home. If possible, capital wants to have zero production costs and zero risk. Marx put it as follows: ‘[This] zero cost of labour is therefore a limit in a mathematical sense, always beyond reach, although we can always approximate more and more nearly to it. The constant tendency of capital is to force the cost of labour back towards this absolute zero’ (our emphasis).54 Is it not exactly this that financial capital and the state are trying to achieve with their policy of severe austerity they impose across Europe today?
2.3 Global fault-lines and the imperial geo-politics of debt
‘World system’ theories and Fernand Braudel’s work are important because their narrative aims at advancing a global analytical perspective, going beyond the narrow horizon of nation states and national economies. They analyse global imperial systems and, some of them, provide a cyclical interpretation of power-shifts occurring within and between the structures of those systems. Cyclical theories of crises are present in the work of many Marxisants – see, for instance, Kondratieff’s work and how Immanuel Wallerstein has used Kondratieff waves to interpret the financial crisis that set off in 2007–08.55 But Marx himself had had some interesting thoughts regarding the regular return of crises under capitalism affecting specific business cycles. For example, he writes:
The factory system’s tremendous capacity for expanding with sudden immense leaps, and its dependence on the world market, necessarily gives rise to the following cycle: feverish production, a consequent glut on the market, then a contraction of the market, which causes production to be crippled. The life of industry becomes a series of periods of moderate activity, prosperity, over-production, crisis and stagnation.56
And again in a footnote inserted in the French edition of the first volume of Capital in 1872:
[But] only after mechanical industry had struck root so deeply that it exerted a preponderant influence on the whole of national production; only after foreign trade began to predominate over internal trade, thanks to mechanical industry; only after the world market had successfully annexed extensive areas of the New World, Asia and Australia; and finally, only after all this had happened can one day the repeated self-perpetuating cycles, whose successive phases embrace years, and always culminate in a general crisis, which is the end of one cycle and the starting-point of another. Until now, the duration of these cycles has been ten or eleven years, but there is no reason to consider this duration as constant. On the contrary, we ought to conclude, on the basis of the laws of capitalist production as we have just expounded them, that the duration is variable, and that the length of the cycles will gradually diminish.57
Marx, nevertheless, never produced a theory of imperialism or a theory of cyclical and recurring crises. Of all those trying to produce such a narrative, Arrighi’s work stands out, because he does not simply invoke long durée – i.e., long macro-historical cycles registering and analysing periods in which ‘real’ and ‘fictitious’ capitals alternate in the domination of socio-economic and political orders in history. While remaining within a Marxisant framework, he also expands Braudel’s insights by applying them to 19th- and 20th-century global politics. Arrighi’s monumental trilogy captures the long historic and hegemonic decline of the USA, whose policies of globalization and neo-liberalism are incapable of arresting.58 Arrighi and Beverly Silver describe how great powers rise and fall through successive historical cycles linked to periods of economic crisis, whether these crises are manifested in the real economy, thus captured by Marx’s and Harvey’s ‘first-cut theory’ of over-accumulation, or in the fictitious economy, captured by Harvey’s ‘second-cut theory’ of financial and credit crises. Importantly, Arrighi, like Gunder Frank and Wallerstein, does not believe in a strict separation between modern and pre-modern eras. Imperialism and empires can flourish very well under both commercial (pre-capitalist/pre-modern) and industrial (modern/capitalist) regimes. Thus, both capitalist and commercial empires in history moved through phases of productive or commercial expansion and through phases of slowdown and deceleration marked by financial expansion. The key contention here is that each time, especially in capitalist/modern history, empires expand their power, they do so on the basis of their lead in the industrial-productive sector, whereas when a phase of contraction and crisis opens they are forced to resort to financialization in order to stave off crises in commerce or industry. But resort to banking and finance, Arrighi and Silver argue, never manages to restore the global primacy of the empire – Robert Brenner would add: it also never manages to restore previous levels of profitability enjoyed under the years of industrial expansion. All in all, resorting to finance simply delays the empire’s decline and fall, and this is the case with the US empire at present.
This argument of cyclical and recurrent patterns is better refined in Arrighi’s Adam Smith in Beijing (2007), and in two other contributions written shortly before his death (2009).59 Arrighi adopts Braudel’s periodization of capitalism, identifying three periods of financial expansion: the first was under the hegemony of Italian city-states in the mid-16th century; the second was centred on Holland (mid-18th century); and the third, in the late 19th century, was driven by the UK. We are interested here in discussing the third period, because it is a period that came into being as a result of the over-accumulation crisis in the UK (and other core Western capitalist centres), and ended with the 1929–32 financial crash. This is also a period in which capitalism as a mode of production is operating in full, whereas all previous ‘Braudelian’ periods described by Arrighi and other ‘world systems’ theorists are social and historical epochs structured alongside the dominance of commodity exchange relations.60
The beginning of each financial expansion, Arrighi says, indicates the ‘signal crisis’ of the global hegemon in the system. For example, the ‘switch’ to finance at the end of the 19th century signalled the beginning of the ‘terminal crisis’ of the British Empire. The financial meltdown of 1929–32 signalled the beginning of the end of the dominant regime of accumulation, or in other words the end of the hegemony of the UK system of global governance, and its subsequent succession by the new global industrial and credit power, the USA. Similarly, the US-led process of post-World War II capitalist accumulation, centred on industrial development and growth in all core capitalisms, gave way to financialization and, therefore, a protracted period of US hegemonic decline began since the 1970s (‘the signal crisis’). This crisis of financialization at present is but the ‘terminal crisis’ of the US-led system of accumulation. In short, this is Arrighi’s Long Twentieth Century concept. His Adam Smith in Beijing is a courageous and powerful intellectual attempt to show that the new rising global leader to take over from the USA is China – a position also shared by Harvey. China is the new global centre of material accumulation of wealth, and potentially, of political/military power, a view to which many scholars, including non-Marxists, such as John Mearsheimer, subscribe wholeheartedly but without adopting any Braudelian, or indeed Marxisant, perspective. Significantly, Arrighi has dedicated his last book to Andre Gunder Frank, another major exponent of the global power-shift to Asia.
We have shown elsewhere that Arrighi’s work does not factor in geo-political and security issues as constitutive variables of hegemonic transitions, crises and conflict.61 His historicist-cyclical approach disallows counter-factual history – for example: what if Germany (and Japan) had won the World War I or II? Moreover, it cannot capture the spread, depth and asymmetrical rate of development of economic power relations at the present juncture, including Germany’s neo-imperial monetarist aspirations in Europe. We need, therefore, to supplement his argument by introducing the structuralist problematic of global and regional fault-lines in which instances and units of the whole – politics, culture, ideational elements, political economy, geo-politics and security – are constantly interacting producing and re-producing equilibria and disequilibria and defining periods of relative peace and prosperity and periods of crisis, war and socio-political upheaval. Hegemonic transitions and regional distributions of class power take place within this context, which is not necessarily determined by the cyclical and historicist pattern of recurrence of Braudelian historiography.62
We can now move on to build upon Harvey’s ‘third-cut’ theory of ‘spatial fix’ and ‘accumulation by dispossession’. Building upon this, we can advance and test our argument that substantiates geo-politics, geo-culture and security as constitutive variables in the determination of debt creation. This is especially pertinent in countries such as Greece, the Balkans or Middle Eastern states, whose geo-political value throughout their modern history has far outstripped their industrial or financial robustness. In short, we argue that global fault-lines help us build into the structure and flow of capital relation a new set of contradictions and determinations which are pertinent in understanding the overall unfolding of a crisis situation, including debt crises. Thus, we can decipher the ways in which geo-politics, at times, contradicts the requirement of real capital formation creating fallacies, notional strategic deficiencies and misconceptions that come to haunt policy-making elites, whether national or imperial/international, for a long time. The main institutional structure in which geo-political and security dimensions of debt are crystalized is the defence budget of a state. Matters, obviously, become extremely complicated when the state formation in question is a subaltern state dependent upon imperial arrangements but whose security and geo-politics outweigh its political economy – which is the case with Greece and also Cyprus. From this perspective, global fault-lines straddle the contradiction between the monetary base of the capitalist system and its financial superstructures, making the situation even more explosive and precarious. But precisely for this reason, global fault-lines add onto the lenient and resilient dimension of capital, strengthening its sinews in time and space. What makes capital weak and vulnerable is what makes it at the same time strong and durable. There is no single causal theory of crisis formation and our global fault-lines argument asserts precisely this. From a theoretical perspective, this is, we argue, the case of Greece and the eurozone today.
It should be clear by now that debt is a form of fictitious capital and national/sovereign debt is fictitious capital par excellence. In a certain ideal-typical form, debt is a type of imaginary capital whose magnitude results partly from borrowing in order to cover deficits.63 Think of John, an immigrant working in a car factory in Detroit, borrowing $10,000, interest-free, from his old friend in London, Paul, to decorate his house and fix the damp, because his modest wage disallows any savings. But then John is unable to pay the money back on the set date as stipulated by the private agreement signed with Paul. So John has a deficit. Then John, unable to pay his dues, opts to go to the bank to borrow $10,000 at 8 per cent interest in order to pay back Paul. He then pays Paul half the amount, $5000, because he needs the rest of the money to pay the decorators. But the amount he borrowed from the bank and the monthly interest accrued become an even more unbearable burden for John because his salary is not enough to provide the means for his own subsistence while keeping up with regular payments to the bank, on top of paying the decorators. This means that John cannot service his debt obligation. He also has a $5000 deficit to Paul. In this case, John has either to declare bankruptcy; or do something and get the bank to cancel his debt – which is unlikely; or convince the bank to reduce the principal ($10,000) – also unlikely; or convince the bank to cut the interest rate down to an affordable level and roll over his debt – which is possible but no one can guarantee that this is an optimal solution for him, as his living conditions will keep worsening. If none of this happened, then the bank would have to start repossession proceedings (e.g., repossessing John’s belongings, such as property, land). But John, as we saw, has also the option of declaring bankruptcy. This means that he will be put on the ‘black list’ of every bank in the country; he will not be able to borrow again; and he should consider finding a better-paid job, so that he can finally fix the damp in his house before it causes irreparable damage. Obviously, matters are far more complex when we substitute John with the Greek state; John’s salary and Paul’s interest-free loan to John with Greece’s fiscal deficit; Paul’s decorators with Greece’s civil servants and, finally, when we substitute John’s bank with Greece’s private and international lenders (IMF, ECB, the EU) on terms stipulated by the class interests of bond-dealers and creditors.
However, even in this example, we can still discern, in a primitive and raw form, Harvey’s main theoretical proposition, namely the tension between ‘the financial operations of the system and its monetary underpinnings’. John’s wage is the ‘price’ of his labour-power and, as such, it has produced real value, so it constitutes the solid monetary base of the system in the realm of circulation of equivalences. Nevertheless, the financial operation under way seems to be creating a bubble, a ‘fictitious superstructure’ above this base, which substantially diverges from John’s ability to pay offering the ‘price’ of his ‘labour-power’ as a collateral. Matters, as we saw earlier, come to a head when the bank’s interest-bearing capital comes to the fore. But the aforementioned visualization does not include the location of John’s house. At this level of abstraction, capital is disinterested in geography, although, as we know, fictitious capital is very interested in house speculation and house prices are inflated to serve the interests of fictitious capital according to the property’s location: although both in Manhattan, New York City, rentier interests price a one-bedroom flat in the Upper East Side four times more than a flat of similar size and quality in Inwood.
Harvey, by elaborating on Marx’s, Hannah Arendt’s and Rosa Luxemburg’s work, offers some further insights without exiting his ‘third-cut’ theory framework:
Capitalism survives [ ... ] not only through a series of spatio-temporal fixes that absorb the capital surpluses in productive and constructive ways, but also through the devaluation and destruction administered as corrective medicine to what is generally depicted as the fiscal profligacy of those who borrow. The very idea that those who irresponsibly lend might also be held responsible is, of course, dismissed out of hand by ruling elites.64
This, Harvey says, is a form of ‘capital bondage’ and, we could add, applies directly to core-periphery relations both within the EU and globally. Brushing aside liberal (functionalist and neo-functionalist) views about the so-called ‘process of European integration’, the truth of the matter remains that the industrial core of the EU, that is primarily Germany under the geo-political and security tutelage of the USA via NATO, pushed for expansion seeking ‘temporal-spatial fixes’ in order to overcome crises of over-accumulation. Problems, nevertheless, soon accumulate when the periphery, whether Southern or East European, needs to borrow from the core in order to consume products of the core. Then ‘capital bondage’ is on the doorstep of the periphery: John has to pay or, as Christine Lagarde, the IMF chief, put it just before the crucial Greek election of 17 June 2012 in order to terrorize the electorate and push it away from the radical Left of Syriza: ‘Greece, it’s payback time’.65
Harvey expands Marx’s category of ‘primitive accumulation’, which he recasts as ‘accumulation by dispossession’ and asserts that whereas capital is always producing crises, it, at the same time, has the ability and the resilience to move them around, resembling the way in which capital can ‘solve’ the housing question by moving populations around in the very same city.66 This is part of what we have called the ‘sinews of capital’. ‘Primitive accumulation’ is a term Marx used to describe the early stage, or the ‘pre-history’ of capitalism, a kind of a violent transition period – for Marx, the birth of capital had been anything but peaceful – in which the mass pauperization of peasant societies, whether in metropolitan accumulation centres or in colonies, occurred while attempting to adapt to the new social conditions imposed by capital, reigned supreme. ‘Primitive accumulation’ includes a number of processes, such as the creation of national debt in the colonies, land reform and changes in property rights, commodification of labour-power, introduction of a credit system and institutionalization of usury, etc. But Harvey, as opposed to Marx, says that capitalism contains repeated instances of ‘primitive accumulation’ and that this condition is recurrent and repetitive occurring in periods of severe crisis and hitting popular strata whether in urban conurbations in advanced capitalist societies, or in peripheral countries. This is what invigorates capital. Soon after the collapse of the Soviet Union, East-Central Europe experienced the barbarity of ‘accumulation by dispossession’ via Jeffrey Sachs ‘shock therapy’ programme.67 The process of extreme financialization that began after 1971–73 is another instance, whereas neo-liberal policy-making and privatization, Harvey says, is the ‘cutting edge of accumulation by dispossession’. Harvey sounds more than prophetic, given that he was writing this in the early 2000s, when the property bubble in the USA, the UK, Spain and elsewhere was in full swing. But he, as well as other scholars, such as Peter Gowan, could sense that the massive contradictions of financialization cum neo-liberalism, manifested in periodic bail-outs and orchestrated crises of capital devaluation (e.g., South-East Asia), at times even via wars (e.g., Yugoslavia, Afghanistan, Iraq), would soon implode. Thus, what appears to be capital’s strength turns out to be a weakness.
However, we part ways with Harvey in that he sees geo-political space and, by extension, geo-politics and security as an outgrowth of capital’s extended reproduction and continuous accumulation. As such, capital presents an omnivorous propensity, looting and squatting every space, every corner and, for that, requires an accumulation of political power to protect it and its very (extended) reproduction. From this perspective, geo-politics and the capitalist state seem entrapped in the pincers of capital’s extended reproduction, reduced to being a mere instrument in the structural imperial power of capital. But geo-political space has a ‘value’ in itself, namely, a security value, well before it becomes engaged in projects driven by capital and capitalist political power. In theory, and if we set environmental problems aside, there is always space (outer, subterranean and oceanic) and resources (oil, gas, hydrocarbons, and more recently shale gas) available for capital to exploit and, as Marx put it, ‘capital grows to a huge mass in a single hand in one place, because it has been lost by many in another place’.68 But capital and state imperial power have the tendency to move and concentrate in certain places and not others, simply because of the geo-strategic value of the place per se. Geo-strategy, that is, the strategic management of geo-political interests, comes into play only when specific imperial agencies and decision-making centres call upon it. Thus, geo-political space has the capacity to attract political and economic projects, because it is perceived as geo-strategically important by key bureaucratic centres within the imperial system (state power and agencies, policy-makers, various fractions of capital and business interests directly involved in policy-making). Capital, as Benno Teschke has convincingly argued, has de-territorialized international surplus appropriation – read: imperial projects – but this de-territorialization has been ‘geopolitically mediated’.69 In other words, geo-politics has a relative autonomy from capital’s extended reproduction across capitalist time and space and political power and capital accumulation do not always converge. There is, primarily, imperial power and capital concentration in the Persian Gulf because of the geo-politics of oil, not because of any innate tendency of capital, whether imperial or local, to occupy that space to dump its surplus production in order to devalue. If instead of oil – a geo-political category par excellence – the Middle East produced only dates then imperial power and international capital would have had no reason to be there. ‘Our paramount national security interest in the Middle East’, a 1995 US Department of Defence report stated, ‘is maintaining the unhindered flow of oil from the Persian Gulf to world markets at stable prices’.70 The only missing element in the statement is that these ‘prices’ have to be denominated in US dollars. A global monetary/money dimension – ‘the dollar’ – is then linked directly to a geo-political commodity – ‘the oil’ – co-determining imperial power relations and the global hegemony of the USA. Defence and pharmaceutical industries come into the equation immediately when we invoke the issue of wars in the Middle East and Central Asia. In the main, this is the problematic of ‘weapon-dollar/petro-dollar coalition’ developed by Jonathan Nitzan and Shimshon Bichler, a problematic co-determined by IPE cum geo-politics.71
The relative autonomy of geo-politics from capital’s (cyclical) movement under capitalism creates structural fault-lines in the system and increases its existing tensions, already manifested in the three theories of crises examined above. Our argument enhances Harvey’s approach as much as it does Arrighi’s. More to the point, we argue, geo-politics is directly related to the issue of debt creation. What was the rationale, asks Alec Rasizade, for sustaining a particular type of policy over Caspian oil in the 1990s exaggerating the amount of oil and gas that really exists in the Caspian Sea region?
The first reason is geo-political. In the so-called Silk Road Strategy Act of 1999, Transcaucasia represents an important geo-political isthmus, linking the Black Sea and Caspian seas and providing the West with a ‘silk road’ to Central Asia. By reanimating the silk road, which would avoid passing through Iran (historically its integral part), Washington is trying to limit Russia’s influence in the region, while at the same time restricting the number of potential allies for Tehran [ ... ]. Secondly, the interest of international oil companies in sustaining the Caspian energy phantom can be easily explained by their motivation of profit. All of these ventures are joint-stock companies and shareholders of those companies derive their main profit not from increasing dividends based on successful commercial activity, but from rising price of their shares on the stock exchange and oil futures on the mercantile exchange. This is the very essence of Western business investment in the Caspian Basin. By participating in high profile Caspian projects and issuing rosy reports of great resources, oil companies improve their stock image, generating an instant profit without pumping a single barrel of oil. In fact, to begin seriously extracting oil would be counter-productive given the danger that the true extent of oil reserves would then be exposed.72
Thus, capital makes fictitious profits out of geo-political opportunities widening the gulf between the monetary base of capital and its financial manifestation. In the example given above, even ideational elements come into play, when financial journalists and analysts of all sorts exaggerate in their feasibility study reports the amount of oil and gas that really exists in the Caspian Sea region in order to increase speculation in the stock market. This is how the imperial geo-politics of oil becomes a direct contributor to society’s debt.73
Having said this, it also seems to us that Harvey underestimates the relative autonomy of the state, especially of the imperial state, to make geo-strategic decisions based on geo-political and security considerations, rather than the class interests of capital and its fractions as such. In this respect, Harvey avoids putting forth an analysis of the state, viewing instead the state, geo-politics and capital as congruent entities swallowed up by the capital-form. This perspective, however, does not help us understand fully NATO’s and the EU’s eastward enlargement processes; NATO’s ‘humanitarian war’ over Kosovo; the USA’s invasion of Afghanistan; the Suez Canal crisis in 1956, the list is long enough. Could somebody reasonably argue that Latvia or, for that matter, Greece and divided Cyprus, entered the EU primarily because German capital sought market space to devalue its surplus capital, thus overcoming over-accumulation crises? This is definitely not the case, at least not primarily. German, French and other core polities in the EU took these and a number of other decisions also by taking into account geo-political and security factors, and following NATO’s instructions. As Peter Gowan has shown, the primary consideration of the Euro-Atlantic heartland in the 1990s was how to stabilize hub-and-spoke arrangements in East-Central Europe by way of excluding Russia and its client states, such as Serbia.74 Thus, NATO’s war over Kosovo was bound up with NATO’s eastward drive, hence it had been a matter of Euro-Atlantic security to exclude Russia from the Balkans via eliminating Serbia’s pro-Russian elites. But the mismatch/contradiction between geo-political structures, on the one hand, and capital formation, on the other, is systemic and straddles the mismatch/contradiction between the monetary base of the system and its financial operations, so eloquently analysed by Harvey himself. This exemplifies further our notion of ‘global fault-lines’ and applies directly to our research agenda on the crisis of Greece and the EU. Global fault-lines are the discursive articulation of economic, political, ideational and geo-political instances in a social formation divided into classes and determined by social struggle. Global fault-lines pave the ground for severe tensions and imbalances in the instances concerned, especially when severe economic crises kick in, upsetting the entire discursive articulation of those instances.
From the theoretical perspective of global fault-lines, the political economy and imperial geo-politics of the Euro-Atlantic heartland has been under-going a slow and painful decline since the late 1960s, which the collapse of the Soviet bloc not only failed to arrest but, on the contrary, made even more pronounced. A great part of the US-led Cold War apparatus rested on the ideational scheme of the ‘global war on Communism’. With the disappearance of this ideational peg and its unsuccessful and unconvincing replacement after 9/11 with the ‘war on terror’, the (ideational) glue connecting the USA and West Eurasian rimlands seems to have gone. Moreover, the geo-political expansion of the West in Eurasia (via NATO) and the greater Middle East (via wars and establishment of military bases) has not been a sign of strength but rather a weakness highlighting the deep contradictions guiding the alliance and USA’s policy in Eurasia after the end of the Soviet Union. This expansion over-stretched US military capabilities and weakened the Cold War huband-spoke arrangements the USA had built across each end of Eurasia, with its Japanese bastion in the Far East and NATO’s presence in Europe and the Near/Middle East, which includes Greece and Turkey. And as this grand strategy was pegged on neo-liberal economics and extreme financialization from the late 1970s onwards, thus lacking any political cohesion and demand-led components, when all these pegs imploded, the projects of expansion and profit-making upon which German-led core European capital had invested so many hopes also went down the drain. It is important to note that both globalization/financialization and neo-liberalism are not conducive to growth, hence they are directly connected with the creation of debt in the entire Euro-Atlantic zone (USA + EU). Commodification of financial products and extreme manipulation of financial instruments for easy profiteering are more conducive to debt creation rather than growth, and this is something that applies across Europe and the USA, not just Greece. With its manufacturing base eroded and outsourced to the ‘global East’, the debt problem is becoming a permanent feature of the ‘global West’. The production of real use values has shifted to Asia and elsewhere and herein lies our argument about the decline of the West. But in the juncture that opened up with the current financial crisis (2007–), the disintegrative tendencies of both NATO and the eurozone are indeed very pronounced, undermining directly the primacy of the USA in international relations and the emergence of a number of other centres of regional (e.g., Germany) and even global (e.g., China) power. Simply put, Marx’s value theory, which captures the convergent and divergent flows of capital-labour relations generating and solving a number of (cyclical) crises in capitalist time and space while shifting the terrain of global hegemony, has triumphed once again.75 Presently, the sinews of capital are tested by their ability to re-invent themselves against all odds and at the expense of the labour movement in Greece, Europe and the globe.
2.4 Capitalism, populism and the state
We have already made some generic theoretical remarks concerning the definition of the (capitalist) state. But as the focus of our empirical work is on Greece and the eurozone, we thought it opportune here to build upon these general theoretical comments to advance a medium-range theory of the (capitalist) state in the global periphery, not least because, historically, these states have developed such structures of political dependency and economic subordination upon the core that makes their capitalist – both economic and political – form of development appear ‘distorted’ and/or as ‘lagging behind’ if compared with analogous forms of capitalist development in the core (forms of institutionalization of social demands and liberal democracy, level of industrial and financial development, etc.).
Wallerstein’s description of the global imperial system composed of core, periphery and semi-periphery has proved analytically useful, offering many heuristic tools and leading to successful applications in the field of area/regional studies.76 In the main, and building upon some aspects of Lenin’s and Trotsky’s work, ‘world system’ theorists employed a concept of imperialism as an economic policy and trade mechanism of the developed core (the North) for the exploitation of the periphery (the South). We would like to argue that this approach, in structural terms, pertains to the concept of uneven (and combined) development that we examined above. But agency is as important as structure and perhaps even more important because it identifies the socio-political profile of the structure. The core recycles and appropriates values and assets mediated in the global South via periphery comprador strata (e.g., great import consortia), with the political elites of the periphery becoming the dependent and corrupt appendages of the industrial/financial core. This, we repeat, is a global dynamic class relation and not a static geographical phenomenon pertaining to certain regions or states. The classic definition of comprador bourgeoisie, later embraced by Christopher Chase-Dunn and others,77 comes from Nicos Poulantzas (via Andre Gunder Frank):
[comprador bourgeoisie is a] fraction of the bourgeoisie which does not have its own base for capital accumulation, which acts in some way or other as a simple intermediary of foreign imperialist capital (which is why it is often taken to include the ‘bureaucratic bourgeoisie’), and which is thus triply subordinated – economically, politically, ideologically – to foreign capital.78
This bourgeoisie acts as a go-between for foreign companies in domestic and foreign trade and in money markets. We are set to examine the peculiar profile this bourgeoisie assumed in the Greek context, but especially from mid-1990s onwards, as it was only then that neoliberalism and financialization (globalization), as political programmes, made headways in Greece. Whereas the capitalisms of the Atlantic heart-land in the 1970s and 1980s under the favourable post-1971 regime of free exchange rates and dollarization were experiencing the transformation of industrialists into financiers and speculators, Greek capitalists transformed themselves from petty industrialists and merchants to go-betweens and comprador financiers under state protection and tolerance, enjoying remarkable tax privileges, especially from the mid 1990s onwards. In other words, whereas the comprador element dominating modern Greek politics and economics is of commercial nature, after the mid-1990s it assumes predominately financial, fictitious characteristics. In the first instance they were trading real (imported) commodities; in the second they were trading fictitious (imported) commodities. Put differently, whereas the prevailing comprador commodification (and debt creation) of Greece’s political economy after World War II reflected the flow of real commodities, from the mid-1990s onwards this commodification becomes predominately mediated with financial commodities. From this perspective, and whatever the case, the main source of the Greek and other periphery debt pertains to the structure of the country’s current account and balance of payments deficits caused by the asymmetry of values produced and exchanged within the European markets. Whether real or fictitious, markets do not produce equality. Those who gain are the developed countries of the industrial/technological core. Marx, quoting Galiani’s work on money, put it as follows: ‘where equality exists, there is no gain’.79 The peculiar fusion of comprador and financial/rentier capital with the Greek state apparatuses and political economy will be the leitmotiv of our empirical analyses, especially when dealing with the post-1995 conjuncture.
Peripheral/subaltern states that are dominated by comprador elements of real or fictitious/financial commodities present some specific and peculiar characteristics. As far as their international relations are concerned, peripheral states, we repeat, are deeply dependent on decision-making processes that take place in the core – unless, of course, if these states manage to break away from the imperial chain – as Cuba did or as Allende’s Chile contemplated doing in the early 1970s. Structures of dependency on the core are built directly within the polities of the periphery, manipulating key policy parameters, such as defence and security matters, directing even executive decisions and determining the state of exception (e.g., engineering and imposing dictatorships). True, peripheral states, as all states, have to maintain a relative autonomy from exogenous (imperial) and domestic (capitalist) agencies in order to organize hegemony at the behest of the dominant transnational classes and the local business classes. But arrangements between core and peripheral states are such that, especially in periods of crisis, the peripheral state tends to assume characteristics of a ‘protectorate’ deprived of any meaningful, even formal, autonomy/sovereignty. No doubt, this had been the case of modern Greece in a number of instances during the 19th century, or after the Civil War (1940s and 1950s) and, arguably, this has been the case of Greece since it entered into the bailout programmes of the ‘troika’. With Greece taking on characteristics of a protectorate and a ‘pariah’, and with the USA unable to intervene economically via a ‘new Marshall Plan’ while other European powers are also in troubles financially, Germany takes on characteristics of a neo-imperial economic power within the eurozone.
Overall, hub-and-spoke and other hegemonic arrangements take place in the periphery in a rather overt form, as the institutional materiality of the peripheral state is fundamentally weak to provide the necessary cover – without this meaning that the labour movement is also weak. To put it differently, there are different hegemonic hub-and-spoke arrangements between, say, the USA and Turkey, on the one hand, and the USA and Greece, on the other. The same goes for a number of other hub-and-spoke, whether political or economic, arrangements between the core and its sub-divisions and the periphery. No doubt, this is mainly due to the internal political-power structures, norms and socioeconomic characteristics of the peripheral state which, lacking a robust industrial and institutional base to build necessary ‘protection fences’ (legal agencies and bodies, large ministries and information structures, organized and professional bureaucracy, etc.) commits its political agencies (mainly parties and trade unions) to clientelistic and nepotistic practices to organize politically the hegemony of comprador capital and its transnational masters within an enlarged state machine proper. The interpenetration of the state and civil society in a peripheral state is such that almost every individual, company, small or large business, banks, trade unions, think-tanks, political parties are, directly or indirectly, financially dependent on the comprador state. The state draws legitimacy and power from the economic favours it can distribute to its citizens and business, rather than from a defined institutional framework within which citizens, political parties and business operate. Thus, clientelism, nepotism and corruption are far more visible in a comprador state/civil society nexus than in advanced capitalist state/civil society nexus, although the magnitude of scandals, corruption and wheeling and dealing that take place in the core are far more outrageous than the respective practices in the periphery: capital, capitalism and their political representatives, whether in the core or in the periphery, can never be ‘pure’, honest, legal, humanistic and innocent. Having said this, the comprador state, through its political parties, tends to organize its hegemonic consensus through specific strategies, such as that of populism and political clientelism, which are strategies that build on, and merge with, the family structures of society, which substitutes for the welfare state in the periphery par excellence. But it would be wrong to view these strategies only from the point of view of a lack of a robust capital base to absorb surplus labour. As the cases of Argentina, Brazil and Greece have shown, popular mobilization and social protest have been manipulated by populist elites in order to be directed into, rather unsuccessful, new cycles of capital accumulation – e.g., import-substitution policy – under the aegis of populist elites (Peron in Argentina, Vargas in Brazil, Andreas G. Papandreou in Greece) which, in the meantime, have struck new arrangements with their imperial patron.80 In this context, populism and political clientelism do not correspond to an absence of modernity in the periphery, for these strategies are put forth by elites geared to block the labour movement from assuming power, a fact which may entail the breaking away of the peripheral state from the imperial chain. In other words, these are political strategies that flourish not in absence of modernity but in view of modernizing against the labour movement.81 Thus, it seems to us that, both theoretically and empirically, the sinews of capital are mostly tested in the periphery.
Having said this, and as we already noted in the previous chapter, the argument put forth by many political scientists, sociologists and even political economists that clientelism and populism are products of ‘under-developed civil societies’ is deeply flawed.82 A state of emergency is more likely to take place in the periphery/semi-periphery than in the core, because the crises that capitalism generates there cannot be easily absorbed due to the lack of a robust institutional framework spread vertically – across the axis state/civil society – and horizontally – across the regions and the various segments of the social economy. That is how a Marxist, such as Antonio Gramsci, explained the failure of revolution in the West, while analysing fascism as a ‘passive revolution’.83
What the late Poulantzas, in his last theoretical statement, State, Power, Socialism, called ‘authoritarian statism’ – by which he meant the power-shift within the state apparatus from liberal-democratic institutions to the state executive due to the crisis of Keynesian policy-making and Fordism – should be viewed today in the context of a new and astonishingly more dangerous state authoritarianism effected by neo-liberal financial elites in order to overcome their comprehensive – Arrighi would say: ‘terminal’ as it links it directly with the decline of the US empire – crisis.84
2.5 Final touches
We can now draw a few conclusions.
A crisis theory of debt is possible if placed within Marx’s own framework of value theory and its uneven (and combined) development. It is the outcome of the (unavoidable) asymmetries created between the monetary and the financial bases of the capitalist system. Debt, that is fictitious capital, is created when the amount of money and paper circulating in the market does not correspond to the amount of real commodities produced and exchanged in the same market; when use-values in which labour is expended and reified do not tend to converge with the monies in circulation at all times. This is chiefly due to the operation of the ‘law of value’ that Marx theorized in Capital. The spatial dimension of the ‘law’ is manifested through the uneven (and combined) development between the core and the periphery of global, regional and national capitalisms and is mediated by the existence of comprador capital, whether real of fictitious/financial, that tends to dominate the periphery state. No regulatory framework, whether global or national, liberal or state-based, can overcome the contradictions and asymmetries developed by the ‘law of value’ during capital’s flow and circulation. Thus, the main creator of debt is capital itself. But geo-politics, security and ideational issues also matter. They should be seen as co-constitutive variables of capital formation and circulation that are articulated in a discursive manner in time and space, yet always cut across and determined by social/political struggle. Thus, ‘global fault-lines’ supersede the heuristic value of ‘uneven (and combined) development’. An ideal-typical periodization of crises in capitalist modernity, and the responses to them offered by capital and its policy-making elites, may read as follows:
(a) The competitive phase of capitalism analysed by Marx postulated the ‘law of value’ and the contradictions and crises of over-accumulation stemming from it as permanent, structural features of capitalism as a finite social system. The over-accumulation crisis of the 1890s proved the validity of Marx’s value theory, a fact that pushed capital to finance capitalism (=imperialism), i.e., the merging of banking and industrial capital, as a means to deal with over-accumulation crisis in industry. Geo-politics, meanwhile, keeps mediating between political and economic decisions. Debt creation, due to the reasons outlined above, is a permanent feature of this phase of capitalist development. The global hegemonic power that corresponds to this historical period is Great Britain and the political form of imperialism employed is predominately, but not exclusively, formal. From the 1890s onwards, it should be noted, Open Door becomes a permanent feature of US international policy.
(b) Finance capitalism (=imperialism), exemplified in separate currency and geo-political blocs, formal imperial arrangements and competitive geo-political alliances failed to produce stable systems of governance and solid industrial growth, leading to the 1929 collapse of the credit system, the rise of authoritarianisms and the World War II. In other words, the merging of banking and industrial capital fails to solve the contradictions of capitalism generated by the ‘law of value’ and the developing fault-lines between the financial and monetary bases of the socio-economic system. Debt creation continues to remain a permanent, structural feature of the system, which becomes pronounced between the wars, especially among European powers, which borrowed massively from the USA during World War I. The USA, a new imperial and creditor power, rose to global prominence in the aftermath of World War I on an informal imperial platform.
(c) Hub-and-spoke informal neo-imperial arrangements had been introduced in full in the aftermath of World War II by the USA. They come as a response to the crisis of finance capitalism and competing imperial geo-political blocs that led to World War II. Hub-and-spoke imperialism is an attempt to overcome the previous global and regional fault-lines of the system placing the USA at the centre of it – hence the acclaimed notion of ‘American primacy’– yet without relinquishing Open Door. Right across the board of the discursive articulation of the system’s structures, the USA introduced ‘primacy’: (a) The dollar is placed at the centre of the global (capitalist) monetary system and becomes the global reserve currency; (b) US agencies become embedded within the polities of the Western core in order to control the decision-making processes of formally sovereign states; (c) NATO is created and so is the institutionalization of security and geo-political dependency of Europe upon the USA; (d) there is an expansion of hub-and-spoke in Middle Eastern peripheries, Latin America and South Asia in order to fill the power-vacuum created by the defeat of old European imperialisms and assume geo-political control of hydrocarbons; (e) the creation of a master binary ideational narrative, that is ‘the war on Communism’, helps consolidate not just the grip of the USA upon Europe, but also to transform the domestic political environments of European politics alongside that binary. Open Door, we repeat, is a constant, permanent feature of US Cold War international policy. However, the structures and the arrangements introduced in the 1940s began to falter in the 1960s, as the fault-lines of the system could not be tamed.
(d) The dollar’s role becomes increasingly volatile in the 1960s. After the end of Bretton Woods system (1968–71) the first signs of the decline of US hegemony become apparent. An over-accumulation crisis hits capitalism again in the 1970s, the responses of capital to it now being extreme financialization (globalization) and neoliberalism. The present crisis of neo-liberalism cum financialization tests the sinews of capital to the extremes, a crisis that reverberates across the Euro-Atlantic heartland at a moment when China, India, Russia and a number of other economic and geo-political powers are on the rise. It is one of those ‘ironies of history’ that the USA found itself in a position to witness China’s economic and even military competition, which is primarily, although not exclusively, the result of its own Open Door international policy. After the collapse of ‘really existing socialism’, geo-politics assumes a particular significance for the USA as a means of control, via power-politics, of each end of Eurasia cum the Middle East. Debt creation accelerates across the Euro-Atlantic heartland via imperial geo-political ventures (Vietnam, Kosovo, Afghanistan, Iraq) and as material production and manufacturing bases move to Asia and other emerging economies. Well before the eurozone found itself entrapped in the pincers of debt, the USA has, since Vietnam, been managing an informal neo-imperialism without credit. But the responses to the present crisis across the Euro-Atlantic heartland is not Keynesian policy-making but the deepening of neo-liberal policies in order to save the banks and myriad financial agents and interests across the global financialization chain. This is the greatest historical test for the survival of the economies of the core, especially in the eurozone, which lack the protection of a state form.
Comprador strata, whether of real commercial or fictitious/financial stock, are hostile to any organized and ‘rational’ form of state bureaucracy and regulation. To put this differently, they are ‘anti-Weberian’ and, especially after the turn to financialization and neo-liberalism in the West, these social groups tend to dominate not only the periphery but also the ‘developed’ core: power is being shifted to the ‘global East’, the new global creditor; our world is becoming increasingly multi-polar.
The key fiscal business of comprador elements is to either escape taxation or to manipulate state elites to produce legislation favourable to them. Historically, core industrial capitalisms created vassal, dependent peripheral states after their own image in which great import consortia tend to dominate. But as core capitalisms themselves moved away from industry and embraced financialization and services in their attempt to counter-balance the falling rate of profit, peripheral capitalisms, such as that of Greece, became financialized/globalized without having been predominately industrial before. In this sense, peripheral comprador strata not only contribute to the creation of debt via the structures of balance of payments and current account, but also to fiscal deficit, which reflects the revenue/expenditure structures of the (peripheral) state. Thus, in astratto, the debt has both internal and external sources and is consubstantial with the notion of imperialism (=appropriation of international value via unequal exchange and uneven development). Time and again, the main source of debt is capital itself and, in comprador states, the main creator of debt is the comprador bourgeoisie and its relation of dependency on capitals of the core. It is no accident that Marx examines briefly the issue of national debt in the overall context of his final chapters of Capital, v. 1, which refers to the genesis of capital and the issue of colonialism. He writes:
The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows unproductive money with the power of creation and thus turns it into capital, without forcing it to expose itself to the troubles and risks inseparable from its employment in industry or even in usury. The state’s creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would.
And he continues:
Quite apart from the class of the idle rentiers thus created, the improvised wealth of the financiers who play’ the role of middlemen between the government and the nation, and the tax-farmers, merchants and private manufacturers, for whom a good part of every national loan performs the service of a capital fallen from heaven apart from all these people, the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to speculation: in a word, it has given rise to stock-exchange gambling and the modern bankocracy.85
But if imperialism is inserted in the geo-politics of uneven (and combined) development bringing about the imperial subordination of the periphery to the core, then the origins of the debt cannot be just an outgrowth of capital’s innate imbalances. Systemic fault-lines which, as we saw earlier, include geo-politics as a co-constitutive variable, are in operation. The debt created in the periphery due to uneven development and unequal exchange of values might also have geo-political origins (e.g., the entry of Latvia into the EU and NATO, or the entry of Greece and Cyprus into the EU). A country may be first valued geo-politically and in terms of security before entering into new imperial arrangements economically. How else could one explain Greece’s entry into the EEC in 1981, five years ahead of Spain and Portugal? But this relation of dependency/inter-dependency implodes, when crises of over-accumulation or financialization kick in. The sinews of capital are tested in the periphery, where weak links in the imperial chain are likely to appear. Under regimes of industrialization, real commodities are produced in Detroit and exported to the periphery. Under regimes of financialization, fictitious commodities are first generated in Wall Street and the shadow commodity/security markets of the City of London, and then travel to the periphery and the globe via a myriad of brokers and banks. Either way, the relation of dependency/interdependency is real and is translated into political domination of the core over the periphery. Yet what is shaking the establishments of the Euro-Atlantic heartland today are two things. First comes the lack of real industrial base and the concomitant rise of China and other developing economies. Second, the crisis in the eurozone is all the more explosive, because, on top of all these imbalances, contradictions, fault-lines and problems caused by de-industrialization, the EU is not a state. Neo-liberalism and financialization have been and are policy platforms designed to assist the USA and the British states to overcome their over-accumulation crisis of the 1970s. These policies cannot assist the EU to overcome its crisis, if they really ever assisted the USA and Britain to overcome their own, as serious arguments – with which we disagree – put forth by a number of scholars maintain.86 Germany’s monetary and anti-inflationist platforms weaken, rather than strengthen, the cause of Europe’s political unification, making the euro a credible, imperial world money. Thus, we have argued that the hub-and-spoke system of global imperial governance built by US policy makers in the 1940s is being disintegrated, not least because its expansion in Eurasia under the aegis of neo-liberalism and financialization is, by and large, an impossible undertaking.
Every capitalist state is a condensation of hegemonic class relations drawing power from the social/technical division of labour and the social relations of production. The polities and the economies of weak states are excessively controlled and influenced by the dominant power of the international system. Peripheral, weak states tend to be primarily, but not exclusively, comprador states with weak industrial and technological capital formation and state institutions, but not necessarily weak labour (e.g., Greece) and/or peasant (e.g., Mexico) movements and caudillos. Capitalist modernity is as present in the periphery as it is in the core and everything that characterizes capitalism as a socio-economic system and political mode of governance (exploitation, extraction of surplus value, corruption, authoritarianism, etc.) also applies to the periphery. It is the degree of capitalist modernity that differs, not that the core is ‘developed’ and the periphery ‘under-developed’. This is the context in which political elites in the periphery employ such political strategies as populism and clientelism, which we interpret as political strategies aiming at ruling not in absence of modernity but at how to modernize against the labour movement of the country in question.
We have laid out the key theoretical premises upon which our empirical narrative will be based. How does this theoretical discussion transpire historically in Greece’s modern political economy and international relations? To these issues we should now turn.