Dependency, Neoliberalism and Globalization in Latin America (Studies in Critical Social Sciences / Critical Global Studies, 150/10) [Revised] 9789004355415, 9789004415546, 9004355413

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Dependency, Neoliberalism and Globalization in Latin America

Studies in Critical Social Sciences Series Editor David Fasenfest (soas University of London)

volume 150

Critical Global Studies Series Editor Ricardo A. Dello Buono (Manhattan College, New York) Editorial Board José Bell Lara (University of Havana, Cuba) Walden Bello (State University of New York at Binghamton, usa and University of the Philippines, Philippines) Samuel Cohn (Texas A & M University, usa) Ximena de la Barra (South American Dialogue, Chile/Spain) Víctor M. Figueroa (Universidad Autónoma de Zacatecas, Mexico) Marco A. Gandásegui, Jr. (Universidad de Panamá, Panama) Ligaya Lindio-McGovern (Indiana University-Kokomo, usa) Daphne Phillips (University of West Indies, Trinidad and Tobago) Jon Shefner (University of Tennessee-Knoxville, usa) Teivo Teivainen (University of Helsinki, Finland and Universidad Nacional Mayor de San Marcos, Peru) Henry Veltmeyer (Saint Mary’s University, Nova Scotia, Canada and Universidad Autónoma de Zacatecas, Mexico) Peter Waterman (Institute of Social Studies, The Hague, Netherlands) † (1936–2017)

volume 10 The titles published in this series are listed at brill.com/cgs

Dependency, Neoliberalism and Globalization in Latin America By

Carlos Eduardo Martins Translated by

Jacob Lagnado

leiden | boston

This book is a revised edition of a work first published in 2011 as Globalização, dependência e neoliberalismo na América Latina by Boitempo Editorial, São Paulo, Brazil. Cover illustration: Ronaldo Alves Library of Congress Cataloging-in-Publication Data Names: Martins, Carlos Eduardo, author. Title: Dependency, neoliberalism and globalization in Latin America / by Carlos Eduardo Martins ; translated by Jacob Lagnado. Other titles: Globalização, dependência e neoliberalismo na América Latina. English Description: Leiden ; Boston : Brill, [2020] | Series: Studies in critical social sciences, 1877–2110 ; volume 150 | Includes bibliographical references and index. Identifiers: LCCN 2019040084 (print) | LCCN 2019040085 (ebook) | ISBN 9789004355415 (hardback ; alk. paper) | ISBN 9789004415546 (ebook) Subjects: LCSH: Globalization--Latin America. | Latin America--Dependency on foreign countries. | Latin America--Economic conditions--21st century. Classification: LCC HC125 .M327813 2020 (print) | LCC HC125 (ebook) | DDC 303.48/28--dc23 LC record available at https://lccn.loc.gov/2019040084 LC ebook record available at https://lccn.loc.gov/2019040085

Typeface for the Latin, Greek, and Cyrillic scripts: “Brill”. See and download: brill.com/brill-typeface. ISSN 1877-2110 ISBN 978-90-04-35541-5 (hardback) ISBN 978-90-04-41554-6 (e-book) Copyright 2020 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Brill Hes & De Graaf, Brill Nijhoff, Brill Rodopi, Brill Sense, Hotei Publishing, mentis Verlag, Verlag Ferdinand Schöningh and Wilhelm Fink Verlag. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. This book is printed on acid-free paper and produced in a sustainable manner.

For Joana das Flores Duarte, my companion in dreams and struggles.

∵

Contents Foreword  ix Theotonio Dos Santos Preface to the English Edition  xii Translator’s Acknowledgement  xxiii List of Figures  xxiv Prologue  xxv Adrián Sotelo Valencia Introduction  1 1

Social Sciences and the Challenges of Globalization  4 1 The Global Fog and Visions of Globalization  4 2 Theoretical and Methodological Premises of a Critical Analysis of Globalization  10 3 For an Antisystemic Theory of Globalization  17

2

The Modern World System and Capitalism: Origins, Cycles and Secularity  26 1 The Modern World System and Its Origins  26 2 The Modern World System and Capitalist Development  35 3 Kondratiev Cycles  71 4 The Tendency of the Rate of Profit to Fall  87

3

Globalization and the Crisis of the Modern World System  97 1 Globalization and the Techno-scientific Revolution  97 2 The Political Economy of Globalization  101 3 The Crisis of Surplus Value Realisation  113 4 The Political Economy of Globalisation: Drawing Up the Balance  119 5 The Crisis of the Modern World System  123 6 The Crisis of the Modern World System and Its Dimensions  133 7 Alternatives to the Modern World System  144

4

The Impasses of US Hegemony: 21st Century Perspectives  152 1 US Hegemony at the Crossroads: Main Theses  152 2 The Hegemonic Crisis and Its Empirical Basis  155

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3 4 5

Hegemonic Crisis and Its Military Dimension  171 The Impasses of US Foreign Policy  174 US Hegemony: the Theoretical Debate  183

5

Dependency and Development in the Modern World System  196 1 The Development Question: Past and Present  196 2 National-developmentalism and Modernisation Theories  197 3 Theories of Dependency  211 4 Endogenism, Neo-developmentalism and Neoliberalism  240 5 World System Theories and Dependency Revisited  248 6 Drawing a Balance  253

6

Revisiting the Political Economy of Dependency in the Light of Marx and Contemporary Capitalism  257 1 Marini and the Political Economy of Dependent Capitalism  257 2 Critiques and Debates  261 3 Reformulating the Political Economy of Dependency  266

7

Latin America: Dependency, Neoliberalism and New Patterns of Development  279 1 New Patterns of Dependency in Latin America  282 2 Neoliberalism and the Economic Cycle in Latin America  286 3 The Balance of Payments and Limits to Growth  293 4 Intensified Labour Super-exploitation  301 5 Ecological Decline  304 6 Towards a New Pattern of Regional Development  306

8 Conclusion  312 Bibliography  319 Index  344

Foreword Theotonio Dos Santos In Dependency, Neoliberalism and Globalization in Latin America, Carlos Eduardo Martins takes three highly topical concepts at the centre of contemporary social thought and unpacks them with exemplary theoretical rigour. His analysis is framed around an in-depth discussion of the crisis of the modern world system. Taking Immanuel Wallerstein’s study of historical capitalism as a starting point, the author shows that we cannot fully understand capitalism by ­defining it purely as a mode of production. Marx did so in an earlier era, successfully, because its historical constitution largely determines key elements of the social, economic and political system that make up its very essence. The modern world system is one such historical element. It was first established in the 16th century when Spanish and Portuguese navigators financed by Genoa incorporated the Americas into global trade circuits and opened up hitherto Arab-controlled trade with the East. But the system was only properly consolidated by the European balance of power ushered in by Holland in the 17th century and subsequently by British global hegemony. The Industrial Revolution played its part too, helping to integrate the capitalist mode of production with the material base that would furnish the modern world system with the means to conquer the entire planet. Each of these periods was characterised by a cyclical movement rigorously studied by Fernand Braudel and by Wallerstein over the four volumes of The Modern World-System. This cyclical movement would become a single world system. This notwithstanding, there has yet to be a proper examination of the new world cycle that emerged after World War II under the hegemony of the global financial, monetary and geopolitical system set up by a victorious United States and its allies. In the present work, Martins provides a well-documented overview of the analyses of long cycles proposed by both Wallerstein and Giovanni Arrighi, each of whom describes how a hegemonic power establishes itself in the peripheral and semi-peripheral zones of the world system. Crucially, the a­ pproach taken by Martins highlights the need for a secular perspective to explain current conjunctures and their powerful consequences. We can thus see how the globalization process takes on a far more concrete meaning when situated within the broader context of the formation of the modern world-system. Martins further brings a key explanatory device to his understanding of ­globalization: the role of the techno-scientific revolution in the qualitative

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changes that produced the different phenomena encapsulated by such a broad concept. His work examines various approaches to globalization, notably the following: – The globalist interpretation that sees globalization as a completely new reality and object of analysis for the social sciences involving new actors (global businesses and the global market) which subjugate national states, and a new technological paradigm that could provide the basis for a deterritorialised world system. – Theories of shared hegemony, which assert that whilst the microelectronic revolution has produced a greater degree of internationalisation it has not stopped national states from playing a core role. – The neo-developmentalist approach that views globalization as an essentially financial phenomenon rooted in the global integration of financial markets which impose themselves on production. The real problem according to this theory is that financial capital will have to free productive capital in order to revive economic development and national states, which are uniquely capable of concentrating the formidable resources required to guide development over the course of the techno-scientific revolution. – World-system theorists that identify a single global system. Some take the view that there is a secular continuity to this single system whilst others emphasise its discontinuities as it evolves over long-term cycles. – Dependency theory that despite its historical relationship with world-­ systems theory sees globalization as a period of crisis of a capitalist mode of production which has paradoxically incorporated the techno-scientific revolution at the same time as driving the law of value towards the limits of its global development and its supersession. The detailed description of these currents alone represents a major contribution towards a systematic understanding of an issue hitherto mired in confusion. But the author goes much further and provides a painstaking analysis of the nature of the crisis afflicting the world system and US hegemony – a crisis which is so often called into question but is so evident when studied from a historical perspective. His conclusions regarding the issue of hegemony and what the 21st Century holds then allows Martins to open up a whole new chapter in the history of social ideas by looking at the connections between dependency theory and world-systems theory. This is an area that I myself have examined in A teoría da dependência: balanço e perspectivas (Dependency Theory: Balance and Perspectives) and in my contribution to the UNESCO e-book dedicated to Immanuel Wallerstein. However, Martins brings new elements to this theoretical and analytical continuity that can be found in Los retos de la globalizacion: ensayos

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en homenaje a Theotonio Dos Santos (The Challenges of Globalization: Essays in Honour of Theotonio Dos Santos). I believe that readers of the present book will agree that this is a vital work that stands to become a classic of Latin American social sciences, especially as the region is now crying out for a solid theoretical basis for its increasingly popular progressive policies.

Preface to the English Edition Dependency, Neoliberalism and Globalization in Latin America was first published seven years ago in Latin America. It seeks to articulate Marxist dependency theory with world-systems analysis and thereby contribute towards a Marxist theory of the modern world system capable of analysing the three thematic axes referred to in the title, especially with respect to Latin America. We have substantially updated this English edition and completely reworked Chapter six. The passage of time also provides the distance we need to take stock of its theses in light of current conjunctural dynamics. The book’s first main thesis is that our analysis of conjonctures (‘conjunctures’ or cyclical phases) should proceed from the specific ways in which ­structural and cyclical time combine in the longue durée. The contemporary period should be understood in terms of the articulation of three key movements: the techno-scientific revolution, the B-phase of the systemic cycle of US hegemony and the A-phase of the post-1994 Kondratiev cycle. We argue that their combination heralds a period of civilisational crisis in the capitalist world system. It is a conjunctural crisis linked to the crisis of the world system’s mode of production, which has been contained by the high growth rates in the world economy guaranteed by the current Kondratiev A-phase. The A-phase’s exhaustion in upcoming years is likely to open the way to a period of systemic chaos. Unlike other such periods such as in 1618–48, 1792–1815 and 1914–45, this one will call into question not only the modern world system’s hegemonic centre but also its very foundations, signalling a period of transition to a new system, which will have to be built in the heat of deep social conflicts between bifurcating powers. Socialism and fascism can be expected to assume leading roles in these conflicts, hastening the decline of political liberalism as a centrist force. We can see typically a combination of factors at play in a period of systemic chaos: the hegemonic decline of political liberalism, an upsurge in armed conflicts in the world system, and the collapse of the dominant monetary standard. But while all the signs suggest that we are heading towards such a period, we disagree with Giovanni Arrighi’s proposition in Adam Smith in Beijing (2007) that the systemic chaos began with George W. Bush’s response to 9/11, which led to the hawks dominating US government, the Patriot Act, the doctrine of pre-emptive action and the invasions of Iraq and Afghanistan. For Arrighi, that is when hegemony started to fall apart, giving way to a new period of domination without hegemony. At a world system level, Bush’s victory actually turned out to be rather limited and never really threatened global political

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liberalism. Whilst he was in power, so too was New Labour in Britain (until 2010) and the SPD in Germany (until 2005). This period was succeeded by the election victories of Barack Obama (2008, 2012) and François Hollande (2012), who relaunched the social democratic Third Way offensive. The Bush administration mostly kept within the parameters of neoliberal globalization, pushing free trade agreements and Chinese membership of the WTO, although it did engage to some degree in military imperialism and the economic annexation of the Middle East and South Asia. However, since the mid-2010s, the neoliberal globalization process that began in 1979 and was driven forth politically from 1994 by alternating governments of the neoliberal right and the Third Way centre-left has been showing signs of exhaustion. Falling global growth figures indicate it can no longer mitigate the sharp rise in accumulated levels of inequality by containing or limiting poverty. This has meant the accelerated decline of its driving forces. The end of political liberalism and centrism has initially benefitted the far right, whose alternative to liberal globalization is an internationalisation based on the political power of the State, the US state in particular, which comes across as more immediate and powerful than the left’s alternative. The dominant versions of social democracy cling to abstract universalist formulas and fear breaking with their concrete neoliberal expressions, while some of the national-­popular experiences have been isolated by capital flight, financial blockade at the hands of the Atlanticist powers, and the restructuring of US imperialism in order to confront the nationalisation of strategic resources such as Venezuelan oil. Political setbacks in Brazil and South Africa have so far restricted the potential of the BRICS to articulate the global South and offer a geopolitical alternative to the world hegemony of the United States and its chief allies. Nonetheless, the powerful dynamics of the Chinese, Indian and Russian economies now occupy the spaces vacated by American unilateralism, expanding their Silk Road, Asia-Pacific and Global South projects in the process. Intensified social struggle in Latin America and Africa in the years ahead could change the political makeup of those regions and strengthen the BRICS again. In the coming systemic chaos, class struggle is poised to determine the geopolitical potentialities of the different power blocs, with intrastate conflict heavily conditioning interstate conflict and international alliances. Through the Trump administration, an ascendant US right sought to weaponize the State to resist the competitive pressures of globalized production and against corporate relocation overseas, free trade, the WTO, Chinese expansion, European Union exports, Mexican and Central American immigration, organised labour, social rights and multiculturalism. While the US state’s ­repressive capabilities are an important instrument of international power,

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they can hardly halt or undo the world economy’s most deep-rooted tendencies. They do however suggest a new form of regulation. The emergence of a radical right plays a leading role in the US in fuelling the far right’s rise globally. In Europe, electoral victories in Hungary, Norway and Italy, the Brexit referendum in the UK and voting patterns in France, Germany, Holland, Austria, Sweden, Ukraine and Greece are evidence of this trend. In Latin America, we could see a similar pattern in the coups in Honduras (2008), Paraguay (2012) and Brazil (2016); Colombia’s joining of NATO and rejection of the peace deal with the FARC, the election of Macri in Argentina (2015), and above all the victory of far-right Jair Bolsonaro in Brazil (2018). These developments ushered in governments that restrict political liberalism and workers’ rights whilst subordinating themselves to neoliberalism and the Trump administration’s extreme version of imperialism. Although global military spending has fallen in the 2010s compared to the 2000s, a closer look reveals an intensification of interstate competition. Between 2001 and 2017, China and Russia’s growth rates were markedly higher than those of the United States. US military spending expanded by 2.3% in this period, compared to 10% for China and 7% for Russia. This meant their combined military expenditure jumped from 16% to 48% of US military spending in 2000–2017. If these rates are maintained there is a real possibility of China and Russia achieving military parity over the next 15–20 years. Attempts in the Trump administration to regain the military initiative, as Republicans have attempted since the 1980s, has invariably come up against the tightening budgetary constraints imposed by the expanding US public debt. This prospect compounds US imperialism’s structural limitations, elevates global tensions and the risk of conflict, and reinforces the bifurcating tendency of global power projects. Lastly, another aspect of the impending systemic chaos, the collapse of the existing monetary standard, could in the coming years be combined with the exhaustion of the expansive phase of the Kondratiev cycle, which we return to below. Our second major thesis was that the expansive A-phase of the current Kondratiev cycle would be weaker than its 1950–73 equivalent in terms of its capacity for material and political change. Despite displacing power towards a new geopolitical axis led by China, its transformative potential is severely curtailed because of its link to the downturn in the US systemic cycle and to the technoscientific revolution. This renders it incapable of dismantling the neoliberal model, financing strategies, the dollar hegemony and the US cycle’s institutional bases, although it does further weaken them. The splintering of the world system today confirms our hypothesis.

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Starting in 1994, the expansive Kondratiev drove world GDP per capita growth rates and profit rates up significantly, but not to 1950–73 levels. Between 1994 and 2010, GDP per capita growth stood at 2.4% p.a. This was double the 1973–93 rate but below the 2.9% p.a. achieved in 1950–73 – a gap that widened in the 2010s due to the slowdown in economic growth. This long phase consists of three periods: resumption (1994–2000), prosperity (2002–2008), and maturity (2010-). 21st century global crises have centred on the US and the European Union, slashing economic growth there. The 2001 crisis erupted due to the Nasdaq and dotcom speculative bubbles bursting, as well as the attack on the Twin Towers and the Pentagon, whilst the 2008–09 crisis was related to the end of the housing bubble in the US but also seriously affected the EU. In the mid-1990s China’s heightened world-economic presence began to drive up the US trade deficit and public debt, which came increasingly under the control of international actors and the Chinese state especially. China’s high growth rates and resulting surpluses enabled it to promote a productive circuit that articulated exports to the US, internal market expansion and a rising demand for raw materials and commodities on the world market, whilst simultaneously maintaining a financial circuit based on US parasitism. This process intensified in the first decade of the 2000s when the commodity boom brought Latin America and Africa into the long phase of economic expansion. But the crisis of 2008–09 showed there were limits to the compatibility of these two circuits. China redirected its developmental model, which was exportbased between 1994 and 2008, towards its internal market and hinterlands. At the same time, it led the formation of the BRICS and followed an agenda of promoting the global South through public investment and financing national balances-of-payments in Latin America, the Caribbean, Africa and Asia. China also abandoned its 2002–2011 policy of buying up US bonds in public debt, which made it the US Treasury’s chief creditor and saw the US through the 2008–09 crisis, in favour of freezing and even reducing its ownership of such assets. At the root of these policy changes lies the negative impact of the US/EU crisis on China’s economic growth, which has fallen from double digits in 2005–11 to 6–7%. The slowdown in growth has made it less effective in reducing poverty and has thrown a light on the alarming rise in inequality that ­occurred during the Chinese and US economies’ articulation. This has pressured the Chinese government into looking for a new model of development. The whole process looks set to intensify as the current expansive phase comes to an end. The US’s deepening financial imbalances and aggressive protectionist policies could combine with a Chinese policy of containing the trade

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b­ alance and restricting the conversion of its reserves into US bonds to devastating effect. The China surpluses dwindle in the face of the growing financing needs of imperialist parasitism and the political and social pressure from its huge working class to direct those surpluses towards tackling inequality – pressure which typically accumulates at the end of a long expansive phase – and could collapse the flexible dollar model. The Chinese government is a political actor and bases its decision-making on political criteria, rather than calculating the v­ aluation/devaluation of assets in the manner of private investors who can influence market prices. Our third thesis is that of the crisis of US hegemony. This thesis was formulated by Immanuel Wallerstein, Theotonio Dos Santos, Andre Gunder Frank, and Beverly Silver, and finds its maximum expression in Giovanni Arrighi. The social, political, economic and ideological evidence of recent years weighs heavily in its support. Under the Trump administration, financial deregulation, a regressive fiscal policy, rising military expenditure and the abandonment of political liberalism combined with a unilateralist and protectionist foreign policy to hasten the trajectory of US decline instead of reversing it. Trump’s attempts to reactivate a national industrial policy had a very limited impact. This compounded US isolation in the world and created space for its rivals to assert themselves. It did not even succeed in containing the pace of expansion of the trade deficit, which, tied to cutting-edge technology, is growing far more consistently than in the opening decade of the 21st century, when it was mainly associated with the oil account. But this decline is primarily of US imperialism and it is intensifying social conflict within North American society. It threatens a financial crisis which in putting the flexible dollar standard at risk means there might be only two ways to reorganise public policies and the world system: either by reprioritising military spending, which was restricted when the public budget was diverted into financialisation; or by massively boosting social spending on welfare, infrastructure and environmental sustainability. Over the course of the 20th ­century, each new developmental model has seen public expenditure as a proportion of GDP rise, and the next stage of development could see it surpass the 50–60% figure. The liberal Victorian state was succeeded by the protectionist state and state capitalism of the 1930s and 1940s. This was followed by military Keynesianism and the postwar welfare state, which in turn gave way to neoliberalism. In the 21st century, the first reorganising option will tend towards fostering fascist forms, while the second will tend to develop forms of transition to socialism. Our fourth thesis concerns the post-capitalist character of the techno-­ scientific revolution. This was first formulated by Radovan Richta, who drew

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on Marx’s writings in the Grundrisse and Capital and was introduced to Latin American thought by Theotonio Dos Santos. We note that the globalization of the techno-scientific revolution from the 1970s on has transformed labour power’s knowledge and subjectivity, and therefore value, into the main ­productive force. The education of the labour force is now limitless and is reducing the gap between the value of labour power and the value of labour, plunging the rate of surplus value and laws of capital accumulation into crisis. This reverses the logic of surplus value production. Under this logic, machinery deskills labour power, whose knowledge is incorporated into the new technology, making it ever more intensive and a mere appendix. This creates the social conditions necessary to devalue it and increase the rate of surplus value. Faced with new material conditions imposed by the productive forces, generating a crisis for its mode of production, capital reacts by generalising labour super-exploitation and paying workers less than the value of their labour power. This means using the State to produce fictitious capital, maintain high levels of structural unemployment and delocalise production in order to use the labour force in the periphery to level down the wages of the majority of workers in the central countries. Financialisation arises not only as a cyclical feature of global capitalism but as a structural one, and the substitution of the mechanical principle for the automatic one contributes to it. This gradually weakens the relationship between technological innovation and saving on labour power and conflicts with the production of extraordinary surplus value because the latter depends on demand being transferred from workers to capital to keep prices above value. The techno-scientific revolution’s productive forces are far more suited to producing public goods than those of the industrial revolution. The industrial revolution was focused on producing individual, tangible consumer goods, and was driven by the textile, civil construction, food, automotive, and electrodomestic industries. In contrast the techno-scientific revolution is focused on producing knowledge and intangible assets, and developing services around health, education, culture, leisure and environmental protection. It is driven by communication technologies, microelectronics and biotechnology. Whereas the industrial revolution came about in a world of scarcity and therefore separated the products of processes as private property, the techno-scientific revolution drastically reduces the cost of producing use values due to the greater use of immaterial goods. This means prices are increasingly an expression of monopoly. As workers get used to a consumption structure based on access to public goods, they create a new subjectivity that capital seeks to limit or deny, breaking with full employment policies and artificially imposing scarcity.

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The socialism of the 21st century should embody an antisystemic alternative at various different levels and present itself as a political force that (a) goes beyond the periphery/semi-periphery and forges a new global geopolitical axis based on the hinterlands and linked to a project of the global South, whose transnational nature enables it to isolate and defeat imperialism via class struggle both without and within the old central powers; (b) internationalises social movements and is active in the struggle for peace; (c) is linked over a long period to the market just as capitalism was linked to the State, but moves in the opposite direction by subordinating the market to public objectives under the eye of a participatory democracy that socialises power structures and promotes emancipation; and (d) overcomes scarcity. Our fifth thesis is that neoliberalism is the precursor of fascism. Fascism is a regime of terror unleashed by big capital in order to destroy working class social and democratic gains whenever it feels threatened by them. Fascism, as a state form, is the product of a historical bloc being formed which unites fascists, liberals and conservatives under fascist leadership against a common enemy. Regardless of the local forms it might take, fascism always includes those labelled as communists and socialists among its main targets. The most important historical processes to lead to the rise of fascism developed in liberal institutional environments, as with Mussolini and Hitler, and were ratified by ­Parliament. Liberalism and fascism can combine in a variety of ways: thus under the kind of regimes established in Italy in 1922–25 and Germany in ­January-June 1933, multi-party political liberalism was able to continue to some extent on a formal level, but it was crippled by its subordination to an arbitrary decision-making structure that used the State’s powers of coercion to act extrajudicially. We call neoliberalism the ideology of the crisis of capital. What it shares with fascism is a desire to take a big civilisational step backwards by decimating the rights conquered by workers. Although it does not explicitly seek to suppress political freedom, it admits such a possibility when it loses its legitimacy to guarantee what it calls economic freedom, i.e. to support big capital’s monopolistic corporations and the rules of competition that favour them on the world market without restrictions being imposed by the working class via their social and political organisations and control over state policy. In 1927, Ludwig von Mises asserted in Liberalism in the Classical Tradition that fascism and similar movements were full of good intentions and had saved European civilisation from the threat of communism. Years later, both Friedrich Hayek in The Road to Serfdom (1944) and Milton Friedman in Capitalism and Freedom (1962) affirmed that new liberals, unlike the old ones, only arrive at political freedom from the economic one. Both men actively supported the Pinochet government in Chile.

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Neoliberalism differs from fascism in that it only permits a totalitarian state on a temporary basis. Then once the political threat to big capital has been extinguished, it seeks to either reinstate liberal democracy or else impose a permanent hybrid formula in the shape of a restricted multi-party system that provides legal and political assurances to the monopolist bourgeoisie. However, the time limits in question are not theoretically defined and the difference between neoliberalism and fascism becomes blurred during bifurcations determined by major historical confrontations. Neoliberalism also differs from fascism in its defence of the minimalist State, but again does not define the limits of this State in the abstract. The minimalist State only does what is needed to guarantee capital’s profitability and security. But faced with a workingclass social offensive, neoliberalism ramped up state intervention in order to protect profits. It did this by using public debt to produce fictitious capital, slashing employment rates, and bringing the unions to their knees. To safeguard capitalist property rights, it agreed to the use of the military, the police and paramilitary forces against political opposition and social movements. In principle, fascism’s defence of permanent political monopolies makes it more inclined than neoliberalism to expand state expenditure. The story of Hjalmar Schacht, a German banker and one of Hitler’s key allies among the country’s business and financial elite illustrates this point. Schacht was appointed president of the Reichsbank in March 1933 and then Minister of Economics and General Plenipotentiary for the War Effort in 1935. But he then lost these ­positions after clashing with Göring over what he saw as an excessive and inflationary increase in military expenditure and became minister without ­portfolio. In 1939 he was accused of conspiracy and in 1944 was deported to Dachau. Our sixth thesis is that neoliberal globalization and imperialism drive dependency towards its most extreme forms. The crisis of the Washington Consensus fuelled the growth of the centre-left and left, who were elected to run the most important governments in the Southern Cone. The rise of this historical bloc based on national-popular or Third Way state capitalist projects coincided with a commodity boom across South America that was closely tied to China’s influence on the world economy and the region’s foreign trade. It was thus handed a one-off chance to build up reserves on the back of large current transaction surpluses and slash external debt. This meant that over the 1999– 2009 period of foreign capital outflows it was relatively capable of shaping its own destiny and designing its own public policies whilst overcoming or reducing any r­ esistance encountered. Despite financial and productive limitations, it laid out an ambitious agenda of Latin American integration centred on UNASUR and the Banco del Sur; a Mercosur reorganised around social objectives

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and cooperation, and the Bolivarian Alternative for the Americas (ALBA). It boosted popular consumption levels enormously and reduced rates of super­exploitation. We argue, however, that this historical bloc’s relatively peaceful advance – coup attempts notwithstanding – and the growth and leftward turn of the political centre had to do with a specific historical context highly favourable to international insertion and the deeply demoralised state of the neoliberal forces. In the first edition of this book, we argued that this state of affairs was nearing its end and there would be a resurgence of conflict, making it incumbent on the left to radicalise its programme. The 2010–14 period allowed the popular and democratic camp’s offensive to continue up to a point, but its exhaustion put huge obstacles in the way of further progress. Foreign capital inflows recovered, increasing reserves, but they were mainly channelled towards Brazil. Commodity prices peaked in 2011 and then slowly receded until, along with foreign capital inflows, they crashed in 2015. This provoked a major crisis of hegemony among the political forces in question, who were then the targets of a counter-offensive by local oligarchies and imperialism. As we anticipated, the reversal of the terms of trade has led to increased pressure from various fractions of big capital to bring back policies favouring super-exploitation, which has squeezed any room for centrism. The governments of Maduro (Venezuela) and Cristina Kirchner (Argentina) were strangled by balance-of-­ payments deficits, and the coups in Paraguay and Brazil, the election of Macri and Bolsonaro, and the isolation suffered by Venezuela’s Bolivarian revolution have inaugurated a new period of conservative ascendancy in which an increasingly global right is bringing neoliberal and fascist forces together with the beginnings of the most radical forms of imperialism. A range of errors and omissions contributed to the defeat of the left(s). Among them, we would highlight the following: a. Its agenda for regional integration based on sovereignty and cooperation remained largely unfulfilled. It was applied far more to ALBA than UNASUR or Mercosur, and the Banco del Sur never got off the ground. Neither did it succeed in its aim of creating a regional stabilisation fund for international crises or a regional alternative currency to the dollar for ­local exchange purposes; b. Joining Mercosur did little to diversify Venezuela’s foreign trade and more to help Brazil’s trade surpluses as it continued to provide the latter with just 1% or so of its oil needs. Venezuela remained vulnerable to the ­restructuring of US imperialism that drastically reduced its oil account deficit and Latin American countries failed to use surpluses obtained

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during the commodity boom to diversify their production and export patterns; c. The room for consensus opened up by the commodity boom made the left lean in far too moderate a direction and postpone confrontation just when the time was ripe for it. This even happened to Venezuela, which failed to nationalise the financial system, financed through its trade balance a capital flight to the tune of around 150 billion dollars between 1999 and 2015; d. In Brazil’s case, the tendency towards moderation ran far deeper. The PT (Worker’s Party) never impeded fictitious financial capital from playing a lead role and instead tied it to specific industrial policies and the expansion of domestic demand among the poorest sectors. Despite high levels of international reserves and a healthy balance of payments, Dilma responded to the 2015 crisis by ending social policies and adopting austerity measures closely tied to rentierism instead of confronting it. Subsequently her popularity plummeted, paving the way for a coup d’etat. Latin America has little to gain from the neoconservative offensive. As neoliberal globalization approaches its limits, foreign trade and foreign capital inflow cycles are losing their dynamism. Each new cycle is weaker than the previous one, while the high stocks caused by asset denationalisation are systematically speeding up decapitalisation across the region. Regional development can only be revived by restoring the public investment, so harshly cut under neoliberalism and the neoconservatives, and gearing it towards stimulating internal demand from the working majority. But that can only come about through intensified social struggle. The seventh and last thesis that we highlight is that we need to develop a Marxist theory of the world system. This work indicates how this might be achieved. We started from the Marxist theory of dependence and bring it closer to world-system approaches, especially those of Braudelian inspiration, led by Immanuel Wallerstein and Giovanni Arrighi, seeking points of convergence and resignification. We do this by constructing analytical mediations that dialectically articulate, in broader totalities, a whole range of concepts that communicate with each other via different narratives, namely: capitalist mode of ­production, modern world system and historical capitalism; structural time, primitive accumulation, industrial and techno-scientific revolution; relative ­surplus value, absolute surplus value and superexploitation; imperialism, hegemony and sub-imperialism; centre, semiperiphery, periphery and dependency; and systemic cycles, Kondratiev cycles and foreign capital cycles in dependent countries.

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We trust that our analytical proposals put forth in this revised English edition will bear fruit not only in terms of understanding the huge structural transformations taking place before our eyes, but also in developing our strategic thinking in the struggle for a new world amidst the uncertainty and deep crisis that is currently unfolding.

Translator’s Acknowledgement I wish to thank the two people who have helped me hugely in this work, namely, Dr. Andy Higginbottom and Vitor Filgueiras. —Jacob Lagnado

Figures 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 5.1 5.2 5.3 5.4 5.5 5.6 7.1

US rate of profit  157 US rate of profit  157 Per capita GDP annual growth in the World economy (%)  158 United States and Britain annual variation of GDP per capita (%)  159 Annual variation in per capita GDP of the World economy, 1870–1913 (%)  160 US and World GDP per capita annual growth  160 GDP per capita annual growth (%)  161 US trade deficit  162 Producer price inflation in the United States (%)  163 US real weekly wages, (1982–1984 in constant USD)  164 Value of the dollar  165 US investment as a percent of GDP  166 US/World direct investment flows (%)  167 China and US/World imports  168 Remittances of profits, interest and non-factor services vs. incoming foreign capital in Latin America – 1956–2009 (in USD billions)  231 Remittances of profits, interest and non-factor services vs. incoming foreign capital in Latin America  231 Direct investment as a percentage of foreign capital (flows) in Latin America  233 Latin America GDP per capita (as a percentage of the organic core of the world economy)  250 Latin America GDP per capita (as a % of world economy GDP per capita)  254 Foreign capital inflows as a percentage of payments for utilities, interests, and factor services  256 Chinese imports: type of goods (%)  289

Prologue

Dependency Theory: Prospects and Challenges in the 21st Century Adrián Sotelo Valencia Carlos Eduardo Martins is currently one of the most prominent theoretical exponents of critical Latin American thought. At a time when many intellectuals were abandoning critical thinking and Marxism to follow the path of neoliberalism and the latest theoretical-methodological trends, Martins articulated Marxist dependency theory with the approach known as capitalist world system analysis. The virtuous relationship between the two approaches and the renewed dialectical analysis of Latin American dependency in the global context that it produces lie at the heart of the present volume. Unlike other authors, Martins makes it clear that the concept of a world system cannot erase or substitute that of a mode of production. This is key to avoiding the mistake of one-dimensional analysis, as the latter constitutes the ­material base of production and reproduction of social life in all of humanity’s historical epochs. He thus takes his place as one of the leading Marxist exponents of dependency theory in the tradition of classic figures such as Ruy Mauro Marini, Theotonio Dos Santos and Vania Bambirra, whose insights and ideas contributed most to its development. The book begins by laying out the big challenges facing the social sciences in the context of what is called globalization. It then comprehensively explains the origins, cycles and secular nature of the modern world system and its crisis. This leads to his exposition of the contemporary structural features of dependency in what is described as a modern world system constituted by intensified labour super-exploitation. In my view, the originality of the author’s contribution to dependency theory lies in identifying, describing and systematising super-exploitation – the backbone of the global capitalist economy. Martins shows that this is a mechanism that operates not only in dependent economies like those of Latin America, but also as a function of capital’s structural and civilisational crisis. It is a mechanism that is gradually penetrating the very heart of the economic and productive cycles in the advanced capitalist economies of the imperialist nations: the European Union, United States and Japan. Previously, only the mechanism of production for average and extraordinary profits had functioned in

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those countries. This primarily took place via the rise in labour productivity achieved by intensely incorporating the fruits of the techno-scientific revolution into the productive process between the end of WWII up until the big structural and financial crisis of the 1980s and 1990s. The author argues that today, the structural determination constituted and driven by labour’s increased productive capacity is joined by super-­exploitation as a new component of social relations and capital’s exploitation of labour in the advanced countries. This is precisely why his chapter “Revisiting the Political Economy of Dependency in the Light of Marx and Contemporary Capitalism” is so important. Here, he sets out his own unique view of this polemical issue, one which is crucial to understanding the modern-day dynamics of ­crisis-ridden capitalism. After laying out the history of the notion of super-exploitation as it appears in the classic work of Marini’s Dialéctica de la dependencia, Martins then draws up a thought-provoking balance of the concept. He traces out the historical forms assumed by super-exploitation in Latin America in the export economy, import substitution and neoliberalism. In so doing, he offers a fascinating discussion of the past and present relationship between labour intensity and accumulation patterns based on technological development aimed at the world market. Martins concludes that the new model of capitalist development in the region broadens and deepens super-exploitation; generates economic growth that is both low on average and ecologically unsustainable because it actually destroys the environment; triggers the return of deep social and political crisis as a result of poverty, unemployment, and the rise in precarious and super-exploited labour, with growth tied to a capitalist world economy gripped by decline and a terminal civilisational crisis. The book also presents alternatives to capitalism’s self-destructive path even if there are no magic answers or caudillos to perform miracles. As the author argues, capitalism in all its guises, dependent or advanced, needs to be superseded by what he calls a new model of regional development, whose historical transformative subject consists of whichever “antisystemic social movements” capable of articulating and developing a serious alternative project, democratic and liberatory in nature, that reaches beyond systems predicated upon exploitation and domination. The question of exactly what alternatives might embody the social, economic and political transformation of the system is not an easy one for Marxism and critical Latin American thought to resolve as it involves a whole range of concepts and issues which that must be resolved. And that is precisely why Carlos Eduardo Martin’s book is so important. It provides an essential starting

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point for an urgent and necessary debate among interested parties and ­popular movements with the capacity to build alternative projects in the face of capitalism’s global crisis as both a mode of production and a system of political domination.

Introduction We live in an age of uncertainty, in which historical time has accelerated beyond recognition and Marx’s observation that “all that is solid melts into air” seems more relevant than ever. As global integration gathers pace so too does the clash of different social, political and ideological forces, bringing unexpected consequences. Capturing the movement towards the articulation of the global with regional, national and local particularities is one of the biggest challenges facing the social sciences today. The fin de siècle has come and gone, and with it the end of history. Even the least attentive gaze cannot ignore the world of contradictions that has emerged in all its vitality: a world that is at once decadent and vibrant, apathetic and engaged, orderly and chaotic, private and public, peaceful and violent; a world of both hope and hatred, remembrance and indifference, anonymity and identity. Mapping its dynamics and dilemmas allows us not just to make sense of an apparently absurd reality, but to illuminate our social and political activity such that our desires might leave an imprint on reality. The certainty with which previous generations faced the future is evaporating and in its place we have freedom. This brings both risk and opportunity. Our search for peace, diversity, liberty and solidarity increasingly impels us to close the gap between science and ethics and between reason and emotion. Taking this concern as its starting point, the present work locates Latin America’s pathways and opportunities within an ever-shifting global space. But this means embarking on a huge theoretical, methodological and empirical adventure which carries no little risk. In making movement part of our object of study we renounce our faith in an ordered reality, to which time in the longer sense never stays loyal anyway. Guided by history, our analysis looks both forwards and backwards. It is imbued with structures, secular trends and cycles, which nevertheless offer not mathematical truths but rather heuristic interpretations of reality. Globalization, dependency and neoliberalism are our three analytical cornerstones for understanding Latin America’s current place in the world and the choices it faces. In the first chapter, Social Sciences and the Challenges of Globalization, we look at the main ways in which globalization has been ­understood. We focus on five or six perspectives which each group together various authors – notwithstanding their differences – and then, in an ongoing dialogue with these readings, we build an analytical framework for understanding globalization. To do so, we turn above all to world-system and dependency theories.

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Introduction

In The Modern World System and Capitalism: Origins, Cycles and Secularity (Chapter 2), we seek to understand capitalist development through the notion of historical capitalism. Historical capitalism arises from the formation of the modern world-system (its political superstructure) and its articulation with the capitalist mode of production (its material base). We identify its secular trends and cycles in order to locate the theoretical and historical space inhabited by the current stage of capitalism and the world system in which we live. We do this by weaving together various traditions, which are gradually finding common ground. These include the Braudelian one developed by the Fernand Braudel Center and the Marxist tradition based on Marx’s theory of value and his view of cycles but also on theories of imperialism, dependency, the scientific and technological revolution and long cycles. However we also engage with other traditions, including Schumpeterian, neo-Schumpeterian, regulationist and institutionalist thinking on technological innovation, systems of innovation, cycles, and institutional regimes. This makes for a very rich dialogue, but also one that requires us to exercise great caution in (re)developing concepts in order to avoid the ever-present but ultimately sterile temptations of eclecticism. We hope we have been successful in this. The following chapter, Globalization and the Crisis of the Modern World System, locates the crisis of the world system within the context of globalization. We argue that globalization is a revolutionary force, and therefore both creative and destructive. However, despite being relatively autonomous of one another, the processes of creation and destruction establish a dialectic with unforeseen effects, in which one pole can dominate and condition the other. At the current stage, globalization has still yet to find a social and institutional structure that allows it to create. Historically, systemic crises represent bifurcation points, and our thesis is that in the next ten to forty years we will head towards a new bifurcation quite unlike those that occurred in the modern world system. During this stage, the struggle for a new world will involve both destruction and construction. Destruction will be used in the fight to preserve privilege by saving the empire. Construction, on the other hand, will be driven by the force of life itself. It will appear spontaneously and unexpectedly, to then take on an organised form as it strives towards a post-hegemonic world with humanity at its centre and which realises the French Revolution’s ideals of liberty, equality and fraternity everywhere. In Chapter 4 we turn to one of the most crucial and controversial issues in contemporary social thought in The Impasses of US Hegemony: 21st Century Perspectives. We discuss the two main approaches to the issues currently facing US hegemony. One posits that the US is experiencing a crisis of hegemony. The other maintains the opposite: that the US has actually grown stronger in

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its march towards empire. We identify with the first school of thought, and provide a historical and empirical analysis of the development of US hegemony as part of our debate with the leading proponents of the second. In the fifth chapter, Dependency and Development in the Modern World System, we look at the main theses in Latin American and world thought to have evaluated the role of foreign capital in the development in the modern world system. This chapter also looks at the persistence of poverty and underdevelopment and how to improve the income and welfare of Latin Americans, linking that discussion to the empirical analysis of Latin American development. The sixth chapter is entitled Revisiting the Political Economy of Dependency in the Light of Marx and Contemporary Capitalism. It was written for Brill’s English edition and replaces the corresponding chapter in the Brazilian edition. Here we analyse super-exploitation within the framework of Marxist value theory and the debates surrounding it, and seek to update some aspects of the concept in order to conserve the key tenets of Marini’s thought. We also look at the forms super-exploitation has taken in the chief models of development adopted in the region, with an emphasis on the neoliberal model and its spread throughout the world today. Finally, in Latin America: Dependency, Neoliberalism and New Models of Development (Chapter 7) we conclude with a balance of neoliberalism in the region, highlighting its disastrous social and economic consequences. We also look at Latin America’s prospects in the 21st Century and China’s potential influence on the region in light of its role in the world economy.

Chapter 1

Social Sciences and the Challenges of Globalization 1

The Global Fog and Visions of Globalization

In Chaos and Governance in the Modern World System,1 Giovanni Arrighi and Beverly Silver argue that we live in a period of global fog due to the uncertainty created by the globalization processes fanning out across the world economy since the 1970s. The profound changes to the productive forces have affected social life as a whole. Historical time has speeded up and impacted upon existing societal structures and the geohistory of the world’s peoples, changing our habitats and ways of life. The economy, politics, our thought patterns and daily life have all been transformed. But what exactly is globalization? How does it affect pre-existing economic, political, social and ideological structures? And what new paths of human development lie on the horizon? Times of transition are also times of confusion, and so the answers to these questions vary a great deal. Broadly speaking, we can identify five main interpretations of globalization. Here we shall present their most general features, bearing in mind they each encompass varying shades of opinion, and there may indeed be significant differences between the leading advocates of any one perspective. The first we shall call a globalist interpretation. This starts from the assumption that globalization presented the social sciences with a new object of study: global society. In this account, the global appears as a radically new era, which subsumes the national and the local. At its core is the new technological (microelectronic) paradigm where electronic and communication technologies have joined forces to integrate the financial and productive spheres on a global scale. This process has created a new set of dominant actors in the world ­economy – global businesses and market forces who subjugate national states through the planetary or cosmic reach of their technologies and the speed of circulating capital. This has created a deterritorialised regime of accumulation, which asserts financial wealth over productive wealth and has turned the global age into the age of financial capital. In this new era, multinational corporations are transformed into global network-based businesses or ‘technobergs’ which act on the same global scale as investment and pension funds and big 1 Published in Brazil as Caos e governabilidade no modern world system (2001).

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banks, subordinating state policies to their profitmaking goals. Employment rights and social protection are rendered obsolete in this context. Globalists describe the global era in similar terms when it comes to its more general features, but they diverge considerably when it comes to its effects. They can be divided into two groups: those who see in globalization a tendency towards synchronicity, harmony and integration once the new culture of competitiveness is learned; and those who to varying degrees view it as a polarising and diachronic process which at worst runs the risks of triggering socialist revolutions worldwide. The first group includes authors like Kenich Ohmae (2010), Robert Reich (1992) and Francis Fukuyama (1992), whilst the second includes Octávio Ianni (1992, 1995, 1999a, 1999b), René Dreifuss (1996, 1999), Hardt and Negri (2000) and Jürgen Habermas (2015). A second understanding of globalization is represented by theories of shared hegemony. Here we might include Paul Hirst and Grahame Thomson (1996), Anthony Giddens (1999), Robert Keohane and Joseph Nye (2000), ­Joseph Nye (2002) and Zbgniew Brzezinski (2005), all of whom question the globalist view that the microelectronic technologies emerging in the 1970s have helped build a global society. In their account, these new technologies represent a quantitative rather than a qualitative change in the process of internationalisation. They draw out the latter’s accumulative character and all-­ important harbingers such as the telegraph in the late 19th century, when thanks to the appearance of the first submarine communications cables, information could be shared in almost real time and a commercial system capable of determining world prices on a daily basis became technically feasible. For these authors, globalization has further internationalised the world economy. Despite operating worldwide, capitalist firms remain ‘international’ because they are competitive organisations that seek to amass in their countries of origin the strategic assets that enable them to project themselves in the world economy. National states are still the key players in today’s world. They offer companies external services that are vital to structuring and potentialising capital accumulation. These services include security (centralised in governmental apparatuses of coercion and legal regulation); partial absorption of the production costs of transport and communications infrastructure; R&D and employee training, and cultural identity, which capital uses as a point of reference to reduce labour mobility and exploit solidarity based on national ties for its own ends. However, greater internationalisation increases the flow of goods and capitals across state borders and can end up weakening the articulation of the national state and capital. This in turn risks triggering a global crisis of governability with disruptive consequences for social formations generally. The na-

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tional state will have to be reformulated in order to forge a new relationship with both the local and global dimensions. This reformulation should lead to new global regulatory frameworks based on international treaties, regulatory agencies, regional blocs and inter-governmental cooperation. It should also mean democratising the State and making it far more receptive to local demands, given how much information technology has helped civil society to improve its organisational capacity. The most developed states will take a lead role in setting up international regulatory regimes and frameworks. In doing so they will retain their competitive advantages when it comes to localising their investments, and their status vis-à-vis peripheral and semi-peripheral states. The third interpretation of note is the neo-developmentalist one. Here we might include socialist writers such as Chesnais (1996, 1998a, 1998b) and Amin (1997), as well as proponents of an organised form of capitalism, such as Maria da Conceição Tavares (1985, 1999), José Luis Fiori (1998, 2001, 2004, 2008), Celso Furtado (1999, 2000a) and Susan Strange (1997). They define globalization as a largely financial phenomenon rooted in global market integration. They highlight the technological basis of financial integration but maintain that we are far from being able to talk of a global productive system. However, they do not see financial globalization as leading to consequences such as an end to the sovereignty and autonomy of national states. Instead they argue that it originated with a US offensive to safeguard and strengthen its hegemonic condition. Threatened by technological competition from other global poles, the US relies on its currency and military strength to capture world economy liquidity and finance its own development by creating a financialised regime of accumulation. That is why it has imposed a new regulation – neoliberalism – which allows national states’ capital accounts and markets to be liberalised. As a result, the US condition has gone from hegemonic to almost imperial in a global economy which relies on low rates of growth to function. Faced with this scenario, the neo-developmentalists seek to re-establish a regime of accumulation which prioritises investment in production, offering a wide range of ­answers as to how that might be achieved. The problem for this approach is that the more the United States flexes its muscles in support of financialisation, the less room there is for any alternatives to it. Susan Strange, for example, refers to how decisive a role the US must play in forging a new regime of accumulation. For François Chesnais, the future lies in regionalisation and the formation of major continental blocs. Samir Amin, meanwhile, points to the need for a transition to socialism via accumulative processes of disconnection/reconnection to the world economy. For their part, Maria da Conceição Tavares, José Luis Fiori and Celso Furtado ask how peripheral countries – like Brazil – might recover their sovereignty, and

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describe the need for an organised capitalism which can bring about internal financial centralisation, allowing a local industrial bourgeoise to develop using public and private banking capital. Furtado also stresses the importance of generating consumption patterns which prioritise national technological development and the internal market in ‘semi-continental’ countries with a heterogeneous social structure. World-systems theorists put forward a fourth understanding of globalization. They can be divided into two main groups. The first group takes the idea of the modern world system as its analytical starting point, and includes Immanuel Wallerstein (1979, 1995b, 1998a, 1999a, 1999b, 2000a, 2000b, 2003, 2004, 2006, 2011a, 2011b); Giovanni Arrighi (1996, 1997a, 1997b, 2000a, 2001, 2007) and Beverly Silver (Silver et al. eds. 1995, Arrighi and Silver 1999). But others question this concept, including Gunder Frank (1990, 1996, 1998) and Barry Gills (1996). This second group posits instead the existence of a single world system in history as their chief theoretical reference point in analysing globalization. Both perspectives emphasise the continuity that globalization represents when it is viewed as part of a movement of systemic expansion. Nonetheless, they also display serious divergences. The first perspective uses Fernand Braudel’s conceptual division of historical time into the longue durée (the long duration or term), conjoncture (conjuncture or cyclical phase) and evenement (short term or ‘event’) to fashion powerful analytical instruments such as systemic cycles and secular trends.2 Systemic cycles relate to the rise and fall of hegemonic states which organise an unequal and polarised world economy into centres, semi-peripheries and peripheries. During periods of cyclical ascent and consolidation the modern world system expands, but in periods of decline crisis prevails and a restructuring is required. The emergence of new systemic cycles that redirect development is possible providing the secular trends of the modern world system can absorb their contradictions. In this view, globalization is the final stage along a long continuum. It represents not only the high point of the modern world system but also its inability 2 Wallerstein (2011) argues that the French term conjoncture should not just be rendered literally as ‘conjuncture’ in Braudel, as previous English translations have done. Thus in his translation of Braudel’s History and the Social Sciences: the longue durée (2009) he translates it as ‘cyclical phase’ or else leaves it as conjoncture. In order to distinguish from the author’s separate and literal references to cyclical phases, the present translation either follows the earlier English translations of Braudel in rendering conjoncture simply as ‘conjuncture’ or else retains the original French term, especially where the author is directly comparing Braudel’s temporal categories. Likewise, longue durée has been left in the original French throughout. – Trans.

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to contain anti-systemic tendencies any longer. Globalization will culminate in a final crisis and humanity’s transition to another systemic form as determined by social struggle. The only certainty surrounding such a transition is that it will herald the end of the historical capitalism led by the modern world system. In contrast, André Gunder Frank and Barry Gills postulate the existence of a single world system of Afro-Eurasian origin ever since the Neolithic revolution 5,000 years ago. Having first emerged in Central Asia out of the convergence of Egypt and Mesopotamia, it then joined the silk road to spread by land and sea to China, India and Europe and later the Americas, Africa and Oceania. The system has been driven since birth by capital accumulation, and until the 18th century Asia was its centre, only to be consigned to the periphery when Europe and the West took its place in the 19th century. It goes through very lengthy cyclical processes, each lasting four to five hundred years. For the authors, the changes wrought by globalization affect an existing world system and should be understood in terms of the latter’s cyclical dynamic. They also point to Asia’s return to the world system’s centre. A fifth reading of globalization comes from the Marxist version of dependency theory systematised by authors such as Theotonio Dos Santos (1978a, 1983, 1987, 1990, 1992a, 1995b, 2000a, 2004); Ruy Mauro Marini (1973, 1977a, 1977b, 1979a, 1979b, 1992a, 1996); Orlando Caputo (1973, 2000b, 2001a, 2001b), and Ana Esther Ceceña (1995, 1999, 2001a, 2001b). Their emphasis is on globalization as a period of crisis of the capitalist mode of production. Globalization revolutionises the productive forces and represents the high point of the law of value’s development under capitalism. This understanding draws on the works of Marx (Capital and the Grundrisse) and Radovan Richta in defining ­globalization as a worldwide technological and scientific revolution that subordinates technical expertise and technology to science and enables globally integrated production. This techno-scientific revolution replaces and supersedes the productive base of the industrial revolution generated by capitalist relations of production. That is why it cannot be fully absorbed and integrated into said economic forms except during a transitional period beset by contradictions. This period leads to both the full realisation of the law of value and, dialectically, to its crisis, as a result of the falling rate of profit and the exhaustion of the forces counteracting it. Seen from this perspective, globalization is an extremely complex affair. It does not create a new global society per se, but neither is it restricted to specific dimensions of social life such as finance. Instead it represents a revolution of the productive forces so profound that it affects the production of human life as a whole. Because it is a revolutionary force it cannot be fully absorbed by

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capital accumulation but instead gives way to a period of transition in which rival projects try to seize control of it. At first globalization creates an imperialist world economy that incorporates dependent or semi-peripheral and socialist countries under different forms, although it imposes ever-tighter limits on their expansion. This approach also underscores the relevance of Kondratiev cycles in analysing and anticipating the expansion and crisis of capitalist-led globalization. What can we conclude from these different visions of globalization and the tendencies within each of them? Our aim is not to exhaustively trace their ­development but rather to create a theoretical and methodological point of reference to help us grasp the true dimensions and transformative power of globalization. Taken together, these interpretations initially come across as a huge Tower of Babel: global society, world systems, world system, US imperialism, shared hegemony, crisis of hegemony, end of national sovereignty, Asia-asthe-new-centre, regionalism, disconnection, organised capitalism, socialism, ­financialisation, global production, cycles, continuity, rupture, graduated increases etc. These different terms point to key differences in understanding the nature of globalization, its effects and responses to it. Nonetheless, the sheer range of different readings of globalization appears to support Arrighi and Silver’s observation that we live in an age of crisis and transition. For them, this diversity of approaches speaks volumes about our current historical circumstances. It suggests we are in the midst of a transition, when the negative inflexion towards chaos will continue to exercise the strongest pull in a still-hegemonic system until enough new social forces have accumulated to push things in a more positive direction. The crisis of scientific paradigms is an ideological expression of a conflict of far wider dimensions. In a context like this, history picks up incredible speed and the relationships between social forces are riven with contradictions and instability. Immediate circumstances feed illusions and one-sided perspectives incapable of grasping the social movement in its totality. The best methodological tool for understanding this scenario is the Braudelian proposal to articulate the long time span with the conjunctural and short ones. That is, the articulation of the times of structures, cycles and events. From this perspective, what we are seeing on the structural level is a profound capitalist crisis being globalised by neoliberalism. The cyclical dimension is crucial to this crisis of structures because it allows us to trace its dynamic and its tendencies. And the structural and cyclical dimensions condition the power of immediate time, fixing its limits and possibilities. However, putting this Braudelian proposal into practice is a highly complex process that requires us to go beyond the limits of Braudel’s own work. To aid

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us in this task, we shall turn to Immanuel Wallerstein’s ideas around reconstructing scientific thought, as chiefly formulated in Impensar (1999a), Para abrir as ciênciais sociais (1996a) and “Time and Duration” (1998b). For Wallerstein, the challenge lies in overcoming the scientific legacy of liberalism. Our point of departure must therefore be the leading theoretical efforts to write histories and trajectories that offer an alternative to that legacy. 2

Theoretical and Methodological Premises of a Critical Analysis of Globalization

Wallerstein argues that British hegemony provided a powerful ideological basis for the expansion of historical capitalism. North American thinkers then assumed core aspects of this ideology during the transition to US hegemony. Between 1850 and 1945, the British promoted universalist-particularist thought. This was based on two premises: (1) that knowledge moves from the particular to the abstract, and (2) that knowledge should be compartmentalised into specific disciplines. These two assumptions had radical implications for the organisation and production of knowledge. Let us highlight five of these: a. Knowledge was divided into disciplines which were either nomothetic (sociology, economy and political science) and concerned with formulating general laws; or idiographic (history and anthropology) and ­concerned with the particular and the indeterminate. The nomothetic disciplines did not recognise time as duration and created theory on the basis of the present and the most general and abstract conjunctural trends, which they treated as permanent and static. For their part, the idiographic disciplines were concerned with the particular and limited themselves to events. In other words, they favoured description over theory. b. The nomothetic disciplines segmented knowledge. This meant trying to establish pure economic, social and political laws, understood as the separate and combined domains of the market, civil society and the State. Organising knowledge in this way precluded any intervention in these three areas that sought to go beyond their separation and combination. c. Capitalism was understood as a universalist system based on free competition and largely independent of state power. d. Nation-based societies existing within a juridical and political framework defined by the State were deemed the right form of social organisation for humankind. e. History was seen as progressing towards a point of equilibrium between the different pure laws developed by the nomothetic sciences. This meant

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subordinating history to its most abstract expression in the form of theoretical models. It is not hard to detect the apologetics inherent to this positivist scientific project. By positing capitalist development as something natural, it managed to divest it of temporality and obscure its social and political foundations. Capitalism was seen as an expansive force which emerges from market anarchy and self-regulation and overrides unwarranted interference from the national political powers through which men organise their social life. North American thought continued this epistemic project, albeit with some changes. Thus it introduced area studies in response to decolonisation and peripheral struggles for development, and in so doing brought nomothetic and idiographic ­sciences together as one subject. According to Wallerstein, opposition to this understanding of the sciences came from three sources: ‘State science,’ the Annales School and Marxism. State science3 flourished in the latter half of the 19th century, above all in Germany. Influenced by Friederich List and his 1841 opus magnus The National System of Political Economy (List 1909), it critiqued liberal attempts to create an international economy free of the State and politics and based on cosmopolitan markets and peace, arguing that such an economy did not actually preclude wars, national interests or global polarisation. State science showed how important the State was in organising economic, social and cultural life. It ­attacked the liberal economy for locating the origins of wealth strictly in ­exchange and the separations produced thereof via competition, as in the division of labour and personal freedoms. Instead it emphasised the role of Stateled collective labour, unity (in place of separation), planning, and c­ ultural accumulation as the core components of a theory of the productive forces that could offer a more realistic explanation for wealth. But whilst its insights were most valuable in constructing an international political economy, the state science school was limited by its tendency to see the State as the main source of opposition to liberalism. State science shared liberalism’s assumption that nationality was the basis of human organisation par excellence, although it differed about the degree of autonomy on the political organisation of nationality and its interventions in the economy and markets. Hence state science’s failure to perceive the State as an instrument of historical capitalism’s ‘cosmopolitan order’ rendered it incapable of critiquing the liberal system as a whole. As a result its oppositional stance lacked a certain depth and it ended up being drawn ever closer to liberal utopias of a peaceful, market-dominated world, despite seeing the 3 Also referred to as ‘sciences of the state’ (Staatswissenschaften). – Trans.

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State, with its power to eliminate market asymmetries, as offering the best route to that utopia. State science finally disappeared in Germany in the second ­decade of the 20th century, giving way to the Anglo-Saxon organisation of knowledge. The origins of the Annales School lie in the Revue de Synthèse Historique, founded in 1900 by Henri Berr. This journal was followed in 1929 by the Annales d’Histoire Économique et Social, founded by Lucien Febvre and Marc Bloch. But the School’s real heyday was from 1945 to 1968, when in the midst of the Cold War it expounded a worldview that resisted both Anglo-Saxon intellectual hegemony and the official Soviet version of Marxism. This view gained influence just as France was striving to become a third major power alongside the US and Soviet Union, and as the culture of non-alignment symbolised by the 1955 Bandung Conference was gaining traction worldwide. Fernand Braudel’s work in particular stood out in this period. His concept of the longue durée or long duration (Braudel 2009) was a key contribution to the critique of the foundations of liberal thought. He used this notion to question the separation between the nomothetic and idiographic sciences and the division of the former into separate disciplines (economy, political science and sociology). In Braudel the duration is unlike the Newtonian chronological and physical time, which is founded at one and the same time on the diachrony of atoms, standardised and infinitely small, and statics, based on infinitely larger dimensions. Instead the duration is the time of structures, signifying change, process and therefore irreversibility. It represents the dialectic between the multiple and contradictory times of social life, which cannot exist in isolation from one another. In this dialectic the time of structures coexists with that of the conjoncture and l’evenement. Structural time implies the gradual deterioration of the more or less fixed organisational architecture connecting social realities and groups. But while structures provide support, they are also a hindrance that symbolise the limits man cannot surpass – Braudel’s ‘prisons of the longue ­durée’ (2009, 179). The conjoncture or cyclical phase represents the regular, periodic swings that act upon structures, modifying and renewing them but without affecting the expansion of their core components. And l’evenement is the time of the event: the daily chronicle, brief, instant even, and chaotic, it influences structures and their cyclical swings. Braudel’s notion of duration thus denotes a process that is only visible at a high level of abstraction: a reflexive movement that proceeds from the general to the particular – not, as liberalism would have it, the other way around – and reveals both the limits and potential of instant time and l’evenement. This reflexive movement integrates not only the multiple times of social life, but also the different dimensions of reality. In other words, it runs counter to the

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segmentation of knowledge into different times or disciplines. The implications of all this challenge the very foundations of liberal thought. A critique of the separation of the economic, political and social spheres involves reconceptualising capitalism as an economic form which cannot survive shorn of its privileged relationship with the State. Far from being two realities which express themselves externally according to their own distinct logics, the economic and political domains are inseparable dimensions of a single process: the genesis and development of capitalism. Likewise, by emphasising the global, capitalism is shown to be a system that proceeds from the worldwide to the national as it emerges and develops. The concept of the world-economy, developed by Braudel in his work on the Mediterranean, would be crucial to later attempts to theorise capitalism as a world system. Although the Annales scholars stressed the need to understand structures, their analysis of them was left theoretically wanting. In Volume 3 of Civilization and Capitalism, 15th–18th Centuries (1984) for example, Braudel is hesitant to accept that capitalism might erode itself.4 Wallerstein dates the decline and crisis of the Annales School to 1968. He argues that it was far more devoted to the study of conjonctures (renewing historical method in the process)5 than structures, despite developing concepts in respect of the latter that were so powerful as to become an obligatory point of departure for future analyses. For Wallerstein, Marxism is the ideology par excelence for antisystemic movements in a capitalist world-economy that tends towards universalism and preparing the worldwide transition from capitalism to socialism. He highlights how Marxism has grown in influence alongside the rise of antisystemic forces, but warns that this universalist trend also risks sowing intellectual confusion. This is because once Marxism becomes the main language of the antisystemic tendencies which the dominated classes secularly impose on the bourgeoisie, it is met by systemic attempts to pervert its meaning and strip it of any revolutionary content in order to make way for a Marxism of the centre and the right. Indeed, ever since the past 19th century this dialectical struggle between revolution and containment has threatened to prevent Marxism from developing its theoretical and methodological structure rooted in popular resistance and emancipation. 4 “I may be quite wrong, but I do not have the impression that capitalism is likely to collapse of its own accord, in some form of ‘endogenous’ deterioration; for any collapse to take place, there would have to be some kind of external impact of great violence; and a credible alternative would have to be available” (Braudel 1984, 626). 5 The Annales’ approach to long-term economic data fundamentally transformed historical investigation because it allowed historians to go beyond the limits of document and archivebased work in describing and interpreting reality.

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What we intend to analyse herein is Marxism as antisystemic and revolutionary theory. This is based on the works of Marx and Engels, who developed their own methodological approach in order to posit a theory of the production of human existence that incorporates both Man’s relationship with Nature and relations between men. Marxism is a theoretical framework which moves from the global to the particular and from the abstract to the concrete in a never-ending dialectical process. Capitalism, when seen in this way, is the sum of economic, technological, social, political and ideological forces that produce human existence. After wresting control of the State and the global market, these forces proceeded to create a new mode of production, turning capitalism into a global force which extended the world market to every ­continent. Antisystemic Marxism therefore breaks with the methodological nationalisms favoured by liberalism6 and instead grounds itself in a global and internationalist perspective. In addition to Marx and Engels, its main influences in terms of explaining the capitalist world economy are the different theories of imperialism (Bukharin, Lenin, Rosa Luxemburg, Hilferding and Grossmann); Nicolai Kondratiev’s theory of cycles; Radovan Richta’s theory of the techno-scientific revolution, and the theories of dependency developed by Theotonio Dos Santos and Ruy Mauro Marini. Marx set out his method of analysis of social formations and capitalist society in the Grundrisse, and this provided a basis for the future development of his method and Marxist theory. He argued that the analysis of social formations should rise from the abstract to the concrete, to then reproduce the latter as the concrete in the mind. This type of analysis starts from a perception of the concrete as observation and conception, that is, from a certain level of abstraction of the concrete, before proceeding to identify its most simple, general categories. It should then integrate and subordinate these most simple,

6 Liberalism’s assimilation of Marxism manifested itself, for example, in the rightist and centrist positions adopted in the Second International, used to justify open support (in the case of the right) or support of a subtler nature (the centre) for colonialism, imperialist wars, and reform instead of revolution. It can also be seen in the theories of socialism in one country or region promoted in the Third International by Stalinism and its subproducts. All of these perspectives relied on a methodological nationalism to define capitalist development on a national basis. They posited either bringing capitalist development to backward countries through colonialism (Henri van Kol), or else breaking with proletarian internationalism and supporting national bourgeoisies in kickstarting local capitalism, supporting policies aimed at either reform (Bernstein) or revolution (Plekhanov). There were also attempts to theorise a stage of endogenist capitalism subjected to planning and with its competitive-globalising instincts stifled, thus allowing it to coexist alongside a parallel socialist world system (Stalin) or within a peaceful world order (Kautsky), even if its birth were marked by violence.

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abstract categories to the most concrete, complex dimensions of the social formation. The integration and subordination of the abstract to the concrete and the simple to the complex are the key components of the Marxist method. By emphasising processes, this approach can posit and identify both the development of a totality and its breaking point. For Marx, we can only understand capitalism’s development as a social-­ historic formation using the following levels of analysis: a. The abstract determinants present to varying degrees in all societies (population, production, distribution, exchange and consumption). b. The categories constituting the internal structure of bourgeois society (capital, wage labour, landed property) and the basis of the three main social classes in bourgeois society (capitalists, proletariat and landowners). c. The concentration of bourgeois society in the form of the State, which brings in elements such as taxes, state debt, public credit, and the colonial question. d. The international relations of production, which introduces the international division of labour. e. The world market and crises. (Marx 1973, 108) Reflecting on the relationship between these levels of analysis, Marx stressed that a society’s economic categories derive their importance not so much from the historical sequence in which they appear, but from how they are inter-­ articulated within a concrete society. As capitalism develops, its tendency to globalisation redefines and integrates its most general and abstract laws of accumulation. Whereas on the one hand, capital, as a more complex category than the commodity, integrates and subordinates its laws to those of capital accumulation and sets production costs below product value upon transforming labour power into commodities, on the other hand the development of the State, global production relations and the world market influences capital accumulation and the way it works. But unlike in the first instance, this does not create a new historical-social totality. The first attempt to develop the implications foreseen by Marx was made by theories of imperialism. They showed how the development of the State, international relations of production and the world market was crucial to core countries overcoming their crises and to ushering in a new stage of capital accumulation led by finance capital, understood as the cross-penetration and fusion of banking capital with industrial capital. Finance capital drained the savings of small and medium businesses and wage workers in order to bankroll the growth of large-scale industry, stimulating monopoly formation in the process. But because the wage mass did not grow accordingly, this increase in the scale (and stages) of production was not matched by an expansion of national

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markets in the big centres. As a result, profit rates fell and capital was exported in pursuit of more profitable investment opportunities and in order to expand the global availability of raw materials, minerals and foodstuffs, which would cheapen the costs of constant and variable capital in the major centres. As part of this process of internationalisation the world was carved up between the major powers. But theories of imperialism focussed too much on the core countries and not enough on colonialism as the dominant political form assumed by inter-capitalist competition during Britain’s periods of hegemonic crisis. They thus failed to grasp how international relations of production and the world market conditioned the State and were able to break free from neocolonial political forms. Theories of dependency highlighted the division of labour and international relations of production as the cornerstones of a capitalist system of rule which tied the interests of the dominant classes in the core to those of their dependent counterparts. They went beyond theories of imperialism because they acknowledged and theorised the commitments articulated by those ­classes and their dynamic nature. In doing so, dependency theories almost created a world-system theory and were therefore an important forerunner of world-systems analysis. By recognising the dynamic nature of international relations of production, they were able to pick up on the cyclical changes at the centre of the world economy and critique the school of thought that overstated imperialism’s political and economic powers of coercion and saw dependent countries as incapable of developing or exercising self-determination. Although imperialism first tried to maintain its coercive tools and caused major distortions in the dependent economy, it failed to prevent dependent countries from developing on the basis of internal determinations articulated with the world economy. Dependency theory also reignited the debate around the laws of capitalist accumulation by introducing the notion of labour super-exploitation. Superexploitation derives from the effect of the laws of competition, driven by ­international relations of production and the world market, on profit rates in dependent countries. It is a prerequisite for establishing the set of relationships that underpin the workings of the capitalist world economy. But although dependency theories were an important forerunner of world-systems theories, their explanatory power was limited by over-focussing on dependency rather than putting the world-economy at the centre of their analysis. Marxist thinkers have also challenged the dominant liberal perspective through crisis theory. This is divided into cyclical theories and theories of decline. The best proponent of cyclical theories is Nicolai Kondratiev, who analysed the capitalist economy in terms of 48–60 year periods which themselves

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divide into an A-phase (expansion) and a B-phase (stagnation), with major social, political and ideological implications. These cycles are compatible with others of lesser duration, such as the 7–11-year medium cycles identified by Marx, Juglar and Rodberus, and Kitchin’s 3–5 year short cycles. These shorter cycles are conditioned by the long cycles and their own movements assume the latter’s overriding nature, be it expansive or recessive. Theories of decline proceed from Marx’s observations in the Grundrisse and Capital, which identify the tendency for the rate of profit to fall as the most important law of political economy. Marx’s perspective was later revived by Grossmann and in Richta’s theory of the technological and scientific revolution. Grossmann examined the counter-tendencies to the falling rate of profit highlighted by Marx, drawing out the role of foreign trade, imperialism and technological innovation. Richta, for his part, developed Marx’s more-or-less explicit position that capitalist relations of production found the ideal base for their productive forces in the industrial revolution, and are unable to fully incorporate the next stage of development of said forces based on scientific labour, a reduction in working hours and leisure time. Marxism, the Annales School and ‘state science’ thus represent the leading critiques of the liberal scientific paradigm which must be superseded if we are to lift the global fog. But lifting that fog not only means critiquing and going beyond liberalism’s methodological foundations: we must also theorise the current period of crisis and transition known as globalization in a way that can guide antisystemic practice. So how can these different critical approaches be welded into an antisystemic theory of globalization? 3

For an Antisystemic Theory of Globalization

Immanuel Wallerstein sets out to integrate the critiques of liberalism into his concept of the modern world-system. He uses this concept to build a structural framework for understanding what he calls historical capitalism, seeking to reconstruct capitalism’s historical trajectory as a dominant economic form by transcending the limits of the concept of mode of production. Such an endeavour is supported by the work of Marx and Engels themselves. They never intended to make modes of production an all-embracing concept – least of all in the nascent stages of a new mode of production, when political and social forces outweigh the material base.7 7 Marx and Engels argued that the rise of the capitalist mode of production presupposes a long period of primitive accumulation, during which commercial and usurers’ capital, and in

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Capitalism therefore constituted itself as a dominant, globalising force before developing its own specific mode of production. But it could only actually become a dominant force with the emergence of the modern world system. The latter involves the formation of an interstate system articulated by a worldeconomy that cuts across it via capital and commodity flows. This creates a spatial asymmetry between politics and the economy and hence an asymmetrical power relationship between the two. Politics is geographically limited to exercising sovereignty over specific territories and populations. In contrast, the competition for profits between different private actors allows the economy to move around the world, and so it can determine state policies in line with its objectives. This superstructure, or “top floor” as Braudel described it, guarantees capital a privileged relationship with the State, which it uses to ensure its own reproduction and expansion. The modern world system was established in the early 16th century and continued expanding until by the 19th century it covered the whole planet. As it did so it developed its main features: the world-economy, the national state, the hegemonic state and systemic cycles. The hegemonic state plays a strategic role in articulating the modern world system. Its job is to forge a worldwide consensus around certain juridical and political principles that allows for a monetary standard, contract law, limits to the global market and rules of war and peace. It combines coercion and consensus – both of which derive from its commercial, productive and financial power – to control the anarchy of interstate relationships and ensure the system remains intact. But its power to contain the chaos borne of inter-state rivalry is limited. This is a systemic requirement, because if one state enjoys permanent unbridled hegemony then it could lead to the building of world-empires and the disappearance of hegemonic nation-states. Systemic cycles consist of periods of expansion (A-­phases) and crisis (B-phases) of hegemonic states. Crisis is usually succeeded by systemic chaos and 30-odd years of world war. But as long as the system displays good health and its secular trends continue, then the chaos will be succeeded by a new hegemonic state that sets a new cycle in motion. We shall return later to the modern world system as a concept, but our concern here is to highlight its crucial contribution to an antisystemic theory of globalization. It should be understood as the structural and political framework particular their articulation with the State, are key to creating the conditions needed in order to turn labour power and land into commodities and to direct resources towards industrial investment. They also saw the communist mode of production as requiring a prior transitional stage of communist society based on wage labour and the dictatorship of the proletariat. See, especially, The Communist Manifesto (Marx and Engels 2002) and Critique of the Gotha Programme (Marx 1938).

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that facilitates the development of the capitalist mode of production.8 It is a much broader point of historical reference for capitalist development. It should not replace the notion of the capitalist mode of production, but rather be articulated with it and understood concretely as a vital component of its development. The modern world system precedes the capitalist mode of production, but at the same time its potential for self-reproduction depends on the latter’s material development and contradictions. Nonetheless, any approach that prioritises the relationship between these two analytical categories must rethink Wallerstein’s assumptions. For Wallerstein, the modern world system should be considered the chief reference point for understanding the development of historical capitalism. In his account, historical capitalism is an inductive category which gives precedence to empirical over theoretical investigation: Capitalism is first and foremost a historical social system. To understand its origins, its workings, or its current prospects, we have to look at its existing reality. (…) I propose therefore (…) to try to describe what capitalism has actually been like in practice, how it has functioned as a system, why it has developed in the ways it has, and where it is presently heading. […] Historical capitalism, is, thus, that concrete, time-bounded space-bounded integrated locus of productive activities within which the endless accumulation of capital has been the economic objective or ‘law’ that has governed or prevailed in fundamental economic activity. wallerstein 1996, 13–19

This approach effectively dissolves the idea of the capitalist mode of production into the empirical reality of historical capitalism and prevents us from seeing historical capitalism as a concrete phenomenon whose expansion parallels the development of the capitalist mode of production’s more abstract laws. Whilst we agree that historical capitalism precedes the capitalist mode of production, we think it is a mistake to do away with the more abstract dimension of the mode of production as a determinant of historical capitalism’s empirical development and expansion. Wallerstein’s omission leads him to define the capitalist mode of production using strictly empirical criteria. He understands it as production for maximum

8 “(…), the political superstructure of the capitalist world-economy is an interstate system within which and through which political structures called ‘sovereign states’ are legitimized and constrained.” (Wallerstein 2000b, 14).

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profit and geared towards the market, which uses all and any kinds of labour to achieve that aim: If capitalism is a mode of production, production for profit in a market, then we ought, I should have thought, to look to whether or not such production was or was not occurring (…) This then resolves the problems incurred by using the pervasiveness of wage labor as a defining characteristic of capitalism. An individual is no less a capitalist exploiting labor because the state assists him to pay his laborers low wages (including wages in kind) and denies these laborers the right to change employment. Slavery and so-called “second serfdom” are not to be regarded as anomalies in a capitalist system. wallerstein 1979, 16–17

In fact, Wallerstein is following in Braudel’s footsteps.9 His attempt to synthesise the different historical forms of capitalist accumulation leads him to omit any theory of surplus value from his work and deny any structural link between capitalism and a given set of productive forces. Braudel defined capitalism as the zone of the antimarket and monopolies, in which accumulation relies upon controlling the supply of certain products and combining with the State in order to raise prices. This leaves a gap between the analysis of capital accumulation and the theory of value. Such an understanding heavily influenced not only Wallerstein but also other Braudelian world-system theorists, including Giovanni Arrighi and Beverly Silver. Historical capitalism is a key concept because it helps us to identify the concrete forces driving capitalist development. But it needs to be articulated with the concept of modes of production. Marx never suggested that the ­development of a concrete society could realise the general laws of its mode of production in its purest form, because those laws only express its underlying tendencies. Nevertheless, the concept of modes of production makes an important contribution to historical analysis and a theory of the longue durée in that it ­highlights the man-nature relationship as a necessary condition of human existence, and the role of labour in producing that existence. The methodological premises and core concepts underpinning modes of production were first set out by Marx and Engels in The German Ideology

9 Braudel (1983) draws attention to capitalism’s presence on the sugar plantations of colonial Brazil, which he saw as capitalist creations par excellence despite yielding low rates of profit and relying on slave labour.

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(1989).10 In their account, men make their own history but in conditions of material scarcity not of their own choosing that can only be overcome and humanised through civilisational accumulation on the widest scale. This scarcity is determined by the need to work to survive. But through working, men not only survive but produce their own existence. They begin a process of ­humanising nature which is only fully realised when the purpose of work is determined by their own subjectivity, independently of the needs imposed by nature. This happens when the productive forces have been developed to a level where they systematically ensure survival independently of labour. Man’s ability to satisfy his basic needs through labour sets him apart from animals and generates specific thought patterns, feelings and sensibilities. By producing the means to satisfy his needs, he increases his power over nature. This leads to new needs, as does a growing population. But as Marx and Engels observe, creating new needs is also related to the struggle for survival: These three aspects of social activity [ensuring survival, satisfying new needs and procreation – cem] – are not of course to be taken as three different stages, but just as three aspects or, to make it clear to the Germans, three “moments” which have existed simultaneously since the dawn of history and the first men, and which still assert themselves in history today. marx and engels 1989, 50

The productive forces, the relations of production and the ideological superstructure function as an articulated whole which underpins the mode of production and produces man’s way of life. Relations between man and nature follow three general historical-structural models in Marx and Engels. In the first, primitive communism, men are essentially concerned with reproducing their physical existence, and the productive forces and relations of production are still in an incipient form. The second model is characterised by class-based modes of production. Here, the expanded production of the means of life and rise in population combine to create new needs, and so society is organised around producing a surplus. The third and final model is still imaginary and utopian, but the conditions for it are already semi-visible. In it, scarcity will be overcome by automated working and communist relations of production. In the second such general model of man-nature relations, the productive forces exercise a determining influence on social development as a whole. 10

The concept of relations of production, for example, is not fully developed in The German Ideology, where it is described as the form, mode, relations or conditions of intercourse.

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They themselves are driven by the relations of production, which are one of their components and define the social organization of any given mode of ­production. Radovan Richta notes that for Marx and Engels the concept of productive forces refers to the whole range of forces that produce human life (1969, 18) – not just the means of production and objects of labour, but also population, labour power, labour relations and superstructure (systems of ideas, ­values, feelings and forms of social organization). To understand the real composition of the productive forces in each historical structure or conjuncture, i.e. the part played by each of these elements, we must look at how they act as inputs in the productive process. In this second model the means of production are the dominant productive force. But as they continue to develop they contradict and eventually dissolve social organisation’s chief form of labour.11 This is followed by a period of revolutionary crisis, in which property relations assume a pivotal role in relations of production in an attempt to prevent changes to labour relations and the break-up of the dominant mode of production. Marx discusses this situation in summarised form in the Grundrisse and A Contribution to the Critique of Political Economy (1859), notably the Preface. Superstructures tended to play a marginal role as a productive force in this historical-structural model. For a long time this was because thought systems were not developed enough to systematically enter the productive process. But that was not the only reason. It was also because with the development of social classes the thought systems, values, feelings and sensibilities of workers and other popular sectors were excluded from economic decision-making. This restriction on working-class subjectivity hit a high point with the Industrial Revolution and Fordism. However, the globalisation of the techno-scientific revolution has driven changes in the makeup of the productive forces. This process began in the 1970s with the microelectronic paradigm that came out of the convergence of electronic and communications technologies. The techno-scientific revolution has helped superstructures to act as a productive force. They have achieved this through science and through processes of social and political democratisation, which put the thought systems, values, feelings and sensibilities of the popular sectors at the centre of social organization and production. Productive systems have been reconfigured by automation, integration, flexibility and remote 11

As was the case with serfdom in Western Europe when it was threatened by new farming methods, in particular the crop rotation system. (Anderson 1985; Wallerstein 2011a). It can also be seen in contemporary capitalism in the case of wage labour threatened by automation. (Richta 1969; Santos 1983, 1987).

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c­ ontrol systems. Wage labour has come under threat because new technologies tend to eliminate specialised, intensive manual labour and in its place require subjective, skilled labour based on generic competencies, which is still intensive but subordinates speed to quality. The investment to put into generating this new paradigm of labour power on a mass scale increases the value of labour power at an ever-greater pace and can diminish the rate of surplus value, thus endangering the reproduction of the capitalist mode of production. The productive forces thus clash with the relations of production and above all their property relations and juridical-political instruments, which seek to prevent any transition to a new set of productive forces dominated by the superstructure. This represents a break with a structural setup where matter takes precedence over thought and human will, which has thus far characterised societal organization. The main points to keep in mind from the foregoing explanation of mode of production theories are: a. A theory of the longue durée ought to incorporate the general models of relations between man and nature as set out by Marx and Engels. This means acknowledging that structures break down not only because of their developing internal laws (as the Braudelian approach suggests), but because, as they develop, said laws incorporate a growing number of components which contradict their own logic. The expansion of the productive forces introduces elements belonging to a new material base whose full incorporation demands the dissolution of the existing relations of production and the types of labour relations, distribution, exchange, consumption, property and political power at their core. This quest to incorporate new stages in the development of the productive forces whilst hanging onto existing relations of production is what leads to the crisis of the mode of production. b. Globalization is not the prolongation of a process underway since the 16th century. Instead it signifies a radical break with the makeup of the productive forces: one which affects historical capitalism in contradictory fashion through a structural conflict with the relations of production. Globalization pushes the law of value to its limit and points to a crisis of surplus value production linked to the end of wage labour, which prefigures the collapse of the capitalist mode of production. c. An antisystemic theory of globalization should combine the ability to describe the fundamental contradictions of the law of value under historical capitalism – using the tools developed by Marxist theory – with the integrated vision of the world economy’s political superstructure and crises provided by world system theory through Fernand Braudel Center

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thinkers such as Immanuel Wallerstein, Terence Hopkins, Giovanni Arrighi, and others.12 We should bring the State into our analysis of the crisis of the world economy’s political superstructure. We should do this by describing its role in core, semiperipheral and peripheral countries in the crisis of the modern world system. World-system theories, especially in Wallerstein’s version, have tended to downplay antisystemic action by national states. In Wallerstein’s case this was partly due to his superstructural perspective: his emphasis on the need to create juridical and political frameworks on a global scale in order to overcome historical capitalism led him to correctly criticise illusions of socialist development in one country. But this critique also minimised any possibility of the socialist movement accumulating forces by conquering political power in national states.13 In their 1848 Communist Manifesto, Marx and Engels called not only for ­international proletarian unity, but also for conquering state power as a necessary step along the way that goes hand in hand with building the broadest possible movement for world socialism (Marx and Engels 2002). This is because however close capitalist society gets to monopoly forms it is still based on generalised commodity production, and its supersession must start from the economic, social, political and ideological fragmentation that entails. Undoubtedly, the disconnect between regional revolutionary upheavals and the overthrow of capitalism globally has seriously limited any articulation of the national and the global. But today, as historical capitalism’s secular trends expose its weaknesses in the face of structural crisis, the conquest of political 12

13



Within Marxism, theories of dependency went furthest in developing an analysis of how the law of value operates globally. But their analysis failed to account sufficiently for ­systemic cycles. Theotonio Dos Santos did most to bridge the gap between dependency theory and world-systems analysis, of which he was a precursor. By 1971 he had already anticipated the decline of US hegemony in La crisis norteamericana y América Latina (1971). But his conjunctural analysis, especially where it addresses the return of long-term growth in the mid-1990s, fails to fully integrate the systemic crisis, which he acknowledges, with Kondratiev cycles. Other dependency theorists like Ana Esther Ceceña and Orlando Caputo are sceptical of systemic cycles. In a 1974 article for the African Studies Review, Wallerstein described socialist states as “collective capitalist firms,” because despite having created juridical regimes based on public ownership they still operate within the competitive framework of the modern world system (Wallerstein 1974). In a collection of writings from 1974–77 he republished the piece alongside his own criticisms of it: “I now believe that the formulations in this essay are incomplete and can lead to some confusion. In particular, I do not clarify the distinctions between semiperipheral states that have socialist governments and those that do not. In a subsequent essay (Ch. 5 below) I do discuss this question quite specifically” (Wallerstein 1979, 92).

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power by socialist movements in national states, above all in the periphery and semi-periphery, is destined to play a crucial role in the transition from a modern world system to a truly global one. To gain a better understanding of the period of crisis and transition which has opened up since the end of the 1960s, we propose combining the following levels of analysis: a. The falling rate of profit crisis, which shows that the power of the capitalist mode of production to appropriate the productive forces is running out and that said crisis is linked to the development and generalisation of the techno-scientific revolution and the new technological paradigm. It manifests itself as a global crisis not only of surplus value production but of surplus value appropriation. b. Systemic cycles of accumulation, systematised by Braudelian world system theories. According to such theories, humanity entered a period of hegemonic crisis in the late 20th century. This crisis is dragging the modern world system into a chaos that it will find hard to emerge from. c. Kondratiev cycles, which are one of the keys to understanding conjunctures. In Nicolai Kondratiev’s theory these cycles are organised around technological innovation, organisational restructuring and the impact of both these factors on profit rates. Articulating these three levels of analysis will give us a clearer insight into the crisis of the modern world system as it continues to unfold over the coming decades, along with the alternatives available to the world and dependent countries in particular. In the next chapter we apply these different levels of analysis to the development and crisis of the modern world system.

Chapter 2

The Modern World System and Capitalism: Origins, Cycles and Secularity 1

The Modern World System and Its Origins

The modern world system was introduced as a concept by Immanuel Wallerstein in the first of his 4-volume tour de force of the same name (2011a). The author posits three types of system: mini-systems, world-empires and the modern world system. Of these, only the latter creates a political superstructure suited to capitalist development. A mini-system is a social formation that constitutes an economic, political and cultural unit. Mini-systems cover a limited geographical area and host an incipient division of labour, which produces a surplus, albeit with some difficulty. Their main problem lies in producing enough to survive on in the absence of physical or market-driven coercion of labour. They also risk being annexed by other systems, as indeed they were by expanding global empires between 8000 bc and 1500 ac. World-empires are formations that articulate a division of labour and ­several cultures through a certain political unity. For Wallerstein, they represent r­ edistributive modes of production, that is, their division of labour was sufficiently advanced to produce an economic surplus, which ensured society’s survival and supported an upper administrative, military and intellectual stratum. Once in charge of the state apparatus, this upper caste used coercion to control the surplus that guaranteed their own existence. Here, Wallerstein uses the term mode of production in a very specific sense. Unlike in Marxist theory, he does not mean a specific labour relation which produces existence, but first and foremost the kind of political superstructure which relies on state coercion to extract an economic surplus through different forms of labour.1 ­World-empires embody a major contradiction: on the one hand, they 1 The differences between feudal, slave and Asiatic modes of production set out by Marx are diluted by the superstructural concept of tributary mode of production, as the following passage illustrates: “The states were of varying sizes and internal forms. They were sometimes very extensive over time and space with elaborate bureaucracies (Ancient Rome, China), sometimes smaller but still very centralized, or extensive but with a very atrophied center (as in feudal Europe or in the early Middle Ages). […] But as a mode of production, all the variations retained the same essential core: the ruling groups pressed the direct producers to produce a specified surplus over their direct consumption needs (which amount could vary), but © koninklijke brill nv, leiden, ���� | doi:10.1163/9789004415546_004

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must develop their political machinery and expand geographically to contain internal and external r­ ivals, yet this expansion also leads to a disproportionate growth in state bureaucracy and parabureaucracy, giving rise to deficits and an excessive peasant tax burden which then triggers political revolts and crises. The cycles of expansion and contraction experienced by world-empires are related to these crises. The interstices of world-empires harbour developing world-economies. These are economic units that link up various political and cultural units. When world-empires were dominant, the proliferation of world-economies was conditional upon imperial cycles of expansion and contraction. In periods of crisis they developed, but in periods of expansion they were absorbed by the empires, which used their political power to appropriate most of the wealth generated by the world-economies. Wallerstein acknowledges that worldeconomies hosted a nascent capitalism, but highlights their lack of continuity and inability to forge a superstructure that would allow it to develop. This situation would change when the European world-economy gave rise to the modern world system during the long 16th century (1450–1650). For the first time, a world-economy managed to turn domination by world-empires on its head and take the first steps towards incorporating the whole world. But what was so different about the European economy that it should become a historical exception? For Wallerstein the difference resided chiefly in the crisis of feudalism, which was a specific type of crisis because it affected a particular redistributive mode of production. He argues that feudalism’s crisis was the result of three trends (secular, cyclical and climatological). These three tendencies all converged to trigger a crisis of feudalism’s main institutions: the Church, the State and seigniorial power. The most important among them was the secular trend, as it showed the exhaustion of the power of surplus appropriation in its feudal form. Political power structures were far less centralised under feudalism than in other redistributive modes of production, such as the Asiatic one. This was a result of the Roman Empire’s disintegration. Feudalism’s unity as a world-­ system relied more on the Church than the State.2 Central power was more they also produced no incentive (and some positive disincentives) for producing more than the specified surplus.” (Wallerstein 2000b, 151). 2 Although we agree that feudalism falls within the category of world-empire (as its political institutions tried, somewhat precariously, to become more centralised), as a mode of production it had certain unique features compared to the vast central bureaucracies created by the Asiatic mode of production. European feudalism can be most accurately described as a politically unified system which connected various economies and cultures but was unable to establish a more articulated division of labour, which prevented it from becoming as centralised as the Asiatic mode of production.

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restricted in its ability to control markets and private power, especially on the Roman Empire’s western periphery. The crisis of feudalism gave its institutions, led by the seigniorial reaction, the chance to reinvent their relationship with the State – a chance they seized between 1450 and 1650. The crisis of the feudal mode of production was expressed in the decline of feudal rents. Wallerstein shows that the crisis originated with the rise in agricultural labour costs between 1250 and 1450. Several factors explain this rise, with migration chief amongst them. Migratory movements were behind the huge growth of cities in the 13th century and were driven by the increase in trade thanks to new agricultural techniques introduced from the 9th century on, which made it possible to support a growing urban population. In Lineages of the Absolutist State (2013), Perry Anderson argues that the main source of feudal society’s structural crisis lay in the relationship between monetisation, peasant migration, and the end of rural servile labour.3 Agricultural production costs were also increased by peasants fleeing the first stage of the seigniorial reaction and by population loss from starvation. The first seigniorial reaction (1350) was a strategy aimed at recovering the power to extract a surplus. This attempt to augment traditional forms of surplus extraction heralded a dramatic period for European society, featuring wars of nobility, peasant revolts, major population decline (due to epidemics like the Black Death) and the cultural crisis of the Christian synthesis. After 1450, the seigniorial reaction was more preoccupied with creating a new worldsystem that would extend the geographical reach of the world-economy as a means of reducing labour costs in Western Europe whilst increasing surpluses. This Portuguese and then Spanish-led expansion of the world-economy would anticipate many features of the modern world system, including (a) the ­creation of a world-economy enlarged by the inclusion of new areas (the Americas) and dedicated to the production of basic goods or supplies of vital importance to the European economy, such as metals for manufacturing coins, foodstuffs to reduce Europe’s calory deficit, and fuel; and (b) an international 3 “The changes in the forms of feudal exploitation which supervened at the end of the medieval epoch were, of course, far from insignificant. […] The new form of noble power was in its turn determined by the spread of commodity production and exchange, […] With the generalized commutation of dues into money rents, the celular unity of political and economic oppression was gravely weakened, and threatened to become dissociated (the end of this road was ‘free labour’ and the ‘wage contract’). The class power of the feudal lords was thus directly at stake with the gradual disappearance of serfdom.” (Anderson, 2013: 18–19). Wallerstein underplays the crisis of servile labour as the main component of the secular trend that drove forth the transformation of feudalism, preferring, as we have seen, to highlight superstructural aspects.

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division of labour controlled directly or indirectly by Western Europe and divided into three zones – core, semi-periphery and periphery – according to the technological intensity of their products and how work is controlled. Wallerstein argues that the international division of labour was a radical new development crucial to the establishment of historical capitalism. It allowed production costs to be compared and for a vast array of goods to appear on the world market. This created a very different context for the organisation of the world-economy. Previously, lack of control over the generation of productive resources in the regions of world-empires had raised the price of goods far higher than production costs, because prices were determined politically. This situation meant the world-economy was limited to trading in rare luxury goods, because that was the only way it could generate profits given the high commercial cost of inputs. The conquest of the Americas made it possible to overcome these barriers and develop a division of labour that connected the Americas with Eastern and Western Europe. In the former, slavery and serfdom were used to extract the silver needed to make coins and produce consumer goods (e.g. sugar, ink/dyes and rubber/glue for clothing). Eastern Europe’s role was to produce cereals and timber, again through serf labour. And Western Europe developed livestock farming, food production and the textile industry. Meanwhile the Low Countries, notably the United Netherlands, specialised in shipbuilding and fishing, allowing them to control the Baltic cereal and timber trades. In general, wage labour and tenant farming predominated in these regions. The proliferation of fairs across Europe meant world-economy products could be distributed more widely through the use of strategic storage points. But a political structure adequate to the organisational form of the worldeconomy still had to be developed. This required the political and financial exhaustion of the imperial forces of the French (Valois) and Spanish (the Habsburgs), which came firstly with the Peace of Cateau-Cambresis (1559), and later with the Spanish defeat by the United Netherlands, which was marked by the Peace of Westphalia (1648). These two defeats signalled the end of the European empires and their attempts to annex the continent. Their place was taken by absolute monarchies, who at Westphalia formally accepted the territorial limits of their sovereignty in Europe and the free flow of capital and goods regardless of political and military tensions. The imperial form was nevertheless crucial to historical capitalism’s initial expansion. As Giovanni Arrighi notes in The Long Twentieth Century (1996), the sheer costs involved would have discouraged purely capitalist forces from embarking on the colonial adventure that paved the way for the international division of labour. There had to be a convergence between forces seeking to

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accumulate unlimited territory (T-T`) and those looking to accumulate unlimited wealth (M-M’). Thus Iberian colonisation of the Americas was chiefly ­financed by city-states – mainly Genoa – and south German merchant bankers. By lending money to the Spanish Empire and the trans-oceanic trade (Genoese shipowners) they forced Spain to share the surpluses from colonial exploitation and deduct the administrative costs of colonisation from its takings. The empires, however, were unable to keep this partnership going. Their global ambitions led them to reject mercantile policies, restrict manufacturing, and spend vast amounts on the military costs of upkeep and expansion. This bred financial dependence on the outside world. Without proper bureaucratic structures or overseas possessions closer to home, tax revenues were poor. The persecution of Protestantism added to this dependency as it forced bankers, traders and business owners into exile. These tendencies could only end in political and financial crisis for the empires and their bankers. The Spanish defeat at Westphalia (1648) marked the birth of the interstate system and, for Wallerstein, the modern world system, thus bringing the long 16th century to a close. Thereafter the modern world system developed through cyclical movements that would eventually encompass the whole planet. But before examining that process, let us turn to some of the debates around Wallerstein’s theses. One critique of Wallerstein’s theses comes from Fernand Braudel, for whom capitalism emerged with the expansion of European city-states between the 11th and 13th centuries. For Braudel, the city-states lay at the centre of the ­European world-economy until the early 18th century, when they were replaced by nation-states. Claiming that his differences are of degree rather than substance, Braudel minimises the contrast in Wallerstein between world-­ economies and world-empires by arguing that an oppressed and besieged world-economy can still survive in a world-empire. In this sense the European case is special because feudalism also diminished the central power’s coercive capabilities, leaving the world-economy in question ‘free’ to develop within the world system. Capitalism emerged out of feudalism and superseded it as a result of the expansion of the world-economy itself. The following excerpts from Braudel serve to elucidate his position: Immanuel Wallerstein has argued that wherever there was an empire, the underlying world-economy was unable to develop – that its career was stunted. […] All the same, I am personally inclined to think that even under the constraints of an oppressive empire with little concern for the particular interests of its different possessions, a world-economy could, even if rudely handled and closely watched, still survive and organise

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i­tself, extending significantly […] To return to the European example, can we not say that it escaped very soon from the stifling embrace of empire? The Roman Empire was at once more and less than Europe; the Carolingian and Ottoman Empires had little control over a Europe already in decline. The Church, while it succeeded in extending its culture over the entire surface of Europe, failed in the end to establish its political supremacy. […] The predominance of the city-state can only be explained in the context of the first world-economy ever to take shape in Europe, between the eleventh and thirteenth centuries. It was in this period that the extensive trading zones were established of which the cities were at once the instruments, the articulations and the beneficiaries. The birth of Europe, that monstrous shaper of world history, took place not in 1400, the starting-point of this book, but at least two hundred years earlier. braudel 1984: 54–55, 92

Writing in 1998 for the Fernand Braudel Center Review, Giovanni Arrighi adopts a midway position between Braudel and Wallerstein. Whilst acknowledging the role of cities in the rise of capitalism, he also points out that capitalism was only able to consolidate its presence through the articulation of city-states with territorial powers. For Arrighi, the crisis of feudalism was irrelevant to capitalism’s emergence, which should instead be located in cities and their ­interstitial growth in and between different ‘worlds.’4 City-states connected territorial organizations with each other and with other worlds, and became centres of wealth accumulation based on long-distance trade, including a monopoly on the trade in rare goods. The competition between territorial organisations for mobile capital fuelled this city-state-centred accumulation whilst also stoking politico-military conflict between them. And whilst this did not alter the European balance of power, it certainly set the stage for a transformation of the power relations between Europe and the rest of the world.

4 The crisis of feudalism and the so-called transition from feudalism to capitalism in European agriculture are no doubt very relevant to an understanding of English, French, Polish, German and many other “national” histories of the European world. They nonetheless are largely if not entirely irrelevant to an understanding of the origins of world capitalism for the simple reason that world capitalism did not originate within the economic activities and social relations that were predominant in the larger territorial organizations of the European world. Rather, it originated in the interstices that connected those larger territorial organizations to one another and their totality to other “worlds.” (Arrighi 1998, 120).

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In Arrighi’s account, the crucial aspect of the transition to the modern world is not the change from feudalism to capitalism, but from an interstitial capitalism based on the city-state system to a capitalism built on nation-states. The zero point of capitalist development was the financial expansion unleashed when the trade expansion of the 13th and early 14th centuries ended. Genoa played a key role in this process. Faced with military obstacles on the Mediterranean route to Asia, conflict between incipient mercantilist policies, and the territorial expansion of other Italian city-states, it joined forces with the Spanish Empire to finance the pursuit of endless accumulation. As it was the weakest city-state in terms of territorial power, Genoa gave up on capturing trade routes by force and instead opted for a “marriage of convenience” with the Spanish, bankrolling their imperial expansion in return for protection. Subsequently, the military defeat of the Spanish endeavour made it possible to build nation-states (Arrighi 1996). Braudel and Arrighi’s criticisms of Wallerstein nevertheless do not help so much in forging a theory of the longue durée because they divorce the rise of capitalism from its structures and bypass its particular systemic features.5 Braudel suggests that feudalism survived into capitalism thanks to the growth of cities, beginning in the 11th–13th centuries. But that is to ignore the theoretical and historical space in which the feudal mode of production entered into crisis and the modern world system emerged as the ideal superstructure for the development of historical capitalism. Polemicising with Braudel, Wallerstein notes that although world-economies had indeed existed in Antiquity and the Middle Ages (alongside the first signs of capitalism), they only became hegemonic with the advent of the modern world system: Ten years ago I did not accept the existence of multiple world-economies, but you have managed to convince me. I now accept the existence, before the 16th century, of these world-economies, but I believe that each of them, due to the internal contradictions of its structure, either disintegrated or was transformed into world-empire. For one odd reason that ought to be explained, that was not the fate of the world-economy constructed in the 16th century; in consequence, it was from then on that real capitalism emerged. braudel et al., 1989: 119

5 In Braudel and Arrighi the difficulty of separating the rise of capitalism as a historical system from its local expressions can be seen by their relative inability, theoretically and historically speaking, to imagine the exhaustion of capitalist structures and the need to go beyond them. We look at this issue in greater depth in the next chapter.

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The spread of cities should be seen as part and parcel of the development of the feudal mode of production. It is not surprising that the leading Italian citystates were located in areas ill-suited to rural life, where they grew on the back of higher agricultural productivity but were constrained by existing power relations. At a certain point this increase in productivity began to pose a threat to feudalism. But cities alone do not explain the transition from the Middles Ages to the Modern Age. In this sense Arrighi is right in his criticism of Braudel. But he fails to fully explain why territorial powers articulated themselves at a given point with city-states and respected their autonomy and interstitial condition given that, despite representing centres of accumulation, they were still militarily vulnerable. Answering this question means accepting the proposition that the European territorial powers sought to resolve the crisis of feudalism by building a capitalist world-economy. Unable to bring the developing market economy, which was threatening feudalism, under a unified imperial command, the territorial powers set about redefining the State. The market economy’s origins lay not in the cities – although it was most visible there – but in rising productivity in the countryside. This could not be fought by military means and it triggered peasant exoduses which reduced the surpluses appropriated by the rural nobility and dissolved feudal labour relations. In effect this meant the exhaustion of secular trends which could not be overcome by a new expansion of the feudal system. The territorial powers started by joining forces with citybased financial and commercial capital to build a world-economy that would bring the cost of peasant labour back down and increase surpluses. They later abandoned any imperial pretensions of politically centralising the worldeconomy and turned their empires into absolute monarchies. These monarchies were hegemonised by mercantile and financial capitals and turned into vast bureaucracies which sealed their alliance with the territorial nobility by making many of them Court nobility. Starting with Westphalia, this represented a big step towards recognising the territorial limits of absolute sovereignty because it separated political tensions from international economic relations. This separation was reinforced by the notion of the sovereignty of the people, which took hold during the French Revolution and reached maturity in the latter half of the 19th century.6 6 Wallerstein argues that the French Revolution adapted the ideological superstructure to the political and economic changes that took place when the modern world system was constructed. In his view the Revolution was the moment when, from the standpoint of the capitalist world-economy, the ideological superstructure was brought in line with the economic base. The Revolution did not represent fundamental transformation from a political or

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Another critique of Wallerstein’s understanding of capitalism and the world system can be found in the post-1990 writings of André Gunder Frank. Along with Barry Gills, he develops a new theory of the world system. Rejecting the idea of a modern world system, they assert that a world system has existed ever since Egypt and Mesopotamia became connected 5,000 years ago (i.e. since 3000 ac). It is a system based on accumulation, in which production is just a means for capital and consumption. At the same time they argue that the concept of mode of production should be replaced by that of mode of accumulation (either private, state sector-led, or a combination where one form prevails), and that feudalism, capitalism and socialism represent ideological, anti-­scientific concepts: The world system wide reality is the competitive dog-eat-dog war of all against all (à la Hobbes), in which only the few can win and the many must lose. And so it has been for millennia, thanks to the world system’s unequal structure and uneven process, which Wallerstein helps us identify. frank and gills, 1996: 215

For Frank and Gills, the fact that most East-West exchange involved luxury goods does nothing to invalidate the notion of a single world system encompassing the two regions. In fact, they argue, luxury goods are one of the material forms of the surplus and their circulation supports the theory of an ­expanding millennial world system. But the authors fail to perceive that for accumulation to develop on a global scale, its agents must be fully able to compare product costs and prices across different regions. Otherwise it remains stunted and politically and socially unstable. The fact that exchange was concentrated in luxury goods reflects the political obstacles world-empires put in the way of cost comparison, thereby limiting the development of a globally integrated mode of accumulation. If Frank and Gills were to describe the process of capital accumulation as capitalism then their vision would resemble Weber’s thesis (1930, 1978) that e­ conomic perspective, because the modern world system already had a structure (1998a: 72). Although we agree with Wallerstein that the capitalist world-economy was already structured as an interstate system, the ideological turn represented by the French Revolution – which by the late 19th century had been assimilated into the capitalist world-economy via political acceptance of the idea of the sovereignty of the people – was crucial to the development not just of the modern world system’s cultural superstructure, but also its political superstructure.

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capitalism is defined by the quest for surpluses. But their ideas are located at an even higher level of abstraction. This makes it very hard to trace the history of structures, because it reduces their historico-specific concepts to a very general framework. Another critique of Wallerstein’s thesis comes from Samir Amin (1997), who locates the origin of the world system in the capitalist mode of production. We expressed earlier our reservations about an approach which gives the infrastructural aspects of modes of production so much precedence over their superstructural aspects. As we saw, the construction of modes of production starts with the superstructure – notably political control – which then grows material roots. It is as these material roots take hold and develop that they condition the superstructure as a whole and enable its overhaul. 2

The Modern World System and Capitalist Development

Historically, then, capitalism’s development has always been articulated with the modern world system. With this is as our theoretical and methodological framework, we can identify five main trends which allow us to reconstruct capitalist development as a concrete historical totality: the unlimited expansion of circulating capital; uneven and combined development; systemic cycles; Kondratiev cycles, and the tendency for profit rates to fall. 2.1 Endless Accumulation and Uneven and Combined Development The limitless expansion of capital circulation is the core developmental feature of a predominantly capitalist system. We saw that this requires a system based on territorially limited political organizations, which are inter-­connected via the capital and commodity flows of an international division of labour. As States are limited to specific territorial spaces, they cannot use force to intervene in other capital and commodity chains outside their geographical space, and if they do so within their own geographical space they risk being passed over by international capital flows in search of the highest rates of profit.7 Capital’s unlimited expansion means competition for superprofits are only achievable under monopolies. The latter allow prices to deviate from value and instead be determined either by state coercion (via the ownership of land/ scarce natural resources/populations, or via restrictions on exchange or the 7 State intervention in capital and commodity chains must trigger a rise in profit rates if it is to succeed in attracting global capital.

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circulation of capitals), or by technological factors, or by both (via state support for businesses or particular sectors via credits, subsidies, government purchasing, patents, etc). During the hegemony of commercial capital, state coercion was needed to make profits and superprofits, and was the key to transforming the formula C-M-C into M-C-M’ – the basis for commercial capital.8 Colonisation and the metropole’s monopoly over colonial trade responded this need.9 It was only with the development of the capitalist mode of production that the pressure of competition forced productive capital to grant a share of the surplus value produced to commercial capital in order to create a specialisation which would enable the uninterrupted articulation of finance, production and trade. The more the capitalist mode of production develops, the more the appropriation of superprofits depends on obtaining extraordinary levels of profit. They are initially obtained via a technological monopoly which enables producers to sell commodities at prices above their individual value as determined by the amount of abstract labour their production requires. Extraordinary profit represents a change in the way surplus value is distributed, not an increase in the amount produced.10 As such it signifies surplus value appropriated by an individual capitalist with no equivalence in production. However, this transfer and appropriation depends on the intensified inter-capitalist competition that follows when the State helps open up new markets. Superprofits and extraordinary profits create an unequal international division of labour in the world system. Some regions (the peripheries) are negatively affected by surplus value appropriation and sell commodities at prices below their value, while others (the core areas) benefit from it and sell commodities above their value. Then there are regions where these two movements cancel each other out (the so-called semi-peripheries). In the 8

9 10

Marx notes in both the Grundrisse and Capital that the transport of commodities under the direction of commercial capital is productive labour that adds surplus value to the product. But that surplus value only represents a small fraction of the product’s value and is not enough to meet capital’s valorisation needs under the hegemony of commercial capital. Therefore commercial capital must use coercion to appropriate value created by precapitalist forms of production. This issue is addressed in Fernando Novais’s (1974) classic Portugal e o antigo sistema colonial (1777–1808). It is not only extraordinary profits that cause the price of commodities to deviate from their value: prices of production produce the same effect by levelling the profit rates of capitals of different organic and technical compositions. Both relate to technological monopoly, and prices of production associate the free flow of capitals and commodities to this monopoly.

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system as a whole these surplus value transfers go beyond their original condition and create new stages of polarisation which drive uneven and combined development in the capitalist world-economy: The division of a world-economy involves a hierarchy of occupational tasks, in which tasks requiring higher levels of skill and greater capitalization are reserved for higher-ranking areas. Since a capitalist world-­ economy essentially rewards accumulated capital, including human capital, at a higher rate than “raw” labor power, the geographical maldistribution of these occupational skills involves a strong trend toward self-­ maintenance. The forces of the marketplace reinforce them rather than undermine them. And the absence of a central political mechanism for the world-economy makes it very difficult to intrude counteracting forces to the maldistribution of rewards. wallerstein, 1976: 350

The centres typically insert themselves into the world economy by organising a base of high quality use values. Their ability to compete for circulating capital is linked to their ability to offer a powerful national system of innovation,11 political stability and security. This is how they become the nodes articulating global capital and commodity chains. They thus become global financial centres. In contrast, peripheries compete in the world-economy through their ability to offer low-cost services. The periphery does not compete for circulating capital on the basis of a quality differential in its base of use values but rather because it can offer certain use values at a lower and deferred cost. The price of labour power becomes the key to reducing the costs of the services offered. Meanwhile, the semi-periphery is in an intermediate position: it can 11

The concept of a national system of innovation was introduced in the late 1980s by Christopher Freeman in his studies on Japan (Freeman 1987, 1988). It was later developed by Bengt-Åke Lundvall (1992) and Richard Nelson (1993), and much was written about it subsequently. In his overview of the idea, Charles Edquist highlights its contribution to the literature on innovation. Essentially, he argues that traditionally the literature has emphasised research and development (R&D) centres and explicitly innovation-focussed organisations, but that the new approach goes much further, bringing out the role of political, economic and educational institutions and their aims. A national state entails knowledge, values, norms, routines, laws, objectives and interaction that together constitute an environment that either tacitly or explicitly favours innovation (Edquist 1997, 49). The systemic aspect to the concept of a national system of innovation stresses interaction as a core component of innovation which cuts across organisations and institutions and places value on learning by interacting, learning by doing and learning by using.

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attract capitals on the basis of both the quality and low cost of its assets. So by offering a variety of use values, the semi-peripheral state can choose whether to specialise in high quality services – in principle more advantageous – or in low cost services, which would relegate it to the periphery. For Wallerstein and Arrighi, however, it is not enough just to want to become part of the centre in the modern world system, and semi-peripheral or peripheral regions very rarely achieve this.12 The competitive environment in which historical capitalism develops is a powerful barrier to doing so. On the potential for semi-peripheral states to adopt status-raising policies, Wallerstein argues that This sounds voluntaristic, and to some degree it is. Intelligent state policies have much to do with what happens. But two caveats must immediately be added. First, state policies are not prime movers but intervening processes. Secondly, not every state machinery can utilize any given set of policies with the same expectation of happy result. Indeed, quite the contrary. Many may try, but only a few succeed in significantly transforming the rank of their state in the world division of labor. This is because the very success of one eliminates opportunities and alternatives for others. wallerstein 2011, 179

Changing rank usually requires the presence of two factors: an internal catching-up policy in the semi-peripheral country aimed at pushing it to the forefront of new technology, and the support of the world system’s financial ­centres. The latter may support development in a region because of a political need to bolster a particular hegemony by allying with local ruling elites.13 But concessions made on that basis risk limiting hegemonic power over the medium to long term. Changes of rank in the modern world system are especially important when a systemic cycle enters its crisis phase. Usually in such periods

12 In A ilusão do desenvolvimento (1997a) Giovanni Arrighi examines changes of rank between the core, semi-periphery and periphery during the rise of US hegemony, showing how rarely they actually occur. 13 This was the case with US concessions to the development of Asian capitalism. In Japan, South Korea and Taiwan especially, it offered cheap credits, paid foreign exchange to maintain military bases, and accepted local protectionism and restrictions on foreign capital entering the productive sector. These concessions injected dynamism into the region, helping it launch the biggest of all challenges to the economic and technological foundations of US hegemony in the 1980s.

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the hegemonic power in crisis seeks a successor with whom to ally from a position of privilege. Systemic crises bring reconfigurative hegemonic shifts and polarisation. Social divisions sharpen, the middle stratas within nation-states hollow out, and globally the size of the semi-periphery shrinks.14 But such crises also mean that dominant models break down and opportunities arise for mobility within the 14

Wallerstein points out that the semi-periphery is not an absolute fact of the modern world system but a historical configuration, which plays a vital role in keeping it stable and intact. Whenever it shrinks, political and institutional instability increases in the world system. Its structural function is to foster the belief in ascent in historical capitalism, either from the semi-periphery to the core or from the periphery to the semi-­ periphery (however unlikely in most cases), and to reduce the sense of polarization. The limited upward mobility that does exist encourages semi-peripheral and peripheral countries to compete with each other to ascend and influences the path they go down ideologically as they become integrated into historical capitalism: “The semi-periphery is then assigned as it were a specific economic role, but the reason is less economic than political. That is to say, one might make a good case that the world-economy as an economy would function every bit as well without a semi-periphery. But it would be far less politically stable, for it would mean a polarized world system.” […] “We are not saying that three tiers exist at all moments. We are saying that those on top always seek to ensure the existence of three tiers in order to better preserve their privilege, whereas those on the bottom conversely seek to reduce the three to two, the better to destroy this same privilege.” (Wallerstein 1979, 23, 223). For us, the semi-periphery is undoubtedly a key factor in bringing political stability to the world-economy. But we do not see it as the only factor. The prospect of super-exploiting labour often does much more to integrate individual elites into the world-economy than the simple expectation that a country might ascend a tier. The clearest example of this is the willingness of dependent country bourgeoisies to appropriate super-exploited labour in order to project themselves in the world-economy even if at the expense of their own country’s ranking in it. If a political, institutional or economic crisis threatens such appropriation then it can derail said elites’ integration into the world-economy. That was the only reason many peripheral countries opposed rules against social and ecological dumping at the wto’s 3rd Conference, displaying unprecedented autonomy from the positions adopted by the Clinton-led US government in the 1990s. Nevertheless, similar examples can also be found in core countries, albeit on a more limited scale given that, as we have seen, the long-term positioning of a particular bourgeoisie depends on the quality of its use values. Under British hegemony, the prospect of colonial conquest served to keep liberalism relevant to inter-European power relations even after it had caused the semi-peripheralisation of the economy’s centre between 1820 and 1870. (Maddison 2001, 185). Although this liberalism suffered from the rise of protectionism and movements of national unification, it was only with the final carve-up of the world – and the obstacles that put in the way of European bourgeoisies adding to their reserves of super-exploited labour in the colonies – that nationalism and liberalism could no longer coexist, thus ramping up national tensions and pushing the world towards the systemic chaos of 1914–1945.

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interstate system. In times of systemic stability and growth its structural determinations are solid enough to stifle antisystemic movements. It is very hard for any country to switch rank in such periods. But during a systemic crisis its determinations are unstable and open the way for a sweeping reconfiguration. Unchecked, this process can undermine polarisation itself. But the system’s secular trends, tied to endless accumulation, limit the extent of any reconfiguration and reactivate the underlying forces of historical capitalism. 2.2 Systemic Cycles Systemic cycles are linked to the ascent and crisis of hegemonic states in the modern world system.15 As noted earlier, the modern world system is organised around an international division of labour whose commodity and capital chains cut across national states. Territorial limitations prevent States from controlling such chains by force. This guarantees the power of the economy over politics. But in order to function the system must avoid the anarchy that would ensue were each state to pursue its own interests. To limit the chances of that happening and breaking up the international division of labour, there must be one hegemonic state. That state will use its hegemonic power to condition different individual interests to the general, systemic interest. That is how the rules of global trade and capital circulation are written, the global currency is defined, and the dividing lines between peace, diplomacy and war are drawn. World systems theory has defined the concept of hegemony in different ways. In Wallerstein’s limited definition, for example, it means a brief period when one power enjoys productive, commercial and financial superiority over others.16 This occurred in 1625–1672 (Dutch hegemony), 1815–1873 (British hegemony) and 1945–1968 (US hegemony). He finds that these periods share a number of common characteristics: 15 16

We must acknowledge Immanuel Wallerstein as the best theorist of the modern world system concept, and Giovanni Arrighi, as the best thinker of hegemony and the systemic cycle notions. During hegemonic periods, the hegemonic power sells its competitively priced products on other core countries’ internal markets. As Wallerstein notes, “Hegemony involves more than core status. It may be defined as a situation wherein the products of a given core state are produced so efficiently that they are by and large competitive even in other core states, and therefore the given core state will be the primary beneficiary of a maximally free world market. Obviously, to take advantage of this productive superiority it must be strong enough to prevent or minimize the erection of internal and external political barriers to the free flow of the factors of production; and to preserve their advantage, once ensconced, the dominant economic forces find it helpful to encourage certain intellectual and cultural thrusts, movements, and ideologies. The problem with hegemony, as we shall see, is that it is passing.” (Wallerstein 2011, 38).

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b.

c. d.

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The hegemonic power’s entrepreneurial superiority in agro-industrial production, commerce and finance. This leadership was built up cumulatively: agro-industrial primacy meant commercial dominance, which in turn led to financial superiority.17 Each period being preceded and then guaranteed by a thirty years’ war in the world-system, as took place in 1618–1648, 1792–1815, and 1914–1945. In each case the hegemonic power’s productive, commercial and financial superiority was key to military victory, but only the latter could guarantee the conditions whereby it was able to fully exercise its superiority. The victorious states always relied on sea or air power rather than ground strength. Global liberalism as the ideology of the hegemonic power, marshalled in defence of the free flow of factors of production (goods, capital and labour) in the world-economy. Political and social stability at home as a result of the hegemonic power promoting a political liberalism rooted in parliamentary institutions and civil rights.18

“These superiorities are successive, but they overlap in time. Similarly, the loss of advantage seems to be in the same order (from productive to commercial to financial), and also largely successive. It follows that there is probably only a short moment in time when a given core power can manifest simultaneously its productive, commercial and financial superiority over all other core powers. This momentary summit is what we call hegemony (Wallerstein 2011, 38–39). We find two definitions of liberalism in Wallerstein: firstly as a worldview and doctrine associated with empires and absolute monarchies; and secondly in its mature form as an ideology and geoculture. In its first form, liberalism emerged as an approach that sought to promote the core principles of competition and its application in the world-economy, despite certain states helping fractions of their bourgeoisies to compete. In its second form, as an ideology and geoculture, it represents a centrist political programme of social and institutional change. Here it develops the principles of competition and hegemony at the political and cultural level, conditioning them to supporting capitalist accumulation. With the French Revolution, liberalism inflicted a violent cultural defeat on conservatism, and in the mid-19th century it began to mature. It defended modern technology and social liberation and questioned the imperial world-view, which would admit no challenge to political and institutional power. Thus the modern world system fashioned its own geoculture. Wallerstein argues that before establishing its own geoculture, liberalism made a claim for itself without first developing the principle of popular sovereignty in either the world-economy as a whole or its centres, and without really caring to articulate its cadres’ ideas with popular sentiment. In this context liberalism took the form of a doctrine. ­Consent was strictly limited to the sphere of interstate relations because the cadres of different national structures realised they could not incorporate capital and commodity circuits by force. This was despite a participatory environment being created within the

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Wallerstein’s definition of hegemony leaves gaping holes to understanding of its impact on the world system.19 Hegemony should not be understood as strictly economic, i.e. as productive, commercial and financial d­ ominance alone. It also has an institutional dimension and cannot be a short-term phenomenon. The hegemonic state plays a fundamental role in organising capital accumulation and makes the institutional arrangements that enable systemic development. Global capital accumulation not only requires the generation of surplus value through the concentration of productive assets in the core. It is also requires the appropriation of surplus value, which only becomes possible on the scale required with the institutional order created by the globalising interventions of the hegemonic state charged with ensuring the smooth functioning of the international division of labour and the world economy.

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hegemonic country, lending it legitimacy and likened by Wallerstein to centrism even though the principle of popular sovereignty was not asserted. In its struggle with the imperial world vision liberalism prioritised the modernity of technology over the modernity of social liberation. But as it embedded itself more deeply with hegemony and its symbolic interactions, so the advance of socialist theory and practice forced it to embrace liberation too. As we shall see, during British hegemony liberalism built a geoculture in the world system’s centre and parts of its semi-periphery. It did this in three ways: by gradually extending the suffrage to the masses; by laying the foundations of a welfare state, and by affirming national identity. For Wallerstein, US hegemony then deepened and developed this geoculture throughout the system, but was less successful in stabilising the periphery and the bottom rung of the semi-periphery. Wallerstein’s multi-layered and thought-provoking definition of liberalism harbours ambiguities and contradictions. Thus it gives the same name to a project concerned with the competitive basis of capital accumulation as it does to one concerned with the social basis of said accumulation. But the two do not always coincide, because as we shall see, whilst some hegemonies prioritise liberalism’s economic aspects, others give precedence to its social aspects and become quite autonomous of the original liberal project. We shall therefore use the term political liberalism to describe the project of promoting a geoculture of the world-economy, be that in the hegemonic country, regions or the system as a whole; and economic liberalism for the project of promoting capital accumulation based on the competitive principles underpinning the law of value, even whilst partly deviating from those principles by using state intervention either to enforce the law of competition in certain regions of the world-economy (such as Asia and Africa under British hegemony), or to benefit certain national fractions of capital in line with the more general principles of competition (via subsidies, state purchasing, etc.). As a rule, we use the term liberalism without adjectives or explicit reference to ideology to describe the doctrine of economic liberalism. Global liberalism, on the other hand, encompasses the aforementioned ambiguities and refers to both forms of liberalism. For Wallerstein’s analysis of hegemony as a concept, see The Modern World System ii (2011) and the essay “The Three Instances of Hegemony in the History of the Capitalist WorldEconomy” (2000a).

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However, the way it intervenes varies considerably from one systemic cycle to the next. Hegemony is linked to a given state’s ability to establish the institutional order governing the world-economy, through which the general interest is defined. But while the state in question must command enough productive, commercial, financial and military power to impose this institutionality, it does not need a monopoly on all those powers in order to sustain it. Braudel refers in his work to a hegemony’s “sign of autumn” (1984, 246). Autumn represents that period when a hegemonic centre loses its competitive edge in production and trade but retains financial superiority by controlling a large chunk of the world’s monetary reserves – either through direct access or because they are held in its national currency. Giovanni Arrighi redefines hegemony and develops the theoretical implications thereof by analytically constructing systemic cycles. In The Long Twentieth Century he argues that there are two dimensions to hegemony. First and foremost, the hegemonic power leads the state system, convincing other states it is the motor force behind the collective power of rulers over individuals. The second dimension, with destabilising effects in the long term, is the hegemonic state’s power to attract others to its particular path of development (Arrighi 1996, 29). Having defining hegemony more broadly in terms of the capacity to lead the modern world system’s political and ideological superstructure, Arrighi is theoretically equipped to locate the loss of combined productive, commercial and financial leadership as a phase in the hegemonic process which does not necessarily imply a loss of hegemony in the wider sense. He also theorises systemic cycles, with the signs of autumn marking the passage between their different phases. Systemic cycles are not the same as trends seculaires20 or Braudelian logistic cycles, which are based on oscillating price movements over 150–300 years. Indeed, attempts to use trends seculaires to chart movements longer than Kondratiev cycles seem to have met with little success. The periods of oscillation are extremely long-lasting and their inflexion points do not always mark the start of new periods with the characteristics they might be expected to have.21 20 Braudel’s trends seculaires were first theorised by Gaston Imbert in 1959. Imbert himself built on the work of Jenny Griziotti-Kretschmann and León Dupriez in the 1930s and 1940s, who used the fluctuations in price series to designate a given period as one of productive expansion and recession. See Scandella (1998, 9–12). 21 Braudel distinguishes four secular cycles, each divided into an expansive phase (A) and a crisis phase (B) and mediated by a point of inflexion: from 1250 to 1507–1510, with an inflexion point in 1350; from 1507–1510 to 1733–1743, with an inflexion point in 1650; from 1733–1743 until 1896, with an inflexion point in 1817, and from 1896 for an undefined length

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Starting out from Braudel’s conceptualisation of capitalism, Arrighi defines systemic cycles as inherently capitalist in the sense that they describe what Braudel called the ‘top floor’ of the world-economy.22 Each systemic cycle is divided into three stages. First there is an A-phase of material expansion, when one particular state harnesses the superior productive, commercial, financial, military and ideological power needed to give a new direction to the world system. This is followed by a B-phase of financial expansion and economic depression, when the hegemonic state sees its productive and commercial power decline but responds by developing powers of financial accumulation which become independent of the expansion of its material base.23 In this phase a contradiction emerges between the expansion of financial and ideological power and the decline of productive and commercial power. This gives rise to a third, anarchic phase, which begins when the hegemon’s financial power is longer sustainable and its ideological power dissolves, incapable of defining the general interest in the world-economy any longer. This third phase is

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of time, with an inflexion point in 1974. But this periodisation is highly questionable: it is hard to see the entire 19th century as a time of crisis, or the first half of the 20th century and the quarter-century after wwii as falling within the same period. Wallerstein recognises these cycles and attempts to link them to the question of hegemony, using them as the starting point for his five-stage model consisting of (1) slow growth of the hegemonic power; (2) thirty-year war; (3) restructuring of the interstate system by the hegemonic power; (4) gradual decline of the hegemonic power, and (5) a return to the normal state of rivalry between powers (Wallerstein 2000a, 217). Arrighi draws on Braudel’s ‘three-storey’ model of the capitalist world-economy. On the top floor we find the political power relationships which make capitalism possible. This is the shadowy zone of monopolies, where capitalists seek to obtain privileges by establishing relationships with the State and then availing itself of its power to trade in rare commodities. In the middle tier we find market relations. This is the transparent terrain of exchange and small business, where supply and demand equal each other out and the level of profit reflects to some degree the amount of work performed. Finally there is the ground floor, which represents material life and is described by Braudel as the realm of self-sufficiency and use values. This level is traditionally inhabited by peasants and workers who work for their own subsistence. But it is more than just that, as it encompasses their routines, gestures, habits, secular and millennial customs, i.e. the starting point of economic life. This realm is also seen as shadowy: not for the same reasons as the top floor, but because of its focus on survival and conservation, its spatial and temporal dimensions, and its extremely slow pace. Braudel summarises this conceptual model in Afterthoughts on material civilization and capitalism (1977), having first introduced it in his monumental three-volume Capitalism and Civilization 15th – 18th Centuries (1982, 1983, 1984). This accumulation drains the system of some of its capacity for material expansion and leads to a period of containment and absolute or relative decline of wealth production.

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marked by a ­thirty-year war as the two rival historical blocs compete to impose new institutional frameworks for organising adhesion to the world system. These three phases are described by Arrighi as hegemonic expansion, hegemonic crisis and chaos. Unlike Wallerstein, he stresses that each systemic cycle leads to a specific model of governance and not necessarily to global liberalism. Indeed, the new dominant ideological and institutional forms that are imposed respond not only to the interests of the hegemonic power’s ruling classes, but to the interests of ruling classes in other countries and the different class fractions they represent in the interstate system. The key to hegemony is to make individual aims converge in a hierarchical global interest that benefits the power articulating it.24 Arrighi refers to the existence of a pendular movement which determines the institutional model adopted during each systemic cycle. In order to develop, historical capitalism must avail itself of two different and expansive logics characterised by both unity and contradiction – a capitalist logic and a territorialist logic. The two logics combine because for capitalism to develop it needs the ‘top floor,’ that is, the interstate system. World-empires were territorialist systems that used capital accumulation in order to obtain power, which they understood in terms of territorial expansion and population density in their domains. But part of the wealth they created was used up in conquering and retaining power, and eventually this cost began to outstrip the wealth accumulated. This threatened the political unity of the world-empire, and land loss and barbarian invasion followed. Capitalism, in contrast, tends to use territorial expansion in order to accumulate capital. Its economic logic is borne of careful calculations which enable it to forecast the surpluses that can be obtained over and above the production costs of a given activity, and to know therefore if it is feasible. This requires a large market that can judge the price of the different use values and credit.25 However, the uncertainty surrounding the cost of incorporating territories and populations imposes limits on capitalist calculus. These limits can hinder the expansion of capitalism. But capitalism needs to incorporate a growing base of use values in order to guarantee the expanded reproduction of capital. To break through this impasse, a political institution with a monopoly over the right to use violence must intervene in territories and populations on behalf of capital accumulation. This institution is the interstate system organised and led by the hegemonic state with the backing of 24 25

Arrighi developed this critique of Wallerstein in conjunction with Beverly Silver. See Arrighi and Silver (1999). The market is at the heart of what Max Weber (1930) calls the capitalist spirit.

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other states which lend it greater power. For Arrighi, the oscillation between activity linked to economic calculus and activity focussed on the political ­intervention required to make said calculus possible is the defining feature of the pendular swings that regulate the institutional patterns of historical capitalism. In Arrighi, systemic cycles are either ‘cosmopolitan-imperial’ or ‘corporatenational.’ The former foster extensive and all-conquering accumulation ­regimes in which increased productivity goes hand in hand with the incorporation of new populations and territories into the world-economy, redefining its administrative paradigms. In contrast, corporate-national cycles establish intensive accumulation regimes which consolidate expansion. They succeed cosmopolitan-imperial cycles and combine increased productivity with qualitative changes in the institutional administration of the existing world-­ economy without altering its geographical boundaries. A swing of the pendulum does not, however, fully account for specific models of interstate systems. It does not imply a clean break with the previous movement. The structure of each new systemic cycle retains features developed during the preceding cycle. This accumulative systemic character means that each new hegemonic actor has a broader and more complex organisational base. It means a new kind of relationship between the State and the capitalists – one grounded in innovative technologies and models of public/ private administration, broader territorial and demographic bases, and new geographic locations. That is how the Genoese-Spanish26 and British systemic cycles (both cosmopolitan-imperial) developed, as did the Dutch and North American cycles (both corporate-national). 2.3 The Genoese-Spanish Cycle The Genoese-Spanish systemic cycle articulated Spanish imperial power led by the Habsburg dynasty with Genoese capital linked to finance and overseas 26

Neither Arrighi nor Wallerstein consider Spain to have been a hegemonic power. Arrighi prefers to talk of Genoese hegemony, whilst for Wallerstein the Spanish Empire marked the transition towards the modern world system, which only fully developed upon its downfall. But although its imperial self-projection and the territorialism of its ruling elites certainly weigh against it, Spain did play a strategic role in articulating a world-economy which it could never dominate, but which equally could never have been built on Genoa’s initiative alone. Between 1450 and 1650 Spain’s territorial power was vital to the expansion of historical capitalism, and so we prefer to talk of a Genoese-Spanish hegemony, thus denoting what Wallerstein (1979) himself calls a “marriage of interests” between the empire and the city-state. In his most recent work, Arrighi largely rectifies his position and refers to the first systemic cycle as Genoese-Iberian (2007, 236–237).

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trade. As we saw, this articulation was fundamental to the birth of the capitalist world-economy. This is because it brought together, on the one hand, ­territorialists seeking to resolve the European feudal crisis by using imperial expansion to find new sources of wealth, raw materials, food and labour power; and, on the other, Genoese capitalists seeking new investment outlets for their capital. The Genoese commercial bourgeoisie had been badly hit by the Italian city-states’ crisis of accumulation and were vulnerable on two fronts. Firstly, they were supported by a weak feudal-military aristocracy. Hence when Mediterranean trading profits declined they were pushed out of the disputed Eastern Mediterranean and Black Sea trade routes by Venice (during the Hundred Years’ War). Secondly, they were weaker than their own feudal aristocracy, which prevented them from refeudalising and investing their profits in land, castles and armies. It was in such circumstances that Genoese capitals looked to the Iberian Peninsula for the kind of protection their own aristocracy had withheld when the Genoese trade empire entered into crisis. Its advantageous location promised greater control of African gold and an alternative Atlantic route to the Orient. But it was Spanish imperial interest in an expansion of incalculable expense that really made this convergence of interests work. The Genoese were at first only interested in trade, but later agreed to finance the colonisation of new peoples and territories (Arrighi 1996, 125). Thus the foundations of the Genoese-Spanish cycle were cemented in a way which involved each party taking on a specialised role. Spain assumed the costs of colonial conquest and the protection of territories and trade routes. It recouped this expense by collecting tribute in the areas it occupied – including up to 20% of the silver produced in its American ­colonies – and restricting colony-metropolis trade relations by imposing the metropole’s exclusive monopoly on colonial trade. But the Spanish Empire did not pursue mercantilist policies. Instead it retained a firmly pan-European outlook. Geographically speaking, it was spread over non-contiguous areas bereft of any national identity and enjoying only the most precarious administrative unity. Politically and ideologically it was united by Catholicism, in whose name it expelled non-Catholic traders and bankers and relied instead on foreigners who benefitted from the metropole’s monopoly over colonial trade. It neither built up a navy of any significant size, nor enclosed common land, nor protected Spanish manufacturing, nor rationalised its system of tribute to allow commodities to circulate in its hinterlands. Genoa, for its part, bankrolled the Spanish treasury and put its navigational expertise at the service of overseas trade. But above all it would end up specialising in finance (Wallerstein 1998a, 233–316; Arrighi 1996, 111–130; Kennedy 1987, 31–72).

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Thus an imperialist and expansionist cycle was founded on anti-liberal principles, such as the metropole’s monopoly over colonial trade, that were nevertheless subordinated to antimercantilism – meaning foreigners who belonged to or supported the Empire were free to engage in commercial and financial activity.27 The fall of the Spanish Empire was precipitated by its inability to balance the costs of its expansion and maintenance against its income. This led to soaring deficits, financial crises (1557, 1575, 1596, 1607, 1627 and 1647) and domestic revolts against tribute and the Empire’s ideological foundations. This situation bankrupted Genoese and southern German investors and had a negative impact in locations they were associated with, such as Portugal, Antwerp and Krakow. 2.4 The Dutch Cycle The Genoese-Spanish systemic cycle was followed by a corporate-national Dutch cycle. The United Netherlands had played the leading role in bringing down the Spanish Empire’s downfall, and it now sought to build its hegemony on the subordination of territorialism to capitalist calculus. This approach was expressed by (a) its containment of European expansionism through the Peace of Westphalia; (b) Hugo Grotius’ liberal principle of Mare Liberum, and (c) changing the way Europe ruled the East. Westphalia allowed the Dutch to avoid the kind of political-military expenditure that had contributed to the demise of the Spanish Empire. The notion of Mare Liberum allowed them to appeal to the principle of liberal competition in exploiting their maritime trade advantages – namely superior naval construction technology and navigation techniques and control over strategic supplies such as North Sea fisheries and Baltic timber and cereals. And unlike the Portuguese, the United Netherlands based its power in Asia not on territorial conquest and tribute but on the control of strategic ports. This gave it a monopoly over the European trade in spices and luxury goods. 27

“The trade to the colonies was a monopoly throughout most of the sixteenth and seventeenth centuries. The monopolist was not the Crown (as in Portugal) but the consulado – the merchant guild – of Seville, with its subsidiary organization at Cádiz. By an elaborate series of fictions, merchant houses all over Spain became members by proxy of the Seville guild, consigning their cargoes in the name of resident Seville merchants. Even foreign commercial firms, German, English and Flemish – adopted this device, (…)” (Parry 1966, 66). Similarly, Andre Gunder Frank notes that “of all the merchandise arriving in Cadiz at the end of the seventeenth century 25% was consigned to French merchants, 22 per cent to Genovese, 20 per cent to Dutch, 10 per cent to Flemish, 8 per cent to German, and only 5 per cent to Spanish receivers (Regla 1961: 346). Simultaneously, Spanish merchant shipping was replaced by that of her European rivals” (2011, 72).

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The containment of territorialism served not only the United Netherlands’ interests but also those of other European states seeking to affirm their own nationalisms by absolutist and mercantilist means. This ended up stymying the ambitions of Dutch liberalism. In the name of liberalism, the United Netherlands clashed with English mercantilism in a series of European wars (1652– 1654, 1665–1667 and 1672–1674). Britain’s successive victories in these wars lay the foundations of its own trade empire – one which would challenge the Dutch ideal of Mare Liberum. Furthermore, the territorial integrity of the United Netherlands was threatened by a renewed European expansionism, this time spearheaded by France. This drove it to become Britain’s militarily weaker ally – a partnership sealed by the defeats they together inflicted on French expansionism. Conflict with France not only helped Britain subdue Holland militarily, forcing it to organise its land forces rather than develop its navy (Britain’s new domain), but also helped it secure a larger share of non-European world trade by enhancing its access to the Spanish and Portuguese colonial empires through the treaties of Methuen (1703) and Utrecht (1713). The United Netherlands’ loss of military leadership did not plunge its hegemony into crisis, but did limit its further expansion. Its hegemonic crisis ­arrived when the diffusion of Dutch naval construction technology and navigation techniques enabled mercantilism to encroach on the Baltic in the 1720s and 1730s, and in doing so threaten the Dutch monopoly on the Baltic grain trade (the chief source of superprofits at that stage of the modern world system’s development). The financialisation of Dutch hegemony began in 1740 – the first sign of an autumn that would last until the 1870s. If Genoese-Spanish hegemony was both driven and limited by imperial ­territorialism, then under Dutch hegemony it was capitalist calculus which performed that dual function (Arrighi 1996, 1999). The United Netherlands’ territorialism was limited to controlling certain strategic supplies, and it focussed its efforts on developing naval technology that would give it the competitive edge in securing and shipping those commodities. During the wars of Spanish expansionism, when food production was limited by the rising number of soldiers, the Dutch monopolised the trade in grain (which rose in price due to food shortages), draining the Americas of its silver. But the restrictions they had placed on their territorialism meant they were left defenceless when other European states and regions turned to mercantilism. As they became ever more embroiled in military conflict in defence of Mare Liberum or their own territorial integrity, their limited demographic resources faced mounting pressure, and they were forced to choose between allocating manpower to maritime trade or to war. The crisis that engulfed the world-economy with the spread of mercantilism was only resolved with the emergence of a new trade

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empire which sent the pendulum swinging back towards territorialism, but this time with economic calculus exercising greater control. The United Netherlands developed aspects of the previous systemic cycle to become the productive, commercial and financial centre of the world-­ economy. The boundaries of this world-economy were largely Iberian-drawn, but whereas in the preceding cycle accumulation and coercive force had existed separately, the Dutch managed to articulate them through a single organisation – the nation-state. By prioritising calculus over conquest they made much higher profits out of managing the world-economy. Despite advocating Mare Liberum ideals, they were very pragmatic when it came to putting their liberalism into practice, often preferring Mare Clausum. In Asia, the Dutch East Indies Company’s (voc) government-granted monopoly over trade and the exercise of military power in the region’s ports and spice-producing areas was crucial to securing superprofits from the European trade route. The sheer abundance of spices meant the huge profits to be had could only be maintained by prohibiting all competition. The Dutch also sought a monopoly over the coastal African slave trade by setting up the voc’s counterpart – the Dutch West Indies Company (wic). But in this they fared poorly. Such a monopoly could not be won via military control of the African coast, with the incalculable costs that implied. It could only be achieved in conjunction with colonial policies, but Dutch antiterritorialism prevented them from developing as a colonial power, whilst their weakness compared to the British limited their ability to unite with the Iberian colonial empire (Arrighi and Silver 1999, 102–112). Looking at this systemic cycle as a whole, we find the liberal project lacked ambition and was overtaken by mercantilism. The United Netherlands lacked the coercive means to impose itself on emerging nationalisms. However, the cycle only entered into crisis when mercantilism reached the Baltic Sea and central and eastern Europe. There, and in Sweden, Denmark, Prussia and Russia especially, mercantilism sent the Dutch trading empire into decline as the British one expanded. 2.5 The British Cycle The British systemic cycle shifted the pendulum back towards territorialism in order to tackle the problems caused by the spread of mercantilism in the European economy. Britain’s greater military superiority compared to that achieved in the Genoese-Spanish cycle meant it could bind territorialism more tightly to economic calculus and the pursuit of profit. In doing so it established a new international division of labour that would underpin its hegemonic bases. Britain forged a commercial empire that allowed it to specialise in production based on small and medium-sized industrial enterprises supplied with raw

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materials from the world economy. The industrial driving forces behind British hegemony and two different Kondratiev cycles were textiles (mainly cotton); and iron, which facilitated railway-building and the transport revolution. They both relied heavily on indigo and raw silk from India, cotton from Egypt and the southern United States, Australian wool, grain from Russia and the Balkans, strategic minerals and foodstuffs from Latin America and industrial lubricants produced in West Africa (Wallerstein 1998a, 179–265; Hobsbawm 1983, 124–142; Furtado 1969, 42–85; Cardoso and Brignoli, 1983, 290–300). The British trade empire not only cheapened the cost of labour power and constant capital, but also created a huge consumer market for Britain’s manufactured products. In his analysis of how Britain overtook France to become the locus of industrial development between 1780 and 1840, Wallerstein locates the root cause for its success in the advantages gained from what Arrighi later described as “free trade imperialism.” These can be summarised as: a. The reaffirmation of this type of imperialism through naval power, which redirected expansion based on conquering markets away from the ­restrictions imposed by Europe’s different mercantilisms. European mercantilism could not be destroyed by a land force because the demographic, political and military strength of the monarchical states had made European imperial unity an increasingly unrealisable goal. But Europe’s military superiority over other regions such as Asia meant it could use coercion to incorporate them into the capitalist world-economy.28 This territorialism targeting the East was modelled on and preceded by specifically British strategies and methods of penetration in Asia.29 b. Building territorial power, starting with the conquest of Bengal at the Battle of Plassey in 1757, allowed Britain to pay off its debts to the United Netherlands. Since their financialisation in 1740, Dutch capitals had ­increasingly underwritten the British economy whilst at the same time undermining it by repatriating resources. As Britain’s economy became solvent, its demand for circulating Dutch capital diminished. This proved 28 29

The regional fragmentation of the Mughal Empire in Asia had much to do with this because it enabled the British to exploit internal rivalries and set up a native colonial army to defend and expand its Asian empire. See Maddison (2001). Arrighi and Silver (1999, 109–111) show how Dutch hegemony in Asia excluded Britain from the highly profitable spice trade through its control of ports and spice-producing islands. Britain therefore had to turn to exporting piece goods – a form of insertion which was only profitable if the lower added value of commercial production was offset by a higher product volume. This kind of specialisation required direct control over the productive process in order to guarantee production volumes and the supplies needed. This in turn fed the trend towards territorialisation.

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to be a fatal blow to Dutch financial power, which then unsuccessfully tried turning to new markets offered by high-risk creditors such as France. Territorial power also guaranteed the British economy a foreign exchange surplus. A positive balance of payments was achieved by simply transferring tribute from the colonies or hiring out naval services from the imperial centre. This strengthened London’s position as a financial centre that was replacing Amsterdam. And building a commercial empire in Asia meant Britain could let go of its American colonies, with whom it was already economically integrated anyway, and use the resources it had previously invested in political rule there to conquer new regions. c. Cheaper manufacturing supplies and external markets incentivised technological innovation and dramatically strengthened the world-economy during the British cycle. Whereas the United Netherlands had internalised protection costs, combining accumulation and force in one organisation, Britain in its cycle internalised production costs as its main competitive advantage.30 Internalising the costs of production allowed Britain to defend economic liberalism – expressed by the Ricardian theory of comparative advantage – as a universal ideology. Whereas in the Genoese-Spanish and Dutch cycles superior navigation techniques had guaranteed a commercial monopoly over certain commodities (such as the silver, gold and wheat that made the fortunes of the capitalist elites), Britain’s role as the world’s trading hub during its cycle depended directly on its productive capacity, which enabled it to buy low valueadded commodities and sell high value-added commodities. Economic liberalism developed through the use of territorial force, which was initially wielded by the East India Company. However the company came under increasing regulatory control from the British government and was dissolved in 1857.31 From then on the use of force was the state’s prerogative. The spread of political liberalism across Europe32 and the Americas during the 30

31 32

“By ‘internalization of production costs’ we shall understand the process through which production activities were brought within the organizational domain of capitalist enterprises and subjected to the economizing tendencies typical of these enterprises. To be sure, capitalist enterprises specializing in production activities had existed long before the British cycle of accumulation took off. But this kind of enterprise had played either no role or only a secondary and subordinate role in the formation of the Genoese and Dutch regimes of accumulation” (Arrighi 1996, 181). In 1813 the British government ended the East India Company’s monopoly and began promoting competition led by English enterprises, affecting the international division of labour. In Europe, liberalism developed most in the latter half of the 19th century, when the first expansive phase of the Kondratiev cycle began under British hegemony: “In 1820–70,

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British cycle was to the detriment of the right to self-determination of vast swathes of humanity. The neocolonial carve-up of Asia and Africa by Europe’s leading powers continued until the end of the 19th century33 with devastating consequences for their economic development – particularly in the case of Asia as the periphery’s then most developed pole. As long as Asia remained independent of the European world-economy it was able to run a balance of payments surplus with the West by exporting ­luxury goods such as cotton and silk fabrics produced in semiartisanal conditions.34 But the colonial imposition of free trade obliterated this manufacturing base.35 Asia’s insertion into the world economy was therefore an extremely destructive process which turned it into an exporter region supplying raw

33

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these mercantilist barriers were largely eliminated. The UK removed all tariff barriers and trade restrictions between 1846 and 1860. Free trade policy was enforced in British colonies, and in quasi-colonies such as China, Thailand and Turkey. In Germany, the customs union (Zollverein) of 1834 ended barriers between the German states and the external Zollverein tariff was lowered after 1850. In 1860 the Cobden-Chevalier Treaty removed French quantitative restrictions and reduced tariff barriers to a modest level. This was followed by French commercial treaties with Belgium, the Zollverein, Italy, Switzerland, Spain and other countries. These treaties had most-favoured-nation clauses which meant that bilateral liberalisation applied equally to all countries.” (Maddison 1995, 61). See also Kemp (1994, 39). As Paul Kennedy notes, “In the year 1800, Europeans occupied or controlled 35 percent of the land surface of the world; by 1878 this figure had risen to 67 percent, and by 1914 to over 84 percent” (Kennedy 1987, 150). On the other hand, in 1820 China, India and Africa together represented 63.8% of the world population, falling to 55.2% in 1870 and 48.4% in 1913 (Maddison 2001, 243). Andre Gunder Frank (1998) argues that Asia remained the world economy’s core region until the mid-18th century, when its balance of payments with Europe went into deficit. He attributes Asia’s loss of status to it entering the B-phase of one of the 500-odd year cycles he postulates. The exhaustion of this B-phase would focus the world economy back on the region. His theory is interesting and provocative, based as it is on a comprehensive review of social thought which seeks to cut away its Eurocentric roots. However, it does not appear to be supported by the indicators cited in Maddison’s recent long-term statistical analysis of the world economy. According to these figures, Western Europe exceeded Asia in per capita income from 1300 onwards, reflecting the development of its productive forces under feudalism and the beginnings of its transition to capitalism. Western European leadership was consolidated in 1500, when its per capita income reached US$774 compared to Asia’s US$575 (Maddison 2001, 264). In 1750, the regions later included in the so-called Third World accounted for 73% of global manufacturing production, of which China and India alone represented 57.2%. By 1830 these figures remained high at 60.5% for the Third World overall and 47.8% for China and India. But they then declined sharply, and by 1900 the former represented 11% and the latter just 7.8% (Kennedy 1987, 149). Arrighi and Silver note that of 200–250,000 Indian handloom weavers in 1830 there were only 40,000 left by 1850. See Arrighi and Silver (1999, 118).

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­ aterials to British industry. In contrast, for peripheral areas lacking a strong m civilisational basis for organisational and economic resistance to British and European industrial expansion, international insertion was a more positive process and some material progress was achieved.36 The crisis of British hegemony began in the 1870s. It reflected a dual failure on Britain’s part: to limit the spread of the technological knowhow associated with industrial development to the world-economy’s centre and parts of its semi-periphery; and to prevent the rise of the new, more efficient organisational forms that would bring forth the next stages of the Industrial Revolution.37 The American Civil War (1861–1865), the Meiji Revolution in Japan (1868) and German Unification (1871) all created state structures designed to resist British-led semi-peripheralisation and deploy protectionism, import substitution and educational/scientific development in support of their own catching-up processes. It was these structures which drove the reorganisation 36

37

China and India, bastions of the British Empire in Asia, experienced very low per capita growth rates between 1820 and 1950. This is especially evident when compared to other parts of Asia, the periphery or the world economy overall. In the 1820–1870 period China and India expanded by 0.25% and 0% respectively. Then in 1870–1913 they expanded by just 0.1% and 0.54%, and in 1913–1950 they declined again, to -0.62% and -0.22%. In comparison, Japan, which took a path of its own after the Meiji Revolution, enjoyed per capita growth of 1.48% between 1870 and 1913 compared to 0.19% in 1820–1870. Between 1913 and 1950 this fell to 0.89%, reflecting the country’s defeat in wwii. In the periphery, Latin America and Africa performed much better than China and India. They enjoyed per capita growth of 0.10% and 0.12% respectively between 1820 and 1870. Between 1870 and 1913 their growth accelerated, reaching 1.81% and 0.64%. Then in 1913–1950 they expanded by 1.43% and 1.02%. The world economy overall also enjoyed much higher growth than China and India, reaching 0.53% (1820–1870); 1.3% (1820–1870), and 0.91% (1913–1950). (Maddison 2001, 262). The relationship between technological paradigms and new organisational forms is explored in some of the neo-Schumpeterian literature, particularly in the work of Christopher Freeman and Carlota Perez. Freeman and Perez use Schumpeter as their starting point to illustrate the dynamic of long waves. Growth periods occur when radical organisational innovations are accompanied by technological innovations in the public and private spheres. During these periods secondary and tertiary innovations help to develop the technological paradigm. Periods of stagnation and crisis begin when a given technological trajectory is exhausted and a new paradigm emerges, but without the organisational changes it needs to develop. This leads to lower profitability and profit. New ­organisational relationships affect a society’s use values and imply new workforce training methods, intra-firm/inter-firm relationships, and public policies. For the authors, such periods represent an opportunity to reorder hierarchical relationships in the international economy because leading countries are stuck with a set of use values that relate to the previous paradigm. We return later to Freeman and Perez, simply noting here that their approach is limited in scope because it refers only to 50–60-year periods – long enough for a Kondratiev cycle but not for potentially longer systemic cycles, which may incorporate more than one Kondratiev.

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of enterprises and capital accumulation (Kemp 1994; Teixeira 1999; Keck 1993; Odagiri and Goto 1993). From 1789 to 1871 Britain led the development of two technological paradigms: the textile and iron industries. As seen, they were mainly applied to cotton fabric production and railway construction, both of which were performed by small and medium-sized industrial enterprises using semiartisanal labour and capital drawn from their own profits. Department i, the producer of motive machines and machine-made machines, had not become sufficiently autonomous of Department ii, the producer of consumer goods, and innovation still depended largely on empirical, non-systematised knowledge introduced by workers by artisanal means (Mandel 1978, 184).38 But Thomas and Gilchrist’s success in producing basic steel with non-­ phosphorous materials in 1878 and 1879 provided the key input of a new technological paradigm that made it possible to surpass the limits of empirical and non-systematised knowledge. Innovations in steel production and electricity were combined to convert mechanical power into continually transmittable electric currents. Steel revolutionised the consumption of materials and enabled heavy engineering to develop beyond the limitations of iron.39 It was mainly used in transport, leading to a second wave of railways expansion, and enhanced sea travel through building high capacity cargo ships. The steel revolution culminated in the production of high-precision machine-tools in terms of cutting and strength that would be at the heart of the next technological paradigm, which took off in the 1910s and was centred on cars, assembly lines and interchangeable parts (Freeman and Perez 1988; Hobsbawm 1987; Kondratiev 1984; Maddison 1995; Martins 1996). These technological paradigms fostered a generalised growth in scales of production and signalled the need to articulate the productive and financial sectors. Innovations went from being the domain of manual workers and empirical knowledge to that of scientific management and R&D laboratories that 38

39

This was one of the reasons why France failed to achieve technological and industrial supremacy, despite being at the forefront of scientific production in the first half of the 19th century through bodies such as the Collège de France, the Ecole Polytechnique and the Muséum d´Histoire Naturelle. On French scientific leadership in this period see Chesnais (1993). “Steel is a superior variety of iron. It possesses all the advantages attributed […] to metal and especially ferrous metal, in higher degree. Chemically, the two are distinguished by carbon content: pig iron, 2.5–4 per cent; steel, 0.1 per cent to about 2 per cent; wrought iron, less than 0.1 per cent. […] Pig iron is hard but is also brittle […] wrought iron is extremely susceptible to wear and tear, is easily altered by shock, and offers low resistance to pull or bending. Where pig iron will crack or snap, wrought iron will yield. Steel combines the advantages of both. It is hard, elastic, and plastic.” (Landes 2008, 251).

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could systematically analyse labour processes and products. In the field of ­labour relations, semiartisanal and artisanal labour was replaced by simple, intensive work. The process of creating large industry, foreseen by Marx in Capital Volume i and which turns workers into mere appendages of machinery, took place on an unprecedented scale. Britain found itself unprepared for this new organisational form. Its familyrun enterprises were divorced from the industrial and financial sectors, thus limiting the development of the scales needed to strengthen the new technological base. Education had been put in private hands and standards were low. Primary school education only became compulsory in 1880, compared to Prussia where 97.5% of school-age children were enrolled by 1860. The biggest gap was in university education, which began providing external services to agriculture and industry – notably engineering – but still failed to attract any interest from a state in thrall to economic liberalism. In this sense the US, Germany and France had all ploughed far ahead of Britain. Adding to these difficulties, Britain faced the resistance of skilled workers to Taylorism and Fordism, which brought the organisational changes required by the new technological paradigm into enterprises. In sum, there existed not even the most basic conditions needed to develop a stratified workforce that could perform scientific research and managing companies professionally or adapt to the limited and specific competencies of the labour process (Landes 1994, 335–367; Mowery and Rosenberg 1991, 29–75; Kemp 1994). Britain’s best-performing competitor was the United States. The US developed organisational structures that gave rise to a systemic cycle based on transaction costs. This meant vertically integrated businesses that performed external transactions in-house, resulting in larger scale operations and lower production costs (Arrighi 1996). The end of the American Civil War brought national unification and the abolition of slavery. These changes, along with the country’s continental dimensions – product of an insularity that let it expand territorially without clashing with the great powers – meant a vast internal market without equal in Europe could be created. In addition, the US assumed technological leadership. It did this in two ways: by establishing a decentralised, state-led network of public universities geared towards production needs;40 and by raising an industrial reserve army to break the resistance to Fordism by unionised artisans, which involved facilitating immigration from abroad.41 40 41

David C. Mowery and Nathan Rosenberg provide an interesting analysis of the US system of innovation prior to 1945. See Mowery and Rosenberg (1991). On this topic see Coriat (1979).

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Germany emerged as the other great competitor to succeed British hegemony. Lacking a mass market or territorial space in which to expand, it focussed instead on horizontal integration42 and state consumption.43 It also built up a strong educational system whose universities were crucial to creating major electrical, chemical, pharmaceutical, machine-building, naval and steel industries.44 Britain reacted to its crisis of hegemony in two ways. In terms of production, it encouraged its semiartisanal sector to specialise in high added-value luxury consumer goods. But that solution alone was insufficient – it had to be articulated with and conditioned to financialisation, which was driven by global competition to attract mobile capital. As a financial centre and owner of the main currency used in international transactions, Britain was in a stronger position than anyone to respond to the need for financialisation. There were two root causes behind the dispute over mobile capital: the post-1880 great power arms race, which helped Britain briefly recover from the crisis of the 1870s, and new organisational forms linked to the emerging paradigms, which offered new routes to economic growth. But the rise of new economic competitors gradually undermined Britain’s financial power by deepening its trade deficit. Britain’s balance of payment surplus became ever more dependent on its earnings from foreign and colonial investments. This made it even more vulnerable, because it relied even more heavily on an increasingly costly territorialism.45 British capital mainly directed its foreign investments towards the United States. In contrast, it failed to build up much of a relationship with the German economy, which funded German participation in the arms race domestically through the state and investment banks. The reason for this difference was 42 43

44 45

Horizontal integration brought together the productive and financial sectors through the creation of investment banks and through banks merging with one another or becoming shareholders in industry. See Kemp (1994, 101–139). In 1913 German public expenditure stood at 17.7%, rising in 1938 to 42.4%. This was somewhat higher than the overall averages of 11.7% and 27.7% in the same years respectively for the UK, the US, France, the Netherlands, Japan and Germany itself (Maddison 1995, 65). See “The National System of Technical Innovation in Germany” by Otto Kecks in Nelson (1993) and José Carlos de Souza Braga (1999). According to Barry Eichengreen (2000), in 1913 Britain controlled just 3.4% of global gold reserves owned by central banks and governments. In comparison the US controlled 26.6%; France 14%, and Germany 5.7%. Maddison (2001: 358) notes that between 1870 and 1913 British foreign trade lost the advantages it had enjoyed over its competitors. The volume of German exports rose from half those of British exports to equal them, and US exports climbed from around 20% to 49% of the British total in the same period.

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twofold: it was more profitable for British capital to invest in the US; and Europe was gripped by geopolitical disputes in which Germany was emerging as a power with serious expansionist and territorialist ambitions. The First World War (1914–1918) gave way to a period of systemic chaos as British hegemony finally collapsed without any other power strong enough to take its place. The war exposed the rising protection costs that went with territorialism and Britain’s inability to keep paying them. This in turn played a key role in ending British hegemony as the country was forced to liquidate many of its foreign assets in order to fund the war effort. As a consequence, the United States went from debtor to creditor in its relationship with the old hegemonic power. It bought up British foreign assets in the US at bargain prices and became Britain’s chief supplier of military equipment, goods and credit. The return of the gold standard and sterling’s strategic role in its administration in the 1920s turned out to be heavily reliant on the US financing the British balance of payments. Britain became weighed down by trade deficits that far outstripped prewar levels, and its earnings from foreign and colonial investments stagnated. This made it less competitive, leading to a global economic recession and a rising tide of protectionism and nationalism. When the US economy’s newly-found dynamism and the speculative manoeuvres that provoked the 1930s crisis led to American investments being channelled into the US economy itself, the remnants of the gold standard and sterling were finally destroyed for good (Arrighi 1996; Arrighi and Silver 1999; Landes 1994; Hobsbawm 1983; Mitchell 2007a, 2007b). The systemic chaos ended when the US joined forces with the powers that had benefitted the most from British institutionalism such as Britain itself and France to inflict military defeat on the emerging industrial powers of Germany, Italy and Japan, which had tried pursuing their own brand of imperialism after falling behind in the race for colonies. But victory was only guaranteed by the decisive action of the Soviet Union, proving that a power that was not only anti-imperialist but also socialist was needed to establish the new systemic cycle. 2.6 The US Systemic Cycle After World War Two, the United States emerged as the power best placed to shore up and develop the interstate system against the imperial ambitions harboured by Germany and the other defeated powers. Like France during the transition to British hegemony, Germany had been in the weakest position out of the big powers competing for control of the world-economy in the interwar period, and so had turned to force to achieve its goal. What was new about its imperial project was that it set itself up in opposition not only to the

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­ estphalian principles of interstate competition, but also to the proletariat, W which together with other popular sectors had taken the stage as a new subject that defended solidarity, equality and freedom in a substantive sense. It did this through internationalism: the only level of organisation capable of defending national working class because it sought to generalise them. Internationalism produced actors opposed to the national chauvinist demands of their own states, who stood outside interstate competition and limited it. In response, certain national bourgeoisies who were unable to realise their hegemonic ambitions transformed imperial projects into fascist projects. They were no longer primarily combatting an external enemy, other nation-states, but were engaged in a total struggle to clear any internal or external obstacles standing in the way of said bourgeoisies and their state apparatuses. For fascism, these obstacles combined were represented by Bolshevism, itself seen as essentially Jewish. The growing strength of the proletariat and popular classes worldwide meant that in order to institutionalise the systemic cycle the US had to internationalise and deepen political liberalism, hitherto limited to core countries which had extended the suffrage to parts of the working class and laid the foundations of the welfare state. Political liberalism was extended across the world-economy because of the interconnectedness between interstate conflicts and intrastate struggles during the transition to US hegemony, whereas during the British transition the former had preceded the latter. This interconnection was made apparent in the way wars were driven by both interstate political conflict and the need to tackle social discontent at home. Nationalism and the larger role now played by public opinion fostered an atmosphere of mounting social pressure on domestic policy. But the worldeconomic success of states and their bourgeoisies, whether in economic competition or in war, served to bypass class struggle and created an entity – the nation – that stood above domestic division and could defuse social pressure through social reform (Silver and Slater 1999, 183–194).46 By trumping internationalism with nationalism, core and semi-periphery bourgeoisies succeeded 46

Beverly Silver uses quantitative indicators to show the rise in labour unrest in the years preceding major conflicts during the systemic chaos of the US transition to hegemony. She bases her indicators on reports in newspapers in the hegemonic centres (The Times and New York Times) of working-class resistance to the commodification of labour power, longer working hours, worsening conditions including more intensive working; low pay or wage cuts; mass unemployment; forced proletarianisation, and the destruction of livelihoods. As forms of resistance, Silver takes into account not just strike figures but also data covering acts of sabotage, agitation, go-slows and confrontations (Silver, Arrighi and Dubofsky, eds. 1995, 7–34).

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in making the transition to a new systemic cycle. Nonetheless, in the first half of the 20+ century this was only achieved through bloody conflicts between different nationalisms. Countries presiding over defeated hegemonic projects found themselves in the midst of a class war unleashed by proletarian organisations in response to the spread of the industrial revolution. The greatest social unrest was in Russia, with the Russian Revolution; in Germany, with the fall of the Empire and the formation of the Republic amidst intense socialist agitation; and in Italy, which as part of the Triple Alliance had started the First World War. But the anti-systemic effects of wwi were felt throughout the whole of Europe. The consolidation of socialism on the one hand and fascism on the other represented different and antagonistic responses to the contradictions of imperialist nationalism. Socialist revolution prioritised class struggle over the national state and rejected imperialist expansionism. Fascism, meanwhile, gave a new form to nationalism: one that abandoned any belief in social reform in favour of using terror to establish a state dictatorship dominated by big capital, and thereupon use national identity and expansionism to avert internal and external threats to the ‘destruction of the nation’ in the shape of class warfare and competing state interests respectively (Hobsbawm 1994; Wallerstein 1995a; Santos 1969, 1977d,; 1978d, 1979a, 1991, 2000a; Guérin 1973; Kershaw 1991). The US consolidated its hegemony by overcoming these challenges. Having defeated fascism (its chief antagonist in the interstate struggle), it still had to find ways to rebuild a consensus in order to meet the challenges the worldeconomy had posed to the British institutional order. Meeting these challenges would involve taking a series of measures, including a. Promoting a new wave of social reforms in the central countries to address demands that had been building up since the 1910s and assuage the masses’ frustration with the decline in living standards caused by years of wartime destruction. b. Containing the spread of socialism, which had benefitted from the Soviet Union’s decisive role in defeating fascism, the collaborationism of liberal parties during the fascist occupation of Western Europe, and the worldeconomic crisis. c. Overseeing the expansion of the interstate system and the right of African and Asian peoples to self-determination. Between 1908 and 1913 the labour unrest index rose from 47 to 104 in the worldeconomy overall. In the centre it shot up from 59 to 93, hitting a high of 159 in 1912, whilst in the semi-periphery it jumped from 35 to 243, and in the periphery it fell from 41 to 30 (Silver, Arrighi and Dubofsky, eds. 1995, 155–192).

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Responding to calls for industrial development and modernisation in the peripheral and semi-peripheral countries, where a rising tide of nationalism was already pushing to make industrialisation and protectionism public policy. In Latin America, and Brazil and Mexico especially, this had already led to nationalisations, the suspension of foreign debt payments and state-managed import-substitution programmes. North American hegemony was built on the twin pillars of the Bretton Woods Agreement and the Yalta Conference. At Yalta, the United States and the Soviet Union agreed to peacefully coexist and marked out their respective areas of territorial influence. But it took the onset of the Cold War in the 1950s for US hegemony to really impose itself on the world-economy. The Cold War meant the US could call for the hemispheric integration of the free Western world against its socialist counterpart without abandoning its national sovereignty, and so overcome the limits imposed by nationalism. It thus managed to ­bypass internal restrictions to the costs of its hegemony and put the world economy on a path of sustained recovery (Arrighi 1996; Wallerstein 1995a, 1999b, 2002). With the end of World War ii, the relationships that had allowed for a more balanced expansion of the world economy broke down for good. During the inter-war period a triangular model of financing had predominated: the US ran trade surpluses with Europe which it spent on foodstuffs and raw materials from Europe’s colonies, whilst Europe obtained the dollars it needed to finance its US purchases by exporting manufactured goods to its colonies and repatriating the profits from its colonial investments and revenues. But the income Europe received in this way dried up – on the one hand because it had to liquidate its assets in order to fund the war effort, and also due to the advance of decolonisation processes. The postwar period therefore presented the US with a paradox: the technological, human and financial resources it had amassed were enough to affirm its international leadership, but not enough for it to revive the world economy and become hegemonic. To do that it would have to find ways to decentralise the huge resources now at its disposal and boost the flow of goods and investment in the world-economy (Reifer and Sudler 1996, 13–37). The first attempt to decentralise US resources was made by Franklin Roosevelt with his proposal for an international New Deal to rebuild war-ravaged countries, including the Soviet Union. But this idea was rejected by a nationalistic Congress which relegated issues of world order to a second plane. The deadlock produced by the amount of wealth and assets accumulated in the US alongside its reluctance to play a hegemonic role in the world economy opened up the possibility of a regionalised world economy. In this context, conditions

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were ripe for the socialist countries to extend their influence. The Soviet Union and Eastern Europe were emerging as likely economic partners for Western Europe, and in Asia revolutionary China appeared to be a potential partner for Japan – which had been destroyed as an imperialist power – and the two Koreas. To avoid this happening, the US seized on the issue at the top of its national and international agendas: security. Between 1947 and 1954 it embarked on a hysterical campaign against the worldwide political threat posed by socialism. This campaign marked the first stage of the Cold War (Arrighi 1996, Hobsbawm 1994). Through it, the US was able to systematically use foreign currency to rebuild the economies of Western Europe and Japan and boost international trade. The resources it transferred to them by building and maintaining military bases far outstripped inflows in the form of direct economic aid. After 1950 the world economy returned to more integrated, stable and intensive growth than in 1939–44, and this led to the A-phase of the post-1939 Kondratiev cycle coinciding with the start of a new systemic cycle. The US systemic cycle swang the pendulum back towards Arrighi’s corporate-national institutional model, making hegemony conditional upon reaching a compromise with the intrastatal demands coming out of the periphery and semi-periphery. As with the Dutch cycle, the pendular movement towards internal economies made it harder to institute liberalism as the global hegemonic ideology. The accumulative dimensions of this movement added an ­extra layer of complexity to the task. The US had to articulate newly defined intrastate relations with the development of the global world-economy bequeathed to it by the British cycle. This meant it had to rely on a series of intergovernmental bodies, although the US state still controlled most initiatives and never subordinated its sovereignty to such outfits. The creation of the United Nations was crucial to the North American systemic cycle. It represented a supranational agency that legitimated decolonisation processes and the international right to self-determination. But despite the suggestion of democratic institutional arrangements, the UN is still governed oligarchically on behalf of the leading economic powers (and, on certain issues, emerging political powers). Politically, the United Nations General Assembly, operating on a one-state one-vote basis, advises the Security Council, which decides on matters of peace, war and diplomatic relations. The Security Council has five permanent members with vetoing rights: the US, UK, France, Russia (previously the ussr) and China. In contrast, on the UN’s main economic bodies, namely the Bretton Woods-founded imf and World Bank, a country’s decision-making power is determined by its financial power, which reflects the size of the quota it pays into said institutions. But these payments are not open market transactions: to increase its quota size a state must have

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sufficient funds available, and the subsequent transfer of political power must be accepted by the institution, with the US holding a right of veto. That is why the power of veto was tied to a country’s percentage of votes/quota size. Liberalism assumed a markedly political character during this period, functioning far more as a centrist ideology that used reforms to unite diverging interests around world-economic expansion than as a doctrine for imposing the imperatives of the free flow of capital and goods. Despite significant tariff reductions compared to the protectionist wave of the 1930s, no agreement was made to extend multilateral liberalisation, and so the General Agreement on Tariffs and Trade (gatt) remained in place until it was replaced by the World Trade Organization (wto) in the 1990s. The integration of the world economy was initially achieved as a result of US state-led resource decentralisation, but it later gained its own momentum and was mainly identified with international investments in domestic markets made possible by the techno-scientific revolution in the US and other central countries in the 1940s, 1950s and 1960s. The technical and scientific revolution meant that as science predominated over technology, equipment and machinery became obsolete before becoming physically unusable and so could be reused in countries where it was still competitive. This enabled the US to support industrialisation and protectionism in peripheral and semi-peripheral countries prepared to remain subservient to the technological leadership of its corporations. The ascendant phase of US hegemony was thus based on the following factors: a. Technological and financial leadership of the electromechanical technological paradigm, associated mainly with automotive manufacture47 but also with the military and machine-making industries. This leadership relied on the system of Fordist regulation, which prioritised the incorporation of transaction costs. A productive hierarchy among the workforce along with greater workloads became crucial to organizing economies of scale. Technological leadership was transformed into hegemony when it stimulated transaction economies across the world through direct investment. This led to an increase in international transactions between units belonging to the same firm, to the point where by the late 1970s they accounted for more than a third of world trade (oecd 1991, 390; 1996b, 29). 47

In 1913 the number of passenger vehicles in circulation in the United States was 1,190,000, while in France, Germany, the United Kingdom, Italy, the Netherlands and Japan the combined total was 280,000. By 1950, these figures had reached 40,339,000 in the US and 4,803,000 in the other countries, and by 1973, 101,986,000 and 72,917,000 respectively (Maddison 1995, 72).

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b.

US articulation of the world economy via direct investment in receiving countries’ domestic markets. These investments helped international trade to expand to levels that outstripped even those attained during the British cycle.48 There are two explanations for this. Firstly, each pendular swing of a systemic cycle speeds up world-economy interactions and makes for a more technically integrated international division of labour. The world-economy then tends to expand its influence over local or ­subsistence market-focussed activities independently of the movement toward either territorialist or corporate-national forms.49 The second reason relates to the hegemonic state’s increased strength and the type of hegemonic relationship it establishes. Unlike Britain, which unilaterally opened up its internal market between 1846 and 1931, the US government

48

In 1913, during the British cycle, British exports accounted for 17.5% of its gdp, and world exports accounted for 7.9% of world gdp. In 1973 during the US cycle, US exports represented 4.9% of gdp, but world exports reached 10.5% of world gdp. Between 1820 and 1870 world exports expanded 7.9 times faster than global gdp per capita, reflecting the cosmopolitan-territorialist movement of the pendulum, whereas between 1950 and 1973 they grew just 2.6 times faster, thus denoting a swing in the opposite direction. However, as per capita gdp grew almost six times more in 1950–1973 than in 1820–1870, world exports expanded at a rate of 7.88% in the former period, compared to just 4.2% in the latter period (Maddison 2001, 363). The quality of territorialist-cosmopolitan or nationalist-corporate systemic expansion can be quantitatively assessed in the light of historical patterns. We saw that one of the main secular tendencies of the modern world system is unlimited accumulation. One way this manifests itself is through world-economic growth, which assumes an increasingly global dimension as it encompasses new regions and articulates their local economies through an international division of labour. This growth is expressed by international trade expanding faster than world gdp growth. Cosmopolitan or corporate cycles affect this secular average. In cosmopolitan cycles world exports grow at least 3.5 times more than world gdp per capita, and during corporate cycles by up to 3 times more. During the British cycle’s expansive period from 1820 to 1870, exports grew 7.9 times more than world gdp per capita. But during its crisis period the pendulum swing back in the opposite direction, and exports grew just 2.6 times more between 1870 and 1913. Then came the systemic chaos that halted the expansion of the world system and plunged its secular trends into crisis. Thus between 1913 and 1950 export growth matched that of gdp per capita. During the expansive phase of the US systemic cycle (1950–1973), it grew 2.7 times more. But it accelerated again when US hegemony entered into crisis exceeding gdp per capita 3.8 times from 1973 to 1998. The above calculations are based on Maddison’s indicators (Maddison 1995, 2001, 2010). We used the ratio of export growth to to per capita gdp as our basic indicator for establishing the quantitative differences between the cosmopolitan and corporate periods. We then took the difference (1.1) between the period of lowest cosmopolitan growth (3.8) and the period of highest corporate growth (2.7) and divided it by three in order to designate the limits of the swings that occur during each cycle and a transitional zone.

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d.

e.

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did not give up its bargaining tool, i.e. the liberalisation of its domestic market. Instead it signed a series of diplomatic agreements and bilateral treaties to achieve an even greater degree of free trade in the world economy than Britain had enjoyed (Arrighi 1996, 71). Greater state intervention in the economy.50 To enable this the US government introduced currency regulation through the Federal Reserve System acting in conjunction with other central banks (Arrighi 1996, 72). This allowed it to spend more on the economy and specifically on expanding trade and production in the world-economy. This increase in spending was directed mainly to the military sector, whereby the US government made the largest state transfer of resources out of its economy and put into maintaining its military bases overseas. It was also tied to the country’s cutting-edge technology sector51 and protecting other more underdeveloped but politically critical sectors of the economy. The creation of the United Nations and other intergovernmental bodies. Their main tasks during the expansive phase of US hegemony were political and involved setting up new institutional arrangements for the world economy by bringing the periphery into the interstate system, thus legitimating decolonisation processes in Europe’s Asian and African empires. UN actions did not replace unilateral US initiatives, rather the United States used the UN as an additional means of securing its hegemony. Furthermore, the UN’s new economic bodies did not play any major role until US hegemony entered into crisis. The ideology of hemispheric integration centred on the free Western world. This integration was in fact intended to go far beyond the West, and its violent Eurocentricity was exposed when it sought to impose freedom on the East and westernise it via the institutions of the liberal State. The ideology was expressed on two levels: by military Keynesianism and developmentalism. Military Keynesianism made anti-communism a pillar As discussed earlier, the State gets more involved in organising the world-economy with each successive cyclical phase. In the Genoese-Spanish cycle, capital was allied with an imperial state that played a key role in the colonial conquest and protection of territories. But the Spanish state failed to take advantage of the commercial exploitation of the colonies, which mostly remained under the control of third parties. In the Dutch cycle, the state merged with a capitalist structure and brought commercial exploitation and military protection into the same state unit by granting a charter to companies. During the British cycle, the state was directly responsible for administering the colonial apparatus and built up its own private enterprises from the transfer of tax revenues or payment for services such as cargo transport by its merchant navy. Mainly through government purchases and investment in R&D.

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of the welfare state when global economic recovery – which allowed workers in the centre to demand higher direct and indirect wages – was tied to the creation and maintenance of US military bases in regions of strategic value to the defence of US hegemony. This dichotomy divided the social-democratic and communist forces that had fought fascism together in the Popular Fronts (1934–39) and the Resistance (1940–45). Developmentalism, on the other hand, sought to extend industrial modernisation to the periphery via foreign direct investment, with international agencies such as the World Bank there to help put the necessary infrastructure in place. It also favoured protecting domestic markets by applying some degree of tariff protection. The current crisis of US hegemony emerged clearly for the first time between 1967 and 1973. We shall revisit this in more detail later, restricting ourselves here to its more general aspects. The crisis originated in the system’s core as a result of the obsolescence of the national system of innovation compared to the technological microelectronic paradigm that by the late 1960s had become the key to future growth and accumulation. It has chiefly manifested itself through trade and current account deficits, above all with East Asia (Japan, China, South Korea, Taiwan and India). These deficits reveal the shift in economic dynamism away from the system’s centre and towards the latter region. There are also important socio-cultural and institutional aspects to the crisis. The most notable example of the former has been the fight against bureaucracy and hierarchies which brought the trade union and student movements together in the anti-systemic mobilisations of 1968, thus managing to unite two previously separated historical forces: workers and universities. In the following decades this pattern repeated itself throughout the world-economy, reinvigorating the cultural and intellectual climate and allowing the spread of Marxism in the universities. On a deeper level, the crisis signalled the emergence of a new historical subject seeking to challenge and overcome the division between manual and intellectual work. In terms of institutional arrangements, the breakup of the Cold War order following Soviet disintegration was of crucial importance. This was a consequence of the second Cold War, when the US state under Reagan responded to transnational capital flight by building up a huge national debt, hiking interest rates, and directing public spending towards defence and the Star Wars project. Its aims were two-fold: to overcome the military difficulties exposed by defeat in Vietnam, and to stretch the Soviet Union’s resources by dragging it into a new arms race. As a result, economic stagnation prevented the ussr from competing in such a race and it fell apart. Meanwhile US military ­Keynesianism – hitherto articulated through the welfare state – entered into

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crisis, and the virtuous architecture of its hegemony in the centre and strategic semi-peripheral regions began to crumble. The US state had stopped decentralising resources and now faced liquidity crises on account of its public, trade and current account deficits, which were draining resources from the world economy. Entering the 1990s, mounting debts forced it to recalculate and restrict its overseas defence budget for the decade ahead. In the peripheries the crisis of US hegemony had become apparent a little earlier. It began in Latin America with the 1959 Cuban Revolution before a series of military coups starting in Brazil in 1964 made it more obvious. The crisis of the Brazilian model signalled the failure of developmentalism as a strategy of international insertion for the region and the peripheries in general, as the promise to lay the ground for political liberalism by opening economies up to foreign capital went unfulfilled. As dependency theorists Theotonio Dos Santos, Ruy Mauro Marini and Orlando Caputo pointed out, direct investment did not mean foreign savings stayed in the region. It was just a moment in the circulation of international capital, and only translated into high rates of reinvestment in the host country under the pressure of competition. Otherwise profits were channelled back to the countries of origin. Capital inflows were followed by outflows that decapitalised dependent economies in the medium and long term. This situation destabilised political liberalism in Latin America and undermined State support for universal suffrage and social rights. Asia tested the limits of US hegemony more than any other region, presenting it with a series of economic, political and military challenges. The hegemonic power’s difficulties in managing decolonisation in the European ­empires forced it to make huge concessions to strategic Asian countries, who in return set themselves up as local powers that would drive capitalist expansion and contain socialism. This led to the offer of ‘development by invitation,’ which involved the US supporting agrarian reform, industrialisation and the formation of a new ruling elite in Japan, South Korea and Taiwan. Vast sums of money were transferred in the form of military occupations or subsidised credits. But the US was also forced to accept the protectionist approach of local ruling elites, with regard not so much to tariffs as restrictions on foreign direct investment. As a result of this political liberalism, within 20–30 years East Asia had mounted a serious challenge to the United States’ technological, commercial and financial leadership52 (Maddison 1998, 2000; Medeiros 1998; Johnson 1995).

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Nonetheless, as we shall see, economic challenges to US hegemony do not always follow the sequence of ‘development by invitation’ followed by local initiatives. In China, local

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Vietnam represented the US apparatus’ first political and military defeat. It was not just a defeat at a local level, but one that saw popular anti-imperialist struggles in the periphery and the hegemonic centre combine as a movement to score a geopolitical victory over the hegemon just as the latter was entering a crisis. It is a movement that brings to mind the American Civil War or the process leading to German unification at the border of Britain’s hegemonic crisis, in that it marked the emergence of a historical subject capable of challenging the hegemonic State. If, in those historical moments, that subject represented a combination of organised forces within a nation-state, then today we appear to be witnessing the birth of a new organisational form – a supranational set of social forces capable of laying the foundations of a new world system between 2015/2020 and 2045/2050. In our view there is strong evidence to support such a claim. 2.7 Systemic Cycles: Balance and Prospects Systemic cycles are crucial to the development of historical capitalism. Understanding their behaviour can help the social sciences to vastly improve its predictive powers and provide social movements with an initial basis on which to identify their goals and the potential for anti-capitalist action. The theory of systemic cycles was mainly developed by the group that began meeting at the Fernand Braudel Center in the 1970s. Wallerstein, Arrighi and Silver advanced it the most, with Wallerstein the first to systematically theorise systemic cycles. Despite the limited nature of his conceptual definition of hegemony, his model of the cycles is still an extremely useful analytical tool. Wallerstein’s bipolar model differentiates between short periods of hegemony and lengthy periods of rivalry. He sees hegemony chiefly as a matter of economic leadership – a view we have already challenged here by pointing out that it can survive economic decline providing the State is still able to exercise institutional and systemic leadership. The usefulness of Wallerstein’s model lies instead in the way it explains the hegemon’s transition from the leadership phase to economic decline. This shift is determined by said hegemon’s development of global liberalism. Although global liberalism helps the dominant power benefit from its own leadership, it also creates the conditions under which that leadership might be revoked. For Wallerstein there are two dimensions to global liberalism: the free flow of factors of production and commodities, and the establishing of a negotiation-­ friendly environment at the intrastatal and interstatal levels in order to development initiatives were up and running long before they picked up even greater momentum by becoming articulated with the centres of the world system.

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l­egitimate the institutional order.53 Yet both of these features have contradictory effects, at first strengthening the economic hegemon’s powers of penetration and persuasion only to later undermine them. This happens for two ­reasons. Firstly, the circulation of factors of production implies the diffusion of technological expertise and encourages countries in the centre or on its borders to copy and develop products without having to cover the initial innovation costs. Secondly, the diffusion of compromise and democracy internally necessitates concessions to workers and technical staff that push production costs above those of the hegemon’s competitors. Arrighi and Silver (1999) critique Wallerstein’s model, but in reworking it they retain many of its features as part of their own more advanced theory of systemic cycles. They point to its lack of historicity: systemic properties are predetermined in relation to the system’s actors, whom they influence exogenously. The authors argue that although systemic properties do coerce and order their actors, the latter are equally capable of altering and reorganising said properties when a new hegemony is established. Systemic institutionality thus depends on the particular forms assumed by governmental-business complexes at each cyclical stage. Loss of leadership status and cyclical crisis are determined not only by the ability to imitate the leader’s developmental path, but also, above all, by the ability to establish a new organisational paradigm that surpasses the previous system of innovation. Consolidation of this new paradigm develops the system’s secular trends but also changes its systemic properties. We saw that Arrighi distinguishes between two core, pendular models of organisation: the cosmopolitan-imperial model and the corporate-national model. But these models do not repeat themselves in the same way each time. Systemic cycles represent patterns that repeat themselves over the course of the secular, evolutionary trends that are an irreversible aspect of the modern world system’s development. Some situations or aspects repeat themselves in new ways and require different approaches and answers depending on the particular level of development and organisation of the social forces.54 This 53

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In each successive hegemony we can see how institutionality grows out of legitimacy. This was first noticeable in the Spanish Empire’s flexibility towards Genoa in tax matters; later, in the development of parliamentary institutions and the principles enshrined in the Peace of Westphalia, the notion of popular sovereignty and the Concert of Europe; and most recently, in the growth of universal suffrage, the welfare state and the multilateralism promoted by the UN and other intergovernmental bodies. See Wallerstein (2011a). The combination of cyclical and systemic perspectives highlighting evolutionary secular trends offers the social sciences a methodology full of analytical promise – one able to reflect on the integration of repetition and difference or of retrospective and prospective

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d­ ifferentiated repetition has implications for the way the cycles are measured because the development of capitalism’s secular trends influences the length of each repetition. Whilst we should qualify Wallerstein’s claim that the causes of hegemonic decline lie in the development of global liberalism – as each cycle produces its own institutionality – we should accept the argument that the factors of production become more internationalised with each expansionary phase, regardless of whether the dominant form is the flow of capitals, as with the US cycle, or simultaneously the flow of goods, as in the British cycle. Concerning forms of State organisation, the theory that hegemonic powers are propped up internally by political liberalism also needs qualifying. It would be more accurate to say that each hegemon strives for domestic legitimacy because otherwise it cannot achieve its goal of representing the consensus in the world system. Notwithstanding these caveats, we have before us the main features in the establishment and exhaustion of systemic cycles. The internationalisation of the factors of production boosts production and surplus value appropriation in the world-economy. But it also creates an environment characterised by technological diffusion, which becomes an obstacle for the hegemon when it starts outweighing the benefits obtained. The same logic applies to an internal environment characterised by legitimacy and negotiation: it strengthens hegemony, but then reduces competitive edge when it makes production costs too expensive. This allows a transfer of economic dynamism towards competitors working with different organisational models. The more intense the diffusion of technology and the broader the hegemonic state’s social base, the shorter the systemic cycle. This confirms a cyclical pattern inherent to the modern world system: wherein the more advanced its secular trends, the shorter its systemic cycles. In The Long Twentieth Century, Arrighi sets out to measure the length of systemic cycles and prove they are getting shorter. As the most suitable yardstick, analysis by articulating the arrow of irreversible/secular time with cyclical patterns of temporary regression within a defined structure. Such a combination also helps integrate determination and indetermination because it affirms the historicity of conjunctures by revealing the individuality of the combinations which define its general frameworks, whilst also placing action and the possibilities it creates at the heart of those individualities. This approach was fashioned by Nicolai Kondratiev, but a more sophisticated version of it later appeared in the world system theory developed by Immanuel Wallerstein, Giovanni Arrighi, Terence Hopkins, Beverly Silver and their followers. The Long Twentieth Century (Arrighi 1996) and Chaos and Governance in the Modern World System (Arrighi and Silver 1999) are both examples of empirical research that explore these possibilities. In these works, the authors seek to identify tendencies and potential for action in the 21st Century by looking for repetitive patterns, long centuries and systemic transitions.

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he uses the interval between the crises that mark each successive cycle, i.e. between the signs of autumn that bring each expansionary phase to a close. He chooses this yardstick because of the degree of consensus over when the crises took place, and concludes that each systemic cycle is significantly shorter than the one before. Thus, the Genoese cycle lasted about 220 years, from 1340 to 1560; the Dutch cycle approximately 180 years, from 1560 to 1740; the British cycle 130 years, from 1740 to 1870; and the American one barely 100 years, from 1870 to 1970. We propose a different kind of periodisation. If we instead measure the duration of each systemic cycle from its starting point, we can predict when the current US cycle will end. This means starting from the creation of the institutional bases of its hegemony following the wars of systemic chaos. That would mean the US cycle began between 1945 and 1950. If we then add the aforementioned one hundred years but subtract from it the thirty-odd years of systemic chaos, understanding it as a period of transition rather than hegemony, then we can anticipate the US cycle ending between 2015 and 2020, when the task of establishing a new world system will have reached the height of urgency. 3

Kondratiev Cycles

3.1 Perspectives on the Cycle Kondratiev cycles are another crucial movement in historical capitalism’s development. Discussion about them is heavily influenced by the context it takes place in. Long cycles were identified and theorised between 1913 and 1939, principally by J. Van Gelderen, Nicolai Kondratiev and Joseph Schumpeter. Van Gelderen is credited with discovering them in 1913, an achievement which has gone somewhat unrecognised because he wrote in Dutch.55 But the first really extensive and systematic work on them was done in the 1920s by Kondratiev, who was unaware of Van Gelderen’s earlier articles. Kondratiev’s key work was The Long Wave Cycle (1984), first published in 1925. In it he distinguishes a series of long cycles that last 48–60 years and date back to the late 18th century. He divides each cycle into two phases, corresponding to economic growth (A) and recession (B).56 His periodisation allows 55 56

This was the year in which Van Gelderen published his work on long waves, Springvloed: beschouwingen over industriële ontwikkeling en prijsbeweging. Kondratiev’s periodisation is as follows: the first cycle consisted of an ascending phase from 1789 until 1810–1817, and then a descending phase lasting until 1844–1851; in the ­second cycle the upswing lasted from 1844–1851 until 1870–1875 and the downturn between 1870–1875 and 1890–1896. He also identified a third cycle whose ascent began in

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for a 5–7-year margin of uncertainty to account for the period of oscillations before the new cycle clearly emerges. For Kondratiev, the cycles are not absolute tendencies but essentially oscillations around evolutionary trends. He ­argues that capitalism is an expanding system with a moving level of equilibrium. Cycles represent fluctuations around this movement and should be understood as phenomena that influence capitalism’s rates of expansion and qualitatively alter their intensity. Kondratiev uses a series of indicators to understand long cycles: commodity prices, interest rates,57 nominal wages, foreign trade, coal mining and consumption, steel and iron production, and, lastly, bank portfolios and deposits. Of these indicators, only commodity prices and interest rates do not present evolutionary trends.58 The other values must be divided ​​against population size to construct theoretical series that reflect per capita rates of expansion. For Kondratiev, there are three types of cycles. Each one corresponds to the relationship between obsolescence and demand, or between the wearing out and production time of different commodities in capitalist society. These commodities are: a. Consumer goods, raw materials and means of production which require little time or expenditure to produce. They correspond to the four- or five-year cycles discovered by Kitchin. b. Means of production requiring a medium-term time frame and a certain amount of expenditure to be produced. They give rise to Juglar’s seven to eleven-year cycles. c. The basic means of production, which generate long cycles lasting dozens of years. Their production requires a lot of time and expenditure as well as the training of skilled labour. The introduction into the capitalist economy of the radical innovations generated by modernising the basic means of production alters the structure of production costs and shifts the equilibrium level in favour of innovative groups. However, introducing them requires not only their physical availability but the presence of other factors too. The absence of these additional factors explains the years of delay between when an invention appears and when it enters the economy as an innovation. Kondratiev describes the four pre-conditions that must be met for inventions to be transformed into innovations: (1) sufficient capital funds must be available to invest in introducing the new invention; (2)

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1891–1896, giving way to a downswing in 1914–1920. He was unable to examine how this last downswing ended because Stalin had him shot by firing squad in 1938. Kondratiev did not have access to the data needed to make a detailed study of interest rates, and so instead had to rely on quotations of interest-bearing securities, which vary in inverse proportion to interest rates. In these cases cyclical oscillations are based on absolute values.

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the investment must be profitable enough to produce an accumulation curve higher than the investment curve; (3) Capital must be concentrated in powerful business centres, and (4) a credit system must be set up to provide sufficient quantities of cheap capital. Only if these organisational conditions are fulfilled can a new cycle of large-scale innovation find broad application. Once in motion the economic cycle encounters limits to its continued expansion. These limits become a real barrier when, after 25–30 years, the investment curve rises above the accumulation curve. This can be explained by the increasing obsolescence of the means of production and the rising demand for investment capital, which is driven by inter-capitalist competition. The result is a negative inflexion in the surplus generation curve and higher interest rates which make investment dearer and force down profits, giving way to a downward-depressive wave. This downward wave in turn creates the conditions for another long cycle to establish itself over a similar time frame. The downturn encourages a quest for technological innovations that can cut production costs, drag down prices, stop interest rate increases and then reduce them by eliminating excess capital demand and increasing hoarding directed at fixed assets such as gold and bonds fixed income. The value of gold then rises, peaking as prices hit rock bottom. However this leads to an increase in its production, which is made possible by the availability of technological innovations capable of raising the accumulation curve and the presence of accumulated savings. The increase in gold production brings its value crashing down and pushes prices up, thus generating the abundance of capital needed to set up a credit system to support the broad application of a range of innovations which underpin a new cycle of development. The long cycle conditions the Juglar and Kitchin cycles by giving them their dominant tone. Thus during an A-phase they are dominated by the upturn – either because of its greater intensity or longer duration. The opposite then occurs during a downward B-phase. This is Kondratiev’s chief model of cyclical oscillations. For him, it is mainly explained through economic factors, although political variables such as social and military upheaval can generate unproductive costs and intensify the oscillations. Despite this caveat, his arguments came in for severe criticism. Trotsky, for example, argued that unlike in Marx’s ten-year cycles, factors external to capitalist accumulation – the takeover of new countries and continents, the discovery of new natural resources, wars, and revolutions in the superstructure organization – were the axis of long periods studied by Kondratiev (Trotsky 1977, 9). His position was later taken up by Ernest Mandel (1978, 1980), albeit in a more nuanced fashion. Kondratiev defended his position against Trotsky’s criticisms by asserting that technological, geopolitical and superstructural factors were all heavily

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d­ ependent on the economic cycle and its phases. He pointed out that technical and scientific discoveries are not random events and that new techniques are available long before they are implemented, explaining their incorporation into the economy in terms of the way cycles function. The same holds true for new territories: they are discovered long before they are incorporated into the capitalist world economy, as with Argentina, Canada, Australia and New Zealand. Neither are wars and revolutions random events, but an integral part of upswing periods, which respond to the struggle for markets and raw materials or the impetuous projection of new economic forces onto obsolete structures. Richard Day (1976) provides a good analysis of the Kondratiev-Trotsky debate, showing that it reflects two major perspectives on capitalist societies. Kondratiev cites the existence of a moving equilibrium as evidence that capitalist development is governed by general laws, of which cycles are a specific expression. Trotsky, on the other hand, points to the existence of non-periodic phases of capitalist development as a result of internal and external factors joining forces in its logic of accumulation. In his account, endogenous cycles of capitalism (the so-called Juglar cycles) represent periodic phases. Kondratiev’s position has clear advantages over that of Trotsky. It does not reject the theory of general laws of capitalist development but enables us to think about them dialectically, in the understanding that each moment of this development is, at one and the same time, unique and subject to the general laws governing it. Cycles revolve around an equilibrium with evolutionary tendencies, in which each cyclical repetition represents a specific moment of capitalist development. Trotsky’s approach makes it impossible to analyse this development dialectically. In positing the centrality of non-periodic phases, a result of elements internal and external to capitalism combining, Trotsky renders the very notion of the general laws of capitalist development that were Marx’s chief concern in Capital and the Grundrisse fleeting and unrealisable. Trotsky’s main mistake – his methodological separation of what is internal from what is external to capitalism59 – has to do with the difficulty of distinguishing between two levels of analysis that have in practice been closely intertwined ever since the Industrial Revolution: that of the capitalist mode of production and that of historical capitalism. There is no law of the capitalist mode of production that does not act on elements external to it, an externality which describes the unique individuality of the elements that make up the concrete conditions of existence. But one can only speak of a capitalist mode of production once those elements are articulated by the logic of surplus 59

As we saw in Chapter 1, the methodological separation of economic from social and political reality is typical of liberal thought.

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value production and appropriation. We saw that the capitalist mode of production only exists because of the development of historical capitalism. This relationship defines it but does not exhaust the irreducibility of the historical. It was this irreducibility that led Braudel to talk about a material civilisation embodying habits, gestures, food and millenary practices. Geography, technology, products and values do not define capitalism individually but by the way they are articulated with one another, which is what generates secular historical processes. The assertion that capitalist logic is powerful enough to dominate this articulation creates an analytical and political obligation to theorise the general trends of capitalist development in order to understand their scope and organise forces capable of halting and overcoming them. Historical processes are a feature not only of long cycles but of any cycle representing capitalist development, and they do not necessarily negate its general laws. The Trotsky-Kondratiev debate brought to the fore a fundamental issue that would go on to feature in subsequent debates around cycles: that of human freedom, which appears to negate the existence of cycles. It arises in Trotsky’s argument that the superstructure is relatively autonomous of economic phenomena and can even influence them through wars or revolutions. Kondratiev gave the key to the answer, although he failed to sufficiently develop it: wars, revolutions and social upheavals form part of long cycles and are crucial to their development. Long cycles may be governed by an economic logic during their development, but they also embrace major social and geopolitical processes. However, Kondratiev did not go on to demonstrate that long cycles are processes that articulate social and geopolitical factors through an economic logic. They operate by economic logic taking command of relatively autonomous elements of a technological, social, political and geographical kind. The conflicts between the latter’s autonomy and the tendency to control them play out within the cycle’s time frame and can even lead to its break. We might say that the economic logic of capitalist accumulation projects itself onto said elements and tries to make them a function of accumulation. The continuity of long cycles depends on this succeeding, whilst the autonomy of the elements in question can rupture the process. Class struggle is a core component of Kondratiev cycles and can determine their continuity or rupture. Since the 19th century, the global victory of the bourgeoisie in the class struggle has ensured their expanded reproduction. The issue of human freedom cannot therefore be deployed against long cycles, which have developed through class struggle as part of the expansion of the structures of capitalist accumulation across the world economy.

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Whilst rich in ideas, Kondratiev’s thinking also suffers from many gaps. He uses neither profit rates – the commonest measure of capitalist development – nor gdp per capita – the chief measure of material expansion – as indicators of cyclical phases. Furthermore he fails to create a hierarchy of indicators. This makes it harder to register the change from one cyclical wave to the next, which often takes too long (5–7 years) to be clearly identifiable. He repeatedly underestimates the part played by class struggle in the cycles without any theoretical need to do so, and technological, political, geographical and territorial processes appear determined rather than conditioned by the economic logic of the cycle. Finally, subdividing cyclical waves would make it easier to explain how they function, particularly with regard to interest rate movements during the decline. Joseph Schumpeter makes an important contribution to the theory of long cycles in Business Cycles (1989), despite taking some methodological steps backwards compared to Kondratiev. In it he seeks to understand innovation and come up with a more detailed model of cyclical waves, which he divides into four phases (recovery, prosperity, recession and depression). In order to define cycles, Schumpeter starts from a Walrasian model of static equilibrium founded on perfect competition. This presupposes a society based on an exact match of supply and demand and perfect mobility of goods and factors of production. Such a society is stationary: it produces the same amount of goods and services each year, enjoys full employment, and leaves no demand unsatisfied. Cycles upset this equilibrium and then restore it in new forms. But how can these new forms be generated if starting from a neoclassical definition of society as stationary? Schumpeter argues that capitalism’s immobility is shattered by external factors in the shape of innovations and entrepreneurs. Entrepreneurs are agents who introduce innovations. In principle they do not belong to any social class, although successful ones attain the status of capitalists. Innovations on the other hand mean new commodities, organisational forms and markets that radically alter the combination of factors of production in ways that cannot be assimilated by changes to the existing functions of production.60 For the firms that introduce them, innovations generate a premium: profit. Schumpeter saw this as differential income that cannot be attributed to any factor of production (capital, labour or land) via a process of cost allocation. Profit triggers a

60

According to Schumpeter, a function of production is a technological base linking given quantities of inputs (labour, natural agents, raw materials and equipment) to quantities of products in combinations that suit productive purposes in a particular setting.

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race to innovate, which leads to the diffusion of innovations and, eventually, elimination of differential income and a return to a state of equilibrium. The cycle represents this entrepreneur/innovation-led process of disrupting and then restoring the state of equilibrium. However, the new equilibrium differs from the initial one founded on perfect competition. Innovations alter the functions of production that sustain perfect competition and increase technological scales, making it impossible for the productive inputs to be infinitesimally decomposed. This ends up restricting the mobility of goods and factors of production and creates new foundations for business, which Schumpeter identifies as oligopolies and monopolistic competition. The author’s four-phase cyclical model builds on and complements the basic two-phase cycle. He argues that the prosperity phase is produced by entrepreneurs introducing radical innovations. In order to do this they must borrow from the banks, who provide credit. At first, low demand pressure on this credit allows profit levels to far outweigh interests. However, the success of the innovative firms increases the demand for loans and drives interest rates up. This process would soon see profits eroded by competition and interest payments, were it not for the fact that innovation occurs in clusters and triggers a flow of secondary and tertiary innovations. This flow of innovations is the basis on which Kondratiev cycles become articulated with Juglar and Kitchin cycles. Secondary and tertiary innovations restore prosperity and boost differential income enough to soak up the effects of competition. But once the flow emanating from a family of innovations dries up, competition reduces profits to zero and combines with the intertemporal relationship between interest and profit, which in the long run brings on a recession. Schumpeter notes that prosperity often leads to excessive amounts of credit being made available and becoming decoupled from innovation, which is the basis for paying interests. As a result, the recession turns into a depression that shatters the point of equilibrium preventing asset destruction and risks triggering an independent trend towards liquidation. If the depression is brought to an end then it is succeeded by a period of recovery, leading once again to a new equilibrium. Schumpeter certainly made a valuable contribution to the study of Kondratiev cycles. He used the concept of clusters, or families of innovations, to understand how Kondratiev, Juglar and Kitchins cycles condition one another. He also opened up a wide range of possibilities for prospective analysis.61 That 61

Schumpeter (1989, 175) sets out a 56-year model for the long cycle, divided into 28 years of prosperity and 28 years of recession. During the upswing, expansion is greatest in years 1–5, 9–14 and 19–24, peaking in years 1–2, 10–11 and 19–20. During the downswing, the decline is most pronounced in years 33–38, 43–48 and 52–56, with troughs in years 33–34,

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said, his approach is rooted in an erroneous view of capitalism and its dynamics. It sees profit only as differential income and not as a general phenomenon structuring capitalism. That is why he attributes its existence to external forces acting on capitalist society and not to its internal logic.62 This ends up blinding him to capitalism’s secular trends and the role of the cycles in their development. Schumpeter’s innovation cycles are unique events linked to the activity of innovation clusters. Once they are exhausted, however, nothing guarantees their resumption, because having failed to endogenise technological change within capitalism the author is left with no theoretical means of providing such an assurance. This limited Schumpeterian and neo-Schumpeterian thought, which overstated the application of the concept of the technological paradigm, its usefulness notwithstanding, whilst failing to articulate it with the law of value as the factor that drives technological paradigms and explains them historically. During the post-war economic boom, thinking around cycles stagnated amidst Keynesian attempts to eliminate the risk of recession via countercyclical policies. But with the exhaustion of the ascending phase of the post-war Kondratiev cycle it made a comeback. In Marxist literature it mainly reappeared through the writings of Ernest Mandel and Theotonio Dos Santos; in neo-Schumpeterian literature through authors like Christopher Freeman, Carlota Perez and Luc Soete, and in world system theory through Immanuel Wallerstein and Andre Gunder Frank. Mandel returned to Kondratiev cycles in several works, including his two classics, Late Capitalism (1985b) and Long Waves of Capitalist Development: the

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42–43 and 52–53. As we discuss further on, these temporal patterns are only helpful as indicators and should not be used mechanically. Schumpeter’s definition of profit as a surplus that cannot be attributed to any production cost is interesting. He fails however to point out that this situation is institutionalised in capitalist society through the wage. The wage is the core regulator of the difference between the value of labour and the value of labour power, and furthermore enables the latter to be appropriated in the productive process. Technological change is part of a socialised labour process controlled by capital that systematically generates income not attributable to production costs. The pursuit of profit is one of the main objectives of the capitalist economy, which uses technology to generate the aforementioned difference in value. Although Schumpeter undoubtedly represents an improvement on the neoclassical perspective, he still holds what is ultimately a very petit bourgeois view of capitalist development, perceiving capitalist accumulation not as a socialised process but as relying upon the initiative of individual entrepreneurs. That is why he predicted capitalism would come to an end during the monopolistic competition stage, when innovations are subordinated to the routine, socialised practices of corporate bureaucracy. This bureaucracy would undermine and eventually replace individual entrepreneurialism along with bourgeois property. See Schumpeter (1950).

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Marxist Interpretation (1980). His biggest contribution was to revive the concept of rate of profit as an indicator for studying Kondratiev cycles. This ­involved a methodological review of their causes and dynamics. In both Kondratiev and Schumpeter, the chief driver of long cycles is the appropriation of wealth via inter-capitalist competition. Innovation gives rise to extraordinary profits or differential income, which are then threatened by the diffusion of innovations. But although this is a key aspect of the way cycles operate, it does not fully capture their dynamics. Extraordinary profit cannot unleash an expansive long wave unless it is accompanied by an increase in the average rate of profit. In Mandel’s analytical model of long waves the rate of profit takes centre stage. The ascendant phase of the long wave is determined by radical innovations that (a) substantially devalue fixed and circulating capital (raw materials and low aggregate-value productive inputs); (b) increase the profit rate and therefore the mass of surplus value by reorganising the labour process; (c) intensify capital turnover, and (d) lower interest rates by centralising capital and the availability of credit in abundance. But halfway through this expansive phase the profit rate begins to decline due to rises in the organic composition of capital, the employment rate and the demand for raw materials (Kondratiev 1992). The pressure on costs increases the demand for credit and boosts interest rates and inflation. This leads to intensified class struggle and inter-­capitalist competition which within about ten years reduces profit rates to recession levels. In its first stage, high interest rates and intensified class struggle continue to feature in this recessive phase of the long wave due to the demand for credit to pay off debts and working-class resistance to capital’s attempts to rationalise and reorganise the labour process. Then in the second stage of recession, capital centralises finances, slashes interest rates and overcomes working class ­resistance to the introduction of both technological innovations63 and organisational innovations designed to rationalise the labour process. This phase generates chronic subinvestment that, taken together with capital centralisation, the availability of new technologies, organisational innovations and the increased rate of surplus value, frees up the resources needed for another long expansionary wave. Nonetheless, when it came to the concept of long cycles Mandel took a critical approach and preferred to use the term long waves, which he saw as less deterministic. He starts from Trotsky’s thesis, critiqued earlier, that long waves 63

Mandel turns to the work of Mensch and Schmookler to suggest that, during the recessive phase, capital focusses research and development on innovations to create processes that save on labour, reduce the number of jobs and undermine working class combativity.

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are based on a combination of both external and internal elements. But he qualifies the influence of external causes, arguing that it is the subjective factors amongst them that now play a more central role, since geographical and physical factors are increasingly subordinated to the needs of accumulation by the power of capitalist technology. The indeterminacy for the waves to operate as cycles has to do with sociopolitical and superstructural factors. But the hegemony of external factors64 is limited to the 10–15-year period after a crisis breaks out, when political conditions exert a decisive influence on the fate of capitalist rationalisation. For Mandel, the passage from the expansive long wave to the recessive long wave of capitalist accumulation is economically determined, but movement in the opposite direction, from recession to expansion, is determined by external factors. The neo-Schumpeterian literature makes important contributions to long wave analysis. It draws out the relationship between technological and organisational aspects in their development and identifies factors that reinforce Kondratiev and Schumpeter’s theses concerning the relationship between cycles and long-lasting goods.65 The neo-Schumpeterians develop the concepts of technological paradigms, technoeconomic paradigms, technological systems and technological trajectories66 to show the systemic articulation of technological convergences with groups of radical, secondary and tertiary innovations. Their critique of authors such as Mensch and Schmookler (Freeman, Clark and Soete 1982) is particularly significant. It shows that the technological paradigm interlinking and driving innovations during an expansive wave is formed not during the long recession but during the final phase of the previous expansive wave. It develops out of a set of technologies with limited individual 64 65

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“If one believes that not just once every fifty or sixty years, but continuously, external noneconomic forces determine the development of the capitalist economy, then one rejects out of hand Marx’s entire economic analysis” (Mandel 1980, 29). Mandel is sceptical about the existence of such goods and their place in long wave theory: “Our interpretation of the long waves, as compared with those of Kondratieff and Schumpeter, has the advantage that it does not explain the long waves, their origins, and their ends by the doubtful existence of ‘long-maturing investment projects’ twenty-five or even fifty years in duration” (Mandel 1980, 24). Technological paradigms and technological trajectories were developed as concepts by Dosi (1982), techno-economic paradigms by Carlota Perez (1983) and technological systems by Cristopher Freeman, John Clark and Luc Soete (1982). The notion of a technological paradigm concentrates on the convergent and systemic character an innovation imprints on products and processes. Techno-economic paradigms highlight the economic applicability of a given technological paradigm thanks to its vastly reduced costs. A technological trajectory designates an innovation path taken by a paradigm shaped by social determinations. Technological systems combine radical and incremental innovations along with organizational and managerial innovations (Freeman and Perez 1988).

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trajectories over the lifetime of a given paradigm, but whose convergence then gives rise to a new technological model. Railways, cheap steel, assembly lines and microelectronic chips were all introduced either at the end of an expansive long wave or, at the very latest, in the early years of a recession. These technological applications get outdated for both organizational and managerial reasons. Transforming a new technological paradigm into a techno-­ economic paradigm requires a series of managerial and organisational innovations at the corporate, social, political and ideological levels that lowers ­production costs and increases productivity and profitmaking opportunities by enabling the broad application of new technologies. This ­neo-Schumpeterian insight can be blended with the Marxist idea of including profit rates in long wave analysis, as Freeman, Clark and Soete (1982) and Theotonio Dos Santos (1994b) acknowledge. Whenever a long wave enters into crisis windows of opportunity appear, offering the chance to ‘catch up,’ i.e. to move up the international economic hierarchy by combining the technological and organisational innovations the new paradigm requires. This theme is developed in the neo-Schumpeterian literature, and by Carlota Perez in particular. Perez nonetheless exaggerates the ­potential offered by such opportunities. She fails to articulate the concept of technological paradigms with the secular trends of historical capitalism, which presuppose an international division of labour and monopolistic competition that limit such a possibility. Neither does she articulate them with systemic cycles, which are more enduring than Kondratiev cycles and condition their ruptures. Theotonio Dos Santos began using Kondratiev’s cyclical perspective in 1971, when he published La crisis norteamericana y América Latina (The North American crisis and Latin America). He explains long cycles in terms of radical technological innovations that transform capital’s organic composition, the industrial reserve army, wage levels, institutional forms (entrepreneurial concentration, financial centralisation, the internationalisation of capital and state investment), and, consequently, the rate of profit. Even before the term systemic cycles was coined, Dos Santos warned that the US economic crisis triggered by the Kondratiev cycle marked the beginning of its hegemonic ­decline. He would later return to this issue in two works where he tried to integrate the different Marxist analyses of the crisis with neo-Schumpeterian perspectives (1994b; 1999c). For Dos Santos, the long-term crisis in the Kondratiev cycle can be explained by the convergence of crises of accumulation, disproportionality and realisation with falling rates of profit. The crisis of accumulation is linked to the economic boom. The diffusion of technologies reaches its upper limit, putting the

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consumption of labour power, raw materials, machinery and credit under fierce competitive pressure. This leads to an increase in prices and interest rates, which brings down the rate of profit. But this crisis is not strictly about the rate of profit’s tendency to fall. The crisis of the falling rate of profit relates to the increase in the organic composition of capital to realize a new wave of innovations, which restricts this initiative. To unleash another innovational wave, labour productivity must be raised and capital accumulated and centralised. This is what creates the demand for new business models, state intervention and the internationalisation of capital. The realisation crisis is linked to the production of goods outstripping consumer demand. It unfolds in a context­of fierce competition between capitals and is ultimately caused by the unequal growth of goods and wages. The crisis of disproportionality is related to imbalances between the volume of production and the demand for supplies in sectors i (producer of capital goods) and ii (producer of consumer goods). The restrictions on individual consumption shift accumulation towards machine production and partly away from the dynamism of consumer goods, thus articulating it with the expansion of the national debt. The final growth phase of long waves sees the uncontrolled growth of this debt, which is unpayable due to the slowdown in economic expansion and exposes latent disproportionality. The world system theories associated with the Fernand Braudel Center also draw on Kondratiev cycles but give more weight to systemic cycles. Elsewhere, Gunder Frank (1998) argues in favour of extending their timespan to one thousand years, but with insufficient statistical support. Now, having described the various approaches to Kondratiev cycles, we shall review the topic. 3.2 Kondratiev Cycles: a Balance The theory of Kondratiev cycles arms us with an essential analytical tool for studying conjunctures. We have looked at the theories which trace the origin of these cycles back to the late 18th century, when the Industrial Revolution was getting underway. The cycles relate to a change in the technological foundations of a mode of production. As such they herald new ways of life and sweeping transformations at every level: institutional, political, social, ideological and economic, making it clear how the main types of production are articulated through a key technological input.67 The articulation of the leading forms of production through a key technological input becomes clearly evident with the production of machinery and other kinds of fixed capital. 67

We have used Marx’s definition of fixed capital in Capital as capital which appears as goods that depreciate over several cycles of production.

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As Kondratiev asserts, the cycles named after him represent oscillations around historical capitalism’s secular trends, which are marked by endless accumulation. And as Mandel points out, they should be measured on the basis of fluctuations in gdp per capita expansion and the rate of profit. Their expansive phases produce innovation clusters which become visible in technological trajectories when primary, secondary and tertiary innovations develop around a technological paradigm, as described in the (neo)Schumpeterian literature. Their recessive phases, on the other hand, point to the convergence of crises of accumulation, disproportion, realisation and the falling rate of profit tendency, as argued by Theotonio Dos Santos. Relying partly on neo-Schumpeterian perspectives, he also claims that these recessive phases can only be overcome through institutional and organisational renewal. This must involve new business models; new forms of internationalisation of capital and financial centralisation; new modes of labour and labour force regulation; new models of state intervention, and global leadership. Just as the neo-Schumpeterians assert, the end of each preceding wave of expansion sees a new technological paradigm brought into being whose diffusion becomes an economic, social, institutional and political matter rather than a technical one. The subdivision of waves into ascending and descending phases corresponding to the upper and lower limits of their curves is a useful model, although we think other more complex subdivisions are also possible.68 In the ascent we can identify a first phase of prosperity and a second one of maturity. In the downturn, a recessive stage is followed by depression. In terms of the social and political implications of the Kondratiev cycle’s phases, let us pause to consider the opinions of Kondratiev and Mandel. Kondratiev argues that social unrest and war are more common during ascendant phases. Unrest, because that is when the forces of renewal clash with the forces of obsolescence, paving the way to an expansive wave; and wars, because they too constitute moments of heightened competition for markets and raw materials (Kondratiev 1923). In contrast, Mandel argues that it is in periods of recession that class struggle intensifies, building up during the final stage of growth and then finally erupting over part of the recessionary period.

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Depending on the degree to which our analysis needs to fit reality, we could use an even more complex cyclical model made up of six sub-phases representing the primary, secondary and tertiary phases of innovations during the expansion and again during the crisis. In this model, the long expansion consists of three medium-length periods of stability (resumption, prosperity and maturity) intermediated by internal adjustment crises. Likewise, the long recession also consists of three periods of stability (recession, depression and recovery), similarly intermediated. See Martins (2008).

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We think both Kondratiev and Mandel were right in this debate, but some aspects need clarifying. Keen to highlight the reproduction of cyclical mechanisms, Kondratiev emphasises tensions during the ascent, which are inherent to the process of adjusting to the dynamic forces of a new pattern of capitalist accumulation. Mandel, on the other hand, is at pains to highlight the potential for breaking with capital accumulation, and so he emphasises crises that might present such a danger, i.e. those that break out during the decline. But what matters is not so much whether periods of heightened social tension occur more in the upturn or the recession, but that they are stronger when one stage succeeds another. That is when a working class at the high point of its subjective organisation confronts a situation of recession that compels it to go on the offensive. The conflict between forces emerging from a new organisational pattern of capital accumulation and the resistance they face from the forces of backwardness is what concentrates major change. We can therefore locate periods of accumulation of sociopolitical tensions, some of which might be more intense than others. These tensions are most concentrated during the transitions from maturity to recession and from depression to prosperity. The other transition points are from recession to depression and from prosperity to maturity. The most explosive tensions are those that build up in the transition from maturity to recession. But, with some exceptions, they do not always lead to the greatest institutional change. This category includes German and Italian Unification (1862–1870 and 1859–1870), the Meiji Revolution (1868), the Paris Commune (1871), the start of the Mexican and Chinese Revolutions (1911); the crises leading to World War i (1914–1918); the Russian Revolution (1917); social struggles before and after May 1968; the Prague Spring; the Vietnam War and its socio-political impact, the Third World offensive in the 1970s; the experience of socialist government in Chile (1970–1973), and Iran’s Islamic ­Revolution. The tensions concentrated in the transition from depression to prosperity, whilst powerful, are more likely to end in institutionalisation. Examples include the Opium War (1841) leading to the de facto annexation of China, or the liberal containment of socialist movements in 1848, both of which paved the way for European imperialist expansion; World War ii (1939–1945), culminating in the creation of the United Nations (1945) or the Indian decolonisation and the Chinese Revolution (1949), which were crucial to overcoming nineteenth-century imperialism in the 1950s-1970s; and the fall of the Berlin Wall (1989), breakup of the Soviet Union and Gulf War (both 1991), or the Washington Consensus and nafta (1992–1994), which cleared the way for the further expansion of neoliberalism after it had conquered the major western centres in the 1980s.

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Transitions from prosperity to maturity tend to be periods of progressive change that partly anticipate the conflicts that follow. They marked the beginning of German and Italian unification, the American Civil War (1861–1865), the Russian Revolution (1905), the Bandung Conference (1955), the Hungarian crisis (1956) and the Cuban Revolution (1959).69 On the other hand, periods of transition from recession to depression tend to be more reactionary, as destruction is made an explicit goal. It was in such periods that European countries began dividing up Africa, fascism emerged in the 1930s as a major force in Europe and beyond, and neoliberalism became hegemonic across the world economy in the 1980s. Because the adjustment to a new upswing in the Kondratiev cycle is ultimately a political and institutional affair, it is possible to skip the depressive phase and move straight from recession to prosperity. This was the case, for example, of Latin American countries in the 1930s. In general, this path is taken by progressive forces that use the State to effect key institutional changes at the national level. The clarity with which the general features of Kondratiev cycles express themselves depends on whether they coincide with the oscillating movement of systemic cycles. If the Kondratiev cycle establishes itself during the development of a systemic wave, then its radical and innovative character is augmented or partially contained by either combining or clashing with oscillations in the cycle. Just as the oscillations in Kitchins and Juglars cycles partially absorb the dominant trends of the Kondratiev cycle, so the latter partially absorbs the prevailing tendencies of systemic cycles. That is why the intensity and/or length of the upturns and downturns in Kondratiev cycles vary according to the tendency dominating the systemic wave. This applies not only to their economic dimension but also to political trends. Periods when a descending systemic phase coincides with an ascending phase of the Kondratiev cycle have failed to deliver much by way of reforms. The 1896–1913 period remained hostage to the institutionalism of 1870–1890, which promoted the colonial partition of the world. This was despite important developments such as the first stages of the Russian, Mexican and Chinese revolutions, which later led to major transformations. But the existing institutional model only really fell apart in the years of systemic chaos between the 1910s and 1940s, with its last vestiges destroyed in the 1950s, 1960s and 1970s. 69

For Vânia Bambirra (1974b, 138–155), the Cuban Revolution should be understood not only in terms of how the process of modernising rural relations was blocked by worsening terms of trade for primary products, but also by looking at foreign capital-led industrial development in the post-war period and how it was affected by the 1958 crisis with the US.

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The current epoch combines the downward trend in the US systemic cycle with the emergence of a new Kondratiev cycle. It represents a particular conjunctural timespan whose historical character has permitted only limited economic and sociopolitical gains – a prisoner still of the changes imposed during the 1980s depression, when neoliberalism was at its peak. This explains the apparent strength of the neoliberal ideological paradigm. However, let us make the following observations. Firstly, the expansive phase of the current post1994 Kondratiev cycle is advancing in its transition towards maturity. This has unleashed the forces of reform and revolution and hastened the political collapse of the neoliberal forces that remain so ideologically powerful in today’s world.70 In the six-subphase model, the global crisis that unfolded in late 2008 and lasted until 2010 represents the move into the last expansionary subphase of the current Kondratiev cycle and its third interval following those of 1994– 2000 and 2003–2008. The 2008–2010 crisis took place during a long expansion and signalled a much deeper crisis that will probably take hold in the second half of the current decade. This new crisis could take us back to the bifurcations associated with systemic chaos, such as those seen between 1914 and 1945–1950 when world war catapulted the capitalist world-system to a higher level and a third of humanity ended up living under socialist regimes until the 1980s. The second and most crucial point to bear in mind is that the balance of power between systemic and anti-systemic forces now favours the latter far more than a hundred years ago. This gives socialist and democratic forces the chance to exert a much stronger influence on the direction of the world economy and create the conditions for a relatively peaceful transition towards a new world system as the expansive phase of the new Kondratiev cycle exhausts itself. This will require the embryonic institutional forms of the new order to take shape under the old order, so that they are ready to make a qualitative leap forward as soon as the system enters a generalised crisis. But it will not be easy for such a scenario to materialise. It will mean first overcoming the tendencies of the systemic cycle that develop during the systemic chaos between recession and depression and unleash ultrareactionary 70

Political and ideological leadership do not necessarily go together. Of the two, political leadership in the orthodox sense of representing an ideological paradigm tends to decline more quickly. This is because the consensus achieved by a hegemonic ideology is supported not just by orthodox thinking but also by a range of forces that was originally more heterodox and distinguishable from their hegemonic counterpart. In a conjuncture in which the hegemonic ideology is declining at an ever-faster rate, the support of heterodox forces for the dominant ideological paradigm creates a space in which to combine wars of position with wars of movement in building towards a major political and ideological tipping point.

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forces ready to embark on a new fascist offensive. It is true that as historical time speeds up systemic cycles lose their capacity for articulation because the secular trends of capitalism driving them become weaker. But before addressing that point, we must first examine the rate of profit’s tendency to fall and the stage at which that tendency finds itself in the contemporary capitalist economy. 4

The Tendency of the Rate of Profit to Fall

Marx attached great importance to the law of the tendency of the rate of profit to fall, describing it in the Grundrisse as the most important law of political economy. In Capital, too, he stressed its significance. In Marx’s account, the law is central to the capitalist mode of production because it explains both the development of capital accumulation and its collapse. This is because the same factors that drive down the rate of profit can also help expand the mass of profit. What is this law and how does it support the theory of the downfall of capitalism? Referring to the law in Capital, Marx distinguishes between two different sets of circumstances. In the first, the magnitude of capital does not vary, and the law acts only to diminish the profit rate. In the second, the magnitude of capital does change, by means of various mechanisms which allow the mass of profit to increase at the same time as maintaining the tendency of the profit rate to fall. Marx notes that capitalist competition for extraordinary surplus value causes a continuous rise in the technical and organic composition of capital that threatens to erode the rate of profit. This happens because machinery is used to save on labour power by lowering the production costs of a given commodity whilst increasing labour productivity. As a result, variable capital decreases relative to fixed and constant capital. This occurs because (a) less labour power is used in the productive process; (b) the rise in the technical composition of capital increases the value of machinery; and (c) higher productivity augments the value of circulating capital, providing the increased consumption of raw and auxiliary materials is not accompanied by an equally intense diffusion of technical advances into the agricultural or mining sectors. If the degree of exploitation of labour power remains unchanged, then the rate of profit will fall insofar as technical progress becomes more generalised, because the same rate of surplus value applied to a smaller mass of living labour valorises ​​a larger amount of constant capital and dead labour. However,

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Marx argues that the same causes which increase the proportion of fixed capital and raw materials in relation to the mass of employed living labour also concentrate great masses of workers under the control of individual capitalists (Marx 1959, 215). Once the technical composition of capital has been determined at a certain level, this concentration of workers makes it possible to vary the magnitude of the individual capital and increase the mass of profit on it by valorising it adequately. The laws of capitalist accumulation, founded on capitalist competition and the pursuit of extraordinary profit, combine the tendency for the profit rate to decline with an increase in the mass of profit, which dialectically supersedes it. There are, howe v er, limits to how much the rising volume of profit can ­outpace the tendency for the profit rate to decline in the absence of countertendencies to the falling rate of profit that operate independently of the expanding numbers of workers. Although capital’s goal is to accumulate surplus value, the latter can only be realised when regulated by a rate of profit71 that makes said accumulation proportionate to investment. Otherwise it tends to be hoarded, which leads to crisis and greater competition among capitals to destroy part of the accumulated capital.72

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In the Grundrisse, Marx masterfully locates the rate of profit as the key measure of capital accumulation, the purpose of which is to expand the rate of surplus value (the ratio of unpaid labour to paid labour). Essentially, he argues that capital, proceeding from itself as the active subject in its own process of reproduction, relates to itself as self-expanding value. That is why “newly produced value” is not measured “by its real measure” – that is, the ratio of surplus value to necessary labour – but by capital as the supposition of the newly created value, as if surplus value were “posited and founded” by it. Having differentiated the profit (as newly produced value) from itself (presupposed, self-realising value) and posited it as a measure of its own valorisation, capital posits the profit in its identity to itself in order to start the same process again on a wider scale. The product of capital is profit, and the rate of profit is determined by the ratio of the value of surplus value to the value of capital (Marx 1973, 672). “In that the expansion or contraction of production are determined by the appropriation of unpaid labour and the proportion of this unpaid labour to materialised labour in general, or, to speak the language of the capitalists, by profit and the proportion of this profit to the employed capital, thus by a definite rate of profit, rather than the relation of production to social requirements, i.e. to the requirements of ‘socially developed human beings’. It is for this reason that the capitalist mode of production meets with barriers at a certain expanded stage of production (…) It comes to a standstill at a point fixed by the production and realisation of profit, and not the satisfaction of requirements. If the rate of profit falls, there follows, on the one hand, an exertion of capital in order that the individual capitalists, through improved methods, etc., may depress the value of their individual commodity below the social average value and thereby realise an extra profit at the prevailing market-price.” (Marx 1959, 253).

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In Capital, Marx lists the counteracting tendencies which can fully or partly neutralise the falling rate of profit, even if they cannot stop its slow developing during the expansive phases of the long cycle or operating as a secular tendency of capita l ism (Marx 1959, 227–235). These countertendencies include an increasing rate of labour exploitation, falling wages (closely linked to relative overpopulation); a reduction in the value of the elements of constant capital as productivity improves, and the role of foreign trade in cheapening the elements of constant capital (mainly circulating capital) and means of subsistence.73 Marx notes that while these countertendencies cannot stop the value of constant capital from rising faster than variable capital, they can keep the rate of profit’s tendency to decline in check as long as a potentially explosive contradiction does not arise between the rising rate of surplus value and the mass of surplus value. The rate of surplus value is boosted across the whole economy by the falling value of labour power and corresponding increase in dead labour in the form of constant capital. But this conflicts with the number of workers per given and invariable aliquot part of capital. The increased value of dead labour reduces the number of working hours available for production. The reduced number of workers limits the total time spent reproducing labour power and boosts the rate of surplus value. Keeping the same number of workers prevents such an increase because more hours must be spent reproducing labour power.74 In the long run, however, the more labour power is saved the less sustainable capital valorisation becomes. Although capital as a whole seeks to raise the rate of surplus value, it is really valorised by the mass of surplus value, which in turn depends not just on the rate of surplus value but also 73

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Foreign trade and the world market do this in three ways: firstly, through the expansion of the scale of production; secondly, through the levelling of the general rate of profit between metropole and colonies, where profit rates are higher because of capital’s lower organic composition; and lastly, through the sale of goods in backward countries at production prices above the value of the goods of the higher composition capitals that have migrated (Marx 1959, 232–233). This is what leads Marx to assert that absolute surplus value is not a stage in capital accumulation but a tendency that capital will never abandon, thus limiting any scope for reducing working hours as productivity increases: “The tendency of capital is, of course, to link up absolute with relative surplus value; hence greatest stretching of the working day with greatest number of simultaneous working days, together with reduction of necessary labour time to the minimum, on one side, and of the number of necessary workers to the minimum, on the other. This contradictory requirement, whose development will show itself in different forms as overproduction, over-population etc., asserts itself in the form of a process in which the contradictory aspects follow closely upon each other in time.” (Marx 1973: 645).

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the number of workers. The mass of surplus value is given by multiplying the number of workers by the number of surplus hours. Therefore the point comes when reducing the number of workers, who are the source of extraordinary surplus value and the increased rate of surplus value, renders the capitalist system incapable of producing enough value to valorise the capital invested. But this contradiction between the rate of surplus value and the mass of surplus value only risks becoming truly explosive for historical capitalism overall when the number of productive workers in the modern world system starts to fall in absolute terms.75 As we show in the next chapter, this happened when the techno-scientific revolution fanned out worldwide and brought us globalization in the 1970s. But before analysing that we should consider the concept of productive labour, so crucial to Marxist political economy and the issue of the falling rate of profit tendency.76 For Marx, productive workers have two distinct characteristics. Firstly, they generate surplus value and valorise ​capital. This means they take part in commodity production by adding use values essential to said production.77 With the development of collective labour, they can do this even without directly putting their hand to the object. The second characteristic of productive workers is their subsumption to capital, i.e. the labour process is under capital’s despotic control. This describes the situation whereby productive workers are subjected to the decisions of the capitalist command structure. They are employed by that structure and by the productive forces which end up owning it and symbolising capital’s collective power.78

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This can be seen in a pure form by the rise in unemployment and underemployment rates. One empirically significant feature of this historical process is the decline of productive labour as workers are displaced towards low productivity sectors. As competition depreciates the mass of values ​​these sectors produce, they make only a limited contribution towards producing the surpluses required to valorise the global mass of accumulated capital. We do not intend to examine this issue in detail here but just to note some of the points relevant to our discussion made by Marx in The Process of Production of Capital, Draft Chapter 6 of Capital (in Marx 1976), and over the three volumes of Capital (1959, 2013). Upkeep and restoration activities should also be included in the production of use values, as they represent an addition of value essential to physically preserving the commodity. Ruy Mauro Marini rightly argues that the unpublished Chapter 6 of Capital cannot be given the same weight as the rest of the work because it is a draft which was left out of Marx’s definitive version. The problem with the chapter is that it treats the capitalist’s duties as productive labour, whether performed directly or delegated, because they form part of the collective labour process realised in the product. This appears in the wellknown passage where Marx counts supervisors and even capitalists themselves as productive workers: “As the director of the labour process the capitalist performs productive

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Marx makes some particularly interesting comments on these points. He points out that capitalist relations only apply to immaterial production to a very limited degree, even in the production of commodities that are separated from the producer. We highlight this proposition because despite being neglected by critics it is absolutely crucial and runs through the whole of Marxian political economy. Marx makes this point precisely because in his view workers must be subsumed to capital before they can perform productive labour. Labour can only valorise capital in conditions where the means of production has first been separated from the worker to become the property of capital and appear as the symbolic and immaterial representation of its collective power. The development of the Industrial Revolution helped create such conditions. Industrialization creates a new division of labour, which paves the way for an exponential growth in rates of surplus value as a result of the widening chasm between the value of labour and the value of labour power. This gap

labour in the sense that his labour is involved in the total process that is realized in the product” (Marx 1976: 1048). Marx’s proposition here contradicts his more general statements on the subject, which define productive labour as that which produces surplus value and is subsumed to capital. Marini argues that we must distinguish between capital’s productive functions, defined by Marx as direction, coordination and supervision, and the other functions of the labour process, which represent what the working class does. With the development of capitalist production processes, these functions of capital were allocated to individual workers whose wage usually incorporates a portion of the surplus value produced by the workers: “Without ignoring the economy, a first step towards clarifying what the working class is would be to go back to the wage labourer’s original role; in other words, whether it involves performing the function of the capitalist, which Marx summarises as direction, coordination and supervision. If so, then obviously wage labourers cannot be seen as part of the working class, even if their salary, education, customs and social environment make it look like they are.” (Marini, 1998). However, with the socialisation of the labour process this work of direction, social coordination and supervision is increasingly assigned to key segments of the working class and its organisations (as with Toyotism) rather than to a specific group of workers that acts on it. But as long as these workers are ultimately subjugated by a despotic capital that determines what, where, when and how much to produce, their activity represents productive labour. It would appear that the tendency for workers to take on capital’s ­productive tasks will eventually lead to a crisis of productive labour under capitalism as capital’s specific functions and the institutional framework regulating surplus value production are eliminated. But such a process would require the working class to accumulate enough power to threaten despotism. Until such a point is reached, the quantity and intensity of the labour transferred to capital will continue to increase. For a perspective that highlights the rise in labour exploitation see Antunes (1995, 2012).

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appears when the value of labour power79 decreases, which happens in two ways: a. When labour productivity increases, it cheapens the products workers must consume in order to reproduce their biological ability to expend energy; b. When workers’ duties are simplified by eliminating intellectual labour and by making manual tasks less complex, their absolute or relative consumption needs in respect of the education, culture and subjectivities that go into producing labour power decline sharply, fast losing pace with the increase in productivity. Simplifying the knowledge needed by the labour force to work normally also helps create a large industrial reserve army and adds to the downward pressure on wages. This is why Marx always saw industrialisation as representing both the perfect basis for capitalism as a mode of production and the limits of its productive forces. By industrialising, capital develops a warped version of the division of labour, in which the greater productivity achieved by planning and coordinating individual work is accompanied by the absolute or relative deskilling of the labour power of the great mass of workers, who are excluded or marginalised from the civilisational complexity of capitalist industrialisation. The progressive elimination of predominantly physical labour puts capital on a road to nowhere. It cannot replace this kind of labour en masse with mainly subjective labour because that would imply going in the opposite direction to industrialisation. In other words it would mean raising the value of labour power and so bringing it closer to the value of labour, since bringing the labour force up to its full capabilities, as defined in an abstract way by subjectivity, would require full access to the productive forces unleashed by humanity. Marx was therefore right to limit productive labour essentially to physical work. That is not to say scientific work cannot be subsumed to capital,80 but

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To understand this it should be made clear that capitalism transforms labour power into a commodity just like any other, whose price is equal to the cost of its production. This in turn corresponds to the value of the elements needed to produce or reproduce it, i.e. what it must consume in terms of food, housing, transport, education, health, recreation, etc. Marx’s concepts of collective labour and the indirectly productive labourer or worker (Capital Volume 1, Chapter 16) open the way for the subsumption of scientific labour to capital: “As the co-operative character of the labour-process becomes more and more marked, so, as a necessary consequence, does our notion of productive labour, and of its agent the productive labourer, become extended. In order to labour productively, it is no longer necessary for you to do manual work yourself; enough, if you are an organ of the collective

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that it is subsumed only to a limited degree. A merely empirical and historical perspective cannot fully capture such a contradictory reality. Marx provides further clarification in the Grundrisse, where he argues that the development of capital presupposes the development of fixed capital and relative surplus value. Machinery is introduced in order to save on necessary labour (understood as that which reproduces the value of labour power).81 Its development leads to a system of automated machines. This system mechanises the labour process and overpowers workers by reducing their activity to a mere abstraction. Every detail of their activity is determined and regulated by the power of the machine, which replaces the worker’s own ability and strength. The saving of labour power thanks to the machine system transforms productive labour into an intensive and abstract activity in a movement which ends up with productive labour becoming dematerialised and disappearing. But the machine system requires demographic growth: both of the working population, since the development of machinery deepens the division of labour and social combination, which emerges as a key productive force; and of the population in general, as the machine system demands the ever-greater application of science to the productive process. A huge contradiction therefore develops. On the one hand, capital introduces the most advanced kind of machinery (the automated system) in its pursuit of valueless fixed capital, and eliminates labour power from the productive process, along with its human foundation.82 But on the other hand, the set of productive forces it brings into being are extremely anthropocentric. This contradiction exposes a conflict between two interconnected but opposing logics: that of capital, which measures wealth according to the value of labour power and necessary labour; and that of sciencecentred productive forces which create wealth on the basis of surplus labour and above all free time, i.e. wealth creation based on people free to choose their way of life and the activities they perform in order to produce it:

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labourer, and perform one of its subordinate functions” (Marx 1974, 476). But in the Grundrisse Marx is far more explicit on this issue. Sedi Hirano shows that he addresses the subsumption of scientific labour to capital in his analysis of the work in “Política e economia como formas de dominação: o trabalho intelectual em Marx”(Hirano 2001). The meaning of value of labour power is assumed in the Grundrisse and then fleshed out in Capital. “The kind that would cost nothing, but merely needed to be appropriated by capital, would have the maximum value for capital. It follows from the simple proposition that machinery is most valuable for capital when its value =0, that every reduction of its cost is a gain for capital. […] Its use value is precisely that it increases the productive power of labour, decreases necessary labour, and increases relative surplus labour and hence surplus value.” (Marx 1973, 766).

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The exchange of living labour for objectified labour – i.e. the positing of social labour in the form of the contradiction of capital and wage ­labour – is the ultimate development of the value-relation and of production resting on value. Its presupposition is – and remains – the mass of direct ­labour time, the quantity of labour employed, as the determinant factor in the production of wealth. But to the degree that large industry develops, the creation of real wealth comes to depend less on labour time and on the amount of labour employed than on the power of the agencies set in motion during labour time, whose ‘powerful effectiveness’ is itself in turn out of all proportion to the direct labour time spent on their production, but depends rather on the general state of science and on the progress of technology, or the application of this science to production. […] Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary. On the one side, then, it calls to life all the powers of science and of nature, as of social combination and of social intercourse, in order to make the creation of wealth independent (relatively) of the labour time employed on it. On the other side, it wants to use labour time as the measuring rod for the giant social forces thereby created, and to confine them within the limits required to maintain the already created value as value. Forces of production and social relations – two different sides of the development of the social individual – appear to capital as mere means, and are merely means for it to produce on its limited foundation. marx 1973, 704–706

Here Marx is posing a far-reaching civilisational question. He is effectively saying that this new foundation of the productive forces signals the need to forge a new kind of person – the social individual. The social individual develops his/her individuality by accessing the material and symbolic products created by humanity. Productivity will then come to depend on that individuality and its cognitive values. This will constitute a new model relationship between man and nature no longer dominated by need. Man will emerge as the main productive force and interact freely with nature. Surpluses will replace shortages, and no longer will the economy determine, in the last instance, how life is produced. A new material civilisation will be created based on the symbolic, on cognitive values, on socialisation, interaction, freedom and immateriality.

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Unfettered by physical or geographical limits, it will deserve to be called a planetary civilisation (Santos 1988, 1989, 1992a, 1994c, 1995b). Capitalism is utterly unsuited to overseeing a successful transition to the social individual. This is the case whether we are talking about its economic, social, political or ideological conditions. We saw that at the economic level the social individual will become the source of productivity, requiring an increase in the value of labour power compared to the value of labour which would endanger surplus value. On the social plane, the new individual will require free time and fully democratised private and public institutions in order to play an active role in running society. This clashes with capitalism’s limited ability to shorten the working day and overhaul the despotic foundations upon which it organises the labour process and the State. And at the ideological level, the new individual prioritises cognitive values over material consumption, and freedom, equality, solidarity and peace over coercion, inequality and competition.83 This poses a real threat to commodity realisation84 and the symbolic meanings which promote capitalist competition. For Marx, capitalism simply cannot adapt to the new foundations of the productive forces: In this transformation, it is neither the direct human labour he himself performs, nor the time during which he works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body – it is, in a word, the development of the social individual which appears as the great foundation-stone of production and of wealth. The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one, created by large-scale industry itself. As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of 83

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In probing the meaning of the French Revolution, Immanuel Wallerstein notes that it was the modern world system’s first ideologically antisystemic force, but that the slogan of “liberty, equality, fraternity” never became a substantive reality under capitalism. See Wallerstein (2011a, 1995a, 1999a, 1999b). The restricted consumption of material goods limits the decreasing rate of utilisation of physical resources described by István Mészáros in Beyond Capital (2002) and which concerns the underutilisation of resources to deal with the pressures of capitalist competition and its drive to sell commodities.

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the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis. The free development of individualities, and hence not the reduction of necessary labour time so as to posit surplus labour, but rather the general reduction of the necessary labour of society to a minimum, which then corresponds to the artistic, scientific etc. development of the individuals in the time set free, and with the means created, for all of them. marx 1973 : 705–706

Marx’s theory of capitalist collapse rests not only on economic criteria but also articulates other aspects of the production of human existence. The clearest evidence for the falling rate of profit lies in the contradictions between the relations of production and the productive forces, as manifested by capital’s inability to fully incorporate the scientific and technological revolution.85 This empirical fact has been clearly visible ever since the scientific-technological revolution went worldwide in the mid-1970s, consolidating globalization. Persistently high unemployment – even during the expansive phase of the new Kondratiev cycle – and capital’s dogged resistance to shortening the working day in the face of the absolute decline in productive labour both indicate how hard it is for capital to reforge labour relations on a foundation of skilled and intensive labour, education, and democratic relationships. In the next chapter we tackle this issue from a broader thematic vantage point, asking how globalization has acted on the modern world system and historical capitalism in such a way as to bring about their crisis and final supersession in the interval between 2015/2020 and 2045/2050. 85

The theory of the techno-scientific revolution developed by Radovan Richta in the late 1960s, discussed in more detail in the next chapter, is broadly supported by Marx’s theory of the falling rate of profit. That is why we examine it in light of the crisis of the modern world system.

Chapter 3

Globalization and the Crisis of the Modern World System 1

Globalization and the Techno-scientific Revolution

We saw earlier that as a concept, globalization has yet to receive the treatment it deserves. Rarely is it conceived of dialectically, as a process that both articulates and confronts radically different productive structures and forces. ­Instead, it is usually understood it as a process that has already been or is becoming institutionalised. The most adventurous approaches portray globalization as a new era dominated by capital, in which a global productive system driven by financial capital is being consolidated under the guidance of networked businesses or capital in general. Others define it as the advanced stage in the longterm development of the world system. It has also been seen as a new stage that will be led by international regimes anchored in the shared hegemony of the world-economy’s most powerful states. Alternatively, it is understood as the globalization of financial capital as it submits the world economy to a regime of permanent depression. But these approaches only account for moments or certain potentialities of the process and fail to reconstruct it as a practical-theoretical totality. In this work we understand globalization as a revolutionary process that brings the capitalist mode of production and its legal, political and ideological superstructure up against a new structure of productive forces that it cannot fully absorb. In this sense globalization designates a civilisational transition that exhausts the limits of capitalist existence but requires the foundations of a planetary civilization to be built in order to complete its course. Globalization picked up pace thanks to the worldwide diffusion of the techno-scientific revolution. The techno-scientific revolution was a concept developed in Eastern Europe and the Soviet Union. Its most paradigmatic expression was Civilization at the Crossroads (1969) by the Czech writer Radovan Richta – a work with echoes of the Prague Spring and a socio-political environment that encouraged people to question the bureaucratic restrictions on socialist societies. Richta systematised Marx’s view of capitalism as a mode of production whose productive forces have their basis in the Industrial Revolution. Theotonio Dos Santos did much to disseminate and develop Richta’s

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perspective with a series of works examining the techno-scientific revolution and its advance in contemporary capitalism and the world economy.1 Richta describes two different concepts: the structure and the dynamic of the productive forces. He argues that the productive forces are made up of the whole range of forces that produce human life and as such are impregnated with social meanings. He starts out from Marx’s position, passed over in the official Soviet literature, that the productive forces are built on collective labour. They therefore consist not only of physical factors – the instruments of production, the object of labour, the workforce and auxiliary elements – but also the social combination, values and ​​ subjective factors that constitute and organise collective labour. The greater the social importance of the subjective elements to the organisation of collective labour2 the more developed the productive forces. The structure of the productive forces is made up of both the physical and subjective factors that go into collective labour. These elements are organised around the relations of production, which include property relations, work relations, distribution, exchange and consumption. The dynamic of the productive forces refers to how their structure expands by generating an economic surplus. Different components of the productive forces take the lead in creating this surplus, depending on the mode of production. In the capitalist mode of production, the surplus expands thanks to the combination of machinery and labour power at the heart of large-scale industry. The Industrial Revolution fuelled huge waves of migration from the countryside to the urban centres, which concentrated their populations in large work units. The mass of workers linked to industry grew, and until the mid-20th century this was the yardstick used for measuring a state’s development. As we saw earlier, the ­machine system causes the relative deskilling of the workforce, with labour becoming increasingly abstract and intensive. Science is incorporated into production but without revolutionising the foundations of the division of labour, constituted by collective labour. The latter is divided into a large mass of workers who expend their labouring power above all physically, and a small contingent of managers, engineers and technologists who coordinate the technical and ­financial expansion of the machine system.

1 Theotonio Dos Santos’s work on the techno-scientific revolution (1977b, 1979b, 1983, 1987, 1990, 1994c, 1995b) also led him to consider the role of the productive forces in the world today in theoretical-methodological terms. See Forças produtivas e relações de produção (1984). 2 The English translation of Richta (1969) uses the term “aggregate worker” in this regard – Trans.

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Richta points out that despite progressively incorporating technology and technical progress during the Industrial Revolution, the capitalist mode of production remains an extensive economic form. This is because economic growth relies on an absolute and relative increase in the mass of physical labour employed in industry. Science continues to play second fiddle in the production process. Production is governed by the mechanical principle, whose most advanced application is the assembly line, and the way labour handles its object, is still governed by quantitative principles, as with cutting and assembly. This is despite the elaboration of new materials such as steel. The techno-scientific revolution commences once science becomes the predominant form of economic growth. This happens when the production of the economic surplus no longer depends on expanding the mass of physical labour.3 From that point on science becomes the leading component of the productive forces and governs their dynamic. The automatic principle replaces the mechanical principle in managing production. The expenditure of collective labour becomes determined by immaterial and symbolic factors, and the subjective and voluntary dimensions of the productive forces dominate their physical and material aspects. But in its first stage this process is limited to generating economic growth. That is, it does not structurally affect society’s organisational foundations, as constituted by the relations of production. These are still controlled by capital. The capitalist mode of production is currently at an extremely decadent stage, and social tensions are mounting as a result. At the heart of this decadence lies the fact that the relations of production come to depend more for their survival on property relations as opposed to labour relations. Unable to widely replace physical labour with subjective labour, capital looks to its property relations as the means of retaining control over the relations of production. Thus a profound contradiction arises between the productive forces and relations of production whose dynamism is chiefly rooted in labour relations. Capital goes from being a progressive force in the world-economy to a fetter on its development. But it cannot ignore the new productive forces. Based as it is on competition and the pursuit of extraordinary surplus value, it is compelled to reduce production costs by incorporating technological progress. Historical 3 We saw earlier that this is exactly the situation Marx describes in the Grundrisse when he remarks that science becomes a productive force that cannot be measured by the labour required to produce it. This contradiction between science and value is what allows him to claim for science the same condition of gratuitousness offered by nature. It is key to understanding the concept of social returns of innovation in the contemporary world economy, which shows how the trend towards diffusion outweighs the innovator’s capacity for private appropriation.

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capitalism enters a new stage of seriously deviating from the law of value because, increasingly, appropriation has become a condition of surplus value production, reflecting the axial shift in the relations of production towards property relations. As we explain in the next section, the current crisis stage of the modern world system and historical capitalism will probably rely on intensified inter-capitalist competition and ever closer relations with the State to enable the transfer of enough surplus value to valorise innovative capital. As a result, accumulation is accompanied by a massive destruction of capitals that slashes potential global economic growth, ratchets up unemployment, and creates the conditions for the prices of labour power to fall below its value, incorporating skilled labour into the productive process – albeit to a limited extent. Richta locates the origins of the techno-scientific revolution in the conjuncture lasting between the 1940s and 1960s but limits it to the central countries. We would argue that in the 1970s/1980s it extended across the whole of the global economy. Using the indicators used by the Groningen Growth and Development Center,4 and drawing heavily on Angus Maddison’s methodology, we find that from those years onwards both the absolute and relative numbers of workers employed in manufacturing began falling significantly.5 During the 1970s and 1980s the techno-scientific revolution generalised the microelectronic paradigm, laying the material foundations for globalization. The automatic principle took root in the world-economy and work moved 4 Available at . 5 Between 1950 and 1970, the number of workers in manufacturing in the United States rose from 79.6 to 100.4; in Great Britain from 146 to 161.3; in West Germany from 74.9 to 113.3; in France from 107.9 to 120.8; in the Netherlands from 106.3 to 125.1; in Japan from 46.3 (1953) to 94.7; in Canada from 68.8 to 91.7, and in Spain from 59.3 to 101.1. From that point on the index experienced a downward inflexion or else grew at a far slower pace, indicating either an absolute or relative reduction of workers in manufacturing. Thus between 1970 and 2000 the index fell to 96.4 in the United States; 82.6 in Great Britain; 79 in West Germany; 86.2 in France; 93.9 in the Netherlands, and 88.9 in Japan. It grew but at a slower pace in Canada and Spain, reaching 109.3 and 108.1 respectively. Growth in the number of workers has also slowed considerably in semi-peripheral and peripheral countries. If we take 1990 as the year when the value of the index stood at 100, we find that in Brazil its value rose from 24.6 in 1950 to 82.2 in 1998; in China from 13.8 in 1952 to 95.1 in 1999; in Korea from 12.4 in 1963 to 81.6 in 1999; in India from 51.7 in 1960 to 100.1 in 1998, and in Taiwan from 19.4 in 1963 to 100.1 in 1998. In Mexico the index continued along an accelerated trajectory that rose from 27 in 1950 to 120.5 in 1999, although it weakened in the first half of the 1990s. The Mexican case reflects the country’s ongoing integration into the US system of production and the importance of the maquiladoras in reducing the cost of producing US goods. Data available at http://www.rug.nl/research/ggdc/ data/icop-industrial-database-1987-benchmark.

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away from production. The material conditions for coordination on a global scale were created as communication technologies managed to mass-produce information in real time and eliminate distances in its circulation. But as we noted earlier, these conditions conflict with capitalism’s economic, legal and political foundations. Capital continues to be an economic form rooted in competition and dedicated to the generalised production of commodities. It subordinates planning to private interests which limit coordination on a global scale. Its incorporation of the microelectronic paradigm has led, not to a worldwide system of production, the domination of capital in general or supranational forms of administration, but to a higher form of monopolistic competition that represents an intensified form of global competition. In this scenario, multinational or ‘global’ companies continue to concentrate their strategic assets6 in national bases, whilst internationally globally coordinated administration remains a distant prospect as long as bodies like the UN and its economic organisations ensure that central countries retain most of their sovereign privileges. As argued by Marx, capital-in-general is not a concrete reality: it only exists because it corresponds to the abstraction represented by the average of many capitals. Nonetheless, its relevance as a concept lies not in that concrete correspondence but in the abstraction that sets the general conditions under which capital is valorised. The more capital incorporates technology and science into production the more it must promote competition, because the crisis of surplus value creation impels capital to find ways to appropriate it. 2

The Political Economy of Globalization

Globalization transforms the political economy of capital. It increases scales of production and creates a technically integrated division of labour that begins functioning at the level of the world-economy’s international market. Information technology makes it possible to globally integrate the administration of individual enterprises, as the production of dispersed units no longer has to be 6 Despite the growing number of strategic agreements between firms from the world economy’s financial powerhouses, US companies, which lead the world in research and development expenditure, made just 11% of their R&D investments abroad. See National Science Foundation (2002, 4–92). According to unctad (2005), companies have only internationalised R&D to a limited degree, with expenditure abroad in this area rising from 10% to 16% of total investments between 1993 and 2002. US firms register below-average rates of internationalisation, with just 13% of their said expenditure going abroad.

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segmented into different products or markets but can be coordinated so as to make all the parts and components of one product directed at the world market. As production costs rise, companies must control big slices of the world market if they are to make the most of their investments. Production is made extremely flexible by the ability to process and receive information in real time, and this ability is boosted by new regimes of labour power regulation that allow workers greater freedom to make decisions and use their own initiative, thus appropriating their intellectual capabilities. In this context the development of the productive forces is articulated with the pendulum-like movement of the systemic cycle. As we saw earlier, the pendulum swings back in times of hegemonic crisis, and during the US crisis it has swung back towards cosmopolitanism and imperialism. Capitalism uses neoliberalism, which reworks the liberal principles of competition, to organise the new international division of labour and its productive bases in the world-economy. This new division of labour recreates the relationship between core, semiperiphery and periphery. The central countries seek to specialise in the production of high value-added parts and components and in research and ­development to generate the knowledge needed for technological innovation. There is a nascent but global tendency for core countries to decentralise their material productive assets, which seriously affects peripheral regions. Large corporations now coordinate production globally, giving rise to so-called global enterprises (Chesnais 1996), or technobergs, as René Dreifuss described them (1996, 1999). The way dependent countries are articulated within the international division of labour means that their production is increasingly geared towards the world market. Through integrated planning, global enterprises combine superexploited labour in such countries with ever more advanced technology. As a result, strictly national bourgeoisies, who create most of the jobs in the world-economy, suffer from falling profit rates and gradually disappear, leading to high unemployment in the world economy and the spread of super-exploitation to the central countries.7 7 In “Proceso y tendencias de la globalización capitalista” (1996), Ruy Mauro Marini argues that the globalization of the world economy has extended super-exploitation – a form of reproduction of labour power typical of dependent countries – to the global economy as a whole. In Chapter 6 we examine this more closely from a theoretical standpoint. It is hard to empirically verify such trends across the whole of the global economy. Wage indicators are limited in their accuracy as they tend to include the wages of both workers and managers (oecd 2002). In the case of the United States, however, the Bureau of Labor Statistics indicators reported in the Economic Report of the President are conceptually more reliable as they reflect the wages of workers without supervisory or management responsibilities. This data backs

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This, then, is how production is organised under capitalism as globalization proceeds apace. But capitalist development is deeply contradictory. Globalization plunges capitalist political economy into a structural crisis. But it is important not to confuse this crisis with a permanent depression. For, while it does affect systemic cycles and Kondratiev cycles, it also becomes integrated with them and is influenced by their oscillations.8 Its main features are the crises of surplus value production, realization and appropriation. These features are mutually conditioning, but for analytical reasons we shall examine them separately. 2.1 The Crisis of Surplus Value Production There are two main reasons for this crisis: the decline in productive labour and the diminishing rate of expansion of surplus value. Productive labour’s decline is expressed by the diminishing number of workers involved in production. The rising number of jobs in science, culture and entertainment – activities up our thesis. The US is a country whose per capita gdp growth between 1973 and 2001 was higher in the United States than in the twelve leading European countries. It can therefore be cited as a prime example of super-exploitation spreading to central countries. Based on the dollar’s value in 1982, hourly earnings in the US peaked in 1972 at US$9.26. After that they sank to their lowest level in 1993, when they fell to US$7.78. The economic recovery failed to fully restore wage levels, and fifteen years of growth only brought hourly pay up to US$8.90 (2009) – lower than in 1972. If we look at weekly wage packets the outcome is even worse. Weekly earnings peaked in 1972 at US$341.80. They then declined significantly, falling as low as US$266.40 in 1992. The new Kondratiev cycle in the US economy then raised wages to US$294.30 in 2009, but this was still less than in 1964. Super-exploitation is clearly present even before we factor in other indicators such as the workforce’s increased years of schooling or the intensification of work over the period in question. See Council of Economic Advisers (2010b). For Europe and the oecd, one indicator pointing in a similar direction is the share of wages as a part of gdp, although its very broad definition of wages makes it an insufficient indicator by itself. Between 1980 and 1982, wages corresponded to 54.7% of gdp in the euro area, falling to 48.7% by 2001. This collapse was especially notable in France, where earnings fell from 52.9% to 42.4% (oecd 2002, 229). 8 Here we differ in our understanding from Robert Kurz (1992), for whom capitalism is already in decline and depression owing to the irreversible tendency of the rate of profit to fall. Kurz’s analysis is based on the fact that productive labour is in absolute decline, thus reducing the amount of surplus value produced, which is then insufficient for valorising capital. This argument has the merit of pinpointing one of the biggest threats to historical capitalism: the decline of productive labour. But he does not work into his account the countertendencies capital has used to offset this decline by generalising super-exploitation and tying it to an increase in the value of labour power, thereby expanding State intervention and integrating the old Soviet bloc, Eastern Europe and China into the world market. These countertendencies have allowed a new upswing period to develop in the world economy, but they will not be enough to respond to the diffusion of automation in the decade ahead.

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which lie at the heart of Marx’s vision of the new stage of organisation of the productive forces and the constitution of the social individual, cannot fully compensate for this decline. Since the late 1970s this situation has been reflected in the world-economy’s high rates of unemployment and underemployment (precarious work concentrated in low productivity sectors), and in the low rate of increase in skilled jobs.9 But the crisis of surplus value production is also accentuated by another law discovered by Marx and described in the Grundrisse and Capital: the lower the proportion of paid labour making up the working day, the more modest the increase in the rate of surplus value. This is how capitalist development sows the seeds of its own collapse. The valorisation of capital is based on the falling value of labour power, Therefore as labour power shrinks as a proportion of the working day, the lower the rate of capital valorisation relative to the increase in the technical composition. This occurs because productivity increases act upon an ever-smaller denominator of the fraction making up the rate of surplus value. If such a law worked in favour of accumulation during the early stages of capitalist development, it has proved a major obstacle to its expansion in its twilight years.10 It becomes even more contradictory if we consider that capital moves around in pursuit of extraordinary surplus value, which redistributes the global mass of surplus value to the benefit of an individual capital but without that mass increasing. The fight over extraordinary profit turns ferocious during this conjuncture and demands a new institutional architecture. Individual capital confronts this situation by increasing the mass of surplus value added over the working day. It does this in two ways. On the one hand, it increases skill levels, work intensity and the mass of collective labour, as well as encouraging new forms of social combination and the concentrated monopoly power to assimilate

9 10

In 1998 researchers represented 0.6% of the workforce as a whole across the oecd, with an annual growth rate of 3.9% (oecd 1998, 2001). We can illustrate these trends through two hypothetical situations: A and B. In situation A, a ten-hour working day is split into two hours producing surplus value and eight hours reproducing labour power, and an increase in the technical composition of capital doubles productivity over a given period of time (x). During that period, the proportion of the working day devoted to surplus value production triples from two to six hours, rising at a faster rate than the increase in the technical composition. In situation B the reverse happens: the ten-hour workday is divided into eight hours of surplus value production and two hours of reproduction (of labour power). Here, if productivity were to double, the part of the workday devoted to surplus value production would increase to nine hours, a 12% rise, while the technical composition would increase by 100%, forcing an increase in the organic composition of the capital that would make it impossible to maintain the same rate of profit.

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them. On the other, it resists pressure to reduce the working day. That option, however, is inadequate and limited. As seen, workers formed by the techno-scientific revolution should resemble the social individual, just as the logic of the productive forces dictates. Hence the greater their productivity and reproduction costs, the more they should partake of the wealth created. Increasingly, the value of labour power includes access to symbolic goods, dense in immateriality and subjectivity, and is determined by historical and moral factors. If supply and demand were evenly matched, this situation would lead to a progressive decline in the rate of profit. To avoid that outcome, capital restricts the demand for labour power, and in so doing generalises super-exploitation in the world economy.11 The forms of social combination that improve skills and intensify work limit its generalisation, and their diffusion tends to undermine the profit rate. Benjamin Coriat (1991) thought that Toyotism would replace Fordism as a means of regulating labour power, but in practice it encountered serious limits on its ability to expand quite as successfully. 2.2 The Crisis of Labour Power Regulation Models For Coriat, Toyotism is based on certain core principles underpinned by a set  of institutional commitments. These principles are just-in-time and self-­ activated production. Just-in-time means production is demand-driven and is characterised by zero stocks, rapid delivery and guaranteed product quality. Whereas with Fordist planning information flows from the start to the end of the productive chain, in just-in-time production it flows in the opposite direction. Self-activation means putting the production process tasks of quality control, programming, diagnosis, repair and maintenance in the hands of those directly responsible. Without doing this, there is no guarantee of quality, and production cannot be swiftly adapted to qualitative and quantitative ­variations in demand. The direct operators acquire a high degree of decision-­ making autonomy, which means they can stop the assembly line and intervene in its operation in order to meet just-in-time targets. They should be able not only to operate machines but also improve products and processes through innovation, adapt products to changing demand, control their quality, reduce stocks and waste, and adjust production so as to save on resources (Coriat 1991, Womack 1992).

11

The generalised super-exploitation of labour throughout the world capitalist economy is a key element in the crisis of the capitalist mode of production whose development is grounded in relative surplus value.

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Toyotism augments both the intensity of labour and the mass of value each worker contributes. It consumes not just their physical strength but, increasingly, their intelligence, initiative and creativity. In order to encourage this ­ tendency work must be reorganised around new business planning and management principles. In Fordism, planning and management were dominated by hierarchies and imposed ex ante. But the communicational link-up between production and demand enabled by new technology breaks down the hierarchical division between planning and execution and influences every aspect of business. Under Toyotism, planning no longer takes place prior to execution, an activity dominated by bureaucrats, but takes place within the very same time frame, in a way that redefines the very concept and nature of management. A systemic approach is developed. In this approach, productivity is measured in terms of the system as a whole rather than individual workers in their separate roles, and the notion of shared time replaces that of time allotted to or imposed on workers. Workers cease to be specialists and take on increasingly subjective tasks as part of their manual work. Business productivity itself is co-managed among the different layers of workers within the corporation. Crucially, workers’ subjectivity must be mobilised. This means creating democratic forms of consensus-based management, because once valorisation comes to rely on the subjective expenditure of labour power, then the control and physical coercion of bodies – carried out by scientific management or the conveyor belt – cease to be functional for guaranteeing capital valorisation. Capital and labour therefore need to reach a series of compromises in order to develop this productivity paradigm. In the early 1990s Coriat noticed that in Japan, where the Toyotist regime was most fully implemented, its democratic structure was based on clearly defined institutional innovations in the shape of lifetime employment, a seniority-based wage structure, and early retirement. Lifetime employment is a key component of Toyotism for three reasons. Firstly, if the worker becomes a differentiated asset, trained by the company for as long as their labour power endures, then that firm needs to keep them on to ensure that its competitors are not the ones who reap the rewards of its investment. Secondly, workers will hardly sign up to a management approach that intensively introduces innovations and job cuts without assurances that they will redefine their jobs rather than eliminate them altogether. Finally, high employee turnover is increasingly unproductive – whereas under F­ ordism deskilling and specialisation meant newly hired workers were quick to attain the productivity levels of those they replaced, under Toyotism such a system would inflict real damage, because there are no limits to how skilled workers can become.

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Under Toyotism employees are retained via consent rather than coercion. The seniority-based wage system is the best way to achieve this because it creates an expectation among workers that they will stay with the same firm. Workers who leave are penalised in the form of a large wage cut because of the years of service lost when starting afresh elsewhere. Lifetime employment and seniority-based wages become the basis of internal labour markets, which ensure continual progression up a wage and skills ladder. Seniority-based salaries tend therefore to equate to age-based salaries. This fits with training structures that enable workers to pick up skills and qualifications over time, either in the workplace itself or through formal education. Finally, early retirement at 55– 60 years old facilitates promotions, fosters creativity and prevents individuals from monopolising certain roles within organisations. Nonetheless, there are limits to this democratised management structure. It does not for example embrace financial administration within companies, where strategic decision-making is concentrated. Coriat admits there is a lack of wider participation in planning what to invest in and where, and what to produce. Furthermore, Toyotism’s reach is limited – even in Japan it covered just 30% of the labour force by the early 1990s. In Japanese Capitalism in Crisis (Boyer and Yamada 2000), Coriat and other members of the Parisian regulation school12 accept that the chances of Toyotism becoming the dominant mode of management in the current stage of capitalism are limited. They argue that the Japanese crisis is one of a mode of ‘régulation’ and cannot be resolved through Keynesian anti-cyclical policies but by forging a new accumulation regime that combines Toyotism with other forms of market-based labour regulation.13 They therefore posit a third way between a Toyotism founded on institutional and social compromises and a neoliberalism based on market relationships:

12 13

The leading figures among the Parisian regulationists include Michael Aglietta, Robert Boyer and Benjamin Coriat. Another group came out of Grenoble, led by Gerard de Bernis. As Boyer and Yamada put it in their conclusions: “Basically, a régulation mode enters into crisis when existing institutional forms put forward economic adjustments that threaten their stability and viability. This is precisely the process which the Japanese economy has been undergoing since the early 1990s (…) The jwln (Japanese Wage-Labour Nexus – C.E.M.] is unable to deliver a dynamic recovery of the profitability of the firms, nor does it seem viable in the long term to an increasing number of firms and wage earners. The discussions of the ‘end of life-time employment,’ the incompatibility of seniority wage with a slow-growth economy or the inability of large corporations to nurture the talents required by the information-led production paradigm, point out these limitations” (2000, 197–199).

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Whereas the conventional debate is about the opposition between a specific Japanese trajectory and the adoption of typical market-led institutions, a third way is much more likely and deserves some analysis. boyer and yamada 2000, 207

In tackling the reasons underlying the crisis of Toyotism, the regulationists seek to preserve wage-labour relations without seeing them as the source of the crisis. They argue that these relations are called into question because the crisis of the régulation mode is projected onto them, whereas the crisis itself is determined by the decline of the Toyotist financial regime and the Japanese system of innovation: This evidence leads to the conclusion that contemporary Japanese economy faces a crisis of the post-Second World War régulation. The strains upon the wln [wage labour nexus – C.E.M.] are not its cause but the consequence of this crisis. boyer and juillard 2000, 137

The regulationists make the crisis of the financial regime the main focus of their attention. Their analysis of the Toyotist production regime looks not only at how the labour process is regulated but also at the regime’s financial underpinnings. They show that in relying on full employment, skills development, and internal labour markets, Japanese capitalism prioritised planning and a long-term approach. In order to institutionalise labour relations it had to radically reappraise the criteria traditionally applied to financial resources, which were based on market practices and the competition to achieve immediate results. A financing system was therefore developed in Japan whereby banks lent to companies at artificially low interest rates in exchange for shareholdings, which gave them a quota of investment profits. This created relationships based on mutual trust. Firms were free to develop projects, but the banks monitored their implementation and results. When such projects failed, the banks would intervene to save enterprises with measures aimed at restoring them to good operating health. That said, private banks could ultimately rely on a government safety net in the shape of anti-competition laws, as well as expansive monetary policies, low interest rates and state help with risk management. The regulationists argue that the disintegration of this financial regime began in the late 1970s and continued into the next two decades. This was a result of both internal and external factors. Internally, slower economic growth in the mid-seventies deepened the public deficit. The government responded by issuing bonds, but this created a secondary market, which undermined the

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intermediary financial role played by the major banks. Businesses were happy to see this happen because of the high amounts that banks charged them in return for long-term financial support for their projects. At a time of diminishing long-term growth prospects, firms had started to view this support more as an expense than a means of leverage. Externally, the US pressured into Japan into deregulating its financial market and capital accounts. This all led to the yen’s appreciation, a less competitive Japan, and falling profit rates (Nabeshima 2000, 104–116; Coriat, Geoffron, and Rubinstein 2000, 177–178). The financial regime’s crisis triggered the decline of a Japanese system of innovation better suited to catching up than to retaining technological leadership. The Parisian regulationists revisited their theories to emphasise the obsolescence of a system that back in the early 1990s some, notably Coriat, had seen as paradigmatic. They point to underinvestment in basic research, over-­ reliance on private sector funding for R&D, an overemphasis on product development and differentiation at the expense of lower production costs, and the patent system’s failure to fully protect technological inventions and innovations. In terms of the wage-labour relation, they note that less weight is now attached to criteria such as lifetime employment and the seniority system and more to personal performance and individualised salaries. This is justified by the increase in average employee age and the need to incentivise individual creativity (Coriat, Geoffron, and Rubinstein 2000, 175–191). The regulationists make a key contribution to our understanding of the Japanese crisis. But their analysis ignores the mode of régulation’s wage-labour nexus with little by way of explanation. We would argue that a more careful assessment of the Japanese crisis would identify its core determinants as being wage-labour relations (on the domestic front), and the crisis of US hegemony and the particular form it assumed in the mid-1980s (globally). We saw earlier that Japan developed during the 1950s and 1960s partly by invitation. It belonged to a strategically important region in Cold War terms and experienced a ‘progressive’ US occupation, which promoted major agrarian reform and the formation of an industrialising local elite. This elite organised and negotiated a regional alliance in exchange for development being imposed with conditions that went beyond what the US had planned for. Japan protected its domestic industry from being penetrated by foreign capital, built up an export-based economy by undervaluing the yen and earned foreign exchange by hosting a US troop presence. The destruction of trade union opposition in the 1950s, a development-friendly context and the precarious material conditions of the working class helped the Japanese ruling classes achieve high rates of profit. It was in this context of international support for Japan’s efforts to restore its relative power in the world-economy, combined with

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­ odest employee wage demands, that Toyotism took root. But as it was further m developed and perfected, so these initial conditions of compromise and low wage demands broke down. The regulationists’ own indicators illustrate the relationship between the rate of profit and the relative growth of the wage mass as a share of output.14 The profit rate peaked between 1965 and 1969, rising from an index of 16.9% to 25.3%. During the same period the wage mass increased by 65% of the rise in labour productivity. Then between 1969 and 1973 the profit rate began to slow, hitting a low of 18.3% as the increase in the mass of wages outstripped that of productivity by 139%. In 1973–1975 the rate of profit plummetted to 11.8%. This was mainly due to the wage mass growing by 575% of the increase in productivity. The profit rate recovered between 1975 and 1980, albeit not to previous levels. This increase was caused by the slowdown in the growth of the wage mass, which reached just 59% of productivity growth. The economy then experienced sustained growth as the profit rate rose to 14.4% and continued to fluctuate just below that figure for the rest of the 1980s. Thus between 1980 and 1985 it fell to 12.9% as the wage mass increased by 109% of the rise in productivity. Then in 1985–1988 it edged up to 13.4%, partly because wages expanded at a lower rate than productivity (84%). Finally, the profit rate slumped once again between 1988 and 1994, this time as low as 8.3%, thus triggering the crisis which led to the collapse of the Japanese economy. The decisive factor in this turn of events was the high ratio of wage expansion to productivity, which reached 261% (Uemura 2000, 144). Wage mass growth certainly did outstrip productivity growth and drive down the profit rate as the Toyotist regime expanded from the late 1960s onwards. But that trend alone would not have sufficed to plunge the Japanese economy into crisis and prolonged stagnation15 had it not combined with the hegemonic crisis of the 1980s. Japan benefitted not only from the political ­regulation of Asian capitalism during the Cold War but also from the financialisation of the world economy from 1979 onwards, which was fuelled by the dollar’s overvaluation. Between 1978 and 1985, the yen depreciated against the dollar and rose from 210.4 to 238.4 per dollar, peaking at 249 in 1982. But the Reagan administration was compelled by its fast-rising current account deficits, especially with Japan, to strengthen the mark and yen against the dollar and tone down its financialisation strategy of ramping up interest rates and the 14 15

Hiroyasu Uemura (2000, 143) defines the profit rate as “net profits divided by the gross capital stock at current prices.” From 1991 until 2002 Japanese annual per capita gdp grew by 0.6%. It then recovered some of its power to expand, and grew by approximately 2% p.a. in 2003–2008 (Maddison 2010).

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value of its own currency. As it plunged deeper into crisis, US hegemony began losing the political capacity for systemic organisation it had hitherto relied upon to articulate its own interest with the general interest of bourgeois domination of the world-economy. Instead, it began imposing its individual interest at the expense of that articulation, eroding its own ideological legitimacy in the process. The result was a major shift in US policy towards Japan, whom it now pressured into liberalising trade and its capital accounts in order to valorise the yen and reduce its trade balances with the US. These circumstances proved a tipping point for political liberalism, which had used neoliberalism to channel the Cold War towards economic competition, and so the US withdrew its invitation to Japan and other East Asian countries to develop (Arrighi 1997a; Wallerstein 1997; Johnson 1995). As a result, Japan became considerably less competitive, and the huge internal efforts it made from the mid-1980s onwards to reduce production costs could not compensate for having to adapt to the way the world-economy now functioned. As the rising exchange rate threatened international market penetration, Japanese firms tried to salvage their trading position by slashing product prices. As a result, internal wage pressure16 along with external pressure to adjust to the world-economy seriously undermined the power of Toyotism to generate economic growth and maintain the profit rate. Its promotion and diffusion as an organisational paradigm in the Japanese economy had only been made possible by Cold War-induced political regulation of the world economy, and it was no coincidence that when the Soviet Union fell apart in 1991 the Japanese economy entered a deep crisis. Taking the exchange rate, relative export prices, relative labour unit costs and share in world trade as our indicators, we can see how exchange rate and wage pressures combined to squeeze the profit rate (oecd 2002).17 In the years 1985–1990 the yen rose sharply against the dollar as a result of the actions agreed as part of the Plaza Accord. In 1985 alone it rose from 238.4 to 168.3 yen to the dollar, and in 1990 it hit 145 to the dollar. It was further strengthened when Japan applied a policy of financial liberalisation in the 1990s, peaking at 93.9 to the dollar in 1995 before devaluation brought it back to 121.5 yen in 2001, when the country was in the throes of the post-1998 depression and spiralling unemployment. Export prices were driven up but much less so than 16

17

Between 1980 and 1982 the share of wages in the Japanese business sector was 66.1, falling to 60.2 between 1990 and 1992. It did however reach higher levels between 1992 and 1995. The figures for the oecd as a whole were a lot lower at 54.8 between 1980 and 1982 and 51.5 between 1990 and 1992 (oecd 2002). See Brenner (1998) for an interesting analysis of the Japanese crisis.

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the exchange rate. Thus between 1985 and 1995 they rose from an index of 71.8 to 100, and sustained their level with fluctuations until they reached 100.5 in 2001. Over the same period, relative labour unit costs rose from an index of 49.2 to 100. This was succeeded by a dip which nonetheless did not hold, and the index bounced back to 80 in 1997 and 97.3 in 2001. Of all these indicators the exchange rate presents the most variation, closely followed by labour unit costs. Export prices show the least variation. Because it tried to limit price variation, Japan was unable to keep its exports competitive. Falling profits led to less investment and a widening technological gap. As a result, Japan’s share of world exports fell from 10.5% in 1986 to 6.5% in 2001. We would conclude at this point in our analysis that Toyotism did not fail in Japan because it was too weak to generate technological progress and lead the next stages of the productive forces, but rather the opposite: Toyotism’s development was blocked because its profit rate was seriously eroded by having to adapt to the dynamics of the systemic cycle and by the stronger bargaining power it conferred upon the working class. Toyotism’s institutional ­cornerstones – lifetime employment, internal labour markets and democratised ­labour relations – are a powerful means of achieving technical progress. But capitalism cannot entertain a sustainable relationship with such arrangements, and so seeks a hybridised setup, which adapts them to the more oldfashioned institutional relationships associated with the market and Fordism. In this sense hybridisation represents a big step backwards theoretically for the regulationists following their ground-breaking work in the 1980s and 1990s. Toyotism did not follow anything like the same course as Fordism because its progress was blocked and it was prevented from fulfilling its potential. Fordism took shape in the United States from 1910 onwards, maturing in the thirties and developing across the world economy in the 1940s–1960s. It lasted about sixty years as a regime of accumulation before reaching a turning point. In contrast Toyotism took just thirty years from its beginnings in the 1960s to reach its own tipping point in the late 1980s. The Japanese crisis is linked to the crisis of surplus value production and the rate of profit’s renewed tendency to fall as the scientific-technological revolution goes global. The decline in Japanese productivity is directly related to lower rates of investment.18 During the 1980s investment stood at around 30% of gdp, reaching 32.4% in 1991. It then dropped to 28.1% in 1994 and 25.9% in 2000 because Japanese capital, took advantage of its prerogative over 18

Between 1980 and 1990, Japanese productivity expanded by 2.7% – well above that of the United States (1.4%) and the oecd (1.8%). Between 1991 and 2002 it fell to 0.9% (oecd 2010).

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i­nvestment decisions, introduced by Toyotism to protect its profit rate, and transferred its investments to other Asian countries where labour was cheaper. As a result, Japanese unemployment rose from 2.1% in 1990 to 5.4% in 2002 and labour power prices fell below their value. Furthermore, the number of parttime workers, who earn 40% as much as their full-time colleagues, rose from 15% to 22% as a proportion of the labour force between 1990 and 2001 (oecd 2006). If Japanese profit rates and the economy have experienced a modest recovery since 2003, it is thanks to the deepening crisis of US hegemony in the opening decade of the 21st Century, as expressed by the dollar’s devaluation, the stabilisation of the yen against the dollar, and internal wage containment. As noted above, the globalisation of the techno-scientific revolution has posed other problems for capital accumulation, such as crises of realisation and surplus value appropriation. It is to these issues that we turn next. 3

The Crisis of Surplus Value Realisation

Another major factor in the crisis of capitalist accumulation is the tendency towards overproduction as monopolies extend their global reach. For the surplus value produced to be transformed into capital accumulation the commodities incorporating it must be sold. We saw that capital moves about in search of extraordinary surplus value and superprofits. However, extraordinary surplus value does not represent an increase in the mass of surplus value produced, but rather its redistribution in favour of the monopolies upon introducing a technological innovation that individually devalues a commodity while maintaining its social value. For extraordinary surplus value to be transformed into superprofits and actually accumulated, it must first be realised. As Ruy Mauro Marini (1979b) points out, the demand for this realisation comes from the relative saving of labour power achieved through technological innovation, which is converted into the formation of profits or income then spent on luxury consumer goods and their components.19 But the high organic and technical composition of capital resulting from the globalization of the techno-scientific revolution restricts the share of the working day that is the equivalent of the value of labour power. The technical progress that comes with technological innovation thus presents a dual contradiction. On the one hand, the value it saves is ever less able to satisfy the demand for superprofits. On the other hand, it ends up threatening to reduce the total mass of surplus value by reducing productive labour. The transformation of extraordinary surplus value 19

We examine this topic in more detail in Chapter 6.

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into superprofits is the main force driving the expansion of historical capitalism, and its crisis, due to lack of demand, requires compensatory mechanisms. One such mechanism consists of a political intervention by the State to transfer values within the structural limits imposed by the dynamics of productive capital. Although the current expansive phase of the Kondratiev cycle is regulated by the rate of profit, it relies on the formation of fictitious capital to ­generate superprofits. However, unlike in the previous recessive phase, when financialisation predominated, fictitious capital can only be formed with the help of the productive sector. The articulation of the two prioritises profit rates over interest rates and ultimately needs the state to guarantee that productive asset-related investments are valorised. The other compensatory mechanism lies in the expansion of the international circulation of capital and commodities in search of new sources of demand and realisation. But such a process implies serious contradictions. Under capitalism, the pure logic of accumulation points towards consumption becoming ever more concentrated in individual capitalists and private enterprises – even when workers and the State account for a large share of the market. This trend creates difficulties for surplus value realisation because it places quantitative restrictions on exchange, leading to a risk of overproduction in the capitalist economy. Such a risk can only be averted if the volume of exchanges involving business units and individual capitalists increases enough to compensate for such restrictions. This contradiction, which threatens surplus value realisation, threatens to explode over the course of the emerging Kondratiev cycle. According to the oecd’s classic study of the influence of the microelectronic paradigm on capitalist reproduction (oecd 1991), information technologies transform oligopolies into globalising structures that dominate not just national markets but ­international ones too. This process involves a battle between oligopolies expressed through their mutual capacity to penetrate different national markets which propels capitalism towards a situation where the destruction of capital has an impact on many of the monopolies themselves. The new ascending phase of the Kondratiev cycle is marked by this fierce competition and capital destruction. Inter-monopoly exchanges are consequently far less likely to offset the quantitative restrictions on exchange. Historically, capitalism has responded to crises of realisation, production and surplus value appropriation by ratcheting up state spending. But such a response comes up against its own social, political, economic and ideological limits. As capitalist reproduction comes to depend more than ever on political interventions in the economy, so we see a weakening of the structural asymmetry capital created between politics and the economy. Capital’s basic

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unit, the commodity, presupposes the juridical and political segmentation of market agents and competition between them. The constant growth of the public sphere in the world-economy poses a serious threat to capitalism’s political superstructure. The contradiction between the expansion and increasing privatisation of the public sphere, driven by the aforementioned crises, is a decisive one that cuts across the whole interstate system and undermines the legitimacy of capital accumulation. 3.1 The Crisis of Surplus Value Appropriation Capitalism developed as a mode of production in the measure that the innovations introduced by individual capitals offered economic returns that they themselves would for the most part appropriate. The private appropriation of economic returns prevailed over their diffusion, whilst technological innovation breathed life into the formula M-C-C’-M’, which captures the process of capital accumulation and concentration. But the techno-scientific revolution turned this state of affairs on its head by increasingly transforming the content of economic assets into subjective and intangible components and established diffusion as an economic outcome of innovation that is even more important than private appropriation.20 In Capital, Marx noted that science and nature both make a similar contribution to society in that they are both able to provide it with free goods. Nature, by expanding independently of human labour; and science, because of its labour-saving potential and its perennial character, which situates it in a higher dimension to that of collective labour, i.e. that of universal labour. For Marx, this latter category represents science’s power of accumulation, thanks to its cognitive ability to organise the production of human life. Universal labour accumulates across generations, thus benefitting concrete individuals even if they have not contributed to its achievements via the currently existing division of labour.21 Today, the free availability of science can be seen in the prevalence of diffusion over private appropriation. Much of the research into the economy of 20 21

To measure the importance of this phenomenon the oecd developed the concept of the social returns from innovation, although it failed to draw out all of its theoretical-­ methodological and prospective implications (oecd 1991). “Incidentally, a distinction should be made between universal labour and co-operative labour. Both kinds play their role in the process of production, both flow one into the other, but both are also differentiated. Universal labour is all scientific labour, all discovery and all invention. This labour depends partly on the co-operation of the living, and partly on the utilisation of the labours of those who have gone before. Co-operative labour, on the other hand, is the direct co-operation of individuals.” (Marx 1959, 103).

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technology addresses this issue, and the notion of social rates of return from innovation has been used to measure diffusion in the modern economy. This concept was originally developed by Zvi Griliches and Edwin Mansfield in the 1970s and 1980s, and by the 1980s/1990s it had become highly influential. The oecd devoted a chapter to it in the paradigmatic study of technology referred to earlier, and later produced a selected bibliography on the topic (oecd 1991, 1998). The social returns from innovation refers to how the falling prices of innovations benefit consumers at the expense of innovators. This price movement is a result of the competition’s ability to appropriate the technological knowledge needed to innovate. In a diffusion-based economy both competitors and consumers benefit from the sharp fall in innovators’ profit rates. Surveys of the literature confirm that the social returns from innovation have reached levels far beyond those predicted in the 1960s, 70s and 80s (Griliches 1992, oecd 1991). These returns are concentrated in high technology sectors, which are R&D-intensive and technically advanced, the prime example being the electronics industry. Diffusion is central to the political economy of modern-day capitalism, but to take full advantage competitors must develop strategies aimed at closing the technological gap. In this they are helped by the development of the productive forces. At the same time the tendency towards diffusion must be ­understood dialectically. Because it contradicts the logic of capitalist accumulation, capitalism responds by trying to compensate for it. Thus enterprises at the organic core of the world-economy develop strategic alliances that allow them to expand the social foundations of their work by incorporating externalities into their competitive structure in order to preserve their capacity for monopolistic expansion.22 Costs and knowledge are shared, and competition is reduced to the realm of partnerships, putting even bigger obstacles in the way of other competitors. Network management, as the literature calls it, has led to a selective decentralisation of intra-company knowledge and limited alliance-­building to gain advantage in a competitive struggle that will lead to market monopolies. Unless they involve mergers and acquisitions, these partnerships do not eliminate the differences between companies and limit themselves to specific activities (oecd 1991). Another response is for the State to intervene by boosting funding for R&D activities. Nonetheless, these measures tend to exhaust themselves. This happens for two reasons. Firstly, because microelectronic trajectories and the technological 22

In 1995, strategic partnerships to develop, produce, distribute and market new technologies were concentrated in the central countries, mainly the United States, Japan and the European Union (unctad 1997).

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reconversion of the world economy make the social returns from innovation more intensive and extensive. And secondly, because when peripheral and semi-peripheral countries apply catching-up policies, they appropriate the international diffusion of knowledge inherent to the techno-scientific revolution by investing in raising labour power value and in its productivity and scientific/technological training. Capital concentration develops not only by creating technological monopolies, but also by appropriating the part of the value produced in segments with a lower technical composition via surplus value appropriation. Capital accumulates via the expansion of the most dynamic branches of production, which increase their technical and organic compositions vis-a-vis the average across the economy as a whole. If this sectoral expansion relied solely on its internal capacity to extract surplus value then it would face problems of overaccumulation, which would drive down the rate of profit. As seen earlier, when the technical composition of capital in sectors diffusing technical progress rises, so too does the value of fixed and circulating capital, whilst the relative or absolute size of the workforce shrinks. This contradiction is resolved by the formation of prices of production, which allows capital from the more dynamic segments of higher organic composition to migrate towards those with lower technical composition and higher profit rates, thus overcoming the obstacles standing in the way of its valorisation. With this shift, capitals of a higher composition transfer some of their technological assets to segments with a lower composition, introduce or develop the international division of labour, and compare values across sectors. In higher composition sectors this ends up cheapening production costs and boosting profit rates because technological decentralisation devalues and depreciates products from lower composition sectors, driving them towards those of higher composition. The component parts of constant and variable capital in higher composition segments can in this way be cheapened. Conversely, the lower composition sectors see an increase in production costs and technological heterogenity and the devaluation and depreciation of their products, and lose surplus value to the sectors which fuelled the formation of prices of production. In addition, the integration of markets brought about by prices of production enables capital of a higher composition to expand the workforce. As a result, capital of a higher composition appropriates part of the surplus value created by that of a lower composition.23 23

Henrik Grossman examined this issue in detail, arguing that capital exports from imperialist countries should primarily be understood as a means of compensating for the rate of profit’s tendency to decline. However we find no grounds to claim, as others have, that the

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This migratory movement could not happen without capitals from the peripheral and dependent productive sectors resorting to super-exploitation as a means of mantaining their profit rates, driving the prices of labour power below their value to offset the rate of profit’s tendency to decline (Marini 1973, 1978, 1992a, 1992b, 1996; Martins, 1996, 2009). Super-exploitation plays a crucial role in sustaining ever greater capital migration and the equalisation of profit rates. With its global scales and huge potential vis-à-vis its application to productive processes, the microelectronic paradigm allows capital to advance this process. It can do so because it offers a material basis for the de facto levelling of organic and technical compositions across different branches of production during the ascending phase of the following Kondratiev cycle – providing the management of production can be technically integrated, as we saw earlier. However, this tendency towards the full development of the prices of production, inherent to capital accumulation, is contradicted by super-exploitation and the limits it places on equalising profit rates once the levelling of technical and organic compositions has reached a certain point. As Marx notes in Capital, as the organic and technical compositions of capitals get ever closer, so the rates of surplus value in different sectors must gradually equalise in order to level rates of profit. Super-exploitation, in driving up the rate of surplus value by dragging the prices of labour power below their value, cannot compete generate as much as surplus value as technological innovation and no longer serves to help level the compositions of the different capitals. The fact that globalization extends super-exploitation to the whole of the world economy does not stop this contradiction from developing. Neither the tendency towards one regime of labour power reproduction nor the tendency towards the technical levelling of production can be fully realised under capitalism. As seen, the modern world system is based on an international division of labour that creates three zones in the world economy: core, semi-periphery and periphery. This division guarantees the economic, social, political and ideological conditions that enable surplus value appropriation and capitalist development in the most technologically advanced regions. Even as super-­ exploitation spreads to the central countries and institutes a single worldwide regime of labour power reproduction, dependent and core countries are still required to perform different functions in the world-economy. In the centre, the trend towards super-exploitation affects a material and symbolic structure designed to ensure competitiveness and leadership in the theory of super-exploitation can already be found in Grossman, even if he did provide much of its theoretical inspiration.

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world economy. The tendency to drive prices below the value of labour power, which characterises super-exploitation, combines with a trend towards ­training that same labour power to ever higher levels but at the same time preventing it from fulfilling its potential. In the periphery, heightened global competition forces local bourgeoisies to upskill their workers. At first, they are helped in this by the fact they are starting from an extremely low skills base. But the subordinate position of local bourgeoisies within the international division of labour and their limited relationship with technological innovation then severely restricts the expansion of training. Today’s regimes of accumulation, which consume workers’ subjective attributes and turn them into innovators, quality controllers and waste reducers, stand as proof of how this stunts and otherwise impacts upon productivity. For the above reasons, labour super-exploitation in dependent countries is unable to sustain the expansive movement of prices of production and the technological levelling of production set in motion by the techno-scientific revolution. The attempt to overcome the dependent countries’ productive insufficiency by deepening labour super-exploitation does not solve their structural deadlock. Aside from the expansive cyclical movements – when prices deviate above their value – this is what tends to give super-exploitation its harshest features, which are linked to wage and rights cuts and achieve meagre gains at a huge social and political cost. Historical capitalism thus encounters in a dimension of its worldeconomy serious limits to the development of the productive forces. 4

The Political Economy of Globalisation: Drawing Up the Balance

We have seen that globalization produces a crisis in the development of the secular trends of historical capitalism. When endless accumulation appropriates the techno-scientific productive forces it comes up against serious contradictions. This aspect of the crisis of historical capitalism’s structures is crucial as it signals a crisis of their material base. But two other crises must develop in order to bring the decline and supersession of historical capitalism within the sights of social struggle: a crisis of the modern world system’s political, legal and ideological superstructure – itself part of capitalism’s structures – and a conjunctural crisis. These two crises are the key to mankind breaking free from Braudel’s “prisons of the longue durée” and articulating the realm of the evenement or short term with the new. But as Wallerstein observes, all we can say about the future is that in forty years’ time we will no longer be living under historical capitalism. It is therefore incumbent upon social and popular movements to fight for an alternative that offers us a far better life than at present.

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The crisis of historical capitalism’s secular trends exacerbates the equally irreversible crisis of the modern world system. It also impacts sharply upon on the Kondratiev cycle. Thus the ascendant phase of this cycle will be influenced by the downturn of capital’s crisis-ridden secular trends and of the hegemonic cycle. It should be shorter than the one that developed over 1938–1973 during the ascendant phase of US hegemony, and if we exclude the period of systemic chaos then it should see less intense growth than the latter too.24 The most fitting comparison would be the ascendant Kondratiev phase that unfolded during Britain’s hegemonic crisis, which lasted just 18-odd years and experienced only modest growth. But there are limits to that analogy too. The new Kondratiev cycle is developing during a crisis of secular trends, not their expansion. Under British hegemony the world system projected itself onto the entire globe and transformed the world-economy into a worldwide economy. Liberalism brought the dissolving powers of competition to the very edges of the world system. No region under the thumb of free trade imperialism suffered the effects of competition more than Asia – India and China especially – as its manufacturing industries were ruined and its artisan producers forced to compete with British and European industry. In the current period, neoliberal forces have unleashed the dissolving effects of competition on the inner core of the modern world system. As a result, technological innovation and capital accumulation have been accompanied by the destruction of capital and jobs, and the rate of growth in the world economy is very poor for an ascending Kondratiev phase given the sophisticated nature of the modern-day economic base. Meanwhile, we are only just starting to see the accumulation of antisystemic forces needed to launch a political offensive against the ideological drift in the world-economy. The latest version of the ‘Third Way,’ which seeks to reconcile social welfare commitments with typically aggressive capitalist competition, has been applied only intermittently and has failed to change the course of the world economy.25 By contrast, resurgent popular nationalism and integrationism in Latin America harbours far more counterhegemonic potential. The post-2010 mature phase of the Kondratiev cycle should see a more powerful attack launched against neoliberal hegemony in response to the deepening crisis of capitalism’s secular trends. 24 25

The postwar golden age, when US hegemony stabilised, saw average per capita growth of 2.9% p.a. between 1950 and 1973. James Petras (2000, 137) describes the ‘third way’ in terms of three waves. The first was based on a social-reformist approach and lasted from the late 19th century until the end of the Second World War; the second was associated with postwar welfare capitalism, and the third is “the one we are experiencing today, and which began in the mid-1990s.”

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We saw that the latter crisis is characterised by crises of surplus value production, appropriation and realisation. The crisis of surplus value production typically manifests itself in the decline of productive labour and in the limits on expanding the mass of surplus-value by raising the technical composition of capital. In other words it is a crisis of capitalist labour relations which calls its relations of production into question. Capital finds itself unable to develop a new mode of labour power regulation and is forced to limit the development of its more advanced forms such as Toyotism, which had increased the pace of technological innovation in the name of maintaining its profit rates. It seeks to appropriate the mass of surplus-value, which it has trouble producing, by deviating price away from value. But capital’s high technical composition limits the formation of demand by saving on the very labour power which makes it possible to turn extraordinary surplus value into superprofits. It thus requires compensation mechanisms in order for superprofits to be made. Such price deviations are encouraged by the State at the political level and by intensified international competition, which combine with technical progress to transfer much of the mass of surplus value produced in sectors with sub-average organic compositions of capital into the hands of global monopolies.26 ­ 26

As Marx affirms in Capital, all labour is both abstract and concrete. It is abstract in the sense that all concrete labour consumes human labour power in general, i.e. in the physiological sense of consuming brain, muscles, nerves, hands etc; and concrete in as much as any expenditure of human labour power assumes a specific form linked to the production of particular use values and labour processes. To establish the value of commodities we must identify what they have in common and what enables us to compare them with each other. Treated as use-values, commodities cannot by definition be compared to one another because they have different properties. What does allow us to compare them in value terms is what they possess in common: a quantity of abstract labour. A commodity’s value is determined by the amount of simple labour it contains. That is, by the average amount of labour, skill and intensity, as determined by a society’s level of civilisation. For Marx, value is created through the expenditure of abstract labour power and does not include productivity, which belongs to the sphere of the concrete conditions of labour. Nevertheless, competition leads to product prices deviating considerably from their value. For simple labour power to actually equal average labour power, it must operate in average social conditions and under normal technological conditions. Only then will it represent socially necessary labour. When simple labour power operating in subaverage technological conditions is confronted in the market by superior technology, it no longer equates to average labour power. Marx’s theory of value uses three categories to describe and conceptualise these real-life deviations. The first is market value, where the technological differential between a company and the average in its branch of production is determined by a commodity unit price that is higher or lower than the quantity of socially necessary labour incorporated into the commodity. The second is the price of production, which levels profit rates across different branches of production through the migration of capitals in search of higher returns, and devalues ­commodities in

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I­ nternational competition is linked not only to world trade but above all to the development of prices of production, which tend to technically level production and allow international monopolies to plan their global business activity in an integrated fashion. But the super-exploitation fuelled by this new international division of labour is unable to sustain the equalisation of profit rates between core and dependent countries. It thus limits globalization and produces serious macroeconomic imbalances in peripheral countries. Widespread capital destruction combined with intensified monopolistic competition in a world-economy that has reached its geopolitical limits is proving a real barrier to surplus-value realisation – as is the ongoing liquidation of strictly national bourgeoisies and high structural unemployment. As a result, historical capitalism has produced a low rate of economic growth at its globalised stage. It is not that capitalism is being led into a stage of permanent depression by a financial capital increasingly detached from production, as neo-developmentalists like François Chesnais, Samir Amin, Maria da Conceição Tavares, José Luis Fiori, Luis Gonzaga Belluzzo and Pierre Salama argue. As we explain below, neither the theory of value – their basis for claiming there is a supposedly pure movement of capital towards the formula M-M’ – nor the historical record support such a position. Instead, this new stage of capitalist development should be understood by combining the perspective of the longue durée, i.e. in terms of the articulation of structural and conjunctural times, using the analytical tools needed to understand them, with an analysis of contemporary reality. Therein lies the challenge to dialectical thinking. Another sign of the crisis of surplus-value appropriation is the clash between the strategies used by capital and the new productive forces’ inherently socialising characteristics. This conflict is expressed by the widespread diffusion of scientific knowledge, whether or not it is incorporated into new technologies. We saw earlier how capital responds to this situation by developing strategic alliances. These alliances are mainly between the biggest productive and financial enterprises, which associate in order to improve their competitive capabilities, exclude competitors, and retain a monopoly of strategic knowledge. They frequently look to the State for R&D funding and protection via mechanisms external to self-regulated markets, such as patent law. But such responses have a limited effect. The development of new productive branches of capital of lower technical composition and more intensive labour. The third, extraordinary surplus value, can operate either in one single branch of production or, as Marini asserts, across different ones, and designates the declining value of products in relation to their price in one firm or sector. This has a negative impact on the other firms/ sectors, which consequently experience the opposite, i.e. a fall in prices in relation to value, as the global mass of surplus value no longer increases.

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f­ orces facilitates the diffusion of knowledge, and world economy growth rates under a globalising historical capitalism have been minimal, as we show in the next chapter. This weakens historical capitalism and cannot stop peripheral and semi-peripheral countries pursuing catch-up policies. The rise of China and its impact on the functioning of the world economy has created a complex environment in which post-capitalist elements combine and hybridise as the capitalist world economy expands and declines. The Chinese model of accumulation without dispossession links technological ­innovation to the proliferation of essential consumer goods and mass consumption in Chinese society. This has had a positive impact on the world price structure for primary product by boosting demand, whilst negatively influencing that of manufactured products by increasing supply and competition. Such a context creates a contradictory conjuncture of both risks and opportunities for peripheral countries. Thus, on the one hand it improves their balances of payments, temporarily containing their financial imbalances and the decline in the world system; but it also contributes to the reprimarisation of their export models and international insertion on poorer terms in the medium to long term as the nature of Chinese consumer demand changes. The modern world system is in deep crisis. It depends above all on neoliberalism, which rapidly diminishes its ideological power to keep articulating the world-economy through its leadership. The prisons of the longue durée are no longer secure in the material sense and are increasingly symbolic in nature. Conditions are ripe for the continental countries of the periphery and semi-­ periphery to start up a movement to restructure the international division of labour from the bottom up. If in the past the more conservative dependency theorists led by Fernando Henrique Cardoso argued that dependency on the hegemonic powers of the modern world system was a necessary condition of development, today it is clearer than ever that the opposite is true. For peripheral countries, breaking with dependency is not only a pre-condition of their development but is a structural part of reorganising the world system and putting the world economy back on the road to development. We turn now to the crisis of the modern world system and the alternatives facing the new antisystemic movements. 5

The Crisis of the Modern World System

5.1 Neoliberalism – Ideology of a World System in Crisis We noted that during the US hegemonic crisis the systemic cycle has swung towards cosmopolitanism-imperialism. This pendular movement is driven by

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neoliberalism, which is its dominant ideological form. Neoliberalism is a form of regulation of the world-economy that prioritises external economies over internal ones. It is crucial to the expanded reproduction of historical capitalism as it enters a stage where it finds it increasingly difficult to produce surplus value. Surplus value appropriation has become central to capital accumulation, making it imperative to encourage the trend towards the globalization of the law of value and dismantle any barriers to the widest circulation of capital and commodities worldwide.27 National and international markets are increasingly integrated, as shown by the rise in international trade and capital flows as a portion of gdp.28 But Marx never suggested that the tendency of the law of value to globalize would develop without contradictions. It suffers from two limitations, both of which are ultimately related to its historical dimension. The first limitation concerns the fact that capital only imposes itself on populations and must articulate itself with territorial powers, represented by the State. The second has to do with the fact that the globalisation of the law of

27 In Capital Volume iii Marx refers to the conditions that enable the law of value to become generalised. These conditions are linked to the universalisation of the commodity form and therefore of competition and the subsequent equalisation of profit rates: “The incessant equilibration of constant divergences [between different rates of profit – cem] is accomplished so much more quickly, (1) the more mobile the capital, i.e., the more easily it can be shifted from one sphere and from one place to another; (2) the more quickly labour-power can be transferred from one sphere to another and from one production locality to another. The first condition implies complete freedom of trade within the society and the removal of all monopolies with the exception of the natural ones, those, that is, which naturally arise out of the capitalist mode of production. It implies, furthermore, the development of the credit system, which concentrates the inorganic mass of the disposable social capital vis-a-vis the individual capitalist. Finally, it implies the subordination of the various spheres of production to the control of capitalists (…) The second condition implies the abolition of all laws preventing the labourers from transferring from one sphere of production to another and from one local centre of production to another; indifference of the labourer to the nature of his labour; the greatest possible reduction of labour in all spheres of production to simple labour; the elimination of all vocational prejudices among labourers; and last but not least, a subjugation of the labourer to the capitalist mode of production.” (Marx 1959, 192–193). 28 International capital flows grew by 15.9% p.a. from 1970 to 1980, climbing to 21.3% between 1982 and 1990. In 1993–2000 they expanded by an impressive 27.2% p.a., reaching US$1,491,934 million (unctadstat, 2011). Accordig to Maddison (2001, 127) merchandise exports as a proportion of world gdp rose in turn from 10.5 per cent in 1973 to 17.2 per cent in 1998. Between 1999 and 2008 world trade grew at 6.9% p.a. (oecd 2010), outpacing gdp, which grew by 4.2% p.a. between 1999 and 2006.

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value is founded on internal contradictions that stop it from fully developing.29 These limits mean the globalization of the law of value only imposes itself amidst multiple deviations. As an ideology, then, neoliberalism is two-faced: on the one hand it represents the driving force and need to globalise competition, leading to what Marx describes as the general laws of capital imposing themselves on individual capitals; but on the other hand as a concrete, historical force it deviates from its ideological roots in universalised competition. This need and the deviations in question relate to the advanced stage of capital accumulation in which neoliberalism emerged, and they are what distinguishes it from the liberalism that developed under British hegemony in the 19th and early 20th century. As Perry Anderson notes, neoliberalism was a theoretical and political response to the interventionist welfare state in postwar North America and Western Europe. Basing itself on Friederick Hayek’s The Road to Serfdom (1944), it took shape as a doctrine when a 37-strong group, including Hayek himself, Milton Friedman, Ludwig von Mises and Karl Popper, founded the Mont Pelerin Society at a hotel in southern Switzerland in 1947. Their aim was to confront what they saw as Keynesianism and political liberalism’s barely disguised socialism and prepare the way for a rigid version of capitalism rooted in competition and economic liberalism (Anderson 1995, 9–10; Santos 1999b, 127). Neoliberalism relies on irrationality to attack planning and its role in organising society. Just as Edmund Burke used the weakness of reason compared to nature to argue against the French Revolution, praising prejudice when faced with an inability to explain events, so neoliberalism affirms that as man is 29

We saw that the general tendency of capital accumulation is the expansion of M into M’ through the formula M-C-C’-M’. This means (especially during globalization) capital concentration and monopoly, which block the introduction of individual private capitals and increasingly restrict their mobility. The flipside of this process is that profit rates in the world economy are largely levelled through labour super-exploitation – when capital of lower technical composition is unable to migrate in order to share in the mass of surplus value appropriated from it by more technologically advanced branches of production; or if it is unable to migrate towards a branch of higher composition when it’s the profit rate in its own branch declines. We further noted that in becoming a way to level the rate of profit, super-exploitation represents a limit on its own full development because of its relatively diminished ability to create surplus value, which restricts the levelling of the technical composition of capital. We saw also that its subsumption to capital means labour is converted by machinery into intensive labour power. This ultimately leads to it being dematerialised, thus threatening productive labour. Finally, we noted that capital’s appropriation of the techno-scientific productive forces involves developing the social returns of innovations.

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i­mperfect by nature and incapable of consciously organising reality, he must therefore submit to ‘spontaneous order.’ Starting out from the individual, it seeks to guarantee freedom, defined in the negative sense of anything a person can do without imposing their choice on someone else. The individual is understood not as a product of society who develops in continuous interaction with it, but as an independent being who associates with others on the basis of voluntary cooperation. Upon establishing itself as a far deeper stage of interdependency, neoliberalism sees humanity’s social and political development as a threat to private property and tries to destroy it in order to protect private property from any such threat of resignification. Unlike the liberal movement of the 19th and 20th centuries, which to a greater or lesser extent associated freedom with struggles against absolutism, with the right to popular sovereignty and with extending the right to representation, neoliberalism rejects any political interference in the economy in the belief that universal suffrage and social rights to representation might lead to the collective will imposing itself on individual freedom of choice. Milton Friedman expressed this very clearly: The relation between political and economic freedom is complex and by no means unilateral. In the early nineteenth century, Bentham and the Philosophical Radicals were inclined to regard political freedom as a means to economic freedom […] The triumph of Benthamite liberalism in nineteenth-century England was followed by a reaction toward increasing intervention by government in economic affairs. This tendency to collectivism was greatly accelerated, both in England and elsewhere, by the two World Wars. Welfare rather than freedom became the dominant note in democratic countries. Recognizing the implicit threat to individualism, the intellectual descendants of the Philosophical Radicals – Dicey, Mises, Hayek, and Simons, to mention only a few – feared that a continued movement toward centralized control of economic activity would prove The Road to Serfdom, as Hayek entitled his penetrating analysis of the process. Their emphasis was on economic freedom as a means toward political freedom. friedman 2002, 10–11

Neoliberal ideologues base their programme on the following core principles: a. Drastically reducing direct and indirect State intervention in the economy, especially through privatising public concerns and deregulating the economy. b. Abandoning the policy of using public deficits to achieve full em­ ploy­ment and economic growth. Instead they favour balanced and

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f­orecastable fiscal and monetary policies, with clear rules applied to changes in the monetary reserve and aimed at stabilising prices. c. Trade and exchange rate policies aimed at unilaterally removing tariff and para-tariff barriers and adopting flexible exchange rates tied to market movements. Unilateral action rests on the notion that an economy which opens itself up can benefit from the effects of competition even if other economies do not follow suit. Flexible exchange rates are not an excuse for unstable rates, but rather assume that exchange rate stability depends on rates being allowed to fluctuate freely in line with market forces. Neoliberals also suggest that other countries should peg their currencies to the dollar, once parity has been set by the market and assuming they apply fiscal and monetary austerity. d. Restricting trade union activity. Neoliberals see unions as monopolies that cause price deviations and prevent wage levels from being established correctly, leading to unemployment. One restriction that deviates prices and should be swept away is the minimum wage. The contradictions between neoliberal theory and the policies applied in its name have led some authors to rightly claim that the unity of the two is fallacious. Theotonio Dos Santos, for example, shows that the rise of neoliberal hegemony was marked by an expansion of state intervention, military spending, public deficits and financial speculation, all articulated through the US government (Santos 1992b, 1993a, 1995b, 1999a, 1999b, 2004). The heyday of neoliberalism lasted from the early 1980s, with the election victories of Margaret Thatcher in Britain (1979), Ronald Reagan in the US (1980) and Helmut Kohl in Germany (1982). It lasted until the late 1990s, when other forces began to challenge its hegemony either head-on or by diluting its f­ ounding principles. This challenge took various forms: the renewal of social democratic thought; the resurgence of nationalism/regionalism (of socialist influence or involving major state intervention), and the return of ­pre-capitalist ideological and cultural forms such as Islamism and indigenism, which predate Western imperialist subjugation of Afro-Asiatic and Ibero-American peoples respectively. The social-democratic offensive was initially marked by the election of Bill Clinton (1992/1996), Tony Blair (1997), Leonel Jospin (1997) and ­Gerhard Schröder (1998), all of whom promoted Third Way policies. In Latin America the crisis of the Washington Consensus led to the downfall of almost all of the openly neoliberal regimes. In their place were elected either centre-left governments offering a cocktail of Third Way policies, such as Lula (2002, 2006), Dilma Rousseff (2010), Tabaré Vázquez (2004) and Michel Bachelet (2006); or the more radical nationalist projects represented by Hugo Chavez (1999, 2000, 2004, 2006, 2012), Nicolas Maduro (2013), Nestor and Cristina K ­ irchner (2003, 2007), Evo

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Morales (2005, 2008), Manuel Zelaya (2005), Rafael Correa (2006), Daniel Ortega (2006), Fernando Lugo (2008) and Jose Mujica (2009). In arguing that the golden age of neoliberal ideology ended in the 1990s we are not saying that neoliberalism is no longer hegemonic or cannot enjoy brief recoveries. The structural exhaustion of neoliberalism deepens over the course of the expansive Kondratiev cycle and makes qualitative leaps forward at every point of cyclical inflexion. If the Third Way emerged in the US and Europe as the alternative to neoliberalism during the first cyclical phase of this Kondratiev cycle, then the nationalist/regionalist resurgence in Latin America and semi-continental countries such as Russia, the articulation of social movements in favour of another kind of globalization and the Islamic offensive are products of neoliberalism’s crisis and represent the structuring of the cycle’s second phase. The transition towards the third cyclical phase of expansion has helped fresh ideological alternatives emerge. This is most clearly visible in the transnational political culture of the United States, which has given a sense of identity to immigrants, blacks, workers and youth of Anglo-Saxon origin. Having shaken up US social democracy and propelled Barack Obama to power, this presents an opportunity to reinvent social-democratic thought and deepen its links to antisystemic movements in the US and elsewhere. But the government formed after Obama’s victory represented expectations and challenges more than an alternative to the neoliberal era, and both monopolies and antisystemic movements laid claim to it. Neoliberalism can only be overcome by articulating global alternatives. Otherwise it will become more powerful, but this time under forms that exacerbate its most regressive features. One example of this is the fascistic ideological crusade embarked upon during George Bush’s term in office (2000–2008), which stimulated the world economy. Such developments are largely a consequence of the timid nature of the social democratic experiment and stand as proof that we could see new neoliberal offensives led by its most orthodox, fundamentalist sectors.30 Neoliberalism should be understood not only as an ideological project, but also in terms of its real, historical nature, which relates to the crisis and decline of US hegemony and the modern world system. Seen thus, we find it often flies

30

Note to the English edition: As we noted in the Brazilian edition of this book, the fragile nature of the alternative represented by third way policies could open the door to the return of neoconservative policies combining a neoliberal approach to taxation with protectionism in trade and social policy and rooted in a fundamentalist nationalism imbued with neofascism. As we have argued, neoliberalism is the prequel to fascism: unable to overcome and neutralise the socially disruptive competitive pressures it brings to bear, it can produce an evolution towards neofascist forms.

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in the face of its own founding principles. Hence we would define it in terms of the following characteristics: a. Greater state intervention in the economy, and higher public deficits, national debt, interest rates, and interest as a share of gdp. These were the core features of neoliberalism up until the mid-1990s. They were then partly modified by Third Way governments, who sought to generate fiscal surpluses in order to reduce government liquid debt, thereby reducing the share of the public budget consumed by interest payments.31 But electoral failure in the first decade of the 2000s prevented them from continuing with such policies. The gap between public spending and the population’s well-being allowed neoliberalism to renew its attacks by demagogically advocating tax cuts. Because George W. Bush’s new neoliberal offensive came during the expansive phase of the Kondratiev cycle, when US hegemony was on a trajectory of accelerated decline, it could do little by way of raising interest rates or practicing ‘strong dollar diplomacy.’ But it did widen deficits and the national debt, which both continued to be tied to ­imperialist and tax-cutting policies. Nonetheless, the resulting financial imbalances failed to prevent a crisis of accumulation in the private sector in 2008 and 2009. This crisis erupted because the state had partly 31

Between 1993 and 2000, the initial government balance rose from a deficit of -1.6% of gdp to a surplus of 2.6% in oecd countries. This turnaround was largely due to the United States transforming its initial result of -1.5% into a surplus of 4.1%. The total oecd government financial balance, which includes interest payments, also showed a significant improvement, rising from -5% to 0% of gdp in the same period. oecd net debt also shrank. Although it grew consistently in the 1980s, peaking in 1996, it then declined from 44.3% to 38.9% of gdp by 2000. The renewal of the neoliberal offensive announced by George W. Bush’s controversial election victory then created a new imbalance in the governmental sector. Between 2001 and 2008 the oecd financial balance declined from 0.2% to -2.6% and net public debt expanded from 38.9% to 42.4%. In the US this deterioration in public finances was even more pronounced, as net public sector debt jumped from 36.4% to 48%, and the financial balance tumbled from 1.6% to -5.2%. With the 2008–2010 crisis, the financial balance fell to -6.3% and -8.9% of gdp and net public debt rose to 57.7% and 66.6% of gdp in the oecd and the US respectively. These figures were particularly significant because of the spike in state spending with the return of imperialism and war; the expansion of the national debt to allow extraordinary fictitious profits to be made, and tax cuts promoted by neoliberal demagoguery doing ideological battle with the Third Way. Although oecd tax receipts increased during the Third Way’s ideological offensive from 38% to 39.3% of gdp, they declined again during the neoliberal onslaught that followed, hitting a low of 37% whilst averaging 38%. In contrast, public spending fell during the former period from 42.9% to 39.1%, and then rose to 40.7% in 2008 as the neoliberal offensive restarted (oecd 2010).

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d­ isassociated itself from the generation of extraordinary profit, and, in keeping with the rate of profit’s centrality to interest rates during the current phase of accumulation, its leadership in this terrain was transferred over to the private sector. Although such a transfer is relatively normal during capitalism’s cyclical oscillations, at such a stage of development of capitalism’s secular trends the contradictions it throws up threaten the very sustainability of capitalism. Large-scale state intervention in order to protect fictitious wealth created in private markets around the real economy, which President Bush initiated and Obama deepened, has increased state intervention in society and plunged neoliberalism into an ideological crisis. Such state intervention was cleary directed to private monopolies. Their impact is felt globally, since fictitious wealth creation in the world economy is tightly linked to the dollar, and they severely constrain social democracy’s structural ability to satisfy the population’s welfare demands whilst at the same time generating extraordinary profit.32 The Obama administration could follow other Third Way governments in 32

The big difference between neoliberal and Third Way policies is that while the former tends towards fiscal and financial imbalances, the latter seeks to balance the books, mainly by cutting state expenditure. Remarkably then, reality turns the classic ideological ­positions held by neo-liberalism and social democracy on their head. The neoliberals promote a more active State, mainly in relation to the military and financial sectors. The hegemonic State’s undynamic productive sector is opened up to competition, leading to deficits and financial sector growth in order to finance them. This is exacerbated by state spending being orientated towards a military sector which is too obsolete to lead the new IT-based technological paradigm. The military sector prioritises hierarchies and secrecy, and its high levels of automation make state investment an ineffective way of stimulating economic growth given the low dynamism of its Keynesian multiplier. Social democracy pursues financial equilibrium in order to contain the negative effects of interest payments on social welfare programmes. But in so doing it takes on the burden of paying the debt those payments represent, and so loses popular credibility. It is a hard trick to pull off, and usually leads to defeat at election time. Containment is achieved by cutting primary public expenditure. This generates the fiscal surpluses needed to reduce national debt, and therefore the weight of interest payments. Such a policy is easier to apply in countries where the military sector and state spending unrelated to the reproduction of labour power are large in size. In the US, state expenditure as a proportion of gdp fell from 37% to 34.2% under President Clinton, whilst in Germany it dropped from 48.1% to 47% during the Schroder administration, and in France from 54.5% to 52.6% under President Jospin. In Britain it fell from 40.7% to 38.3% of gdp when Tony Blair’s term in office overlapped with that of President Clinton but then rose to 45 per cent of gdp in 2005–2007, mirroring the Blair-Bush relationship, their imperialist ideology and intervention in Iraq (oecd 2010). Although Third Way policies are not identical to neoliberal ones, neither do they clash with them or represent a historical alternative. Rather they form part of the neoliberal paradigm and are unlikely to overcome its limitations and impose their own agenda.

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f­ inancing the ­aforementioned government transfers by limiting primary and welfare expenditure. But as the 2010 Congressional elections showed, that would prove fatal to his legitimacy.33 Articulation with territorialism. We saw earlier that neoliberalism ­belongs to a period in which the systemic pendulum has swung back towards cosmopolitanism. That does not entirely set it apart from liberalism, which developed in a similar kind of period. The difference is rather that by the time neoliberalism became established the physical and territorial expansion of the world system was already complete. Whenever the pendulum swings towards territorialism, the right of peoples to self­determination is seriously threatened and violated. Thus during the Genoese-Spanish period of hegemony it was colonialism that decimated the local population in the Americas34 and imposed slavery and the trade in black slaves on Africa. Then British hegemony imposed neocolonialism, which penetrated Asia and, this time, Africa to an unprecedented extent. The interstate system developed thanks to these periods of hegemony, even though the right to self-determination was trampled on in outlying regions forced to join the world system. British hegemony saw the principle of popular sovereignty and an early version of the welfare state develop, both of which became far more influential in the postwar period. But in the current phase of a physically integrated world system, the cosmopolitan expansion of historical capitalism no longer violates the right to self-determination in areas external to the modern world system but in those internal to it. This means the sovereignty of national states and ultimately of the interstate system itself is being violated. It is hardly surprising that neoliberals such as Friedman dissociate economic freedom from politics, regarding it as a prior condition of the Note to the English edition: The 2010 and 2014 elections showed how far Obama’s ratings had fallen, with the Republicans taking majority control of both Houses. Furthermore, the Democrats lost 4 million votes in the 2012 and 2016 elections compared to 2008. In 2016 they won the popular vote but it had shrunk enough to hand Trump victory via the Electoral College. This poor performance can be explained by the Obama administration’s commitments to financial capital. Although he expanded workers’ health care coverage and raised spending on human needs (health, education, social security and social services) from 12.8% to 15% of gdp, poverty and inequality increased. The poverty rate climbed from 13.2% in 2008 to 14.8% in 2014, and only slipped back down in 2016 (12.7%). Inequality using the Gini coefficient rose from 44.4 to 45.4 and from 17.9% to 18.4% in terms of the income share of the richest 10%. Angus Maddison (2001, 235) estimates that at the outset of colonisation in 1500 the American population stood at 17,500,000. By 1600 it had fallen to 8,600,000, and by 1700 it was still well below pre-Columbian levels at 12,050,000.

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latter. Neoliberalism has become the prelude to fascism in a world system characterised by imperial expansion and the destruction of the principles of popular sovereignty and democratic order.35 The uneven imposition of the principles of competition, trade liberalisation and exchange rate flexibility. These principles are expressions of state power in the world-economy. The core countries and above all the hegemonic state prefer to seize more markets and investment opportunities than open up their own markets to third parties.36 Multilateral market liberalisation through the GATT/WTO reflects the outcome of n ­ egotiations between parties with unequal bargaining power. Dependent countries thus find it extremely difficult to eliminate the tariff/paratariff barriers and subsidies restricting their exports. The same compromise (situacion de compromiso) that consigns their ruling classes to a lower standing in the international division of labour also subordinates them to the political leadership of core country bourgeoisies. This significantly reduces their own national bargaining power in the world-system. Trade and financial imbalances. Flexible exchange rates do not, as liberals assume, bring equilibrium and stability to the balance of payments. To the contrary, they fail to produce currency parity on the basis of the competitiveness of countries’ systems of trade and production, as measured by their import and export volumes. They do however suffer the impact of international capital movements, which may or may not rest on sustainable foundations. The hegemonic US state has used conservative monetary policy to maintain the value of its currency, boost speculative foreign capital inflows and perpetuate the global economic power of its bourgeoisie. But it creates monetary parities that are unsustainable over the medium to long term. Strengthening the dollar in this way has led the US government into huge current account deficits. It sustains these deficits by means of its financial power, backed by the world’s leading On the pioneering experience of neoliberalism in Pinochet’s Chile, Perry Anderson (1995) affirms that “Understood properly, Chilean neoliberalism was predicated upon abolishing democracy and establishing one of one of the most cruel of the postwar dictatorships. But as Hayek never tired of explaining, democracy had never in itself been one of neoliberalism’s core values. Freedom and democracy, he argued, could easily become incompatible if the democratic majority decided to interfere with the unconditional rights of economic agents to dispose of their income and property as they saw fit. In that sense, Friedman and Hayek were intellectually consistent and did not compromise their principles in their admiration for the Chilean experience.” Despite this, in accepting neoliberal ideology the United States has been forced to become the first to open up its markets.

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c­ urrency. Countries that applied similar Washington Consensus policies and pegged their currencies to the dollar suffered much deeper imbalances because their financial power was too precarious to keep managing the exchange rate in such an unsustainable way. e. Attacking the welfare state and the historical-moral instruments developed by workers to reproduce their labour power. This involved passing more flexible labour laws, opening internal markets up to the free movement of capital and goods, and preventing citizenship and the democratic order from expanding into supranational spaces.37 These then are the core features of neoliberalism in the world economy. Neoliberalism is a factor in the crisis of the world system, to which we shall now turn. 6

The Crisis of the Modern World System and Its Dimensions

The crisis in the modern world system is expressed through each of its different dimensions: hegemony; political and institutional frameworks; the international division of labour; ideology; and the relationship with nature. We can thus describe it as unfolding through crises of (1) hegemony and the interstate

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Authors such as Samir Amin (1997) differentiate between two laws of value under capitalism: that which operates in national spaces, where capital and labour enjoy a similar degree of freedom of movement; and that which develops in the world economy, where they do not. Amin cites the death of the Keynesian consensus and the Bandung Spirit as the reason why the world economy’s law of value has projected itself onto national economies. But although he sheds light on a key feature of the world economy, namely the ­difference in volume and speed between the global movement of capital and labour respectively, we do not think that is an adequate basis for claiming that two laws of value exist. And it becomes even less so given that he incorporates old developmentalist positions to argue that if these two types of circulation were equalised worldwide then the world economy would be more balanced and convergent when it comes to the development of its constitutent parts, and produce homogeneities similar to those found across the national spaces of central capitalism. As we saw earlier, historical capitalism needs an interstate system to serve as a political superstructure. This superstructure is the global frame of reference that articulates national and international spaces and allows the law of value to develop. Clearly, this development is affected when nation states exert their power. But the primary cause of inequality under capitalism is not how much or how little labour power circulates, but the productive, commercial and financial monopolies underpinning unequal capacities for innovation. The movement of labour power acts on this reality – it does not change it per se.

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system, (2) the world-economy and the international division of labour, and (3) ideology and the environment. We shall now look at each of these in turn. 6.1 The Crisis of Hegemony and the Interstate System As we saw in Chapter 2, the world system can only become organised if economics and politics are asymmetrically related. The interstate system makes this type of relationship possible. The hegemonic state becomes crucial to ­controlling how much autonomy different national groups gain with the formation of juridically independent states. It must organise the systemic interest on the basis of its own private interests, and present it as the general interest of the various national ruling classes articulated through it. In doing so it places real limits on the autonomy of the national realm, which binds national ruling classes to the international division of labour and the world-economy. We also saw that hegemony develops through cycles consisting of three phases: hegemonic ascent, hegemonic crisis and systemic chaos, which is broken by the rise of a new hegemony following a 30-year war. The hegemonic consolidation that follows then enables the secular trends of the modern world system to resume their expansion. This renewed expansion succeeds in overcoming the disintegrating effects of the modern world system’s conjunctural tendencies by ushering in a more advanced stage in the development of its structures. Yet at the current stage of the modern world system’s development the unfolding hegemonic crisis is unlikely to be overcome by a new hegemony. In a world economy based on techno-scientific productive forces, it is very hard for one country or region to concentrate enough productive, commercial, financial and ideological power over a sufficient length of time to acquire the productive forces needed to present its own interest as the general interest. This reflects the power of diffusion and of the social returns from innovation inherent to technological paradigms rooted in science, culture, communication and socialisation, and which are accompanied by a sharp rise in the world system’s ‘dynamic density’ (Arrighi and Silver 1999), i.e. the volume, number and quantity of transactions between its different units. These circumstances will lend the bifurcation in the world system some very special characteristics as it develops over the next 10–40 years. There is no successor who can unite with the current hegemon in crisis to and ensure it enters the next systemic cycle in advantageous conditions. This is quite unlike when the United Netherlands was succeeded by Britain, or the latter by the United States. Faced with their own obsolescence, the bourgeoisie in those states elected, on the one hand, to support a particular competitor as its hegemonic successor – support which would prove decisive – and, on the other, to articulate its own interests through the new coalition of powers taking shape.

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But this time around it is unlikely there will be an ascendant state to support. We can see this from the failure of Japan, which in the 1980s was hyped as a new model for organising both work and institutions generally. The bifurcation in the economy will therefore raise questions not about the succession within the confines of the modern world system, but about whether the system itself will retain its privileges or be replaced by another system. It will express a polarisation between two camps: one seeking to preserve unequal economic, political, and social power and access to productive forces, and the other seeking to socialise all forms of power and democratise access to the civilisational forces unleashed by humanity. We can expect the first camp to unite the leading representatives of the global financial bourgeoisie as they use their imperialist state apparatuses to forge a coalition in defence of oligarchical wealth, and they will approach the various national semi-peripheral and peripheral bourgeoisies to convince them that their interest is systemic. But the alternative they offer will not rest on hegemonic power. It will have to crush self-determination and competition from national spheres and base itself on imperial power and an imperial outlook. In contrast we can expect the second camp to consist of the leading proletarian forces in the semi-periphery and the periphery, who will turn to different popular sectors in the wider world economy as well as non-monopoly segments of the bourgeoisie for support in building a new world system on democratic foundations. The drive to articulate interests around building and maintaining a global system based on oligarchic wealth will almost certainly be spearheaded by the US neoliberal bourgeoisie. But such a project is unlikely to prosper, as it will be weighed down by contradictions and clash with the productive forces and their strong centrifugal pull on power relations. This latter tendency cannot be contained through violence without endangering the very existence of the productive forces that behind human life and their core component – ­humanity itself. Furthermore, the new international division of labour tends to develop key features of hegemonic decline in the core itself via the spread of superexploitation. As we saw earlier, core nations can only administer the world economy with some degree of internal consensus. If that hegemonic foundation is weakened then the social and political costs of mobilising the imperialist apparatus increase multiply, reducing the chances of a new generalised war among national states. It is very hard for the interstate system to respond to the hegemonic difficulties caused by the US crisis by reinventing itself. The medium to long-term ­solutions to these problems would end up reintegrating politics with the economy and overcoming the structural asymmetry prevalent throughout historical capitalism. The imperial solution is an unlikely one in our view because it

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would be so hard pushed to contain the centrifugal pull on power relations. But democratic and socialising global frameworks could link to and articulate this pressure. This would lead to a new world system built on socialist foundations, but whose administrative forms would be quite unlike those we associate with the experiences of socialism in one country. The higher the world system’s dynamic density, the more diffuse its relationships of power. That is why the demographic base of hegemonic states has ­increased in line with the development of the world economy. Under US hegemony, the national state was unable to control the new systemic cycle by itself. It therefore had to use the UN to develop international political institutions as additional tools for managing the global system. But although these bodies grew more powerful over the course of the US cycle, they were still not strong enough to rival the hegemonic state. They failed to manage the interstate system by articulating its local, national, regional and global levels, and instead the decision-making system employed by the UN and its economic and political agencies merely reflected the power of historical capitalism’s core regions. Economic agencies like the imf and World Bank in particular express the US’s ability to influence decision-making by vetoing resolutions via a voting system where the weight of a country’s vote depends on the size of its financial contribution. This decision-making process means the agencies in question only widen the structural imbalances in the world economy. According to Nobel Prize-winning economist Joseph Stiglitz, who headed the US government’s Economic Advisory Council and was a senior vice-president of the World Bank during the Clinton years, the unequal balance of power in these institutions has heightened the contradictions afflicting the world economy (Stiglitz 2002). He argues that collective action is necessary and justified when there are externalities, i.e. when certain actions have effects for which there is neither ­payment nor compensation. These externalities may be positive, such as the diffusion of technological and scientific knowledge; or negative, such as environmental pollution and recessive beggar-thy-neighbour policies that cause international economic crises to spread by transferring falling demand to neighbours. Whether they are positive or negative, externalities mean markets are not working well and should give way to collective action. By generating externalities, globalization and the productive forces it generates on such a huge scale open up plenty of space for a global collective logic that could promote economic growth by prioritising global economic stability, ecological balance and technological innovation and devising trade and finance rules that favour those aims and help eliminate poverty. Nevertheless, Stiglitz observes that the space for global governance has not been used effectively. Instead it is limited by the institutional flaws of

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international political bodies, which express not global interests but those of superpower ruling elites. The imf and World Bank are guilty not only of awarding countries unequal voting rights, but of a technocratic style of ­management borne of specialisation. In these organisations it is finance ministers and heads of central banks make the decisions. They neglect their original purpose – to ensure a stable world economy and remove barriers to its growth – and act instead in the interests of the international financial community. The World Trade Organization uses a one-member, one-vote system and consensus-based decision-making, but global interests are undermined by institutional factors such as the influence of trade ministers on decisions and conducting talks and negotiations behind closed doors. (Stiglitz 2002, 214–252). As a result, global governance has failed to keep pace with globalization and instead been appropriated by private interests, leading to deeper global imbalances and the negative externalities that go with them. imf-led capital account liberalisation may have helped globalize the law of value, but it has not led to global economic stability. In fact the opposite has happened, and in capital flow-receiving countries it has diminished their ability to compete with central countries and led to currency appreciation, current account deficits and foreign debt. Stiglitz blames capital account liberalisation for the 1998–99 Asian crisis. He also argues that the countries that subsequently experienced the most precarious recoveries, such as Indonesia, were those that continued to apply it. Countries such as China that did not liberalise their capital account escaped the crisis, and those that reestablished controls on capital outflows or taxed them, such as Malaysia and South Korea, enjoyed swift and intense recoveries. If global governance is fragile when it comes to managing economic matters, it is also weak in the political sphere. As seen, the United Nations General Assembly is simply an advisory body to the Security Council, and this in turn merely reflects the strength of the five great world powers, which as permanent members can veto any decision. As the world economy grew in complexity, it fostered an irregular, discontinuous, but ever expanding movement for democracy and popular sovereignty in the modern world system. But this movement was widely restricted to national spheres, and at the global level the legal and political institutionality built up by the hegemonic State still prevails. Nor do the more informal attempts at interstate coordination appear to have committed the world system’s organic core to processes that might lead to truly global administration. This was clearly illustrated by the joint effort in 2008/2009 to protect fictitious wealth creation, which has the United States and the dollar at its core. Previous hegemonic transitions show there is never any serious reform of the ­institutional

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order during a hegemonic crisis. Instead, new institutional foundations can only be laid after entering and overcoming a period of systemic chaos. The juridical and political crisis of US hegemony threatens the very bases of the modern world system because it challenges the oligarchic foundations of international power. The years ahead should see social movements and emerging peripheral/semi-peripheral nations striving to democratise international political institutions and create global mechanisms representative of all ­humanity to manage the world economy. We can already see this process underway in the World Social Forum and similar settings, in the emergence of globally coordinated nationalisms and regionalisms, and in mass protests against a revived US imperialism (Seoane and Taddei 2001; Ceceña and Sader 2002). As we shall see, this is the challenge presented by the transition from western civilisation to a planetary civilisation. The Crisis of the World Economy and International Division of Labour The crisis of the world economy and the international division of labour is laid bare by historical capitalism’s deepening productive vulnerability. This vulnerability is expressed in the contradiction between the world economy’s  low rates of growth – especially in the neoliberalised periphery and ­semi-­periphery – and the potential for ascent and growth unshackled by scientific and technological diffusion. As we have seen, the globalization of the law of value has led to monopolisation and the destruction of productive forces. This destruction takes place within the world system and limits the impact of the economic growth brought about by technical progress. It has placed particular pressure on dependent countries in the grip of neoliberalism. Less competitive than others, they became the target of sweeping denationalisations and internal market restrictions by super-explotation. Their economic growth rates suffered especially. Trade and capital account liberalisation severely deepened their trade and current account deficits. Their per capita economic growth plunged to sub-world economy levels because they were forced to use their trade surpluses to finance balance of payment and capital account deficits. Periods of growth coincided with capital inflows, although they were not sustained, and economic cycles intensified. International agencies used financing packages to try and cushion the effects of this intensification, but the crisis was so severe it affected their own budgets and so financially their ability to confront it was limited. This limitation was compounded by the hegemon’s current account financing needs, which restrict world-economic liquidity, the public deficits promoted by the neoliberals, and the Third Way policy of committing fiscal surpluses to the financial sector. 6.2

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Faced with such constraints, peripheral and semi-peripheral countries have strengthened national and regional development projects that prioritise internal factors of production and the workforce in particular. This trend is clearest in Asian countries such as China, South Korea, Taiwan and India, which focus on skills investment and increasing the value of labour power. They restrict the presence of incoming foreign capital largely to the export sector. They also hold down the value of their currencies in order to generate trade surpluses. This is done to help access more advanced technology and have a way to fund it. Foreign technology supplements rather than replaces domestic efforts to develop science and technology. These efforts include government support for scientific integration (by sending students to universities in the central countries); social reforms (income distribution, massification of primary and ­secondary education and putting limits on excess consumption, which has increased levels of savings and equity), and a commitment on the part of national financial sectors to industrial and technological development in order to limit interest rate levels and thereby boost economic growth (Amsden 1989; Hirano 2001b; Maddison 1995, 1998, 2001; Medeiros 1999; Coutinho 1999). The results have been successful. But whereas South Korea and Taiwan can to an extent be described as examples of development by invitation by virtue of the generous international aid they received during the Cold War, the same cannot be said of China, where internal planning in fact largely preceded international integration. In the masterful Adam Smith in Beijing (2007), Giovanni Arrighi describes China’s emergence as a process of development without dispossession consisting of the following steps. Firstly, between 1949 and 1978 the socialist revolution raised education, health and consumption levels. Then from 1979 on organisational reforms were introduced as a political and administrative response to the Cultural Revolution’s attack on the bureaucracy. At their heart lay the creation of Township and Village Enterprises (tves). Owned by local inhabitants rather than state or private interests, tves dramatically decentralised and socialised the way business was administered. The internal dynamics generated by the tves then led to Chinese diaspora capital – by now a beneficiary of technology transfer and development-by-invitation credits – being granted access to the mainland. Finally, Western capital was also allowed in and directed towards the export sector.38 38

Arrighi (2007) sees the tves as the key to establishing a model of accumulation without dispossession, which does not separate the worker from ownership of the means of production. The tves have tended towards using labour intensively, and this has increased competitive pressure and the consumption of public goods, since more than half of their profits are ploughed back into modernising enterprises or local circuits (schools, clinics, social welfare, infrastructure and technological services).

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In these examples from East Asia, the value of labour power typically rises as it becomes a more competitive international asset and the State protects the national productive apparatus from external competition.39 The higher quality and value of said countries’ labour power attracts foreign capital interested in having a competitive and cheap commodity in international terms. As we saw earlier, the modern world system divided the world into regions and ensured most of the wealth produced went to the centre. Consequently, the working class in core countries enjoyed far higher per capita incomes than their counterpart in semi-­peripheral and peripheral nations. But when peripheral countries manage to close the skills gap between the two working classes through policy measures, they vastly improve their ratio of productive capacity to income and attract foreign capital in search of higher rates of profit than those it can earn in the core. In taking this course of action and at the same time protecting their own scientific and technological capacity, peripheral nations forge a developmental trajectory that reduces centre-periphery disparities and enables the latter to appropriate the social returns of international innovations by breaking with super-exploitation. The more this process deepens and spreads to the periphery of the Western world the more it sets in motion a dynamic that threatens the international division of labour underpinning historical capitalism, given the limitations of central capitalism when it comes to fully incorporating the techno-scientific revolution. Peripheral and semi-peripheral countries face a choice in this context. One option is ever-deepening dependency combined with intensified super-­ exploitation and marginalisation from the technological frontier. Alternatively, they can choose the kind of national and regional development that breaks with dependency and super-exploitation and brings them closer to the

39

According to Angus Maddison (1995), the average years of education per person aged 15–64 rose between 1950 and 1992 as follows: in China from 1.6 to 8.5; in India from 1.3 to 5.5; in South Korea from 3.3 to 13.5; in Taiwan from 3.6 to 13.8; in Japan from 9.1 to 14.8; in the US from 11.2 to 18; in the UK from 10.8 to 14; in France from 9.5 to 15.9 and in Germany from 10.4 to 12.2. In Latin America the increase was more modest than in Asian countries – in Brazil from 2 to 6.4; in Mexico from 2.6 to 8.2; in Argentina from 4.8 to 10.7, and in Chile from 5.4 to 10.9. Absolute figures do not always reflect the higher quality of Asian educational systems compared to those of Latin America, which has become better known through the results of the educational Olympics between students with the same number of years of formal schooling. As a result, Asian rates of labour productivity (gdp per hour worked) have outstripped those of Latin America, increasing year-on-year between 1973 and 1992 by 4.1% in China; 5.2% in South Korea; 5.3% in Taiwan; 2.8% in India; 0.9% in Brazil; 0.5% in Mexico; 0.5% in Argentina and 1% in Chile. Central countries also fared worse than Asian ones in the same period, with productivity rising year on year by 1.1% in the US; 2.2% in the UK; 2.7% in France and 2.7% in Germany.

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t­ echnological frontier, enabling them to take advantage of the externalities of techno-scientific diffusion. The countries best placed to lead this rupture with neoliberalism’s international division of labour are those with a continental reach, such as China, India, Brazil, Russia and South Africa. Since 2003, China’s projection in the world economy has articulated whole swathes of the periphery and semi-periphery through a new axis of development, which has minimised and neutralised neoliberalism’s deleterious impact on its trade balances. Accumulation without dispossession brings high rates of investment and links technological innovation to necessary consumer goods and their inputs. This both increases international demand and prices in respect of the latter whilst benefitting the peripheries that export them. Accumulation without dispossession confronts the logic of historical capitalism, in which technological innovation is focussed on the luxury consumer goods sector in its pursuit of extraordinary surplus value. As a result, the world market is centered in 25% of the world’s population, among them part of the inhabitants of the US, Western Europe, Japan, Canada, Australia and New Zealand, as well as peripheral and semi-peripheral elites. In sum, post-­capitalist elements have combined with historical capitalism, giving rise to both a complex world economy that links three major social formations  – central capitalism, dependent capitalism and those of a postcapitalist type – and a historical bifurcation in the direction of a new world system.40 6.3 The Ideological and Ecological Crisis Wallerstein observes that capitalist civilisation was built around the individual, who is seen as the subject of history. In historical capitalism this centrality of the individual is expressed in two complementary ways: through universalism, which stands for the essential homogeneity of humankind and is distrustful of privileges and inequalities; and through ethnocentrism, racism and ­sexism, which stress the differences between human beings and either qualify 40

Note to the English edition: China’s ascent in the world-system has involved it becoming ever more closely articulated with a capitalist world economy. This could make it hard to maintain the principle of accumulation without dispossession. Between 1994 and 2008 China’s economy was heavily marked by the privatisation of eams (albeit alongside strong social commitments), the reduction of public land, the expansion of the private labour market and widening inequality. However, the government has kept a robust public enterprise and joint-venture sector under tight state control to guarantee foreign technology transfer and power over currency convertibility and most financial assets After 2008 it refocussed its economic policy on the internal market, promoting public spending aimed at reducing inequality and using the brics and its policies towards peripheral countries to build up a new axis of global alliances.

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or dismiss the idea that they are equal. Universalism explains differences in terms of differentiated performance in a meritocratic system with equal opportunities for all. Yet capitalism has always difficulties imposing such a system. Universalism was originally needed as an ideology to promote the principle of competition, which underpins the law of value, and it began to find expression as soon as monopolies were consolidated. Nothing has developed the competitive principle more than the growth of big industry and the technological monopoly that goes with it. The greater the deviation away from the law of value, the more the principle imposes itself. Capital aims to concentrate surplus value, not disperse it among a multitude of competitors, and so it resorts to anticompetitive measures whenever there is any uncertainty about the outcome of competition. To stave off the threats hanging over accumulation, capital avails itself of ethnocentrism, racism and sexism. Unlike universalism, which advocates a system of equal opportunities, these ideological forms justify inequality by claiming that certain social groups are culturally or biologically ‘inferior.’ By imposing unequal rights, capital brings down the value or price of labour power and shields itself from the social pressures of competition and equality. The most successful model of 19th century capitalism was not the French one – sparked by a revolution that mobilised the peasantry around the ideals of liberty, equality and fraternity – but the British version, where the bourgeoisie joined forces with the aristocracy and the conservative forces of the Holy Alliance to dilute the French Revolution’s radical principles. Wallerstein argues that the ideological hallmark of capitalist civilisation was always its zigzagging movement between universalism and inequality in order to allocate a position to individuals and social groups. In times of political and hegemonic stability these two movements complemented one another. Universalism, which encourages change and transformation, justified or provided a road map for the rise of groups and individuals, whereas ethnocentrism justified inequality. That complementarity of universalism and inequality was shown by the way capitalist civilisation proclaimed the universality of the ideology particular to the hegemonic power and imposed a Eurocentric and Anglo-Saxon ­cultural model. According to the theory of comparative advantage and the sociology of modernisation, if more backward regions wanted to replicate income levels or social, political and ideological models in the central countries, then they would have to copy the type of advanced and universal behaviour already prevalent in the core. When the hegemonic power enters into crisis, this complementary relationship between hegemonic particularism and the universal risks falling apart.

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The capitalist order can only be stabilised by rearticulating the two. Universalist discourse seeks new forms that could endanger historical capitalism and questions the monopoly rule and unequal opportunities inherent to capitalism. As Wallerstein points out, a meritocratic discourse can seriously destabilise any form of domination by a class or social group on account of its radical commitment to equal opportunities.41 Its unilaterality is unsustainable under capitalism. Meanwhile, ethnocentrism is also breaking free from its commitment’s universalism, threatening to become a predominantly racist and sexist ideology and cut its links with the competitive order. This trend presents a risk to the capitalist system if it becomes dominant globally. The current hegemonic crisis has placed universalism’s relationship with the United States and historical capitalism in mounting jeopardy. The ideological crisis of neoliberalism is proof of this. Once the ideology of the Washington Consensus and the end of history, neoliberalism now looks like a creed of dissension and privilege and a threat to humanity. Despite efforts to stop it, a bifurcation now appears to be taking place, with universalism pursuing a new post-hegemonic and post-liberal version of equality whilst ethnocentrism looks for ways to deepen inequality. But as we have argued, just because neoliberalism is in crisis does not mean it is defeated. If the left continues to hesitate about superseding neoliberalism then it could soon face a crisis of its own, and that would leave the path clear for fascism to appear as an alternative to the chaos sown by the ideological crisis. The environmental crisis is an aspect of the capitalist crisis closely related to its ideological dimension. Capitalist civilisation sees individuals as independent beings who use nature to satisfy their wants. Nature is objectified and is 41

“Furthermore, it is said, not only is meritocracy economically efficient but it is also politically stabilizing. To the extent that there are inequalities in the distribution of reward in historical capitalism (as in prior historical systems), resentment of those who receive greater rewards by those who receive fewer is less intense, it is argued, because its justification is offered on the basis of merit and not on the basis of tradition. That is, it is thought that privilege earned by merit is somehow more acceptable, morally and politically, to most people than privilege earned by inheritance. This is dubious political sociology. The exact opposite is true in fact. While privilege earned by inheritance has long been at least marginally acceptable to the oppressed on the basis of mystical or fatalistic beliefs in an eternal order, which belief at least offers them the comfort of certainty, privilege earned because one is possibly smarter and certainly better educated than someone else is extremely difficult to swallow, except by the few who are basically scrambling up the ladder. Nobody who is not a yuppie loves or admires a yuppie. Princes at least may seem to be kindly father figures. A yuppie is nothing but an overprivileged sibling. The meritocratic system is politically one of the least stable systems. And it is precisely because of this political fragility that racism and sexism enter the picture.” (Wallerstein 2000a, 347–348)

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no longer seen as a biodiverse, life-generating system with its own laws of ­reproduction. Capitalism introduces an economic rationale and strives to cheapen the value of products by raising productivity, meaning more goods are produced with less labour. Income polarisation encourages greater emphasis to be placed on quantity. Natural resources come under pressures deriving from consumerism and poverty. The more the hegemon exerts its cultural power, the more these pressures mount up and natural resources are brutally super-exploited. The pace of this super-exploitation usually outstrips their regeneration. Neoliberal globalization takes this logic to its ultimate conclusion, and ecological systems suddenly collapse as they become far less biodiverse and therefore unsustainable. The ecological crisis cannot be resolved by assuming the costs of contamination: the damage done to the environment is incalculable, and capital will always oppose such a solution because of its depressive effect on the rate of profit. It can only be tackled within a new civilisational framework, which generates new ways of thinking under the auspices of a new world system. 7

Alternatives to the Modern World System

The modern world system is on a crisis-ridden trajectory and heading towards systemic chaos. The crisis has various dimensions: it is a crisis of hegemony, of the world-economy’s development, and of the international division of labour into central, semi-peripheral and peripheral zones. It is also a political, institutional, ecological and ideological crisis, and the secular trends of historical capitalism cannot roll it back. Since 1994 we have experienced a new Kondratiev A-phase that has coincided with the crises of the modern world system and of hegemony. This combination lends it certain characteristics, namely that whilst it is concomitant with financialisation and the large-scale destruction of capital and jobs, it also sends international investment flows in the direction of greater profitability. This has confused many analysts for whom financialisation is a unilateral trend that shifts the dynamism of capitalist investments towards investments regulated by interest rates – most notably national debts. In fact, that tendency has run its course. It was limited by the very competition underpinning the interstate system, which made it impossible to maintain Reagan’s policies of financialisation and unilaterally strengthening the dollar. The neoliberals returned to power upon the election of George W. Bush, but at a moment in the cycle that limited the expansion of national debt and subordinated it to productive investments. However, the need to maintain extraordinary profits and generate

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wealth through private markets as opposed to the real economy triggered a big new wave of state intervention starting in 2008–2009. This intervention is not about ensuring financialisation prevails over the productive sector, but rather adapting it to the needs of the latter, in so far as the conversion of surplus value into extraordinary profit is limited by the stage reached in the development of capitalism’s secular trends, and so can only be realised via fictitious valorisation and state coercion. To that end the state transfers its earnings to big oligopolies that can guarantee the liquidity of its investments, cut interest rates, expanded credit, and seeks to return growth to the central economies and the world economy in general. As noted, this Kondratiev cycle will probably be shorter and see less intense economic growth than the previous one, especially in the decaying centres and the geoeconomic space under their hegemony. Taking the length of the British hegemonic crisis as our yardstick, the expansive phase of the current Kondratiev cycle should last about 20 years. Since 2008–10 it has been transitioning from prosperity to maturity, energising the world economy’s antisystemic forces in the process. The more those forces advance during the Kondratiev cycle’s mature phase, the more they will develop politically and equip themselves to survive the systemic chaos set to succeed the expansive period. During the chaos phase, everyday activity is freed from the structural prisons of the longue durée and even the best efforts to organise it come to little. In contrast, when systemic tendencies are at their most powerful the constraints on anti-­systemic activity irreducibly limit any concentrated effort to produce a rupture. Chaos represents a time of freedom from predeterminations. In such periods the temporal dimensions of the conjoncture, l’evenement and structure are levelled, allowing new patterns to establish themselves in one single system. These new patterns either ensure the system’s cyclical continuity or else do the opposite and replace it with a new one. The decline of the modern world system compels us to examine the systemic choices on offer. Immanuel Wallerstein (1995b) outlines three alternatives beyond the demise of historical capitalism: neo-feudalism, democratic fascism and socialism. By neofeudalism he means a world of separate sovereignties and of regions that are autarkic but ruled by local hierarchies. This resembles the long-term alternative posited by Samuel Huntington (1996) as a means of preventing Western civilisational decline from ending in a ‘clash of civilisations’. Democratic fascism is understood by Wallerstein as the imperial alternative originally envisaged by Hitler: a world divided into an upper and a lower caste, with the former enjoying highly egalitarian distribution. Finally, socialism redraws the limits of existing State frameworks and articulates them with radically

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democratic institutions of global governance to create a planetary system. The socialist alternative redefines relations between the universal and the particular by ensuring the two are closely interpenetrated. The introduction of global frameworks should not foreclose the movement towards increased diversity but rather emerge from it through a far-reaching democratisation of political and social relations. In The Long Twentieth Century, Giovanni Arrighi also posits three potential outcomes. The first is an imperial solution which appropriates economic resources by force. Another would see Asian capitalist enterprises using network systems to wean themselves off state protection. This would lead to a greater emphasis on the market and an end to monopolistic Braudelian capitalism. The third possible outcome is that systemic chaos continues to prevail until a new post-capitalist system is established. Finally, authors such as Paul Hirst, Anthony Giddens, Joseph Nye and Robert Keohane argue in favour of developing regimes that strengthen international institutions to the benefit of a hegemony shared between the world’s leading political and financial powers. Let us now give our own assessment of these different scenarios. The imperial/fascist alternative has two main drivers. Firstly, when the hegemon disrupts the interstate system in order to contain the diffusion of productive, commercial, financial and cultural power relations, which undermines its power and threatens historical capitalism’s international division of labour. The hegemon is also impelled to do this by the need, driven by the pendular swing towards territorialism, to control strategic material resources (oil, lithium, strategic metals, biodiversity). The second driver is the reaction of certain sections of the national bourgeoisie and middle strata to the denationalisations and worsening social and economic relations engendered by the advance of neoliberalism. This response is mainly represented by European fascist movements, but we see it increasingly in the United States too. Adding to this, sections of the European proletariat could end up blaming foreigners and immigrants for social instability and joining the fascist chorus of hate, should European integration fail to provide an effective response to super-­exploitation and social crisis. In the US, Obama’s victory briefly put such forces on the defensive, but they began to reorganise following his failure to tackle high unemployment. It would be extremely difficult for the imperial/fascist alternative to create a new world system. As noted, its main problem would lie in preventing the dispersal of power relations by the centrifugal forces of the world economy. We saw in Chapter 2 that Wallerstein sees the crisis of feudalism and its overcoming through the creation of the modern world system as the outcome of a pact

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between feudal elites that sought to recreate a system of domination by basing the private appropriation of the economic surplus on other models. He cites this precedent to suggest that the elites can recreate the world system on new hierarchical foundations. But his analysis fails to account for the developmental tendencies of the productive forces, which point towards increasingly ­socialised power relations and privilege the subjectivity that the fascist alternative must confront. Fascism is based on the radical destruction of the political freedom lying at the very heart of the productive forces – the development of subjectivity.42 Its consolidation on a global scale would, ironically, lead to the productive forces being so utterly destroyed as to wipe out the whole of humanity. Fascism is also beset by another contradiction: its own internal tensions. In regions in danger of slipping down the world system’s hierarchies of power, the fascist movement is anti-imperialist and tends to oppose violations of national sovereignty and political centralisation, whereas the fascist solution would be to re-establish the archaic empire form, but on a worldwide scale with no historical precedent. The shared hegemony envisaged by various authors would also struggle to get on a stable organisational footing. It represents more a defensive response by leading economic powers to the dispersal of power relations, and is unlikely to lead to the unity of interests needed to breathe new life into historical capitalism. As Marx observed, capital pursues the extraordinary surplus value that supports the introduction of technological innovations. Transnationalised power relationships would seriously undermine the global competitive strategies used by the different national bourgeoisies, who seek to protect the sovereignty of their states as a source of differential power when they compete on the world stage. Furthermore, the defensive nature of shared hegemony would make it hard to block the ascent of new competitors in the world economy for long. The neofeudalist or ‘multi-civilisational’ alternative (Huntington 1996), in which regional leaderships resolve their conflicts internally, is also unlikely to materialise in the face of opposition from a hegemon and its allies all hellbent on worldwide territoriality. In the present stage of capitalism we are unlikely to see the world system fragmenting into self-referencing regional systems because that would come up against the globalising nature of the productive forces. Some such disconnections may well play a role in the broader reorganisation of the modern world system, given that the latter is characterised by anarchy and unequal and combined development that produces huge economic, political, social and ideological differences between regions. But they 42

On the entropic nature of fascism and its radical negation of political freedom see Polanyi (2007), the final chapter especially.

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cannot usher in a new systemic reality by themselves because they are by nature too circumscribed and therefore too weak to overturn historical capitalism’s new territorialist agenda. Only the mobilisation of globalizing forces can stop destabilising ventures in their tracks. Arrighi’s hypothesis that network-type organisation will make firms less reliant on state protection also seems rather implausible. As we have shown, this type of organisation did not lead to enterprises severing their national connections. Despite the prevalence of technological agreements and international mergers and incorporations in the world economy, their research and innovation facilities are still concentrated locally. Furthermore, government intervention has increased dramatically under Asian capitalism.43 In our view there are only two plausible scenarios. Either the world system will descend into an endless chaos that threatens human existence, or a socialist world system will be built, becoming the backbone of a planetary civilisation. These bifurcating alternatives are consistent with the pattern of recurring chaos established by the modern world system. As Arrighi, Silver and Wallerstein demonstrate, periods of chaos have historically formed part of a cyclical movement of successive hegemonic states, which, until now, has allowed the modern world system to reorganise. Despite the anarchy, violence and horror they bring, such periods allowed historical capitalism to expand. The chaos may have led to global wars as a result of organisational bifurcations splitting the modern world system into competing state projects, but it also restrained imperial ambitions and developed the interstate system. This meant political and military conflict would end with the system’s organisational axis shifting from a decadent state to one that was built on stronger productive, demographic, financial and political foundations and was more strategically located in geographical terms. The coming systemic chaos is however unique in that it will engulf the ­modern world system and historical capitalism rather than one particular hegemony. The bifurcation likely to emerge from this chaos will have its own characteristics, because the nation-state as an entity capable of concentrating world-economic organisation appears to be on the brink of permanent crisis. This bifurcation will drive conflict not between different state projects disputing hegemony but between one set of forces out to save historical capitalism and another seeking to go beyond it by forging a new planetary civilisation. 43

Using government expenditure as our measure of state intervention, we find that between 1985 and 2008 Korea it rose from 18.8% to 30.9% of gdp in South Korea, and from 29.4% to 36.4% of gdp in Japan. Higher tax revenues are another indicator of greater government involvement in the economy, and from 1985 to 2008 their share of gdp rose from 17.6% to 35.7% in South Korea and from 28.8% to 35% in Japan (oecd 2002, 2010).

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We saw that in the confrontations that took place during past periods of systemic chaos the states who were defeated in their quest for domination went on to develop markedly imperial and interventionist features. Such was the case of Napoleonic France, whose expansionism on the European continent violated Westphalian principles. Its interventions were progressive in as much as they took on Europe’s most feudal political forces. But at the same time it imposed much tighter political controls at home and did away with the universal suffrage introduced in the most radical moments of the French Revolution. The expansion of historical capitalism and the destruction of feudal powers in the world system would subsequently empty its interventionism of any progressive content and lend new imperial projects like the fascist Nazi Germany an avowedly reactionary character. In the period ahead of us, projects aiming to salvage historical capitalism will try and use the hegemon to articulate a whole range of oligarchic forces through increasingly fascistic forms. This is clear from the reactions of the George W. Bush administration to the 11 September 2001 attacks and its use of foreign policy to drive an ideological offensive that did not end with the end of this presidency, leading to fascist policies and regimes being imposed in peripheral countries such as Iraq, Libya and Palestine. We examine this further in Chapter 4. As noted, whilst a fascist project is unlikely to succeed in replacing the modern world system with its own new order, there is still a danger it might block the progress of the planetary civilisational project. Should that occur, the chaos would deepen, and humanity would suffer a series of vicious confrontations between anti-imperialist forces incapable of taking the world system to a higher level – who will find their expression in national chauvinism and ethnic/religious fundamentalism – and the fascist forces of the hegemonic nations, who will be incapable of re-establishing any kind of order. Such a prospect makes the planetary civilisational project absolutely imperative. The concept of a planetary civilisation was developed by Theotonio Dos Santos to describe how a plurality of cultures and civilisations could all converge in peaceful coexistence around a single planetary system. Such a ­civilisation would require radically democratic international political institutions to articulate the global with historical, economic, social and cultural pluralities. It should not be considered unfeasible just because of the potentially divisory effect of the different cultures and civilisations present throughout human history.44 A planetary civilisation would integrate and preserve the 44

This is the perspective advanced by Samuel Huntington (1996). Immanuel Wallerstein’s understanding of civilisation on the other hand manages to avoid the equivocations in Huntington’s loose definition of it as a theoretical mosaic (2000b, 147–185). Wallerstein

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identities of cultural and civilisational particularities rather than wipe them out. It is a project founded on integration and diversity. It does not pursue integration of the hierarchical kind, where a small fraction of humanity governs the rest, but instead aims to promote diversity and conditions favourable to its development by guaranteeing all peoples and individuals the right to access the sum of humanity’s scientific, technological and cultural achievements. This new civilisation brings with it the realisation of Marx’s social individual, who develops his individuality through his enjoyment of the lasting freedom to appropriate man-made productive forces. Its ethical and organising principles are liberty, equality, solidarity and peace. Together, these principles form the basis of an ecologically sustainable civilisation. Planetary civilization requires a shift to the third type of relationship between man and nature described in Chapter 1, in which economics and the struggle against scarcity are no longer the priority. It should create living conditions which value quality and use values over quantity, abstract labour and rationalisation. In these conditions, Man is understood as part of his ecological environment. The social individual is characterised by natural as well as cultural wealth. Negentropic policies in support of living ecological systems require greater equality and the full democratisation of political, social, cultural and economic relations. The democratisation of sensibilities, preferences and meanings multiplies the number of ways the ecosystem is used and expands the diversity of the components (biotic and abiotic resources) underlying its basic structure and productivity (Leff 2001, Mészáros 1995). As Dos Santos points out, peace is a value that must be at the heart of any attempt to build a planetary civilisation. Such a civilisation cannot emerge from a war of mass destruction with the imperialist powers – that would signify nothing less than the triumph of chaos and genocide. Peace should be used as a tool to foster integration and cooperation between different groups of people, a means of combining wars of position with wars of movement to bring about substantive political inflexions. Such cooperation is needed to throw a spanner in the works of the imperialist state machinery and go beyond alternative of war (Santos and Senechal 1985, 1996a; López Segrera 1998b). Crucially, this means forging transnational solidarity between national shows that civilisation does not exist in a static mode but involves process and movement. It is a given group’s interpretation of its identity, which includes hierarchising and excluding multiple aspects of a long and complex historical period. This construct is heavily influenced by the kind of political leadership given to the group. Civilization does not represent the weight of the past stunting the development of certain peoples, but is primarily a creative process that both interprets and modifies the past and finds a unique way to articulate it with the present, thus giving rise to a new history.

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populations to prevent them from lining up behind imperialist and chauvinist leaders who try and turn struggles within the world system into conflicts between nation-states. This approach is quite feasible and, as we noted earlier, already has a successful precedent in Vietnam. The anti-imperialist struggle against the Iraq war and the social and political movements engaged in international solidarity provide further proof of its potential.45 For struggles to advance they must be articulated at every level – local, national, regional and global. This will not destroy each site of struggle’s relative autonomy but will rather enable ever-greater interpenetration and synergy. In the process local, national, and regional struggles will assume an increasingly global form, and vice-versa.46 The modern world system will not be superseded in one attempt. There may be a transition phase lasting from 2015/20 until 2045/50, during which the aforementioned articulations shore up systemic foundations until new ones are forged. In the next chapter we discuss the crisis of US hegemony and with it the conditions that make such a transition possible. 45 46

Obama’s triumph over the Republicans expressed the symbolic victory of this transnational perspective, regardless of whether his government really represented a gain for social movements. In response to neoliberalism we propose a socialism rooted, in Octávio Ianni (2004: 35)’s words, “in social diversity and inequality, not just locally, nationally and regionally, but above all globally; and rooted too in a critical evaluation of socialist experiences in different nations and in China and Cuba today, or indeed the many philosophical, scientific and artistic contributions to it from the East, the West, Africa, Latin America, the Caribbean, Oceania, North America and the various Europes.”

Chapter 4

The Impasses of US Hegemony: 21st Century Perspectives 1

US Hegemony at the Crossroads: Main Theses1

Hegemony is a crucial theme in the analysis of contemporary international relations. It plays a core role in the development of the modern world ­system, which is led by historical capitalism. We saw that the modern world system rests on a world-economy that articulates the different political units centred on national states through capital and commodity flows. Its architecture furthermore allows the economy to free itself from political control by virtue of its global reach. But the lack of a central political institution brings with it the risk of anarchy. Hence a political entity is needed to control competition among states and maintain their coordination in order to define the economic, legal, political and military rules that will ensure the functioning of the capitalist world economy. That entity is the hegemonic state. We also noted that for a state to become hegemonic it must exercise international leadership of a kind strong enough to impose a general and systemic interest on different national policies. But there are limits to that leadership beyond which it becomes a barrier to capital accumulation, because the capitalist world-economy is not geared towards building world empires that ­restore the rule of politics over the economy. Hegemonies must therefore be continuously built up and destroyed, thus marking a cyclical pattern in the modern world system. In its initial expansive phase, the hegemonic state concentrates its international leadership in the productive, commercial, financial, ideological and military spheres. In its second phase, one of crisis, the foundations of its leadership begin to deteriorate. But this is not a uniform process: at first it affects its productive and commercial base, and only later its financial and ideological domination. Likewise, the point at which military dominance starts to decline varies widely from one hegemony to another.

1 The translation of Sections 1 and 2 of this chapter draws on Timothy Thompson’s translation of the author’s earlier article “The Impasses of U.S. Hegemony: Perspectives for the Twentyfirst Century” (Martins 2007) – Trans.

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Whereas in its expansive phase the hegemonic state plays a virtuous role in the world system by helping develop its productive forces, during its crisis phase it begins to hinder that development. It is commonly agreed that in 1950 we entered a systemic period of US hegemony, but what stage of that hegemony are we at now, and how does it affect the world system? Because of their bearing on prospective analysis and on the kind of alternatives to neoliberalism that social movements might formulate, these questions have sparked one of the most crucial debates in the social sciences today. There are many different positions, but they can be divided into two main groups: one holding, as we do, that the US is currently at an advanced stage of hegemonic crisis; and the other that US hegemony is stronger than ever and in an expansive phase. In this chapter we will first present our perspective on the issue before focusing on the debate with other positions in the last section. We argue that since the 1967–1973 period the United States has been in hegemonic decline. Despite maintaining its financial, ideological and military hegemony, it has become increasingly vulnerable due to public and current account deficit pressures on the dollar; the crisis of neoliberal legitimacy; the exhaustion of US imperialism (revived after 11 September 2001),2 and the political and military reactions to the latter, which threaten to raise the world-system’s protection costs to unprecedented levels. To locate the trajectory of US hegemony in the world system we must bring the longue durée into our analysis of the conjuncture. That means taking into account analytical instruments discussed earlier, which we can summarise as follows: a. Systemic cycles: a concept developed by the world system school in authors such as Arrighi, Silver and Wallerstein. They organise systemic cycles into hegemonies, which in turn are divided into phases of expansion and crisis. In times of crisis, the hegemon draws on its financial power to keep leading global accumulation. But that strength cannot prevent the decline of its productive and commercial bases. Hegemonic disintegration gives way to a stage of systemic chaos, and with it a bifurcation as new power structures compete for hegemony. In historical capitalism 2 We make a distinction between the concepts of hegemony and imperialism. We understand hegemony as global economic rule by capitalist centres using consent and ideological persuasion, with military coercion either used actively or as a deterrent, depending on circumstances. In imperialism however this rule is achieved through direct political control at the expense of self-determination and the sovereignty of peoples and states. Despite these differences, hegemony and imperialism are not necessarily antagonistic as they have actually complemented one another throughout the history of capitalism, each performing a different role in the organisation of the world economy.

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this process culminates with thirty-year wars. A new configuration of power then emerges from these wars to rebuild the world system on fresh foundations. The system then expands by broadening its reach and the extent of interaction between its constituent parts. b. Kondratiev cycles: linked to technological and organisational revolutions, Kondratiev cycles usually correspond to 50–60-year periods divided into A-phases (expansion) and B-phases (economic crisis). c. Civilisational crisis: associated with a crisis in the mode of production. The latter makes the ruling class overuse political means to appropriate the surplus, depending on the State to do so. This happens when the ruling class finds itself struggling to extract a surplus through its relations of production. In feudalism, the technological revolution raised productivity and promoted exchange in the countryside, bringing serfdom to secular crisis. This process converted the nobility into the State and led to absolutist regimes supported by the commercial bourgeoisie. Under capitalism, the wage system is under threat from automation – an idea set out by Marx in Capital and the Grundrisse and later taken up by Richta with his theory of the techno-scientific revolution. Both saw automation as the driving force behind the falling rate of profit tendency. Since the 1970s, the automation process has gone global, leading to both higher unemployment and more state intervention in aid of big capital. The trajectories of US hegemony and the world system in the decades ahead should be understood as flowing from a combination of these three long-term trends. We would argue that in 1994 the expansive phase of a new Kondratiev cycle began to develop in the United States, extending itself across the world economy. This Kondratiev A-phase will not match the splendour of its 1939– 1973 equivalent. It will be shorter and/or present lower economic growth rates  – above all when compared to the 1950–1973 period that followed the systemic chaos of 1914–1945. This will especially be so in the declining regions. There will be fewer material transformations in this period because it will be affected by two downward trends: the B-phase of the systemic cycle and the civilisational crisis. During this new expansive phase the financial and ideological foundations of US hegemony will crumble and it will no longer lead the world economy as it did in the 1980s and 1990s, when only East Asia was more dynamic. The world will enter a phase of systemic chaos and no single national state will be able to rebuild the world system on new hegemonic foundations. A bifurcation will take place, with one set of forces aiming to prolong historical capitalism by sharing hegemony among the leading centres of global wealth, whilst others seek to replace the modern world system with a post-hegemonic system.

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Nation-states may partly lead the way in this confrontation, but it will also have a significant transnational dimension. This dimension has already made itself felt in the mass protests against US imperialism and the oligarchic coordination of the world economy. It is also present in attempts to organise social movements on a global scale. These efforts are very much expressed by the World Social Forum, – an attempt to administer the life of humans and the planet by creating new forms of power. Transnationalism is developing on three fronts: Firstly, through the internationalisation of social movements; ­secondly, as national governments institutionalise demands for international solidarity and cooperation; and thirdly, as emerging peripheral and semi-­ peripheral states begin to press for the democratisation of the world system’s regulatory forms. These three dimensions are still unfolding in a rather autonomous and under-articulated way. But if transnationalism does prevail, then humanity will be able to get through the systemic chaos without succumbing to a new war that puts its very existence in peril. In this scenario, transnational forces will create transmission belts that cut across national states, keeping them free from the control of global oligarchies. But if strict nationalism prevails, then the slide into fascism, barbarism and the use of the State for coercive purposes will be hard to stop. Let us now turn to the empirical basis for the theses outlined above. 2

The Hegemonic Crisis and Its Empirical Basis

Others do not share our view that a new Kondratiev cycle has been fanning out from the United States across the world economy since 1994. For some, the world economy is in the grip of a long depression that began in the late 1960s due to increased international competition among national states and consequent chronic overproduction (Brenner 2003). A more common position concurs with the description of a long depression but attributes it instead to a new, post-1979 financialised regime of global accumulation (Chesnais 1996, 1998a; Fiori and Tavares 1993, 1998; Fiori 1999; Fiori and Medeiros 2001; Strange 1997). We recognise the increased competitiveness in the world economy and the tendency towards overproduction, both of which ultimately derive from the crisis of US hegemony. They lead to a financial bubble forming in the world economy, partly because of the need to finance the US balance of payments. This bubble is also generated by the need to transform extraordinary surplus value into extraordinary profit. As the secular trends of capitalist accumulation advance, so fictitious wealth and State intervention are increasingly relied upon to achieve this transformation, with the United States as the hegemonic

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power at the heart of this type of wealth creation. The financial bubble acts as an engine that powers the expansion of the world economy. But it also creates major contradictions for the US as its national debt deepens, its saving rates decline, and it increasingly resorts to super-exploiting labour and boosting capital exports to generate profits in regions where labour power’s value: price ratio is more favourable to US corporate accumulation. However, since 1994 increased competitiveness and the aforementioned financial bubble have coincided with renewed economic growth, a restored rate of profit and US leadership over interest rates in the accumulation process. What indicators allow us to make this claim? Let us take two: the gdp per capita growth rate, which is the chief indicator of the phases of the Kondratiev cycle, and the rate of profit, which is their chief determinant.3 If we observe these indicators in the United States, we can clearly make out the shape of the Kondratiev cycle. Between 1938 and 1966, gdp per capita growth averaged 3%. We only have profit rate data for the years 1959–1966, when it averaged 10.3%. But the strong convergence between per capita growth rates means we can assume the profit rate was very similar in the preceding interval (1938–59). Then between 1967 and 1993 the rate of profit fell by 35% and gdp per capita growth fell by 33% compared to the previous phase. This was a period in which national debt outstripped gdp, thus expressing the strength of interest rates in the US economy and accumulation’s shift towards financial hegemony. In 1993 the picture changed again. The rate of profit suddenly shot up and for the first time in 25 years managed to consolidate over a six-year period. Between 1994 and 1999 it averaged 9.0%, peaking at 10.3% in 1997. This movement in the profit rate was enough to influence annual per capita income growth, which reached 2.9% between 1994 and 2000 – 45% higher than during the Kondratiev cycle’s B-phase (Figures 4.1 and 4.2). We lack data on the rate of profit for the world economy. But for methodological reasons that we explain further on, per capita growth rates provide clear evidence for our claims. During the inter-war period, the world economy entered a very long Kondratiev A-phase. It began in the late 1930s and was driven by US hegemonic expansion. It lasted 35 years, with per capita growth of 2.3%.4 During its golden age between the end of wwii and 1973 it registered 3 The rate of profit represents profits as a percentage in relation to the gross product of nonfinancial corporations. Concerning profits, we refer to their value after taxes and adjustments for inventory evaluation and fixed capital consumption. With regard to gross product, we refer to its value after deducting profits for the period. 4 The A-phase of the Kondratiev cycle in the postwar period was longer for the world economy than for the United States. For the former it lasted from 1939 until 1973, but for the US it ended when its profit rates plummeted in 1967. The difference reflected the shift in dynamism in the world economy towards other regions.

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1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

0.00%

Figure 4.1 US rate of profit Note: For the year 2010 only the first quarter is included Source: CEM, BASED ON Council of Economic Advisers (2010a, 2010b) 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

1959–1967

1968–1993

1994–2010

Figure 4.2 US rate of profit Source: CEM, BASED ON Council of Economic ADVISERS (2010A, 2010B)

per capita growth of 2.9%. The B-phase of the cycle lasted from 1974 until 1993. During this period, per capita growth fell 48% to 1.2% per annum. Between 1994 and 2000 it took a new turn. Per capita income resumed its accelerated expansion and rose to 2.2%, signalling the emergence of the next Kondratiev cycle. This trend became more pronounced during the sub-phase of prosperity

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3.5 3 2.5 2 1.5 1 0.5 0

1900–13

1914–49

1950–73

1974–93

1994–2010

Figure 4.3 Per capita gdp annual growth in the World economy (%) Source: CEM, BASED ON Groningen Growth and Development Centre (2010)

and reached 2.4% between 1994 and 2010, a figure that will probably have to be adjusted downwards to account for the impact of the crisis of the transition to maturity that took hold in 2008 (see Figure 4.3). The second thesis we assert above is that this new emerging Kondratiev cycle is influenced by the downturn in the US systemic cycle. One consequence is that the United States will no longer lead the world in economic growth and its expansion rates will probably tail those of the world economy during this period. Another consequence is that the expansive phase of this Kondratiev cycle is likely to be shorter and less pronounced than in the last cycle. This will especially be so in the area still under the hegemony of the declining power, with the ascendant region offsetting this tendency in the world economy. Some authors deny that the United States is losing its hegemonic position in the world economy. To prove their point, they highlight the dollar’s conversion into the world currency and its role since the 1980s in financing the US economic recovery. The keenest among them claim the United States has not just recovered its hegemonic and financial power but is actually approaching empire status. According to world system theory, we can only properly analyse the conjuncture by putting history back at the heart of our methodology. Giovanni Arrighi and Beverly Silver (2001) argue that we can use the longue durée to identify repetitive and evolving patterns in the modern world system’s cycles. These patterns can then help us understand the nature and consequences of the transformations we are seeing. When a hegemony’s productive and ­commercial bases deteriorate, the dominant power attempts to preserve its leadership by developing a regime based on financial accumulation. It uses its control of high finance to drain resources from the world economy and finance

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its own economic growth, in a competitive environment where circulating capital is hotly disputed. But it cannot survive the economic competition waged by new configurations of power or the ideological weakening caused by becoming a drag on the world economy. Take Britain for example. We know that its hegemony broke down between 1870 and 1913. This process was not uniform, however. Between 1880 and 1896 it reversed the loss of power that began in the 1870s. In that decade the British economy had increased its gdp per capita by 0.9%, as opposed to the United States’ 2.7%. But in the seventeen years of a regime of financial accumulation that followed, Britain outstripped both the world average and the US economy in gdp per capita, expanding by 1.4% compared to the 1.1% attained by the US and the world economy. Nevertheless, as soon as the A-phase of the new Kondratiev cycle got underway in 1897 it sank the British economy and heralded a return to the kind of figures associated with the 1870s. From then on the British economy performed unremarkably and indeed far worse than the world and US economies (see Figures 4.4 and 4.5). We can trace a similar pattern in the US economy over the last thirty years. Between 1967 and 1982, growth was below the world economy average. Then between 1983 and 2000 it went back to bettering that average. But how long will this last? Between 2001–2010 the reversal was dramatic and definitive (see Figure 4.6). As with Britain between 1880 and 1896, financialisation between 1983 and 2000 allowed the US to reassert its influence on the world economy but without regaining its previous position as world leader in economic growth. Although Britain overtook the US for some of the 1880–1896 period, it in turn was overtaken by the economic dynamism of Germany, which expanded its per capita gdp by 1.8%. The United States recently surpassed Japan but not East 3 2.5 2 1.5 1 0.5 0

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Figure 4.4 United States and Britain annual variation of gdp per capita SOURCE: CEM, BASED ON MADDISON (1997)

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Figure 4.6 US and World gdp per capita annual growth Source: CEM, BASED ON maddison (2010)

Asia as a whole, which remains ahead thanks mainly to the economic dynamism of China and India (Figure 4.7). The main planks of this strategy to reverse hegemonic decline, consolidated between 1967 and 1982, have been the appreciation of the exchange rate and the liberalisation of trade and investment. The US government and bourgeoisie acquired a significant amount of international liquidity by valorising their assets in order to invest and stimulate growth. At the same time, they sought through competition and with varying degrees of aggressiveness to offload the weaker sectors of their economy. In the 1980s, the national debt was used as a source of financing, but its unfettered expansion hit a limit when it began to threaten social provision and the welfare state. In the 1990s, their strategy combined the restructuring and expansion of the productive sector, but by 1998 it started looking like it had run its course.

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Figure 4.7 gdp per capita annual growth (1983–2000) (%) Source: CEM, BASED ON maddison (2001), Council of Economic Advisers (2010b)

Despite its apparent strengths, the US strategy for growth presented serious imbalances. One of these, noted earlier, was the trade deficit. This was the flip side to acquiring international liquidity and meant that the big US capital had lost its wager, above all with East Asia, to compete its way back to competitiveness. Between 1979 and 1987, the trade deficit expanded at a rate of 24.5 per cent per annum. In this period, external savings were mainly achieved through financial instruments that raised interest rates and discouraged investment, which was largely directed towards the military sector. But a military founded on secrecy and hierarchy proved too obsolete to lead the microelectronic paradigm. Between 1990 and 1993 the constraints on military spending, lower interest rates and cheaper working hour – all a product of the recession at the decade’s ­outset – combined to raise the rate of profit. This turned the productive sector and stock exchange into means of attracting external resources. The crisis of 1990–1991 and the external funding of the Gulf War provided some relief for the balance of payments. But the return to growth fuelled an expansion of the deficit. Between 1992 and 2000, the trade balance deficit grew by 21.3% per annum to reach 3.8% of gdp (Council of Economic Advisers, 2010b). In 2001– 2002 the economy slowed down and faced crisis and stagnation. By analysing the crisis of 2001–2002 we can shed light on the contradictions of the US model of development as the country entered the A-phase of the new Kondratiev cycle. The main determinants of the US crisis were the trade deficit and wage increases caused by accelerated growth. Let us take a closer look at this.

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gdp (%)

4 3 2 1 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Figure 4.8 US trade deficit (%) Note: Trade deficit in goods Source: Council of Economic Advisers (2010b)

The decline in US commercial and productive strength fuels a trend towards trade and current account deficits (Figure 4.8). This trend is driven by the US bourgeoisie’s reluctance to accept its loss of relative power, preferring instead to keep an overvalued dollar and finance current account deficits via external funding. We saw that in the 1980s this funding was provided by the national debt. Then in the 1990s financing moved to the productive sector via mergers, acquisitions and stock-market indexation. However, the deficit grew more than the mass of profit, and this threatened to reduce foreign capital inflows, as the productive sector’s capacity to absorb this mass of capital was limited. To manage the threat attempts were made from 1996 onwards to appreciate assets by means of a new movement to increase the exchange rate using interest rates. But this movement was contradictory, for whilst it temporarily kept capital flowing into the productive sector through speculative mechanisms, it also contributed to stunting the growth of the profit rate.5 An overvalued dollar has made the US economy extremely vulnerable to external competition.6 This has led to low rates of inflation, mainly for ­producers, 5 This is one of the factors explaining why, despite reaching new heights, profit rates during this period of growth failed to return to those of the years of postwar expansion. Between 1959 and 1966, interest payments reduced the mass of profit earned by non-financial US corporations by 14%, while in the 1994–1999 period they took up 41% (Council of Economic Advisers 2003). Between 1994 and 2007 these corporations enjoyed an average rate of profit of 8.2%. 6 Robert Brenner (2003) stresses this point, but we do not share his conclusion that the US and world economies have been suffering a deep depression since the late 1960s.

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and less room for negotiation in the face of wage pressures (see Figure 4.9). In such a context, the leading sectors of the US economy are unable to compensate for wage increases by raising prices. This represents a huge obstacle to economic expansion. Although in 1979 US average wages fell below 1972 levels, they began increasing again in 1996. This brought the rate of profit down by 29.5% between 1997 and 2001, causing the crisis of 2001–2002.7 This pattern of development means the US economy can no longer perform at high rates of growth in the medium or long term. Exposed to external competition, it will be unable to accomodate the trend towards wage growth stimulated by lower unemployment without seriously affecting the rate of profit. To get back to growth it has increased unemployment and reined in wage expansion (see Figure 4.10).8 But US development will continue to be seriously blocked in this way as long as the country’s bourgeoisie resists a major 7 Figures inferred from the Economic Report of the President (2010). 8 The US economic recovery of 2003–2007 is linked to rising unemployment, wage restraint and expanding poverty. Unemployment rose from 4% to 6% between 2000 and 2003 and fell to 4.5% in 2007. Weekly and hourly wages stagnated, fell slightly and then rose gradually in 2007 (on the eve of the 2008 crisis). Meanwhile poverty grew from 11.3% in 2000 to 12.5% in 2003 and stayed at that level for the rest of the period. Note to the English edition: Between 2007 and 2012 poverty rates climbed to 15%, and then fell back down to 12.7% by 2016. The Obama administration’s policies of negative real interest rates and currency devaluation during the recovery from the 2008–09 crisis enabled faster real wage growth despite the limits placed on this by a poorly performing economy. However, these policies did not change the structure of US capitalism. In 2015 Obama went back to a policy of strengthening the dollar. The Trump administration has maintained this and also returned to hiking interest rates and cutting taxes. These policies have deepened the

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Figure 4.10 US real weekly wages (1982–1984 in constant usd) Source: Council of Economic Advisers (2010b)

r­ eadjustment in the value of its wealth relative to that of the world economy (see Figure 4.11).9 The aforementioned public policies already displayed serious contradictions when they were enacted by George W. Bush, and these contradictions have only sharpened over the course of an expansive phase of the Kondratiev cycle.10 The fall in the value of wages in the US national product, together with the decline in the savings rate (in keeping with trade deficit-induced indebtedness) has led to serious bottlenecks blocking the realisation of extraordinary surplus value at home. The mass of value appropriated through savings in  ­labour power achieved by technological innovation has suffered a relative  ­decline as automisation has advanced. Furthermore, the demand thus

trade deficit, despite the protectionist rhetoric, and put new pressure on the rate of profit and wages. 9 Ever since the Reagan years US exchange rate policy has zigzagged between a belle époque and the privileges of seigniorage. During the belle époque the dollar appreciates. But this increases accumulated debt and deepens trade deficits considerably, to which the government responds by devaluating the currency. In doing so it exploits the privileges of seigniorage to contain trade deficits by wiping out some of the debts held by external creditors. But there are limits to this approach, as the dollar cannot be devalued to the point of losing credibility as an international measure of value. 10 The George W. Bush administration’s policies of cutting taxes on the rich and increasing military spending deepened the national debt and trade deficits. The recovery was centred on a technologically stagnating military sector. It brought back trade deficits by tying recovery to the state, and deepened those deficits by transferring income to families with very low rates of saving.

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Figure 4.11 Value of the dollar Note: In 1973, the dollar was worth the same as the currencies of the United States’ main trade partners Source: Council of Economic Advisers (2010b)

t­ ransferred to higher income segments – i.e. those associated with capital and surplus value consumption – has been part-absorbed by the expansion of the international market and has increasingly proven insufficient to maintain national commodity prices and the value of associated financial assets. The 2008 crisis, which has spread from the United States to the world economy, can be explained in terms of the above process. Its sheer scale relates to the fact that so many sectors of the world economy exploit the US market as a source of extraordinary profit because the overvalued dollar boosts international prices when they produce goods with local currencies and then sell them in dollars. However, the flip side of this process is that it stifles the expansion of the US productive sector. US firms respond to it by increasing the investments and the mass of profit they make overseas.11 The internal squeeze on realising extraordinary surplus value leads to asset prices and investment rates plummeting and the need for state intervention to prop them up, leading to an unbridled expansion of the national debt. This debt is mainly linked to speculation and maintaining fictitious prices. It increasingly relies on foreign creditors because of falling US saving rates, and has kept US rates of investment at depressed levels (see Figure 4.12). It therefore represents an obstacle to US 11

US firms have transferred a significant proportion of their investments abroad in search of lower production costs. In 1967, around 5% of their profits were made overseas. Between 1994 and 2007, this rose to 17%, peaking during the crises of 2001 and 2008 at 23% and 26% respectively. See Council of Economic Advisers (2010b, 436).

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Figure 4.12 US investment as a percent of gdp Source: Council of Economic Advisers (2010b)

e­ conomic growth by generating negative transfers of income and social costs to sustain the economy. In this sense the debt is playing a very different role compared to the postwar period, when it was linked to expanding the internal market and the productive sector of the economy. Since 2000, US growth has lagged behind that of the world economy, reversing the tendencies of the 1982–2000 period (Groningen Growth and Development Centre, 2010).12 This new trajectory of the world economy suggests that as US hegemony crumbles in the years ahead world-economic dynamism will shift to new regions, notably East Asia.13 One sign of US decline is that it is no longer world leader in international capital flows (see Figure 4.13). This reflects its diminishing status as a capital exporter as its economy loses dynamism. Whereas between 1970 and 1980 the United States was responsible for 40–60% of the world’s capital exports, that figure has since fluctuated between 10% and 30%. Initially in the 1980s rising capital imports compensated for this loss of leadership, helping the US capture over 40% of international capital flows. But 12

13

Between 1982 and 2000, the US per capita gdp grew by 2.2% and the world economy by 1.5% per annum. Between 2000 and 2006 they expanded by 2.1% and 3.2% per annum respectively. This gap widened in the post-2000 period if we take into account the crisis that broke out in 2008, which mainly affected the United States and Europe. Thesis presented at the meeting of the World Economy Studies Network [Red de Estudios de la Economía Mundial – redem] in Rio de Janeiro (August 2001).

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19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08

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Figure 4.13 US/World direct investment flows (%) Source: unctad (2010)

its national debt and trade deficits expanded too fast to sustain such a large share, and in the 1990s it sank below 20%. Meanwhile China has been closing in on the US, and in the 2000s actually overtook it if we combine its figures with those of Hong Kong.14 The US economy’s loss of dynamism and its limited growth have also diminished the importance of its internal market to the world economy. The volume of Chinese domestic market imports is fast approaching that of US internal market imports and will soon outstrip it if current trends continue (see Figure 4.14). As for the question surrounding the intensity of growth of the new Kondratiev A-phase, it is worth examining some of the evidence. The period from 1994 to 2008 registered a per capita gdp growth rate of 2.6%. If we exclude the post1939 period of systemic chaos in the Kondratiev cycle then this is less than the 2.9% achieved between 1950 and 1973. However, such a periodisation overestimates the new cycle’s growth because it excludes its 2009–2010 crisis of transition to maturity. Two contradictory factors will make this average fluctuate slightly upwards or downwards in the coming years: the dynamism of East Asia 14

In the 1980s, the US captured between 22% and 45% of worldwide foreign investment, while China attracted between 0.1% and 3.5%. In the 1990s, the US share ranged from 11% to 23% and China’s from 1.7% to 13%. Then in the 2000s the US absorbed between 9% and 22% of direct foreign investment and China between 2.9% and 9.5%. In 2009, China and Hong Kong together absorbed 12.8% of international capital flows and overtook the US, which received just 11.8% (unctad 2010).

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Figure 4.14 China and US/World imports (%) Source: oecd (2010)

and counterhegemonic forces; and the relative decline of the hegemonic centre and its ideological areas of influence (Groningen Growth and Development Centre, 2010). Geopolitical growth has shifted to East Asia and low growth is concentrated in the United States and its regional ideological allies in Western Europe, Latin America, Eastern Europe and Africa, all of whom have applied the neoliberal policy package and in doing so forced down average growth rates. Meanwhile China has continued to expand globally, especially since 2000, and this has benefitted the peripheries.15 Political and social conflicts in such regions could draw them even more quickly into the axis of world growth, currently located in China and East Asia, as they constitute new centres of 15

Taking 1979 (the first year of the belle époque in the United States) and 1994 as the start of two different periods in the world economy, we find that per capita gdp increased by 1.8% between 1979 and 2008 and 2.6% between 1994 and 2008. The individual figures for China and India are far higher: 6.7% in both periods for China; 4.1% and 5.1% respectively for India. The US matched the world economy between 1979 and 2008, but the latter overtook it by some distance in the post-1994 period, attaining per capita gdp growth of 1.9%. The 12 highest-ranking Western European countries in per capita income terms experienced rather modest per capita gdp increases over the two periods of 1.6% (1979–2008) and 1.8% (1994–2008). Latin America and Africa performed poorly: the former growing by 0.7% (1980–2008) and 1.8% (1994–2008), and the latter by 0.6% and 1.9% over the same two periods. Meanwhile Eastern Europe was hit hard by the fall of the Berlin Wall and Russia by the collapse of the ussr, registering growth of 1.8% and 0.8% since each event respectively (Groningen Growth and Development Centre, 2010).

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r­egional accumulation that accompany the centrifugal tendencies towards multipolarity. Our third thesis was that the impending systemic chaos cannot be overcome by the usual patterns followed by the modern world system. Instead, post-hegemonic and socialist forces must create a new world system. What indicators might support this assertion? Firstly, no single state can concentrate all of the powers required to exert hegemony in the world system. The variety, number and amount of transactions among the units of the system has accelerated to the point that externalities now predominate in technological innovations. Private appropriation of the returns on such innovations is shrinking (oecd, 1991). The great oligarchic powers and their international businesses defend themselves from this by striking up selective partnerships. But this is a clearly inadequate response, as doing so cannot prevent the displacement of economic dynamism towards regions with much lower per capita income, such as East Asia.16 This means that by itself leadership in the accumulated capacity of science and technology cannot guarantee continued hegemonic status. In fact it can actually generate externalities for the world economy. It also means peripheral countries can compete for the centre of the world economy providing they are internally and externally organised for that purpose.17 Our second indicator is the shift in economic dynamism towards a region that is not just peripheral but is home to 40% of humanity.18 This signifies a radical break with models based on hegemony and oligarchic wealth. Hegemonic countries previously represented between 0.3% and 6% of humanity. 16

17

18

According to Maddison, the 2006 per capita income of 16 East Asian countries (China, Japan, South Korea, Taiwan, India, Malaysia, Thailand, Hong Kong, Singapore, Pakistan, Indonesia, the Phillipines, Nepal, Myanmar, Bangladesh and Sri Lanka) averaged US$5,266, four times more than in 1967 using 1990 Geary-Khamis dollars. This figure exceeded every other region in the world economy, thanks largely to the first four countries. But taken as a whole, East Asia’s per capita income is typical of peripheral zones. See Maddison (n.d.). One sign of East Asian countries’ greater technological dynamism is the reduction in the differentials of per capita aggregate value in manufacturing compared to the United States. In 1967, Japan’s per capita aggregate value in manufacturing stood at 39% of the US value. This rose to 79% in 1992, dropping to 70% in 2000. In South Korea it shot up from 7.8% in 1967 to 39.6% in 1999. In Taiwan, it climbed from 11% in 1967 to approximately 27% of the US figure in 1999. China and India started from much lower levels but with an upward trajectory. China’s per capita aggregate value in manufacturing was 4.5% of US value in 1987, but this almost doubled to 7.9% in 1998. In India, it rose from 6.4% in 1982 to 9.5% in 1998 (Groningen Growth and Development Centre, 2010). By 1998 the joint population of China, India, Japan, South Korea and Taiwan was almost 2,439,700,000, or 41.2% of humanity.

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This prevented the global majority from controlling and distributing the wealth. The inversion now taking place brings with it the promise of full social control over the wealth produced and the dissolution of asymmetries between politics and the economy (Maddison 2001). Thirdly and finally, the new division of labour introduced by so-called global enterprises is undermining working class allegiance to national states. As Ruy Mauro Marini observed in his later writings (Marini 1996), this is ­because the growing interpenetration of markets has extended labour super-­ exploitation to the very heart of the world economy. This has the effect of levelling down different regimes of labour power reproduction, but it also creates the objective conditions for the development of a proletarian internationalism. Ever since the 1990s this process has been fostered by a range of modifications and articulations that have been taking place in the world system. As noted earlier, it has been driven by the organisation of social movements on a planetary scale with the participation of forces traditionally subservient to the imperialist interests of their national bourgeoisies, who have seriously revised their approach upon witnessing the spread of super-exploitation to their own countries. The best example of this is the role played by US trade union federation the AFL-CIO in organising protests against social and ecological ‘dumping’ at the wto’s third ministerial conference in Seattle and takes part in the World Social Forum.19 These three indicators point to a potential alliance of antioligarchic forces uniting periphery and centre, East and West, in the pursuit of a planetary civilisation. But these economic forces alone are not enough to create a historical bloc capable of founding a new world system: they need to be complemented by the emergence of political and cultural elements who can drive global

19

The AFL-CIO advocates sweeping changes not just to international trade but also to international financing and investment. Its proposals address themselves to the wto, imf and World Bank and, in respect of international trade, include basic labour standards such as banning child labour, slave labour and workplace discrimination, and the right to collective agreeements and freedom of association. It also seeks a review of the World Bank and imf’s loan conditions for developing countries, arguing that borrowing should reward economic growth, democratic institutions, basic employment rights and environmental protection. It stresses that developing countries need the resources to improve their populations’ quality of life and enforce appropriate employment and environmental standards. To that end it advocates creating development funds and relaxing the specifically financial conditions attached to foreign debt repayment. Likewise, each country should be monitored to ensure it meets minimum employment and environmental standards, and should be penalised and even excluded from the aforementioned international institutions if it violates said norms.

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­ obilisations for peace in order to banish the threat to humanity represented m by the power of the hegemon. In closing, let us touch on Latin America’s role in the world system. The decaying old world has reserved one of the worst places in the world system for Latin America. As the periphery of a decadent centre, its function is now similar to that of India and China in the last quarter of the 19th and first half of the 20th century: to serve as an object of the hegemon’s regional power in its efforts to postpone its own decline. Dismal development prospects, denationalisation, social polarisation and cultural barbarism all await us in the coming decades should we continue down the path of dependency. But the process has not unfolded without contradictions or resistance, and the neoliberal crisis that broke out in 1999 brought to the fore new political, social and ideological forces that have endeavoured to link Latin America to a new internationalism and a new model of development.20 3

Hegemonic Crisis and Its Military Dimension

The attacks of 11 September 2001 were the first sign of an impending period of systemic chaos that threatens to seriously unsettle the world system. As we saw earlier, for a country to achieve hegemony it must concentrate world leadership on the productive, commercial, financial, military and ideological levels to the extent that its power is seen as unchallengeable and consensual. Since 1967 each of these hegemonic dimensions has been going through a process of decline and exhaustion, albeit at differentiated and unequal rates. In terms of trade and production, the crisis of US hegemony has been expressed by the shift in economic dynamism towards East Asia: in the 1970s mostly towards Japan, Taiwan and South Korea; then into China and to a lesser extent India as the trend consolidated in the 1980s and 1990s. In the 1980s, the US bourgeoisie backed the Republican strategy of dealing with the country’s altered financial position in the world economy by reasserting its great power status. Their strategy was based on overvaluing the dollar, which served to fund a new arms race and second Cold War. The United States 20

Note to the English edition: The coups in Honduras (2009), Paraguay (2012) and Brazil (2016), the neoconservative offensive that has isolated radical Bolivarian nationalism in Venezuela, Ecuador and Bolivia and the defeat of Kircherism in Argentina have all reinforced the tendency towards decline, underdevelopment and peripherisation in Latin America, reducing the influence it had gained in the years 2000–2015. However, these trends have also deepened social and political conflict in what is a key region in global geopolitical terms and one that will be disputed over the coming decades.

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consequently grew faster than the world economy average and was able to embark on a major ideological and military offensive. However, this offensive brought huge contradictions in its wake. ‘Strong dollar diplomacy’ suffered its first setback with the dramatic growth of the national debt, which sustained widening current account deficits. The Republicans were forced to abandon their unilateral economic initiatives and seek joint solutions. This led to the Plaza Accord, where it was agreed to appreciate the yen and the mark in order to limit the extent of the dollar’s devaluation. A contradiction arose between warfare and welfare and the process ended in economic crisis and Republican electoral defeat. In the 1990s the Democrats turned to a new strategy to wrest back unilateral control of the dollar, although they adopted a more flexible imperial policy. Fiscal surpluses were generated by cutting military spending and interest rates, and in addition supranational mechanisms for jointly managing the world economy were strengthened. As the dollar continued to be overvalued, a fresh devaluation of the yen was negotiated between 1990 and 1994 in order to control US trade deficits. The failure of this policy exposed the structural flaws preventing the US from coordinating world monetary policy with Germany and Japan under its leadership. The situation helped China to increase its influence in the world economy through the devaluation of the yuan (filling the gap left by the Japanese), and its efforts to make technological progress (thus simultaneously opening up internal, regional and US markets). Renewed economic growth widened US current account deficits again, this time benefitting China, and they were financed by the expansion of productive capital via mergers, acquisitions and the sale of shares to foreign capital. But by the end of the 1990s the Democratic strategy for speeding up economic growth showed signs of exhaustion, and when the Republicans regained power in the midst of economic crisis they once again made the imperial project their top priority. We can also identify signs of hegemonic crisis in the military dimension. Hegemony cannot thrive on technological leadership alone: its leadership must also be dissuasive enough to avoid having to use force to preserve the geopolitical relationships established by the hegemon. It must guarantee military victories whenever called upon to do so, but not at the expense of the legitimacy of the hegemonic project being called into question internally. From this perspective, the first sign of military crisis was the defeat in the Vietnam War, in which 57,605 North Americans died. Domestic public opinion played a crucial part in that defeat. Although the public initially supported the war, by 1968 it was motivated by the sheer scale of loss of life and limb into pushing for the US to withdraw, which it finally did in 1973.

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The United States could only restore the credibility of its imperial policy by reworking its military strategy. This took the form of the Star Wars project, which ushered in a new kind of military intervention. Instead of engaging in ground wars with heavy casualties, ultra-sophisticated technology was used to wage war from the skies. This new strategy met with success in the Gulf and Kosovo Wars, but it harboured a contradiction: although the US was able to achieve its military aims, it was unable to overthrow the governments in question, who were ultimately responsible for political conflicts. That could only be achieved through land battles, occupation costs and the risk of major losses. The terrorist attacks on the World Trade Center and the Pentagon vividly brought back memories of Vietnam – not just because of the numbers killed but because of the failure of imperial policy to guarantee the safety of the US population. In the final analysis the attacks were a manifestation of an internationally coordinated civil society and simmering resentment towards imperial oppression across the world. They were also a consequence of Republican attempts to relaunch a hegemonic offensive under increasingly unfavourable conditions. The targets of the 11 September attacks were precisely symbols of US financial and military power.21 It has been difficult for the hegemon to control this new enemy by military means. Firstly, the enemy is diffusely located throughout the global territory. Secondly, its diffuse presence is articulated through a powerful symbolism in respect of how social, cultural, ideological and economic identities are perceived in the world. And thirdly, destructive technologies have proliferated to the degree that they can be used by unconnected cells belonging to a network. These factors have made the hegemon more insular. A violent show of force might bring it some immediate results, but in the medium term might also create a breeding ground for said factors, triggering conflict on an unprecedented scale and a new fascist ideological offensive. It is up to popular forces to isolate those sectors both inside and outside the United States who are encouraging such a prospect.

21

Far from dismissing the notion, we think it highly likely that far right sectors of the Bush government played a role in the 11 September attacks, just as Michael Moore suggests in his documentary Farenheit 9/11. Their motive in doing so would have been to produce their own ‘Reichstag fire’ as the excuse to launch a political offensive. However that does not preclude the attackers’ relative autonomy and the role of external factors.

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The Impasses of US Foreign Policy

The George W. Bush presidency and the 11 September 2001 attacks provoked major changes in US public policy, and especially foreign policy. Whereas during the Cold War the paradigm of US foreign policy was containment and the peaceful coexistence between the capitalist and socialist worlds which that implied, the paradigm introduced under George W. Bush is premised on the US achieving its objectives by force. This new model is a product of accelerated hegemonic decline and a conservative understanding of how to stop it. During the Cold War the US had hoped to defeat the Soviet bloc by peaceful means, using a dissuasive strategy aimed at turning its enemy capitalist by combining military competition with either confrontation or detente. The arms race, associated with confrontation, received a stimulus whenever tensions mounted. This happened in 1947–53, when the US restricted any trade or financial links with the socialist world. Then, during the period of detente following Stalin’s demise and consolidated under Nikita Khrushchev, the arms race slowed down and commercial and financial ties were strengthened. In the 1980s neoliberalism became the dominant ideology of the world system and inverted this relationship by combining the arms race with detente in the early part of the decade. For the most part, the US limited its strategic use of force to the Cold War’s ‘hot zone’ in the Asian periphery because of the inroads being made there by socialism in association with nationalist movements linked to the overthrow of old European colonial empires. With its new foreign policy paradigm the US hopes to achieve its post-Cold War goals of maintaining international leadership, preventing the rise of regional powers, and facing down security threats by destroying its enemies. Combined with new internal policies, this new model reflects an imperial ­desire to manage international relations. Its fascistic approach threatens democratic regimes and the principles of national sovereignty adopted at Westphalia and later developed through the Concert of Europe, the League of Nations and United Nations Organisation. This evolution towards empire represents a historical tendency of the modern world system, but one that has never managed to fully materialise. It developed during periods of intense competition, associated with powers that were unable to maintain their hegemonic status through free competition over the long term and therefore resorted to violence, expansionism and empire. In the 20th century this violent tendency turned fascist in nature, as it was no longer acting upon an archaic, precapitalist world, but one characterised by an extensive global market, highly developed social organisations and postcapitalist states.

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The current rise of fascism in the world system derives from the explosive combination of four factors: (1) the accelerated decline of US hegemony; (2) the crisis of the nation-state as a means of managing the world economy; (3) the subsequent inability of the US to support another state as its hegemonic successor (unlike the United Netherlands and Great Britain previously), and (4) the Republicans’ unilateral foreign policy. It can only be stopped by creating the ­political conditions for a transfer of state power from the US to forces representing a multilateral approach centred on international institutions and interstate cooperation. Only then can the transition from US hegemony to a post-­hegemonic and democratic world system be achieved. The election of Barack Obama represented a step in that direction, but only a limited and temporary one. 4.1 Rewriting Foreign Policy in the Post-Cold War Era The period from 1967 to 1982 was a bad one for US hegemony. Economically, Japan and East Asia grew in dynamism and influence as US growth lagged behind that of the world economy and the balance-of-payments crisis triggered the collapse of the Bretton Woods system as the dollar was depreciated and taken off the gold standard. Vietnam and the Iranian Revolution represented major political and military defeats, whilst economic stagnation imposed restrictions on military spending and imperialist policy. The second phase of the Cold War represented President Reagan’s attempt to go on the offensive both politically and economically by ratcheting up military expenditure and unilaterally strengthening the dollar (Hobsbawm 1994). US foreign policy in this period sought to defeat the socialist bloc by outspending it in a new arms race. Meanwhile on the economic front it harnessed neoliberalism to modernise production by investing in new military technology and destroying the most backward branches of industry. Subsequent trade deficits were financed through the sale of federal government bonds to foreign capitals, which was helped by the currency being strengthened through higher interest rates and credit restrictions. Neoliberalism was the weapon used by the US in this ideological offensive to end protectionisms, align different national policies and penetrate national markets. This second phase of the Cold War not only affected the Soviet Union but also exposed US inability to sustain the new arms race it had initiated. In the early 1990s the results seemed positive for the US: it had overtaken average global growth; restored the dollar as the world currency; defeated its main enemy, and liberalised international trade. It had also developed a new military strategy through the so-called Star Wars project. Battle-tested in the Gulf War, Star Wars appeared to give the US the advantage in military technology.

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These policies nevertheless revealed serious contradictions and led eventually to a crisis of Republican legitimacy and the return of the Democrats. Trade deficits widened dramatically, partly as a result of economic dynamism ­shifting towards East Asia, but mainly due to dollar appreciation, liberalised markets, rising interest rates and the concentration of investments in the technologically backward military sector. The subsequent ballooning of the national debt and public and trade deficits threatened the social security system and health, education and social welfare budgets, and so policy in these areas had to be restructured. Indeed, the financial crisis afflicting the US state was so severe that its allies had to bankroll the first Gulf War. On the military front the new strategy’s contradictions were clear to see. The Star Wars programme turned out to be a most ineffective way of fully defeating the enemy. Aerial bombardments could destroy strategic targets – albeit less accurately than claimed – but not overthrow governments. That required land battles, bringing with it a greater risk of casualties and, as a consequence, the revival of the peace movements that had successfully disarticulated the US imperialist apparatus during the Vietnam War. Furthermore, the breakup of the Soviet Union removed one of the pillars of US hegemony – the Cold War. The Cold War had enabled the US to put the world economy back on its developmental trajectory, divide social democratic and communist parties into two opposing poles, and limit much of the socialist movement to pursuing socialism in one country or region. Its demise called into question the very foundations on which the US had reorganised the world economy: it now restricted rather than stimulated liquidity in the world economy; and the divisions between social democratic, socialist and nationalist movements began to disappear now that US imperialism was less crucial to reorganising the European economy and socialism in one country seemed achievable. Faced with the crisis of the existing foreign policy model, the Bush government redefined its priorities as defending US hegemony; fighting international security threats (i.e. the proliferation of weapons of mass destruction, international terrorism, the drugs trade); ethnic conflicts; immigration; the environment, and spreading democracy and the free market. Public policy restructuring under the Democrats called for a reassessment of Republican-era unilateralism. The Clinton administration maintained and indeed raised spending on security, health, education and welfare. In order to meet its objectives it tried to control the national debt as well as cutting interest rates and military spending. It also revived a multilateral approach to ­managing the world economy. This was reflected in the value it attached to international bodies, especially the North Atlantic Treaty Organisation (nato), to intervention in the name of international security, and to multilateral or bilateral

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­ egotiations as a means to peace. In foreign policy Clinton even occasionally n proclaimed his right to assume the universal defence of a humanitarian agenda without prior UN authorisation. But it was not until the late 1990s that, with the resources freed up by large fiscal surpluses, he could intervene in Kosovo with nato backing and thereby gradually expand military expenditure once again. Meanwhile multilateralism in economic affairs saw more resources being transferred to intergovernmental institutions such as the imf. This support allowed for aid packages large enough to keep a lid on the crisis and maintain open markets and the free movement of capitals, especially towards Latin America and Asia. Clinton’s ‘Third Way’ social democratic administration fell short of breaking with neoliberalism despite challenging it through various initiatives. By creating fiscal surpluses and increasing social spending it managed to reduce poverty and stimulate economic growth. But it undermined the immediate impact of these measures on public opinion by using a large chunk of the surplus to reduce the national debt. As a result, public opinion warmed to George W. Bush´s Republican discourse in support of putting the surplus back into taxpayers’ pockets via tax cuts. Furthermore, the attempted co-management of exchange rates with Japan failed and Chinese economic power grew. In addition, current account deficits expanded and depressed prices in the productive sector, thus rendering the US economy incapable of withstanding the wage pressure caused by falling unemployment. Clinton’s attempts at multilateral coordination failed to prosper. The wto failed to reach agreement over the environmental and labour standards his government tried to impose on international trade. Talks aimed at implementing the Kyoto Protocol were interrupted during the successor administration and proved inconclusive. Boosting the resources central states pump into international financial institutions did not prevent them being used to expand the neoliberal model, and neither did they put an end to speculative behaviour in the world economy. Latin American trade policies continued to follow neoliberal doctrine. Clinton signed the North American Free Trade Agreement (nafta) and through the Free Trade Area of the Americas (ftaa) he revived the plans for a hemispheric free trade zone originally set out in the Enterprise for the Americas Initiative. The main outcome of Clinton´s more globally minded foreign policy was that international conflicts were contained to a degree by constructing a negotiation-friendly environment. Even though the policy failed to attack the root causes of such conflicts, it did reflect conditions of greater international legitimacy and cooperation, which would culminate in the creation of the International Criminal Tribunal in 2002.

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4.2 Foreign Policy under George W. Bush and Barack Obama The Republicans’ return to power under George W. Bush reinserted the United States into neoliberal patterns of the most competitive and anarchic kind. But its adherence to neoliberalism is ever more contradictory, because from the standpoint of competition the US is losing economic power and ideological legitimacy. From this perspective, its increasing reliance on state power to safeguard its economic and geopolitical status in the modern world, via protectionism and the use of force, functions as a compensatory mechanism. The Republican model of development seriously compounded US weaknesses. The increasingly intertwined public and current account deficits both skyrocketed. To bring back economic growth, the Republicans reduced taxes on corporate profits and large fortunes, cut interest rates, and triggered a new arms race by spending more to protect high-technology segments from external competition for ‘security’ reasons. Their contradictory economic programme relied on the room for manoeuvre they enjoyed thanks to years of Democratic fiscal equilibrium. At its heart lay tax cuts and military spending, which together brought an end to fiscal surpluses and generated a huge public deficit. As a result it was impossible to hold down interest rates in the medium term, and they shot up between 2005 and 2007 before falling again during the 2008 crisis. Because of tax cuts, public savings were transferred to higher income contributors and the trade deficit began to expand. These trends led to a resurgence of US protectionism and fresh attacks on social spending and social rights in order to finance the expansion of military activity. In foreign policy, neoliberal anarchy and competition led to the US government adopting a unilateral position that wrecked the negotiation-friendly ­environment keeping a lid on global tensions. With this posture it sought to undermine the political mechanisms for coordinating the world economy. This became evident at different moments: militarily, when it abandoned the antiballistic missile treaty and refused to sign the anti-landmine treaty; on the environmental front, when it rejected the Kyoto Protocol; in the social aspect, with its restrictions on conferences addressing social rights (e.g. the anti-­ racism conference); legally, when it refused to set up an International Criminal Tribunal; in trade through its protectionist measures (e.g. those targeting steel imports, which hit Latin America especially hard); and financially, by limiting imf-bound resources and the latter’s role as creditor in crisis situations. The new approach fuelled global tensions and conflicts, and we should situate the attacks of 11 September 2001 in this context. The Republican government responded to these rising tensions by relying more heavily on the use of force to control the centrifugal tendencies developing in the world system as a

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result of hegemonic crisis. This response was reflected in the new foreign policy paradigm promoted by US political hawks for whom national decline flowed directly from restrictions preventing it from using military superiority to settle conflicts.22 The Bush Doctrine represented this new mindset. It prioritised ‘security’ and the defence of US interests at the expense of democracy and turned eliminating the ‘axis of evil’ into its core foreign policy goal, i.e. getting rid of regimes that according to the US government were either developing or acquiring weapons of mass destruction or else supporting international terrorism. States run by governments belonging to the ´axis of evil´ included Iraq, Iran, Syria, Cuba, Libya, North Korea and Sudan. The Bush Doctrine asserted the right of the United States to carry out preventive military attacks and invasions based on its own ad hoc judgments. Not only was force used against the ‘axis of evil,’ but civil rights, individual freedoms, and democratic institutionality all came under threat, as the passing of the Patriot Act showed. National sovereignty and international agreements were also targeted. The high point in this process came with the international effort, led by Bush with backing from Blair, Berlusconi and Aznar, to invade and occupy Iraq, where a US-led coalition government was imposed. How far can this process go? As far as praxis allows it to. As Wallerstein notes, the hawks are wrong. The 11 September 2001 attacks exposed US military vulnerability and the use of force can only hasten the end of its hegemony. The risks are real and have up to a point restrained the hawks. But US leadership will have to be replaced by a new way of organising the world system if its decline is not to degenerate into a chaos that endangers humanity very survival and its civilisational achievements. It is therefore crucial that democratic forces in both the State and civil society combine globally to carry out the transition. Despite the initial triumphalism, the invasion of Iraq thoroughly exhausted imperialist policy and gave the newly elected Barack Obama the chance to overhaul US foreign policy. The Obama government faced the challenge of creating fresh paradigms and a new public policy agenda for the US. Its failure to do so should not blind us to the fact that this challenge responded to an ongoing structural need on the part of the world system, as a return to territorialism could lead to US hegemonic power collapsing in the years ahead. There are several reasons why this might happen: a. Once the Star Wars Project is definitively dropped from the centre of conflict strategy the risk of large-scale US troop casualties could again become a real possibility. 22

On this, see the excellent article by Immanuel Wallerstein (2002).

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b.

A return to territorialism would imply huge costs, which would expose the vulnerability of the US economy. Expenditure on wars and occupations would aggravate macroeconomic disequilibriums and put the country on the road to insolvency. c. US military and financial vulnerability could seriously undermine popular support for the imperialist administration running the state apparatus. This would contribute to one of the conditions for hegemonic crisis, i.e. the US imperialist bourgeoisie’s loss of internal legitimacy. Support would fall away for several reasons. Firstly, the war’s toll on the country’s youth would generate a sense of insecurity across society. Secondly, territorialism would make the US population a terrorist target as a result of being unable to pay the world system´s protection costs. Thirdly, the cuts made to welfare, health, education and security budgets in order to balance public budgets and bring the balance of payments out of the red would also chip away at support. d. The more it applies the doctrine of pre-emptive action, the more the United States threatens individual rights, national self-determination and sovereignty and encourages anti-imperialist sentiment and mobilisation in the world system. It also has the effect of drawing deeply rooted regional, cultural and civilisational identities within the US closer together, as revealed in embryonic form by the election of Obama. The more the US attempts to meet its rising external financing needs, the less capitals will circulate in the periphery/semi-periphery and the worse the crisis will get in countries in regions with external vulnerabilities from having applied neoliberal policies. This could lead to a powerful anti-imperialist and anti-neoliberal offensive by social movements, but they would have to duplicate current levels of international solidarity and organisation.23 It will not be easy for the US’s global big bourgeoisie to abandon territorialism. Its hunger for more wealth and the absence of a suitable hegemonic ­successor drive it towards the ever-greater appropriation of global wealth. Territorialist and imperialist policies help it achieve this, either in the guise of payment for protection costs or by directly appropriating third-party resources. Nevertheless, the growth of the US national debt and its subsequent loss of 23

Beverly Silver, Giovanni Arrighi and Melvyn Dubofsky (1995) use quantitative indicators to measure antisystemic mobilisations by workers in the world system between 1870 and 1990 (see Chapter 2). One of their main conclusions is that mobilisations reach their high points in postwar periods. Thus the index rose from 98 in 1917, to 276 and 242 in 1919/1920, and from 86 in 1945 to 195 and 206 in 1946/1947. Ironically, renewed military territorialism on the part of the US has done much to stimulate antisystemic movements in the modern world system.

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credibility as an international source of financial or legal security suggest there are internal limits to this approach. If the US trade deficit keeps expanding at the same rate it did between 1992 and 2006, then it is estimated that by 2020 it could represent up to 10% of national gdp and drain away approximately 1.5% to 1.6% of world gdp.24 That could make it hard to maintain world per capita gdp growth, as those surpluses would be going to a region with low investment and savings rates. On top of that, the pressure to appropriate surpluses by expanding the national debt could provoke a new US financial crisis.25 That could unleash a serious recession/depression in the world economy and trigger a new global upsurge of political and social movements, either in emerging regions or in peripheries

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The 2008–2010 crisis reduced the US trade deficit significantly. But once it is out of depression the country will almost certainly get back on a trayectory of accelerated expansion, just as it did after the crises of 1991–1992 and 2001–2002. In 1992 the trade deficit fell to 0.6%, after increasing from 0.9% to 3.2% between 1980 and 1987. In the year 2000 it rose to 3.8% before falling to 3.5% during the 2001–2002 crisis. In 2006 it rose to 5.7%. The 2009 depression reduced it to 2.5% but it picked up the pace of growth again in 2010, reaching 3.3% of gdp. Between 1992 and 2006, the US trade deficit/gdp experienced annual growth of 17.4%. If that rate is maintained in the 2010s and its gdp oscillates between 19% and 16% of the world economy, then in the following decade the US will absorb between 1.4% and 1.6% of world gdp. Note to the English edition: The US trade deficit remained stable between 2011 and 2016, rising from US$740 billion to US$752 billion after the 2009 depression slashed it from US$832 billion in 2008 to US$509 billion. However, this stability is illusory and was only achievable because the oil trade deficit shrank significantly from US$325 billion to US$58 million thanks to falling hydrocarbon prices and the use of shale gas to substitute for imports. It is now hitting its limits, both because the oil deficit is unlikely to shrink any further and also because of the fast-rising non-oil deficit. Between 2010–17 the non-oil goods trade deficit rose by 11.4% p.a. to US$720 billion, much higher than the 2006 precrisis figure of US$557 billion. The 2017 US global trade deficit of approximately US$811 billion signals the end of stability and points towards expansive tendencies that the Trump administration is set to boost by strengthening consumption, reducing taxes for the rich, and strengthening the dollar through interest rate rises. The sharp increase in the trade deficit between 1999 and 2006 expressed the combined speed-up in growth of the oil and non-oil deficits. In this period, the total deficit increased by 14% p.a, the oil deficit by 24% p.a and the non-oil deficit by 11% p.a. The reduction of the non-oil deficit represents the temporary victory of imperialist over nationalist forces in the world economy. But as long as this particular deficit continues along its accelerated trajectory, with China the main beneficiary, it will only serve to deepen the crisis of US hegemony. Between 1980 and 2010 the ratio of federal national debt to US gdp grew by about 3.5% per annum. If that ratio is maintained over the next ten years, the debt could surpass 120% of gdp.

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subservient to the declining power where the effects of such a downturn would be felt most keenly. The Obama government´s failure to achieve its campaign goals showed just how hard it is to make substantive changes to US public policy. Whereas Clinton slashed military expenditure by up to 10%, Obama not only broke his election promises to cut it, but expanded it by 8% per annum until 2010, compared to the Bush government´s 9.6% (Council of Economic Advisers 2010b). He also redoubled military intervention in Afghanistan and went back on his pledge to withdraw troops from Iraq, leaving around 50,000 in place. Furthermore, his attempt to close Guantanamo Prison was defeated in Congress. Domestically, he reinforced George W. Bush’s policy of protecting extraordinary profits by running up huge public deficits. This dented his popularity and led to a huge defeat for the Democrats in the 2010 mid-term elections.26 The policy transferred a significant share of the public saving to big capital without the benefit of increased productivity in return, which led to lower rates of investment, persistently high unemployment, a greater share of the national budget going on interest payments and negative pressure on the expansion of social spending.27 Any serious attempt to overhaul US public policies would have to transform their class basis and tailor them to the social majorities and entrepreneurs linked to the internal market. 4.3 Obama Administration Policies and Trump The Obama administration’s tight fiscal policies increased military spending and expansion of the public debt in order to sustain the fictitious value of toxic private debt lost it much support and gave the Republican right the chance to go on the offensive. As a result, the latter won the congressional elections of 2010 and 2014, diminishing the government’s power and freedom to promote 26

The military budget was increased from 3.8% of gdp in 2008 to 4.7% in 2011. Only then did it begin falling in relative terms thanks to Congress-imposed limits aimed at tackling the enormous public deficit, dropping to 3.8 % in 2013 and 3.5% in 2014. Obama withdrew US troops from Iraq in late 2011 but did maintain a staff of nearly 20,000 in the US Embassy, the vast majority of whom were non-diplomats, military personnel and mercenaries. Their number dropped to around 5,000 by the end of his mandate. Between September 2012 and the end of 2014 he withdrew US troops from Afghanistan, leaving behind a 10,000-strong contingent under the command of nato forces. 27 The Economic Report of the President 2010 (Council of Economic Advisers 2010b), estimated that in 2011 federal budget expenditure including interest payments would rise from US$180 billion to US$250 billion, and that social spending would be reduced from US$685 billion to US$595 billion.

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its own initiatives. Poverty levels increased from 13.2% in 2008 to 15% in 2012 and remained high until they began to fall in 2014, dropping to 12.7% by 2016. The electorate expressed its disenchantment with the Democratic Party establishment by widely backing Bernie Sanders, the independent senator from Vermont who joined the party in a bid to be nominated as its presidential candidate on an advanced social democratic agenda. However this popular support was not enough to win the Democratic primaries, where the still-powerful party aristocracy prevailed. Trump’s candidacy encouraged a demagogic right populism that looked to the State to protect jobs. This populism threatened immigrants (above all Mexicans); firms that had undercut US jobs by relocating production; free trade agreements (both existing ones such as nafta and those in the making such as the Transpacific Alliance); wto-agreed tariff regulatory frameworks, and countries in technological competition with the United States, such as China, or with access to US market niches. Trump’s fanatical racist crusade against multiculturalism, Mexicans/Central Americans, Islam and, it would seem, corporate globalism did not win him the popular vote against Hillary Clinton, but was enough to secure a majority in the Electoral College. Clinton won the popular vote by 3 million votes, less than the 10 and 5 million obtained by Obama in 2008 and 2012 respectively. Despite his rhetorical support for protecting local jobs, Trump has seriously deepened the US trade deficit by going back to cutting taxes, raising interest rates and strengthening the dollar. These policies, along with the retaliatory measures they have provoked worldwide, have undercut his unilateral tariff and para-tariff restrictions. The US is increasingly using force as an international policy instrument. It has also abandoned its universalist discourse, as evident from slogans like America First. These factors combined with rising US military expenditure and an increase in international conflicts and disputes have served to destabilise the global system and bring the risk of systemic chaos closer. 5

US Hegemony: the Theoretical Debate

Earlier we described how there are two main positions in the US hegemony debate. For some, US hegemony is in crisis. For others, it is getting stronger or is en route to becoming an empire. We are among those who defend the hegemonic crisis perspective. As with its counterpart, this perspective comes in many different and theoretically heterogeneous versions. Ours is based on the analysis of systemic cycles found in the world system theories associated with the Fernand Braudel Center. We aim to articulate this perspective with the

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Marxist approach developed by Marx himself, by theories of the techno-­ scientific revolution, and by dependency theory. Dependency theory posits that the international division of labour was built on a ‘compromise situation,’ and puts the concept of hegemony at the core of its understanding of the capitalist world-economy. This enabled dependency analysts such as Theotonio Dos Santos to be among the first to theorise the crisis of US hegemony. Nevertheless, dependency theorists failed to sufficiently integrate systemic cycles into their analysis because they did not see the world-economy as its main object, and neither therefore its political and institutional cycles. This failure has meant dependency theory is prone to ­overestimating the role played by Kondratiev cycles and the world economy’s potential for growth in periods when the upturn in the Kondratiev cycle coincides with larger downward cyclical movements. Other approaches also defend the hegemonic crisis thesis, foreseeing either a smooth transition towards shared hegemony that makes use of multilateralism and ‘soft power’28 (Nye 2002) or a gradual shift towards a multicivilisational world of regional hegemonies (Huntington 1996). We critiqued these positions earlier. In this section we examine the arguments of those who claim US hegemony is getting stronger: Ana Esther Ceceña (based at the Universidad Nacional Autónoma de Mexico’s Economic Research Institute); François Chesnais and his followers in France; Susan Strange (United States), and the Brazilian group led by Maria da Conceição Tavares and José Luís Fiori (at the Economic Institutes of the Universidade Federal do Rio de Janeiro and Universidade de Campinas respectively). Ana Esther Ceceña has written and edited a range of valuable works. The latter have featured Raúl Ornelas, Andrés Barreda Marín and other authors, and are best represented by Producción estratégica y hegemonía mundial (Strategic production and world hegemony) (1995). Ceceña starts out from Gramsci’s conceptualisation of hegemony, which she defines as the combination of coercion and consent that allows a collective subject to articulate different levels of social administration (gestão social) in order to transform its own interests and projects into universal ones (Ceceña 2001a, 2001b). Internationally, she sees hegemony as organised by the nation-state on the basis of the economic 28

For Joseph Nye (2002, 8–12), soft power represents the set of values that makes a country admired by others and allows it to set a political agenda favourable to its own interests. Nye argues that the soft power of the United States is based on values such as democracy, personal freedom, social mobility, liberalisation and the power of popular culture and media.

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leadership exerted by its capitals. She identifies four dimensions to hegemony: military, political, cultural and economic. Her main focus, however, is on the economic, which she links to the military dimension. In her view, the globalization of the capitalist world system has made it far harder to exercise hegemony because it expanded its reach and made its control diffuse. Hegemony has come to rely on strategically dominating the process of reproducing social existence, which means controlling cutting-edge technologies, vital physical resources, and labour. This in turn has facilitated the expanded reproduction of superprofits. Using this conceptual framework, she shows how the US enjoys multiple advantages over its competitors when it comes to strategic control: it leads the field in new technologies (IT, software, telecommunications, research and development); it extracts essential raw materials (oil, coal, ­metallic minerals), and it manages an ethnically diverse workforce under the stimulus of migration, which enables it to impose negotiating terms that favour flexible employment and capital accumulation (Ceceña 1995, 1998; Ceceña and Marín 1995; Ceceña and Sader 2002). Ceceña highlights another crucial aspect to US hegemony in her work: the tendency to territorialism that arises from its need on the one hand to process resources (oil and other strategic minerals) on the scales demanded by an expanding world economy; and on the other to control strategic resources that represent new sources of development (i.e. biodiversity) and make it possible to fuse microelectronics with biotechnology (Ceceña and Sader 2002). These resources are bound up with territorialism. The world’s most biodiverse regions are tropical zones such as the central strip of the Americas that extends from the Pantanal and Amazonia to the mountains and cold areas of Puebla; South-east Asia, in particular Indonesia and its islands; and the west coast of Africa, especially Nigeria and the Republic of Congo. Control over these territories and their indigenous populations and cultures offers a crucial competitive advantage that boosts economic leadership. The central strip of America is also rich in oil reserves. In 1999 the combined production of oil and natural gas from Mexico, Venezuela, Colombia and Brazil exceeded that of Saudi Arabia (Maddison 2001, 150).29 The author describes the US’s current territorialist ­ambitions in the region, first anticipated by Plan Colombia and the Puebla-­ Panama Plan,30 and the biodiversity studies carried out by institutions linked 29

30

Maddison (2001) highlights Latin America’s growing participation in oil and natural gas production as a result of large deposits being discovered in very deep areas and the development of technology to extract them. In 1973, Latin America produced 9.5% of the world’s oil and natural gas, increasing to 14.7% by 1999. The Puebla-Panama Plan aims to build a strategic corridor in the Isthmus of Tehuantepec to allow goods to flow between the Atlantic and Pacific Oceans.

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to the US state such as the International Cooperative Biodiversity Group. These plans could facilitate the military, economic and scientific occupation of the region under pretexts ranging from the war on drug trafficking to the construction and control of the Isthmus of Tehuantepec corridor and biodiversity research/conservation. Ceceña and her group provide a wealth of empirical data on technologies, geopolitics and strategic resources in their work. Nonetheless we are obliged to make some methodological observations concerning the relationship of these dimensions with hegemony: a. Proving US leadership in high technology and strategic raw materials provides insufficient grounds for concluding that its hegemony is solid. Hegemony is not about a country’s leadership in strategic sectors, but about it being so much more powerful than its competitors that it can articulate and subordinate external interests to its own and make them universal. In military terms, for example, US technological leadership cannot compensate for vulnerability of the kind exposed by the Vietnam War and the attacks on the World Trade Center and Pentagon. Vietnam proved that North American society was unwilling to accept the high costs of imperialism, whilst the 2001 attacks showed that US military leadership could not save its population from large-scale destruction. As Nye (2002) notes, we have entered an era in which soft power is a more reliable guarantor of institutional stability than hard power. b. Hegemonic power is determined as much by the way it is distributed over time as it is by strategic power differentials. The crisis of hegemony begins when the hegemon finds it difficult to sustain existing power differentials, despite them being weighted significantly in its favour. The gap in those differentials narrows over a long period of time, and this edges hegemonic crisis towards hegemonic collapse. c. Discussion about the size of the differentials underpinning hegemony should not centre on use values. Instead it should draw out the relationship between the dimensions linked to technologies and labour process and the hegemon’s power to maintain the institutional structure it created for the world economy. As for Ceceña’s discussion of the economic aspect of hegemony, the most appropriate indicators for measuring hegemonic development are not technological but macroeconomic, which include the former in a separate dimension. Indicators such as the trade balance, balance of payments and interest rates reveal the extent of the hegemon’s power to stimulate and sustain both its own development and that of the world economy. That does not mean giving up on the analysis of technological processes but rather situating them within a broader

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context, as their economic impact can be measured using macroeconomic indicators. Although the works cited concentrate on studying economic hegemony, they ought to integrate their findings better with the general concept of hegemony, according to which the state not only applies coercion but also builds consensus. If we examine hegemony from this perspective, in other words as the power to create consensus, we find that on various issues the US has become increasingly isolated from majority opinion among national states and social movements. Thus on the environment it is at odds with supporters of ratifying the Kyoto Protocol; in international law it has yet to recognise the International Criminal Tribunal, ratified by 108 countries by the end of 2008; on the political front, the Bush Doctrine was opposed by proponents of negotiated solutions to international conflicts, a position Obama offered to review, despite maintaining intervention in Afghanistan; and on an ideological level the US has fought the rise of social movements against neoliberalism and imperialism, notwithstanding Obama’s timid attempts to distance himself from such paradigms and agree a multilateral agenda to tackle social emergencies worldwide.31 Note to the English edition: Obama sought to restore the United States’ hegemonic leadership in international politics, replacing the Bush Doctrine’s unilateral imperialism based on pre-emptive strikes with a centrist liberal imperialism tied to a nato-backed coalition and an alliance with Western European powers. In order to reduce global and local protection costs and create more space for negotiation, this liberal imperialism combined with either insurrectionary forces to destabilise and overthrow ‘enemy’ governments or with political oppositions amenable to US-led multilateral negotiations. This created an opportunity to minimise certain historic conflicts, as seen in Obama-era initiatives in respect of Iran, Cuba and the Israel-Palestine conflict. Whilst Obama’s liberal imperialism contained the expansion of military spending previously driven by the unilateral imperialism of George W. Bush, it did not seriously reduce it. Neither did Obama fully break with the Bush Doctrine. In fact he continued to rely on certain concepts associated with it, such as the ‘axis of evil,’ and on some of Bush’s staff. Although his administration oversaw the withdrawal of US troops from Iraq and Afghanistan, it also led military intervention in Libya and Syria, failed to close Guantanamo, and declared Venezuela a threat to US security. It supported acts of espionage: under General Keith Alexander – who was appointed by Donald Rumsfeld in 2005 and remained in office until 2014 – the National Security Agency (nsa) spied on Petrobras. In addition, it supported coups in Paraguay, Brazil and Ukraine, where it promoted insurrectionary movements, and imposed sanctions on Russia. Finally, the Obama administration developed initiatives aimed at expanding neoliberal regulation of the world economy. These included the Trans-Pacific Partnership (tpp), which harmed the brics by seeking to isolate China and weaken its political support in Brazil, South America and Russia. In the Middle East, North Africa and Asia, Obama’s liberal imperialism relied on nato troops, local allies such as the United Arab Emirates, Jordan and Qatar, jihadist and

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This fast-diminishing capacity to generate consensus has led big US capital to instead express its power through the use of force. In doing so it seeks to turn its hegemony into domination. Ceceña (2001) points to the growing part played by the US Department of Defense in defining foreign policy, but does not agree with our view of its implications: that US hegemony is in deep crisis with little chance of playing a major role again.32

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­ ercenary groups, and the use of advanced military technology such as drones. In this m way it sought to reduce the economic, political and social costs of US intervention. Its strategy consisted of continued attacks on the so-called axis of evil, including the overthrow of some regimes (Libya and Syria); opening up spaces for the liberal institutionalisation of Islamism in territories conquered through war (Iraq) or through resistance and insurrection (Egypt, Tunisia, Yemen, Algeria and Palestine), and destroying radical antiAmerican and anti-European Islamism by making Al Qaeda its main target. However, its strategy was riven with contradictions. For one, its support for emerging political forces clashed with the interests of old powers allied to the US, preventing the advance of political-institutional forces such as the Muslim Brotherhood in Egypt and the strengthening of the Palestinian Authority and encouraging jihadism. In addition, the failed economic and social restructuring of occupied states such as Iraq exacerbated internal conflicts and led to renewed civil war after US troops left. Lastly, in a context of systemic chaos, US ­support in the form of finance and arms sales to unstable insurrectionary groups via intermediaries (Turkey and Qatar) rather than directly only favoured the spread of new anti-American jihadisms such as Islamic State. Obama’s foreign policy produced poor results. His nuclear deal with Iran was undone by Trump. So too was his attempted rapprochement with Cuba, which had also lacked support from the Republican majority in Congress. The Trans-Pacific Partnership was abandoned in favour of unilateralism and tariff protectionism; support for the liberal institutionalisation of Islam met stiff resistance from Israel, the Egyptian military and regional oligarchies, and attempts to forcibly dismantle the Iraqi, Libyan and Syrian states caused even greater political instability, leading to civil wars and chaos. Trump’s election has brought an explosive combination to bear on the US government: the return of the Republicans, who ever since the Reagan era had always expanded military spending far more than the Democrats; the turn towards unilateralism and the use of force, and a charismatic political leader whose unpopularity leads him to seek confrontation with external and internal enemies. All this makes international conflict more likely, and in a context of declining US economic power, such conflicts are increasingly difficult to control. In a more recent work the author does draw closer to world-system theories, albeit with contradictions. On the one hand she asserts that “As a source of Western and/or capitalist systemic legitimacy, US hegemony is visibly decaying” and that “the limits of US hegemony are the limits of capitalist hegemony, and they coincide in their decline” (Ceceña and Sader 2002, 246). But she also affirms that “US hegemony in the world today is an indisputable fact, and no other power can challenge it, even though it develops in a context of permanent contradiction and competition at every level” (Ceceña and Sader 2002, 245–246). The crisis of historical capitalism is not just a crisis of its mode of production, but also of every dimension that ensures its historical existence, such as an interstate system organised by hegemonies and the power of each hegemonic state.

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The problem of turning hegemony into domination brings us in turn to the issue of empire. Different authors have to varying degrees defended the thesis that US hegemony is getting stronger and becoming an empire, including François Chesnais, Pierre Salama, Maria da Conceição Tavares, José Luís Fiori, Luiz Gonzaga Belluzzo, João Manuel Cardoso de Mello, Franklin Serrano, Carlos Medeiros and Susan Strange. In their account, globalization was a US government initiative that in taking the dollar off the gold standard and ending the fixed exchange rate regime imposed the free movement of capital, ­free-floating exchange rates and the flexible dollar standard. Regulating international transactions in this way shifts the centre of capital accumulation towards the financial sector. Financial logic directs productive sector investment too, steering it mostly towards currency and stock market speculation. Thus for the above authors a financialised regime of accumulation has been established that has overcome the cyclical nature of capitalism and created a process of permanent depression rooted in surplus value appropriation which the United States has avoided by mopping up world-economic surpluses. In institutional terms this process depends on the power of the dominant state. Hence these authors argue that financialisation goes hand-in-hand with armed force. The new regime of accumulation rests on the indivisible combination of military and financial power wielded by the dominant state. Chesnais (1996, 312–318) questions Marx’s arguments in Capital Volume 2, where he weaves together the strands of his theory of value.33 Marx affirms that the capitalist mode of production is rooted in surplus value created in the productive sector by wage labour. Productive capital distributes surplus value to financial and commercial capitals so as not to have to interrupt the productive process to commercialise products or accumulate all the resources required to initiate the process. The process can continue as long as surplus ­value-producing capital specialises in productive activities, but it requires the 33

According to Chesnais, “The fact that the unification of the three cycles of capital in the differentiated moments of a single cycle under the aegis of productive capital was and remains (in ‘strictly theoretical’ terms) a pre-condition of capitalist relations of production putting down national roots (first in England and later in every country that has undergone a real process), does not make it a realistic prospect in the circumstances of late 20th century world capitalism. To wait “for the world economy to become fully formed” through the spread of productive capital or industrial capital (“the only mode of existence of capital in which not only the appropriation of surplus-value, or surplus-product, but simultaneously its creation is a function of capital”) is a little like waiting for Godot […] Our response is that the world economy is constituted not according to the model set out in Volume 2, whatever prestige it might enjoy, but to models much closer to the methodological discussions around financial capital held in the first thirty years of the 20th century” (Chesnais 1996, 316–317).

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surplus value to be distributed under the rules of competition and labour productivity to capitals engaged in commercial and financial activity. In analysing systemic cycles we saw that when articulated, these capitals can temporarily shift the axis of accumulation to the financial sector. This serves to eliminate surplus production and lower the price of labour power so that productive capital can kickstart a new cycle of surplus value production. Debtors’ insolvencies limit the accumulation of financial capital, but they reduce the economy’s real assets, and this creates the conditions for a new technoeconomic paradigm to drive up profit rates and form the basis of a fresh cycle of development. The claim that the axis of capitalist accumulation has permanently shifted towards the financial sector presupposes one of two possibilities: (a) the falling rate of profit tendency has reached a point of terminal crisis and productive capital cannot generate a new cycle of development, as Kurtz argues; or (b) competition has been superseded, and so productive capital is incapable of challenging financial capital with a set of innovations that cheapens goods and raises the level of surplus value production. These possibilities lead the authors cited to link the power of finance to the power of the gun and, from there, to theoretically construct their empire analogy or perspective. In Ciclo e crise: o movimiento da industrialização brasileira (Cycle and crisis: the recent movement of the Brazilian economy),34 Maria da Conceição Tavares argues in favour of separating the theory of capital valorisation from the theory of labour exploitation, describing their association as a theoretical trap set by neomarxists and one of progressive thought’s biggest equivocations (Tavares 1978, 47). As technological and financial development gradually becomes more autonomous of wage labour and the use of living labour, so, in her view, capitalism progressively separates labour valorisation and exploitation.35 Valorisation becomes arbitrary, and capital, mediated by la raison d’etat, increasingly assumes the form of M-M’ as it valorises itself with state support.36 34 35

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Originally a thesis presented to a contest for Full Professorship at the Economics and Management Faculty of the Federal University of Rio de Janeiro. Whereas Chesnais sees a conflict between Marx and the financialisation thesis, Tavares cites him in her support, drawing on his thought in her own unique way. Thus she refes to the classic passage in the Grundrisse where Marx points to waged labour’s “narrow foundation” for valorising the productive forces of science as evidence that Marx imagined capitalism would overcome the limits imposed by the rate of surplus value, when in fact he was illustrating its historical limits (Tavares 1998, 60–61). Navigating in these same waters, Luiz Gonzaga Belluzzo (1999, 116) asserts that M-M’ expresses the real substance of capitalist accumulation and expression of its development and maturity: “Capitalism is the regime of production in which accumulated wealth in the form of money is ready to turn inwards in its quest to reproduce itself. M-M’, not

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For Tavares, the US state guarantees capital’s valorisation globally through a mixture of strong dollar and gunboat diplomacy. This kind of diplomacy is backed up by the dollar’s standing as an international currency and the country’s position as the only global superpower in the post-Cold War era. Imposing a flexible dollar standard has allowed the US to raise interest and exchange rates enough to attract external capitals and stimulate its own development. This creates asymmetrical growth rates, which favour the US at the expense of the world economy. The overwhelming power it enjoys as a result could transform its hegemonic rule by consent into total domination and prove enough “to warn anyone off questioning the US’s hegemonic position within the capitalist system” (Melin and Tavares 1997, 81). But as the author points out, in the short-term imperial power built on losses inflicted on those most vulnerable could make locally-based resistance look like an attractive policy option, and in the medium term might encourage alternative political projects at the regional level. As José Luís Fiori notes, however, that could be some way off: With the current Anglo-Saxon advance on the world, we are witnessing something very similar to England’s unhindered advance between 1815 and 1880. With this expansive movement the empire’s core might not face any threat at all until the system’s central nucleus is recomposed. fiori 2001, 233

Fiori suggests that a future collapse of the US imperial system could open the doors to a new wave of capitalist expansion, following the historical pattern seen in the way resistance to the Spanish Empire led to the creation of mercantilist states and resistance to the British Empire brought forward late capitalisms (Fiori 1998, 1999, 2004, 2008). In O mito do colapso americano (The myth of American collapse), he partly reworks his approach to provide his own version of the shared hegemony thesis. In this account, the emergence of China and, less so, Russia point to rising global competitive pressures and the relative decline of US power, possibly leading to a shift in the structural axis of world power. But this new and drawn-out imperialist contest, which has barely begun, is unlikely to threaten the central role of US financial wealth and the dollar. Instead, and despite the rivalries, it will probably increase the degree of M-C-M’. represents this process in its pure form, one that befits the idea, free from the inconveniences and impediments represented by the material forms it assumes. This is not a deformation, but the perfect expression of its substance, insofar as money is both the precondition and the result of the process of wealth accumulation under capitalism.”

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fusion with said wealth. For Fiori, this period began in 1970 and resembles the secular periods of 1150–1350, 1450–1650 and 1790–1914 (Fiori 2008). We would respond to the above approaches by making the following points: a. Theories arguing that capitalist accumulation has been structurally ­displaced towards a financialised regime cannot be sustained. They ultimately end up envisaging the global suppression of competition – a scenario bereft of any historical or empirical basis. There are no signs of suppression of the modern world system and interstate system, and there is nothing stopping other states or regions from introducing more productive technological trajectories that endanger or impose limits on the concentration of wealth in the states dedicated principally to surplus value appropriation. Because Marx located competition as an indispensable part of capitalist accumulation, he cannot be used to defend the idea that capital is able to use political power to self-valorise. Self-valorisation is necessarily limited to the realm of capital accumulation, which was only able to globalise once it rooted itself in its own mode of production. It is a mistake to see the M-M’ formula as representing the substance of capital and its highest stage of development, and Marx explicitly rejects such an analysis. In the Grundrisse, he highlights the dialectical relationship between the financial and productive forms of capital accumulation, effectively showing that whilst the former are relatively autonomous, they cannot become fully independent of the development of fixed capital.37 Tavares’ critique of the neomarxists, in which she seeks 37

In the Grundrisse Marx points to what he calls a “pretty contradiction” between the materialisation and fluidity of capital. It is in its aspect as fixed capital – when capital loses its fluidity and becomes identified with a given use value – that developed capital most clearly presents itself. Machinery then appears as fixed capital, and fixed capital as the most adequate form of capital in general. Fixed capital, however, is immobilised, and capital is indifferent to every specific form of use value, circulating capital being the most adequate form of capital, rather than fixed capital. “Precisely in this aspect as fixed capital – i.e. in the character in which capital has lost its fluidity and become identified with a specific use value, which robs it of its ability to transform itself – does developed capital – to the extent we know it so far, as productive capital – most strikingly manifest itself, and it is precisely in this seemingly inadequate form, and in the latter’s increasing relation to the form of circulating capital in No. 2 [the small-scale circulation between capital and labour capacity – c.e.m.], that the development of capital as capital is measured. It’s a pretty contradiction. To be developed. […] Machinery appears, then, as the most adequate form of fixed capital, and fixed capital, in so far as capital’s relations with itself are concerned, appears as the most adequate form of capital as such. In another respect, however, in so far as fixed capital is condemned to an existence within the confines of a specific use value, it does not correspond to the concept of capital, which, as value, is indifferent to every specific form of use value, and can

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c.

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to dissociate valorisation from exploitation, or surplus (profit) from surplus value, is also flawed. Financialisation can only redistribute surplus value from the productive to the financial sector, and does not result in any increase in the rate of exploitation of labour power. If it happens to result in the mass of profit increasing, then that increase must, regardless of how it is appropriated, be supported by an increase in the rate of exploitation, which is assisted by the rise in unemployment that accompanies financialisation.38 There is no empirical basis for arguing that the world economy has entered a period of permanent depression overcome only by the United States through its use of its powerful financial assets to mop up surpluses.39 The evidence points to a recovery in the Kondratiev cycle’s long growth period.40 As we have maintained, this is a Kondratiev cycle with its own intensity and length. There are strong signs that since the recovery sub-phase of the current Kondratiev cycle ended in the year 2000, the model of growth has not benefitted the US over the world economy. The idea that we are witnessing a new ‘flexible dollar’ model that allows the United States to engage in strong dollar diplomacy and steadily finance its public deficits and balance of payments fails to withstand closer analysis (Fiori and Tavares, 1993, 1997; Fiori, 1999). The notion that the US can finance its imbalances by printing dollars represents possibility more than fact. Politically, such a policy might serve as a guarantee to foreign investors seeking to acquire external resources, but if it is actually applied writ large in order to maintain US purchasing power then the dollar would plunge in value, and still deepen external account deficits. adopt or shed any of them as equivalent incarnations. In this respect, as regards capital’s external relations, it is circulating capital which appears as the adequate form of capital, and not fixed capital.” (Marx 1973, 679, 694). This dialectic between fixed and circulating capital is a permanent feature of capitalist development, and it is incorrect to identify capital’s “substance” with one or other of its forms. Here we are not considering the theories of crisis and cycles that base themselves on the fact that this convergence does not always take place, and that it is just an average of the swings deviating away from it, as we saw in Chapter 2. The growth of the world economy has led some neo-developmentalists to take a certain distance from theories of a long global depression and to try instead to weld together theories based on a stronger usa and shared hegemony. They belatedly recognise world growth whilst asserting the centrality of financial accumulation and the flexible dollar and their convergence with new centres of accumulation of power of equal weight. See Fiori (2008). This analysis coincides with that of researchers of the stature of Orlando Caputo (2000b, 2001a, 2001b).

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That could trigger a worldwide run on the dollar and the loss of its ability to act as the vehicle currency for international transactions. The effects of zigzagging between appreciating the dollar in the belle époque and then depreciating it to assert the privileges of seigniorage are wide-ranging but still subject to the limits imposed by the currency’s credibility among private investors and the political and social costs which these transfers imply for the foreign public creditors who underwrite them. US-backed gunboat diplomacy as mentioned above is not viable in the long term and is unlikely to bring about a new international order. We noted that the centrifugal tendencies in the world economy are extremely powerful and a coercive central power would struggle to contain them. Concentrating enough military, financial and ideological resources to defend an imperial order is so difficult as to make the costs incalculable. The international isolation experienced by the US when it went to war against Iraq and the exhaustion that George W. Bush’s Republican government suffered domestically show just how far the imperial project and US hegemony have come up against their own limits. Finally, there is the theory of shared hegemony, which posits that the convergence of China and US financial hegemony since the 1990s has a long-term future despite the growing rivalry between the two. But it can only last in the short or medium term and is unlikely to survive the next 30–40 years of systemic chaos. The modern world system offers no historical precedents of secular periods of shared hegemony. It is rather a situation that occurs during the stages of hegemonic crisis. Thus the period we expect to open up in 2015/2020 is far more likely to resemble that of 1790–1815 or 1914–1945/1950, when the hegemonic crisis reached breaking point and the fight to overhaul the institutional foundations of the world economy began. It was during those periods that almost every Iberoamerican country achieved independence and a third of humanity began to live under socialist regimes. The crisis of 2008 showed how much shared hegemony had already broken down. Whilst in 2005–2008 China bought 49.3% of the bonds in public debt the US needed to sell; in 2009, when Chinese growth rates dropped, that figure fell to 19.6% of the Treasury’s financing needs. It escaped recession by launching a US$500 billion aid package to stimulate internal demand and promoted the first meeting of the brics (Brazil, Russia, India and China), which publicly raised the possibility of a common alternative to the dollar.41 The process of creating a geopolitical alternative to US hegemony has only just come See US Department of the Treasury n.d.

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into view, but will need to develop significantly in 2015/2020. It is hard to imagine the Chinese people agreeing to finance American economic parasitism for much longer as they continue down the path of accelerated social and economic empowerment. And if that is what determines the Chinese government’s social and political legitimacy, then the chances of shared hegemony developing further would appear to be limited. Examining US hegemony allows us to shed light on issues of crucial theoretical and political importance to popular movements and pinpoint the tensions between US social movements and the imperialist-controlled state apparatus. This will help antisystemic movements come together in a historical bloc with social forces in the US and define a common programme for managing the world economy – one focussed on democratising international political organisations, fighting super-exploitation, and promoting peace and ecological sustainability. It also opens up a space for examining the situation of peripheral countries in a way that stresses their internal power configurations and ­possible responses to neoliberalism. This issue was addressed by dependency theory, which explained developmental patterns in peripheral countries on the basis not of externally imposed determinations but of how such internal configurations related to the world economy and its power structures. This dependency perspective was present in the work of a whole generation of social scientists and most notably Theotonio Dos Santos, Ruy Mauro Marini, Florestan ­Fernandes, Fernando Henrique Cardoso and Enzo Falleto, all of whom to varying degrees offered new frameworks for understanding the capitalist world-economy. In the next chapter, we evaluate dependency theory’s contribution to the development of the peripheral countries in light of the social processes unleashed by globalisation. We examine how the current stage of the modern world system’s evolution has put the issue of dependency back on the agenda by adding a new dimension to the world economy’s integration that will shape both its historical configuration and the responses of popular and antisystemic movements.

Chapter 5

Dependency and Development in the Modern World System 1

The Development Question: Past and Present

In the post-war period development became a key issue for the world economy. This reflected a consensus at the international level to cater to different interests and needs. The systemic chaos produced by the crisis of British hegemony had broken the back of the modern world system, leaving a trail of destruction across the centre (Western Europe), semi-periphery (Japan and the ussr) and periphery (Eastern Europe). The non-European peripheral regions were also badly hit. The crisis of the world market had impacted upon the international division of labour and spurred the decline in primary commodity prices. This led to major social tensions and the birth of revolutionary movements that in varying degrees confronted agrarian oligarchies and imperialism in the name of nationalism and development. With the end of the Second World War the recovery of the world economy that had begun in the late 1930s reached a cul-de-sac. Based on the expansion of military spending and centred on the United States, it could only be sustained by resolving the problems associated with the end of British hegemony, which were now preventing the world market from expanding. It was therefore crucial to (a) establish a new world monetary standard to reactivate international credits and payment systems; (b) rebuild European economies and import capacities ruined by war and the loss of colonial rents following the crisis and collapse of the European empires; and (c) address the demands for development and/or self-determination coming from various nationalist movements in the periphery who were threatening the international division of ­labour organised by historical capitalism. Development would become crucial to the way the United States organised hegemony, and together with self-determination it served as the ideological glue holding together its systemic power to coordinate the peripheral countries. Meanwhile in the core and semi-peripheral countries the ideological basis for its systemic activity was the defence of freedom and its irreducibility to equality, which drove a wedge between social democratic and socialist movements on the one hand and communists on the other. Modernisation theories

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were to play a key role in the spread of US ideological influence throughout the peripheral countries, and were used to try and reconcile local nationalisms with the world system’s new power structures. Meanwhile, in the centre and semi-periphery, liberalism and military Keynesianism were its chief ideological tools of hegemonic persuasion as it combined warfare and welfare in the Cold War to militarily occupy Western Europe. From the 1950s to the 1970s, politics and social sciences in Latin America and the wider world debated their responses to the results achieved by the peripheral development proposals borne of and inspired by US hegemony. Then in the 1980s and 1990s the world economic crisis and the defeat of antisystemic movements relegated these arguments to the sidelines as stabilisation and anti-inflationary policies took centre stage. But since the world ­economy began expanding once again it has triggered a new antisystemic offensive and revived the discussion around national, regional and global paths of development. And this time round the development debate has been enriched by ecological and democratic questions, which are understood not just in environmental and political but also social, economic and cultural terms. With globalization and the historical evolution of the modern world system as its context, this chapter takes stock of development proposals that are based on the main theoretical approaches to articulate the periphery with global capitalism. These approaches include modernisation theory, national-­ developmentalism, dependency theory, endogenism, neo-developmentalism, neoliberalism and world system theories. We do not intend to give a detailed assessment of the debates around them – a task beyond the scope of this work – but rather to address some of their main arguments. And given that dependency and modern world system theories are in our view so crucial to the organisation of antisystemic movements, it is their contributions to which we will pay most attention. 2

National-developmentalism and Modernisation Theories

National-developmentalism emerged from the crisis of British hegemony and its international division of labour, wherein the central countries specialised in industrial production and the periphery in exporting primary commodities. This division was justified by David Ricardo’s theory of comparative advantage. For Ricardo, international trade has the potential to maximise human wellbeing by raising productivity and cheapening the value of goods whilst maintaining income levels. For this to happen, countries should specialise in

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­ roducing goods that offer a comparative advantage, and through trade they p then all benefit from the resulting higher labour productivity.1 In his perspective, capital and labour’s international mobility is residual and limited, and so trade represents the only way to spread the rise in productivity. This supposed lack of mobility leads Ricardo to posit that the theory of value does not apply to international economic relations. This limitation seriously reduces competitiveness between different capitals, as long as they specialise. If production costs fall in one state this does not put the other national productive structures in danger because they complement one another. If British producers manage to cheapen the unit cost of cloth relative to wine, then the Portuguese will share in the benefits because the wine they export to the English market will become relatively more expensive. The fruits of technical progress can then be shared by setting a price for cloth that allows the English to obtain more wine just as it allows the Portuguese to obtain more clothing. Specialisation makes countries either industrial or agricultural without any prejudice to countries that perform activities representing less intensive technical progress. Although Ricardo, an advocate of Britain’s industrialisation, allowed for a degree of ambiguity and doubt in developing his principle, neoclassical theory turned it into an abstract model with scant regard for historical reality.2 The Ohlin-Samuelson model took its generalising claims a step further to argue that national specialisation should be based not on comparative advantage in commodity production but on the provision of factors of production. The model explicitly proposes that countries with high capital concentration should specialise in industry and those with plenty of land and workers should specialise in agriculture (Vilarreal 1979). Comparative advantage theory henceforth became an axiom of economic liberalism. It was used to justify the spread of the gold standard, trade and capital account liberalisation,3 and orthodox monetary policy across the world-economy. But the bright and harmonious future it promised never 1 In Ricardian theory, national specialisation is determined by productivity differentials. The condition for international trade is that within States productivity relations differ between the different products. A country should specialise in producing whichever product gives it the best productivity differential. To take Ricardo’s example, exporting Portuguese wine allows Portugal to obtain more fabrics than it could produce internally, and England to obtain more wine by selling fabrics than it would be able to produce itself. 2 Although Ricardo’s classic work On the Principles of Political Economy and Taxation (Ricardo 1817) argues against the Corn Laws and advocates the development of English industry and specialisation through foreign trade, it still acknowledges on several ocasions the advantages to a country of specialising in industry rather than less productive activities. 3 Even accepting that the circulation of capitals is limited and residual, barriers should not be put in its way because it can still help diffuse the productivity generated by international trade.

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­ aterialised. Instead said policies caused a slow but ongoing decline in the m prices of primary products in relation to industrial products which accelerated during the world economy’s crises. From 1876–1880 to 1911–1913, the price ratio of primary commodities to manufactured goods fell from an index of 100 to 85.8. During the interwar crisis it declined even further, hitting a low of 64.1 in 1936–1938.4 The income lost by peripheral countries in this way made it ever harder for them to sustain economic growth.5 The orthodox solution applied to the ­balance-of-payments crisis was deflation and reduced internal demand. Social tensions piled up and gave birth to revolutionary movements that sought to turn national states’ attention towards industrialising Latin America (or Asia or Africa), winning the right to self-determination and state-led modernisation of their countries. These revolutionary processes brought uneven results. They depended on national bourgeoisies exploiting the space opened up by the crises of imperialism and the agro-exporting oligarchies to push economic development. That meant restructuring the State and turning the public policy paradigm into one centred on building infrastructure and creating the institutional conditions for industrialisation. This issue was examined in depth by Vania Bambirra, Theotonio Dos Santos, Fernando Henrique Cardoso and Celso Furtado in Latin America, and in Africa by Frantz Fanon. Lasted throughout the 1940s and 1950s, this process of State and public policy restructuring went hand in hand with a new theoretical paradigm which brought a new understanding to international economic relations and Latin America’s place within them and proposed new pathways to global insertion based on countries redefining their internal policies. Known as national-­ developmentalism, it was best expressed and most widely disseminated by the ­United Nations Economic Commission for Latin America and the Caribbean, ecla (cepal in Spanish).6 In its initial phase the main architects of the 4 See Raul Prebisch’s classic work, The Economic Development of Latin America and its Principal Problems (1950), written as an introduction to ecla’s Economic Survey of Latin America 1948 (ecla 1948) and later included in the organisation’s 50th anniversary anthology (eclac 2016, 109–128). 5 In Argentina, an example par excellence of adherence to British hegemony and the gold ­standard, per capita annual economic growth plummetted from 2.9% in 1900–11 to 0.7% in 1912–29 before falling into negative figures in 1930–38. In contrast, Brazil achieved better results by using its monopoly control over the international coffee supply to defend international prices as a policy, purchasing surplus coffee by printing and devaluing the national currency. Hence it suffered less in terms of economic dynamism, with per capita annual growth falling from 1.9% between 1900 and 1911 to 1.4% in 1911–29. (Maddison 1997, 280). 6 In 1984 the organisation’s English acronym was changed to eclac – the Economic Commission for Latin America and the Caribbean. It is referred to herein as ecla or eclac (as appropriate) and cepal where referring to Spanish-language sources. – Trans.

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cepalista school of thought were Raul Prebisch and Celso Furtado.7 They launched a blistering attack on liberalism and the theory of comparative advantage, and advocated industrialisation as the way to break through the impasses of peripheral development. With the national bourgeoisie too weak to take the path of Schumpeterian enterprise alone and foreign capital uninterested in industrialising the periphery, the process had to be led by the State. It did this by implementing import substitution policies. These policies sought to internalise the manufacture of goods consumed that were hitherto imported, i.e. to produce those same goods domestically. This meant the State had to actively intervene in foreign trade and ensure foreign exchange export earnings were no longer used to pay for luxury imports but to finance national industrialisation. The import-substituting industrialisation process consisted of three main stages: the substitution firstly of light consumer goods, then of durable consumer goods and finally of producer goods. But as each of these stages eliminated the need to import products now made internally, so they also created new import needs relating to the inputs required to internalise production. As the process unfolded these new import needs became ever more rigid, shifting away from consumer goods towards intermediate and capital goods. Striking a balance between foreign exchange earned from primary commodity exports and the resources needed to import machinery, intermediate goods and manufactured raw materials became ever harder and required expert State planning. How did Prebisch and Furtado expect to achieve that equilibrium between a primary product-intensive export pattern and an industrial component-­ intensive import pattern when, pointing out the worsening terms of trade between primary and industrial products, they were so critical of the theory of comparative advantage? To answer that, we must pause to consider their explanation for the declining terms of trade. They identified three main contributory factors: a. The low income-elasticity of primary products. The supply of primary products was limited by greater rigidity of demand once industrialisation 7 Prebisch formulated the ideas at the heart of cepalista thinking between 1943 and 1949. This followed his experience as the Argentine under Secretary of Finance in the 1930s, when he found his neoclassical background to be inadequate to the task of tackling a national crisis in the form of a major balance-of-payments crisis, which was linked to the declining volume and value of Argentina’s commodity exports. According to Octavio Rodriguez (1981), he first proposed a conscious industrial policy in 1943, and used the core-periphery concept for the first time in 1946.

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and individual incomes reached a certain level. The more industrialisation advanced, the more primary products were replaced by synthetic raw materials with an ever-greater manufactured component. In ­addition, rising incomes meant individuals consumed fewer primary products. The latter were gradually replaced by manufactured and semi-­ manufactured products, and food production itself became more industrialised and chemical-intensive. The demand for peripheral exports was also limited by the centre’s cyclical shift from Great Britain to the United States. The US reduced its import coefficient by putting up protectionist barriers and promoted agriculture that was highly intensive in technical progress, which it combined internally with industrial development. b. Surplus rural labour in peripheral countries, deriving from both the inelasticity of their primary commodity exports and, as Celso Furtado notes, a colonial agrarian structure. Surplus labour applies downward pressure to wages, and this affects final product prices understood as the total cost of factors of production (capital, land and labour). A dual productive structure thus emerges in the periphery: on the one hand, a modern and capitalised agro-exporter sector geared towards the international market and supported by a spontaneous and incipient industrialisation process that only supports the export apparatus and a limited number of sectors internal market sectors; and on the other, a low-productivity agricultural subsistence sector not absorbed by the internal market, which offers a refuge to labour in times of cyclical crisis. c. Organisational differentials in the way business and labour in central countries defend the prices of their factors of production compared to the periphery. The high level of property concentration and mobilising power ­enjoyed by business and labour in the core drives technological dynamism and prevents lower costs being transferred to prices. In the periphery however, surplus labour restricts workers’ ability to organise and win higher wages. As a result business has no incentive to innovate, as it sees no need to cut labour costs via technical progress. Conversely, in the ­central countries wage pressure is central to why businesses pursue technological dynamism as a means of saving on labour. However, rising ­internal demand makes it possible to maintain full employment and remuneration differentials between capital and labour. Both unequal exchange, in which lower costs are not passed on to manufactured good prices, and the deteriorating terms of trade, which represents the falling price ratio of primary to industrial products, were a result of the periphery’s continued articulation with a decaying international division of labour.

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Industrialisation appeared as the solution to these problems, but one that required considerable planning. Prebisch and Furtado identified a natural tendency for the periphery to industrialise which they called spontaneous industrialisation. They observed that it was stimulated by cyclical crises and inflation, but produced disequilibria in the balance of payments and unfulfilled wants among the population. During lean periods of the cycle, primary product prices declined quicker than those of manufactured products, resulting in a balance-of-payments crisis. Governments found it hard to correct these imbalances through deflationary processes and so sought an alternative in currency devaluation and import substitution. This alternative protected the internal market and helped local industry to develop. Local industry expanded during export sector crises, as Celso Furtado noted in his first article on economics, Características gerais da economia brasileira (General characteristics of the Brazilian economy) (1950). In periods of cyclical growth the price relation was inverted as primary commodity prices outstrip those of manufactured products. This encouraged monetary illusions and export spending levels that were unsustainable on the basis of the overall cyclical trend, because over its full course the prevailing tendency was one of declining primary commodity prices. Industry developed in ‘stop and go’ style and tended to stagnation due to the lack of foreign exchange to pay for imports. In their view these barriers to peripheral development could only be overcome by a State-led process of import-substituting industrialisation. This was vital because of the lack of savings available to import the supplies needed to internalise industrialisation in the periphery. Planning needed to focus on attracting and suitably allocating resources, reducing waste and setting priorities that factored in rising productivity and wages in peripheral countries. It was also crucial to change the composition of imports during the spontaneous industrialisation process. That would involve tightly restricting luxury consumer imports and putting available resources into whichever investments would maximise production and income, thereby creating surpluses with which to purchase machinery and equipment. Prebisch presented the core elements of this approach in The economic development of Latin America and its principal problems (1950), written as an introduction to the Economic Survey of Latin America (ecla 1948). In it he tried to find a path through the impasses standing between peripheral countries and the fruits of technical progress in the world economy. The key points of his proposal were: a. Planned industrialisation would both increase labour productivity in peripheral economies and, at the same time, largely resolve the problem of

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deteriorating terms of trade by absorbing their surplus workers. The latter would be achieved by drawing in the mass of people who either did not work in agriculture or were engaged in relatively unproductive activities in the wider economy. Furthermore, by paying better wages, industry would force other sectors to raise wages and also increase productivity to pay for those higher wages. In an economy geared towards full employment both workers and bosses would be better organised and export prices could be defended through cooperation between exporting countries, as well as through international economic institutions and regional integration; and b. foreign capital would be crucial to making substitutive industrialisation work. The extra payments to foreign capital should come out of the increased product that its use implied. Foreign capital should temporarily complement domestic efforts to generate savings, but as the productivity and income differentials between core and periphery narrowed, so its participation in the industrialisation process should drop off. The periphery would need the participation of foreign capital until it managed to substantially alter the composition of its exports, because owing to the low elasticity of primary commodities the decline in the terms of trade could not simply be resolved by industry absorbing surplus rural labour. This situation represented a dependency external to the cycles of the central economies and their decision-making centres. However, the results of this process were not as expected. The rise in imports to meet the needs of industrialisation put real pressure on foreign exchange reserves and created a demand for more foreign capital to finance and invest in industrial development. The situation led to a crisis in national-developmentalist thinking which then entered into decline from then on. National-­ developmentalists had not anticipated a growing role for foreign capital in ­organising industrialisation. Understanding such capital from a Ricardian perspective, they had assumed the relative international immobility of the factors of production. In their perspective the role of foreign capital was restricted to supplementing internal savings and was to be subordinated to national planning, which would determine how it would be used. The State should therefore not only manage foreign trade and national savings – it should also industrialise and develop the internal market by creating a basic infrastructure in ­energy, transport and steelmaking, in view of national capital’s low levels of concentration and foreign capital’s lack of interest in performing such tasks. This emphasis on the relative immobility of foreign capital blinded early ecla thinking to the global logic of circulating capital. When it entered

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­ eripheral economies it was perceived as a saving which, despite the service p payments implied, would consistently increase the national resources available for investment purposes.8 Disillusionment with the results of import-substituting industrialisation comes over clearly in the 1960s writings of Celso Furtado, notably Development and Stagnation in Latin America (1966) and Teoria e política do desenvolvimento econômico (The theory and politics of economic development) (1967). Furtado claimed that Latin American capitalism hit the limits of its expansion when import-substituting industrialisation lost its dynamism. In his view it failed to break with underdevelopment, which he defines as a social formation consisting of dual structures which is incapable of internalising the national economy’s decision-making centres and whose modern sector expands insufficiently to eliminate unemployment/underemployment and absorb precapitalist segments. Latin American economies were thus faced with a choice between capitalism and stagnation, or socialism and development. For Furtado, 1950s industrialisation had created a new kind of dualism. This was essentially because it was based on capital-intensive labour-saving technologies that were suited to central countries with high incomes and expanding service sectors, but not to the periphery. Hence peripheral industrialisation could not absorb rural surplus labour and actually created new pools of surplus labour in cities and towns. This was reflected in high rates of disguised urban unemployment that represented the large proportion of urban inhabitants in low-productivity segments. Import-substituting industrialisation had failed to resolve the issue of the deterioration of the terms of trade. Income concentration had deepened and the export sector had continued playing the same role without increasing the ratio of capital to labour. The shift in focus of import substitution from light consumer goods to consumer durables and capital goods had produced serious balance-of-payments disequilibria in the 8 As Prebisch argues in The Economic Development of Latin America: “Though the level of productivity achieved by some Latin-American countries is such that, by means of a judicious policy, they would be able to reduce the amount of foreign capital needed to supplement national savings to moderate proportions, in the majority of them this capital is admittedly indispensable […] If this capital is effectively used, the increase in productivity will, in time, allow savings to accumulate which could be substituted for foreign capital in the new investments necessitated by new technical processes and the growth of the population […] Until a solution to the fundamental problem of foreign trade is found, care must be taken that dollar investments, where they cannot be used to further dollar exports, shall contribute, directly or indirectly, to the reduction of imports in that currency, in order to facilitate future payment of services.” (eclac 2016, 69,72).

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­ eriphery. The only way to correct these imbalances was by further protecting p the national economy. Capital goods had become more expensive as a result. Producing them internally now required a substantial increase in the national economy’s relative prices in order to compensate for the high cost of importing the domestic inputs that made it possible to produce them and the narrowness of internal markets, which meant they were underutilised in production. All this had increased the capital–output ratio in the economy as a whole, driving down the rate of profit and leading to stagnation. The flipside to this process was the formation of a rentier oligarchy that had taken over the administration of the State and exploited its active presence across the economy to boost its income without any matching rise in productivity. Other cepalistas such as Maria da Conceição Tavares also recognised a crisis in the import-substitution model. In her 1964 classic, Da substituição de importações ao capitalismo financeiro (From import substitution to finance capitalism), Tavares argued that whilst this particular model had broken down in Latin America, capitalism had not.9 In her view, ever since the start of the third period of import substitution in 1954 the growth of industrial output had required rates of capital formation at a level obtainable only from foreign capital inflows or through an increase in the purchasing power of exports. Trade relations could only be improved by resolving the surplus labour absorption issue and by diversifying exports to include more manufactured products. Tavares proposed agrarian reform as the key to absorbing surplus labour, as it could not be achieved with the capital-intensive technologies used to produce capital goods and consumer durables. She exposed the Achilles’ heel of cepalista national-­developmentalism – it’s silence on the agrarian issue because of the need to finance import substitution with foreign exchange earned by the agricultural sector. The model she proposed was based on (a) foreign capital inflows to overcome the limits placed by trade balances on obtaining foreign exchange; (b) agrarian reform as a means of absorbing surplus labour and boosting domestic value added, and (c) a more active foreign policy aimed at penetrating core country markets, establishing regional integration agreements and diversifying exports. These dead ends in national-developmentalist thinking left it vulnerable to attack from modernisation theory, which to some extent shared cepalista criticisms of liberal theory, and opened up an opportunity for foreign capital to 9 She then developed this perspective in Más allá del estancamiento, first published in 1971. Co-authored with José Serra, it critiqued Furtado’s stagnationist theses. See Tavares and Serra (1998, 569–588).

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play a far more active role in the development of peripheral countries. The leading exponent of modernisation theory was Walt Rostow.10 Rostow saw his contribution to modernisation theory as part of a collective endeavour along with Rosenstein-Rodan, Charles Kindleberger and others at the mit Center for International Studies in the 1950s. The best synthesis of their work in this period can be found in A Proposal: Key to an Effective Foreign Policy (1957), where they set out their priorities for the US foreign policy agenda. Above all, they argued, the West needed to show that underdeveloped nations could develop from within the free world’s sphere of influence and resist the temptations of communism. Left to themselves, developing societies would become the foci of tension and instability as modernisers confronted traditionalists. It was in US interests for them to modernise as quickly and peacefully as possible, and so it should assist them by providing the external capital they needed to achieve their savings and investment goals (Rostow 1990, 436–440). In 1960 Rostow published his leading contribution to modernisation theory, The Stages of Economic Growth: A Non-Communist Manifesto. In it he analysed the trajectory of human development in terms of successive phases of development (traditional societies; pre-conditions for take-off; take-off; maturity, and mass consumption). These stages fitted into what he called a dynamic theory of production. In his view one universal path to development narrrowly dictated the way every society evolved. This path was defined by the technical needs of production, and politics, culture and diversity had to adapt to these needs in order to raise per capita incomes and investment to the levels required by each stage of development. Rostow’s impoverished theory of history came in for harsh criticism from Latin American thinkers. In the words of Theotonio Dos Santos (1998), it was one of the worst examples of methodological violence that ever saw the light. Rostow forged his theory of history under the methodological pretext of countering the economicism supposedly inherent in Marx’s historical approach. But the outcome was quite the opposite as he missed the whole point Marx and Engels make in their writings – that technologies are a product of social relations and culture, which heavily condition their invention and use. The social, economic, political and cultural consequences of applying technology to different social relations vary considerably. As dependency theories and world system theories would later argue, modernisation theory’s claim that 10

Other authors, such as Bertz Hoselitz, also made noteworthy contributions to modernisation theory. In Latin America the biggest contribution to this approach came out of the work of Gino Germani.

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different national societies could follow the same path of development was patently absurd. National societies do not exist in different stages or time-­ periods but occupy different positions within one temporal and geographical space: the modern world system. Rostow’s approach characterised Latin America as a region in search of the means of take-off. It needed to create socio-political conditions that would attract enough investment to support sustained growth on per capita production. That meant drawing together an elite made up of business owners, politicians, intellectuals and military figures to organise the region on a moderately nationalist basis. Whilst they should avoid xenophobia and resentment, it was up to them to harness the State to (a) unify national markets; (b) set up taxation systems to divert resources into expanding fixed capital; (c) participate in the international market, applying import-substitution policies if needed, and (d) allow the participation of foreign capital to stimulate internal saving (Rostow 1960, 1967, 1990). For modernisation theory, Latin American underdevelopment and its difficulties in achieving take-off could be explained in terms of internal resistance to the actions of modernising elites influenced and led by the central countries.11 It was up to states in those central countries (principally the US) and foreign capital to overcome that resistance. There were both left and right versions of modernisation theory, which linked it to either mass movements or economic liberalism. Gino Germani (1981) developed a more left-wing approach which saw the pressure exerted by social movements as the most dynamic factor in Latin America’s transition from a traditional to a modern world – a shift characterised in his view by the use of mass democracy as a political instrument. Roberto Campos, on the other hand, linked the issue of development to liberalism, mixing pragmatism with eclecticism in the process. Unlike the liberal Eugenio Gudin, advocate of an agrarian Brazil, Campos saw industrialisation as a necessary means of development in most of Latin America.12 Although he accepted the Prebisch/Furtado theory of the deterioration of the terms of trade in various writings, he parted ways with the structuralist perspective on the issue of fighting inflation, which is central to his 11 In Empresário industrial e desenvolvimento econômico no Brasil, Fernando Henrique Cardoso notes how inappropriate it is to use the term underdevelopment in the modernising sense of meaning the level of development of a society’s internal features. He points out that focussing on internal aspects is incompatible with a term that assumes a society’s articulated insertion into a much wider environment that any measure of development must take into account. See Cardoso (1964). 12 For Campos, industrialisation was justifiable in countries with population pressures and a surplus of agricultural labour (Campos 1963, 84).

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approach to development. For Campos, inflation in underdeveloped Latin American countries stems from three factors: pressure from the masses to increase their consumption levels; the “demonstration effect” that leads to them imitating developed countries’ consumer habits, and government policy. Of these three factors, the latter was for him the most dangerous and damaging. Whilst he accepted that the State should intervene more in underdeveloped than in central countries because of the obstacles created by underdevelopment, he argued that it should do so on a scale far narrower than that proposed by the cepalistas. Campos differentiated between three types of State planning. Integral planning meant the planned investment and consumption typical of socialist countries. Partial planning was that practiced in some of the more advanced capitalist countries and inspired in his view by moderate socialist theories that combined State coordination and targeted investment with market mechanisms. Sectoral planning was the kind most suited to underdeveloped countries with liberal regimes and relied on what he described as pontos de ­germinação – germination or growth points. It rested on the premise that underdeveloped countries were faced with a major contradiction between their desperate need to plan and their lack of the technical capacity to do so. For Campos the answer was for State intervention to target the economy’s ‘strangulation points’ or bottlenecks until the right technical resources and a disciplined bureaucracy were in place to execute its plans. Meanwhile, the more underdeveloped countries overcame backwardness, they less need they would have for planning (Campos 1963, 1967). Looking at 1950s Brazil, Campos identified economic bottlenecks in the transportation and energy sectors. These industries had lagged behind national development because of tariff rigidity, which made investment relatively unprofitable. For Campos, state intervention in the form of investment was only justified in certain situations: when investment levels determined low profitability or the need to mobilise resources on a scale beyond the capacity of private enterprises; when private monopolies had to be restricted in order to maintain competition; when national security was at stake, or when local regions needed to be integrated into development. He also set out criteria favouring specific types of state intervention. Thus indirect controls (tariff, credit or currency controls) or regulatory controls (prices) were preferrable to direct control over production, and government participation in investment should take the form of joint ventures with private capital. Campos’ policies were designed to bring underdeveloped countries up to full capacity, at which point consumption pressures would become inflationary and have to be met with a rigid monetary policy (Bielschowsky 1988,

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104–132).13 In his view the purpose of public policy was (a) to tax luxury consumption, mobilising resources to support savings and investment; (b) to eliminate the inflationary mentality that, whether for paternalistic or ideological reasons, manifested itself in expansive monetary policies or price controls on basic services and foodstuffs, and (c) to attract and mobilise external resources to complement national efforts. He attacked as inflationary import substitution policies designed to relieve consumption pressures through a combination of exchange overvaluation and quantitative import controls, claiming such measures reduced exports and competitiveness and discouraged inflows of foreign savings. In his classic 1950 article “Lord Keynes e a teoria da transferência de capitais” (Lord Keynes and the theory of capital transfer), Campos criticised Keynes’ theory of the relative immobility of the factors of production. He challenged the idea that capital outflows drive up interest rates in the exporting country, pointing out that as long as hoarding and underinvestment continue then capital can leave without producing such an effect, and concluded that “during periods of weak domestic activity and a growing tendency to hoard, it is clearly to the investor country’s advantage to export capital” (Campos 1963, 119). This understanding of capital mobility, whilst limited, nevertheless enabled him to bring recourse to external capital fully into his argument14 as the key to overcoming inflation and the technical limitations on planning in underdeveloped countries. By increasing national saving, foreign capital would soak up the consumption pressures inherent to underdevelopment, enable incoming private capital to fund investments that were short of local capital, and as a result narrow the scope of state intervention, thus avoiding inefficiencies and possible deviations in price formation.

13

14

Campos’ concept of ‘full capacity’ is not the same as Keynesian full employment. It is measured by inflation and places an obligation on the State to adopt growth containment policies whenever it detects inflationary pressures, regardless of employment levels. The circulation of capital is determined by its power to generate surplus value and extraordinary profits, not by its effect on local interest rates. Capital tends to move whenever doing so means it can increase its global rate of profit and the mass of surplus value from which it is appropriated. In this way national planning is subordinated to global planning whilst being integrated into it through the international division of labour. Although Campos questioned the principles underlying the relative immobility of the factors of production, he still relied on them in making mobility conditional upon the effects on the national economy. As such he was unable to perceive or theorise the exportation of capital and economic growth as occuring simultaneously in exporter countries.

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Faced with nationalist criticisms of the 1962–1967 crisis that succeeded the foreign investment boom of 1955–195915 and pressure to limit profit remittances, Campos set out to prove that foreign capital did indeed represent a force for development in underdeveloped economies. To do so he devised a theoretical model to analyse the impact of foreign capital. With this model he sought to measure the effect of foreign capital on domestic savings by counting not just the surpluses that capital inflows produce (the concept of ‘restricted exchange’) but also their effect on the current account (‘amplified exchange’) and on rising net national output (‘overall exchange’). The positive role played by incoming foreign capital would be made evident by its multiplier effects on national income, the current account surpluses it produced, and the fact that it outstripped profit remittances and repatriation, although he stressed that in the latter case he was not comparing like with like, i.e. he was comparing capital stock increases to capital flows. He predicted an “increase in the capacity for domestic saving and, therefore, the economy’s autonomous capacity for investment” (Campos 1963, 274; italics added). And to attract foreign capital inflows he proposed using the automatically functioning mechanism of the free market and the fluctuating exchange rate (Campos 1963, 271–303). Campos’ model was theoretically confusing. His criticism of the comparison between capital flows and stock increases did not hold up because such increases could only take place through flows.16 Furthermore, he dissolved foreign capital’s influence on national saving into the much broader dimension of the expansion of net national income. Instead of first measuring net balances of foreign capital and then analysing their effect on national earnings, he did the opposite and prioritised a dimension influenced by a range of other ­elements in addition to foreign capital, such as national actors, State policies, labour super-exploitation and their effect on saving and investment. But the empirical evidence the model needed flew in the face of its assumptions. Foreign capital inflow balances were negative except during some short periods; their influence on the current account were also negative, and the effect on net  national earnings was that the external debt and its service payments 15 16

Between 1962 and 1967 per capita gdp in Brazil and Latin America grew by 0.3% and 1.6% per annum, and between 1956 and 1961 by 5.1% and 2.5% per annum respectively (Maddison 2001). This is the criticism Orlando Caputo and Roberto Pizarro would make of the method used to analyse balances of payments which finally prevailed in international bodies and ecla. By separating capital inflows from interests, profit remittances and payments for other services related to incoming capital (technological services, royalties and freight charges), the balance of payments obscures the actual contribution foreign capital makes to national savings. See Caputo and Pizarro (1973).

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­outstripped gdp, leading not to the national autonomy envisaged but to ever deeper dependency. The crisis of national-developmentalism was overcome by modernisation associated with an foreign capital-led alliance of national capital and the State that sought to lead the region. But the legitimacy of this alliance was seriously undermined by the 1962–1967 crisis and the offensive launched by Latin America’s mass movements, which would last until 1973. It was in this new conjuncture that dependency theory offered a fresh interpretation of the regional and global situation. 3

Theories of Dependency

Dependency theories were first formulated between 1964 and 1973. They retained considerable influence in Latin America up until the late 1970s, when US-backed liberals and conservatives asserted their leadership of the redemocratisation process. The dependency paradigm was developed through two different methodological approaches. The Marxist approach was influenced by the Cuban Revolution, the regional limits to developmentalism, and the social, political and cultural offensive gathering pace across the Third World. It set out to analyse the Latin American social formation in a creative Marxist fashion free of Communist Party dogma, and is best represented by the works of Theotonio Dos Santos, Ruy Mauro Marini, Vânia Bambirra and Orlando Caputo. This dependency perspective influenced intellectual and political circles and leading thinkers such as Florestan Fernandes, although in other respects their approach would differ. Fernando Henrique Cardoso and Enzo Faletto were at the forefront of developing the other view of dependency. Whilst taking ecla’s theses as their starting point, they also aimed to subvert them. Their Weberianinfluenced approach gained prominence both regionally and internationally. Theories of dependency represented a leap forward in understanding Latin American reality. As we saw, both modernisation theorists and cepalistas viewed backwardness and underdevelopment through the prism of methodological nationalism, which sees the world as an aggregate of independent national economies connected mainly through trade. For them, Latin American and peripheral countries were backward for historically inherited reasons such as colonisation, and because of poor internal decision-making that benefitted parasitical groups over the nation. Upon achieving nationhood, they needed to rectify and overcome these problems. Rectifying them, however, did not mean clashing with international structures but rather with internal social groups and mentalities. It was about going beyond specialised production, so harmful

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in the long term; overcoming traditionalism, or using austerity to control the consumer impulses made so tempting by scarcity. Solutions were as varied as the diagnosis, but they all involved increasing national decision-making powers, whether through import-substitution policies or by using the right amount of foreign capital to further help generate and expand national savings and revenues. If these solutions were implemented, then Latin America and the periphery would converge with the central countries in terms of their ­economic, political and social patterns and they would develop. Underdevelopment was caused by a lag in the formation of the economic, political, social and cultural aspects of nationality, and once formed development would follow.17 The dependency approach saw the issue through a different lens, showing that capitalist development had established a hierarchical international division of labour that articulated social classes and groups that at the same time often belonged to distinct juridico-political structures. In its view, this division of labour was expanding, meaning capitals and commodities circulated at its limits. Dependent countries were subordinated to the technological monopolies that articulated this movement, and tended to adapt their productive, commercial and financial structures to it. The decisions they made became conditional upon the capitalist world economy, and their dominant classes went along with this conditionality. The contradictions between them and international monopolies were not so acute as to cause conflict. Instead, dominant classes in dependent countries looked to negotiate and compromise. Control of the national state was important to them because it took the edges off their own weakness and improved the conditions of their insertion in the world. Nationality as an administrative instrument was well suited to the complexities of the world economy, but not to autonomous decision-making. ­Internal groups were also international, and their own development did not imply the reproduction of modes of existence enjoyed in the central countries. Reproducing dependency also meant reproducing a hierarchised international

17

In Brazil, both advocates of State planning and those emphasising the role of foreign capital claimed to be nationalists. This would trigger nationalism’ s theoretical and methodological crisis as an analytical tool, dramatically expressed when Hélio Jaguaribe left the Instituto Superior de Estudios Brasileños (iseb) after proposing to separate nationalist means from nationalist ends. Even authors such as Roberto Campos saw themselves as true nationalists because they considered themselves to be committed to national development despite believing it would require a major influx of foreign capital. See Bielschowsky (1988).

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division of labour. This division represented an economic, social, political and ideological structure simultaneously national, international and unique to the world economy. And underdevelopment was established not as non-­ development but as a subordinate trajectory within the world economy. This view of Latin American and peripheral social formations was shared by the different methodologies proposed for analysing dependency. It was expressed by Theotonio Dos Santos18 and Fernando Henrique Cardoso/Enzo

18

Theotonio Dos Santos pinpoints what relations of dependency consist of in the following statement: “As we can see, dependence is not a relationship between an autochthonous national economy and another one to which it is subordinated, but a basic relationship that constitutes and conditions the internal structures of the dominated or dependent regions themselves. We understand dependence, then, as an economic, social and political situation where the structure of certain societies is conditioned by the needs, actions and interests of foreign nations that dominate those structures. As a result, those societies are defined by the conditioning situation in which they develop and by how they respond to the stimuli produced by the dominant society. Ultimately, however, their response is determined not by this conditioning situation, but by the internal forces that make up the dependent society. The nature of these internal forces explains both its subordinate position and its capacity to challenge the external impulses which condition that position.” (Dos Santos 1978e, 13–14). For Dos Santos, dependency is built on compromise. This notion of compromise runs through the three levels of analysis that constitute dependency: the international structures of capital; international economic relations, and the internal structures of countries targeted by expanding international capital. Compromise or combination of interests is necessarily linked to a composition of sociopolitical forces in dependent countries who accept international integration within the limits of the conditioning situation. In Dependencia y cambio social (1972), later included with some modifications in Imperialismo y dependencia (1978a), he notes that “A third aspect essential to understanding dependency refers to the articulation between the dominant interests in the hegemonic centres and the dominant interests in the dependent societies. ‘External’ domination is impractical in principle. Domination is only possible when it finds support in national sectors which benefit from it […] In showing the necessary correspondence between the interests of the external dominators and the interests of the ‘dominated dominators’ (it is from this that the specific character of the dominant classes in dependent countries emanates), we will show that, despite internal conflicts which exist between these interests, their interests are fundamentally in common. The concept of compromise or combination of the diverse interests which comprise the situation of dependence is an essential element for the elaboration of a theory of dependence.” (Dos Santos 1978d, 309). [Above translation based on excerpts cited in Dos Santos (1973) – Trans.]

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Faletto,19 who came up with the classic definitions of a dependency situation. Nonetheless, despite a degree of convergence in identifying the dependency situation, differences emerged in the way they interpreted its dynamic, its ­developmental patterns and possible alternatives to it. We shall now turn to how these two visions were laid out and how they responded to these issues. 3.1 The Weberian View of Dependency The Weberian view of dependency was first set out by Cardoso and Faletto. For them, dependency is the paradigm governing the development of societies in the ambiguous situation of being politically autonomous whilst their economic relations are determined by the international market. This structure of domination weighs down upon formally free and sovereign political activity in such societies, conditioning their potential for development. Cardoso and Faletto construct dependency as a truly ideal type. Although in some writings they use Marxist categories, these are clearly secondary to their sweeping use of the aforementioned Weberian device and do not carry their original weight.20 They identify structures of domination as the key concept needed to understand dependency, arguing that class relations should be ­located within these structures.21 Their aim then is to describe not the 19

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“We must therefore settle on an interpretative approach that highlights the structural links between the situation of underdevelopment and the hegemonic centers of the central economies, but without crediting the latter with being able to fully determine the dynamic of development. In effect, whilst it is right to assert that in situations of colonial dependency history – and, therefore, change – appears as a reflection of what happens in a metropolis, social dynamics ‘in the underdeveloped nations’ are far more complex. There, almost from the start, we find a doubly linked historical process that creates a ‘situation of ambiguity,’ that is, a new contradiction. For once local forces decide to create a nation […] they focus on securing a degree of political autonomy by controlling the market situation, but objectively speaking economic links with external markets still limit autonomous decision-making and action. From a sociological viewpoint, this is perhaps the core of the problem of national development in Latin America.” (Cardoso and Faletto 1984, 30). [In translating this and other quotes from Dependency and Development in Latin America, I have drawn on the original Portuguese (Cardoso and Faletto 1984). This is in addition to reproducing as far as possible the language of the English translation (Cardoso and Faletto 1979b), and has been necessary because the latter features extensive editing/rewriting. For simplicity’s sake the former is the source cited throughout – Trans.] We of course acknowledge that Cardoso and Faletto are complex thinkers with diverse influences, among them Marx, Lenin, Sweezy, Keynes, Kalecky, Schumpeter and Sombart. But they all they rely on the Weberian device as the paradigm through which to articulate these influences. “Our basic theoretical problem is how to determine what forms the structures of domination will adopt, because through these structures the dynamic of class relations can be understood” (Cardoso and Faletto 1984, 22; direct translation from 1979b).

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c­ ontradictions of dependent societies, but their dynamics, limits and potential. The development of Latin American societies is articulated through ­dependency. National political structures are autonomous, but must choose between patterns of domination ranging from development/dependency to stagnation/autonomy. The ambiguous and contradictory relationship between the economy and politics, or structure and action, in Cardoso and Faletto’s theory of dependency replicates the ambiguous and contradictory relationship between pure types of domination and social action in Weber. For Weber, individuals can act in two ways: based on a rationality that only acknowledges their own beliefs, or based on a rationality that acknowledges the effect of the social environment on their personal goals and its power to transform them into actual outcomes that were undesired. The first category represents value-oriented rational action and an ethic of conviction. The second represents goal-oriented rational action and an ethic of responsibility. Therefore action which is based solely on the actor’s convictions and which contradicts the foundations of the type of societal domination in which he or she is inserted, is irrational in that it produces an actual and unintended outcome that differs from the intended result. In contrast, goal-oriented rational action is based on a correlation between converging means, antagonistic ends and consequences, and can therefore ensure that ends take into account their real possibility of being achieved. It thus constitutes a more rational kind of action. In Cardoso and Faletto’s definition of dependency, its political aspect is a weaker variable than the economic aspect. The economic aspect of dependency is expressed through the formation of a national productive structure geared towards the external market and wedded via trade, production and finance to the international expansion of capitalism. In contrast, political activity is concentrated in the national juridical-political apparatus, which severely limits its capacity for decision-making and action. What Cardoso characterises as the explicit “ambiguity” of the dependency situation actually entails a deeply unequal relationship between its economic dimension, which creates a productive structure marked by structural features and linkages of the dependent kind; and its political dimension, whose scope for action prevents it from replacing those structural and dynamic linkages without almost certainly descending into stagnation, irrationality or adventurism. Cardoso and Faletto are clearly sceptical of the potential for socialism and nationalism to establish a different model of development in the periphery, especially with regard to Latin America: A society can undergo profound changes in its production system without the creation at the same time of fully autonomous decision-making

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centres and their conditioning mechanisms […] a national society can achieve a certain autonomy of decision without thereby having a production system comparable to those in the central developed countries, or even in some peripheral developing countries. This can occur, for example, when a country breaks its ties with a given system of domination without incorporating itself fully into another (Yugoslavia, China, Algeria, Egypt, Cuba and revolutionary Mexico). cardoso y faletto 1984, 27

Cardoso underscores these conclusions in a more recent work: (…) in the face of the challenge of modemity and of the impression that reason and the market are closely entangled notions, the political concem in vast areas of the South is that the reaction against inequality can only occur through the strengthening of the national will based upon the fortress of the state. (…) In many areas of the South, despondency seeks sublimation in new salvationist theses which substitute for the blind faith in the inevitability of revolution (which was an attribute of the industrial world until the coming of the ‘informational societies’), through the idea of a union of the whole nation against imperialism (or whatever name is now given to advanced capitalism) (…) These movements create nothing but matrixes for the local ‘counter-culture,’ with isolated repercussions in the hegemonic centres. Countries (or parts thereof) that are unable to remake the revolution of the contemporary world and at the same time to find a niche in the international market, will end up in the ‘worst of all worlds’; they will not even be exploited (…) They will be unimportant and uninteresting for the development of the globalised economy. cardoso 1993b, 160–161

Although for Cardoso (1964) dependency represented a postwar form of subcapitalism, it was nonetheless compatible in his view with internal market expansion and development. The new dependency developing under US hegemony differed from the classic types of colonial rule associated with Lenin’s imperialism. It separated its economic and political forms of domination and invested in dependent countries’ internal markets. “There is a strong trend to local reinvestment, meaning foreign investments go hand in hand with the expansion of the internal market” (Cardoso and Faletto 1984, 127). In their postscript to Dependence and Development in Latin America (1979a), Cardoso and Faletto wrongly described this stage of dependency as the “­internationalisation

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of the internal market.”22 A new international division of labour was established in which dependent countries produced consumer durables, as well as a certain amount of industrial raw materials and capital goods. But Department i only developed precariously in the periphery, and the central countries’ technological monopoly meant the expanded reproduction of accumulation ­required international financing, as it could not be supported by foreign exchange earnings under the import-substitution model. The import-­substitution model became exhausted as a developmental framework for Latin America, and with it so too did nationalism. Local bourgeoisies preferred partnership to the arduous task of trying to accumulate surpluses autonomously. But international financing not only served to invest in new technology. It was also needed to equilibrate the balance of payments, as the profit remittances, interest payments, royalties and technical services generated by foreign investments were often worth more than capital inflows. The tendency to reinvest meant that such inflows in the form of direct investment became relatively scarce. Foreign capital preferred to mobilise local savings in other ways: through joint ventures, articulation with the host state, and profits made in the internal market. Thus technological dependency was accompanied by a financial dependency that made it possible to balance the external accounts. The outcome, therefore, was ‘dependence and development’ – a phrase coined by Cardoso and Faletto in response to Andre Gunder Frank’s suggestive description of development in peripheral countries as ‘the development of underdevelopment.’ Through the so-called internationalisation of the internal market, dependent capitalism destroyed the very bases of developmentalist nationalism. Whilst the latter had come unstuck due to the shortage of foreign e­ xchange under the

22

In “Acumulación capitalista mundial y el subimperialismo,” Ruy Mauro Marini (1977) rightfully challenges this notion, arguing that what actually occured in the 1955–1980 period was the internationalisation of production structures, because the protectionist structures around import substitution remained intact. See also Marini (1978). In his acceptance speech upon being awarded an honoris causa doctorate from flacso in Quito, Cardoso would agree with the points Marini had made 24 years ahead of him, albeit without mentioning Marini himself: “When we wrote Dependency and development in Latin America, in order to emphasise development over dependency […] we focussed our efforts precisely on showing how the development of the capitalist system had changed so much that peripheral countries could industrialise. I am Brazilian, and in Brazil it was obvious that a huge transformation had occured and Brazil had made a massive leap forward. The changes that took place in those years went much deeper than what we could then see. The expression I used in the book was wrong: I referred to the ‘internationalisation of the internal markets,’ whereas in fact it was production that was internationalised, not the markets.” (Cardoso 2001).

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import substitution model, the new dependency enabled the organic composition of peripheral economies to increase at a quickening pace and shifted Latin American capitalism towards producing relative surplus value, albeit at the expense of deepening technological and financial dependency. Cardoso and Faletto proposed ‘negotiated dependency’ as an economic and political model for Latin America. The region’s authoritarian turn in the 1960s and 1970s did not reflect any structural need on the part of bourgeois rule, but was rather a response to attempts by popular movements and their leaders to pursue autonomy using political means. Their efforts represented a challenge to economic dependency and sectors with a stake in it, and so various bourgeois and middle class fractions united with the military in a single block to contain any risk to the capitalist order. They built an authoritarian state that reassured capital whilst taking away the forms of political expression available under the competitive democratic system. As a result, the bourgeoisie ended up hostage to state bureaucratic corporatism. It conducted its relationship with this corporatist setup through what Cardoso (1975) called ‘bureaucratic rings,’ but they proved to be a contradictory and inadequate device. The state bureaucracy threatened to expand and to subordinate the bourgeois order to a resurgent and authoritarian nationalism tied to the expansion of state enterprises and dreams of achieving economic and military power by internalising Department i. From that point on most sectors of capital, which had formed part of the semi-formal structures of bureaucratic rings, would join civil society movements aimed at restoring democratic legality. For Cardoso and Faletto, democracy could be compatible with dependent capitalism. They gave several reasons for this. Firstly, it represents a better way for capital to organise its interests. Secondly, technical progress displaces accumulation towards relative surplus value, allowing the bourgeois order to ­accommodate working-class demands. Thirdly, in the medium to long term the deepening social inequality resulting from the limits imposed by dependency is offset by the model’s economic dynamism. Social leaders must develop an ethic of responsibility that adapts political action to the economy’s structural limits and stops it from falling into the trap of adventurism, expressed mainly in Latin America by guevarismo, which cannot change reality23 (Cardoso 1975, 1995; Cardoso and Faletto 1979a; Cardoso and Serra 1978). In the 1970s Cardoso and Faletto would come up against the Marxist understanding of dependency, which had also been developing since the 1960s based 23

Cardoso and Faletto note in Dependence and Development in Latin America that although authoritarian-corporative regimes were needed from capital’s standpoint to resolve the crisis of developmentalist populism, they did create something of a paradox. For whilst the big industrial-financial corporations guaranteed the State’s central role in the national economic structure and the overarching system of domination, they failed to create a

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on the work of Theotonio Dos Santos, Ruy Mauro Marini and Vânia Bambirra. In order to assess the different contributions made by dependency theorists and situate the debate between them, we shall now look at the main theses associated with the Marxist perspective. 3.2 The Marxist View of Dependency The Marxist perspective on dependency was paradigmatically developed by Theotonio Dos Santos, Ruy Mauro Marini, Vânia Bambirra and Orlando Caputo. It offers a powerful critique of both Communist Party-style Marxism and developmentalism. In looking to define dependent capitalism in terms of how it is specifically articulated through the world economy, it breaks with methodological nationalism and aims to reinterpret capitalist development itself, bringing fresh thinking to value theory. It argues that our understanding of this development should be rooted not in the core countries’ expansionist trajectory, but in the development of the world economy to which dependent countries are integral. Marxist dependency analysis was heavily influenced by Paul Baran and Andre Gunder Frank, and in particular by the importance they attach to the international appropriation of peripheral and underdeveloped countries’ surpluses via commercial, productive and financial monopolies controlled from the central countries. In his classic work The Political Economy of Underdevelopment (1957), Baran introduces the concept of ‘economic surplus,’ which he divides into three types: actual, potential and planned. Actual surplus means any mass of economic resources available after consumption; potential surplus refers to the mass of resources that would be available for investment were unemployment, underemployment and luxury consumption by capitalists and government ­bureaucracies eliminated, and a planned surplus is the kind generated in a socialist society where profit is no longer the basis of social organisation.

political model to go with their structural domination: “The passage from the democraticrepresentative regime to the authoritarian-corporative regime […] is achieved through revolutions in which large national organizations like the army and the public bureaucracy (rather than the national or internationalised bourgeoisie) take action and reorganise. Of course, the structural system that makes the action of these groups meaningful is the same one described herein, and therefore the internationalised bourgeoisies continue to be the basis of the system of domination” (Cardoso and Faletto 1984, 134). Cardoso develops this point in Autoritarismo e democratização, where he attributes Brazilian authoritarianism to sectors whose power comes from their particularist use of the national state. He therefore advocates what is effectively an estado de compromisso virtual or virtual compromise state consisting of an alliance between the internationalised bourgeoisie and non-totalitarian sectors of the state apparatus keen to legitimate Brazil’s political model and halt the country’s slide into fascist and obscurantist totalitarianism and global isolation. See Cardoso (1975).

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Societies divide their resources between those meant for consumption and those put into savings and investment, which make up the surplus. But for Baran, surpluses in underdeveloped countries are appropriated by foreign investments and the whole trade and financial system built around them. Foreign investments are linked to the creation of an export-focussed production and services apparatus that is precariously articulated to the internal market. They represent an initial contribution, which is partly disbursed for the purchase of local assets – like mineral deposits – but then they are discontinued, and the assets are maintained through the reinvestment of internally generated profits. The precarious nature of the link to the national economy leads to overimportation – a trend accentuated by price manipulation involving parent companies and their subsidiaries. Financial support becomes yet another cause of decapitalisation. As a result, underdeveloped countries must choose between subservience to the capitalist world order or a socialist revolution that makes development possible through the internal control of surpluses. Andre Gunder Frank (1969, 1980, 2011) develops a systemic conception of a world divided into metropoli and national, regional and local satellites. An area is a metropolis or a satellite depending on whether or not it can appropriate globally produced surpluses via international economic relationships that involve not only trade but also the circulation of capital. Frank’s model works through a complex system of relationships whereby nations are made up of internal metropoles that seize the surpluses from their own satellites but can themselves be subjugated and decapitalised by foreign metropoles. Such has been the fate of Latin American nations. They were capitalist ever since they were conquered through colonisation, and the outcome of this process of insertion into the world system was the development of underdevelopment. Only through autonomy and socialism can they escape this iron logic and develop. Illustrating this logic, Frank observes that Latin America has always developed most when the metropoles influencing them have been hit by a crisis. Such crises allow it to control more of its surpluses and industrialise, but this progress is then fully or partly wiped out by the subsequent offensive of a recomposed metropolitan order. For Frank Latin American development reached its high point during the crisis of the 1930s and 1940s, before metropolitan restructuring once again raised the spectre of stagnation.24 Although these ideas did much to advance understanding of the international question, Baran and Frank failed to go beyond the perspective developed by Mariátegui and others when the first shoots of dependency theory 24

“A second hypothesis is that the satellites experience their greatest economic development and especially their most classically capitalist industrial development if and when their ties to their metropolis are weakest […] A corollary of the second hypothesis is that

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appeared in the 1920s (Marini 1992, 1994). Contra developmentalism, dependency theory claimed that Latin America’s ruling classes formed part of the world economy’s division of labour, being internal and external at one and the same time. This view of the internal-external relationship was hinted at in Mariátegui and Baran before being developed more comprehensively by Frank. Mariátegui, for example, identified an internal comprador and big landowner (latifundista) bourgeoisie articulated with imperialist interests. The subsequent weakness of this internal bourgeoisie in the face of imperialism, which was related to its inability to revolutionise the productive forces, led him to dismiss the possibility of bourgeois-democratic revolution and in doing so challenge the theses upheld by the Third International. To that extent he articulated the external with the internal. But all three writers lacked a dynamic view of such relationships, seeing them instead as static. This prevented them from constructing a theory of dependent capitalism.25 The pioneering contributions of Theotonio Dos Santos and Ruy Mauro Marini offered a mature analysis of dependency by advancing a theory that captured the dynamic relations between the external and the internal. The choice for most Latin American countries was not between development and socialism on the one hand and stagnation and capitalism on the other, but between different types of development, each with their own limits and consequences. Dos Santos and Marini differ from the authors discussed by Baran and Frank in that they associate the power to appropriate surplus value in the world economy not only with the presence but also with the dynamism of technological, commercial and financial monopolies. They start from Marx’s thesis that capitalism is a system founded on competition and surplus-value accumulation. Monopolies compete with one another, but only win out and expand the mass of surplus value they appropriate if they exhibit technological dynamism. When dependent countries were incorporated onto a lower rung of the international division of labour on account of their production specialisation they became the target of this monopolistic competition, which the manner of their incorporation prevented them from challenging. The surpluses and value they produced were expropriated in different ways and they



25

when the metropolis recovers from its crisis and reestablishes the trade and investment ties which fully reincorporate the satellites into the system, or when the metropolis ­expands to incorporate previously isolated regions into the world-wide system, the previous development and industrialization of these regions is choked off or channelled into directions which are not self-perpetuating and promising.” (Frank 1969, 9–11). Frank, for example, plays down the contradictions between historical capitalism and the capitalist mode of production, which very much limits the scope of his analysis of dependent capitalism.

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adapted to the restructuring needs of the monopolies competing in the world economy. As Dos Santos argues, they did not adapt to these needs automatically but as a result of the reciprocal influence of external and internal forces. However, the ‘compromise situation’ established between them ensured the internal forces would only choose a form of insertion that was compatible with the options offered to them by external forces led by international capital and its political-institutional representatives had to offer. But why did the dominant classes in dependent countries opt for such a compromise at all, if it kept them in an inferior position within the world economy? In keeping with Marx’s theory of value, the answer given by Marini and Dos Santos was that the aim of capital and the social forces historically articulated to it is to make superprofits, or extraordinary surplus value. This is what gives capital accumulation its dynamism and explains why technical advances are introduced. Thus the dominant classes in peripheral countries all pursue superprofits, and do so by associating with international capital’s technological, financial, commercial and institutional bases. This association enables them to lead the accumulation process and achieve national or regional monopoly power out of all proportion to that attainable using only internal resources. The outcome is a concentration of extraordinary surplus value and superprofits in dependent countries without equivalent in the central countries. Marini notes that under capitalism surplus value is produced via the devaluation of essential consumer goods, but that the ability of the individual capitalist to successfully appropriate it in the sphere of commodity circulation ­depends on labour productivity. The production of surplus value and its appropriation via labour productivity are two distinct realities that do not ­always coincide. The dominant classes in dependent countries see foreign technology as a means of appropriating surplus value independently of its production. Focussed on the needs of the world economy, they only really develop productivity in sectors geared towards the international market or towards luxury consumption components of the internal market. The result of this process is that a. Segments of the dependent bourgeoisie that are articulated to international capital appropriate a high proportion of internally generated surplus value without increasing the general rate of surplus value. b. The global economic relationships established by those segments deprive the national economy of surplus value by adjusting its values to the global productivity influencing it. Meanwhile the dependent bourgeois segment that introduces foreign technology recoups this loss by ­establishing extraordinary surplus value and transferring it to society as a whole. There are however circumstances where the extraordinary ­surplus

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value in question can be partly wiped out, affecting also the sectors which monopolise the introduction of foreign technology.26 c. Labour super-exploitation becomes a generalised way of regulating labour power in order to maintain the rate of profit.27 Marini’s view of the relationship between surplus value/value appropriation and productivity makes for a powerful critique of ecla’s theory of unequal exchange and the deterioration of the terms of trade. He argues that contrary to cepalista assumptions the tendency under capitalism is for higher productivity to transfer to prices. This occurs because of the competition that nourishes the system and imposes the general laws of capital on each individual capital. For Marini, falling prices and deteriorating terms of trade should be understood in terms of competition. The key element in the process is the migration of capitals with a higher organic composition towards the export sectors of dependent countries. This migration leads to the devaluation of the latter’s commodities, which now incorporate a smaller amount of abstract labour per unit, whilst at the same time an increase in the consumption of the industrial inputs used to produce them – inputs which incorporate an increasing amount of abstract labour. The establishment of extraordinary surplus value in the export sector also forces a reduction in the commodity prices of the average capital in the sector with no productivity increase in return. Both situations lead to a fall in the profit rate and to super-exploitation being used 26

27

To understand this, it should be noted that extraordinary surplus value can be established either within a sphere of production or between spheres of production. When established within a sphere of production, it represents the productivity differential of a group of individual capitals with above-average productivity. But when established between spheres, it means that productivity in one sphere is higher than the average across the economy, benefitting it at the others’ expense via unequal exchange. If competition intensifies within a sphere and its average productivity rises, eliminating the aforementioned differential, then the extraordinary surplus value is eliminated and the capitals which were previously earning superprofits also lose surplus value. Whereas to eliminate extraordinary surplus value between spheres of production, productivity would have to level out across the whole of the economy. As we saw, the social and economic imbalances caused by the introduction of foreign technology in dependent countries restricts the potential for social mobility and limits competition to the monopoly segments. Extraordinary surplus value can only be eliminated in these segments if certain spheres of production become obsolescent, but that would lead to capital migrating towards the production of other, more dynamic, commodities. However, crisis situations and restricted demand can still reduce the average rate of surplus value in a sphere and impact upon the extraordinary surplus value previously obtained, to the point even of eliminating it. In Chapter 6 we examine more fully the concept of super-exploitation and its place within the Marxist theory of value.

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as a means of increasing it. The low wages ecla observed in Latin America and highlighted as a theoretical problem for development do not stem from underindustrialisation, but are actively produced by technological dependency.28 Marini notes that another cause of the deterioration in the terms of trade lies in the power of extraordinary surplus value to act across productive sectors in the world economy, especially in the centre-periphery relationship. He points out that the dynamism of technical progress is linked to the luxury ­consumer goods-producing sector. This is the only sector that can expand production without reducing the price of goods. To do this it uses the savings generated by replacing labour power with fixed capital and the effect of this on demand, transferring value from the wage mass to the mass of surplus value. Such a process affects the price structure and produces deviations that depress prices in the essential consumer goods sector and raise them in the luxury consumer goods sector. In dependent countries, the power of technological monopoly puts extraordinary surplus value at the very centre of accumulation processes, leading to their hypertrophy, resort to super-exploitation in order to compensate, and the relative decline of the essential consumer goods sector. In the central countries, intense technological competition limits extraordinary surplus value and lowers prices, tying them to necessary consumption and the development of relative surplus value. International surplus value appropriation to the benefit of the central countries contributes to this by increasing internal demand and investment potential. Marini however points out that as a result of the changes globalization has made to the international division of labour, extraordinary surplus value is now a structural feature of the central countries too, bringing super-exploitation to their shores.29 For Dos Santos and Marini, dependent capitalism is based on a specific form of the expansion of productivity and extraordinary surplus value, which leads to outcomes quite unlike those achieved in the central countries. Although they draw on Baran and Frank, they also go beyond them and construct their own distinct theoretical framework. The appropriation of surplus value and economic surpluses does not hinder the technical progress and industrialisation of dependent countries, but it does give their development a particular

28

29

“The truth is that whilst ecla captured the deterioration in the terms of trade correctly in empirical terms, they interpreted it wrongly. Sooner or later rising productivity and the lower costs it brings must be transferred to prices, except where there are abnormal situations in the world market, such as those that give rise to monopoly (configuran monopolio) or derive from wars or natural disasters […] Nonetheless, despite framing it wrongly, ecla showed remarkable insight in drawing attention to the issue of labour remuneration, as life itself would demonstrate” (Marini 1994b, 141–142). In Chapter 6 we look at the relationship between extraordinary surplus value, relative surplus value, and the super-exploitation of labour or labour power.

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character that rendered it incapable of eliminating or sustainably reducing poverty. Super-exploitation is a constituent part of this development and poses a constant threat to the income levels of the popular classes that can only be mitigated by increasing work intensity, working hours, or skill levels. Dos Santos shows that the foreign exchange deficits created by foreign capital outflows are both a cause and a consequence of super-exploitation (1968, 1972, 1978a). On the one hand, super-exploitation retards the development of domestic productive forces and imposes limits on internal market expansion. This restricts the investment cycle and allows foreign capital to divert its ­surpluses towards other productive activities where competition is more intense and markets more dynamic. On the other hand, the foreign exchange deficits caused by foreign capital outflows trigger a fall in the profit rate and the need to reduce the prices of labour power to below their value. For Dos Santos, the postwar tendency in dependent countries towards ­balance-of-payments deficits can be explained in terms of the following logicohistorical sequence. Deteriorating terms of trade together with freight and service payments restricted foreign currency surpluses, making it impossible to import the machinery and equipment needed to industrialise. That could only be achieved by resorting to foreign capital. But foreign capital provides little real inflow of cash as parent company-subsidiary price manipulation results in an overestimation of earnings as it prioritises reinvestment over new capital contributions, transferring profits that surpasses the amount of the cash inflow. The external debt ends up financing capital flow deficits and creates financial dependence, which tends to become autonomous of, and increasingly conditions, industrial dependence. The result is a secular decline in economic growth, but not an end to the development of production or dependent capitalism’s cycles of expansion.30 Together with Vânia Bambirra, Dos Santos developed the thesis that the external accumulation of capitals is the main factor limiting production in ­dependent capitalism. This accumulation is evident from the fact that Department i, the producer of capital goods, is largely external to the dependent capitalist social formation and is introduced through direct investment, ­external 30

Dos Santos highlights the cyclical character of foreign investment in the development of dependent countries. During upturns, the foreign capital entering their internal markets is a factor of capitalisation, but when the limits on demand imposed by super-­exploitation are reached it creates a deficit in the balance of payments. Foreign debt and inflation become the means to finance the outflows or artificially expand internal demand. But these devices have their own limitations and lead to serious macroeconomic imbalances that require super-exploitation to generate trade surpluses in order to restore equilibrium at another level of dependency. See Dos Santos (1972, 1978a). For a classic analysis from this perspective of the Latin American balance of payments during the 1950–67 period see Caputo and Pizarro (1973).

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financing or trade surpluses. Dos Santos points out that although i­ nternational capital prioritises investment in luxury consumer goods, the more the world economy’s productive forces are socialised as a function of their own development, the more interdependent countries become. This prevents international capital and its national bases from avoiding the trend ­towards the internationalisation of heavy industry and Department i indefinitely. The process industrially integrates dependent countries to a level where dependency is no longer materially necessary, but can only be concluded under the leadership of the working class, both urban and rural.31 The rising organic composition of capital in dependent countries is a topic examined by Marini. He notes that industrialisation and technical progress create a contradiction between Latin American countries’ expanding scales of production and their limited internal markets. State demand and luxury consumption go some way towards compensating for the restrictions on mass consumption, but not enough to satisfy rising productivity.32 This contradiction underpins what he calls ‘sub-imperialism.’ He uses the term to describe how dependent countries overcome internal market limitations by increasing their commodity and capital exports. For Marini, this is not an absolute tendency but a relative one. In other words the internal market continues growing in a concentrated form, but the dynamic of commodity realisation shifts increasingly towards the international market. In their analysis of the Latin American political model that grew up alongside industrial development in dependent capitalism, both authors observe that a mass self-organised proletariat subjects dependent capitalism to a structural instability, which heavily influences cycles. Democratic regimes struggle to meet mass consumption demands, and when growth gives way to crisis that is the time for popular forces to launch a major offensive. For Dos Santos, this is when big capital and the sectors united under its leadership respond with fascism.33 He defines fascism as a regime of terror during the imperialist phase of big capital, which craves institutionalisation on a permanent basis. Fascist

31 32

33

This issue is addressed in Dos Santos (1978d), notably in Part 3, Chapter iv, “La recuperación y la gran crisis.” (Recovery and the big crisis). Although Kaleckian-influenced neo-developmentalist thinking played down the effects of income concentration on realisation crises, consumption cannot actually be separated from use value and from individual needs. The way the income mass is distributed very much conditions commodity realisation. Deepening recessions offer fascism the opportunity to turn themselves from political movement into institutionalised political regime – unless centre-left and left leaderships prove themselves capable of resolving the socio-economic crisis by subordinating the anarchy of the market to planning. See Dos Santos (1978d, 1991).

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regimes have both a defensive function of destroying working class ­organisation and an offensive one of imperial expansion on behalf of the national fractions of big capital.34 But these very characteristics make the use of fascism in dependent countries so contradictory. Its nationalist and expansionist nature conflicts with foreign capital – the most dynamic sector of accumulation. This contradiction, expressed by the Peruvian armed forces in 1968 with deleterious consequences for international capital, tended to spread to the Latin American military regimes as Brazil, Argentina and others developed nationalist ambitions. These factors explain why there was an international offensive in 1973–1974 to dismantle such regimes and move dependent countries and Latin America particularly in the direction of restricted democracy. This offensive was influenced by Trilateral Commission and led by the US government, even though the latter was unable to control the process in the face of popular pressure for far deeper redemocratisation (Dos Santos 1977a). The alternative to this model of economic and political development is socialism. It falls to socialism to articulate economic development and the eradication of poverty and misery. Nonetheless these are complex tasks. Socialism has emerged as an alternative for dependent countries at a time when the world economy features a profound level of interdependence. It now embodies a dramatic dialectic between the need to tackle the evils of super-­ exploitation and its clash with a world-economy driven by historical c­ apitalism. If the forces of socialism are to successfully complete their tasks, they must avoid isolation and seek international support. In this context regional and continental spaces must be given priority. The spread of socialist revolution

34

Dos Santos distinguishes between a fascist State and a fascist movement. In so doing, he raises the theoretical and/or historical possibility of either a fascist state that has not been generated by fascist movements, such as those established by military occupation in Europe between 1939 and 1945; or, conversely, fascist movements winning elections without destroying the existing institutional-democratic structure. He notes that the social base of the fascist State is different to that of the fascist movement. The fascist State is produced by a fusion of the petty bourgeois movement, decadent sectors of the bourgeoisie, the lumpen proletariat and the big capitalists. It represents a regime of terror on behalf of big capital that is expansionist and antiliberal in terms of people’s rights. Its chance to establish itself comes when big capital is threatened by the prospect of proletarian revolution but the objective and subjective conditions for the proletariat to impose its hegemony on society are absent. The fascist regime begins to conflict with the apparent social base of the fascist movement. Big capital, which willingly helped create the conditions for fascism to take power, then urges the destruction of the anti-monopolist wing of the movement and opens up the path to a political and ideological settlement with conservative sectors who are willing to ally with fascism. See Dos Santos (1978a, 1978d, 1979a: 13–33, 1991).

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from the national to the regional level can allow for greater scales of p ­ roduction and organisation of collective labour, and the prospect of sustained technological progress. 3.3 Theories of Dependency: a Balance Dependency theories are of paradigmatic importance to the analysis of peripheral and global capitalism. They bring the oneness of the world-economy back into focus, breaking with the periodisation that was elaborated by developmentalists who saw underdevelopment as backwardness. They combine development and underdevelopment in the time and space of an expanding world-economy. But despite certain convergences they are also separated by major differences. To explain these differences better we shall divide them thematically. 3.3.1. The Role of Foreign Capital in Development Although the theories of dependency start out by emphasising the decapitalising effect of foreign capital on peripheral formations, they are prone to revising this initial position in their analysis. So whilst Cardoso and Faletto affirm that profit remittances exceed capital inflows, they see in financial dependency a factor in financing the deficit. For them, dependency is intertwined with productive capital and internal market dynamism. This allows them to assert that dependency is closely related to development, which leads them to question the very notion of underdevelopment they had adopted. Cardoso and Faletto advance this proposition for lack of a consistent theory of cycles. They are ambiguous in the way they approach the crisis of capital overaccumulation, which they wrongly describe as a crisis of realisation. At times they claim that the central countries use this crisis to justify capital exports to the periphery as an ongoing way of financing their capital flow deficits. But elsewhere they cite internal market dynamism to deny that the periphery suffers overaccumulation crises. We see this in Cardoso’s fierce attack on Marini’s concept of sub-imperialism in his article “Imperialismo y dependencia” (Imperialism and dependency, included in Cardoso 1972), where he refers to Baran and Sweezy’s rereading of overaccumulation crises of in central countries simply in order to propose revising the theory of crises in dependent countries. Throughout both Cardoso and Faletto, dynamism clearly prevails over crisis in the periphery. The periphery exports a greater mass of value than it receives from the core, and in so doing it aggravates problems of overaccumulation problems in the latter, which can only respond by reexporting capitals to the periphery and thereby financing peripheral development.

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Let us examine their arguments. The following passage draws out the problem of realisation or overaccumulation: Furthermore, as the ratio of investment in hot money to investment by the internationalised sector decreases ever faster thanks to local saving or international credits (which clearly put a strain on the capacity of dependent economies), so there is simultaneously an increase in the mass of money returning to the central economies in the form of exported profits or interest payments and royalties. Those who in the past exported capital, even when they continue doing so (in the form of financial capital, private or public loans etc.), began receiving more resources (in the form of interests, royalties, exported profits etc.) than they exported, thus aggravating the problem of surplus value realisation. cardoso 1995, 105; italics added

The need to re-export profits is mentioned in another passage: American companies increased their action in the periphery of the capitalist system, as well as in European countries, by means of increased investments and expansion of their control over local economies. To this end, they invested funds and used their domestic savings primarily to purchase assets belonging to nationals. Later, the profits created by the “foreign sector” of the American economy forced it to expand continually abroad. cardoso and faletto 1979a, 181–182; italics added

But they suggest the periphery can escape the problems of the crisis of realisation: It is equally necessary to approach the problem of surplus realization with a fresh perspective. In this connection some authors have considered the strengthened ties between militarist expansion and the reinforcement of military control over society, through a war economy, as the basic means of capital realization. As a second argument, but a still important factor, State expenditures in welfare are emphasized as alternative outlets for capital accumulation. Though the adequacy of this analysis may be questioned, Marxist authors [Baran and Sweezy – cem] carried out a comprehensive economic reinterpretation of the mode of functioning of monopoly capitalism, as

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the previous examples illustrate. The same is not true, however, when considering the political aspects of the problem and especially the politico-­economic consequences of monopoly capitalism in dependent economies. cardoso 1972, 19335

The question here is this. If Cardoso doubts the adequacy of Baran and Sweezy’s understanding of internal forms as the basic means of capital realisation, as globalisation processes have proven him right in doing, then why return to it in the political and economic reinterpretation of dependent capitalism? His analysis seems to slide into inconsistency and ideology. It overemphasises the periphery’s internal dynamism, despite provisos about balance-of-payments problems, which are apparently overcome by the permanent movement inherent to said dynamism. Cardoso and Faletto decouple the cyclical phases of expansion and crisis in favour of the former in order to argue that whilst foreign capital-led development processes decapitalise dependent countries, they also continually recapitalise them. Developmentalism creeps into the gaps at the heart of their theoretical problematic. That is why they are only too happy to counter the notion of underdevelopment with that of dependency and development, and to decry the former despite using it as an analytical tool in their critique of modernisation theories.36 Viewing the cycle as a whole allows us to see clearly the decapitalisation that takes place when foreign capital leads the accumulation process in dependent countries. Figures 5.1 and 5.2 illustrate the decapitalising effect of foreign capital on dependent countries. Decapitalisation is cyclical, taking effect when capital outflows during the recessive period overcompensate inflows during

35 36

Translation reproduced from Cardoso (2015b, 119). Cardoso subtly affirms that dynamism outweighs balance-of-payments problems in this passage: “The immediate consequences of verifying this [the existence of foreign investment in the consumer durables sector] are, in summary, that dynamism does exist in the form of capitalist expansion, which I called “associated-dependent development”; but that it is partial and reestablishes both balance-of-payments problems and also the international asymmetry that stems from the development of the productive forces, differential rates of profit and wage inequality between the centre and the periphery. Theories of ‘development of underdevelopment’ or ‘stagnationist super-exploitation’ therefore cannot hold” (Cardoso 1995, 67). If dynamism marks a return of balance-of-payments problems in the form of foreign ­exchange losses and decapitalisation and yet leads to neither stagnation nor super-­ exploitation, then presumably it resolves them by itself, as otherwise economic development would be interrupted.

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2132

2000 1347

1500 1000 500 0

Remittances

Incoming

Figure 5.1 Remittances of profits, interest and non-factor services vs. incoming foreign capital in Latin America – 1956–2009 (in usd billions) Source: CEM, BASED ON cepal (1985, 1992 and 2010). Excludes nonfactor service travel 1200

1131.5

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9.3 6.8

18 6.8

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I

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Figure 5.2 Remittances of profits, interest and non-factor services versus incoming foreign capital in Latin America Source: CEM, BASED ON cepal (1985, 1992 and 2010). Excludes nonfactor service travel

expansion.37 The continuous nature of the development cycle derives not from its dynamism, but from the huge trade surpluses obtained through 37

From 1956 to 1960 foreign capital inflows expanded. This is not apparent from Figures 5.2 and 5.6 as they show outflows outstripping inflows. That, however, was due to the still relatively low flows of industrial or financial forms of capital in that period compared to commercial forms. If we consider the net difference in payments for freight and other services in 1956–1960 and 1950–1955, rather than their absolute value in 1956–1960, we find

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s­ uper-­exploitation, which make it possible to finance the balance-of-payments ­disequilibria created by foreign capital. The Marxist theory of dependency ­offers a superior understanding of dependent capitalism because it emphasises the cycle in all its phases and at both the national and international level. This brings us to another divergence between the different perspectives on ­dependency – one related to peripheral patterns of capitalist development. 3.3.2. Dependent Patterns of Development We saw that for Cardoso and Faletto dependent capitalism does not reproduce the patterns of central capitalism. It fails to fully internalise Department i of the economy; industrialisation is foreign capital-led and centred on durable consumer goods; it is subject to balance-of-payments difficulties, and it exacerbates social stratification. But it is based on relative surplus value and ­productivity, and can expand indefinitely for as long as the socio-political structures of domination allow it without the economy deepening its contradictions for development. The financial and productive dimensions of dependency become interwoven and any limits to the expansion of dependent capitalism are strictly political. There are however theoretical and empirical problems with this approach. The authors provide no analytical basis for automatically linking productivity to relative surplus value. Dependent capitalism has continued to register high levels of poverty and inequality over the course of its development, and growth has failed to match that of the 1950s and 1970s. The balance of payments has placed mounting obstacles in its way because its earlier expansion led to deeper financial dependency. And although China has become a powerful presence on the 21st century world market, the effect of Chinese economic growth on this scenario has been contradictory, partly modifying it but without affecting it structurally. We shall return to this topic further on. Theotonio Dos Santos and Ruy Mauro Marini both in their own way see dependent capitalism as founded on labour super-exploitation. They argue that dependent capitalism does bring productive and technological development but is beset by contradictions. Balance-of-payments problems recur on a cyclical basis. When the economy is expanding, incoming foreign capitals create a surplus in capital flows that reverses more than proportionally during crises. These crises break out because of the limits on internal and external market expansion. During British hegemony, they were determined by the international market. The export-based expansion of the dependent economies

that foreign capital inflows were higher than outflows in the latter period, coming to US$6.8 billion as opposed to US$5.4 billion in outflows. Inflows amounted to 126% of outflows, a was one of expanding similar figure to other expansive periods. In later periods flows of the industrial and financial forms of capital increased, and so cyclical movements are more visible.

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f­ ollowed one step behind the expanding or contracting movements of the central economies. The internal market subsequently developed and e­ xpanded with industrialisation, but not enough to absorb rising productivity. As a result, industry has ended up focussing on luxury goods production in order to meet a highly concentrated demand. The internal market has become the chief determinant of cyclical expansion. Meanwhile crisis sends realisation back abroad to find new markets, and national and international markets combine to determine the phases of the cycle. Because of factor and non-factor service deficits and the negative capital flows they cause in the medium run, economic growth relies on large trade surpluses. These deficits are made a lot bigger by the sharp rise in foreign capital inflows produced by industrialisation. External debt is used to extend ­expansive cyclical phases, but this creates a financial dependency that increasingly conditions technological dependency and further exacerbates the need to obtain trade surpluses. Once financing comes up against its limits in the form of debtor insolvency, super-exploitation must be promoted as the way to generate surpluses large enough to equalise the balance of payments. But these are bogus trade surpluses founded on cheaper labour power or a devalued currency. The balance of payments is equalised but at a higher level of indebtedness. The result is a secular and relative tendency towards stagnation on the part of dependent capitalism. This is manifested by lower economic growth rates, rising foreign debt and a decline in the quality of foreign capital, which keeps arriving because of its increasingly financial nature. Figure 5.3 illustrates this declining quality of foreign capital.38 60 50 40 30 20 10 0

1955–60

1961–67

1968–1981

1982–1990

Figure 5.3 Direct investment as a percentage of foreign capital (flows) in Latin America Source: cepal (1985, 1992, 2002) 38

Since the 1990s direct investment has risen as a proportion of foreign capital flows. However, it often does not represent new machinery or equipment but rather debt conversions or mergers and acquisitions that serve to denationalise the Latin American economy. Because we lack Latin America-wide data for this denationalisation process, we have extended the series shown in Figure 5.3 to the end of the 1980s. We return to this issue in Chapter 7.

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The secular trend towards stagnation does not of course preclude growth altogether.39 It just means that as financial imbalances deepen, temporary stabilisation at a higher level requires ever-greater efforts to boost economic growth by shifting accumulation onto the rate of profit. Such efforts and the difficulties they involve represent a spiralling social cost and a structural deepening of dependent capitalism’s crisis of legitimacy, and usually result in weaker periods of expansion. Relative and growing economic limitations fuel social and political tensions and create an opportunity to break with this model of development. The economic limitations in question can be viewed from the standpoint of the productive forces. Dos Santos notes that dependency only makes historical sense from the standpoint of the organisation of the productive forces when there is external capital accumulation. If the economy lacks a fully developed Department i then it needs foreign capital inflows to ensure expanded reproduction. In this context imperialism plays an integrating role in spite of the huge inequalities it produces. But world-economic expansion takes the logic of integration a step further and spreads Department i to dependent economies. This does away with the need for dependency, which having lost its economic base must rely on political support alone (1968, 1978a, 1978b). This was Dos Santos’ intuitive masterstroke, which he formulated in the late 1960s. But ultimately Department i was internalised not by being physical integrated into the dependent economy – although we cannot altogether disregard that – but associated with a major national system of innovation that established physical integration into the world economy as an input to develop internal capacity.40 The internalisation of Department i implies a level of integration of the productive forces that makes scientific and technological interdependence in the world economy possible. This is clear from tendencies in the diffusion of innovation, which reflect how much the world economy has managed to i­ ntegrate 39

40

Dos Santos suggests that the idea of a secular tendency towards stagnation is comparable to that of the tendency for the rate of profit to fall. Marx highights the latter tendency’s secular nature and claims that whilst there is a point at which it becomes irreversible, its secularity allows for countertendencies that imply a sharp rise in profit rates. This formed the basis of Marxist dependency theory’s critique of ecla’s import-­ substituting industrialisation project, which understood the incorporation of industrial technology as an external matter that foreign trade would resolve. This only created another, ­technologically more intensive level of dependency. Peripheral countries cannot break with dependency by industrialising per se but by internalising the drivers of technological innovation, which are intangible and demand upskilling and scientific and cultural development. This is why in the early 1970s Dos Santos was already concerned with the scientific revolution.

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the productive forces. But international capital resists lending any support to this internalisation and even tries to prevent it. The integration of national markets into the international market alters dependent country patterns of accumulation and destroys part of the industrial and capital goods sector geared towards their internal markets. Dependent countries suffer because of the competition they face from core country commodity exports. On a very limited scale, the foundations are laid of an international division of labour that articulates dependent countries’ participation in the production of machinery and equipment parts and microelectronic components. And when this process happens it faces macroeconomic constraints that delink its internalisation from the construction of a techno-scientific infrastructure that might synergise with said material base in order to develop it. One example of this is Mexico. It overhauled its trade model in order to incorporate electro-electronic components, vehicles and vehicle parts and components into its export offer, but it has no control over the underlying science and technology. This ‘secondary-­exporting’ model (Valenzuela 1990) is closely linked to maquila-­led industrialisation, and represents what Marini called ‘economic annexation.’ In this model, an industrial sector is created which is characterised by its lack of links to the internal market, high import/export volumes, and reliance on super-exploitation for competitivity. The result is a manufacturing sector that can add very little value and which despite growing can neither compensate for the destruction of internal market-facing industrial ­segments, nor increase secondary sector participation in the overall economy, nor improve the Mexican economy’s terms of trade. Mexico’s macroeconomic performance remains poor and subject to powerful cyclical swings because it has adopted a neoliberal approach, and that means an intensive export model. Both in countries that have risen from peripheral to semi-peripheral status (South Korea and Taiwan) and those clearly heading in that direction (China), the national state played the lead role in laying down the internal foundations of productivity. They focussed their efforts not just on internalising the industrial sector – essential as that was to building national or regional systems of ­innovation – but on developing a skilled workforce. This brings us to one final point of comparison between the two perspectives on dependency. 3.3.3. Alternatives to Dependency We saw that Fernando Henrique Cardoso and Enzo Faletto opted for a negotiated dependency. In their view, politics should take into consideration the ­limits that being linked to the international market imposes. This linkage determines not only the structural frameworks but also the dynamism of dependent societies, and political action should be guided by these two factors.

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Where there is the deepest inequality there should be the most growth, and the political model should guarantee the democratic freedoms that allow different social groups to negotiate the distribution of the fruits of technical progress. This perspective goes some way towards explaining Cardoso’s approximation to neoliberalism during the 1990s, when, following the collapse of a developmental model that had combined globalised production processes with ­protectionism, the hegemonic centre used the Washington Consensus to promote the neoliberal model across Latin America. This meant countries in the region had to accept the new structural frameworks originating in the dominant ­centres in order to insert themselves within them as best they could. Adopting this approach, in 1994 Lidia Goldenstein wrote Repensando a dependência (­Rethinking dependency) in defence of opening Brazil up to the international circulation of capital and commodities. Analysing globalisation, Cardoso (1998) revises his previous emphasis on negotiated dependency. He points out that globalisation universalised dependency, which is no longer about the relationship between some states and others but between states as a whole and global financial capital. National policies become hostage to their own demands because this kind of capital, whilst eminently speculative, affects the real economy through international financing and new technological scales. In isolation, governments have no choice but to accept this new dependency until they agree to forge a new institutional order, which regulates global financial capital via international regimes. The autonomy of peripheral states is reduced to a minimum in this context. Rendered all but politically irrelevant by their inherited dependency, they have no option but to accept international finance overseeing their economies and support efforts to build international regimes under the leadership of the central countries. Denationalisation becomes the price to pay for development.41 Dos Santos, Marini and other Marxist dependency theorists proposed building socialist economies, or ones that would aid the transition to socialism, as 41

“In every country, exchange rate rules, interest rate rules, and all measures of economic performance become linked to the movements of this speculative market. And that has to happen, because that market, which would be unimportant if it did not affect the real economy, really does affect it […]. On the edges, what is happening as a consequence of this globalisation, is that you have lost your authority […]. There is no national solution to the matter. As I have always said: globalisation is not a value, it is not something you want. It exists. And it needs controlling, because it is going down a dangerous path […] the critique of globalisation must be all-encompassing. And it’s a critique I put forward whenever I can.” (Cardoso 1998, 85–87).

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an alternative to dependent capitalism. Socialism of this kind would eradicate poverty and adopt a regional approach to development. Even though such a model would enter into conflict with the conditioning international circumstances determined by the big monopolies and the hegemonic state, and so miss out on some of the global technology flowing towards the periphery, it would achieve levels of social development unmatched by peripheral capitalism. A regional approach should be supported as a means of spreading national revolutions and minimising international conflict. Such an approach would guarantee access to technology and the population density required to develop it and promote the social model in question. An analysis of the results achieved by capitalism and socialism in Latin America and peripheral countries shows that although dependent capitalism’s per capita growth rates outstripped those of the socialist countries until the end of the 1970s, it failed to seriously reduce poverty or come close to the levels reflected by social indicators in socialist countries. Cuba, for example, is an island of 10 million inhabitants that is politically isolated from Latin America as a whole and subject to a US trade embargo. And yet we find that its health and education levels are unmatched in the region, maintaining themselves even after the fall of the Soviet Union. At the same time however, socialist Cuba has failed to find a path to economic growth. Its per capita income stagnated in the 1930s and did not rise after the Revolution.42 The experience of the 1950s, 1960s and 1970s shows that the socialist model is legitimised by the degree of social development it achieves. At the same time, it lacked the economic dynamism associated with the capitalist worldeconomy. But if that was the case while US hegemony was in its expansive phase, when the deepening crisis of US hegemony in the 1980s stood the relationship between social and economic development on its head. The capitalist world-economy entered a trajectory of structural crisis, which it will probably never leave, adjustments to long term cyclical oscillations notwithstanding. Neoliberalism became the hegemonic ideology, and peripheral countries that adopted its structural frameworks became vulnerable to serious macroeconomic imbalances. As a result they have suffered from low rates of growth and a crisis of legitimacy. In contrast China used the hybrid formula of ‘market socialism’ to pursue alternative patterns of development and international insertion. This has produced excellent results, as it has remained committed to 42

In Cuba, per capita income in 1950 stood at US$3,390 following stagnation and crisis in the 1930s and 1940s. Its highest level in the post-revolutionary period was US$3,203 in 1985. (Maddison 1995, 289).

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s­ ocial development, its own unconvertible currency43 and control over capital accounts, but used the advantageous quality/price ratio of its labour power to attract foreign capital and thereby access the technological frontier. China has taken advantage of capital’s impasses to restructure the international division of labour from the centres of the world economy, and under the dynamic of the techno-scientific revolution it is projecting itself towards its organic core despite starting from peripheral per capita income levels. In doing so it has included its population in the development process, raising their consumption levels and impacting global trade, in particular the price ratio between ­primary and manufactured products. Latin America is at a critical juncture. This is due to the secular tendency towards stagnation, which crystallises into high levels of financial dependency, and the region’s exposure to neoliberalism, which tends to combine capital flow deficits with trade deficits. This pattern was established with the appreciation of the exchange rate and has not been altered structurally by fluctuating rates. It is much more than a form of crisis management. During expansion, incoming capitals increase the value of the currency. As a result the trade surplus shrinks and tends towards deficit, which must then be financed by fresh inflows of capital. When crisis breaks out, capital outflows start to predominate and the currency depreciates. This generates trade surpluses, but also a rise in external borrowing and factor services in the current account which are payable in dollars. As capital movements are more dynamic than international trade, the exchange rate alone cannot produce the surpluses needed to finance capital flow deficits, and so super-exploitation must be intensified. A return to expansion and capital inflows means appreciating the currency and places a question mark around the trade surplus and the sustainability of economic growth. As a result, the choice facing Latin America appears to be the opposite of the one confronting it during the heyday of US hegemony. As we saw, social development back then was divorced from economic development and the two represented distinct alternatives. In the current context the choice seems to be between socio-economic development guided by socialism, or the social, economic and political decline produced by dependent capitalism. We return 43

Ever since 2005 China has been appreciating the yuan in order to reduce exposure to the US market and divert production towards the internal market. En 2016, the imf admitted the yuan into its Special Drawing Rights (sdr) basket of reserve currencies, which increased its market convertibility and broadened its margins of fluctuation. However the Chinese state closely controls these fluctuations under a banding system backed by the huge national reserves it has built up through trade surpluses and its success in narrowing the technological gap between it and the central countries.

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to this question in the last section of this chapter, when we discuss the contribution made by world system theory. At the same time, we should recognise that the influence of an ascendant China on international trade has mitigated the negative effects of neoliberalism on Latin American expansion and softened the impact of foreign capital outflows between 1999 and 2009. China has raised the level of international competition in the high technology sector, cheapening manufactured products, and has increased demand for basic products and strategic raw materials, thus raising their prices. This opens a window of opportunity for peripheral countries to develop in so far as it improves their terms of trade with centre countries and acts as a counter-cyclical factor sustaining trade surpluses in the region. Nonetheless, this window is temporary and carries risks of its own. Rising primary product prices provide local bourgeoisies with a source of extraordinary profit, and could lead to national economies being reprimarised and social contradictions subsequently deepening should they control the State politically. During the boom the rising cost of basic products will affect necessary consumer items. That could erode workers’ wages, unless they rise as a result of the reversal in trade terms pushing up primary product prices. But the latter scenario is unlikely to be sustainable, for the following reasons: (a) Rising incomes will probably lead to a relative decline in the Chinese population’s consumption of basic goods. In addition, technological development tends to relatively reduce consumption of industrial raw materials and energy input per unit of gdp. Thus between 1980 and 2006 China’s gdp increased by 9.8% p.a. and its energy consumption by 5.6% p.a. A 20% drop in energy consumption per unit of gdp was predicted for 2005–2010. The likelihood of a slowdown in Chinese gdp growth over the next 10–40 years further reinforces this tendency. (b) China is unlikely to give up self-sufficiency in food and energy given the risk to its internal social and political stability should it cede control over their supply to the international market. Although it has lost arable land as a result of urbanisation, China has made great strides in using science and technology to raise agricultural productivity and save energy. Food self-sufficiency is a typical feature of continental-sized countries or regions in the organic core (the United States and the European Union) and is integral to the Chinese longue durée. At the turn of the new century China was 95% self-sufficient in food, with the figure dropping below 90% by the end of the 2010s due to increased soya imports. (c) China could use a variety of strategies to reduce the international prices of primary products such as strategic minerals. In particular, it could develop new materials to replace them; raise its currently low level of global

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productive investments by diversifying its supply base, and use the strategic power of the Chinese state – a major source of global demand from extremely dependent countries – to lower the world market price of primary products. The rise of China throws up both opportunities and challenges. If it is articulated through a system of world power associated with the reproduction of oligarchical wealth, abandoning the accumulation-without-dispossession model, then some peripheral nations might drop down the international hierarchy in compensation for the increase in population at the system’s centre and organic core.44 But that is just one possible outcome once the periphery’s window of opportunity disappears between 2015–2020 and 2050, and is far from being the most likely or sustainable. At the same time, building a multipolar, democratic and cooperative post-oligarchical world system over the next forty years represents a huge challenge for humanity, and the paths ahead remain ill-defined, even if we can make out their outline. 4

Endogenism, Neo-developmentalism and Neoliberalism

Dependency theory proved to be very influential in Latin America. Numerous scholars used its perspectives to provide rich analyses of Latin American development, notably Florestan Fernandes. Despite his institutional and personal ties to Fernando Henrique Cardoso, Fernandes was much closer to the ­Marxist version of dependency.45 He developed his own vision of dependent development, which combines the concepts of social strata and social class. For Fernandes, the specificity of dependent capitalism lies in the colonial roots that led dominant oligarchies to resist building a competitive social order. Although the restructuring of central capitalism forced them to embrace the capitalist market, they did so in their own way by carrying out a bourgeois revolution that confined competition to the economic sphere and perpetuated social, cultural and political underdevelopment, thus allowing patrimonialism and mandonismo to survive in new guises. This underdevelopment has its roots in the preservation of archaic sectors present in the national and regional 44

45

Arrighi notes how in the late 1990s the Chinese government lost control over eams and their hitherto State-regulated forms of property and resource allocation. This made it possible to change their local and socialising nature. The growth in Chinese foreign direct investment since the late 2000s has made this easier still. See Arrighi ( 2008). Octávio Ianni, seen by many as Florestan Fernandes’ leading disciple, freely used the concepts of dependency and labour super-exploitation in writings published between 1970 and 1980 such as Sociologia da sociologia latino-americana (1976) and Ditadura do grande capital (1981).

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economy; factors limiting the spread of wage labour such as marginalisation, and subproletarianisation, and super-exploitation. The latter stems from the associated pattern, inherent to dependent capitalism, whereby local bourgeoisies compensate for the imperialist extraction of surpluses from the local economy by over-appropriating the values produced by their workers. In the long term, however, limiting the bourgeois revolution to the economic sphere weakens the dependent bourgeoisie. In his 1968 work Sociedade de classes e subdesenvolvimento, Fernandes still imagined the dependent bourgeoisie might turn against dependent capitalism in the name of capitalism (Fernandes 1981c, 101). But he abandoned that illusion when he saw how the 1964 coup in Brazil consolidated a process of bourgeois composition which internalised international capital nationally and saw the dependent bourgeoisie combine with local stratum to form a national bourgeoisie. As he observed in 1974’s Revolução burguesa no Brasil, Under the conditions in which it is taking place, the transition to ­monopoly capitalism cannot support self-determined capitalist development. It subjects everything – the internal market; the vast and expanding system of capitalist production; the global trade in raw materials and utilities extracted or produced in Brazil, and a proportion of the internally generated economic surplus – to the dynamism and control of the central capitalist economies and world capitalist market. Therefore what is perceived as the “moment of foreign domination” cannot be eliminated or attenuated in the (near or distant) future. fernandes 1981a, 273

In the late 1970s, however, the influence of dependency theory began to wane considerably. The crisis of the socialist movement, culminating in the coup in Chile, produced the socio-political context in which dependency theory would itself enter into crisis. Its socialist version no longer offered alternative solutions to the region’s needs and the compromise of negotiated dependency proved unable to satisfy the thirst for development among the middle segments typical of Latin American academia. And so once again analysts looked within nations to locate the barriers and gateways to development. This path was first trodden by endogenism, a tendency best articulated by Agustín Cueva, Francisco Weffort and Ciro Flamarion Cardoso.46 Endogenism 46

Leading examples of the endogenist approach include Weffort’s Notas sobre a teoria da dependência: teoria de classe ou ideologia nacional (1971), Cueva’s Problemas y perspectivas de la teoría de la dependencia (1974) and Cardoso and Brigñoli’s História econômica da América Latina (1979).

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launched a direct assault on dependency theory, accusing it both of contaminating class analysis with the concept of nationhood, which it claimed could not be treated at the same level of abstraction; and of overemphasising external determinations at the expense of internal factors and class struggle. It located the specificity of Latin America and its sui generis form of capitalism compared to central countries in what it called articulated modes of production. This concept starts from the idea that a social formation contains different modes of production that combine to form a social totality and lend it a certain uniqueness. Much historiographical thought in the region started to adopt this perspective, and following the 1974 Latin American Congress of Sociology in Costa Rica it began to take a much clearer form. The endogenist critique remained on a philosophical plane and was of little practical consequence. But in methodological terms it marked a huge step backwards. Endogenism ignored Latin America’s articulation with the world economy and reasserted the dichotomy between the modern and the archaic but understood it quite differently. It treated the concepts of class and modes of production in a dogmatic, mechanical and undialectic fashion, forgetting Marx’s observation in the Theses on Feuerbach47 that scholastic questions should be resolved through practice. The fact that class and nation represent different levels of analysis does not mean they do not condition or influence each other, because they are part and parcel of the same reality. On the other hand, by claiming that dependency theory ignored the internal and class conflict, the endogenists revealed just how superficial their reading of it was and how little they understood its main propositions. Endogenism paved the way for isolating the internal from the external, and so helped create the conditions for neo-developmentalism. The latter approach would reengage with the issue of industrialisation and articulate it with the democratisation of the State, which it saw initially as a precondition for meeting social demands and later as a precondition for the very success of industrialisation. Key neo-developmentalist texts include Maria da Conceição Tavares (1978, 1998), João Manuel Cardoso de Mello (1990), José Luis Fiori (2003) and Antônio Barros de Castro (1985). In two works heavily influenced by Kalecky, Acumulação de capital e industrialização no Brasil (Capital accumulation and industrialisation in Brazil) and Ciclo e crise: o movimento recente da industrialização brasileira (Cycle and crisis: The recent movement in the Brazilian economy), Tavares argues that once the Brazilian economic cycle got beyond the restricted industrialisation phase 47

Karl Marx, “Theses on Feuerbach” (1845), in Marx and Engels (1989, 121).

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of the 1950s, it adopted an endogenous dynamic determined by investment in the capital goods sector and the ability to anticipate demand (Tavares 1974, 1978).48 The balance of payments is no obstacle to growth because deficits will always be financed externally whilst investment remains an attractive proposition. Cyclical interruptions occur because of the disproportions created by heavy industrial development in an underdeveloped country. Demands from the capital goods sector is predominantly inter-industrial, but its relatively small size narrows its markets. Such problems should be tackled through countercyclical interventions by the State to maintain market dynamism and growth. But that growth might be accompanied by worsening income distribution, as it would no longer depend on individual consumption. In 1978, on the eve of the foreign debt crisis, Tavares described the risks inherent to external indebtedness in these terms: On the other hand, the deteriorating current account balance of payments did nothing to halt the inflow of risk capital and supplier credits, thus allowing official indebtedness to rise so that projects of joint interest to the State and big international capital could continue to be executed […] This demonstrates once again the inconsistency of the theory of ‘external limits’ to growth. Growth becomes problematic, chiefly because the ‘internal crisis’ deepens due to mounting difficulty in reconciling the contradictory interests of major sectors when the national economy’s expansionary tendencies are reversed. tavares 1998, 118

Jorge Castañeda would take neo-developmentalism to an extreme when he argued that Latin American countries were imperialist (Castañeda and Hett 1978). He arrived at this position by ‘freely’ interpreting Leninist thought and claiming that imperialism was defined not by the export of capital but by the formation of finance capital out of the fusion of industrial and banking capital. The debt crisis of the 1980s sounded a note of caution, although Antônio Barros de Castro and others still insisted that the national economy was strong enough to deal with external restrictions. De Castro (1985) argued that the Second National Development Plan’s programme of debt-financed import substitution marked a definitive break with underdevelopment and had made the

48

This is the approach defended by João Manuel Cardoso de Mello in the Tavares-­influenced O capitalismo tardio (1990), originally presented as a doctoral thesis to Unicamp in 1975.

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Brazilian economy so autonomous that it could import less and generate trade surpluses which could be used to service the external debt. Given the history, there is no need for us to dwell on these formulations. With the crisis of the 1980s, neo-developmentalist pessimism towards income distribution extended to the success of industrialisation itself. Where previously it claimed that democratic control of the State was needed to steer industrialisation towards the production of mass consumer goods, it now argued that the very process of industrialisation must come under State control in order to establish an organised form of capitalism. This thesis is defended most notably by José Luis Fiori (2003), whose many writings from the 1990s are distilled in his 1994 doctoral thesis, O voo da coruja (The flight of the owl). Focussing on Brazil, Fiori argues that its development problems stem from a financial sector that is not sufficiently centralised to finance the development of local industrial capitalism. As a result it is financially dependent and shackled by external constraints because of its failure to develop a model geared towards financing national development. To explain that failure Fiori points to an oligarchic pact. Although the terms of this pact were redefined after 1930, it still exerts a controlling influence over the state and prevents the concentration of property and savings that results from competition destroying and centralising capital and always precedes financial centralisation. In this view, our underdevelopment is caused by the preservation of patrimonial traditions. The question remains, however: what was the secret behind the power of this oligarchical pact? Fiori (2001, 2003) and Tavares (1999, 2001) point to the enlargement of national territory, which pushes back the agricultural frontier, and to the ideological use of economic growth. These two factors alleviate social tensions and allow the country to forge ahead regardless. Yet other Latin American countries such as Chile and Argentina lack an extensive agricultural frontier and suffer the same financial dependency. Accelerated economic growth exhausted itself in the 1980s and under Cardoso the Brazilian state centralised financial resources to an unprecedented extent by raising state revenues. But not even that tore the pact asunder. Fiori and Tavares’ explanation would therefore appear to be insufficient. In our view, the ­reason for financial dependency lies in the ‘superprofits pact’ between local entrepreneurs and foreign capital. The former have no intention of pursuing financial centralisation independently. The neo-developmentalist search for a non-existent national bourgeoisie only leads to the thinly-disguised pessimism displayed by Fiori, who spends far more time highlighting the inadequacies of the neoliberal model than setting out alternative ways forward. The crisis of the 1980s engulfed neo-developmentalism too. In Brazil its leading representatives contributed decisively to this through their disastrous

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handling of economic policy whilst implementing the so-called Cruzado Plan. Underestimating just how much the balance of payments would stunt economic growth, they plunged the country into bankruptcy and a technical moratorium. Neoliberalism became hegemonic in the 1990s by exploiting the crisis of neo-developmentalism. Unable to challenge dependency-imposed limits during the cyclical swing towards recession, neo-developmentalism was incapable of formulating a developmental project for the region and so created an opening for the neoliberal offensive launched from the major centres. The neoliberal approach went on to exert a huge influence in the region. Even eclac would surrender to its themes and categories – in stark contrast to the 1950s when even neoliberals like Campos made concessions to the language and content of structuralism.49 In the 1990s the Washington Consensus really asserted itself, setting out to dismantle import-substitution policies and putting the competitive principle at the core of its restructuring programme. The Consensus revolved around ten policy proposals, most notably the elimination of fiscal deficits, economic deregulation, privatisation and currency appreciation. In Brazil, Gustavo Franco (1999) and Lídia Goldenstein (1994) have been among the most fervent defenders of neoliberalism. Franco argues that only trade and finance liberalisation, articulated through an exchange rate anchor, can get Brazil and Latin America back on the path to development. He vigorously attacks import substitution, blaming it for the region’s stagnation. Liberalisation eliminates protection, which favours a rentier existence, and makes competitiveness a core objective of national enterprises. The new systemic conditions in the region will attract foreign investment, which will bring with it new technologies and so raise productivity. This is the key to sustaining the currency appreciation that had triggered the whole process. In his view, the regional macroeconomy needs to move from the balanced current account of the 1980s to structural deficits financed by a continuous inflow of external savings in the form of direct investment. According to Franco, currency appreciation, current account deficits, external savings and productivity could become part of a virtuous circle and slowly 49

An example of this shift in eclac’s thinking is its proposal for an open form of regional integration, which sees financial, technological and commercial integration into the world market as the key to boosting competitiveness and reducing local monopoly parasitism. Limits should be put on customs duties, and the State should intervene less in the economy and focus on promoting investment in education and infrastructure along with productive transformation, technological innovation and social equity. See cepal (1990b) and “El regionalismo abierto en América Latina y el Caribe. La integración económica al servicio de la transformación productiva con equidad” in cepal (1998b, 903–924).

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produce a convergence with international productivity rates. At the same time, however, he advocates putting limits on the current account deficit, which could endanger the developmental trajectory. Without further explanation, he argues that inflows of external savings should be permanently capped at 3% of gdp: In a situation of current account equilibrium such as we had until 1994, capital inflows just produce an accumulation of reserves which, if ­sterilised, cancels out any effect on aggregate savings and growth. For that reason alone the country should settle for maintaining deficits in the current account and apply controls and restrictions to incoming foreign capital, especially that of a financial and short term kind. But foreign savings should not contribute more than 3% of annual gdp, otherwise they will increase external account fragility. franco 1999, 62

Goldenstein takes a similar line in her writings. She argues for the deregulation of capital and commodity flows, privatisation and monetary stabilisation in order to thus boost external capital flows, especially of the productive kind: The whole process depends on maintaining an open economy in order to control inflation and capital flight. Maintaining an open economy demands, in turn, the existence of a ‘strong currency’ to guarantee imports and prevent speculative attacks against its still fragile currency. There are two ways to achieve a strong currency: by attracting speculative capital through high interest rates or by attracting productive capital. The first way – attracting speculative capital – is dangerous, costly and only viable in the short term. Speculative capital leaves a country when it senses that the host economy is fragile. The most reliable way is productive restructuring, which promises a less fragile international insertion. goldenstein 1994, 134

The key to recovery and reinsertion thus lies in productive restructuring to meet the conditions of capitalist profitability demanded by international investors, whilst striving to ensure (but without demanding) that the new ­incoming international investments are of the productive rather than the speculative kind. The neoliberal theses reveal a monumental ignorance of Latin American historical reality and the new international division of labour. We can summarise their chief flaws as follows:

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They see foreign capital contributions strictly as the flows that are established in the financial account, without including them in the factor services balance or in payments for freight and technological services, which are heavily articulated with foreign capital but included in non-factor services. Hence they advocate wide-ranging liberalisation of the national economy and see foreign capital as a means of financing subsequent deficits. But as we have shown, foreign capital does not operate in that way at all. b. The combination of economic liberalisation and exchange rate appreciation leads to far deeper current account deficits than those envisaged by Franco or Goldenstein. When Franco was president of the Brazilian Central Bank (1994–1998) they grew at 106% per annum – enough to dispel any illusions about their sustainability. Maintaining such an anchor requires a situation of deep depression and asset liquidation, of which the Argentine economy is the best example. That is incompatible with the sustained increase in productivity Franco dreams of. c. It is a big mistake to make productivity increases the main goal of peripheral economies. As seen, although the periphery has increased its productivity during the new phase of dependency, income patterns have still not converged with those of the central countries. On the contrary, if an economy does not control the sources of technological innovation, rising productivity leads to a deterioration in the terms of trade. Increasingly, globalisation and the advancing techno-scientific revolution are building an economy in which the ability to add value depends on the quality and use value of goods produced rather than productivity. The Latin American economy clearly illustrates this: in the early 1980s it hugely increased the ratio of foreign trade to gdp, but only by reducing the purchasing power of its exports. Chile provides the most striking example of this phenomenon. We return to this topic in Chapter 7. Following some ephemeral successes, neoliberalism entered into crisis in the latter half of the 1990s amidst a deepening Latin American balance-of-­ payments crisis. Politics took a left turn as the accelerated growth of the US economy ground to a halt and social movements went on the offensive both regionally and globally. Movements demanding another kind of globalization developed through the World Social Forums, and alba helped spread the Bolivarian revolution from Venezuela to Ecuador, Bolivia, Nicaragua and Honduras, breaking Cuba’s isolation in the process. At the same time movements of indigenous peoples and against the social and economic impact of neoliberalism took off. A space opened up for world system theories to go beyond their early stage of development in the region.

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World System Theories and Dependency Revisited

5.1 The World System Paradigm The crisis of neoliberalism put the spotlight on an approach first developed in the mid-1970s and in close proximity to dependency analysis – the world system theories associated with the Fernand Braudel Center. World system ­theories make a threefold contribution to understanding development: they put the world-economy at the core of their analysis; they establish a tripartite division of the world economy that includes the semi-periphery, and they advocate world revolution as the way forward for socialism. Many of the analytical concerns shared by world system theorists originated with dependency theory. As seen, theories of dependency highlighted the class compromise reached in different nation-states and exposed the hierarchical international division of labour behind it. Capitalist accumulation could be seen operating at the level of the world economy. But world system theories went further than dependency theory to locate the political superstructure of the world-economy in the interstate system. They formulated the concept of a modern world system and studied its workings, combining notions of hegemony, cycles and secular trends to open up a vast, fertile and largely unexplored analytical territory. Highlighting the paradigmatic nature of the world system approach at the current juncture does not make us advocates of scientific imperialism. Instead we seek dialogue. The present work affirms the historical and holistic nature of scientific thought. Science beats a universal path, and scientific thought should therefore reflect the uniqueness of different historical processes. A dialogue between the world system and dependency approaches is now vital if we are to grasp the challenges facing peripheral countries and in particular our present subject, Latin America. The latter’s original analysis of Latin America and the world-economy set it apart from developmentalist-nationalist, North American and Soviet perspectives and won hearts and minds, earning the Latin American social sciences worldwide recognition.50 Now, in the spirit of dialogue and scientific integration, we shall turn to the main contributions made by world system analysis to Latin American development in the 21st century.

50 In Memorial (1994a) and A teoria da dependência: balanço e perspectivas (2000a), Theotonio Dos Santos sees 1960s and 1970s dependency theory as the first stage in constructing a broader world system theory that would require the two approaches to converge and become integrated with one another.

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5.2 Chief Analytical Contributions We saw that one key contribution made by the world systems approach was to integrate the world-economy with the political superstructure and analyse them as a single system. That is where we get the concepts of hegemonic state, systemic cycles and secular trends, which we linked to the tendency of falling rate of profit, Kondratiev cycles and techno-scientific revolution. Having presented them in earlier chapters we shall not dwell further on these particular concepts here. Instead we shall examine how they might help us interpret Latin America’s trajectory up to the crossroads at which it now finds itself. Firstly, however, let us touch on two more contributions made by the world systems approach. One other contribution is the notion of the semi-periphery. In theoretical terms it refers to countries which enjoy an average level of income because their profits and losses from globally appropriated economic surpluses balance out. They achieve this equilibrium by producing high and low value-­ added goods in equal measure. But as Wallerstein and Arrighi make clear, the semi-periphery performs more of a political than an economic function. It stabilises the world system by mobilising the expectation of ascent, even though few states actually achieve this. Although we agree with Wallerstein and Arrighi that the semi-periphery performs a political function, we think its role should not be exaggerated. The international division of labour rests far more on polarised relationships than the presence of this intermediate category. And as Florestan Fernandes points out, inter-ruling class solidarity finds a much firmer basis in super-exploitation and on restricting a competitive internal order than in expectations of upward mobility per se. In addition, there are also empirical problems with defining semi-peripheral status. The main indicator used by Arrighi (1997a) and Wallerstein (2011a) is a country’s percentage share of the per capita income enjoyed by the organic core of the world economy, i.e. the hegemon and the central countries. Their long list of semi-peripheral countries includes the likes of Brazil and Mexico, whose share according to the authors’ own World Bank data is less than 20%. So it would seem to us that including them is going too far and suggests a lack of well-defined empirical criteria for measuring the size of this zone within the world economy. Arrighi (1997a) locates national insertion into the world economy at the level of one of five categories. A country might belong to the organic core, the semi-periphery or the periphery, or else lie in a transitional zone either between organic core and semi-periphery or periphery and semi-periphery. But neither he nor Wallerstein base their limits on an empirical measure. So let us propose one. Our measure determines a country’s level of insertion by dividing

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the income of the organic core into equal parts in order to locate the main zones and mark the limits of the transition zones between them. For example, if we assign a 10% width to each transitional zone, then the periphery comprises countries with up to 27% of the per capita income of the organic core; the semi-periphery represents those with 37–64%, and the organic core, those exceeding 74%. Applying this measure to Arrighi’s figures, Latin America cannot be considered part of the semi-periphery. If we use Maddison’s indicators, which calculate per capita income according to domestic consumption capacity, we find that Latin America was in the transition zone between the periphery and the semi-periphery for most of the 20th century before descending towards the periphery in the 1980s (see Figure 5.4). But indicators should not replace qualitative analysis, which should take into account a region’s ranking in the international division of labour and how it relates to geopolitical factors.51 When Latin America was closer to the semi-periphery it formed part of its lower rung and therefore depended on the world economy. Conceptually speaking this made its condition more peripheral than one resembling a state of equilibrium. 50.00% 45.00% 40.00% 35.00% 30.00%

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Figure 5.4 Latin America gdp per capita (as a percentage of the organic core of the World economy) Source: cem, based on Maddison (2010) and Arrighi (2002) 51

The cases of Argentina and Uruguay are illustrative here. Although their gdp per capita levels were similar to those of the core countries in the 1920s/1930s, they formed part of the periphery. In the decades that followed, these levels sank far below those in world capitalism’s organic core because of their need to retain their position as agro-exporting countries in the international division of labour and the difficulty of developing industry.

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A third contribution made by the world systems approach concerns revolutionary strategy. For Wallerstein, the crisis of the modern world system is also the crisis of the interstate system. It took hold in 1968 and has manifested itself in the crises of the social welfare, developmentalist and socialist states. These three forms are but different expressions of liberal reformism, which uses the State and the nation as institutional and ideological instruments of mass control. The social welfare state displaces social pressure to improve living standards and manages them at a rhythm suited to capitalist accumulation through a bureaucracy that keeps the masses passively waiting in expectation. That wait is rewarded with by slow but steady improvements in living standards. The developmentalist state also promotes reform but in a different way. There, social improvements and state welfare are conditional upon the degree of development achieved by the state and its public policies. That conditionality means the masses must wait longer for social reforms. But development is seen as a gradual, ongoing process, and if at first the masses share little in its fruits they ought to benefit more once development itself picks up pace. The socialist state was no exception to liberal hegemony. It accepted its main postulates, which in short state that the nation is the fundamental sphere of social organization and that revolution cannot be international but must take place within the confines of national sovereignty. The Cold War was grounded in the adherence of both socialism and liberalism to these principles, restricting both ideologies’ scope of action to their respective areas of influence. But the socialism that emerged bore the scars of liberalism and chose not to destroy and supersede the State or the interstate system guaranteeing capitalist and liberal domination. For Wallerstein, nationalism was as an antidote to socialism that allowed liberalism to hold off the latter’s challenge for over a century (1995, 1999b, 2000a). The big fear of 19th century liberals, one they shared with conservatives like Montesquieu and Tocqueville, was that if freedom were extended to the propertyless in the form of universal suffrage then it would lead to the dictatorship of the majority; hence, their extreme reluctance to make such a move. Liberalism was an ideology centred on the individual, whom it sought to ­defend against State tyranny by organizing a representative system that safeguarded the individual right to property, thought and expression. It was therefore vulnerable to an ideology like socialism that associated freedom with defending the interests of the popular masses. Faced with socialist pressure to universalise civil and political rights, liberals resorted to repression while seeking a way out of their impasse. This was provided by nationalism – an ideology for the whole nation centred on the power of the State to make social improvements. This nationalism would become

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i­ntertwined with imperialism, chauvinism and hostility towards foreigners. And international surplus appropriation would become crucial to its ability to raise the living standards of the masses and withstand the pressures resulting from political participation. As the author observes, this represented a long social process. Its diffusion confined socialism to the national sphere and made it a divisive ideology as it addressed itself to just one sector and not the whole nation. This led to socialism’s political defeat globally, notwithstanding some local victories where the State failed to persuade the masses that their lives would improve in the medium to long run. The weakest link in liberalism was the developmentalist state. Wallerstein (1996c) describes dependency theory as a politically radical approach that denounces the shortcomings of developmentalism and its promise of social reform. But he notes that its programme for economic change was disappointing and failed to live up to its radicalism because it relied on the State: The dependentistas were very radical politically. When one looked at the economic program recommended by the dependentistas, however, it was disappointing; it was simply one more proposal for state action, with perhaps a greater insistence on “delinking” than in other variants. wallerstein, 1996c, 356

For Wallerstein, the prolonged crisis of the world-economy and the concomitant exhaustion of its secular trends have plunged liberal ideology, and with it the nation-state, into permanent decline. The struggle for human emancipation has broken out of the prison of the nation-state and gone global. 1968 was the first sign of this process: a worldwide movement that took up the French Revolution’s demands for liberty, equality and fraternity and turned it on imperialism, technocracy, inequality and intolerance. Conservative recomposition does not disprove Wallerstein’s postulates. Quite the opposite. Liberalism is a centrist ideology of negotiation, and its displacement by neoliberal fundamentalism shows just how hard it has become for the system to negotiate. The fall of the Berlin Wall and collapse of the Soviet Union in 1989–1991 further exhausted liberalism by ending the prospect of socialism in one country or region. Conservatism in the guise of neoliberalism has been followed by socialism in the form of globally articulated social and political movements, and the two now compete to fill the void left by liberalism. More than ever, global struggles are now at the centre of social struggles and are increasingly crucial to winning national and regional victories.

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Drawing a Balance

What can we learn from the world systems approach that might help us situate Latin America within the world system’s current stage of development? The concept of systemic cycles shows us how certain patterns repeat themselves in different structural contexts determined by the level of development of the system’s secular trends. Applying a cyclical analysis and emphasising recurrent patterns, it is not hard to prove our assertion in Chapter 4 that if Latin America takes the neoliberal path of remaining the periphery of a decadent hegemon intent on delaying its own descent by wielding regional power, then it risks playing the same role in the world system as Asian colonies previously did under British hegemony. When ideologically hegemonised British colonies or quasi-colonies such as India and China applied policies borne of decline, they achieved the worst outcomes imaginable: negligible or negative growth rates, mounting social ­tensions and sedition. Meanwhile, the protection costs associated with the world-­system began to outweigh the hegemon’s military capacity and its need to earn legitimacy at national and regional levels in order to project itself as a world leader. This meant there was little resistance to British Empire’s decolonisation process, unlike in the cases of smaller powers such as France and Portugal. Looking at Latin America and its place in the world, we find both similarities and differences. Its growth was restricted by secular processes that ­between 1980 and 2003 took the form of financial dependency. As the region submitted to neoliberalism in this period, the macroeconomy that had previously supported growth was torn asunder. As a result it was plunged into deep economic decline, which saw its growth rates fall behind those of the central countries and the world economy. Any illusions of semi-peripheral status were shattered as it sank further into the periphery. In 2003, however, Latin American articulation with the Chinese economy and its dynamic of accumulation without expropriation helped to equalise the region’s balance of payments and contain the decline without actually reversing it, as a function of the tendency towards positive terms of trade (Figures 5.4 and 5.5). But as we saw earlier, this window of opportunity is temporary and can hardly be kept open if it strengthens agrarian and primary-exporting bourgeoisies within the power structures of Latin American states. Yet history is not merely a series of repetitions; nor can it be determined at a theoretical level alone. Decisions are taken concretely, in practice. Historical time and the hegemon’s power of systemic aggregation are facing mounting difficulties. The current crisis is not just hegemonic, but a crisis of historical

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capitalism, imperialism and occidentalism. It is no coincidence that it has erupted most forcefully in the East, where it has tied down so much of the hegemon’s military and financial apparatus. But the final victory over imperialism will not be won in one region alone. Latin America can use the space that has opened up to act decisively in reconstructing its pathways to development and establishing the framework of a new, post-hegemonic world system. As Emir Sader (2009) points out, the ‘mole’ – Marx’s metaphor for the hidden nature of revolutionary processes until they suddenly become visible – has resurfaced in the political crisis of neoliberalism afflicting Latin America and the various left and centre-left projects reshaping public policy and the region’s political-ideological profile. Even so, such projects have failed to overturn neoliberal political economy in the region as a whole. Instead it has survived in a modified form in Brazil and in its more orthodox form in Mexico, Colombia, Chile and Peru. These are among the most populous countries in the region, with around 400 million inhabitants and 80% of the overall population.52 Latin America can only avoid peripheralisation by creating a new society based on increasing the value of its labour power. That would imply all-out confrontation with dependent capitalist structures and imperialism. But there are several reasons why such a project could also attract significant international support from various political, social and economic forces in the world 52

Note to the English edition: The coups in Paraguay (2012) and Brazil (2016), along with the defeat of Kirchnerism at the polls in Argentina in 2015 have played a key part in the neoconservative offensive in Latin America’s Southern Cone during the 2010s.

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economy. Many of the forces leading nation-states have historical ties to social movements, which are now increasingly united against super-exploitation. As their mobilising power expands, new leaderships could seek to channel this demand politically. Furthermore, attempts to formulate an imperial response to the crisis of historical capitalism are increasingly being resisted by bourgeois fractions in the central countries, who fear a fortified US dirigism. Lastly, enterprises and the State are becoming more autonomous from each other due to the ever more complex nature of the world economy and hegemonic crisis. This explains why Communist Party-led China is now challenging US leadership in attracting international resources. The increased value of dependent country labour power makes for a productivity-cost ratio that, viewed in isolation, favours investment. Big international capital’s reluctance to accept this rise in value might not be shared by other sectors of capital who, less global but competitively driven, could seek to occupy such a space. As for the debate over whether the antisystemic movement should be national, regional or global, we think world systems theorists are absolutely right to argue that the present conjuncture has brought these dimensions much closer together. There is now much less space for them to exist independently, and socialism cannot last unless it is a global process. Nevertheless, these dimensions still enjoy a degree of autonomy, and it would be very mistaken to deny that in the name of world revolution. Antisystemic movements cannot project themselves globally without winning clear national, regional and interregional victories, which feed off each other. As dependency theory and some neo-developmentalist currents posit, a continentally sized peripheral state with average productivity levels is still a key site of policy implementation. The example of China shows that such states can play a crucial economic and political role. In Latin America, Brazil and Mexico’s technological, economic, social, political and cultural foundations are heterogeneous, and both countries are also heavily populated. But their populations and internal markets have never been sufficiently integrated into locally available productive forces. They should therefore embark upon major projects of national integration that alone would raise their growth rates well above the levels achieved under the neoliberal model. By socialising the productive forces among the population, this integration would transform Brazil and Mexico’s productive capacities visà-vis science, technology and culture. At the same time it would represent a major source of regional and even global articulation by politically and materially influencing the countries most crucial to driving forward the trend towards multipolarity, such as the brics. Today Latin America has reached a crossroads. It emerged from its 1999– 2009 balance-of-payments crisis, which it mitigated by reversing the decline in

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its terms of trade, and in 2010 embarked on a new cycle of expanding foreign capital inflows. During this new period the axis of global economic growth has shifted from the central countries towards East Asia (notably China) and the periphery. This offers the region a window of opportunity and new hope. It could take advantage of the potentially unique convergence of the period of cyclical capital inflows with the reversal of the decline in terms of trade to really boost its global influence. But to seize this opportunity it must confront the structural problems of exclusion, which can be both internal (poverty and misery in various guises) and external (peripherisation). This is a necessary pre-condition for Latin America’s expansion to be given sustainable foundations that rely ultimately on the economic, social, political and cultural empowerment of its peoples. Conversely, however, if this favourable period for terms of trade and incoming foreign capital ends and said foundations are not in place, then the region could be plunged into a profound crisis, which would see its production and export model reprimarised during the window of opportunity.53 53

Note to the English edition: In 2014 the cycle of foreign capital inflows was interrupted, and the commodity boom has entered into decline ever since. This has triggered a serious political crisis in the region. The crisis has severely reduced the space for centrism and put enormous pressure on centre-left and left governments who, despite making varying degrees of progress, have failed to dismantle the financial and productive structure of dependent capitalism, thereby facilitating a neoconservative backlash.

Chapter 6

Revisiting the Political Economy of Dependency in the Light of Marx and Contemporary Capitalism In this chapter we revisit the political economy of dependency, focussing on the discussion around the work of Ruy Mauro Marini. One of the key questions in Latin American political economy concerns whether dependent capitalism is governed by its own laws, and in particular the relevance of the concepts of labour superexploitation and sub-imperialism. Proceeding from a critical assessment of Marini’s work and the debates around it, we aim to reformulate these two concepts and contribute towards updating the Marxist theory of dependency as a tool for understanding contemporary capitalism and the historical forms it has assumed in Latin America. In the first section we look at the main concepts developed by Marini in elaborating a political economy of dependency, examining his claim that the globalization of the neoliberal model of accumulation means one of them also applies to the capitalist core. Then in the second section we present some of the leading critiques of his approach from both different strains of developmentalism and from within Marxist dependency theory itself. In the third section we discuss Marini’s work in light of these critiques, maintaining his approach by reworking aspects that in our view must be developed and updated. Finally, we analyse the historical forms assumed by super-exploitation in Latin America, highlighting the hegemonic nature of the neoliberal model and its contradictions. 1

Marini and the Political Economy of Dependent Capitalism

Marini first systematically formulated the concept of super-exploitation in Dialéctica de la dependencia (1973). The book expanded upon his 1972 article for the University of Chile’s Socio-Economic Studies Centre (ceso)’s journal, Sociedad y desarrollo (Marini 1980) by examining the stages of industrialisation in Latin America.1 He also added a postscript. During the 1970s he developed the book’s main theses over two articles: Plusvalía extraordinaria y acumulación de 1 The concept of labour super-exploitation had appeared in embryonic form in Subdesarrollo y revolución (1968) and then more clearly in La acumulación capitalista dependiente y la

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capital (Extraordinary surplus value and capital accumulation, 1979), which he considered an essential complement to it; and El ciclo del capital en la economía dependiente (The cycle of capital in the dependent economy, 1979). In the 1990s he led efforts by the Latin American Studies Centre at the Universidad Nacional Autónoma de México (cela/unam) to draw up a balance of Latin American thought during the transition to the neoliberal model of accumulation imposed on the region. This was when he wrote Proceso y tendencias de la globalización capitalista (Capitalist globalization: trends and processes, 1996), where he postulated the extension of labour super-exploitation – understood as constitutive of dependent capitalism – to the central countries as a function of changes to the international division of labour and the global patterns of accumulation ushered in by neoliberalism. In developing the concept of labour super-exploitation, Marini felt obliged to go beyond the basic premise underlying Marx’s notion of surplus value – that for the working class as a whole, over the long term and notwithstanding conjunctural deviations, the price of labour power is equal to its value. He went on to posit that exploitation takes place in two main ways: by increasing workers’ productive capacity, which is linked to higher productivity; and by increasing the exploitation of workers, which constitutes super-exploitation and involves either (a) prolonging the working day or intensifying work without commensurate remuneration or (b) appropriating part of the worker’s consumption-fund by slashing wages and attacking his/her living conditions. Overall, super-exploitation signifies a fall in the prices of labour power below their value, such that the useful life of labour power is shortened because it is depleted faster. Nonetheless, the greater exploitation of workers is not restricted to situations where productivity increases are minimal or non-existent. In his account, the two forms of exploitation are not mutually exclusive but intertwined. Thus in the capitalist world economy as a whole they tend to compensate each other, as the increase in labour’s productive capacity means workers can be and effectively are exploited at a higher rate. This is because raising the productive capacity of labour allows for an increase not only in the general rate of surplus value and relative surplus value, but also in extraordinary surplus value and surplus value appropriation. Greater productive capacity only translates into relative surplus value if it reduces the value of labour power, i.e., insofar as it cheapens essential consumer goods, thereby reducing necessary labour time and raising wages. This occurs as a consequence of inter-capitalist competition s­ uperexplotación del trabajo (1972), based on his intervention at the gathering of Latin American and Italian economists in Rome.

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and of workers increasing their purchasing power and achieving a partial redistribution of the surplus through struggle. But enhanced productive capacity can also generate extraordinary surplus value – the overriding aim of individual capitalists – thus prompting capitals unable to neutralise its effect via technological innovation to resort to increasing the rate of labour exploitation. Because of the way they are inserted into capital’s cycle of expanded reproduction, dependent bourgeoisies occupying a subordinate position in the ­international division of labour often exploit workers more in order to compensate for the surplus value transferred to the core on account of its technological monopoly. These transfers relate to different historical contexts and patterns of capital reproduction. For Marini, the greater labour exploitation in dependent countries is a function of the following factors: (a) the pursuit of extraordinary profit by ruling oligarchies in the old primary-exporting economy. Their quest is driven by the world market but hindered by low productivity, and leads them to lengthen the working day in order to meet the demand from central countries; (b) the introduction of technological development linked to foreign capital into the export sector. This can involve the devaluation of commodities primarily destined for consumption not by the local working class but by bourgeoisies/workers in the core and local oligarchies/middle layers. It can also involve the mass of surplus value in the export sector being distributed unequally, in keeping with the greater technological heterogeneity imposed by fixed prices of production. Thus on one hand, the rising organic composition of capital combines with the devaluation of commodities, with marginal effects on the rate of surplus value, to help reduce the rate of profit; on the other, technological monopoly distributes the mass of value unequally to the detriment of capitals with a lower technical composition; (c) the introduction of foreign technology and technological monopoly into an industrial sector geared towards luxury consumer goods. This establishes only a weak relationship between the devaluation of commodities and devaluation of labour power, and moves market value towards the capitals with the highest technical composition in the segment in question; (d) extraordinary surplus value establishing itself as an internal structural component of dependent capitalism in service of the technological monopoly imposed by the introduction of foreign technology. Extraordinary surplus value is established not only within branches of production, but also at the intersectoral level, ‘violating’ prices of production by replacing labour power with machinery in order to transfer value to the luxury

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consumer goods sector. This converts part of the workers’ demand into unaccumulated surplus value, i.e. into demand from those who consume by spending the economic surplus; (e) foreign enterprises in dependent countries sending capital remittances to their parent companies – a practice encouraged by global strategic planning at the corporate level, lack of competitiveness locally, and investment restrictions imposed by labour super-exploitation. (f) extraordinary surplus value in international trade being fixed to the advantage of corporate monopolies based in central countries. Along with the growing international division of labour, this is a function of the contradiction between increasing technological transfer to dependent countries in order to produce parts, components or less complex products, and the relative economy made on this consumption by technological monopolies and consumers in the central countries. Essentially then, labour super-exploitation arises as a means of compensating for intrasectoral and intersectoral value transfers, resorted to by capitals with below-average production conditions both internally and internationally. These capitals are the biggest employers of labour power in their countries and so determine the general framework of the labour market. For Marini, superexploitation tends to hinder the transition from absolute to relative surplus value as the dominant form of accumulation and produces its own form of relative surplus value: an increase in the intensity of work without extra remuneration to match the greater exhaustion of labour power. Once it becomes generalised, this diminishes labour power’s moral-historical value and increases surplus labour time. Super-exploitation requires on the one hand high rates of unemployment and underemployment in order to level down the prices of labour power below their value; and on the other, restricted democracies or dictatorial political regimes to impose those prices. Dependent patterns of capitalist accumulation are marked by heavy concentrations of income and property and led by those factions of the bourgeoisie located in the primary-export, consumer luxury, or financial sectors. ­Productive investment in the domestic market is limited in the sectors producing essential consumer goods. These sectors experience premature concentration and monopolisation and their dynamism relies in part on the i­ nternational market. Marini notes that an internal market reliant on luxury goods consumption and State demand cannot satisfy the dynamic of industrial investment in dependent countries that have attained an average organic composition and are at the financial capital stage. Hence they are drawn into subimperialist expansion, as manifested by commodity/capital exports, the pursuit of raw materials or market control, and geopolitical projects targeting peripheral countries and

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regions. However their opportunities are limited to spaces and conjunctures where the big imperialist centres and corporations present less of an obstacle. For Marini, only a few countries can play a subimperialist role, and so in Latin America that means Brazil. Subimperialism not only offers economic realisation by overcoming the limitations of the internal market, but, once fully formed, offers autonomy within dependency. It does this by developing heavy industry (notably the military kind), creating internal decision-making centres, and rising up international hierarchies of power and production chains. But subimperialism is unable to support its claims for autonomy by cutting its financial, technological and political ties with imperialism and anchoring its  model of accumulation in price increases and the devaluation of labour power. This seriously limits its capacity for expansion (Cf. Marini 1974, 1977a, 1978). In the 1990s, Marini claimed that labour super-exploitation was no longer exclusive to dependent accumulation because it was spreading to the core. Globalization processes would throw up new sources of extraordinary surplus value by shifting the monopoly from technology to science and by fragmenting product manufacture into parts and components, orienting it towards world markets. This would enable the periphery to combine high technology and super-exploited labour power in taking over some of the production previously performed in central countries (Marini 1996). Alongside the new organisational structure of transnational corporations, this meant peripheral wage rates would level down below those in the core and firms with a strictly national base would sink below average productivity conditions on international markets, leading them to the greater exploitation of workers. 2

Critiques and Debates

Marini’s ideas have been challenged from various quarters. The strongest ­attacks have their origins in Weberian dependency theory, neo-developmentalism and endogenism. Other critiques have emanated from those within Marxist dependency theory itself who have been encouraged to sharpen Marini’s paradigmatic conceptual frameworks by the rise of the Latin American left in the 21st century. These frameworks are located at a high level of abstraction and are of a general and introductory nature. They are therefore open to be developed, as the author recognises in his postscript to Dialéctica de la dependencia: Dialéctica de la dependencia does not claim to be anything beyond an introduction to the subject of my research and the general lines that have

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guided me in carrying it out. I am publishing it to give an insight into some of the conclusions I have reached, and perhaps help others in their efforts to study dependent capitalism’s laws of development, as well as allow myself an overview of the terrain I am trying to map. I shall therefore use this postscriptum to clear up some issues and misinterpretations that have arisen in regard to the text. Essentially, despite attempting to qualify my more emphatic declarations, space limitations led me to describe certain tendencies in rather broad strokes, sometimes giving the impression they were very pronounced. In addition, the essay’s own level of abstraction did not lend itself easily to the analysis of particular situations, which would have allowed me to relativise matters more. marini 1973, 81–82

The leading critique to come out of the Weberian approach to dependency was formulated by Fernando Henrique Cardoso, both individually and in his joint work with the Brazilian neo-developmentalist José Serra. Cardoso dismisses the idea put forward by Marini and supported by Theotonio Dos Santos and Vânia Bambirra that dependent capitalism has its own laws of motion, arguing that this can only be so if it represents a specific mode of production (Cardoso 1972, 1975, 1993a). For Cardoso, industrial capitalism is based on relative surplus value and expanding productivity. It conditions the new forms of dependency to have emerged in Latin America since the 1950s, which internalised industrial capitalism or its technologies. Super-exploitation can occur independently of the dynamics of modern dependent capitalism. Specifically, it can arise either from political determinations that act on the latter’s structural frameworks and weaken working class struggle; or else as an expression of modes of production stuck between precapitalist economic forms and capitalism, limiting the latter’s development. Cardoso argues that at the heart of any analysis of the dynamics of dependency must lie the notion of development and the understanding that it is conditioned by the expansion of international capitalism (Cardoso 2010). Instead of a theory of dependency, he prefers to elaborate a global theory of capitalist development that can accommodate the articulation of internal and external forces comprised of social classes and political groups whose interaction determines the concrete and particular forms assumed by capitalist development in the periphery. Although dependency analysis can interpret these concrete and particular forms, their conjunctural and determined nature means its predictive ability is limited to more general developmental factors (Cardoso 1972).

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In analysing international value transfers – which they surprisingly dismiss on the grounds that low international labour mobility makes it impossible to measure socially necessary labour – Cardoso and Serra (1978) accuse Marini of confusing unequal exchange with deteriorating terms of trade.2 They argue that unequal exchange does not undermine the rate of profit, and that the decline in the terms of trade only does so when prices fall in the periphery independently of variations in productivity. They claim that Marini’s theory of ­super-exploitation is founded on conditions of stagnation or declining productivity in the peripheral export sector. They also note that his theory gives ­precedence to the rate of surplus value over the rate of profit. In so doing, it ignores the part that a reduction in the cost of constant capital can play in the latter’s recovery, highlighting only the role of a reduction in labour costs. His theory of super-exploitation requires production in the essential consumer goods sector to be stagnant. This prompts a search for external markets, which forms the basis of his theory of sub-imperialism. The authors posit that although productivity was concentrated in the consumer durables sector it also rose in the essential consumer goods sector, and in both sectors by much more than the lengthening of the working day.3 For them, wage restraints imposed by military governments are determined by their reactionary nature rather than the needs of dependent capitalism. They conclude that the choice of ‘socialism or fascism’ posed by Theotonio Dos Santos and in his own way by Marini rests on the idea of a stagnating dependent capitalism, and that the latter provides little empirical support for his analysis. Cardoso and Serra’s work has become the paradigmatic neo-­developmentalist critique of Ruy Mauro Marini, Theotonio Dos Santos, Vânia Bambirra and Andre Gunder Frank. Yet they ignore the first three authors’ explicit criticism of the way Frank (1966) identifies dependency with a colonial situation by excluding the development of the productive forces and the nation-state’s formal 2 According to Cardoso and Serra, unequal exchange is expressed in productivity differentials between the peripheral and central export sectors in favour of the latter, and has no impact upon commodity price movements in either region. Deterioration of the terms of trade implies not only productivity differentials in the centre’s favour, but also price differentials, with prices affected negatively in the periphery but remaining unchanged in the centres (Cardoso and Serra 1978). 3 Cardoso and Serra confuse increased productivity with relative surplus value without asking how it affects the degree of exploitation in the economy and the value of wage-goods, and how it articulates itself with demand. Similarly, Mantega cites Desventuras to claim that “Here the data is even more eloquent, because it shows that from 1959 to 1970 industrial productivity (not distributed to workers) representing relative surplus value grew by 75% (…) and real wages dropped by 35%” (Mantega 1984, 271).

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autonomy4 (Cardoso and Serra 1978). Gabriel Palma goes down a similar route in a text where he contrasts ceso’s approach to dependency with Marx and describes Cardoso and Falleto’s Dependencia y desarrollo en América Latina (1984) and its “Post-scriptum” (1979a) as the first analytical framework capable of identifying dependency’s inner dynamic (Palma 1978). According to Palma, Marx had argued that development would only take place in countries within the Asiatic mode of production and lacking internal dynamism where it was introduced by European capitalism; and that having surpassed the primitive accumulation phase they would be able to incorporate themselves at the highest levels of capitalist development, regardless of whether the initial agent of that development was external or internal. In stark contrast, according to Palma, the ceso school denied the possibility of development within dependency. Agustín Cueva argues in Problemas y perspectivas de la teoría de la dependencia (Problems and perspectives of dependency theory) that Marini stylises the differences between classic and dependent capitalism and works with models rather than laws. For Cueva, whilst the presence of imperialism and combined modes of production do modify capitalism’s general laws, the differences are quantitative rather than qualitative, offering no basis for a theory of dependency. The differences between social formations should be located more in their own internal relationships than the relationships between dependent and industrial countries.5 He argues that underdevelopment explains restrictions on working-class consumption better than the concept of superexploitation, and is applicable to central countries (e.g. 1940s France). ­Although suggestive, the idea of super-exploitation suffers from historical inconsistencies. For example, it underestimates the Argentine population’s high meat consumption and the popular consumption of industrial products across Latin America (Cueva 1974). Cueva would later qualify his claims in Las democracias restringidas de America latina (The restricted democracies of Latin America) where he revisited the issue of super-exploitation, acknowledging its historical, if not theoretical, relevance as a deviation away from the pure laws of the development of capital imposed by imperialism. Nonetheless, despite recognising super-exploitation’s importance, he maintained that the weight of ­neoliberal imperialism had historically prevented subimperialism from ever materialising (Cueva 1989).

4 The influence of Cardoso and Serra (1978) on how Marini and Marxist dependency theory were read in Brazil can be seen in Luiz Carlos Bresser Pereira (1982), Guido Mantega (1984) and Lidia Goldenstein (1994). 5 Hector Diaz Polanco (1979) takes a similar position in his comments on El ciclo del capital en la economia dependiente (Marini 1979).

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Castañeda and Hett, whose theory of emergent Latin American imperialisms amounts to a version of neodevelopmentalism, question the conceptual pillars of super-exploitation. For them, there is no theoretical basis for claiming that the price of labour power has sunk below its value because its value is determined historically by class struggle and not in the abstract (Castañeda and Hett 1982). Likewise, in an article containing some truly crass errors in its presentation of Marini’s thought, Jose Valenzuela Feijóo maintains that conjuntural cycles aside, the prices of labour power will over the long term come to match their value because they are determined by concrete reality6 (Feijóo 1997). More recently, Claudio Katz has put forward the idea of dependency without super-exploitation. He argues that the periphery presents low wages rather than remuneration below the value of labour power. Peripheral capitalism pays wages equal to labour power’s low use/exchange value. This meets workers’ physiological and historical-social needs, which are conditioned by “productivity, extent of accumulation, class struggle and cultural patterns in each country” (Katz 2018). Among those closer to Marxist dependency theory, Cristobal Kay acknowledges the importance of Marini’s contribution but remarks that he was unable to fully demonstrate his hypotheses because he never formulated them mathematically (Kay 1989). One issue very pertinent to the super-exploitation ­debate is whether, as Marx suggests, super-exploitation is compatible with relative surplus value, thus leading to increased productivity and cheaper wage-goods. We attempted in a recent article to make some progress towards mathematically formulating super-exploitation (Martins 2017). In it we argued there that the relative surplus value/super-exploitation compatibility thesis should be analysed in the light of capital’s concrete patterns of reproduction, and that Marini does not offer enough elements to do this. We therefore posited the need to rework the concept of super-exploitation, which we discussed further in the article and understand as being crucial to the task of developing Marini’s formulations. We also identified a fourth form of exploitation that needs integrating into the concept of super-exploitation: the increase in the value of labour power associated with workers being trained and upskilled without a commensurate increase in their wages. We noted that although this fourth form is not explicit in Marini, it does come up in several passages (Martins 2017). 6 See Sobrexplotación y dependencia, published months after Marini’s death (Valenzuela Feijóo 1997). In one of his various inexplicable misreadings of Marini, Valenzuela attributes to the former the idea that the rate of surplus value in peripheral countries is higher than in the core, with a higher rate of labour super-exploitation – arguments completely alien to Marini’s way of thinking.

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Marcelo Carcanholo disagrees with describing Marini’s concept as the super-exploitation of labour, arguing that the super-exploitation of labour power is more appropriate.7 He also takes Marini to task for attributing relative surplus value to increased labour intensity (Carcanholo 2017). Another key issue in the super-exploitation debate concerns whether it has spread to countries in the core. Those claiming it has argue that extraordinary surplus value has led to a restructuring of the international division of labour and new monopolistic forms, whilst their opponents counter that super-exploitation is specific to dependent capitalism (Osório 2013, Carcanholo 2017). In the next section we critically assess Marini’s work in order to then open up a dialogue with the criticisms it has attracted. 3

Reformulating the Political Economy of Dependency

Marini left behind a rich and creative body of work that follows Marx’s dialectical method in proceeding from the most abstract level of analysis towards the most concrete. He analyses the social formations making up the capitalist world system and dependent ones in particular by progressing from a general plane, which starts from the capital production assumptions and extends as far as actual surplus value production, to the more complex plane of inter-capitalist circulation and competition, where price-value deviations and ­surplus-value transfers between capitals of different technical and organic compositions are established. Marini is also innovative in his treatment of the more abstract sphere of inter-capitalist competition at which Marx addresses the general determinants of value transfers in Capital, postulating that extraordinary surplus value not only functions within the different branches of production but also between them, thereby violating the prices of production. He shows that technical progress and extraordinary surplus value are compatible with the assumption of equalised reproduction patterns in Capital Volume 2 by pointing out that technical progress saves on labour and transfers demand to the luxury consumer goods sector, thereby articulating Department i to the fraction of Department ii represented by the latter (Marini 1979b). 7 The opposition between the terms super-exploitation of labour and super-exploitation of labour power seems to us wrong and not dialectical. Marini uses both, with predominance of the second. Marx refers both to the exploitation of the labor force and of the worker who owns it. The fetichism form in which exploitation presents itself is part of the relations that capital imposes, but constitutes only a dimension of this totality, since the exploitation of labor power by capital is the exploitation between subjects.

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Marini therefore theorises labour super-exploitation by advancing creatively from the plane of capital in general and the more abstract determinants of inter-capitalist competition to include the specific ways individual social formations function within the framework of the capitalist world system. This analysis operates at levels of abstraction that Marx proposed but never developed: the State, international relations of production and the world market. Much of the criticism of Marini comes either from a formalistic, mechanistic Marxism incapable of understanding that concepts are transformed by their need to unfold towards more concrete levels of reality, or from neo-­ developmentalist, dependentista and neoliberal schools of thought, which having chosen the path of subordination are rattled by Marini’s radical critique of the social, political and economic impact of dependent capitalism. But the potential unlocked by Marini’s promising theoretical and analytical perspectives is weakened by certain gaps. And where gaps exist, the Marxist theory of dependency should not sanctify its foundational texts but advance wholeheartedly in the direction indicated by Marini and develop his analysis further. One initial observation concerns the concept of labour super-exploitation itself. We recognise, along with Jaime Osorio, that it is not formulated in Capital. This is because in order to construct his theory of surplus value Marx assumed that the prices of labour power correspond to their value (Osório 2004). But the theoretical roots of super-exploitation are clearly visible even if, for the reasons stated, they are not developed. We do not need to cite his references in Volume 1 to the historical significance of the prices of labour power falling below their value – despite then excluding it from his main focus of interest; nor the point in Volume 3 where he draws out its importance as a counter-­tendency to the rising organic composition of capital and the falling rate of profit. What it is crucial to highlight here is Marx’s observation in Volume 1 that the value of labour power is only average if it represents average skill and intensity and operates in normal conditions of productivity. Otherwise, his/her labour is not average in value and neither is his/her labour power, as it is being sold below its value. He is even more explicit upon noting that the general law of capital valorisation only comes into its own when the individual capitalist employs average social labour by hiring a number of workers and neutralising the differences between them: If one workman required considerably more time for the production of a commodity than is socially necessary, the duration of the necessary ­labour-time would, in his case, sensibly deviate from the labour-time ­socially necessary on an average; and consequently his labour would not count as average labour, nor his labour-power as average labour-power…

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(…) Thus the laws of the production of value are only fully realised for the individual producer, when he produces as a capitalist, and employs a number of workmen together, whose labour, by its collective nature, is at once stamped as average social labour. marx 1974, 306–307

The average value of labour power lies at the core of Marx’s theory of surplus value and the general laws of capital accumulation, which is founded on price equalling value when it comes to major numerical quantities. When we talk about prices falling below the value of labour power in the context of Marxist theory, we mean the average value of labour power. Where labour power of average skill and intensity operates below average conditions of productivity, then it cannot be sold at the value of labour power in general if the price imposed on it by competition violates its use value. Historically, the average value of labour power has been determined in the capitalist world economy either in a similar way to capital in general, i.e. as a synthesis of the multiple particularities of the price of labour power, regardless of its specific concrete expression; or by the value of labour power in average conditions of production. But in the monopoly situations that predominate in the current world system our calculations must take into account that (a) the average conditions of production are established by capitals of a higher composition which produce most commodities; (b) the market value of products tends to move closer to the individual value of commodities produced by this segment; and (c) conversely, the prices of labour power tend to be determined by the vast number of workers who sell their labour power at rates below the average conditions, which pushes its average price below its average value. The theory of labour super-exploitation should therefore take the systematic decline in the price of labour power compared to its average value in the world economy as its chief indicator. But super-exploitation is not only characterised by its apparent form, i.e. labour power prices deviating from their value. It is also characterised by the greater exploitation that determines those prices as a function of value transfers. The integration of social formations into the capitalist world economy is mediated by dominant classes who enjoy relative autonomy in managing the national State and establishing spaces of commodity circulation and production. We can therefore describe super-exploitation as a structural phenomenon that typically occurs when said processes of accumulation are determined internally and externally by monopoly situations which insert most labour power into conditions of capital productivity well below the national and international average, with the gap widening rather than closing. When capitals of average and lower composition are hit by a fall in the rate of surplus value they respond with the greater exploitation of ­workers. Thus we

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have a second indicator of super-exploitation: labour power prices falling below the prices established by average national conditions of production. These points need making because contrary to what Jorge Castañeda, Enrique Hett, José Valenzuela Feijoó and others believe, we cannot assume the price of labour power ​in dependent countries is equal to its value because it is determined by class struggle, regardless of conjunctural fluctuations. Nor does its price represent our workers’ historical-moral values limited by internal factors, as Claudio Katz claims. These arguments derive from a methodological nationalism which makes two mistakes: it understands productivity in national terms and so disarticulates it from the value transfers that act on and within dependent economies, particularly affecting their large mass of workers.8 They also rest on an erroneous understanding of the value of labour power that fails to take into consideration the average social value of labour power in the world capitalist economy. Cardoso and Serra obscure matters even more. As we saw, they not only ignore the average value of labour power in the world economy but they deny its existence, arguing that the concept of socially necessary labour is inapplicable to the world economy because of the labour force’s low level of international mobility (Cardoso and Serra 1978). As Marini points out in response, low international labour mobility bears no relation to socially necessary labour in the world economy, which continues to measure and compare values on the basis of productivity, and it only affects this measure when it influences productivity (Marini 1978).9 In making this criticism, we must also recognise that despite successfully showing that the transfer of value dependent countries suffer determines a specific form of exploitation in which the price of labour power falls below its value, Marini never fully broke with methodological nationalism. Without making it explicit, he does appear to use the concept of the value of labour power in an exclusively national sense, disarticulating it from its global frame of reference. This conflicts with his analytical point of departure, i.e. the in­ clusion of dependent social formations in the capitalist world economy’s 8 In 2015, income per capita ppp, years of schooling and working hours in Brazil, Mexico, Argentina and Chile compared to the United States as follows: Brazil had 59% of US years of schooling, 27.5% of its per capita income and income, and the same working hours; Mexico 65% of schooling, 33.5% of per capita income, and 27% more hours worked, Argentina 75% of schooling, 36% of per capita income, and the same working hours; and Chile 74.4% of schooling, 41.7% of per capita income and 13% more working hours (undp 2018 and Conference Board 2017). 9 Marini notes that the key factor in surplus value transfers and wage differentials in the world economy is the productivity asymmetries resulting from technological monopolies, and not the restricted international circulation of labour as authors such as Claudio Katz (2018) and Samir Amin (1993) have it.

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a­ ccumulation processes. He thus delinks falling prices of labour power from their average value globally, which can be increased by devaluing the consumer essentials associated with greater productive capacity in central countries. This conceptual confusion led Marini towards affirming that relative surplus value as defined by Marx is incompatible with labour super-exploitation. Nowhere is he entirely conclusive about this, but it does appear to be the predominant view in his work. In his response to Cardoso and Serra, he stresses the relationship between a revitalised essential consumer goods sector and the expansion of foreign trade. He thus points out that super-exploitation ­embraces a certain type of relative surplus value linked to greater labour intensity which, once generalised, affects labour’s two ‘times’ (necessary and surplus labour time). Let us start by pointing out that the concept of super-exploitation is not identical to that of absolute surplus-value, since it incorporates a type of relative surplus-value – that which corresponds to an increase in the intensity of labour. Marini 1973, 92

However, Marini is not clear about what level of analysis he is using to describe intensity of labour as the form of relative surplus value specific to super-exploitation – whether he is talking about the mechanisms via which a pure and abstract category (labour super-exploitation) operates or whether he is directly analysing concrete reality. In some passages he appears to propose another methodological approach. He notes that in dependent countries super-exploitation hinders the transition to relative surplus value as the dominant form of capital-labour relations. This opens up the possibility of incorporating relative surplus value in a way that subordinates it to the greater exploitation of workers: The fundamental task of the Marxist theory of dependency is to determine the specific set of laws governing the dependent economy (…) However, from a rigorously scientific viewpoint, the need to spell out the general laws of capitalist development means we cannot rely on generalities, like stating that the new form of dependency is founded on relative surplus value and increased productivity. And we cannot because, as we have seen, this is the general characteristic of all capitalist development. The challenge is thus to determine the character assumed by relative surplus value production and increased labour productivity in the dependent economy. In this sense, my essay contains suggestions that although far from adequate do allow us a glimpse of the underlying problem facing the

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Marxist theory of dependency: the fact that the conditions created by labour superexploitation in the dependent capitalist economy tend to hinder its transition from absolute surplus value to relative surplus value production as the dominant form of capital-labour relations. The disproportionate pull exercised by extraordinary surplus value in the dependent system is a result of this, and corresponds to the expansion of the industrial reserve army and the relative strangulation of the capacity to realise production. marini 1973, 99–100; italics added

Nevertheless, Marini fails to develop this key methodological point. Although he rightly highlights the centrality of super-exploitation, its compatibility with relative surplus value cannot be determined at a higher level of theoretical abstraction but by articulating abstract theory with the concrete analysis of capital accumulation patterns. Except on the controversial issue of labour intensity,10 Marini’s attempt to resolve this incompatibility at abstract levels and then apply it to specific and concrete patterns of accumulation needlessly weakened his theoretical contribution. His crucial work around social, economic and political themes such as capital concentration, soaring inequality, low wages, tight restrictions on the internal market, sub-imperialism and the pursuit of socialism as an alternative to dependency renders such a restrictive hypothesis unnecessary. Because he never empirically or formally demonstrated the incompatibility he hinted at, his work was exposed to criticisms grounded in the expansion of working-class consumption in certain Latin American countries that accompanied the growth of the agroexporting sector,11 and in the notion that relative surplus value becomes the defining feature of capitalist development when big industry emerges. These criticisms were common to Cardoso (1972, 1975, 1993a, 2010), Cardoso and Serra (1978), Palma (1978) and initially Cueva (1974). They are however heavily influenced by developmentalism and a mechanistic and equivocal reading of Marx. Crucially, they disregard super-exploitation and the extent to 10

11

Marcelo Carcanholo is right to question whether intensity of labour is a form of relative surplus value. Marini’s hypothesis that a generalised increase in labour intensity without the corresponding remuneration creates a new axis of value for labour power which affects the two components of the working day runs counter to the idea at the heart of superexploitation – that the prices of labour power are systematically inferior to their value (Carcanholo 2017). In the first half of the 20th century Argentina and Uruguay attained the highest per capita consumption of beef in the world. In Argentina, annual per capita consumption leapt from 56.1 kg in the years 1914–19 to 87.9 kg in 1950–59. Between 1914 and 1919 exports exceeded domestic consumption, with 590,000 tons exported and 460,000 consumed internally, and after the 1920s domestic consumption became the dynamic axis (Cf. Guadagni, 1964).

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which it limits the expansion of relative surplus value. Just because we suggest relative surplus value might be consistent with the centrality of labour superexploitation does not mean we see it as progressive or integral to the most advanced stages of dependent capitalism. The rise in productivity and the technical and organic compositions of capital is accompanied by an increase in the concentration and centralisation of capital and inter-capitalist transfers of value. In Capital Volume 1, devoted to capital in general, Marx makes some key points about these processes. His observations cast doubt on the notion that relative surplus value represents a capitalist future based on technical progress, and are of a piece with certain formulations in The Communist Manifesto. For example, in Chapter 32 of Capital Volume 1, Marx notes that the stage succeeding primitive and prehistoric capital accumulation develops through the interplay of the immanent laws of capitalist production itself. This new stage sees the inter-related growth on an expanding scale not only of the cooperative form of the labour process, the conscious technical application of science, the planned exploitation of the soil, the entanglement of all peoples in the net of the global market, and the international character of the capitalist regime, but also of the concentration and centralisation of capital. He goes on to point out that, Along with the constantly diminishing number of the magnates of ­capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. marx 1974, 715

Likewise, Marx and Engels observe in The Communist Manifesto that, Hitherto, every form of society has been based, as we have already seen, on the antagonism of oppressing and oppressed classes. But in order to oppress a class, certain conditions must be assured to it under which it can, at least, continue its slavish existence. The serf, in the period of serfdom, raised himself to membership in the commune, just as the petty bourgeois, under the yoke of the feudal absolutism, managed to develop into a bourgeois. The modern labourer, on the contrary, instead of rising with the process of industry, sinks deeper and deeper below the conditions of existence of his own class. He becomes a pauper, and pauperism develops more rapidly than population and wealth. And here it becomes evident, that the bourgeoisie is unfit any longer to be the ruling class in

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society, and to impose its conditions of existence upon society as an overriding law. marx and engels 2002, 232–233

The contradictions between super-exploitation and relative surplus value deepen in the measure that the organic composition of capital, technological monopoly, the luxury consumer goods sector, the centralisation of capital and the financialisation of the accumulation process all develop. Ultimately this leads to relative surplus value being blocked and wage decline affecting large numbers of workers. We can show this in algebraic terms using three different scenarios. In the first, we see a given capital before it suffers any transfer of surplus value. In the second, this capital suffers surplus value transfers that affect the luxury consumer goods sector. In the third, a capital of initially identical composition and active in the essential consumer goods sector suffers transfers of surplus value for the same reason: 1) c + v + s = p 2) 3)

v +s= x v c+ +s= x c+

p.y z p. y x

In these equations, c = constant capital; v = variable capital; x = the devaluation of commodities representing essential consumer goods, which outweighs changes in their productivity and so drives their price below their value; s = surplus value; p = the value of the product; y = the variation in the productivity of the capital of a lower technical composition; and z = the average devaluation of commodities in the luxury consumer goods sector, which is lower than changes to their productivity and so drives their price above their value. For the sake of simplicity, we shall assume that each commodity in the essential consumer goods sector represents the average value and productivity of commodities in the sector, and likewise with respect to the luxury consumer goods sector. Assuming that in the first equation c = 200; v = 300; s = 500, and p = 1000, and in the second equation x = 2; y = 1.4, and z = 2, we will find that the appropriation of surplus value from the capital of lower composition cancels out the increase in its rate of surplus value and maintains the same rate of profit, blocking relative surplus value and wage rises. Therefore if the profit rate of the given capital in equation 1 is 1 then that remains constant in equation 2, with the value of the commodities representing essential and luxury consumer goods having fallen by as much as the value of the mass of wages. But if the capital in question increases its organic composition in order to raise pro­ ductivity, then its rate of profit can only be restored by cutting real wages,

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­ rolonging the working day or intensifying work. If we change the values of z p by ­increasing them and reduce those of y, then once again the profit rate falls. It also falls if we start with a higher rate of surplus value in the original composition of the capital of lower technical composition and the aforementioned variations in productivity remain constant. In the third equation, if we assume x = 2 and y = 1.3 then the profit rate in the lower composition capital will fall – from 1 in the first equation to 0.85. This prevents the lower composition capital from enjoying relative surplus value and rising wages. It can only totally or partially restore the profit rate by greater exploitation of labour power and eventually shifting production towards luxury consumer items. The previous correlations apply here: a fall in x and an increase in y both favour relative surplus value in capital of a lower composition, whilst a rise in the organic composition hinders it; and an increase in the rate of surplus value in equation 1 disfavours it in equation 3, providing the aforementioned variations in productivity remain constant. These simple equations show that, even in the presence of rising productivity, technological heterogeneity and the operation of extraordinary surplus value within and between branches/sectors of production can end up blocking relative surplus value in capitals of a technically inferior composition. If those capitals employ the majority of workers in a social formation, then the value transfers they suffer will lead to a situation where super-exploitation prevails and relative surplus value is restricted or suppressed. But whilst algebraic exercises can forewarn of such possibilities, only the retrospective and prospective analysis of historical patterns of accumulation can describe the forms assumed by super-exploitation in dependent countries. One variable of super-­exploitation that such accounts must include is the rise in the value of labour power related to increased years of schooling and skills levels without a commensurate increase in its price, which masks a fall in labour power prices below their value which is nonetheless compatible with a rise in real wages. Marini’s argument that super-exploitation can spread to central countries is supported by Marx and Engels’ observations concerning the impact of capital concentration and centralisation on workers. The extension of super-­ exploitation does not eliminate dependent countries’ specific function within the international division of labour, as some Marxist dependency theorists suggest, but it does introduce a new level in the technical composition of monopolies that situates most of the workforce in the central countries below the average social conditions of global production. The spiralling inequality and wage stagnation in the United States and Western Europe illustrated by Piketty (2014) are an expression of this trend. The high level of capital centralisation and concentration is reflected in the weakening impact of cycles of foreign capital inflows on dependent

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c­ apitalist development. In studying these cycles, the Marxist theory of dependency highlights the tendency towards medium and long term decapitalisation, which is intermediated by inflow-dominated periods that concentrate and centralise capital (Caputo and Pizarro 1974, Dos Santos 1978a, Martins 2011). This tends to produce a structural increase in the ratio of foreign capital stock to gdp and transfers, which over the longue durée combines with inflow volatility to force countries to expand their trade surpluses, through super-exploitation, except where tourism or emigration provides a major source of foreign exchange. In analysing peripheral capitalism, Cardoso stressed the importance of development over dependency. He wagered that its expansion would be financed by transactional corporations and international bodies in service of their own needs, in a manifestation of historical processes that supposedly got underway in the 1960s (1993a, 112). But concrete reality has provided little support for his theory. Instead, the contradictions of dependent and associated development have exposed peripheral capitalism to financial vulnerabilities and a neoliberal offensive that has deindustrialised, denationalised, boosted fictitious capital, reduced investment and produced poor rates of growth. Except during the 2004–2013 commodity boom, Latin America has been growing at a slower per capita rate than the world economy and falling behind per capita income levels in the world economy’s organic core ever since the 1980s.12 By dramatically increasing foreign capital’s relative stock in Latin America, the neoliberal model raised remittance levels far above those of capital inflows, leading to negative net international capital flows even in periods of rising inflows such as 2010–2014. This state of affairs made it vital to have a healthy trade balance, including in periods of currency appreciation such as the latter. That was only made possible thanks to the commodity price boom from 2004 on, which allowed centre-left or more radical governments in the region to carry out moderate reforms in an atmosphere of national-popular mobilisation of a Latin-Americanist bent.13 But the subsequent fall in commodity ­prices 12

13

A comparison of per capita income (ppp) levels in Brazil, Argentina and Mexico as a percentage of those of the United States gives us the following figures: Brazil/US: 1950: 25.5%; 1980: 39.9%; 2003: 24.8%; 2013: 30%; 2017: 25.7%. Argentina/US: 1950: 61.7%; 1980: 52.2%; 2003; 28.7%; 2013: 37.5%; 2017: 34.2%. Mexico/US: 1950: 35%; 1980: 48.9%; 2003: 32.6%; 2013: 33.9%; 2017: 33.5%. Chile/US: 1950: 38.5%; 1980: 30.1%; 2003: 33%; 2013: 42.5%; and 2017: 41.3% (author’s calculations based on Conference Board 2018). During its 1992–98 cyclical boom, incoming foreign capital exceeded outflows in the form of remittances of benefits, interests and other services by US$27 billion, while the trade balance was 89,000 million dollars in the red. During the next boom in foreign capital inflows (2010–2014), they were outstripped by outflows to the tune of some US$34 billion and the trade balance was US$136 billion in surplus (Cf. cepalstat 2018).

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and downturns in the foreign capital inflow cycle then marked the beginnings of a new historical phase for Latin America, in which the forces of neoliberalism, its fascist versions and imperialism have taken centre stage, exploiting the centre-left’s weaknesses and the disarray within the historical bloc that emerged in the first decade of the new century. The post-1994 expansive Kondratiev’s likely exhaustion by the end of the 2010s, the chronic slowdown in the expansion of international capital flows and foreign trade, the structural increase in remittances together with the rise in direct investment stock, and the further concentration and centralisation of capital all point to a sharp rise in rates of super-exploitation under Latin American dependent capitalism that will restrict even further the potential for relative surplus value. One of the drivers of super-exploitation under modern capitalism is the financialisation of capital. This produces fictitious capital, which is essentially supported by the State and public debt expansion in particular. The impact of fictitious capital production on contemporary capitalism is closely tied to the techno-scientific revolution and automation, which, in significantly reducing the mass of value represented by labour power, ensures that the rising rate of surplus value and economies in labour power are increasingly too low to sustain extraordinary surplus value. It seeks to resolve the contradiction between increased productivity and value creation in the accumulation of capital. This hypothesis has also been advanced by Adrián Sotelo Valencia (2010) and Carlos Eduardo Martins (2011). The creation of fictitious capital, whose basic formula is M-M`, carries with it the expectation that surplus value can be produced without labour’s mediation, and its realisation transfers demand and value out of the sectors producing basic consumer goods and into the luxury consumer goods sector. Despite highlighting the linkages between internal and external debt in his analysis of the crisis of associated development, Marini paid insufficient attention to the issue of financialisation and its implications for subimperialism. Nonetheless, in La política de fomento a las exportaciones y el déficit público en Brasil (The policy of promoting exports and the public deficit in Brazil, 1988) and El experimento neoliberal en Brasil (The neoliberal experiment in Brazil, 1992), he did draw attention to the existence of a ‘transfer economy’ that makes it impossible for the Brazilian economy to function effectively as an export economy. The transfer economy operated on the basis of two key mechanisms: (a) protectionist regulation of substituting imports, which guaranteed the domestic, foreign or joint industrial bourgeoisie a market share and monopoly prices; and (b) running up a large internal public debt. This latter mechanism, originally designed for making external debt interest payments in dollars, became a key component of the local bourgeoisie’s accumulation process and

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was internationalised through Cardoso government’s policy of financial liberalisation, which was continued by its PT successors. The transfer economy seriously limited the scope of Brazil’s sub-imperialist project by reducing investment rates and turning the State into a source of fictitious capital accumulation and realisation, which partly replaced the production and realisation of commodities. In the 1990s the dismantling of the industrial dependency-related accumulation regime, linked to commercial and financial liberalisation, placed further constraints on the sub-imperialist project by overvaluing the currency, deindustrialising, discouraging exportation and putting fictitious capital production (via the expansion of public debt) at the core of the transfer economy. PT governments revived the subimperialist project when they relaunched industrial policy via the bndes development bank. This gave the project a different character to the one it had assumed in the 1970s/1980s. Back then it was linked to attempts to use financial dependency to internalise heavy industry and control nuclear and electronic technologies, as well as being linked to super-exploitation, state terrorism, and the regional ideological borders envisioned by Brazil’s leading theorist of the military dictatorship of big capital, Golbery do Couto e Silva. In contrast, the PT only promoted certain industrial sectors, which were less strategically important to global value chains and were tied to agro-industry, mineral resources and civil construction, encouraging them to internationalise their operations by creating large internal productive monopolies. This subimperialism exerted most of its commercial and ­financial power in South America, with which it achieved impressive trade surpluses. But its influence stretched also to the Caribbean and Africa, where its investments generated significant profit remittances. It was associated with a centrist and multilateral international policy, distancing itself from the US and moving closer to China (via the brics) and to Bolivarian integrationism, minus its anti-imperialism. Domestically, its centrism consisted of combining the neoliberal model with moderate social and democratic reforms. This approach strengthened the industrial fraction of the bourgeoisie, its national base and state control of natural resources, recalibrating the hegemony of fictitious financial capital and foreign capital without threatening it. The 2016 coup put an end to this project in favour of a far purer neoliberal model – one aligned with the United States and based on intensified super-exploitation, fictitious financial capital, and surrendering national control over strategic resources and major value-added chains to foreign capital. Brazilian sub-imperialism thus represents two possibilities. It can be a means of achieving an economic surplus and investments in keeping with the limitations that super-exploitation imposes on the internal market. It can

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also be a geopolitical project led by internal fractions of the state techno-­ bureaucracy that seek greater autonomy within dependency and combine with different social forces that assume a variety of historical forms. As a geopolitical project, subimperialism has now been defeated twice over: by neoliberalism, which isolated the military governments and dismantled their plans for technological autonomy within dependency; and by the 2016 coup, which stymied and destroyed the slow revival of state capitalism as a means of promoting industrial policies and tightening control over strategic resources. As for realising surpluses and investments, sub-imperialism was limited by the financialisation of the Brazilian state, the semi-destruction of the country’s industrial base, and the commodity boom-driven expansion of the domestic market. However, the political economy of the coup has imposed a decline in popular consumption and huge cuts to primary public expenditure. This has shifted economic dynamism towards exports and further transnationalised the Brazilian economy, meaning it will probably reorient itself towards the aggressive conquest of international markets. Attempts to contain financial capital through interest rate reductions and a highly restrictive fiscal policy suggest this reorientation will target low-technology sectors, and under the leadership of international capital move away from the old partnership of state capitalism and local fractions of the industrial bourgeoisie. Its limits lie in the association with low added-value sectors and the absence of a national system of innovation capable of taking Brazil to higher levels within the international division of labour. Turning finally to the issue of socialism, we find that neither Ruy Mauro Marini, nor Theotonio Dos Santos, nor Vânia Bambirra defended this political choice on the basis of economic stagnation, as Fernando Henrique Cardoso, José Serra, Bresser Pereira, Guido Mantega and Gabriel Palma have all charged. They chose socialism as a means of confronting super-exploitation, deepening inequality, denationalisation, attacks on democracy and the limits that dependency increasingly puts on development in peripheral capitalism, condemning it to new forms of underdevelopment. Socialism might start with national revolutions, but it should not limit itself to national spaces or turn to delinking as a model that exists outside specific and provisional historical conditions. Instead it should articulate a new geopolitical axis of regional and intercontinental power in the world economy, pursuing short to long term wars of position and movement against imperialism and its peripheral partners in order to crack holes in the centre-periphery divide and build a different kind of world order.

Chapter 7

Latin America: Dependency, Neoliberalism and New Patterns of Development From the 1970s onwards, the neoliberal model of development expanded throughout Latin America. It started with local experiences in Chile, Argentina and Uruguay before gaining momentum in the 1980s. By the 1990s the model dominated the region as the Washington Consensus took hold. It then entered into decline in the first decade of the 21st Century. Nationalism reemerged under new forms, ranging from powerful popular organising and mobilisation to state capitalism. Nonetheless, periods of decline are drawn out and develop in fits and starts. It is therefore too soon to call time on this paradigm as long as it retains strongholds in Mexico, Colombia, Peru and Chile and conditions macroeconomic policy in countries like Brazil, ruled by a Third Way left.1 Neoliberalism reshaped relations of dependency, undid import-substitution policies and created new relationships between Latin America and the world economy. It did this in two main stages. The first was in the 1980s, when the hegemonic power, in the grip of a long-term crisis, drained the world economy of its surpluses without offering Latin America any reorganised division of labour or pathway to development. The second stage got underway in the early 1990s. As the United States prepared for a fresh expansive cycle it designed a new project of international insertion for the region, which it condensed into a set of public policies known as the Washington Consensus. We can also locate a third stage, of decline, in the first decade of the 2000s. In this period, the still-dominant neoliberal project was modified in light of (1) China’s ascent in the world economy; (2) the popular anti-neoliberal consensus driving political change in Latin America and represented by resurgent popular or state-­ bureaucratic nationalisms, and (3) Third Way approaches which adapted the neoliberal macroeconomy to independent foreign policies, s­ocial domestic

1 Note to the English edition: The 2016 coup in Brazil marked a rupture with the experience of centre-left governments and the end of the New Republic, which since its inception in 1985 had overseen the transition from the military dictatorship of big capital to democracy. A new regime is now taking shape; it combines political liberalism with fascism in order to limit the former without formally eliminating it and violating popular sovereignty.

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compensatory policies, and industrial policies such as the one Brazil pursued via the bndes.2 In the first two periods the structuring of Latin America took its cue from the hegemonic centre. During the 1980s neoliberalism in the region was mainly experienced through the effects of US policy on the world economy. Actual neoliberal experiments took place in isolation in authoritarian fascistic environments such as Chile and Argentina, and for the most part a sturdy protectionist structure was maintained to help generate the surpluses needed to ­service and pay interest on the external debt. But in the 1990s the regional macroeconomic architecture began to change. Protectionist structures were dissolved in favour of trade and financial liberalisation and exchange rate fixing or appreciation. A new and unsustainable macroeconomic architecture transformed surpluses into deficits. The crises in Mexico (1995), Brazil (1998) and Argentina (2001) led to fixed (or semi-fixed and strengthened) exchange rates being replaced by fluctuating rates in the neoliberal political economy. In crises during the cyclical movements specific to dependent capitalism, when capital outflows predominate, this serves to encourage extreme currency devaluation as a means of restoring trade balances and equilibrium in the ­balance of payments. Over the decade fluctuating exchange rates became a dominant feature both where neoliberal policies prevailed (Mexico, Colombia, Peru) and where Third Way policies were implemented (Brazil, Chile, U ­ ruguay). At the 2 Note to the English edition: We can also identify a fourth phase of the neoliberal offensive – one ushered in by the coups in Paraguay (2012) and Brazil (2016); the earlier coup in Honduras (2008); the electoral defeat of Kircherism in Argentina (2015); the dismantling of UNASUR; the isolation of national-popular experiences in Venezuela, Bolivia and Ecuador, and the election of Piñera in Chile or Bolsonaro in Brazil. This fourth phase is linked to the destabilisation strategies pursued by US imperialism and local oligarchies, and to the cycles of the world economy. Key factors include the oil price-cutting policies accompanying OPEC’s expansion of production; the development of shale gas and the transformation of the US into an oil power; capital flight; the falling price of raw materials since 2014; the reversal of the 2010–15 cycle of foreign capital inflows to the region, causing a balance-of-payments bottleneck in countries such as Venezuela and Argentina; the limitations of centre-left policies in countries like Brazil, which adopted stabilisation policies at the expense of popular support, and of national-popular policies like those of Venezuela, which paved the way for large-scale capital flight by failing to intervene in the financial sector and centralise the exchange rate; and the limited application of sovereign regional integration policies, as seen in the failure to to set up the Banco del Sur or create a stabilisation fund or regional anchor currency. The fourth phase articulates neoliberalism with the mobilisation of a fascist mass base in order to overthrow democratically elected centre-left governments and legitimise new ones based on violence against an internal / external enemy (Latin American communism, Bolivarianism, workers and minorities). The 2018 victory of Manuel Lopez Obrador in Mexico with a large Congressional majority gives an idea of the extent of political polarisation and the strength of the Latin American left.

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same time, countries that took a nationalist stance and pursued a new public policy paradigm were able to increase their autonomy. Such was the case of Venezuela, Ecuador, Bolivia, Argentina, Paraguay and – until it suffered an oligarchical coup at least – Honduras. In the opening decade of the 21st Century, the turnaround in the terms of trade thanks to Chinese demand in the world economy was a crucial factor in sustaining Latin America’s macroeconomic architecture. China became a major importer from the region, but its share of foreign investment in Latin America remained derisory until it began to pick up from 2010 on. This has increased the elasticity of the fluctuating exchange rate and restricted its procyclical effects, because in periods of capital inflows change of this type, economic growth tends to be less sustainable, threatening to upset the balance-of-payments equilibrium by promoting exchange rate appreciation and the return of trade and current account deficits. The rise of China as a major financial, productive and commercial centre reveals a complex world economy that articulates three key patterns of accumulation: central capitalism, dependent capitalism, and Chinese-led accumulation with little or no dispossession, in which the technological dynamic is linked to the population’s peripheral-type consumption patterns. Latin America’s relationship with the Chinese economy presents serious contradictions: it temporarily reverses the decline in the terms of trade between basic and manufactured products; deepens export primarisation, and offers a window of opportunity harbouring both risk and potential that will probably remain open at least until the end of this new expansive Kondratiev phase in the world economy. But whether this opportunity for catch-up is grasped, or whether it disappears from view with a resumption of the decline that so clearly set in during the 1980s and 1990s, depends on the State and public policy. This chapter seeks to get the measure of the impact on Latin American development of the new types of articulation with the world economy introduced by neoliberalism. Whereas regional development between 1950 and 1970 produced both economic growth and inequality, the neoliberal period of 1980–2002, which coincided with the Kondratiev B-phase in the region,3 dismantled the architecture of growth and deepened peripheralisation and inequality. The outcome was poor economic growth; denationalisation and destruction of the productive apparatus’ higher value-added segments; deepening super-­exploitation, and environmental decay. The post-2003 period has 3 In keeping with dependency, Latin America suffers a certain delay in articulating itself with the cyclical movements coming out of the hegemonic centre. The Kondratiev B-phase began taking hold in Latin America in 1980, exhausting itself in the region as a whole by 2002.

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since r­ estored growth in the region to world economy levels, thus stalling its drift towards peripherisation. But this process rests on shaky foundations, namely the reversal of declining terms of trade, primarised exports and the continuation of fluctuating exchange rates in many countries. Furthermore, the financial sector has retained the foothold it secured during the years of recession and held down investment rate growth in Latin America as a whole, with the latter remaining well below 1970s levels despite national saving increasing at a faster rate than in the 1990s and the expansion of the communications, transport and storage sectors. Regional economic dynamics are now linked to the internal market, thus favouring those countries that promoted it via major social reforms and state investment; and to the Asian market, boosting the region’s Pacific coast. The coming decades will undoubtedly test the sturdiness of the foundations of Latin America’s economic growth and see a conflict between an expanding internal market and ­increasing investment rates, and the limits of a political system linked to the power of a monopolistic financial bourgeoisie that produces luxury goods and/or exports commodities. We shall now describe the new stage of dependency, before then sketching out what a sovereign version of international articulation might look like. 1

New Patterns of Dependency in Latin America

1.1 Neoliberalism’s Regional Consolidation Two key factors helped neoliberalism consolidate itself in Latin America: the defeat of the popular movements of the 1960s and 1970s by fascist dictatorships and redemocratisation processes articulated with US regional hegemony; and the reworking of US policy towards the region since it entered a hegemonic crisis. In Chapter 4 we saw that from the 1930s to the 1960s the United States exercised virtuous leadership over the world economy. The decentralisation produced by its current account surpluses and its multinationals’ capital ­exports helped the world economy grow at very high growth rates over this period. At the same time, the creation and reinvention of a whole set of international institutions by the US represented a progressive victory for humanity. But by the 1970s it had stopped fuelling the world economy and become a brake on its development. The institutions it had set up in the 1940s entered a crisis of international legitimacy. This manifested itself on various levels: the breakup of the Bretton Woods system that based global monetary standards on gold-dollar parity; the crisis of legitimacy afflicting UN institutions, whose

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decision-­making processes were by then seen more as a tool of the big powers than a guarantee of self-determination, and the crisis of global models of development. As we saw, hegemonic crises begin with the economy. The United States was compelled by its growing current account deficits to start capturing international savings instead of providing liquidity to the world economy. These deficits first appeared in 1971–1972, and were kept under control until 1976, but from then on imposed themselves in systematic fashion. This had a devastating effect on peripheral patterns of development. Latin America was hit especially hard as it had run major trade deficits during the 1970s, relying on the availability of international capital to finance its ever deepening current account shortfalls. The United States responded to its loss of international competitiveness by strengthening the dollar and using its regional power to delay its decline. Neoliberalism, meanwhile, provided the ideological cover it needed to launch an offensive throughout Latin America. This had three aims: to reduce its trade deficits with the world through trade surpluses with Latin America; to create the conditions for US investors to make money and incorporate assets through speculation and bargain, and to minimise restrictions on the circulation of capital and goods, thereby enabling it to reduce production costs and increase the competitiveness of its enterprises by reorganising the regional division of labour. The difficulties it had in consolidating itself meant that only in the 1990s did this US offensive finally manage to take hold across the whole of Latin America and dismantle the protectionist structures previously enacted by importsubstitution policies. The resource drain imposed on Latin America in the 1980s meant resources could only be financed by obtaining significant trade surpluses. This created a bond between the neoliberal experiment and authoritarian regimes, as the latter encouraged labour super-exploitation as a means of offsetting the negative effect of trade liberalisation on their ability to achieve the balances needed to finance their current account deficits, which along with their external debts were deepening. This neoliberal process found fullest expression in Chile, where fascism brutally imposed super-exploitation on workers. But Chile was a comparatively isolated case, and the Argentine and Uruguayan dictatorships failed to survive the recession of the 1980s. Despite being boosted by the key role it played in redemocratising the Southern Cone, US leadership was seriously undermined in the 1980s by its failure to offer a programme for development that would expand the Latin American economy just as it had in the 1950s and 1960s, albeit with major social contradictions. Along with the crisis and dissolution of the dictatorships,

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this absence of a hegemonic project led Latin American countries to seek ­alternatives and develop closer, more collaborative relationships with one another. Thus attempts were made with Cuba’s active support to collectively renegotiate the external debt via the Latin American and the Caribbean Economic System (sela) and the Cartagena Group. In addition, Presidents Sarney (Brazil) and Alfonsin (Argentina) laid down the framework of an economic integration agreement that would prioritise strategic sectors by integrating the capital goods sector, supporting scientific and nuclear cooperation, and seeking out markets for wheat production. For much of the 1980s the United States was not in any position to reverse this trend, and only managed to regain the initiative by changing its public policies. When the Reagan administration tried to tackle its current account deficits through strong dollar diplomacy and a turn towards neoliberal economic policies, the national debt and trade balance deficits skyrocketed. This laid bare the limits of such an approach. The potentially explosive impact of the national debt and current account deficits on US financial equilibrium became clearer, and steps were taken to devalue the dollar, cut interest rates, and extend and deepen neoliberal influence throughout Latin America and the Caribbean, including under President Bush. Falling interest rates, the 1990–1991 economic crisis and the need to plough savings into productive investment all briefly helped to reduce US current account deficits from around US$160 billion in 1987 to US$48 billion in 1992. As capital became available, it had to be internationalised for the US to reorganise its competitive insertion in the world economy. It renegotiated the Latin American external debt, promoted trade and tariff liberalisation in the region, and encouraged strengthening currencies and tying them to the dollar so that international prices would level internal prices in the region. It also launched the Enterprise for the Americas Initiative and negotiated nafta. Later, the Clinton government would cut interest rates, devalue the dollar, and further integrate the region on overwhelmingly neo-liberal terms. Thus the stage was set for Latin America to replace the trade surpluses of the 1980s, now absorbed by external debt interest payments, with trade deficits that would deepen throughout the 1990s. A major neoliberal assault gathered force across Latin America, with the Washington Consensus its chief ideological reference point. The Washington Consensus came out of the Reagan-era convergence ­between the positions held by the senior bureaucracies at US government economic agencies, the Federal Reserve Board, and Washington-based international financial agencies on the one side, and economic consultants and members of Congress on the other. In practice, its proposals were only applied to Latin America at the end of the 1980s. According to Williamson (1990), the

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Washington Consensus was a development plan based on a thorough reworking of US public policy towards the region. Ten key policy measures lay at its core: fiscal discipline; making health and education a budgetary priority; tax reform; setting positive interest rates; appreciating and fixing exchange rates to make them competitive; liberalising trade policy by dismantling tariff and ­para-tariff barriers; opening up to foreign investment; privatisation of state enterprises; broad deregulation, and protection of property rights. This programme was applied extensively, even with local variations such as Brazil’s sky-high interest rates and the overvalued exchange rates, which undercut most Latin American countries’ competitiveness. But these variations never departed from the Washington Consensus and received full support from its backers. Its impact exposed the full extent of the dependency phenomenon in the region and the stake held in it by local ruling classes. Intracountry tariff reductions, which had been applied on a gradual, stop-and-go basis since 1960 through the Latin American Free Trade Association (lafta) and the Latin American Integration Association (laia), were now applied far more intensively. Latin American integration was adapted and subordinated to the new hegemonic project. The Washington Consensus promised to get Latin American economic development back on track by boosting competitiveness and reducing poverty. Economic growth rates and foreign capital inflows would be restored, and increased competition would raise national productivity as economies specialised in sectors where they enjoyed a comparative advantage and let go of those with relatively higher production costs. The results, however, were extremely disappointing. Per capita gdp growth was not sustained, leading to crisis and stagnation between 1998 and 2003. Currency overvaluation had fuelled dreams of greater consumption and working class purchasing power, but turned into a nightmare of falling wages, deepening poverty and unemployment. At the same time, rising external debts, denationalisation and the destruction of the region’s highest value-added segments all contributed to a decline in the terms of trade. At the end of the 1990s US hegemony was again plunged into a far-reaching crisis of legitimacy that engulfed the local bourgeoisies under its wing. This had serious implications for a dependency historically rooted in a ‘compromise situation’ that articulates foreign capital with national capital internally. Such capital is dependent from birth, and uses the State as a tool for negotiating and reconciling different interests. But in Latin America neoliberalism had rendered the very foundations of that compromise obsolete. It had destroyed national bourgeoisies’ productive structures across the board via denationalisation and restricted the State’s powers of initiative and managerial function

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by subordinating it to the ‘cosmopolitan’ rules governing the international circulation of capital and goods. As a result, the ‘compromise situation’ that had established dependency as a historical necessity went into deep crisis. Local bourgeoisies lost much of their autonomy and capacity to lead the development of the productive forces. Their power to develop the productive forces, including through super-exploitation, had underpinned the control of the State by national bourgeois factions. The political crisis of such groups was a sign this relationship had been severed. Their crisis drove Latin American politics in a leftward direction, most notably during the cyclical period of foreign capital outflows that lasted from 1999 until 2009.4 Bourgeois power was relegitimised either by the centre-left in countries where Third Way policies were applied (Brazil, Uruguay and Chile especially) or by a more moderate nationalism rooted in party and state bureaucracies (Argentina). With its turn towards China in the 2000s, Latin American foreign trade played a crucial role in this process by temporarily improving the terms of trade and conditions for economic growth, restoring the Kondratiev A-phase throughout the region. In the next section we outline the nature of the economic cycles articulated by neoliberalism since it first encroached upon the region in the 1970s, before moving on to an empirical analysis of the forms that its expansion has taken since the 1990s. 2

Neoliberalism and the Economic Cycle in Latin America

As neoliberalism took its place as the hegemonic ideology, we find that Latin America became articulated with the world economy in two main stages: financialisation, which began in the late 1970s and whose influence waned in the first decade of the 2000s; and productive accumulation, which from that point on established itself more globally, although some countries had already 4 Ever since the Zapatista rebellion broke out in the mid-1990s neoliberalism has been on a trajectory of decline in Latin America. That decline manifested itself more clearly towards the end of the decade through a series of political defeats. The rise of Hugo Chávez in Venezuela, Lula in Brazil, Rafael Correa in Ecuador, Evo Morales in Bolivia, Daniel Ortega in Nicaragua, Lugo in Paraguay, José Mujica in Uruguay, the Kirchners in Argentina, and Ollanta Humala in Peru, together with the PRI’s defeat in Mexico and the quasi-election of López Obrador, are all part of the same crisis of the neoliberal paradigm and the search for alternatives. In the Chilean case, the Christian Democrats attempted to regain ground at the expense of their Socialist Party partners in the Concertación through the candidacy of Eduardo Frei, who ended his term in office with very low ratings. This opened the way for the victory of the right in the 2010 elections.

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entered this stage in the 1990s. Such was the case of Chile and Mexico – the latter following the crisis of 1994–1995. The first moment of financial accumulation lasted from the late 1970s until the 1980s, when rising US interest rates led to capital outflows in their different guises outstripping capital account inflows. To part-finance these outflows the trade balance had to be restored. Its second moment came at the outset of the 1990s, when international interest rate cuts, external debt renegotiation and continued positive trade surpluses up until 1991 provided the basis for building up international reserves that would underwrite a policy of trade deficits and attracting foreign capital via high interest rates and national currency appreciation. The biggest macroeconomic contradiction faced by financialisation during its second moment in Latin America was between the explosion of national debt securities and private sector financial instruments, and national public and private sector reserves and their ability to pay (Dos Santos 1995b, 1995c). Financialisation caused a sharp decline in the higher value-added segments developed by import-substitution policies in the region, such as capital goods. Eventually it created a need to generate large trade surpluses and led to whole swathes of national public and private sectors being transferred into the hands of international capital, helping to finance the negative current account balance and public and private debts once the cycle of financial investment was exhausted. The productive accumulation phase began as financialisation displayed its first signs of exhaustion in the second half of the 1990s, notably in Mexico. During this period neoliberal policies were overhauled and replaced fixed exchange rates with fluctuating ones as the cornerstone of exchange rate policy. Four factors eased the crisis caused by the cycle of foreign capital outflows in between 1999 and 2009 and allowed for a relatively smooth and accelerated transition to the Kondratiev A-phase: (a) the reversal of declining terms of trade thanks to Chinese demand for basic and primary products; (b) the foreign currency inflows resulting from mass Latin American emigration to the United States and Europe in the 1990s and 2000s; (c) Third Way policies that exploited the favourable international conjuncture to attack extreme poverty, stimulating economic expansion, and (d) nationalist income and property distribution policies or partial destruction of fictitious capital, which strongly boosted domestic demand. The first two factors allowed relative macroeconomic stability to coexist with fluctuating exchange rates by taking maximum advantage of their countercyclical results in the period of foreign capital outflows (1999–2009). The terms of trade rose to their highest levels since 1950, sustaining very positive

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trade balances, and the absolute value of emigrant remittances tripled between 1998 and 2006 from 32% to 67% of the revenue deficit, contributing to current transaction surpluses between 2003 and 2007 on a scale unseen since 1950 or 1984, when the current account balance was marginally positive.5 This made it possible to accumulate reserves and reduce external debt. Improved terms of trade and domestic demand became the main drivers of renewed economic growth in the region. The nationalisms that emerged in this period in tandem with mass mobilisations designed more aggressive policies to stimulate domestic demand and confront the prerogatives of capital, exploiting the deep-seated crisis of oligarchical legitimacy. Countries like ­Venezuela, Bolivia and Ecuador transformed the bourgeois democratic ­political model, introducing direct democratic mechanisms and sustained anti-­oligarchic public policies by giving institutional support to popular mobilisation. Although these processes developed amidst raging social and political conflicts, the oligarchies and big capital had lost so much moral authority that they could not at the time end them through civil-military coups.6 For that, they would have to wait for said processes to lose legitimacy, and so they used ideological, economic and political terrorism in conspiring towards that goal. Latin America’s post-2003 economic expansion saw it match world economy per capita growth for the first time since 1980.7 The geopolitical axis of growth shifted towards China and the Pacific as that linked to the United States lost its dynamism. At the same time, it is unclear whether the results of this shift are at all sustainable. The process has seen a major reprimarisation of Latin American imports. This is not, however, a consequence of Chinese demand per se, but rather of how our dependent productive structures relate to it. Around 70% of Chinese imports are concentrated in the medium and hightech manufactured products segment (Figure 7.1). To get a proper foothold in that market our countries need to invest in increasing the added value of our 5 See CEPAL (2009c), available at http://www.eclac.cl/deype/cuaderno37/index.htm. 6 In this sense the coup d’etat against President Zelaya, who took Honduras into ALBA, represented the right’s first success. But it happened in a country which had not made the institutional changes needed to entrench participative democracy. The Supreme Court, Congress and army all played a key role in the coup. 7 Latin American GDP per capita grew by 3.3% between 2003 and 2008, equivalent to that of the world economy. Argentina (7.3%) and Venezuela (5.4%) stand out. Brazil (2.5%) and, above all, Mexico (1.9%) performed far more modestly, while Peru (5.6%) and Chile (3.6%) obtained positive rates. Geopolitically, the Latin American growth axis clearly shifted towards the Pacific and China route to the detriment of the US one, and towards countries that promoted domestic demand: either by destroying fictitious capital, as Argentina did when it slashed the value of state private sector debt; or by nationalising the private sector and radically redistributing income, as Venezuela did.

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100 90 80 70 60 50

Primary Manufactured

40 30 20 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

10

Figure 7.1 Chinese imports: type of goods Source: China Statistical Yearbook 2010 (National Bureau of China 2011)

exports. That means higher internal rates of investment, a break with ­super-exploitation, and regional or semi-continental scales suited to building powerful systems of innovation that can offer the region a sustainable means of international insertion. China itself and the brics could be strategic allies in this process, deepening the shift towards a multipolar world economy and the decentralisation of technological monopolies. On the other hand, if dependent bourgeoisies remain in control of Latin American states then the dynamic nature of Chinese demand will only exacerbate the primarisation of our export pattern and severely restrict industrial and techno-scientific development. The cyclical growth period that got underway in Latin America in the 2010s is likely to display major contradictions. It was first set to establish itself in 2007, but was interrupted by the global crisis of 2008–2009 before resuming in 2010. It has tended to recreate serious financial disequilibria in the balance of payments. Furthermore, the return of foreign capital in the form of dollar inflows will probably intensify, negatively affecting Latin America’s current account. The fluctuating exchange rate depreciates during the crisis, reflecting foreign capital flight and the high demand for dollars in order to finance current account deficit-induced debt. But during the period of inflows it does the opposite, increasing profit remittances and international services as a proportion of the deficit and restricting ​​Latin American exports at the same time as overvaluing local currencies, with a negative impact on the trade balance and

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current account. Neoliberal or Third Way policies based on a fluctuating exchange rate favour foreign competition, currency appreciation and current account deficits, thus making the regional balance-of-payments equilibrium dependent on incoming foreign capital. There is a risk of going back to the dynamics of the external debt, and it looks like the region’s export offer will continue being reprimarised as trade with China grows. It will be hard for this reprimarisation to replicate the positive terms of trade of 2002–2008 because there will probably be a substantial increase in Chinese investment in Latin America, which will equalise Chinese demand and investment in the region.8 This will contain upward pressure on export prices and changes to the terms of trade in Latin America’s favour.9 A ten-year crisis, if it hits the region at the end of the 2010s will have serious social, economic and political implications. It will mark the beginning of the Kondratiev B-phase and affect global demand for international capital flows, public debt, profit rates and interest levels.10 There could then be high costs attached to the ongoing reprimarisation of our economies’ export and repeat in a new stage the path of decay and peripherization of Argentina and ­Uruguay – once important primary exporting centers – a process that began in the first half of the 20th century and continued into the second as they failed to transform themselves into major centres of industrial or techno-scientific development.11 8

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11

According to the Brazilian press, Chinese investment in Brazil, previously unremarkable, increased by 14,000% in 2010 from US$82 million to US$12 billion. This made China the country’s main foreign investor. Its investments are concentrated in commodity production and infrastructure, with priority given to mining, oil, steel, agriculture, energy transmission and transport. In 2009 China surged ahead to become the world’s leading exporter of goods, accounting for 10% of merchandise exports and at the same time 4.4% of foreign direct investment flows. This was notably higher than the mere 1% it had represented up until 2007 (CEPAL 2009a, UNCTAD 2010). China accounted for 11.6% of direct investment flows to Latin America in 2009, but 95% of these went to financial centres in the Cayman Islands and British Virgin Islands, with other Latin American and Caribbean countries representing just 0.3% of total capital flows. ECLAC points out however that this picture changed in 2010, when China signed a series of contracts representing large-scale investment in the region. During the 1939–1973 Kondratiev, the region went through two cyclical periods dominated by foreign capital inflows: 1956–1960 and 1968–1981. If that pattern repeats itself then inflows should predominate during two cycles of the expansive phase of the current Kondratiev: 1991–1998 and 2010-?. We say this, however, only as an indication of future trends and possibilities. Argentina achieved a per capita expansion of 0.6% between 1914 and 1951 and just 1.1% between 1914 and 1980, in contrast with 2.3% between 1890 and 1913. Its per capita GDP as

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Deteriorating terms of trade could combine with serious balance-of-payments disequilibria reflected in high current account deficits and capital outflows.12 This is all made more likely by the increased intensity and frequency of cyclical oscillations in global capital flows in the 1990s/2000s compared to the 1970s and 1980s.13 In order to create a sustainable basis for the future development and ­international insertion of our regions, the superprofits accumulated by the export sector should be invested in building productive, food, energy, ­techno-­scientific, environmental and cultural sovereignty. The pattern of international insertion of medium and high technology segments could thus be progressively redefined. To achieve this, however, the State would need to play a very active role in regulating social, economic, and political life. It would need to democratise itself radically enough to secure a popular support base, and fashion sovereign international policies with a view to building strategic alliances in a world of powerful multipolar tendencies. It would also need to invest heavily in education, health, science and technology and culture; overcome the limits of truncated industrialisation and technological dependence; impose environmental standards on development, and ensure that land, transport and infrastructure are geared towards the internal market. Regional integration would be a crucial element in this process as it could establish Latin America as a leading centre of global accumulation. The transition towards a multipolar world and China and East Asia’s emergence in recent decades as the world economy’s most dynamic axes suggest

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a proportion of that of the world economy fell from 246% in 1913 to 182% in 1980, and 142% in 2000, where it remained in 2008. See the Maddison Database at the Groningen Growth and Development Center, available at http://www.ggdc.net/MADDISON/oriin dex.htm. After five years of surpluses from 2003 to 2007, the current transactions balance went into the red again in 2008, 2009 and 2010. Brazil’s deficit alone stood at US$47 billion by 2010, almost doubling the 2009 figure of US$24 billion. In the same year it hit US$6 billion in Colombia; US$4 billion in Mexico, and US$2 billion in Peru. For their part, Chile, Argentina and Venezuela’s balances fell sharply in 2010 compared to 2009. See CEPAL (2009a) and central bank reports. Between 1970 and 1981 international capital flows expanded at a rate of 16% per annum. Between 1981 and 1985 they contracted, falling in 1983 to 72% of their previous highest level. Between 1985 and 1990 they rose by 30% p.a. before contracting again from 1990 to 1992, dropping to 74% of their previous high in 1991. Between 1992 and 2000 they expanded by 30% p.a. before falling to 40% of their previous high in 2003 during the 2000–2005 period of contraction. Between 2005 and 2007 they expanded by 45% p.a., falling to 53% of 2007 levels in 2009. See UNCTAD, Unctadstat (s.d.), available at http://unctadstat.unc tad.org.

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the hinterland will play a big role in the way the world-system is organised in the 21st Century. The growing extent to which the brics are coordinating international policy and addressing strategic issues at their annual ­summits – creating alternatives to the dollar, democratising international organisations, support for peaceful and diplomatic solutions, reducing international trade ­asymmetries – suggest that the multipolar tendency is here to stay and that scientific-­technological cooperation is increasing as a result. If Brazil plays a leading role in this process, Latin America could become a major centre of accumulation in the world economy. However, that would require both decisive State action and popular participation, because as we saw earlier, transnational corporations still tend to centralise R&D investment in their national parent companies.14 Sovereign regional integration can only advance if we overcome the organisational limits placed on it by local oligarchies wedded to dependency, neoliberalism and sub-imperialism. Their relationship with dependency is most acutely expressed by their adherence to neoliberalism and subordination to the hegemonic decline of the United States. This has produced a hegemonic financial sector and a revival of the primary-export and service sectors linked to it at the expense of manufacturing. Here, regional integration is seen as deviating from integration into the world market. Nonetheless, the industrial sector still has some power in Latin America and particularly in countries like Brazil or Mexico, even if in the latter case it is essentially integrated with the United States. The resumption of the expansive Kondratiev phase and rising profit rates have led industrial bourgeoisies to use the regional space to assert their national power, thus limiting the scope and potential for sovereignty and supranationality in regional integration processes. This is most notable in Brazil. The Brazilian industrial bourgeoisie accumulates large trade surpluses with the rest of South America. Throughout the region it relies on bndes to support its activities (limiting the Banco del Sur’s reach) and maximises revenues through the profit it obtains from financial operations. For sovereign regional integration to develop in a sustainable fashion inequality and asymmetries must be reduced in order to give it suitably solid macroeconomic foundations. This represents a formidable challenge for the emergent left and centre-left in the region. Having presented our main theses regarding Latin America’s developmental trajectory under neoliberalism, we shall now turn to its empirical foundations. 14 See chapter 3, footnote 6.

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293

The Balance of Payments and Limits to Growth

3.1 Historical Patterns of Trade Deficits, Current Transactions and Crisis What limits are imposed on Latin America by macroeconomic policies designed to delink economic growth from trade surpluses? We saw that for Theotonio Dos Santos, Orlando Caputo and Ruy Mauro Marini, foreign capital only increases reinvestment in a region if forced to by the pressure of competition. Otherwise it prefers to maximise its profit rates and be repatriated, benefitting its non-resident owners. Because dependent economic structures are uncompetitive and subordinated to foreign capital, their foreign capital flows tend to be negative. In their analysis of Latin America’s balance-of-payments structure during the postwar boom, Dos Santos (1970, 1972, 1978a) and Caputo (1973) both see a tendency towards wide current account deficits owing to negative balances on capital services (profit remittances, interests, technical services etc.) and, to a lesser extent, on current services (transport, insurance and travel). They put forward two ways to offset the negative weight of capital and current services: (a) via capital inflows, through a positive capital account; or (b) via trade surpluses. The first of these, capital inflows, deepens the negative balance of payments dialectically as it leads to new capital and current service payments. The macroeconomic effects of these payments are expressed in restrictions on new capital inflows and the depreciation of earlier inflows in the form of loans or productive investments. Foreign capital does not end up equalising the negative current account balance but financing it at the expense of extracting more surpluses in the mid to long term. Trade surpluses, on the other hand, represent a stable but limited way of offsetting the services deficit. Stable, because they do not imply subsequent capital flows in the opposite direction. Limited, because of the role played by financial movements, whose importance grows in the measure that capital monopolisation advances, and because dependent countries’ surpluses are largely a product of bogus and uncompetitive mechanisms such as labour super-exploitation. In Latin America, trade surpluses have proved a crucial means of lifting pressure on the balance of payments and maintaining a macroeconomic equilibrium that however precarious has ensured healthy economic growth rates, thus making external capital accumulation viable. A brief history of Latin America’s balance of payments shows how key they are to sustaining economic growth, as regional economic crises have always been preceded by the trade surplus shrinking or disappearing, meaning it cannot be used to finance

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t­echnological dependency and capital or current services in the balance of payments (Maddison 1995, Hofman 1998). Between 1900 and 1929, the progressive exhaustion of the Latin American trade surplus during the accelerated growth period of 1906–1912 led to the ­economic crisis of 1913–1919. The surplus then declined yet further during the expansion of 1920–1929, leading to the crisis of 1929–1933. The only way to overcome this crisis was by broadly institutionalising substitutive industrialization, which used export earnings to pay for industrial imports. The suspension of external debt servicing payments helped make this possible. Between 1946 and 1980, the foreign capital returning to Latin America articulated itself to the protectionist structure created by import substitution. Combined with trade surpluses, this raised economic growth rates over the period as a whole by serving as a dual means of financing the balance of payments. Economic crises in their various phases always followed periods when trade surpluses had dried up and turned into trade deficits. Thus the crisis of 1952 was preceded by the regional deficit of 1951; the crisis of 1962–1967 was preceded by the exhaustion of the surplus between 1957 and 1961, and the accumulation of huge trade deficits between 1970 and 1981 gave way to the big crisis of 1978–1990, when capital account earnings fell dramatically and the burden of financial dependency suddenly became a lot heavier. Between 1991 and 1994 Latin America was able to build up monetary reserves thanks to a combination of lower global interest rates, renegotiated external debt, the return of incoming capital flows, and positive trade balances throughout the 1980s up until 1991. A neoliberal macroeconomic architecture based on fixed or semi-fixed exchange rate regimes and currency appreciation was imposed on the region, which then ran trade deficits successively from 1992 until 1999. Between 1992 and 1994, the trade deficit jumped from 1.2% to 1.8% and the current account deficit from 2.7% to 3.3% of regional gdp. As a result, crises broke out in Mexico and Argentina in 1995 and regional gdp fell by 1%. In 1996 the trade and current account deficit narrowed to 0.7% and 2.2% respectively, but gradually recovered to 2.7% and 4.5% in 1998, when the region entered a critical juncture which saw the crisis combine in a single trend with economic stagnation in Brazil, Argentina, Mexico and Chile (Cepal 2002a). This period was followed by a major economic crisis lasting from 1999 to 2003, which benefitted the left across Latin America. 2002 saw the return of large trade surpluses, and current transactions followed suit from 2003 to 2007. The regional trade surplus reached 1.2% in 2002; 2.3% in 2003; 2.7% in 2004; 2.9% in 2005; 2.9% in 2006; 1.8% in 2007; and 1.1% in 2008, when the current

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transactions balance once again went into deficit..15 The 2003–2007 current transactions surplus helped improve terms of trade and massively expand current transfers. Such a state of affairs was however only temporary. The terms of trade rose from an index of 95.9 in 2001 to to 119.2 in 2008, but with the global crisis in 2009 they declined to 113.2. Such a long expansive trajectory is unlikely to ever be repeated. Current transfers expanded in the context of the socioeconomic crisis that got underway in the 1980s, triggering large-scale Latin American emigration to the central countries. Thus they grew by 18% p.a. in the 1980s, 8.3% p.a. in the 1990s, and 21% p.a. from 2000 to 2008.16 But from 2006 onwards the pace of this increase slackened and even went into negative figures under the combined impact of anti-immigration policies in the core, rising unemployment in the US and Europe, and improved social conditions in Latin America. Although the US$130 billion-odd current transaction surplus achieved in 2003–2007 was crucial to the ability of countries to build up reserves and reduce external debt, it was a one-off and its determining factors have deteriorated since entering the 2010s. The global crisis has eaten into the trade surplus, the terms of trade have declined and lost dynamism due to Chinese investment, and migrant remittances have been hit by unemployment in the core – a enduring legacy of the crisis despite renewed US economic growth. In addition, payments on income (profit remittances and interest payments) expanded notably by 8.4% p.a. between 1999 and 2008, far outstripping gdp growth rates over the last thirty years. This trend looks set to continue in keeping with the new wave of international investment that has entered the region since 2010.17 Over the coming decade it is therefore highly likely that should the region be dominated by moderate governments applying a left-wing version of the Third Way approach that rests on core neoliberal political-economic principles such as fluctuating exchange rates, then current account deficits will widen considerably, financed by large inflows of foreign capital. This will lead 15 16 17

Available at www.eclac.org. In their peak year of 2007, current transfers were concentrated in Mexico (39.4%), Guatemala (7.4%), Brazil (6.2%) and El Salvador (5.6%). Profit remittances and interest payments expanded by 6.3% p.a. between 1980 and 2008. They expanded by 6.2% p.a. during the period of capital outflows (1980–1990); 6% p.a. between 1991 and 1998, when inflows again predominated, and 9% p.a. between 1999 and 2006, when outflows were once again higher. Latin American GDP expanded by 2.7% p.a. between 1980 and 2008, 3.3% p.a in 1994–2008, and 4.3% in 2003–2008 – its golden age in terms of growth. See CEPAL (2009c) and Angus Maddison’s data, available at http://www .ggdc.net/MADDISON/oriindex.htm (last accessed December 2017).

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d­ ialectically to a deeper capital services deficit. A financial trap could be laid in the region’s external accounts and sprung during the transition to the recessive and tough-to-absorb Kondratiev B-phase, unleashing a multidimensional crisis that is simultaneously economic, political, social and ideological. 3.2 Low Economic Growth and Cycles We noted that under the neoliberal model, Latin America has experienced extremely low growth characterised by sharp swings. This has continued to be the case even after entering the new Kondratiev A-phase. Although the regional economy has grown faster than during the B-phase, in overall terms it remains below average growth across the world economy. We can divide Latin America’s participation in the post-1994 Kondratiev into two moments. During the first moment (1994–2002) the whole region was under the hegemony of financialisation with the exception of Chile, which by the late 1980s had entered the productive accumulation phase, and Mexico, which did likewise after the 1995 crisis. Over this period Latin America benefitted very little from accelerated world growth. During the second moment (2003–2009) the political crisis and the rise of the left and centre-left restricted the financial sector’s influence over regional accumulation processes and redirected the latter towards the productive sector. This was possible also thanks to an exceptionally favourable international conjuncture in which China became one of Latin America’s biggest trading partners. In 1994–2002, the regional per capita growth rate was only 0.8%, but between 2003 and 2008 it stood at 3.3%, equalling the world economy average. It is worth noting that between 1994 and 1998 Latin America matched per capita gdp growth in the world economy (1.9% p.a.), but the unsustainable nature of its macroeconomic architecture meant the Asian crisis of 1998 hit the region much harder than it did the world economy, which remained unaffected throughout and increased its rate of expansion to 2.1% in 1994–2002. Crucially, positive balances of payments between 2003 and 2007 enabled Latin America to survive the 2009 crisis without losing touch with global growth rates. These results became articulated with both the global factors positively impacting upon the balance of current transactions, which we discussed above, and the new cyclical period of capital inflows that began to influence our balance of payments in 2010. However, it is highly unlikely that these favourable circumstances could survive a new world economic crisis in the mid-2010s. Foreign capital and the world market played a crucial role in the Latin American crisis of 1999–2002. During the 1990s rising capital flows combined with appreciated or fluctuating exchange rates and the absence of trade barrier protection to provoke major balance-of-payments desequilibriums. No

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i­ nternational financing was made available when this occurred, as seen when the US and international agencies backed out of managing the Argentine crisis. Ultimately, these financing limits were set not only by the needs of US capital, for which reason the hegemon had given up strengthening multilateral economic institutions, but also by the spread of imbalances throughout Latin America under neoliberalism to the point where by 1998 the current account deficit reached US$87 billion as outflows began to dominate external capital flows. Meanwhile, the world market’s influence on cyclical oscillations in the region grew. Its weight within regional gdp almost doubled between 1990 and 2000. In 1990, foreign trade represented 24.7% of regional gdp. This index shot up to 33.2% in 1995 and 38.6% in 1997, and by the year 2000 it had reached 44.4%. But Latin American exports only increased from 4% to 4.9% of the world economy between 1990 and 1998, indicating their relative decline (Maddison 2001). One outcome of cycles being articulated through the world economy is that Latin America’s close trade links with the US and Western Europe, both areas of relatively low growth during the post-1994 Kondratiev, have limited its potential for growth. This makes it even more imperative for the region to cultivate stronger ties with the internal markets of the East, and Asia in particular. 3.3 Denationalisation and the Destruction of Added Value Another consequence of the neoliberal model that we mentioned earlier is the denationalisation of the economy and the destruction of its higher value-­added segments. The former stems from the macroeconomic imbalances caused by neoliberalism and deepening financial dependency, whereas the latter results from the competitive insertion of regional economies into a highly monopolised global space of commodity circulation, which destroys their internal productive bases more than it articulates them to the international market. Denationalisation can be measured by (a) the external debt-GDP ratio; (b) the proportion of mergers and acquisitions accounted for by foreign capital inflows, and (c) the proportion of national assets owned by foreign capital. Let us examine each of these indicators in turn. With regard to external debt, we find that from 1991 to 2002 it grew in proportion to gdp in Argentina, Chile and Brazil. In Argentina it rose continuously and systematically from 29.9% in 1992 to 61.8% in 2001, reaching 153.6% in 2002 amidst crisis and currency devaluation. In Chile, external debt ­represented 45.1% of gdp in 1991 and hit a low of 35.5% in 1995 during the accelerated growth period. Thereafter, however, slower expansion sharpened the decline in the terms of trade and drove external debt back up to 60% of gdp by

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2002. In Brazil, external debt fell from 27.8% in 1991 to 20.4% in 1995 as the exchange rate appreciated, but the economic downswing in 1998, the currency devaluation that followed and the external financing of balance-of-payments disequilibriums put it back on a non-stop upward trajectory, reaching 41.6% by 2002. Of all the countries under discussion only Mexico actually reduced its external debt, slashing it from 33.9 % in 1991 to 19% in 2002 after having peaked at 52.8% in 1995. But it did this through barely sustainable currency appreciation. These conflicting trends meant that Latin America’s overall external debt edged up from 36.2% to 39.9% between 1991 and 2002. From 2003 on, positive balances on current transactions began to reduce regional external debt, bringing it down to 17.3% by 2008. It then rose again to 20.2% in 2009 as current transactions went back into deficit.18 In terms of our second indicator, mergers and acquisitions, Central Bank of Argentina data shows that, between 1992 and 2002, 59.7% of the country’s direct investment inflows were used to purchase local assets. Elsewhere, based on a sample of 350-odd companies in their 2001 study of the evolution of leading Brazilian firms during the 1990s, Kupfer and Rocha (2001) estimate that transfer of ownership transactions came to US$117.3 billion and foreign capital accounted for 62.5% of this total, which corresponds to 44.5% of the financial account balance over the period in question. As for foreign capital participation in local assets, Kupfer and Rocha show that between 1991 and 1999 foreign capital’s share of profits in Brazil leapt from 14.8% to 36.4% of leading firms’ returns. At first this was due to the declining participation of state enterprises, whose share of returns fell from 44.6% to 24.3%. But from 1996 to 1999 multinational expansion would also affect local private enterprises, whose share of profits diminished from 44.1% to 39.3%. Foreign ownership was concentrated in two areas: the service sector and industry. In the former, its share of profits grew from 9.4% (1991) to 26.1% (1999), whilst in the latter it rose from 36% to 53.5%, whilst that of local private enterprises shrank from 43.5% to 34%. The destruction of the region’s higher value-added segments is made evident by two indicators: the share of manufacturing industry in gdp, and the participation of the metal-mechanical sector in manufacturing. As Fernando Fajnzylber notes, the metal-mechanical industry is the strategic sector of 18

The expanding national debt of Latin American countries is partly internationalised, assuming the form of disguised or invisible external national debt. In the case of Brazil, the region’s leading economy, foreign interests held approximately US$120 billion of internal government debt in March 2011. This figure represented over 30% of the country’s gross external debt.

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­ anufacturing, comprising around 40% of all manufacturing activity in cenm tral countries. Manufacturing industry has clearly shrunk as a proportion of Latin American gdp, and nowhere more so than in Brazil and Argentina. In Brazil, manufacturing represented 33.6% of gdp in 1980. Since then, this share has been on a downward trajectory, accelerating in the 1990s. In 1990 it fell to 28.4% and in 2000 to 19.8%. In Argentina too the decline is concentrated in the 1990s – testimony to the damaging effects of foreign trade on industrial activity. In 1980, Argentine industry accounted for 27.9% of gdp. This fell to 25.2% in 1990 and just 16.7% by 2000. In Chile a similar, albeit less pronounced, pattern took hold in the 1990s, as manufacturing fell from 21.7% to 17.4% of gdp. This put Chilean industry in a better position than its Argentine counterpart, which had suffered a currency board regime for over a decade. Mexico has the best performing manufacturing sector owing to the presence of the maquiladoras. In 1980 industry represented 22.1% of Mexican gdp, slipping minimally to 21.2% by 2000. Mexico actually increased its metal-mechanical industry’s share of manufacturing activity from 24.7% in the 1980s to 28% in 1997. But in every other country this share declined: in Brazil from 24.7% to 21.3% (1980–1990); in Argentina from 25.7% to 17.6% (1980–1996); and in Chile from 18.9% to 12.7% (1980–1996). It might be thought that the decline of industry forms part of a tendency for gdp to shift in terms of its composition towards the more dynamic and skillintensive service sector. But in Latin America this shift represents the destruction of industry’s capacity to add value more than it does the creation of a value-adding service sector. Several indicators confirm this. In 1999 Brazil spent 0.87% of its budget on R&D – the same amount as in 1988. This was far below the 2–3% spent by the central countries (Ministério da Ciência e Tecnologia 2003), and the years spent by the workforce in education remained very low. Mexico, for its part, spent just 0.4% of its gdp on R&D in 1999, whilst in 1995 0.1% of its labour force was employed in activities directly or indirectly linked to R&D, compared to 0.6% in Italy and 1.2% in France. By 2008, the picture remained largely unchanged: Brazilian R&D expenditure had edged up to 1.1% of gdp, whilst Mexico’s stayed put at 0.4%. The proportion of Mexican workers employed in activities directly or indirectly related to science and technology also remained constant. What therefore happens under the neoliberal model is that one section of industry articulates itself with the international market at the expense of the part focussed on the region’s internal market. Capital goods segments partly established with a view to integrating national and regional markets are ruined

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by international competition. Such processes lead to trade deficits and a tendency to resort to super-exploitation in order to equalise the balance of payments. During the first decade of the 2000s not even the return of accelerated economic growth after 2003 could prevent industry’s share of gdp from shrinking further in Latin America, let alone reverse the trend. Between 1985 and 2000 its share fell from 26.8% to 17.3% across the region as a whole (cepal 2009a). It then remained at that level, just dropping slightly to 16% in 2007 and 15.2% during the 2009 crisis – the lowest in thirty years. Growth was strongest in the transport, storage and communications sector, partly due to the new microelectronic paradigm, and there the industrial share of gdp fluctuated between 6% and 5.9% between 1990 and 2000 before rising to 10% in 2009. This increase combined with the industrial sector’s increasingly limited role in Latin America and the dominance of financial capital. Between 2001 and 2009 manufactured products plummeted as a proportion of Latin American exports from 58.9% to 47.1%, whereas primary products saw their share jump from 41.1% to 52.9%. But export primarisation failed to translate into an increase in the primary sector’s relative share of our economies’ gdps, as the participation of mining and agriculture decreased from 10% to 9.1% between 1995 and 2007. The greatest expansion was to be had in the communications, transport and storage sector, whose share of regional gdp jumped from 5.9% to 9.5% of between 1990 and 2007, thus underscoring its leading role in establishing the long cycle of expansion in Latin America. ­However, because it lacked the right technical and scientific infrastructure to support its development, the sector became a source of large deficits in our balance of current transactions. The financial sector has maintained the strong foothold it gained during the long recessive cycle. Its enduring economic and political weight has dampened the expansive period’s promise and conditioned the use of public resources to features established during the Kondratiev B-phase, such as high interest rates, high borrowing, and currency valorisation via swings in the fluctuating exchange rate.19 The sector’s powerful presence can be explained by 19

Between 1980 and 1990, the financial sector increased its share in Latin American GDP from 12.9% to 16.7%. This level remained constant during the 1990s before rising to 17.4% between 2000 and 2007, reaching 18.3% in 2009. ECLAC estimates of gross national debt in Latin America show a sharp reduction from 2003 onwards. Between 1999 and 2002 it jumped from 48.6% to 64.6% of regional GDP, subsequently falling to 33% in 2007. However, ECLAC overestimate the decline because their data is based on the Brazilian federal government’s liquid debt, which unlike gross debt shrank over the latter period. Gross debt increased its share of GDP from 12% in 1994 to 46% in 1999, reaching 54.1% in 2008.

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the weddedness of Latin American bourgeoisies to the US’s declining hegemonic leadership, which compounds their unwillingness to set up competitive productive structures and favours a financial dynamic, leading them to neglect opportunities for structural change. In the first decade of the 2000s, the increase in the terms of trade thanks to Chinese demand eased the balance-ofpayments situation and clashed with existing high interest rates, rendering them unnecessary for the purpose of capturing capital flows and causing them to exert a negative influence on fluctuating exchange rates by contributing to currency overvaluation. The political power of financial accumulation processes, which in Latin America reached its zenith in Brazil, explains why investment rates in the region has remained low even in a long cycle of expansion, failing to recover to 1970s levels despite rising above those of 1980–2003.20 4

Intensified Labour Super-exploitation

In the preceding chapter we discussed the theoretical determinants of deepening super-exploitation under the neoliberal model. In this section we examine how such super-exploitation has expressed itself empirically in the same period. Over some of the neoliberal period the wage trajectory has been masked by exchange rate policies that raised the population’s purchasing power above what real incomes would otherwise have allowed. This led to huge levels of borrowing and a crisis that then dragged the purchasing power of wages back into line with the real long-term pattern of accumulation. Argentina provides the clearest example of this process. During the recession and hyperinflation of the late 1980s, 32.3% of its population lived below the poverty line. The Convertibility Plan that created peso-dollar parity then reduced that figure to around 25%. Poverty remained at that level until 1999.

20

In October 2009 it hit 64% as liquidity was injected into the economy to prevent the crisis from deepening. The countercyclical and compensatory measures that followed then saw it drop down to 51% in 2011. See Banco Central del Brasil data at www.bcb.gov.br (accessed in 2011). Gross domestic investment made up 27.6% of GDP in 1980 and fell to 18–22% in the 1980s and 1990s. Its share remained steady into the 2000s, reaching 22.7% in 2008. There was however an increase in national saving as a proportion of gross investment, from 18–20% in the 1990s to 22.7% in 2008. There could be a sharp rise in investment when the next cycle of foreign capital inflows begins in the first half of the 2010s. See the different volumes of CEPAL’s annual series Estudio económico de América Latina y el Caribe at www .eclac.org.

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Economic growth then had to be curbed in order to generate surpluses, and this drove the poverty rate back up, to 35.4% in 2000 and then 54.3% with devaluation in 2002. Importantly, although poverty decreased during the golden age of neoliberalism for speculative reasons, its structural roots deepened as unemployment practically tripled from 5.3% in 1988 to nearly 14% in 1999 ­(cepal 2009b). Meanwhile, the value of labour power grew by 28% from 1980 to 2001 thanks to a rise in average years of schooling from 6.7 to 8.6.21 The case of Mexico illustrates how hard it is for the neoliberal model to prevent super-exploitation assuming the most extreme forms of wage decline. Not even after entering the expansive phase of the long cycle did wages recover to 1980s levels, when they reached an index of 113.4 – the highest point in the series. Between 1996 and 2001, they rose to 90 in 1999 and then 104.1 in 2001.22 But the economic crisis imposed limits on that increase. The level of super-­ exploitation is further illustrated by the rise in the value of labour power from 4 to 7.2 years of education between 1980 and 2001 – an 80% increase (undp 2010). Some have used the example of Chile to question whether super-­exploitation exists in Latin America, given that wages rose and poverty levels fell there ­during the 1990s. But a closer look shows us the exact opposite: that super-­ exploitation and accumulation go hand in hand. The Chilean economy grew only after a brutal dictatorship had ratcheted up poverty and unemployment. The poverty rate leapt from 19% in 1973 to 45.7% in 1987, and was still at 38.7% when Chile entered its period of accelerated growth in 1990. Can the highly dynamic nature of Chilean capitalism in the 1990s really be dissociated from the fact that surpluses were appropriated by slashing the incomes of workers and their families? The more poverty rates declined, the more the economy slowed and began heading towards the crisis of the late 1990s. But in 1998 the poverty rate was still higher than in 1973, whilst years of schooling had increased by 46% between 1980 and 2001 (undp 2010). Brazil provides another example of super-exploitation manifesting itself. Here, as in Argentina, currency appreciation disguised rising unemployment and wage erosion. Several indicators show that between 1994 and 1998, when the real was strong, workers’ wages grew. According to eclac, real wages rose from an index of 104.5 in 1990 to 110.8. However, eclac’s wage indicators are not homogeneous and depend on a variety of national sources. In the Brazilian 21 See UNDP (2010). 22 According to the Mexican National Institute of Statistics and Geography (INEGI), manufacturing industry wages plummetted after the economy was opened up in the 1980s and following the crises of 1982 and 1995. If we take 1980 wages as equal to 100, we find they declined after 1982, recovered slightly in the 1990s, and reached 71.2 in 1994. With the crisis that erupted in late 1994 they then fell again, to 60.9 in 1996 and 57.3 in 1997 (Inegi 2000).

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case, these are very limited, referring only to workers covered by social and labour laws in six metropolitan areas. In contrast, dieese data, despite only covering São Paulo, covers a broad spectrum of wage earners in the labour market, and its series is more consistent with general economic trends between 1980 and 2002. Based on an index where 1985 = 100, it shows that wages rose from 60.1 in 1991 to 72.3 in 1998, but then fell to 56 in 2002 as a result of currency devaluation. This decline is not fully reflected by fluctuations around the poverty threshold, partly because high levels of informal employment allow an ­extremely precarious service sector located outside direct capital-labour relations to serve as a bulwark against unemployment and falling wages. Nonetheless, poverty levels will almost certainly increase again as Brazil heads further into stagnation and crisis. Staying with Brazil, the disparity between rising education levels and fluctuating income levels reveal the intensified nature of super-exploitation. The 128% increase in the population’s education levels as measured by years of schooling between 1980 and 2001 can be contrasted with the 14% reduction in poverty identified by the ipea or the 10% increase in wages indicated by eclac figures for the same period. Alternatively we might contrast it with the 46% reduction in workers’ wages in the metropolitan area of São Paulo between 1985 and 2002 identified by the dieese. Meanwhile, in Colombia, poverty levels rose from 39% to 45% between 1980 and 1997 (cepal 1998b), at the same time as workforce education levels increased by 53% (undp 2010). The 17% reduction in regional poverty levels from 44% to 33% between 2002 and 2008, thanks to improved global trade terms and centre-left and left governments, suggests an inflexion in the tendency towards deepening superexploitation. But if we take the last thirty years, we find that poverty in Latin America has decreased far more slowly than education levels have increased.23 Poverty may well continue to decrease in our region in the 2010s thanks to a more moderate rise in commodity prices and the advance of left and centreleft governments. However, this trend could be hard to sustain given the chances of the world economy’s long cycle of expansion exhausting itself in the second half of the decade. In such an event, maintaining and increasing the income levels of our populations will rely far more heavily on political action.

23

The biggest reduction in poverty was seen in countries governed by the left or centre-left. Between 2002 and 2008, it fell by 43% in Venezuela, 53% in Argentina, and 31% in Brazil. In Bolivia it fell by 21.1% between 2005 and 2007.

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Ecological Decline

One of the trends driven by the dependent integration of Latin America is ecological decline. It translates into using ecosystems for social and economic purposes in ways that consume renewable natural resources at a faster rate than they can be ecologically regenerated, and represents the super-exploitation of ecosystems. The main causes of ecological super-exploitation lie in the social, economic and cultural marginalisation of broad swathes of the population in those regions whose ecosystem is exploited to satisfy the needs of another region, with no regard for its internal balance (Herrera et al. 1991, Leff 2001). For Leff, planning is sustainable if it integrates ecological, technological and cultural productivities. Ecological productivity refers to the ecosystem’s ability to produce natural resources, and it relies on conserving the core structures that ensure long-term productivity (diversity of biological populations, climate and soils). Technological productivity relies on a set of techniques that modify the ecosystem’s productive structure by converting its resources into products and introducing selective regeneration processes. Cultural productivity refers to the ability to acquire and use empirical knowledge of the ecosystem’s resources with the help of science, education and democratisation. Sustainable planning puts cultural development at the core of technological and ecological productivities. On the one hand, the scientific and educational development of a given culture leads to technologies being introduced that raise the ecological productivity of a given ecosystem. On the other hand, the democratisation of sensitivities, preferences and meanings multiplies the ways in which an ecosystem can be used, broadening the range of components (biotic and abiotic resources) that support its core structure and long-term productivity. Resources are managed in an integrated fashion, encouraging the ecological and technological recirculation of products, by-products and waste. Leff thus identifies a need for ecosystems to organise production by dividing it into production for local markets, national markets and international markets. His approach is by no means a defence of technological stagnation. In international markets, new technologies would mainly develop economies of scale and productive integration. In local markets, information technology would generally develop economies of scope. And national markets would combine economies of scope and of scale in ways that would vary from one country to another. By culturally marginalising and excluding local populations, dependent capitalism encourages unsustainable and environmentally unsafe development in Latin America. It does this in several ways:

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(a) By polarising society between poverty and luxury consumption. In this way, dependency stimulates the kind of consumption that puts pressure on ecosystems’ material resources. Luxury consumption encourages individualism and waste and encourages forms of consumption with few immaterial inputs of the kind associated with culture, leisure time, science, art and aesthetics. Consumption of the kind linked to scarcity also prioritises the consumption of material goods, but for different reasons. The concentration of agrarian and urban land ownership, to which scarcity is related, encourages predatory land use. Large estates and export-based agriculture use land in a way that reduces its biotic and abiotic diversity and pushes back the agricultural frontier in order to supply the internal market, upsetting local ecosystems in the process. Similarly, monopolistic economies lead to spatially concentrated populations where land is used inappropriately, with no thought for the expansion of public service infrastructure and the diversity that upholds environmental balance in a region. (b) By encouraging patterns of consumption and technology use that mimic those of central countries. These imitative patterns de-diversify markets and unduly emphasise the role of scales in developing productive systems. As a result, technological integration and the international division of labour develop at the expense of the preservation and diversity of ecosystems. (c) By excluding local populations from scientific and educational development, and so underdeveloping their capacity to familiarise themselves with and use local biotic and abiotic diversity to generate new products and technological processes. The development of dependent capitalism along neoliberal lines accentuates these drivers of ecological decline. Neoliberalism deepens international technological asymmetries and reprimarises dependent countries’ patterns of exports, linking their trade surpluses to agricultural or mineral products. The ecological consequences of this model are devastating.24 The proportion of forest covering Latin America fell from 51.9% to 47.2% between 1990 and 2010, 24

In Brazil, the region’s most industrially and technologically advanced country, the trade surplus depends entirely on revenues from agribusiness, which supplanted it between 1994 and 2009. In 2002–2009 the trade surplus jumped from US$20.3 billion to US$54.9 billion, whilst the Brazilian Association of Electric and Electronic Industries (ABINEE) forecast a US$27.5 billion deficit in the electroelectrónics balance for 2010, 59% higher than in 2009. UNCTAD’s R&D Innovation Capability Index for Latin America fell from 0.375 to 0.360 between 1995 and 2001, despite rising in Brazil from 0.459 to 0.478 over the same period. See UNCTAD, World Investment Report, 2005.

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and from 69% to 62.4% in Brazil. Much of this deforestation process is related to the expansion of soybean cultivation, which by 2008 took up 35% of arable land in Brazil and 52% in Argentina, up from 22% and 18.5% respectively in 1990.25 Deforestation is one of the chief signs of ecological decline in Latin America, along with species extinction, desertification, the loss of soil nutrients and the carbon dioxide emissions contributing to global warming. Conservative estimates suggest 100–350,000 tropical species will become extinct by 2030 (Herrera et al. 1991). The situation is clearly unsustainable and must be turned around. The next technological paradigm, which should emerge in a mature form in the mid2020s, is biotechnology. To take advantage of the possibilities biotechnology offers the region and humanity, Latin America must supersede the patterns of dependent development that have so far structured its social and historical formation. Less than 2 million out of an estimated 5–10 million species of organisms are known to mankind. Of the known species, 35% are in the tropics, where an estimated 74–86% of all living organisms live (Herrera et al. 1991). Preserving these species and creating the technological and scientific means to articulate them with human development represents an ethical imperative, which demands the mobilisation of Latin American subjectivity in order to bring a new regional development pattern to bear upon the world system. 6

Towards a New Pattern of Regional Development

As we have observed throughout this work, the developmental patterns that dependent capitalism has in store for Latin America in the coming decades are highly dangerous. They deepen super-exploitation; offer low or unsustainable economic growth; create political and social vulnerabilities, and damage the environment, thus upsetting the ecological balance. Such patterns go hand-inhand with the expansionary impulse of a decadent world system immersed in a full-scale civilisational crisis. A new developmental pattern is therefore in order: one that breaks with super-exploitation; democratises participation in and access to public and private administration, and prioritises economic growth whilst ensuring its compatibility with ecological balance. The new pattern should articulate itself with the international market but give precedence to the internal market and 25

The numbers affected by floods, the main cause of death by natural disaster along with storms and earthquakes, increased from 710,000 to 1,700,000 a year between the 1990s and the 2000s. See CEPAL (2009c).

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r­egional integration. The emergence of a strong popular antineoliberal consensus makes this alternative all the more feasible. Coming up with new kinds of development will require creativity and mass participation across the region. We can however sketch out some of the guiding principles behind such an endeavour: a. Latin America can only overcome its semi-peripheral and peripheral status through a combination of cutting-edge technology imports and local skillsbuilding. Sustainable economic growth requires an equilibrated regional balance of payments, and trade surpluses are crucial to achieving this. Used appropriately, they can help combat technological backwardness. But they should be generated systematically and not just in times of crisis when there is a lack of demand. Neither should they depend on reprimarising exports when commodity prices rise whilst neglecting internal ­sectoral chains that could rebalance our international insertion. Trade surpluses should form part of trade, currency, industrial and techno-­ scientific policies that shield Latin America from competition enough to earn foreign exchange and support rates of investment that allow the ­region to expand faster than the world’s organic core, thereby making income convergence feasible. Levels of protection and currency devaluation would then diminish as industrial and techno-scientific development closes the technological gap between Latin America and the world economy and raises the added value of regional exports. b. Currency and trade policy should be articulated with industrial and technoscientific policy. In other words, the region’s productive sectors should only be selectively protected. The world economy is becoming ever more integrated. It therefore falls to Latin American public policy to make integration fair by guaranteeing the survival of key productive sectors that generate cutting-edge technology. Priority should therefore be given to protecting those sectors alongside other strategic sectors such as those that produce food, essential raw materials, energy and infrastructure. These sectors can provide food security and produce the basic inputs the economy needs in order to function. c. Industrial and science/technology policy should create highly productive national and regional systems of innovation. This means subordinating the importation of technology to local skills-building. Cepalista importsubstitution policies must therefore be abandoned, because instead of generating innovation internally they favour introducing technical progress through imports. To generate technology locally, universities and ­research centres carrying out basic investigation should work with productive sector enterprises. That means the State must play an active role

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d.

e.

f.

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in nationalising and regionalising the productive and financial components of innovation, because global private investment in R&D is heavily concentrated in transnational parent companies. Such an innovation model should provide low-cost financing by setting average interest rates below gdp growth rates and granting subsidies or loans to the sectors with the greatest potential for invention and innovation. It should also help skill up the workforce and democratise management processes so that workers become a leading source of technological innovation. And it should be anchored in a large internal market, so that consumers are more satisfied and can engage in quality control themselves. Education and training policies should prioritise both universal, high-­ quality secondary education and the expansion of higher education, where most basic research takes place. These policies should encourage firms to invest in training workers.26 But they should not only offer workers formal qualifications – they should also intervene institutionally to democratise labour relations. The democratisation of labour relations implies guaranteed employment; less hierarchies; narrower wage differentials across roles; planned career development, and internal labour markets. This policy should be combined with the democratisation of social relations, which means universities, social movements and civil society organisations must be allowed access to the mass media. In financial matters the State should pursue a policy of financial asset devalorisation, devaluing securities in relation to their book value as part of a new method of calculating the principal on public debts. In addition, paying the principal on these debts should be conditional upon sustained economic growth and high rates of investment. The State should intervene in capital flows by both restricting profit remittances and controlling the exchange rate in order to avoid retaliation in the form of capital flight. Service balance deficits would narrow considerably as a result of these measures, with a positive impact on the current account. Combined with falling interest rates, this will allow a large mass of resources to be channelled into the productive sector and the State will recover its capacity for investing, which is still largely being drained by the financial sector. Fiscal policy should prioritise taxing monopolies, high incomes, and luxury consumption, stimulating internal market expansion and putting economic growth at the service of the popular sectors and eradicating In Brazil 0.5% of corporate turnover is invested in training workers, whilst globally 2% is spent on exploiting the potential of new technology. See Coutinho and Ferraz (1994).

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h.

i.

27

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­ overty. By increasing tax revenues thus, the State will be able to expand p spending and use different mechanisms to ensure that the mass of the population has access to food, clothing, housing, health and sanitation. The land ownership issue should be tackled through an agrarian reform that eliminates large unproductive property and prioritises agricultural production for the internal market. Such a reform would replace the big farm/small farm dichotomy with a landowning system based on small and medium-sized property. It would also increase agricultural production for internal or regional consumption, provide for a fairer distribution of income in the countryside, and guarantee food security.27 To achieve this the State should structurally promote agricultural externalities by guaranteeing cheap credit, technological support, insurance against crop failure, etc. The postwar experiences of South Korea and Taiwan testify to the efficacy of such measures. Environmental policies should be integrated into development. Such policies should promote the use of biotic and abiotic diversity, integrated ­resource management, and economies of scale and scope to suit production for local, national/regional or international markets. They should also focus on replacing fossil and non-renewable fuels with renewable energy inputs such as biomass and solar energy, taking advantage of the natural potential of the tropics and the imminence of the biotechnological paradigm, which is expected to mature in the next twenty or thirty years. These development policies should first be implemented nationally but aim towards regional integration. By integrating, Latin American countries can expand productive scales, broaden internal markets, raise capacity and develop diversity and complementarity across science, technology, education, ecology and culture.28 Regional integration should not be As the CEPAL report Quince años de desempeño económico: America Latina y el Caribe, 1980–1995 reveals, the main obstacle to agricultural production in Latin America is access to land. Thus in 1990, productivity per hectare of land farmed in Latin America and the Carribean outstripped that of the United States and Canada: 428 dollars per hectare compared to 317. But the ratio of hectares cultivated per worker was 3.7 in Latin America and the Carribean and 71.3 in the US and Canada (CEPAL 1996, 96). Integration is not a prerrequisite but a product of new patterns of development and a moment in their evolution. The changes discussed here could therefore be implemented in a ‘first moment’ in national states – mainly continentally sized states such as Brazil, Mexico and to some extent Argentina, as scientific, technological, educational, social, economic and cultural heterogeneity mean that the integration of scales and scopes within national frameworks can play a big part in the new pathway to technical progress. This is achievable because productivity would be boosted by suppressing these ­heterogeneities

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l­ imited to trade, but should include building regional administrative and planning structures with wide-ranging powers of macroeconomic and political intervention in national states. A network management model should be developed that transcends the limits imposed by transnationals and global enterprises. Whereas the latter simply use cooperation to complement their corporate and competitive focus, regional integration should make it the central axis of corporate and competitive relationships. Regional public institutions need to find ways of cohering different national organisations into single units that, through cooperation, can overcome the inefficiency of their constituent parts in order to develop the capacity of the whole. With that in mind, trade surpluses could contribute to an investment fund governed by a Latin American logic. That would necessarily mean developing a regional financial architecture around public banks like Banco del Sur and a regional monetary standard. Another strategy that fits with this mode of development is for the State to set productive and corporate integration processes in motion. This would help articulate the mode of development with a logic based on reducing inequality and in so doing address two needs: the social need to eradicate poverty and exclusion; and the need for economic growth, given that productivity, as we have noted, is increasingly a function of diffusion. j. Latin America’s national and regional self-affirmation should be articulated with antisystemic social movements and their political and economic leadership of national governments. In this regard, the brics could represent an intermediate alternative and a staging post in the transition to multipolarity. Meanwhile in central countries the combined presence of black, African, Latino and Asian populations together with high youth unemployment creates the potential for a global, democratic and antiimperialist political culture. To be sure, these policies would not be applied in a vacuum but in a social context riven with conflicting interests. They cannot be taken as abstract ideas applied by States that hover over socio-economic formations. As the challenge of Latin American integration has illustrated, a public sphere is formed as a result of the hegemonic power wielded by social classes and groups over society as a whole. In that sense, the extent of State involvement in carrying out such transformations is largely determined by the internal and external opposition it encounters along the way. and natural resources would be used in accordance with a sustainable policy that supports national interests.

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This historical possibility can only be realised if a new hegemonic project emerges in the region. Such a project must represent the mass of the population and take up the most acute issues facing Latin America and the world system. It will need the internal forces capable to put it into practice and the support of international allies. The future of the social sciences in the region would appear to us to hang on its ability to locate the question of Latin American development within this global context. The 21st Century brings a new world in its wake, one that is arriving on the cusp of a historical whirlwind, where time accelerates unforgivingly and the barriers between regions and between past, present and future are crashing down around us. Historical perspectives, planning and reason lie are the key to this new world. It cannot be governed by positivism and pragmatism, which have become too obsolete and decadent to serve in a maelstrom. The 21st Century calls out for a utopia. It calls out for imagination. It is the only way the present – what currently exists – can withstand the pressure of the future and embrace it. Our utopia consists of Latin America’s liberation from the yoke of dependency and exclusion. This kind of liberation has yet to come to pass. But its ingredients are present in the tensions and in the movement of social forces. It is our conviction that, contrary to the belief of many, the challenge of liberation will be ours to grasp in the 21st Century.

Chapter 8

Conclusion When we began work on this book, our aim was to gauge the impact of the neoliberal model on Latin America. That quest took us on a very long journey. We could have taken more direct and safer routes, but our path was determined by very specific concerns: the huge global transformations that have touched the innermost corners of our lives and still demand an explanation, and our awareness that all of the deeply flawed interpretations advanced in respect of Latin America seek to isolate the region from the wider world and treat it as a separate reality. In contrast, we chose to include the world system within our object of study and articulate Latin America to three concepts which are crucial to understanding the conjuncture it is currently in: globalization, dependency and neoliberalism. We shall now review this endeavour by summarising our main points. When we looked at globalization we found that social thought has come to a wide and disparate range of conclusions, which we divided into five or six different approaches. We proceeded to fashion our own analytical instrument located at the point of convergence between world system theories and Marxism. We interpreted globalization as a revolutionary transformation of the productive forces that has failed to fully revolutionise its material and institutional base. Its origins lie in the emergence and diffusion of the techno-scientific revolution. But that revolution conflicts with the capitalist mode of production and its political-institutional expression: the modern world system. And so globalization heralds not a new era, but rather a period of transition whose destination will be decided by social struggle. Our interest lies in the nature of that clash and its short, medium and longterm impacts. On that basis we set out to define the current conjoncture and how it fits into the longue durée. We did so by considering the origins and chief determinants of historical capitalism, as expressed in secular trends and cycles. We discussed the rise of historical capitalism and argued that it established itself via the formation of the modern world system followed by the development of the capitalist mode of production. The former gave historical capitalism its political superstructure and the latter gave it a material base. Historical capitalism exhibits secular and cyclical trends whose origins lie in this superstructure and base. The secular trends we highlighted include unfettered accumulation, the declining tendency of the rate of profit, and the State’s need to broaden its demographic, territorial and legitimatory bases in order to

© koninklijke brill nv, leiden, ���� | doi:10.1163/9789004415546_010

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coordinate the modern world system. We described systemic cycles and Kondratiev cycles as two of historical capitalism’s leading cyclical tendencies. We affirmed that the specificity of a conjuncture resides in the particular way it combines secular trends and cycles. This methodology not only enables us to determine the specificity of different conjunctures, but also to articulate them with each other, drawing out their similarities and differences. We theorised that the current conjuncture combines a crisis of the secular trends of historical capitalism with the downward phase of the systemic cycle and the rise of a new Kondratiev. The crisis of secular trends is caused by the gradual exhaustion of countertendencies to the declining rate of profit. Their exhaustion is a result of science becoming a central force within the productive process and eliminating the chief source of surplus value–the expenditure of mainly physical labour. This is a key feature of the techno-scientific revolution. But contra Robert Kurtz, the exhaustion of countertendencies to the falling rate of profit is also compatible with a long ascendant phase, as we show in Chapter 4. However, the new Kondratiev will lack the splendour of its postwar counterpart, most notably in the core countries. This is because it will be influenced by weaker secular trends of accumulation and the downturn in the systemic cycle. The axis of development will instead shift towards East Asia, opening up new opportunities for the peripheries. The coming together of these trends has a wide range of economic, political, social and ideological consequences. The most far-reaching one is that the ­current crisis, which the ascending Kondratiev will be too weak to end, is a civilisational one: it calls into question the capitalist mode of production, the modern world system, hegemony, imperialism and occidentalism. The progressive exhaustion of capitalism’s secular trends has left it incapable of overcoming the systemic crisis. With knowledge diffusion, another core feature of the techno-scientific revolution, it is no longer possible to concentrate the amount of technological, economic, ideological, political and military power required to maintain or revive hegemony. The tendency of the rate of profit to fall renders capitalism too obsolete to foster new technologies and diminishes its power to generate growth and economic leadership. We expect the crisis to develop in the context of the current systemic cycle and therefore, by our reckoning, between 2015–2020 and 2045–2050. This context of decline will severely weaken the revolutionising impact of the new Kondratiev’s ascendant phase. We argued that there are two revolutionary periods in the Kondratiev cycle: the ascent, highlighted by Nicolai Kondratiev, when capitalism’s secular forces are re-energised and destroy the old structures blocking their expansion; and the descent, emphasised by Mandel,

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when popular forces dispute capital’s political, social, economic and ideological leadership in order to reorganise society and save it from the decline capital has condemned it to. This new period of expansion is so weak that any major social change is highly unlikely during its lifetime. It resembles other, similar historical moments such as very last expansive period of British hegemony, which was economically mediocre and politically sterile. The imperial structure in place in the 1870s, 1880s and 1890s prior to British hegemony unravelling remained intact right up until the crisis of the 1910s, whence it began its long process of disintegration. The Ottoman and Russian Empires fell apart and the Chinese and Mexican revolutions first began in this period. But the moment was still one of secular strength for historical capitalism. The ascendant phases provided the key to renewal, which reached completion with the transition to a new Kondratiev in the 1940s. Today we are in a different moment. The secular and systemic trends are weaker and the Kondratiev’s revolutionising impact is being felt during the transition from maturity to recession. Therein lies the reason why neoliberalism has become so powerful in the current historical context. The ascending Kondratiev phase did not come to destroy it. Faced with a secular and systemic crisis, big capital is increasingly resorting to state dirigisme and imperialism to solve its economic and political problems. Neoliberalism is bound up with a return to territorialism, just as Spanish anti-mercantilist colonialism and British liberal imperialism did in the past. But there is a crucial difference: neoliberalism directs territorialism inwards towards the world system and calls the core principles of the interstate system into question. Only thus can big capital impose the ideology of competition onto the four corners of the world and appropriate the surpluses ­produced by less competitive countries. But that alone is insufficient: neoliberalism must also prevent national and regional sovereignties from establishing alternative developmental patterns and interfering with control over unfairly distributed strategic natural resources. Neoliberalism’s evolution in this direction is not inconsistent with its chief ideological tenets, as we demonstrated by looking at the work of Friedman and Hayek. Both men privileged economic over political freedom and saw national sovereignty as limiting global economic competition. In this way the most conservative segments of the US bourgeoisie have become the vanguard of global fascism. Their dilemma resembles that of the Spanish and Genoese bourgeoisies upon the outbreak of the crisis that engendered the modern world system. Bound to imperial political structures, they failed to find an heir in the new systemic structure being forged in their midst, and used up all their strength in fighting against it. Later hegemonies did not go down the same path. Instead the hegemon in decline dealt with the brewing crisis by choosing a successor,

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with whom it then enjoyed a privileged relationship in the new systemic cycle that was consolidated once the battle for the hegemonic throne was over. As the last bastion of a decaying system, the US bourgeoisie cannot find an economically powerful enough successor with whom to strike up a relationship. For a time Japan looked a likely candidate, but the country found itself unable to combine a sustained rate of profit with higher productivity. China, for its part, lacks the characteristics of a hegemon. Instead, its peripheral/ Asian origins, demographic and territorial base and political model make it more of a hinterland. A huge crisis has gripped historical capitalism and its Western European/North American version in particular, and for the first time ever it has proven too obsolete to lead the global development of the productive forces. The problem of hegemonic leadership has made the international division of labour under this civilisational form extremely vulnerable. It is increasingly clear that subservience to neoliberalism is holding back the economic development of peripheral countries. The relationship between dependency and development, forged in the postwar years when socialist experiments in the periphery were isolated, has become precarious and constrained. But even this victorious model was built upon serious contradictions. In the end foreign capital influxes failed to boost peripheral development, neither raising its rate of saving nor financing its balance-of-payments disequilibriums. Instead they decapitalised the periphery, and in socio-economic terms this led to labour super-exploitation. We embarked on a wide-ranging theoretical and empirical survey in defence of our perspective. We examined the main arguments of national-­ developmentalism, modernisation and dependency theories, endogenism, neo-developmentalism, neoliberalism and world system theory and held them up to the empirical record. We paid particular attention to the concept of ­super-exploitation, demonstrating its theoretical relevance to Marxist political economy and its historicity. In discussing the neoliberal model we distinguished it from other models that have regulated dependent capitalism in Latin America and contrasted it with the types of development established under US hegemony. We argued that the main difference between them is that neoliberalism brings a much higher level of international competition to the region and tends to turn its historical trade surpluses into deficits. Latin America suffers secular outflows of foreign capital. These outflows represent balance-of-payments disequilibriums, which are paid for through financial dependency and trade surpluses. Because of its deepening financial dependency, the region has experienced a secular tendency towards s­ tagnation,

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as the limitations imposed by mounting foreign debt in the 1980s clearly illustrate. But the neoliberal model adds a conjunctural limitation to this structural one. The elimination of trade surpluses during economic growth diminishes the region’s ability to finance outflows. This, at a time when the hegemonic crisis of the United States prevents it from injecting liquidity into the world system. This has led to economic expansion being prematurely interrupted; the denationalisation of productive assets; intensified super-exploitation in the form of ever-tighter wage squeezes, and the destruction of branches of production geared towards the internal market, such as the capital goods sector. The crisis of neoliberalism began to unfold in the 2000s. Slow and prolonged, it has lasted the course of the expansive Kondratiev phase. Internationally it is expressed by the Chinese and East Asian economies becoming the central axis of global economic expansion, and regionally by the decline or collapse of the neoliberal political leaderships that hegemonised Latin American states in the 1980s and 1990s. The crisis has opened windows of opportunity for Latin America. China’s influence has helped the region to temporarily reverse the deterioration in the terms of trade, and new centre-left governments have helped grow the internal market, reducing or containing the rise of super-exploitation. Yet there are still numerous reasons to doubt whether this conjuncture can be sustained. Many of the core components of neoliberal political economy remain in place. This has the effect of further reprimarising the region’s exports; keeping the extent of financialisation at its current level, and preventing productive restructuring towards more advanced systems of innovation, which leaves us at the mercy of cyclical price oscillations in primary and basic products. Earning foreign exchange from primary product exports should not be seen as a structural means to achieving international insertion. Instead it should be subordinated in the pursuit of the latter to promoting advanced productive specialisation at the techno-scientific level. This is vital if Latin America is to become a major centre of accumulation and exercise a sovereign role in the international division of labour amidst powerful multipolar tendencies in the  world. Such a project would have to articulate the State with socialised ­decision-making and better living standards and training. But under the leadership of dependent bourgeoisies the upturn in the primary product price cycle could open the doors to an assault on social conquests and rising levels of super-exploitation, as basic products resume their secular trends and are negatively affected by superprofits. Latin America stands at a crossroads in the coming decades. It can either bolster a decaying hegemony that has lost economic, political and ideological leadership by submitting to its public policy model, thereby suffering the

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same fate as Britain’s Asian colonies; or else it can strike out on the path of self-­ determination and development. But that path ought not to lead to isolationism. The region will have to find new ways forward, reconciling national and regional realities with global ones. Ideally it will obtain resources for development from regional integration and invert its historical relationship with ­foreign capital, subordinating it to accumulation’s internal dynamic. We are talking about a far-reaching process in search of a new geometry: a process that is not merely deductive but grounded in the time-old urge to end the oppression that fragments the world into hegemonies, empires, and social classes, and rebuild it in the name of universal fraternity.

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Index Africa xiii, xv, 8, 42, 53–54, 85, 131, 151, 168, 185, 199, 277 Aglietta, Michael 107 alba xx, 247, 288 Amin, Samir 6, 35, 122, 133, 269 Anderson, Perry 22, 28, 125, 132 Antisystemic xviii, xxvi, 13, 14, 17, 18, 25, 35, 40, 95, 120, 123, 128, 145, 180, 195, 197, 225, 310 movements 13, 128, 195, 197, 255 Antunes, Ricardo 91 Argentina 74, 140, 171, 199, 227, 244, 250, 254, 269, 271, 275, 279–81, 284, 286, 288, 290, 294, 297, 299, 301–3, 306 Arrighi, Giovanni 31–33, 38, 43–47, 49, 51–52, 56, 58–62, 65, 69–70, 111, 139, 148, 153, 240, 249–50, 254 Asia 32, 42, 48, 50–54, 67, 120, 131, 160, 177, 187, 199, 297 Asiatic mode of production 27–28, 264 Bachelet, Michele 127 balance-of-payments crisis 175, 199, 202, 255 Bambirra, Vânia 85, 211, 219, 225, 262–63, 278 Baran, Paul 219–21, 224, 228–30 Belluzzo, Luiz Gonzaga 122, 189–190 Bernstein, Edward 14 Berr, Henri 12 Blair, Tony 127, 179 Bloch, Marc 12 Bolivarian Revolution 171, 247 Bolsonaro, Jair xiv, xx bourgeoisie, local 119, 217, 239, 241, 285–86 Boyer, Robert 107–8 Braudel, Fernand 7, 9, 12–13, 18, 20, 30–33, 43–44, 75, 119 Brazil 4, 6, 61, 140–41, 185, 187, 194, 199, 208, 210, 212, 217, 236, 241–42, 244–45, 249, 254–55, 261, 264, 269, 275–80, 284–86, 288, 290, 292, 294–95, 297–99, 301–3, 305–6, 308–9 Brenner, Robert 111, 155, 162 brics xiii, xv, 141, 187, 194, 255, 277, 289, 292, 310 Brigñoli, Hector Pérez 51, 198, 241 British hegemony  49–58, 64, 134, 159, 175, 201

Brzezinski, Zbignew 5 Bukharin, Nikolai 14 Burke, Edmund 125 Bush, George W. xii–xiii, 128–30, 144, 164, 173–74, 176–79, 182, 187, 194, 284 Campos, Roberto 207–12, 245 capital, centralising 79, 244 capital accumulation 8–9, 15, 20, 34, 42, 45, 55, 84, 87–89, 113, 115, 118, 120, 124–25, 152, 185, 189, 192, 222, 229, 258, 268 capital flows 124, 210, 232, 293, 301, 308 international 35, 124, 166–67, 275–76, 290–91 capitalism 2, 6, 8, 10–11, 13–15, 17–20, 24, 26–27, 29–35, 37, 39, 41, 43–45, 53, 71–75, 77–79, 87, 89, 91–93, 95, 100–103, 114–16, 130, 133, 142–44, 153–54, 189–91, 204–5, 221, 241–42 monopoly 229–30, 241 capitalist development 2, 11, 14, 19–20, 26, 32, 35, 74–76, 78, 103–4, 118, 122, 193, 212, 232, 262, 264, 270–71, 275 Caputo, Orlando 8, 67, 193, 210, 219, 225, 275, 293 Carcanholo, Marcelo 266, 271 Cardoso, Ciro Flammarion  241 Cardoso, Fernando Henrique 51, 207, 214–19, 228–30, 236, 244, 262, 271, 275 Cardoso, João Manuel 189 Castañeda, Jorge 243, 265, 269 Castro, Antonio Barros de 242–43 Ceceña, Ana Esther 8, 24, 138, 184–86, 188 cepal 199, 231, 233, 245, 256, 288, 290–91, 294–95, 300–303, 306, 309 Challenges of Globalization 1, 4–5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 25 Chávez, Hugo 127 Chesnais, François 6, 55, 102, 155, 184, 189–90 Chile 84, 140, 241, 244, 247, 254, 269, 279–80, 283, 286–88, 291, 294, 296–97, 299, 302 China 3, 8, 26, 53, 62, 66–67, 100, 103, 120, 123, 137, 139–41, 151, 167–69, 171–72, 181, 183, 187, 191, 194, 232, 235, 238–40, 253, 255–56, 277, 281, 286, 288–91, 296

Index circulating capital 4, 35, 37, 79, 87, 89, 117, 159, 192–93, 203 civilisation xviii, 75, 94, 95, 121, 138, 141–143, 148, 150, 170 class struggle 75–76, 242, 265, 269 Clinton, Bill 39, 127, 130, 136, 176–177, 182–183, 284 Clinton, Hillary  183 Clinton-led 39 Cold War 12, 61–62, 110–11, 139, 174–76, 197, 251 Colombia 185, 254, 279, 280, 291, 303 commodities, devaluation of 259, 273 contradictions 7–9, 42, 44–45, 90, 93–94, 96, 99, 114–15, 117–19, 124, 127, 130, 135–36, 138, 161, 164, 171–73, 176, 188, 192, 212, 215, 221, 226–27, 232, 257, 260, 273, 275–76, 281 Coriat, Benjamin 56, 105–07, 109 Correa, Rafael 128, 286 countries, semi-peripheral 38, 61, 63, 117, 123, 139–40, 196, 249 Couto e Silva, Golbery 277 crisis, systemic 2, 24, 39–40, 313–14 cycles, long 2, 17, 71–73, 75–77, 79, 81, 89, 302 Cuba 151, 179, 187, 188, 216, 237 Cueva, Agustin 241, 264, 271 Day, Richard 74 De Bernis, Gerard 107 decapitalisation 220, 230 dependency 1–3, 14, 16, 24, 30, 123, 195, 197, 203, 211, 213–19, 221, 225–26, 228, 230, 232, 234–36, 240, 247–48, 257, 261–65, 267, 270–71, 275, 278–79, 281–82, 285, 292, 311–12, 315 political economy of 3, 257, 259, 261, 263, 265–67, 269, 271, 273, 275, 277 dependency theory 1, 8, 14, 16, 24, 184, 195, 197, 206, 211, 220–21, 228, 240–42, 248, 252, 255, 262, 264, 315 dependent capitalism 141, 217–19, 221, 224–26, 230, 232–33, 237–38, 240–41, 256–59, 262–64, 266–67, 272, 276, 280–81, 304–6 dollar, overvalued 162, 165 Dosi, Giovanni 80 Dreifuss, René 5, 102 Dutch hegemony 40, 49, 51

345 eclac 199, 204, 245, 300, 302 ecological crisis 141, 144 economic growth 57, 71, 99, 111, 122, 126, 130, 136, 138–39, 158–59, 166, 170, 172, 177–78, 199, 206, 209, 225, 232–34, 237–38, 244–45, 281–82, 286, 293, 295, 302, 306, 308, 310, 316 ecosystems 150, 304–5 Edquist, Charles 37 Eichengreen, Barry 57 Engels, Frederick 14, 17–18, 20–24 European World-Economy 27, 30, 53 expansion, long cycle of 300–301, 303 expansive phase 43, 64–65, 79, 83, 86, 89, 96, 129, 145, 153–54, 158, 164, 237, 290, 302 exploitation 190, 193, 258, 265, 268–69, 272 Fajnzylber, Fernando 298 Faletto, Enzo 214–19, 228–29, 232 Fanon, Frantz 199 fascism 59–60, 66, 85, 128, 132, 143, 147, 155, 175, 226–27, 279, 283 Febvre, Lucien 12 Feijoo, Jose Valenzuela 265, 268 Fernandes, Florestan 195, 211, 240–41, 249 feudalism, crisis of 27–28, 31, 33, 146 fictitious capital xvii, xix, xxi, 114, 129, 130, 137, 145, 155, 165, 182, 275, 277, 287, 288 financial capital 4, 33, 97, 122, 131, 189–90, 229, 277–78, 300 financial dependency 217–18, 228, 232–33, 238, 244, 253, 277, 294, 315 financial liberalisation 111, 277, 280 Fiori, José Luis 6, 122, 242, 244 fixed capital 82, 88, 93, 192–93, 224 Fordism 22, 56, 105–6, 112 foreign capital 38, 67, 109, 140, 172, 175, 200, 203–5, 207, 209–10, 212, 217, 225, 227–28, 230, 232–33, 238, 244, 247, 259, 277, 285, 287, 289, 293–98, 315, 317 France 12, 49, 52, 55–58, 62–63, 100, 103, 130, 140, 184, 253, 264, 299 Franco, Gustavo 245–47 Frank, Andre Gunder xvi, 34, 48, 53, 60, 82, 200–201, 217, 219–21, 224, 263, 271 Freeman, Christopher 37, 54–55, 78, 80–81 Fukuyama, Francis 55 Furtado, Celso 7, 51, 200, 202, 204

346 Germani, Gino 206, 207 Germany 11–12, 53, 56–58, 60, 63, 127, 130, 140, 159, 172 Giddens, Anthony 5, 146 Gills, Barry 7, 8, 34 global South  xiii, xv, xvii globalization 1–2, 4–11, 13, 15, 17, 19, 21, 23, 25, 96–97, 99–103, 105, 107, 109, 111, 113, 115, 117–19, 121, 123–25, 127–29, 131, 133, 135–39, 141, 143, 145, 147, 149, 312 Grilliches, Zvi 116 Grossmann, Henryk 17 Grotius, Hugo  48 Habermas, Jürgen  5 Hayek, Frederich  xviii, 125, 126, 132, 314 hegemonic crisis 16, 25, 45, 49, 102, 110, 134, 138, 153, 155, 171–72, 179–80, 194, 255, 282–83, 316 hegemonic state 7, 18, 40, 42, 44–45, 64, 68, 70, 130, 132, 134, 136–37, 148, 152–53, 188, 237, 249 hegemony, crisis of 2, 9, 57, 134, 144, 186 historical capitalism 2, 8, 10–11, 17, 19–20, 23–24, 29, 32, 38–40, 45–46, 68, 74–75, 81, 90, 96, 100, 103, 114, 119, 122–24, 131, 133, 135, 138, 140–41, 143–49, 152–54, 221, 227, 312–14 Hitler, Adolf Xviii, 145 Honduras Xiv, 171, 247, 280, 281, 288 Hopkins, Terence 24, 70 Huntington, Samuel 145, 147, 184 Ianni, Octávio 5, 151, 240 Imbert, Gaston 43 imperialism 2, 14–17, 51, 58, 102, 129, 153, 186–87, 196, 199, 216, 221, 228, 243, 252, 254, 261, 264, 276, 278, 313–14 India 8, 51, 53–54, 66, 100, 120, 139–41, 160, 168–69, 171, 194, 253 inter-capitalist competition, intensified 36, 100 interest rates 72, 77, 79, 82, 114, 129–30, 144–45, 156, 162, 172, 176, 178, 181, 186, 209, 284 internal market 7, 40, 56, 64, 133, 141, 166–67, 182, 201–3, 205, 216–17, 220, 222, 225–26, 233, 235, 238, 241, 255, 261, 271, 277, 282, 291, 297, 299, 305–6, 309, 316

Index Japan capitalism 107–8 crisis 107, 109, 111–12 economy 107, 110–11 productivity 112 Jospin, Leonel 127, 130 Katz, Claudio 265, 269 Kautsky, Karl 14 Kay, Cristobal 265 Keck, Otto 55, 57 Kemp, Tom 53, 55–57 Kennedy, Paul 47, 53 Keohanne, Robert 5, 146 Kershaw, Ian 60 Keynesianism xvi, 65, 66, 125, 197–200, 207, 251, 252, 270, 279 Kindelberger, Charles 206 Kirchner, Cristina xx, 127, 254, 286 Kirchner, Nestor 127 Kitchin, Joseph 17, 72–73, 77, 85 Kohl, Helmut 127 Kol, Henri Van 14 Kondratiev, Nicolai 14, 16, 25, 55, 71–77, 79, 81, 83–84, 290, 313 cycles 9, 24–25, 35, 43, 51–52, 54, 71, 75, 77–79, 81–82, 85–86, 96, 103, 114, 118, 120, 128–29, 145, 154–59, 164, 167, 184, 193, 313 debate with Trotsky 74–75 Kurz, Robert 103 labour abstract 36, 121, 150, 223 dead 87, 89 necessary 88, 93, 96, 121, 263, 269 unpaid 88 labour exploitation 89, 91, 190, 259 labour power average value of 268–69 prices of 37, 100, 113, 118, 142, 190, 225, 258, 260, 265, 267–69, 271, 274 value of 23, 78, 91–93, 95, 103, 105, 113, 119, 139–40, 258, 265, 267–69, 274, 302 labour power reproduction 102, 118, 130, 170 labour process 56, 79, 90–91, 93, 95, 108, 121, 186, 272 Landes, David 55–58

347

Index Latin America 1, 3, 67, 127–28, 140, 168, 171, 197, 199, 202, 204–7, 210–12, 214–18, 220–21, 224, 227, 231, 233, 236–38, 240, 242, 248–50, 253–55, 257, 261–62, 264, 275–76, 279–307, 309–12, 315–16 laws of capitalist accumulation xvii, 15–20, 35–36, 79, 81–84, 87–96, 103, 125, 144, 154, 190–92, 209, 266–278 Leff, Enrique 150, 304 Lenin, Vladimir 14, 214, 216, 243 liberalism xii–Xiv, Xvi, Xviii, 10, 11, 17, 39–42, 45, 49–52, 56, 59, 62, 67–70, 111, 120, 125, 126, 130, 131, 197 List, Friedrich 11 long waves 54, 71, 79–82 Lugo, Fernando 128, 286 Lula da Silva, Luiz Ignacio 127, 286 Lundvall, Bengt-Åke 37 Luxemburg, Rosa 14 Macri, Mauricio xiv, xx Maddison, Angus 39, 51, 53–55, 57, 63–64, 67, 110, 124, 139, 160–61, 169–70, 185, 199, 210, 237, 250, 254, 294, 297 Maduro, Nicolas xx, 127 Mandel, Ernest 55, 73, 78–80, 83–84 Mansfield, Edwin 116 Mantega, Guido 263–64, 278 Mariátegui, José Carlos 220–21 Marín, Barreda 184 Marini, Ruy Mauro 91, 118, 122, 170, 217, 221–24, 226, 235–36, 257–67, 269–71, 276 Martins, Carlos Eduardo 55, 83, 118, 152, 265, 275–76 Marx, Karl xxvi, 3, 8, 14, 15, 17, 18, 20–24, 26, 36, 56, 87–96, 99, 101, 104, 115, 118, 121, 124, 125, 154, 184, 189, 190, 193, 214, 242, 257, 264–268, 270–274 Marxism 11–14, 17, 24, 66, 312 Marxist theory of dependency 232, 257, 267, 270 Mello, João Manuel Cardoso 189, 242–43 mercantilism 49–51 Mészáros, István 95, 150 Mexico 61, 100, 140, 185, 235, 249, 254–55, 269, 275, 279–80, 286–88, 291–92, 294–96, 298–99, 302, 309 Mises, Ludwig Von xviii, 125–26

modernisation theories 196–97, 205–7, 230 monopolies 20, 31, 35–36, 43–45, 48, 50, 113–14, 122, 124–25, 127–28, 142, 221–22, 224, 261, 274 monopolising 107 Morales, Evo 128, 286 movements, fascist 147, 227 Mowery, David 56 Mujica, José 128, 286 multipolarity 169, 255, 310 Mussolini, Benito 16 national-developmentalism 197, 199, 205, 211, 315 Negri, Toni 5 neoliberalism 1, 3, 6, 9, 84–86, 102, 107, 111, 123–29, 131–33, 138, 141, 143, 146, 174–75, 177–78, 236–40, 245, 247, 252–53, 258, 276, 278–81, 283, 286, 292, 297, 302, 312, 314–15 neoliberal model 3, 177, 236, 244, 255, 257–58, 275, 277, 279, 296–97, 299, 301–2, 312, 315–16 Novais, Fernando 36 Nye, Joseph 5, 146, 184 Obama, Barack xiii, 128, 130–31, 146, 151, 163, 175, 178–82, 187–88 Obrador, Manuel Lopez 280, 286 oecd 63, 102–4, 111–16, 124, 129–30, 148, 168–69 Ohmae, Kenichi 5 organic core 116, 137, 238–40, 249–50, 275, 307 Ortega, Daniel 128, 286 Osório, Jaime 266–267 overproduction 89, 113–14, 155 Palma, Gabriel 264, 271, 278 Paraguay xiv, xx, 171, 254, 281, 286 Parry, John H. 48 Perez, Carlota 54–55, 78, 80–81 Piketti, Thomas 274 Pinochet, Augusto xviii, 132 Plekhanov, Georgi Valentinovich 14 Polanco, Hector-Diaz 264 Polanyi, Karl 147 Popper, Karl 125 Prebisch, Raul 200, 202, 204

348 production average conditions of 268 capitalist mode of 2, 8, 17, 19, 23, 25, 35–36, 74–75, 87–88, 97–99, 105, 124, 189, 221, 312–13 capitalist relations of 8, 17, 189 mode of 17–21, 23, 26–27, 34–35, 82, 92, 97–98, 115, 154, 188, 192, 242, 262 relations of 21–23, 88, 96, 98–100, 121, 154 production costs 5, 29, 45, 52, 70, 72–73, 78, 81, 87, 99, 102, 111, 117, 198, 283 productive capacity 52, 140, 258, 270 productive capital 114, 172, 189–90, 192, 228, 246 productive forces 4, 8, 11, 17, 20–23, 25, 53, 90, 92–93, 95–99, 102, 104–5, 112, 116, 119, 134–36, 138, 147, 150, 153, 190, 221, 226, 230, 234–35, 255, 263, 286, 312, 315 productivity 33, 81, 89, 92, 94–95, 104–6, 110, 119, 121, 140, 150, 198, 203–5, 222–24, 232, 235, 245, 247, 258, 263, 265, 267–69, 272–74, 309–10 profit rates, falling 8, 17, 81–82, 88–89, 96, 102, 109, 249, 267, 313 Reagan, Ronald 66, 110, 127, 144, 164, 175, 188, 284 realisation crises 82, 113–14, 226, 228–29 regulationists 2, 108–10, 112 Reich, Robert 5 Ricardo, David 197–98 Richta, Radovan xvi, 8, 14, 17, 22, 96–100, 154 Rodríguez, Octavio 200 Rosenberg, Nathan 56 Rostow, Walt 206–7 Rousseff, Dilma 127 Russia xiv, 50, 51, 60, 62, 128, 141, 168, 187, 191–194 Sader, Emir 138, 185, 188, 254 Sanders, Bernie 183 Santos, Theotonio dos 8, 14, 22, 24, 60, 67, 78, 81, 83, 95, 97, 125, 127, 149–50, 195, 199, 206, 211, 213, 219, 221–22, 224–27, 232, 234, 236, 262–63, 275, 278, 287, 293 Scandella, Luigi 43 Schacht, Hjalmar xix

Index Schumpeter, Joseph 76–79, 214 sectors of capital 218, 255 secular trends 1–2, 7, 18, 27–28, 33, 64, 70, 81, 87, 119–20, 134, 144, 155, 234, 248–49, 252, 312–13, 316 semi-periphery xviii, 25, 29, 37–39, 42, 54, 59–60, 62, 118, 123, 135, 138, 141, 180, 196–97, 248–250 Serra, José 205, 218, 262–64, 269–271, 278 Schröder, Gerhard 127, 130 Silver, Beverly xvi, 4, 7, 9, 20, 29, 45, 50–53, 58–60, 68–70, 134, 148, 153, 180 social returns of innovation 99, 115, 116, 117, 125, 134, 140 social sciences 1, 4–5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 68–69, 153, 197, 248, 311 socialism xvi, 4, 7, 9, 20, 29, 45, 50–53, 58–60, 68–70, 68–70, 134, 148, 153, 180 Soete, Luc 78–81 South Africa xiii, 141 South Korea 66, 137, 139–40, 148, 169, 171 Sotelo Valencia, Adrian 276 Spanish Empire 30, 32, 46–48, 191 Stalin, Joseph 14, 72, 174 state, semi-peripheral 6, 38, 155 state capitalism 278–79 state intervention 35, 42, 65, 82–83, 127, 129, 145, 148, 154–55, 165, 208–9 Stiglitz, Joseph 135 Strange, Susan 6, 166, 184, 189 structures 1, 9, 12–13, 32, 34–35, 46, 54, 72, 75, 90, 98, 134, 145, 163, 213–15, 293, 313 subimperialism 261, 276–78 super-exploitation 3, 102–3, 105, 118–19, 122, 125, 135, 140, 144, 146, 223–25, 227, 230, 232–33, 235, 238, 241, 249, 255, 257–58, 260, 262–68, 270–71, 273–78, 283, 286, 289, 300–304, 306, 315–16 superprofits 35–36, 49, 113–14, 121, 185, 222, 291, 316 superstructure 18, 22–23, 27, 35, 73, 75, 133, 312 surplus 21, 26–28, 34, 78, 98, 129, 154, 177, 189, 193, 201, 207, 219–20, 232, 259, 275, 294 surpluses 30, 33, 35, 45, 90, 94, 100, 169, 181, 193, 202, 210, 217, 219–21, 225, 233, 238, 241, 278–80, 291–93, 298–99, 302, 314

349

Index surplus value 20, 36, 42, 88, 91, 93, 95, 100, 103, 113, 117–18, 124–25, 141–42, 145, 189–90, 193, 209, 221–24, 258–59, 268, 273–74, 276, 313 absolute xxi, 89, 270 appropriation of 42, 147, 189, 219, 224, 273 extraordinary xvii, 87, 90, 99, 104, 113, 121–22, 147, 155, 164–65, 222–24, 258–61, 266, 271, 274, 276 rate of 23, 87–90, 104, 118, 190, 259, 263, 265, 268, 273–74 relative xxi, 89, 93, 105, 218, 224, 232, 258, 260, 262–63, 265–66, 270–76 surplus value production, crisis of 23, 103–4, 112, 121 surplus value transfers 37, 269, 273 systemic cycles 7, 18, 24, 35, 38, 40, 43–46, 50, 56, 59, 62, 64, 68–71, 81–82, 85–87, 102–3, 112, 123, 153–54, 158, 183–84, 190, 249, 253, 313 Taiwan 38, 66–67, 100, 139–40, 169, 235 Tavares, Maria da Conceição 155, 190–91, 193, 205, 242–44 techno-scientific revolution x, xii, xvi, xvii, xxi, xxvi, 8, 14, 22, 25, 63, 90, 96–100, 105, 113–119, 134, 140, 141, 154, 184, 235, 238, 247, 249, 276, 289–291, 307, 312, 313 technology, foreign 222–23, 259 Thatcher, Margaret 127 Third Way 120, 128–30, 177, 279 Tocqueville, Alexis de 251 Toyotism 91, 105–8, 110–13, 121 Trotsky, Leon 73–74 Trump, Donald xiii–xvi, 131, 163, 181, 183, 188 unasur xix–xx, 280 underdevelopment 171, 204, 208–9, 211–14, 219, 228, 230, 240, 243–44, 264, 278

use values 37–39, 44–45, 54, 90, 93, 95, 150, 186, 192, 226, 247, 268 US hegemony 2–3, 38, 40, 42, 59, 61, 63–67, 109, 111, 113, 120, 128–29, 136, 138, 151–55, 157, 159, 161, 163, 165, 167, 169, 171, 173, 175–77, 181, 183–85, 187–89, 193–95, 237–38 US troops 109, 182, 187–88 ussr 62, 66, 168, 196 value 22, 35–37, 72–73, 75, 87–90, 92–94, 98–100, 111, 113, 117–19, 121–22, 132–33, 139–40, 142, 156, 164–65, 184, 192–93, 221–23, 225, 235–36, 238, 254–55, 258, 260, 263, 265, 267–69, 271–74, 288 law of 8, 23–24, 42, 78, 100, 124–25, 133, 137–38, 142 Venezuela 171, 185, 187, 247, 280–81, 286, 288, 303 Vietnam 66, 68, 84, 151, 172–73, 175–76, 186 Wallerstein, Immanuel 7, 10–11, 13, 19–20, 22, 24, 26–34, 37–42, 44–47, 51, 60–61, 68–69, 95, 111, 119, 141–43, 145–46, 149, 153, 179, 249, 251–52 Weber, Max 34, 45, 211, 214–15, 261–62 Weffort Francisco 241 welfare state 42, 59, 66, 69, 131, 133, 160 Westphalia 29–30, 33, 48, 69, 174 working day 89, 95–96, 104–5, 113, 258–59, 263, 271, 274 world system 2, 8–9, 13, 30, 34–36, 38–39, 42, 44–45, 64, 68, 70, 97, 120, 123, 131–34, 136–38, 147–49, 151, 153–55, 169–71, 174–75, 178–80, 197, 220, 248–49, 253, 306, 311–12, 314, 316 world system theories 23, 70, 78, 82, 158, 183, 197, 206, 239, 247–48, 312, 315 Yamada, Toshio 107–8 Zelaya, Manuel 128, 288