You don’t spend a trillion dollars on the military for benign reasons

The idea that a country spends as much on its military as the rest of the world and has military personnel deployed in three-quarters of the world’s countries does so for purely defensive reasons is the absurdity it appears to be.

As former U.S. Secretary of State Madeleine Albright memorably said to General Colin Powell, “What’s the point of having this superb military you’re always talking about if we can’t use it?” Ah, bipartisanship. Neither Republican nor Democratic administrations have been shy in this regard: The United States militarily has invaded Latin American and Caribbean countries 96 times, including 48 times in the 20th century. That total constitutes only direct interventions and doesn’t include coups fomented by the U.S., such as Guatemala in 1954 and Chile in 1973.

Secretary Albright doesn’t have a short memory so much as ideological blinders. She of course is far from alone there. But before tackling some of those details, an examination of the size of U.S. military spending is in order, although that is not necessarily an easy number to determine. What is undisputed is that the U.S. spends many times more than any other country on Earth.

PentagonOne measure of the world’s military spending is provided by the Stockholm International Peace Research Institute, a self-described independent research organization that is nonetheless largely funded by the Swedish government. According to its figures, the U.S. spent $640 billion in 2013, roughly equal to the combined military spending of the next nine largest spenders combined.

The Stockholm Institute estimates China’s military spending (the world’s second highest) at $188 billion, about 50 percent higher than the figure found in the official Chinese budget, based on its analysis of China’s budget. That is reasonable, but the same standard should be applied to the United States, rather than simply accepting the Pentagon budget figure as the Stockholm Institute has done.

Pentagon budget only part of U.S. military spending

One estimate of actual U.S. military spending in 2013, put forth by the War Resisters League, is $1.355 trillion. The league arrives at that figure by adding military spending deriving from parts of the government other than the Pentagon, including veterans’ benefits and assigning 80 percent of the interest on the national debt. These are in addition to the official Pentagon budget.

In its annual pie charts exposing this spending, the league notes that other groups estimate that 50 to 60 percent of the national debt is attributable to military spending. For the sake of argument, splitting the difference between the high and low figures (using a figure of 65 percent debt assignment), lowers U.S. military spending to about $1.285 trillion. Adjusting U.S. spending to that level, while accepting the Stockholm Institute’s upward revisions for China and Russia, means that the United States spends more on its military than every other country on Earth put together.

There is no conceivable defensive purpose for such massive spending.

Nor is there one for the geographical breadth of the Pentagon. A web site for veterans, Vet Friends, states that the United States currently has military personnel deployed in about 150 countries, and 56 countries have hosted at least 1,000 U.S. troops at some time since 1950. The number of overseas U.S. military bases to which personnel are assigned is a matter of dispute. The Pentagon, in a 2003 report, said it had 702 overseas installations. As the Bush II/Cheney administration’s “war on terror” was then in its early stages, that number has likely grown. A report published by the conservative Canadian newspaper National Post estimates the actual figure is anywhere from 700 to 1,000.

The cost of that vast overseas deployment is no easier to estimate. David Vine, writing for Al-Jazeera, did his best to pin down a reasonable figure:

“How much does the U.S. spend each year occupying the planet with its bases and troops? How much does it spend on its global presence? Forced by Congress to account for its spending overseas, the Pentagon has put that figure at $22.1bn a year. It turns out that even a conservative estimate of the true costs of garrisoning the globe comes to an annual total of about $170bn. In fact, it may be considerably higher. Since the onset of ‘the Global War on Terror’ in 2001, the total cost for our garrisoning policies, for our presence abroad, has probably reached $1.8 trillion to $2.1 trillion.”

Playing the ‘democracy’ card never gets old

Why does the United States government put itself into debt for such unjustifiable spending? The usual story spoon-fed to United Statesians and to the rest of the world is a benign, even self-sacrificing, willingness to be the world’s policeman. The question then becomes one of “Can we afford to do this?” The actual reason — to enforce and extend U.S. dominance and to boost profitability of U.S.-based multi-national corporations — is treated as if such considerations did not exist, despite being repeatedly demonstrated by the words of U.S. government officials.

A splendid example of this self-serving myopia is a 2012 paper produced by the Cato Institute, a font of far right, libertarian material taken seriously in such circles, at least before the Koch Brothers’ coup two years ago that tightened their control over the organization. This paper, “Why the U.S. Military Budget is ‘Foolish and Sustainable,’ ” does acknowledge that military spending “is designed for projecting power abroad, not protecting Americans.” But the paper would have us believe that is because the U.S. is too nice:

“We adopted our current strategy — which amounts to trying to run the world with the American military — because we could, not because it was wisest. … U.S. security guarantees can create moral hazard — emboldening weak allies to take risks they would otherwise avoid in their dealings with neighbors, heightening instability and threatening to pull the United States into wars facilitated by its benevolence.”

The problem, this Cato Institute paper asserts, is that the U.S. allows its allies to “free-ride” on its “benevolence” while receiving nothing tangible in return. The solution to this is to force other countries to spend more on their militaries. In this fairy tale, a global arms buildup would bring an end to the “infantilization” of U.S.-allied countries. Better to force the rest of the world to grow up, the paper asserts:

“Abandoning the pretension that global trade depends on U.S. protection would allow vast reductions in overseas missions and peace-time military expenditures. Avoiding the conflation of foreign disorder would allow American leaders to plan for fewer occupational wars.”

Although those on the receiving end of imperial bombs and dictated “structural adjustments” are not in doubt about the phantasmagoria of these Cato Institute arguments — consistent as they are with the level of debate found in elite circles and the corporate mass media — let us at least dip our toes into a real world-based examination of U.S. foreign policy.

Bankers, banana barons and military interventions

At the beginning of the 20th century, U.S. President William Howard Taft declared that his foreign policy was “to include active intervention to secure our merchandise and our capitalists opportunity for profitable investment” abroad. Those were not idle words. A Nicaraguan dictator, José Santos Zelaya, was overthrown in 1909 because he angered the United States by accepting a loan from British bankers instead of U.S. bankers. Taft then placed Nicaragua’s customs collections under U.S. control and refinanced the loan through two U.S. banks, which were given control of Nicaragua’s national bank and railroad as a reward.

Half a century later, the U.S. overthrew Guatemala’s democratically elected president, Jacobo Arbenz, on behalf of the United Fruit Company. That was a company with friends in high places — Central Intelligence Agency Director Allen Dulles and Secretary of State John Foster Dulles earlier in their careers were partners in United Fruit’s main law firm, Sullivan & Cromwell. A 1952 “national intelligence estimate” (a joint document put together by the CIA and other U.S. intelligence agencies) had this to say about United Fruit’s efforts to maintain its dominant position:

“If the company should submit to Guatemalan demands the political position of the Arbenz Administration would be greatly strengthened. The result, even if it were a compromise agreement, would be presented as a national triumph over ‘colonialism’ and would arouse popular enthusiasm. … The Government and the unions, under Communist influence and supported by national sentiment, would probably proceed to exert increasing pressure against other U.S. interests in Guatemala, notably the Railway.”

Note the use of quote marks around “colonialism,” as if such a concept did not exist, and a privately owned railroad is a “U.S. interest.” Class interests are also revealed by the ritual reference to “Communist influence” — a phrase implying that Guatemalans, or anybody else subject to the formulation, are intellectually incapable of analyzing their own lives and experiences.

In the following decade, the United States backed a military coup overthrowing a democratically elected government in Brazil in 1964. The U.S. ambassador to Brazil, who served in the Kennedy and Johnson administrations, said the coup, which installed a right-wing dictatorship that tortured opponents, would “create a greatly improved climate for private investment.” In more recent times, the Bush II/Cheney administration sought to sweep away all constraints limiting the plundering of Iraq by U.S. multi-national corporations following the invasion, establishing a foothold intended to be replicated elsewhere. That it didn’t succeed doesn’t ameliorate that the attempt was made nor the enormous damage done.

That isn’t only in the history books

And as the failed U.S.-backed coup in Venezuela in 2002, and the current destabilization attempt there, demonstrate, any country that doesn’t orient government policy to the enrichment of foreign capital above all other considerations quickly becomes a target. As a 2006 secret memo revealed by WikiLeaks discusses, the U.S. government spends considerable money destabilizing countries it does not like. This memo, circulated to the Army command for South America in addition to various U.S. embassies, outlines a five-point program to topple then president Hugo Chávez that included tens of millions of dollars funneled through the U.S. Agency for International Development and the creation of opposition groups.

Typical of the warped prism through which U.S. elites view the world, the memo’s first sentence is: “During his 8 years in power, President Chavez has systematically dismantled the institutions of democracy and governance.” That was said of a president whose movement won 16 of 17 national elections, almost all by at least 10 percentage points. (Sixteen more legitimate national electoral victories than achieved by George W. Bush for those keeping score.)

Former U.S. President Jimmy Carter, an observer, characterized the Venezuelan election process as “the best in the world.” Voters in Venezuela make their selections on computers in which party and independent observers participated in 16 pre-election audits, election-machine software has built-in systems to prevent tampering, and a paper receipt is printed out for every vote. A system of community councils is building up participatory democracy, and processes intended to build economic democracy are ongoing.

Venezuela is attempting to create an economy geared toward the betterment of its population, rather than the maximization of corporate profits. The majority of Venezuelans, previously shut out of political participation by the country’s capitalists, are now involved in creating popular institutions.

That is what as seen as a threat by the U.S. government, acting on behalf of its industrialists and financiers, as it has done since the 19th century. Although nowadays financial pressure is the preferred methodology thanks to the development of a global web of banks and multilateral institutions, force underlies the enforcement of these interests around the world. Violence has always been the handmaiden of capitalism.

Opening our eyes to how capitalism began

All systems of inequality and exploitation require violence. When we peer into the past, such a statement is not controversial; it is only when we turn our attention to the present that selectivity is applied.

Capitalism, however, has weaved a vast web of mythology about itself. If we are talking about ancient enough history — say the nineteenth century in the context of the Industrial Revolution — some acknowledgement of brutality is accepted. Inconsistently, the beginnings of capitalism are shrouded in mists of rose-colored haze despite lying further back in time.

Slave memorial in Saint-Paul, Reunion Island (Photo by Tonton Bernardo)

Slave memorial in Saint-Paul, Reunion Island (Photo by Tonton Bernardo)

But think about it: Does the idea that peasants, used to self-sufficiency albeit under often difficult circumstances, would willingly take subservient jobs in inhuman sweatshops make any more sense than today’s apologists who claim that people in developing countries wish to work back-breaking hours for pitiful wages? Horrific, state-directed violence in massive doses enabled capitalism to slowly establish itself, then methodically expand from its northwestern European beginnings.

Peasant uprisings repeatedly broke out across medieval Western and Central Europe, sometimes with explicit demands for equality and sometimes in the form of religious movements challenging the feudal order and, therefore, the Roman Catholic Church that provided the local ideological glue. In response, the church stepped up its Inquisition and its burning of non-conforming women as “witches” as part of the effort to subjugate peasants and town-dwelling working people and to foster divisions within those large groups.*

Entering the new factories at gunpoint

English feudal lords began throwing peasants off their land in the sixteenth century, a process put in motion, in part, by continuing peasant resistance. The rise of Flemish wool manufacturing — wool had become a desirable luxury item — and a corresponding rise in the price of wool in England induced the wholesale removal of peasants from the land. Lords wanted to transform arable land into sheep meadows, and began razing peasant cottages to clear the land. These actions became known as the “enclosure movement.”

This process received further fuel from the Reformation — the Roman Catholic Church had owned huge estates throughout England, and when these church lands were confiscated, the masses of peasants who were hereditary tenants on these lands were thrown off when the confiscated church lands were sold on the cheap to royal favorites or to speculators.

Forced off the land they had farmed and barred from the “commons” (cleared land on which they grazed cattle and forests in which they foraged), peasants could either become beggars, risking draconian punishment for doing so, or become laborers in the new factories at pitifully low wages and enduring inhuman conditions and working hours.

Force was the indispensable factor in creating the first modern working class. Late feudalism was hardly a paradise for small farmers, but Western European peasants, some of whom were independent smallholders, had wrested better conditions for themselves. They had no reason to enter willingly the new workplaces and the Dickensian conditions they would endure there.

The historian Michael Perelman, in his appropriately titled book The Invention of Capitalism, wrote:

“Simple dispossession from the commons was a necessary, but not always sufficient, condition to harness rural people to the labor market. A series of cruel laws accompanied the dispossession of the peasants’ rights, including the period before capitalism had become a significant economic force.

For example, beginning with the Tudors, England created a series of stern measures to prevent peasants from drifting into vagrancy or falling back onto welfare systems. According to a 1572 statute, beggars over the age of fourteen were to be severely flogged and branded with a red-hot iron on the left ear unless someone was willing to take them into service for two years. Repeat offenders over the age of eighteen were to be executed unless someone would take them into service. Third offenses automatically resulted in execution. … Similar statutes appeared almost simultaneously in England, the Low Countries, and Zurich. … Eventually, the majority of workers, lacking any alternative, had little choice but to work for wages at something close to subsistence level.”

Supplementing these laws were displays of military power. A widely quoted document claims that 72,000 were hanged during the early sixteenth century reign of King Henry VIII, throughout which England experienced a series of peasant uprisings. Regardless of what the true number may have been, Henry, who reigned as the enclosures reached their peak, did have large numbers of people executed for being “vagabonds” or “thieves” — in reality for not working.

Force of the state backs the powerful

Systematic state force enabled factory owners to steadily gain the upper hand against artisans, although those nascent capitalists possessed no production innovations at the time. Economist Herbert Gintis wrote:

“Early factories employed the same techniques of production as putting-out [assemblers of finished products working from home] and craft organization, and there were no technological barriers to applying them to these more traditional forms. The superior position of the capitalist factory system in this period seems to derive not from its efficiency sense, but its ability to control the workforce: costs were reduced by drawing on child and female labor, minimizing theft, increasing the pace of work, and lengthening the workweek.”

A process of intensifying exploitation enabled early factory owners to accumulate capital, thereby allowing them to expand and amass fortunes at the expense of their workforces; they were also able to force artisans out of business, forcing artisans to sell off or abandon the ownership of their means of production and become wage laborers. Greater efficiencies can be wrung out through economies of scale, which in turn leads to the ability to introduce new production techniques because the accumulation of capital also provides funds for investment. Such efficiency, in turn, is necessary for the capitalist to take advantage of opportunities for trade.

The gathering pressures of competition eventually ignited the Industrial Revolution and fueled the rise of the factory system. A flurry of inventions useful for production shaped the Industrial Revolution that took root in Britain in the second half of the eighteenth century. The Industrial Revolution emerged not only due to technological and economic factors, but also as a result of capitalist class relations that had already become established. The introduction of machinery was a tool for factory owners to bring workers under control — technological innovation required fewer employees be kept on and deskilled many of the remaining workers by automating processes.

As industrial resistance gathered steam in the early nineteenth century, the British government employed 12,000 troops to repress craft workers, artisans, factory workers and small farmers who were resisting the introduction of machinery by capitalists, seeing these machines as threats to their freedom and dignity — more troops than Britain was using in its simultaneous fight against Napoleon’s armies in Spain.

This period coincided with a “moral” crusade promoted by owners of factories and agricultural estates in which the tiny fraction of commons that had survived were taken away by Parliament; the measure of independence rights to the use of commons provided wage laborers was denounced for fostering “laziness” and “indolence” — defects that could be cured only by forcing full dependence on wage work. Organizing, in the forms of unions and other coordinated activity, soon supplanted machine-breaking, reinforcing capitalists’ desire to use technical innovation to make their workforces docile.

Fortunes built on slavery, colonialism

The process of accumulation by European capitalists was greatly accelerated by slavery and colonialism.

Gold and silver were the mediums of exchange in Europe, Asia and Africa, and currencies were based on these metals. Indigenous peoples in Mexico and the Andes were skilled at mining, creating a supply of both metals that they themselves used for ornamental purposes. Silver shipped to Spain from Latin America by 1660 totaled three times more than the entire pre-existing supply in all of Europe. During this period, silver production in the Americas was an estimated ten times that of the rest of the world combined, all of which was shipped to Spain.

This vast wealth enriched the empires and monarchies of Europe, except for Spain — the metals it imported mostly were delivered to foreign creditors, and the rest spent on the Crusades, the Inquisition and importing manufactured items. Spain imported everything it needed while other countries threw up trade barriers and developed their industries.

The brutality with which this extraction of wealth was carried out led to the reduction of Indigenous populations by an estimated 95 percent. The imperial solution to this genocide was to import slaves from Africa. A steadily increasing number of slaves were shipped from the early sixteenth century as plantations grew in size. During the seventeenth century, Caribbean sugar supplanted mainland precious metals as the mainstay of wealth extraction; for three centuries the European powers would engage in continual struggle for possession of these islands. This sugar economy was based on the slave labor of kidnapped Africans; conditions were so horrific that one-third of the slaves who made it to the Caribbean died within three years — it was more profitable to work slaves to death and buy replacements than to keep them alive.

The triangular trade (Graphic by Sémhur)

The triangular trade
(Graphic by Sémhur)

The slave trade, until the end of the seventeenth century, was conducted by government monopolies. European economies grew on the “triangular trade” in which European manufactured goods were shipped to the coast of western Africa in exchange for slaves, who were shipped to the Americas, which in turn sent sugar and other commodities back to Europe. Britain and other European powers earned far more from the plantations of their Caribbean colonies than from North American possessions; much Caribbean produce could not be grown in Europe, while North American colonies tended to produce what Europe could already provide for itself.

Britain profited enormously from the triangular trade, both in the slave trade itself and the surpluses generated from plantation crops produced with slave labor. Proceeds from the slave trade were large enough to lift the prosperity of the British economy as a whole, provide the investment funds to build the infrastructure necessary to support industry and the scale of trade resulting from a growing industrial economy, and ease credit problems — early industrialists had extremely large needs for investment capital and commercial credit because of long delays in returns on investment due to the slow pace of trade transport.

Profits from the slave trade and from colonial plantations were critical to bootstrapping the takeoff of British industry and modern capitalism in the second half of the eighteenth century into the early nineteenth century.

Wealth for colonial masters, poverty for the colonies

The sociologist Robin Blackburn, in his comprehensive study The Making of New World Slavery, wrote:

“Britain undertook a major series of investment programmes: in the merchant marine, in harbours and docks, in canals, in agricultural improvements and in developing new industrial machinery. The profits of empire and slavery helped to make this possible, enlarging the resources at the command of public authorities, [land-]improving landlords, enterprising merchants and innovating manufacturers. Because of the prior transformation in agriculture, and in British society as a whole, colonial and mercantile wealth could be transmuted into capital employing wage labour.”

This extraction process had opposite effects in those colonies undergoing the most intensive exploitation. The Caribbean countries were reduced to monoculture production, forbidden to manufacture anything, because their agricultural products were so profitable. The mainland colonies that would one day become the United States, by contrast, were allowed to develop the industry and varied agriculture that would in the future enable rapid growth of their economy. African development also was stunted because rulers of coastal kingdoms could buy goods and weapons from Europe while profiting by enslaving Africans from other kingdoms; wealth there was used to buy from imperial powers and thus did not stay in Africa.

The widespread use of slave labor also necessitated that further social divisions be instituted, while institutionalizing global trade. Marxist feminist theorist Silvia Federici, in her book Caliban and the Witch, wrote:

“With its immense concentration of workers and its captive labor force uprooted from its homeland, unable to rely on local support, the [Caribbean and Latin American] plantation prefigured not only the factory but also the later use of immigration and globalization to cut the cost of labor. In particular, the plantation was a key step in the formation of an international division of labor that (through the production of ‘consumer goods’) integrated the work of slaves into the reproduction of the European workforce, while keeping enslaved and waged workers geographically and socially divided.”

On such roots is modern inequality built.

* The remainder of this article consists of extracts from the “Explorations in theories of transition to and from capitalism” section of my forthcoming book It’s Not Over: Lessons from the Socialist Experiment (still seeking a publisher). Footnotes omitted. In addition to the works directly quoted, sources include Karl Marx,“Expropriation of the Agricultural Population from the Land”; David Dickson, The Politics of Alternative Technology; Eric Williams, From Columbus to Castro: The History of the Caribbean; Eduardo Galeano, Open Veins of Latin America: Five Centuries of the Pillage of a Continent; John C. Mohawk, Utopian Legacies: A History of Conquest and Oppression in the Western World; and David McNally, Against the Market: Political Economy, Market Socialism and the Marxist Critique.

When you are on top, ‘might makes right’ is ‘rule of law’

The Obama administration’s moralistic paeans to the “rule of law” concerning whistleblower Edward Snowden would carry considerably more weight if the United States weren’t continuing to harbor an assortment of ex-dictators and a terrorist who killed dozens in an airplane bombing. As soon as we look under the hood, we see “might makes right” at work, not “rule of law.”

If the U.S. government actually cares about the sanctity of international law, it could start by handing over Luis Posada Carriles, convicted of blowing up a Cuban airliner that killed 73 people, to the government of Venezuela. Not only has Mr. Posada has been living in Florida for many years, he has at times worked for the U.S. government since escaping from a Venezuelan jail. Shortly after escaping prison (allegedly thanks to bribes paid by members of the Miami Cuban exile community) he was hired to work on Oliver North’s illegal Nicaraguan Contra supply network, and is suspected of involvement in an attempt to assassinate Fidel Castro in 1994 and a string of tourist-hotel bombings in the Havana area in 1997.

Mr. Posada, who trained with the CIA in the 1960s, gave an interview to three major U.S. newspapers in 1997 in which he admitted to some of activities. Writing about this topic in 2002 in an article published in BigCityLit, I wrote:

“The Miami Herald, Los Angeles Times and New York Times reported Posada’s revelations, which detailed a series of bombings and other terror acts and connections with Cuban exile groups in Miami. Posada, then 70 years old, ‘revealed that key Cuban American lobbyists in this country financed his activities, in apparent violation of U.S. law, while the FBI and CIA looked the other way,’ according to a Los Angeles Times report.”

The National Security Archive, a project of George Washington University that publishes declassified U.S. government documents, provided further details in 2005:

“The National Security Archive today posted additional documents that show that the CIA had concrete advance intelligence, as early as June 1976, on plans by Cuban exile terrorist groups to bomb a Cubana airliner. The Archive also posted another document that shows that the FBI’s attaché in Caracas had multiple contacts with one of the Venezuelans who placed the bomb on the plane, and provided him with a visa to the U.S. five days before the bombing, despite suspicions that he was engaged in terrorist activities at the direction of Luis Posada Carriles. …

“[A] report from the State Department’s Bureau of Intelligence and Research on the bombing of Cubana flight 455 … noted that a CIA source had overheard Posada prior to the bombing in late September 1976 stating that, ‘We are going to hit a Cuban airliner.’ This information was apparently not passed to the CIA until after the plane went down. There is no indication in the declassified files that indicates that the CIA alerted Cuban government authorities to the terrorist threat against Cubana planes.”

They said he’s a terrorist, but gave him a pardon anyway

The Cuban and Venezuelan governments have long requested extradition of Mr. Posada, to no avail. Another Cuban exile leader, Orlando Bosch, was granted a pardon by President George H.W. Bush in 1990 and lived free in the U.S. for three decades until dying in 2011. Mr. Bosch was also suspected in the Cuban airline bombing and in a series of other terroristic acts. Duncan Campbell, writing in The Guardian, reported a decade ago on him:

“According to US justice department records: ‘the files of the FBI and other government agencies contain a large quantity of documentary information which reflects that, beginning in the early 1960s, Bosch held leadership positions in various anti-Castro terrorist organisations. … Bosch has personally advocated, encouraged, organised and participated in acts of terrorist violence in this country as well as various other countries.’ ”

Lest we be tempted to chalk the above up simply to the U.S. government’s bipartisan obsession with Cuba, we’ve only scratched the surface of U.S. hypocrisy over the “rule of law.” Bolivia, for example, has requested extradition of former president Gonzalo Sánchez de Lozada. At the time already responsible for the deaths of dozens of protestors, President Sánchez sent his security forces to put down a peaceful rally opposing the selling off of Bolivian gas reserves; 67 were killed and more than 400 injured. He later fled into exile and was formally charged in 2007 with genocide.

The Obama administration refuses to send him back. A report by Glenn Greenwald in The Guardian states:

“Bolivia then demanded his extradition from the US for him to stand trial. That demand, ironically, was made pursuant to an extradition treaty signed by Sánchez de Lozada himself with the US. … The view that Sánchez de Lozada must be extradited from the US to stand trial is a political consensus in Bolivia, shared by the government and the main opposition party alike. But on [September 7, 2011], the Bolivian government revealed that it had just been notified by the Obama administration that the US government has refused Bolivia’s extradition request.”

Then there is Warren Anderson, former chairman of Union Carbide, who is wanted in India in the wake of the explosion of his company’s Bhopal pesticide plant that killed thousands of people and injured tens of thousands. Indians courts have issued warrants for his arrest, which have been met with silence while he shuttles between houses on the U.S. East Coast.

It’s not only terrorists and corporate criminals who enjoy safe havens in the United States. Amnesty International, in a 2002 report, US is a ‘Safe Haven’ for Torturers Fleeing Justice, estimated that at least 150 torturers were living in the county then, none of whom was brought to justice. The number of torturers that the U.S. has trained, at its School of the Americas at Fort Benning, Georgia, is far higher. At the SOA (currently operating under the name of “Western Hemisphere Institute for Security Cooperation”) the U.S. Army trains Latin American military and police officers in torture techniques as part of its curriculum; the countries with the worst human rights records consistently send the most trainees.

If they don’t like terrorists, why do they train them?

The watchdog group School of Americas Watch, in an investigative report written by Bill Quigley, summarizes the work of the SOA:

“[G]raduates of the SOA have been implicated in many of the worst human rights atrocities in the Western Hemisphere, including the assassination of Catholic bishops, labor leaders, women and children, priests, nuns, and community workers and the massacres of entire communities. Numerous murders and human rights violations by SOA graduates have been documented in Bolivia, Chile, Colombia, El Salvador, Guatemala, Honduras, and Paraguay among others. These horrendous acts correspond to part of the school’s curriculum: systematic use of torture and executions to neutralize dissidents.” [page 2]

An article in The Washington Post, a newspaper (despite its long-ago Watergate reporting) that often acts as if it were an official publication of the U.S. government (and which has eagerly joined in the attacks on Edward Snowden), nonetheless reported straightforwardly on the use of torture manuals released by the Pentagon under pressure:

“U.S. Army intelligence manuals used to train Latin American military officers at an Army school from 1982 to 1991 advocated executions, torture, blackmail and other forms of coercion against insurgents, Pentagon documents released yesterday show. Used in courses at the U.S. Army’s School of the Americas, the manual says that to recruit and control informants, counterintelligence agents could use ‘fear, payment of bounties for enemy dead, beatings, false imprisonment, executions and the use of truth serum.’ ”

That was the summation of a newspaper that ordinarily rushes to defend U.S. foreign policy. The techniques it described were not a small part of the curriculum, nor an aberration, as the Post article implied in an attempt to soften the revelation. A former SOA instructor, Major Joseph Blair, told The Progressive:

“I sat next to Major Victor Thiess who created and taught the entire course, which included seven torture manuals and 382 hours of instruction. … He taught primarily using manuals which we used during the Vietnam War in our intelligence-gathering techniques. The techniques included murder, assassination, torture, extortion, false imprisonment. … Literally thousands of those manuals were passed out. … The officers who ran the intelligence courses used lesson plans that included the worst materials contained in the seven manuals. Now they say that there were only eighteen to twenty passages in those manuals in clear violation of U.S. law. In fact, those same passages were at the heart of the intelligence instruction.” [“School of the Americas Critic,” July 1997]

He killed 1,000 a month, but he’s ‘dedicated to democracy’

The SOA continues to operate. One of the graduates of the school is Efrain Ríos Montt, the most blood-thirsty of a series of brutal dictators who ruled through terror in Guatemala. Each of these dictators ruled with the full support of the U.S. following the CIA-organized overthrow of the democratically elected Jacobo Árbenz Guzmán at the behest of the United Fruit Company, which had previously been the country’s de facto ruler. The succession of dictatorships killed more than 200,000 Guatemalans. The régime of President Ríos Montt murdered more than 1,000 people a month during 1982, with Ríos Montt himself hailed by U.S. President Ronald Reagan as “totally dedicated to democracy” and unfairly the target of “a bum rap.”

Simultaneously, the Guatemalan military intensified its assaults on Indigenous communities. For example, SOA Watch reports, a Guatemalan special forces unit with extensive ties to the SOA, the Kaibiles, carried out this operation:

“[The unit] entered the village of Las Dos Erres, systematically raped the women, and killed 162 inhabitants, 67 of them children. Current President of Guatemala Otto Peréz Molina, also a graduate of the SOA, spent much of his time in military service as a member of the Kaibiles. This military unit was developed by the Guatemalan government in 1974, and its initial leader was a fellow SOA graduate.”

Among the techniques used by Guatemala’s dictators, according to the book Harvest of Empire: A History of Latinos in America by Juan Gonzalez, were dropping mutilated bodies from helicopters into crowded stadiums and cutting out the tongues of people who inquired about the “disappearances” of friends and family.

And let us not forget the loyal sidekick of the U.S., Great Britain, which seeks to extradite WikiLeaks founder Julian Assange to Sweden merely for questioning at the same time it refuses to extradite a convicted pedophile, Shawn Sullivan, to stand trial in Minnesota, claiming that the U.S. justice system has a civil commitment program for sex offenders that is too draconian. The Daily Kos reports that the suspect is charged with raping a 14 year old girl and sexually assaulting two 11 year old girls in 1994, but escaped to Ireland.

In no way is Edward Snowden, a whistleblower who has provided a service to humanity, comparable to the murderous rouges gallery described in this article, but the Obama administration might want to meet its obligations under international law before it further strong-arms other countries. But then “rule of law” in a world in which force maintains vast inequality is a euphemism for “rule of the most powerful.”

History, subordination weigh heavily on unfinished Arab Spring

As exhilarating as it was for the people in Tahrir Square to have forced out Hosni Mubarak, that was the easy part. Dismantling a dictatorial system is much more difficult than seeing off a particular dictator.

This is the reality that Egyptians, and participants in other countries comprising the Arab Spring, continue to face. The dictator does not sit suspended above all of society, but rather rules with the support of a social base. Not rarely the dictator, when in the global South, is supported (and even reliant on) an imperial power with its own agenda. The United States government, whether the occupant of the White House is a Republican or a Democrat, has kept dictators in power throughout the world — the U.S. has militarily intervened in Latin America or the Caribbean 96 times, including 48 times during the 20th century. That total doesn’t include coups fomented by the U.S., such as Guatemala in 1954 and Chile in 1973.

Tahrir Square photo by Jonathan Rashad

Tahrir Square photo by Jonathan Rashad

The leading powers of capitalism were quite comfortable with the pre-Arab Spring status quo and, most notably in the case of the U.S. government, did little to discourage the idea that they’d prefer to keep things as they had been. But this is not to suggest that internal factors should be ignored. The same judges appointed by former President Mubarak preside; the Army continues to impose its will in the judicial and economic spheres; and the Muslim Brotherhood seems comfortable stepping into the shoes of the former régime. The economy continues to not function but the priority among Egypt’s elites is to jockey for power.

The military was the crucial social force on which the dictatorship of Anwar Sadat and Hosni Mubarak rested and, having accumulated significant economic interests to go along with their powers of coercion, is not inclined to loosen its grip. This source of power survived the removal of President Mubarak intact — augmented by the continuance on the bench of the Mubarak-era judges, the pillars of the dictator’s system remain in place. And although the Muslim Brotherhood would likely prefer the power of the military and the judiciary trimmed, it nonetheless appears content to simply place itself at the apex of this system and govern, to the ability it is able, with its own heavy hand.

The imperial powers, needless to say, are not eager for too much democracy in the Arab world, lest their ability to keep their grip on the region’s oil supplies loosen. But the greed of Western oil majors sometimes can backfire. A June 2 article in The New York Times reported that China is reaping the benefits of increased Iraqi oil production, buying half of Iraq’s oil and seeking more. The U.S. failed to gain complete control of Iraq’s oil as it had intended, and the measure of relative independence shown by the Iraqi government resulted in Baghdad setting tougher contract terms than Western oil companies would prefer.

The result, according to the Times, is that Chinese companies have accepted the lower profits resulting from the stricter Iraqi terms, content to secure needed supplies rather than maximize profits. Of course, although oil was a factor in the invasions of Iraq by the Bush I and Bush II/Cheney administrations, bringing Iraq (and, ultimately, the rest of the region) firmly into the U.S. orbit and forcing them open to unfettered penetration by multi-national corporations was a paramount goal. Naturally, this was to have been on a subordinate basis. There is a long history here, starting with the British crushing of Egypt’s attempt to industrialize in the 19th century.

First by military means, then by financial means

Although still formally a part of the Ottoman Empire, Egypt gained considerable autonomy after an Ottoman military commander, Muhammad Ali Pasha, became the ruler of Egypt following the departure of French forces under Napoleon Bonaparte. The new Egyptian leader, after securing power through a massacre of a rival group, embarked on a policy of industrialization and commodity agriculture to facilitate his a goal of Egyptian independence.

Cultivated lands were expanded and crops were grown specifically for export, most importantly cotton. The new strain of cotton he ordered planted was to be the cash crop used to finance Egypt’s economic rise. Lowell Lewis, an agricultural scientist, summarized this process:

“Since British textile manufacturers were willing to pay good money for such cotton, Ali ordered the majority of Egyptian peasants to cultivate cotton at the exclusion of all other crops. At harvest time, Ali bought the entire crop himself, which he then sold at a mark-up to textile manufacturers. In this way, he turned the whole of Egypt’s cotton production into his personal monopoly.”

Had Muhammad Ali been content to be a supplier of a raw material (in this case, cotton), he likely would not have incurred the wrath of the British. But he also was committed to industrial development. Factories in several industries were set up, including textile, and foreign trade monopolies were established. To stop the flood of British textiles imported into Egypt, embargoes were put in place. Britain did not want this competition, ultimately crushing the rise of Egypt through a mix of military and financial means.

Egypt’s ambitious ruler, despite being a viceroy for a province of the Ottoman Empire, built a large army that was used in a series of invasions, expanding his areas of control from Sudan to Syria. Britain had adopted a policy of propping up the Ottoman Empire; a weak but intact empire would suit Britain’s strategic and commercial interests. When Muhammad Ali’s army approached Istanbul, the Ottoman capital, several European powers came to the aid of the Ottomans, handing Egypt’s ruler a decisive defeat. In 1841, he was forced to sign a treaty specifying that Egypt would adhere to “free trade” policies, ending his monopolies and allowing Egypt to be flooded with cheap British imports, decimating Egyptian industry.

Egypt’s peasants had borne much hardship under the pre-1841 policies; they would now suffer more under heavy burdens of debt and taxation, while elite landowners who came to own most of Egypt’s farmlands were taxed at a small fraction of the peasants’ rate. Muhammad Ali had handed much of the elites’ land to them, and his successors continued to oversee a consolidation of land.

That was one component of the 19th century version of neoliberalism, although the term had not yet been coined. Another component was the debt that ensnared Egypt. Muhammad Ali’s grandson, Ismail, sought to modernize Egypt along European lines during his reign in the 1860s and 1870s. But the country went deep into debt to finance this program. Egypt could not even pay the interest, let alone the principal. Rather than risk a repudiation of the debt, the German and French governments forced Ismail to appoint British and French commissioners to oversee Egyptian finances to guarantee that the debt was paid.

As an example, in 1873, the Egyptian government accepted a loan with a face value of £32 million but received only £9 million because of conditions placed on the loan by the lenders — yet had to repay the full face value. Reduced to an exporter of raw materials as the British had intended, and thus overly dependent on volatile cotton prices, by 1877 more than 60 percent of all Egyptian revenue went to service the national debt. Within another five years, Britain’s direct occupation of Egypt had begun.

The players change, but the game does not

Following World War I, Britain maintained tight control of Egypt’s cotton exports, which accounted for 90 percent of Egypt’s exports. Even after Egypt gained independence after World War II, imperialist intrigue did not end. The British and French governments, in collusion with Israel, invaded Egypt in an attempt to seize the Suez Canal and overthrow Egyptian leader Gamal Abdel Nasser. A series of diplomatic maneuvers had led President Nasser to nationalize the Egyptian company that operated the canal, with payments to shareholders at full market prices.

Following British and French withdrawal in the face of international opposition to the invasion, including by U.S. President Dwight Eisenhower, President Nasser proceeded to nationalize British and French assets. He also embarked on plans to industrialize the country and redistributed land. But a decisive loss in the 1967 war with Israel, by then strongly backed by the U.S., undermined the president and weakened the economy. Anwar Sadat became president in 1970, and was rewarded for his re-aligning the country toward the U.S. from the Soviet Union with heavy aid.

Since then, Egypt has been dependent on U.S. aid and, in turn, the country was ruled almost continuously under emergency laws until the fall of Hosni Mubarak. The U.S. provided $1.47 billion in foreign aid to Egypt in 2011, $1.3 billion of which was military assistance. U.S. military-assistance programs have the goal of inducing recipients to align their policies with U.S. wishes, and much of it is specifically earmarked for the recipient to buy arms from U.S. companies. Thus recipient militaries are able to buy materiel that wouldn’t otherwise be able to, and U.S. arms manufacturers’ profits are subsidized.

The size of the military’s share of Egypt’s economy remains a subject of considerable controversy but, whatever the figure, is substantial. The last years of the Mubarak era saw a decisive turn to neoliberal prescriptions; although the military might have seen privatization schemes as a threat to its commercial interests, the post-Mubarak military command, which appears to possess decisive political power even after the ascension of Mohamed Morsi to the presidency, reached a tentative agreement (not yet ratified) with the International Monetary Fund, attached to the usual austerity conditions.

The Egyptian military has expanded into shipbuilding, railroad cars, real estate development, heavy equipment leasing and military materiel. It also is a part owner of companies in a variety of other industries, including computers and oil and gas pipelines.

The military and the Muslim Brotherhood are rivals for power, but whatever the differences between them, they have mutual interests in maintaining the status quo. The judiciary is another pillar of the old régime, and has flexed its muscles by issuing a series of rulings undermining the establishment of new institutions.

A United Nations report issued last month reports that more than 40 percent of Egypt’s population lives below the country’s poverty line of $2 per day, while two percent of the country’s population controls 98 percent of the economy; poverty, inflation and unemployment are steadily rising. A law passed by the military bans strikes, sit-ins and protests, and fewer Egyptians have access to health care because it is increasingly privatized. Meanwhile, Egypt’s Muslin Brotherhood-appointed prime minister announced this week that “there are no differences” between he and the International Monetary Fund concerning austerity measures the IMF is demanding in return for providing a loan.

Egypt’s generals want U.S. money and the Brotherhood promotes Turkey’s neoliberal Justice and Development Party as model. The military, the Brotherhood and the remnants of the Mubarak régime are the only institutions remaining, and the U.S. government can’t be displeased about that. It destroyed all Left entities that posed any threat, refusing to tolerate even nationalistic leaders whose “socialism” was limited to rhetoric, such as Gamal Abdel Nasser. Doing so was in the tradition of the previous leading capitalist power, Britain.

The inability of the Arab Spring, thus far, to bring about any meaningful reform, let alone revolutionary change, is inseparable from the region’s history and continued subordinate status in the world capitalist system.

Can a no-growth future and capitalism be compatible?

Is the era of economic growth over for advanced capitalist countries? If stagnation is what is on offer for the future, what does that portend?

The first question, although limited to the United States, is the subject of an interesting paper by the economist Robert J. Gordon, in which he makes a case that the era of high growth that has persisted for the past two centuries is drawing to a close and that, by the end of the 21st century, the annual growth in gross domestic product per capita may be as low as 0.2 percent — the estimated rate of growth prior to the 18th century.

The paper provides a useful starting point for discussion. A central idea that the paper rests on is that nearly all of the dramatic gains in standards of living, GDP growth and life expectancy that have occurred since the dawn of the Industrial Revolution had already occurred by the 1970s, and that those earlier inventions had vastly more impact than the Internet/computer/dot-com boom that arose in the mid-1990s.

To illustrate this point, Professor Gordon provides a graphic of past, present and projected future growth that assumes the shape of a steep bell curve. British economic growth is represented from 1300 to 1906, estimated by historians for the first four hundred years and by actual figures from 1700 because it was then the leading capitalist power. After 1906, actual United States growth in GDP per capita is used to the present day (because it became the leading capitalist power), followed by the author’s estimates out to 2100. The graph rises sharply starting at around 1870 until about 1950, peaking at 2.5 percent. It’s been downhill since, a trend that is forecast to continue until the growth rate declines to the Medieval rate.

If such a pattern does materialize — and Professor Gordon is far from alone in such pessimistic projections — what would that mean for an economic order, capitalism, that is based on endless growth? That is a question well outside the scope of his paper, and there is no intention here to imply a criticism of a paper for not discussing something beyond its scope. But as this blog attempts to tackle big questions, we are free to ask at a moment when stagnation is already upon us: Can capitalism survive an extended period of essentially no growth?

The Industrial Revolution and continued industrial innovation has brought fantastic changes to humanity, with the most dramatic changes coming in the 20th century. Professor Gordon posits three periods of major inventions: 1750 to 1830, 1870 to 1900 and the recent period of computer innovation. He argues that the first two periods brought a rapid series of inventions that took upwards of a century to be fully realized, fueling long periods of growth that lasted until the mid-20th century. Starting with the steam engine and the cotton gin, products resulting from the inventions of these periods include television, air conditioning and modern expressway systems.

Another example is indoor plumbing, which eliminated much manual labor, Professor Gordon writes:

“Every drop of water for laundry, cooking, and indoor chamber pots had to be hauled in by the housewife, and wastewater hauled out. The average North Carolina housewife in 1885 had to walk 148 miles per year while carrying 35 tonnes of water. Coal or wood for open-hearth fires had to be carried in and ashes had to be collected and carried out.” [pages 4-5]

Motorized vehicles also had a dramatic effect on productivity and standards of living:

“The average horse produced 20 to 50 pounds of manure and a gallon of urine daily, applied without restraint to stables and streets. … The low standard of living reflected not just the small amount that people could purchase but also the amount of effort at the workplace and at home where they had to expend to perform ordinary tasks. … To maintain a horse every year cost approximately the same as buying a horse. Imagine today that for your $30,000 car you had to spend $30,000 every year on fuel and repairs. That’s an interesting measure of how much efficiency was gained from replacing the horses. Gone was the need for unsanitary and repulsive jobs of people who had to remove horse waste.” [page 5]

After 1970, a slowdown in productivity growth (output per hour) began because the “one-time-only” benefits accruing from the earlier inventions and their spinoffs “had occurred and could not happen again.” The years from 1996 to 2004 brought an uptick in productivity and economic growth, but that had passed even before the economic downturn set in. The rapid development of online commerce lasted only a decade, and the innovations from the widespread adoption of the Internet have already occurred. Moreover, Professor Gordon argues, this most recent period of innovation did not focus on labor-saving measures but rather on entertainment and communication devices rather than replacing human labor with machines.

I would add that the primary economic effect of the Internet has been to shift commerce from one merchant to another, not altogether different from the mania of the past two decades in the U.S. to build new sports stadiums and casinos, which do nothing but shift consumer spending from one entertainment option to another with the additional expense of massive public subsidies. Professor Gordon illustrates his point most effectively when offering a thought experiment: You can keep all the inventions made in 2002 or earlier but none since, or you can have all the products of the past decade but none resulting from the two earlier periods of inventions.

“Option B is that you get everything invented in the past decade right up to Facebook, Twitter, and the iPad, but you have to give up running water and indoor toilets. You have to haul the water into your dwelling and carry out the waste. Even at 3 am on a rainy night, your only toilet option is a wet and perhaps muddy walk to the outhouse. Which option do you choose?

I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for option A is so obvious. The audience realises that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decade on which they have become so dependent.” [page 5]

The author offers six “headwinds” that he believes will reduce the growth of U.S. GDP per capita to a snail’s pace: the mass of retiring baby boomers leaving the workforce will cause output per capita to grow more slowly than productivity; the decline in U.S. educational attainment and growth in higher-education costs; growing inequality; the outsourcing and wage pressure inherent in globalization; environmental damage; and debt and the reduction in growth that results from austerity imposed to reduce debt.

Other than the reference to globalization as one of the six “headwinds” that will increasingly buffet the U.S. economy, the paper too narrowly analyzes the U.S. economy as a closed system, a weakness perhaps unavoidable given its specific focus. It is in no way controversial to note that no country is immune from the problems of the rest of the world given the deeply interconnected state of the world capitalist economy.

The paper is valuable in that it provides a reminder that the era of rapid economic growth since the Industrial Revolution has been a unique period in human history, and that such a time might not continue. Capitalism is a system that requires constant growth, an often overlooked aspect that has asserted itself in dramatic form as the stagnation of recent years has inflicted so much economic misery in advanced capitalist countries, and elsewhere.

In previous posts on this blog, I have written that the Keynesian policies that fueled the long post-World War II boom in the U.S. economy rested on a pair of one-time occurrences that can’t be repeated because it depended on a strong industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies.

Those neoliberal polices are in the interests of the capitalists who impose them, but are not simply a “choice.” The competitive pressures of capitalism lead to globalization and austerity. Irresistible competitive pressures were foreseen by Karl Marx, who encapsulated some of these problems in his theory of the tendency of the rate of profit to fall. In order to maintain profitability and compete successfully, a capitalist must reduce the costs of production. (This can be more or less stressed at different times; for instance, during the 1990s, there was a Wall Street mania in which industrial companies regularly made public pronouncements proclaiming their intent to become the “lowest-cost producer” in their industry in an attempt to curry favor with speculators.)

Corporate globalization is a natural consequence of the pressure to reduce costs; moving production to countries with far lower wages and few enforceable labor laws is an obvious response under the logic of capitalism. Mechanization is another response — machines make labor more efficient and require fewer workers be employed. But, Marx argued, more advanced methods of production are more capital-intensive, and thus higher efficiency is offset by diminishing returns on capital. The Marxist economist Anwar Shaikh summarized this concept this way:

“[T]he … pattern implies that the more advanced methods tend to achieve a lower unit production cost at the expense of a lower rate of profit. Competition, nonetheless, forces capitalists to adopt these methods, because the capitalist with the lower unit costs can lower his prices and expand at the expense of his competitors — thus offsetting his lower rate of profit by means of a larger share of the market.”*

One way of visualizing this phenomenon is to think of a construction company. Where many workers are necessary when equipped with shovels, far fewer are needed for the same job when the company buys a truck in which one driver can excavate many times the amount of dirt as a worker with a shovel. The company can buy newer and bigger trucks, but the amount of gained efficiency will never be nearly as dramatic as the purchase of the first truck. If we’d like to carry this example further, we might imagine that some of the displaced workers, after turning in their shovels, go to work on the assembly line building the trucks. But competitive pressures eventually cause the truck manufacturer to move the assembly line overseas.

Countervailing factors can frequently reverse this tendency; cuts to wages, work speedups, layoffs, downturns in the prices of natural resources and shuttering of facilities can each buoy profit margins. Nonetheless, some economists argue that it is precisely a falling rate of profit that has caused the ongoing global economic slump. Marxist economist Andrew Kliman perhaps is the most forceful in arguing that the rate of profit has been falling since the 1970s, leading to sluggish investment and economic growth and mounting debt problems despite the adoption of “free-market” policies.

He is not alone in arguing that, unless there is a transcending of capitalism, the only way within capitalism to restore profitability is through a full-scale destruction of the value of existing capital assets — a process not nearly complete despite the harsh austerity imposed around the world since 2008. (Such a destruction happened in the closures of the Great Depression and the physical damage of World War II.)

The various theories discussed here are not necessarily incompatible; capitalism is undergoing a deep structural crisis — not one of its recurring cyclical downturns. This crisis is the culmination of multiple factors that affect one another, and complex analyses are necessary to understand it. Professor Kliman directly declares that stagnation and a crisis-prone economy is the “new normal” while Professor Gordon describes his paper as “intentionally provocative.” But, coming from different perspectives, they envision stagnation as the capitalist future (although the latter discusses only U.S. prospects), as do other perspectives.

What does it mean for a capitalist economy that no longer can grow? The route out of past crises has been expansion to new areas, but infinite expansion on a finite planet is impossible. U.S. capitalists tolerated high wages for a time after World War II because they could expand into overseas markets and thereby increase profits. Once intensified competition from rebuilt Europe and Japan, and the relative maturity of markets, put pressure on profits, the rise of neoliberalism ensued.

In the absence of new markets, the only way to increase or even maintain profits is to reduce costs, and ultimately that means cutting wages and benefits. Doing so, however, leads to a new set of problems — consumer spending in advanced capitalist countries tends to account for 60 to 70 percent of economic activity. When working people don’t have enough money to spend, consumer spending declines and depresses the economy, further squeezing profits. More austerity simply means more economic contraction, as many Europeans are experiencing first-hand.

Capitalist businesses must grow or die, and capitalism functions only if it is expanding. When it doesn’t, or can’t, crisis is the result. If so much money is concentrated into so few hands, those wealthy hands can’t possibly buy enough to offset the deprivation of everyone else, nor should that be a desirable way to run an economy.

If stagnation is the “new normal” of capitalism, then deprivation, pain and worsening inequality is all that it can offer, save for the occasional temporary uptick — a never-ending race to the bottom. Is such a system really the best humanity can do?

* “Falling rate of profit” entry in A Dictionary of Marxist Thought (Tom Bottomore, editor) [Harvard University Press, Cambridge, Massachusetts, 1983], page 159

Could the rise of China fatally de-stabilize capitalism?

By Pete Dolack

The world is not limitless, yet growth without limits is touted as a permanent economic elixir. But natural resources aren’t infinite, nor can demand be infinite. What happens when the limits of growth are reached?

We aren’t supposed to ask that question about capitalism; the assumption is that economic activity will always grow. The insertion of China into the world capitalist system has created the opportunity for more growth as a country of 1.3 billion people has been thrown open to the world’s markets.

But what if, rather than throwing capitalism a lifeline in the form of a vast pool of consumers who will drive demand, China instead will fatally destabilize an already weakened world economic system?

China will be the final straw that will bring about the downfall of the capitalist system is the provocative conclusion of an interesting book by a Chinese economist, Minqi Li, who now teaches at the University of Utah. Professor Li doesn’t pull any punches in his book; indeed his book’s title is The Rise of China and the Demise of the Capitalist World Economy.* The book’s central thesis is that the huge mass of low-wage Chinese workers will drag down wage levels globally; the increase of industrialization in developing countries will lead to exhaustion of energy sources; and that ecological limits will force a halt to growth, fatal to a system dependent on growth.

Professor Li believes that the combination of these crises will bring an end to the capitalist system by the middle of this century. The Rise of China, however, is not apocalyptic; rather it methodically builds it case piece by piece through a sober examination of economic trends, calculations of the limits to a range of natural resources, analysis of long-term environmental unsustainability, and study of historical trends going back centuries. Nor is this a bleak work; Professor Li writes in the Gramscian spirit: pessimism of the intellect, optimism of the will. What will follow the collapse of capitalism is not pre-ordained but is up to humanity to determine.

The first two of the book’s seven chapters provide an interesting discussion of Chinese history, before and after the 1949 revolution. Pro-capitalist factions within the Chinese Communist Party gained the upper hand soon after Mao Zedong’s death in 1976, with Deng Xiaoping wresting party leadership by the end of the decade. Early reforms granting concessions to workers and peasants cemented political control for the Deng faction, Professor Li writes, enabling the party to then introduce capitalism. A 1988 law granted enterprise managers full control in the workplace (including hiring and firing at will), and the development of market relations enabled privileged bureaucrats to enrich themselves.

Intellectuals on the one hand, and enterprise and bureaucratic elites on the other, sought the growth of market relations and a firm turn toward capitalism. The two groups, however, disagreed on how the spoils would be divided between them, and the party was split three ways on how fast and how far to move toward putting the economy on full market relations. It was Deng who proved to be “the master of Chinese politics,” Professor Li writes, as he was able to implement an intermediate strategy between the party’s poles and use the crackdown in Tianamen Square to reduce the intellectuals to the junior partners of the ruling elites and to break the resistance of urban working people. Thus the stage was set:

“Throughout the 1990s, most of the state and collective-owned enterprises were privatized. Tens of millions of workers were laid off. The urban working class was deprived of their remaining socialist rights. Moreover, the dismantling of the rural collective economy and basic public services had forced hundreds of millions of peasants into the cities where they became ‘migrant workers,’ that is, an enormous, cheap labor force that would work for transnational corporations and Chinese capitalists for the lowest possible wages under the most demanding conditions. The massive influx of foreign capital contributed to a huge export boom.” [pages 64-65]

The “socialist rights” that were revoked included job security, medical insurance, access to housing and guaranteed pensions. The creation of an exodus from the countryside provided a huge pool of surplus labor to keep wages extremely low.

“China’s economic rise has important global implications. First, China’s deeper incorporation into the capitalist world-economy has massively increased the size of the global reserve army of cheap labor. In some industries, this allows capitalists in the core states to directly lower their wages and other costs by directly relocating capital to China. But more important is the ‘threat effect.’ That is, capitalists in the core states force core-state workers to accept lower wages and worse working conditions by threatening to move their factories or offices to cheap labor areas such as China, without actual movement of physical capital. …

“Secondly, China’s low-cost manufacturing exports directly lower the prices of many industrial goods. To the extent that unequal exchange takes place between China and the core states, part of the surplus value produced by Chinese workers is transferred to the core states and helps to raise the profit rate for capitalists in the core states.” [pages 70-71]

Professor Li’s analysis rests on “world systems” theory, which divides the world’s capitalist countries into three general groupings. World systems theory emphasizes that capitalism is a global system that changes and mutates over time and therefore must be analyzed as a single unit rather than as a collection of nation-states. The global division of labor forms the basis for a division of the world’s countries into three broad categories: core, semi-periphery and periphery, with the latter two subordinate to the core countries and the periphery the most exploited.

Inequality between core and periphery is an “indispensable mechanism” of global capitalism, Professor Li writes, and the existence of a semi-periphery acts as an important buffer because it is exploited to a relatively lesser degree than the periphery and can also, to a lesser degree, exploit the periphery. The semi-periphery historically comprised a small percentage of the world’s population and thus could be “bought off” relatively easily and thus a buffer against any united resistance by the world’s non-core countries. But if the semi-periphery were to become a significant portion of the world’s population, the world system would be destabilized.

The massive size of China is the destabilizing agent, Professor Li argues. He presents four possible scenarios that could arise from the rise of China:

“First, China may fail. China’s great drive toward ‘development’ in the end may turn out to be no more than a great bubble. [In this scenario,] as China sinks back to the status of periphery or poor semi-periphery, China’s existing regime of accumulation will collapse as it can no longer withstand the exploding social pressures the very process of accumulation has generated. This scenario, however, may be the least devastating for the capitalist world-economy.

“For the capitalist world-economy, the problem of China lies with its huge size. China has a labor force that is larger than the total labor force in all the core states, or that in the entire well-to-do semi-periphery. As China competes with the well-to-do semi-peripheral states in a wide range of global commodity chains, the competition eventually would lead to the convergence between China and well-to-do semi-peripheral states in profit rates and wage rates. This convergence may take place in an upward manner or a downward manner.

“In the downward-conversion scenario (the second scenario), China’s competition, with its enormous labor force, will completely undermine the relative monopoly of the historical well-to-do semi-peripheral states in certain commodity chains. As relative monopoly is replaced by intense competition, the value added contained in the traditional semi-peripheral commodity chains will be squeezed, forcing the historical well-to-do semi-peripheral states to accept lower wage rates that are closer to Chinese wage rates.” [pages 109-110]

Professor Li is arguing that, in this second possible scenario, wages rates in industrialized countries not among the “core” states (industrialized countries other than Western and Northern Europe, North America, Japan, arguably South Korea) would collapse under the competitive pressure of China’s low wages, which long hovered at about five percent of U.S. wage rates, and in the mid-2000s were one-quarter to one-fifth of countries such as Argentina and Hungary. A collapse in wages in semi-peripheral countries around the world such as Argentina, Hungary and Turkey would spark unrest and lead to economic depression around the world.

“There is the third scenario, that of upward convergence. China may succeed in its pursuit of ‘modernization’ and become a secured, well-to-do semi-peripheral state. In the meantime, the historical well-to-do semi-peripheral states may succeed in maintaining their relative monopoly in certain commodity chains. As a result, the Chinese wage rates converge upwards towards the semi-peripheral levels. Unfortunately, this scenario is as dangerous for the capitalist world-economy as the second scenario. The problem, again, lies with China’s huge size. Should the Chinese workers generally receive the semi-peripheral levels of wages, given the size of the Chinese population, the total surplus value distributed to the working classes in the entire well-to-do semi-periphery would have to more than double. This will greatly reduce the share of the surplus value available for the rest of the world.” [pages 110-111]

Here, Professor Li is arguing that a multi-fold increase in Chinese wages simultaneous with a maintenance of wages in countries around the world would likely be unsustainable. Multi-national companies based in core countries have moved production to China to take advantage of its low wages and lack of effective labor laws, enabling them to extract more surplus value. “Surplus value” is the sizable difference between the value of what an employee produces and what the employee is paid; some of the surplus value is used by capitalists for investment or to cover other expenses but much of it goes into stratospheric executive pay and financial-market speculation.

An upward convergence of wages around the world in present-day low-wage havens such as China would significantly reduce capitalists’ profits. In this scenario, capitalists would seek to cut wages in core countries to make up the difference, which in turn would trigger reductions in demand. Declining rates of profit, under capitalism, lead to economic downturns. Each of the world’s major economic crises, from 1873 on, have followed declines in the rate of profit.

“If the scenario of upward convergence turns out to be too expensive for the capitalist world-economy, what if China’s upward mobility takes place at the expense of the historical well-to-do semi-periphery? In other words, imagine the scenario (the fourth scenario) in which the rise of China (and India) successfully displaces the historical well-to-do semi-periphery, what are the likely implications for the existing world system? … [A]fter all of the investment is distributed, how much will be left for the other half of the globe?” [page 111]

Were the growth in energy consumption of the Chinese and Indian economies to continue at the same rates, and likewise for the United States and the eurozone, the rest of the world would be left without an energy supply in two decades, Professor Li argues. He writes:

“Given these trends, the rest of the world will have to get by with less and less energy consumption after 2017 and by 2035 there would be virtually no available energy left for the entire world outside China, India, the U.S. and the Eurozone. It is certainly impossible for such a scenario to materialize.” [pages 111-112]

But will there be enough energy to meet even the increasing needs of whatever countries will be in a position to dominate energy resources? Because of the intense competition imposed by the market in capitalism — individuals, businesses and states must all engage in it — a substantial amount of available surplus value must be used toward further capital accumulation to secure and expand market share. Those who do not do so are eliminated in the competition.

Investment is a necessity, and to compete successfully, what is wrung out of labor must rise. Machinery is the route toward greater efficiency. But as machinery and consumer products become more sophisticated, energy and other resources are consumed at greater rates; thus energy inputs rise faster than the population, pushing energy usage beyond sustainability and degrading the environment.

The world is already consuming resources beyond the world’s bio-capacity, Professor Li argues. Not only have the world’s “core” countries already exceeded their regional bio-capacities, but China, India, the Middle East and Central Asia have as well. Using calculations in a 2006 report by the World Wildlife Fund in the USA and Canada, the Zoological Society of London and Global Footprint Network, China and India consume resources and impose domestic environmental damage at a rate twice beyond their ability to be sustainable. Although those countries consume per capita far less than do the U.S. or the European Union, they also have much lower bio-capacities.

Such problems are compounded by an imminent peak in oil and gas, and limits to a variety of metals and other natural resources. If renewable energy sources prove unable to make up for the future shortfall in energy from oil and gas, the world will have much less energy available to it in the latter part of the 21st century than is available now. Professor Li believes that renewable energy will only be able to produce a small percentage of that of non-renewable sources. Even if his pessimism proves unfounded, the unsustainability of present energy consumption remains — as is the damage being done to the environment.

Another looming crisis for the capitalist system is the lack of a successor to the United States as the system’s center. Capitalism has had a succession of dominant centers; each successive center has been bigger to be able to cope with increasingly complex tasks. When London succeeded Amsterdam as the financial center, the financial center became located within a country with a powerful military, not only a large merchant fleet as Amsterdam’s United Provinces possessed. With New York succeeding London, the country at the center is continental in size and possesses a military that can be projected around the world.

Professor Li predicts a rapid decline for the U.S., including an imminent end to the dollar as the world’s central currency. Here I believe the professor’s forecast will prove to be considerably off; although the U.S. has entered a period of decline, its military and financial powers will remain preeminent for some time. And the dollar and U.S. debt instruments remain safe havens.

Declines from the capitalist system’s apex have tended to be gradual and not precipitous; moreover, the former financial center tends to remain powerful in financial markets for some time after the military baton has been passed. And there is no country remotely near being able to mount any challenge to U.S. military supremacy; U.S. military spending is nearly equal to military spending of all the rest of world put together and a significant portion of the Pentagon budget goes to weaponry.

It is a contradiction that the “duties” of the central power contribute to its ultimate decline. For the U.S., that is not only the enormous drain of military spending that starves the rest of its economy of investment and needed social provisions, but that it props up the world system through its deficits.

“After the systemic breakdown of the early twentieth century, the capitalist world-economy can no longer afford another similar breakdown. The hegemonic power has since then assumed the new responsibility to actively manage the global economy. Instead of allowing the system to simply collapse [during the repeated economic crises from the 1980s], the U.S. responded to growing systemic instability by running large and rising current account deficits, in effect pumping ‘liquidity’ into the global economy.” [page 123]

No other country has a big enough economy, nor a big enough military to apply the muscle that underlies the capitalist system, to replace the U.S., yet the capitalist system is unable to function without such a center. The next hegemon must be bigger than the U.S., and there is no country or bloc that fits the bill. Moreover, Professor Li argues, such a hegemon would be so large that it would stifle competition among countries, kicking out one of the crucial legs of the capitalist system.

Crises in economics, the environment, shrinking natural resources and the chaos of global warming are leading to a threat to very survival of humanity, Professor Li argues. Moreover, multiple crises are leading to a point where economic growth is no longer possible, the ultimate contradiction for the capitalist system, the very existence of which is based on endless growth and accumulation. He writes:

“Centuries of relentless capitalist accumulation have set humanity on a course of self-destruction. The very survival of humanity and civilization is at stake. The crisis can not be avoided or overcome within the historical framework of capitalism. To rebuild human society on an ecologically sustainable basis, there must be an economic system that is based on the production for use which is capable of meeting people’s basic needs, rather than one that is oriented towards the endless pursuit of profit and accumulation.” [page 173]

What comes next is up to humanity to decide. Professor Li quotes world-systems theorist Immanuel Wallerstein as predicting the world will enter a post-capitalist era in the second half of the 21st century. But what will that system or systems be? It could well be much worse — an authoritarian feudalism in which survival is a struggle in a time of scarcity is certainly foreseeable. Or it could be a democratic socialist system, in which production is for human necessity rather than an elite’s wealth accumulation and in which the consequences of a changing climate and the limitations on the world’s resources are handled in fully democratic, rational manners without elites to confiscate most of what is produced.

All social systems are historical, and capitalism is no exception, Professor Li argues. Indeed, all previous systems have reached their limits and been supplanted by newer forms. Ending on an optimistic note, he writes that “if the future socialism is able to make the best use of the human knowledge of nature that has been developed under capitalism and further expand that knowledge” and a sustainable relationship between population and resources can be established, then “humanity will be in a position to resume the great historical march to the realm of freedom.”

The Rise of China rewards the reader with a wealth of information and analysis. It is not necessary to agree with everything in the book to find it a valuable contribution toward understanding the stresses of the present economic crisis and a stimulant to discussion of the viability of continuing on the current economic path. One conclusion that shouldn’t be controversial, however, is that there will be no saviors. We’ll have to save ourselves.

* Minqi Li, The Rise of China and the Demise of the Capitalist World Economy [Monthly Review Press, New York, 2008]

Not so fast: The contradictions in China’s capitalist rise

By Pete Dolack

Hand-wringing over China increasingly seems to be a preoccupation of mainstream journalism, popular culture and the world of politics. In the past two years, China has passed Japan to become the world’s second-largest economy and passed Germany to become the world’s biggest exporter. Speculation abounds on when China will be crowned the world’s largest economy.

Among other forms, the decline of the United States can take comical or satirical forms in novels, Rick Moody’s Four Fingers of Death and Gary Shteyngart’s Super Sad True Love Story being two recent, outstanding examples. The plot of both unfold against a backdrop of a rapidly decaying United States at the brink of bankruptcy as the Chinese contemplate cutting off all credit, the former novel contemplating the human costs of economic free-fall layered over an absurd military gambit to salvage imperial prerogatives and the latter deftly using satiric exaggeration to lampoon the consumer fetishism that passes for U.S. popular culture. Laughing at the precipice is, arguably, better than crying.

Contemplation of the end of U.S. dominance can of course take much deadlier forms, such as the Bush II administration’s invasion of Iraq — a desperate ploy to re-assert U.S. military supremacy, impose a neoliberal paradise for its corporations, provide an economic and military base for the U.S. to assert itself over the Middle East and secure energy resources. Administrations from Nixon to Clinton had, in some form, carried out policies designed to slow down the incremental but steady relative decline of U.S. power in relation to the rest of the world, but such policies were tossed aside last decade in a mad gamble to restore undisputed supremacy. That the Bush II gamble backfired spectacularly cannot be in reasonable dispute; plunging the country into debt, wasting resources on military adventure, inflicting an appalling scale of casualties and engendering increased international willingness to oppose U.S. initiatives has instead accelerated imperial decline.

I think this is one critical reason for why U.S. corporate elites and their allied thinkers and policymakers split between Bush epigone John McCain and Barack Obama instead of their usual pattern of heavily tilting toward the Republican Party — the election of Obama promised a return to working with the allies of the advanced capitalist world instead of go-it-alone bull-in-the-china-shop adventures. That does not necessarily mean a less aggressive foreign policy as bombing campaigns in Libya, Yemen and Pakistan attest, but it does mean a more targeted use of the military, more consultation and more spreading of the costs and responsibilities, and therefore leading to a reduced burden and less instability, which are good for business. Wall Street in particular prizes stability. Therefore, the business elites who back Obama more or less got what they expected — a cool, steady hand at the helm of empire in which broader considerations are taken into account rather than a cowboy mentality that benefitted only a small, politically favored segment of Corporate America.

The general pattern of a relative decline in U.S. hegemony remains outside the ability of any strategy to alter. No country could possibly maintain the dominant position enjoyed by the United States in the years following World War II. Europe and Japan were in ruins, most of the rest of the world undeveloped and the U.S. possessed an intact manufacturing base and the ability to export its products around the globe. Europe and Japan rebounded, many other countries developed — sometimes in spectacular fashion — and there was much more competition.

But until the rise of China, there was no perceived direct threat to U.S. centrality. No single European country, nor Japan, was big enough to push the U.S. off its position at the apex of the global economy, and the centrality of the dollar in the Bretton Woods system and in the current era of free-floating currencies has cemented that status. An economically integrated European Union is not up to the task, despite the wishes of its industrial and banker architects, because there are too many centrifugal forces tearing at its foundation.

But now there is a country that seemingly has the potential to unseat the United States. But can China actually do so? Is Shanghai going to replace New York as the world’s financial center?

Let’s not hold our breaths just yet — China is not nearly capable today of becoming the new capitalist center.

Size matters. In earlier times, the seat of a small republic such as Venice could be the leading financial center based on the strength of its trading networks. Once capitalism supplanted feudalism, however, the financial center was successively located within a larger federation that possessed both a strong navy and a significant fleet of merchant ships (Amsterdam); then within a sizeable and unified country with a large enough population to maintain a powerful navy and a physical presence throughout an empire (London); and finally within a continent-sized country that can project its economic and multi-dimensional military power around the world (New York). China does have a population four times larger than the U.S., but its military and economy are much too small.

As the capitalist sphere grows larger and the problems of increasing complexity become more difficult, the capabilities of the center must become greater. Moreover, a center must be able to apply the force that maintains capitalism. There is no conceivable defensive reason for the U.S. to maintain military bases in more than 120 countries or to spend about as much on its military as all other countries combined. Such an overseas presence is a function of the force that has always underlaid capitalism: forcing open countries to trade, invasions and coups d’etat to ensure compliant governments, violent repressions against restive foreign populations and armed strike-breaking at home. There is no country or bloc that can meaningfully challenge U.S. military might in the near future.

Amsterdam’s reign as the financial center was doomed once the United Provinces (a precursor to the Netherlands) was soundly defeated in naval battles by the British, although Amsterdam did remain a significant financial entrepôt for some time. By the start of the 20th century, the U.S. had become the world’s biggest economy, and when it emerged stronger from the world wars while Britain emerged weaker, the U.S. became the global hegemon, although London remains one of the world’s most important financial entrepôts. History, however, does not repeat itself in neat patterns.

The rise of Britain and then the United States rested on exporting manufactured products and protecting their domestic industries. But unlike China, both also relied on internal consumer demand and had large areas of the world into which their corporations could expand; rising employee wages could be tolerated because of the ability of profits to grow in an era of expansion. In an era of mature capitalism, China is dependent on taking market share from others.

Success in doing that, so far, has enabled extraordinary trade surpluses, but the fact that much of that surplus is parked in U.S. Treasury bonds illustrates that China is nowhere near displacing the United States. On the surface, it appears as an irony that borrowing costs for the U.S. government are stable, or even falling, during a protracted economic crisis that originated within U.S. borders. But the centrality of the dollar, and the sheer size of the U.S. economy, makes U.S. government debt as reliable a safe haven as exists. If the U.S. government goes down, pretty much the entire global capitalist system goes down.

Only a currency that is fully convertible and represents the most rock-solid government guarantee could replace the dollar, and neither is the case with the renminbi. China in 2012 is a developing country and believes it must protect its young industries, just as other countries did during their rise. The advantage that China has over other countries is that, because of its vast trade surplus, it can afford to spend huge sums of money intervening in foreign-exchange markets to keep the value of its currency low, giving its exports a continuing advantage.

Doing so is really not so sinister; many countries, among them Japan, Switzerland and the United States, intervene in the markets to reduce the value of their currencies. (Despite the continual insinuations in the corporate media that the Chinese Communist Party issues decrees and, voila!, the renminbi is cheap, it requires continual heavy spending in foreign-exchange markets. You would think more corporate-media business reporters would be familiar with the fact that the Bretton Woods system of fixed exchange rates ended nearly 40 years ago even if Republican Party congressional members aren’t.)

Both the Bush II and Obama administrations maintained policies aimed at a cheap dollar; Obama’s goal of doubling U.S. exports in five years would be impossible without a dollar valued low against other currencies, thereby making U.S. products more affordable overseas. Nonetheless, China does this at a larger scale than other countries and is too dependent on exporting cheap products to stop doing so.

The production of cheap products is dependent on ultra-low wages, and that brings us to the contradictions within China’s capitalist rise. China’s low wages are based on ruthless exploitation of its rural population, and even China does not have a limitless supply of peasants able to move to cities to work in sweatshops. And even China has limits to how much manufacturing capacity it can rationally use.

Democracy is a historical accident of capitalism, not a prerequisite or something somehow built in. The spaces and contradictions contained within the political systems created to stabilize the functioning of capitalism (including institutions to adjudicate conflicts among capitalists and mechanisms for selecting political leadership in the absence of an absolute monarchy or the continued ascendency of a static landed aristocracy) enabled working people to wrest some of that democracy for themselves. Authoritarian capitalism is a model that has built industrial or trading powerhouses on small scales: Singapore and South Korea come most readily to mind. China is unique in that it is using this model on a vastly larger scale, and to become a global superpower, not simply a regional player as the others. South Koreans eventually forced a democratic opening from below through organizing; it is an open question as to whether a similar pattern will emerge in China.

Regardless of any possible democratic opening, if Chinese can’t buy the products that are produced with new capacity, what good is this extra production? For China to re-orient itself to producing for internal consumption would mean having to allow dramatic growth in workers’ income. But doing so would mean ending foreign capital’s reason to move production to China. China could try to switch to high-end manufacturing — to some degree, it is trying to extend its mix of production to do just that — but it doesn’t have the capabilities of non-Chinese companies that are already making such products and it would have to compete by muscling out foreign competitors.

As their own populations become more restless, foreign governments would not be able to stand by and allow themselves to be swamped by cheap Chinese imports. Moreover, the internal demand for such high-end products is limited within China, so it would be right back to having to rely on exports; much of China’s demand for high-technology products comes from government infrastructure projects and there comes a time when such a high level of investment ceases to be prudent and becomes wasteful spending, as has happened to Japan.

Another way out for China is what it seems to be intent on doing — buying foreign companies and buying interests in foreign operations. Yet it seems to be doing this not for investment purposes but to guarantee supplies for its internal markets as it is increasingly unable to meet its own needs, especially in energy. The Chinese certainly have the capital reserves to pursue this strategy, thanks to their massive trade surpluses and the large profits of their state-owned enterprises, but at some point will appear to be throwing their weight around, engendering resistance. Right now, Western capitalists see a market of 1.3 billion people and dollar (and euro and pound) signs dancing in their heads if they can gain access to it. But we come back to the fact that the production that has been moved to China from the West and other East Asian countries is based on extremely low wages.

The Chinese Communist Party can continue to apply repression to keep wages low, but such policies directly contradict its historic Mao-based ideology, which rested on the now-shredded social safety net known as the “Iron Rice Bowl” — an achievement not lost to collective memory. If the endless drip of scattered local rebellions organizes enough to force competitive wages, Western capitalists would still want to sell their products in China, but would produce at least some of them elsewhere. At that point, could China continue to grow its economy eight to ten percent a year? It does not appear it could. Chinese industry could step in and build new capacity, or acquire the capacity that Western capitalists abandon, but the upward pressure on wages would undercut China’s ability to export cheaply, and without much increased internal demand China would have a glut of capacity that would face shuttering.

China has limits, as all countries do, and if social explosions happen on a massive scale, none of us knows what the outcome might be. The party continues to apply repression to keep a lid on dissent. How long can it do so? None of us knows the answer to that, either, although it is interesting that U.S. capitalists who have moved production to China have an interest in continued Chinese “communist” repression at the same time that Chinese “communists” are now the most fearsome capitalist competition. Rivals who cannot let go of each other: The U.S. needs China to buy its debt and China needs the U.S. as an export destination.

My friend Paul Gilman, an activist-historian who has spent many years studying China, has said to me during our correspondence on this topic that Taiwan and South Korea’s right-wing dictatorships had to invest in the countryside to keep peasants even with the urban proletariat in terms of living standards to prevent revolutionary outbreaks, and that partially explains why Taiwanese and Korean workers were able to force large rises in wages, to the point where neither country can be used as low-wage havens for multinational corporations. (The militancy of those working people also helped.)

Two numbers will illustrate these points: The percentage of China’s gross domestic product that is household consumption (that is, all the things that people buy for personal use from toothbrushes to automobiles) is an extraordinarily low 35 percent and wages for Chinese workers held steady for a quarter-century at approximately five percent of U.S. wages.*

Let’s put those two numbers into some context. Household consumption accounted for 51 percent of the Chinese economy in 1985. To put that in further perspective, household consumption in the United States today is 71 percent and in the largest economies of East Asia and Western Europe it is around 60 percent. At the same time, the wages of Chinese workers have drastically declined as a percentage of gross domestic product during the past fifteen years, while the composite profits of Chinese corporations, private and state-owned, have nearly doubled. And one final comparison: Wages in Japan, South Korea and Taiwan started at less than ten percent of U.S. wages but rose quickly in comparison to world standards.

And that in a nutshell explains why so many manufacturers have shifted so much production to China. And why all those corporations headquartered in the U.S. and elsewhere who manufacture in China do not want change to come to China any more than do China’s coastal corporate elites, who decisively influence policy within the Communist Party. (Maybe we can just call it the “Chinese Capitalist Party” and end the pretense.)

One manifestation of that party policy is heavily concentrating investment in coastal industry while neglecting the countryside. Hung Ho-fung, a sociology professor who writes frequently about China, in a New Left Review article pungently titled “America’s Head Servant?: The PRC’s dilemma in the Global Crisis,” reports that rural per capita income has never exceeded 40 percent of the urban level during the past two decades. China’s countryside is arguably overpopulated, but government-party policy induces the exodus that has maintained downward pressure on wages.

Following a wave of strikes in China last year, some factories were forced to raise wages by as much as 50 percent. The U.S. corporate press simultaneously marveled that Chinese workers had “suddenly” organized themselves and were “no longer docile” while also wringing their hands on behalf of capitalists that China might no longer be a reliable low-wage haven. No need to worry just yet — 50 percent added on to five percent means seven and a half percent of world standards. That seems to remain a good deal for capitalists. It would seem that the Chinese political leadership decided it was prudent to let restless workers vent some steam, win a real concession (in relative terms) and thereby boil off (for now) the possibility of an organized challenge coalescing.

Eventually, the surplus army of labor will dry up, and Chinese manufacturers will face the same situation that Taiwanese and South Korean manufacturers began facing in the 1990s. Wages will have to rise, sharply, to at a minimum be competitive with East Asian living standards, thereby reducing the level of exploitation to a point intolerable to Chinese capitalists, and even more intolerable to multinational corporations operating in China. The Chinese export model, however, may have trouble before the countryside empties out because of its dependence on suppressing internal living standards, continually growing external demand and maintaining its currency valued low. The specter of inflation also looms, and China is interminably showing signs of tapping the brakes.

Meanwhile, the world probably cannot absorb much more Chinese production — the deep economic malaise in Europe and North America shows no signs of relenting, and may get worse. China has no choice but to create internal demand. But Chinese capitalists/Communist Party functionaries are getting rich on the current export model, and in a one-party system there is a built-in resistance to change and a security apparatus that can be used to stifle internal dissent.

Then there is also the degradation of the Chinese environment, another looming check on Chinese expansion. And, finally, one more element to think about: Can capitalism survive hundreds of millions of Chinese dramatically raising their material standards? This question may seem counter-intuitive, as conventional capitalist wisdom assumes that more is better, implicitly assuming a bigger market means bigger profits.

Expanding markets has been a critical factor in rising Western living standards in the past. But what happens when there are no more markets to conquer, and, more directly pertinent here, are there enough raw materials and energy to support China — or China and India — reaching the material standards of the advanced capitalist countries?

One economist who believes that the size of China is resulting in irreconcilable contradictions is Minqi Li. In his book The Rise of China and the Demise of the Capitalist World Economy, Professor Li argues that future demands by Chinese workers to raise their living standards will put catastrophic pressure on the rest of the world: Either the size of China’s labor market will force living standards down in other developing countries to China’s low level, causing vast unrest in those countries, or Chinese living standards do rise but in doing so reduce what is available for the rest of the world, driving down living standards and reducing the availability of resources elsewhere to intolerable levels. Moreover, Professor Li argues, there will not be enough energy available for the projected global demand before 2035 if the demand continues to increase at current rates.

Too pessimistic? Sorry, I have no happy ending to offer. Capitalism is a system that requires continual expansion: Expand or die is its remorseless law. Capitalism has in the past escaped depressions through expansion to new places. But there is almost nowhere else in which to expand. In the present crisis, private enterprises and governments continue to reduce workforces and cut wages and benefits. The products that are made cannot be sold because there is not enough income for working people to buy them; weak demand necessitates more cuts or moving more production to a new low-wage haven.

The world is in a vicious circle and there is no easy way out. Or no way out, other than by a better economic system — and creating one will require a tremendous grassroots struggle.

* Statistics in this and the following paragraph from the World Bank; Xinhua; and Hung Ho-fung, “America’s Head Servant?: The PRC’s dilemma in the Global Crisis,” New Left Review, November-December 2009