Remembering Nestor Kirchner

October 28, 2010 at 9:41 pm | Posted in Political Economy | Leave a comment
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It is not surprising that stock markets responded to the sudden and untimely death of former Argentine President, Nestor Kirchner on Wednesday October 27, 2010  by a strong rally. Elected President in 2003, Kirchner was responsible for steering Argentina out of its pervasive debt crisis.

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The immediate trigger to the crisis of 2001-02 was the refusal of the International Monetary Fund (IMF)  to release a $1.3 billion loan that had already been approved to finance the Latin American state’s $142 billion external debt on the argument that the government of the then-president Fernando De La Rua had not cut government expenditures to levels demanded by the IMF. This was despite the fact that the government had already privatized social security and so stringently cut allocations to the provinces that many of them had had to resort to issuing their own scips.

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That the Argentine government could not cut expenditures further was due to the fact that some 18 percent of the population was unemployed and a further 18 percent were underemployed. Following the withholding of the IMF loan, the government restricted withdrawals from private bank accounts to $250 a week–a move that resulted in massive demonstrations that drove the De La Rua out of office. This was followed by a period of deep political and economic stability with a sovereign debt default, a failed attempt to issue a new non-convertible currency, and a succession of four presidents in less that eighteen months before Kirchner was elected President in 2003.

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Immediately on assuming office, Kirchner served notice that he was not going to accept the dictates of the IMF which were designed to favor foreign creditors and defaulted on loan payments to the IMF in September 2003–something that only “failed” states had done before because all others feared that the IMF could cut off lines of credit. Instead, Kirchner drove a tough bargain with international creditors arguing that since most of the loans were incurred by the private sector, these should not be socialized. Eventually, he struck a deal agreeing to pay 30 cents on the dollar.

After contracting for three months after the default, the economy grew at an annual rate of 8 percent, raising some 11 million, or 28 percent of the population out of poverty. This was done by the Kirchner government pursing a competitive and stable exchange rate, carefully monitoring interest rates, price controls, and targeted spending to benefit urban populations. In 2006, Kirchner announced that his government would use over a third of its foreign exchange reserves to pay off its debt to, and end its dependency on, the IMF: there is “no way in hell” that Argentina would return to the IMF, he said. He was able to quickly replenish Argentina’s foreign exchange reserves since Venezuela agreed to buy over $2.4 billion in Argentinian bonds.

Kirchner’s policies then also had a regional impact as he joined with Venezuela’s Hugo Chavez, Ecuador’s Rafael Correa, Bolivia’s Evo Morales, and Brazil’s Luiz Inacio Lula da Silva in streering Latin America away from neo-liberal policies that saw an end to Washington’s plans for a “Free Trade for the Americas.”

By flouting neoliberal orthodoxy, Kirchner was able to lift the Argentine economy and especially to lift millions of people from poverty by refusing to socialize private debt and refusing to succumb to pressures to further privatize and de-regulate the economy. After his term in office, his influence continued as his wife, Cristina Fernandez de Kirchner succeeded him as president, and was widely expected to let him stand again for the presidency in elections scheduled for 2011. Hence the stock market rally was in anticipation of the end or the era of Kirchners.

 

An Occupation in Shambles

October 27, 2010 at 9:32 pm | Posted in Political Economy | 1 Comment
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As last week’s reports of NATO allowing free passage to Taliban leaders, even ferrying them on NATO helicopters, for negotiations with the Hamid Karzai regime indicate, President Obama’s deployment of an additional 30,000 troops to Afghanistan has been a spectacular failure. It has failed to dislodge the Taliban in southern Afghanistan and as Scott Atran wrote in the New York Times, the Taliban leadership is contemplating negotiations not because they “fear defeat at the hands of the Americans, but because they worry that their new generation of midlevel commanders is getting out of control.

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Insurgent attacks, he reports, are up 60 percent thus far this year compared to 2009 according to UN reports and Taliban numbers are up tenfold since 2001 and there is not a single unit of the Afghan Army that “can hold its own against the Taliban troops.”

Continued drone attacks across the border in Pakistan has solidified local support for the Taliban and Al-Qaeda–or at the very least turned public opinion against the United States. After that country has suffered the worst drought in its history, and at one time one-fifth of its land was under water, not only has US aid not matched aid to other countries suffering catastrophic natural disasters, but to also expect the country to prosecute a ‘war on terror’ rather than rebuilding its shattered infrastructure boggles the mind!



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Meanwhile, President Karzai’s government is increasingly blase about accepting wads of euros from the Iranians (and presumably others) in a blatantly corrupt administration. And across the border, in Iraq, Wikileaks have exposed official US military documents recording instance upon instance of torture by Iraqi forces on the civilian population.

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Underlining the incoherence of the current policy, NATO is approaching Russia for military assistance in Afghanistan–precisely when they are negotiating with the Taliban. Does anyone remember that it was the Mujahideen which drove out Soviet troops with American assistance. While this is in part, because supply lines through Pakistan is no longer secure and Russia provides the only available alternate supply route, it would incense the Taliban that the NATO is trying to entice into a coalition with the Karzai government. Can such a policy be outbidden for sheer incoherence and downright stupidity? Or is it merely a sign of complete desperation?

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Absurdities of the US Electorate

October 25, 2010 at 9:26 pm | Posted in Political Economy | Leave a comment
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Whom the gods would destroy, they first make mad…using this apt Latin metaphor, in a recent post, Ed Darrell notes the absurdity of the current US mid-term election campaign. An electorate that was passive in 2000 when the US Supreme Court stole a presidential election and the ‘winner’ in that election went on to wage war against a country that could not have threatened the US or defended itself is now screaming ‘socialism’ when the government seeks to provide a minimum level of health care to the young and the elderly while careful to preserve the high profits of insurance companies. An electorate seemingly unconcerned with the enormous cost of the illegal wars waged in Afghanistan and Iraq, and the evidence of billions of dollars being distributed in plastic bags, is enraged at a modest stimulus to the US economy. An electorate that does not register the torture of Iraqis by US forces or the ‘rendition’ of alleged ‘terrorists’ for torture by other states sees plans to build a mosque in downtown Manhattan as proof of the Islamicization of the United States. It is an electorate that continues to believe, in spite of all evidence to the contrary, that its first non-Caucasian president is a Muslim.

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The paradox is heightened by the ‘grassroots’ opposition to the elites when it is the elites funding the ‘grassroots’ Tea Party Movement. George Monbiot has documented how the two Koch brothers–owners of the second largest privately held company in the US and each worth over $21 billion–have financed a bevy of special interest groups to fund and sustain the Tea Party Movement so that they can retain more of their profits, avoid regulation, and pay less taxes. And once the John Roberts Supreme Court ruled restrictions on campaign financing unconstitutional, it has opened the floodgates to corporate financing of elections. Never before in US elections have large corporations and wealthy individuals contributed so much to an election campaign as reported by the New York Times and the Financial Times.

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Elite sponsorship of essentially white working class protests is all the more striking as the unemployed workers blame the government for the loss of jobs and the high rate of unemployment, when it is the corporate members of the US Chambers of Commerce–funding the Tea Party candidates–that are responsible for outsourcing US jobs overseas! “American Free Enterprise” is creating more jobs overseas than it is at home!

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In part, this disconnection between perceptions and reality among the electorate is because of the absence of critical voices in the mainstream media. There are hardly any representatives of labor or of working families on news shows in the last two decades. Instead we are fed with a constant stream of well-paid talking heads, representing no opinion but their own. There is, hence no questioning of the functioning of the economic system. John Boehner, the Republican leader poised to become the Speaker of the US House of Representatives, has pointedly refused to specify how he would cut the deficit–and in fact, he cannot.

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It was, after all, under Republican presidents–Reagan, Geoge H W Bush, George W Bush–that the Federal deficit ballooned beyond control. In the absence of critical commentary, the Republican Party and their Tea Party affiliates have been focusing on side issues–on whether President Barack Obama is American-born or whether he is a Muslim–to evade debate on crucial issues. And they have been able to do this because he is not a Caucasian!

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Such racist, and frankly incoherent, rhetoric has gained ascendancy primarily because serious debate has been eliminated from mainstream media–especially television. Instead of sustained debate on serious issues, we are fed a steady diet of inconsequential issues–debate on the mosque in Manhattan, the pastor of essentially a family congregation in Florida threatening to burn the Koran, the racist rants of Juan Williams and Bill O’Reilly–rather than issues of substance.

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Shifting Geopolitical Sands

October 22, 2010 at 8:43 pm | Posted in Political Economy | Leave a comment
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Two events this week–Chinese overtures to a Turkey that had angrily reacted to Beijing’s suppression of Uyghur protests in Xinjiang last year and NATO’s invitation to Iran to attend security briefings on Afghanistan–are indicative of major ongoing geopolitical shifts. After the Second World War, as the United States rose to a position of world hegemony and European colonial empires were dissolved, new geopolitical regions were created–Middle East, South Asia, Southeast Asia, East Asia, etc–while older geopolitical regions–Central Asia, Central Europe, etc–were erased by the fissures of the Cold War. The new post-Second World War regionalizations often violated long historical connections–as between South Asia and the Middle East on the one hand, and between South Asia and Southeast Asia on the other. Again, the Middle East was cordoned off from Central Asia (then under Soviet rule) while China was walled off from US client states in East Asia and from Southeast Asia. In East and Southeast Asia, by the early 21st century, these Cold war divides have been replaced by greater regional integration that more closely resemble the pre-capitalist Sino-centered tributary trade system as Mark Selden has recently argued.

On the Western frontiers of Asia, the increasing prominence of Turkey, India, and Iran suggest a similar realignment of forces that resemble earlier alliances between the Ottomans and the Mughals, though in a vastly changed geopolitical ecology.

Since it came to power in the elections of 2002, the Justice and Development Party (or AKP–its acronym in Turkish) has broken partly with the Kemalist republic’s orientation to the West to leverage its multiple regional identities–as a Balkan, Black Sea, Caspian, Central Asian, European, and Mediterranean state–to become a regional and global power. Rather than brusquely disavow its pro-Western stance, Ahmet Davutoglu, the party’s chief foreign policy expert and now the Foreign Affairs Minister, advocated a “zero problems with neighbors” policy.

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Defly exploiting the street cred it acquired by refusing US troops permission to pass through its territory for the invasion of Iraq, Ankara began to mediate between Syria and Israel till the brutal Israeli assault on Gaza in Operation Cast Lead caused Turkey to break off the talks. Turkey’s steadfast support to the Palestinians has won it the support of Arabs, especially since President Hosni Mubarak of Egypt is 82 and less active and the veteran Saudi foreign minister Saud al Feusal allegedly has Parkinson’s disease. Relations with its neighboring states has also been strengthened since the financial crisis beginning in 2008 which led to falls in Turkish exports to the EU and to a rise in its exports to its eastern neighbors.

Prime Minister Recep Tayyip Erdogan and Davutoglu engaged in shuttle diplomacy between Tiblisi and Moscow as Russian troops intervened on behalf of South Ossetia and Abkhazia in 2008 during a brief war. Ankara has also promoted a series of meetings between Serbia, Croatia, and Bosnia.

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More crucially, along with President Lula of Brazil, Erdogan has intervened in the dispute between the US and its allies and Iran over the latter’s nuclear energy program. Equally importantly, in November 2008, Davutoglu became in November 2009, the first high-level Turkish official to visit to the Kurdish Regjonal Government in northern Iraq which is akin to an Indian foreign minister visiting Pakistan-occupied Kashmir.

Meanwhile, India has emerged as the largest regional donor of reconstruction aid to Afghanistan, Relations between India and Afghanistan had been close till the Taliban captured power in 1996. Now, the US occupation forces and India share a common goal in eliminating Islamic extremists and it is telling that Pakistan was not invited to the high-level NATO security briefing that was attended by Iran. In large part, this is the result of the US promoting India as a regional counter-weight to China but also in part due to the relationship between the Pakistani military and intelligence services with the Taliban and al-Qaeda. The US is also courting India to provide a counter-weight to Iran.

Despite Iranian President Mahmoud Ahmedinejad’s vocal opposition to Israel’s brutal oppression of the Palestinians and to US policies more generally, Iran’s growing influence in Iraq and Afghanistan where US forces are bogged down in a war they cannot win implies that the US can only extricate their forces with Iranian cooperation or an entire region with much of the world’s proven oil reserves will endure decades of political instability.

When much attention has been focussed on regional integration in east and southeast Asia, the developments sketched here suggest that there is a parallel re-emergence of regional linkages between west and south Asia. This suggests that the geopolitical regions of the world are being reshaped with much of East and Southeast Asia being reoriented towards China, while Turkey, India, and Iran are emerging as important regional powers in a re-contoured ‘geographical pivot of history,’

 

 

Peering Beyond the US Midterm Elections

October 19, 2010 at 11:17 pm | Posted in Political Economy | Leave a comment
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What is likely to happen if the Republicans win control of one or both houses of Congress? The issues underlying the discontent of voters stem from the loss of employment and increasing inequality; of losing homes sold on dreams while they see the bankers walk away with millions of dollars in bonuses; fear of a further erosion of jobs overseas or to immigrants; belief that if only government spending is lower, taxes will fall and conditions will be better for the poor.

Regardless of the propaganda that it is unfair currency manipulation by other countries that is leading to a loss of jobs, the underlying cause is very different and no politician or party has a solution to the problem. Well paying jobs are disappearing because of technological changes. The evidence is everywhere–growth of emails and the Internet leads to a decline of post office jobs; the internet is as much of a threat to shopping malls and big box stores as these were to main streets; automated check-in machines at airports decimates counter staff; Netflix has spelt the doom of bricks and mortar video stores. No political party or economist has the remotest idea of what to do in these conditions, least of all the know-nothing Republicans affiliated to the Tea Party!

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If other countries were to raise the value of their currencies, it means that they will no longer buy as many dollars as they had to keep their currencies “undervalued.” It was the repatriation of current account surpluses and domestic savings from China and other countries through their purchase of US dollars that enabled them to manipulate exchange rates. This massive inflow of capital enabled the Bush–and now Obama–Administration to fight two wars in Iraq and Afghanistan while  cutting taxes. Without such capital inflows, taxes would have to rise or the US military will have to turn tail and slink back.

Perhaps, this is may explain why the US has swallowed a bitter pill and invited high Iranian representatives to in-depth briefings on Afghanistan by the military commander, General David Petreus and even begun to transport Taliban leaders to Kabul for talks in NATO aircraft. Iran’s footprint has also solidified in Iraq where the Shi’ite cleric Muqtada al-Sadr, allied to Iran, has emerged as king-maker. Any move against Iran will unravel US plans to withdraw from Iraq and Afghanistan.

Despite all this, if the Congress cuts taxes, it would mean cutting into the bone of welfare state, removing any semblance of a safety net under the poor. It will exacerbate the income gap between the rich and poor, already wider than at any time since the 1920s since a Republican victory in the elections will ensure that the rich cats will continue to walk away with bonuses in the seven and eight figures. Why else will they contribute so disproportionately to Republican candidates in the current election?

All of this does not even begin to address the military situation. What will the neocons make of the Taliban being invited back into power in Afghanistan and Iran exercising considerable influence in Iraq. And the Iraqi oil? Estimates of Iraq’s proven oil reserves has increased by almost 20 billion barrels but all of this is being exploited by Russian, Chinese, and other Asian companies–not US Big Oil!

From the Indispensable Nation to a Very Dispensable One

October 18, 2010 at 7:53 pm | Posted in Political Economy | 9 Comments
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How has it come to this–US-led NATO forces promising safe conduct to the Taliban to negotiate a pact with the puppet government in Kabul to put a face-saving gloss over the inevitable US defeat? Less than two decades ago, the United States had seemed to be the pivot of world politics, the only superpower in the tectonic shifts that accompanied the collapse of the Soviet Union. No state could challenge its power–and when Saddam Hussein’s Iraq dared to invade Kuwait, for the first time since the Korean War, the United States was able to send its forces to battle under the UN flag.

After the swift and brutal victory over Iraq, the Clinton Administration set about setting the rules of world trade, free trade reigned triumphant over the air waves, and when Serbia tried to prevent the secession of Kosovo, US-led NATO forces quickly enabled the rebel province to break free of Belgrade without suffering a single US military casualty. US supremacy over the air was so dominant that the Iraqi and Serbian combat planes did not even attempt to take to the air. The normal calculus of war, Perry Anderson announced, had been suspended.

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After the attacks on the World Trade Center in New York and the Pentagon in Washington, the United States quickly mobilized its forces for an assault on Afghanistan. No other military force could have so quickly attacked a country that it did not border. Though the US did not invoke the collective defense clause of the NATO treaty, member states offered their assistance–an offer the US accepted only after the Taliban government had been run out of power, preferring troops only from its Anglophone allies for the invasion itself.

The quick dispersal of the Taliban government emboldened the Bush Administration to train its guns on Iraq once again. This time, key members of the Security Council–Russia, China, France, and Germany–were unwilling to confer legitimacy to a clearly illegal invasion. Massive street marches across the world signaled popular opposition to an invasion of Iraq. Yet once the invasion began, President Chirac allowed US warplanes to fly freely across French airspace and Germany’s Foreign Minister, Joschka Fischer hoped for a speedy collapse of the Iraqi ‘resistance.’

As US forces occupied Iraq, Gregg Easterbrook declared the arms race over. “The extent of American military superiority,” he crowed, “has become almost impossible to overstate. The United States sent five of its nine supercarrier battle groups to the region for the Iraq assault. A tenth Nimitz-class supercarrier is under construction. No other nation possesses so much as one supercarrier, let alone nine battle groups ringed by cruisers and guarded by nuclear submarines.”

“Any attempt to build a fleet that threatens the Pentagon’s would be pointless,” he claimed, “because if another nation fielded a threatening vessel, American attack submarines would simply sink it in the first five minutes of any conflict. (The new Seawolf-class nuclear-powered submarine is essentially the futuristic supersub of ”The Hunt for Red October” made real.) Knowing this, all other nations have conceded the seas to the United States, a reason American forces can sail anywhere without interference. The naval arms race — a principal aspect of great-power politics for centuries — is over.”

With such military assets, the United States could act arbitrarily, violating international law with impunity but this time the tables were quickly turned against the mightiest power in history. Massive resistance on the ground with improvised explosives clearly established the vulnerable underbelly of US power. Small organized resistance groups and suicide bombers were able to inflict unacceptable casualties on the US led forces in both Iraq and Afghanistan.

In Iraq, US General David Petreus sought eventually to cut their losses by incorporating some 100,000 members of the resistance from the Sunni minority into a revamped Iraqi army. However, once the Iraqi government of Nuri al-Maliki invited the Shi’ite cleric Muqtada al-Sadr to join the government, the Sunni fighters began to desert with the weapons to the al-Qaeda.

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Just as the situation in Iraq is unravelling, so is the situation in Afghanistan, prompting the invitation to the Taliban for talks with the Kabul government. What is particularly striking about the defeat staring the United States in the face in Afghanistan and Iraq is that these are very different from Vietnam. In Vietnam, the national liberation movement was supported by the USSR and China, and enjoyed the support from majority of the world’s governments. The resistance movements in Afghanistan and Iraq have no support, Afghanistan has been in a state of constant war practically since the Soviet invasion of the country in 1978. No sooner that Iraq concluded its disastrous 10-year war with Iran, its attempts to conquer Kuwait led to defeat in the First Gulf War. Between the end of the First Gulf War and the US invasion in 2003, American and British airplanes dropped more bombs on Iraq than had been dropped in Vietnam during the Vietnam War. And yet, these insurgencies have triumphed over the mightiest military force in history–nuclear weapons and aircraft carriers simply cannot stack up against unconventional forces.

Rather than confronting these serious and potentially fatal problems, the commentariat in the United States contends itself with meaningless debates on the advisability of burning the Koran or building a mosque in Manhattan.

Currency Wars, Redux

October 14, 2010 at 7:08 pm | Posted in Political Economy | 1 Comment
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I had hoped to move on from discussions of currency wars to other issues concerned with the transition from US hegemony, but an article by the influential Financial Times columnist, Martin Wolf, was provocative–and misleading enough–to revisit the issue especially since it resonated with some of the comments made by a colleague recently.

Wolf claimed “the US wants to reflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender.”

Since the United States runs an enormous current account deficit and the ’emerging market economies’–most notably China–run large current account surpluses, Wolf contends that if the US Federal Reserve issues a flood of dollars, China and other states with current account surpluses would have two choices. They could try to keep the value of the US dollar high by buying dollars and thereby transfer their savings to the United States especially since a large part of their foreign exchange reserves are in dollar-denominated securities. The massive capital inflow that would ensue would enable the US to maintain low interest rates and thereby make housing more affordable. Alternatively, they could let their currencies appreciate in which case they would see their competitive cost advantages erode.

This is misleading because the largest, and fastest-growing, sector in East Asia is the trade in intermediate parts. Components of products are traded within the region and final assembly is done in China. Despite China producing some 75 percent of the world’s toys, only about 1/70th of the profits are retained in China. A New York Times report estimated that thougn a Barbie doll retails for $20, China retains only 35 cents. Hence, a revaluation of the renminbi will not substantially impact on the competitiveness of Chinese exports. On the contrary, since a revaluation of the renminbi will enable Chinese producers to buy intermediate parts and raw materials more cheaply, it might even increase the competitiveness of Chinese exports.

Low interest rates in the United States may make houses more affordable but that has little meaning when the unemployment rate continues to remain at high levels and the income gap between the rich and the poor is larger than at any time than the late 1920s. Michael Powell and Motoko Rich report in the New York Times that at the present rate of job creation, it would take nine years to make up the jobs lost during the last two years–and this does not even factor in the five to six million jobs needed to accommodate an expanding population.

In short neither the issue of unlimited dollars nor low interest rates will rescue the United States.

Japan as America's Loyal Retainer

October 12, 2010 at 8:04 pm | Posted in Political Economy | Leave a comment
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In a recent article in The Asia-Pacific Journal: Japan Focus, R Taggart Murphy argues that it was “Japan’s deviations from orthodox capitalist methods…that help explain the continuation of an American-centered world capitalist system long after one might have expected its contradictions to bring it down.”

Murphy argues that unlike the pound sterling which maintained its purchasing power throughout the 19th century by capital exports from the United Kingdom, the dollar has remained the ‘dominant currency’ even though its value has deteriorated through US current account deficits since the 1960s. This phenomenon, he argues, was only possible because Japan accumulated a large hoard of dollars that it did not exchange for other currencies or for imports. The only way that the Japanese political and business elites could resolve the contradiction between its large accumulation of dollars which was not reflected in domestic purchasing power was to create a series of asset bubbles–not only the massive property bubble when in early 1990, land in Tokyo and its surrounding areas was estimated to be more valuable than all the land in the United States and when the value of stocks in the Tokyo Stock Exchange was worth 50 percent of the value of all the stocks in the world–to the export of asset bubbles to Southeast and East Asia that caused the Asian Economic Crisis of 1997-98

The continued Japanese purchase of US dollar-denominated securities enabled Ronald Reagan to cut taxes while simultaneously increasing defense expenditures–which eventually drove the Soviet Union to the ground. Continued inflow of Japanese capital to the United States also financed a massive restructuring of unionized sectors of US manufacturing and the construction of a new high-tech industrial structure centered in defense, aerospace, and information technologies as Japanese enterprises captured market share in automobiles, machine tools, earth-moving equipment, and consumer electronics.

In many ways, the purchase of dollar-denominated securities by the Chinese resembles the actions of the Japanese but the Chinese are not under the same constraints. After the Second World War, Japan was essentially an US protectorate and even after sovereignty was restored to Tokyo, it functioned under US military protection and depended on access to US markets for its export-led growth, Despite China’s dependence on exports, it is not an an American retainer. More recently, China has been trying to make the renminbi an internationally-tradeable currency and its large current account surpluses with the United States and the European Union is being directed in substantial measure to infrastructural development and to technological upgrading.

In this astute analysis Murphy, however, characterizes the actions of Japanese government and business elites as a paradox’ “Japan’s very resistance to the full transforming power of capitalist relations forms a crucial explanation for both Japan’s willingness and its ability to support the global capitalist order.” Here, he equates capitalism with market relations–but as Fernand Braudel noted, capitalism is anti-market.

It was not in the world of “‘transparent’ visible realities’ he had argued that large profits were to be made, but in the ‘zones of turbulence’ where monopolies operated and reaped huge rewards. Japanese company executives may have even considered excessive profits as ‘shameful’ as Murphy contends, but they were single-minded in increasing their market share and building monopolies

Japan as America’s Loyal Retainer

October 12, 2010 at 8:04 pm | Posted in Political Economy | Leave a comment
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In a recent article in The Asia-Pacific Journal: Japan Focus, R Taggart Murphy argues that it was “Japan’s deviations from orthodox capitalist methods…that help explain the continuation of an American-centered world capitalist system long after one might have expected its contradictions to bring it down.”

Murphy argues that unlike the pound sterling which maintained its purchasing power throughout the 19th century by capital exports from the United Kingdom, the dollar has remained the ‘dominant currency’ even though its value has deteriorated through US current account deficits since the 1960s. This phenomenon, he argues, was only possible because Japan accumulated a large hoard of dollars that it did not exchange for other currencies or for imports. The only way that the Japanese political and business elites could resolve the contradiction between its large accumulation of dollars which was not reflected in domestic purchasing power was to create a series of asset bubbles–not only the massive property bubble when in early 1990, land in Tokyo and its surrounding areas was estimated to be more valuable than all the land in the United States and when the value of stocks in the Tokyo Stock Exchange was worth 50 percent of the value of all the stocks in the world–to the export of asset bubbles to Southeast and East Asia that caused the Asian Economic Crisis of 1997-98

The continued Japanese purchase of US dollar-denominated securities enabled Ronald Reagan to cut taxes while simultaneously increasing defense expenditures–which eventually drove the Soviet Union to the ground. Continued inflow of Japanese capital to the United States also financed a massive restructuring of unionized sectors of US manufacturing and the construction of a new high-tech industrial structure centered in defense, aerospace, and information technologies as Japanese enterprises captured market share in automobiles, machine tools, earth-moving equipment, and consumer electronics.

In many ways, the purchase of dollar-denominated securities by the Chinese resembles the actions of the Japanese but the Chinese are not under the same constraints. After the Second World War, Japan was essentially an US protectorate and even after sovereignty was restored to Tokyo, it functioned under US military protection and depended on access to US markets for its export-led growth, Despite China’s dependence on exports, it is not an an American retainer. More recently, China has been trying to make the renminbi an internationally-tradeable currency and its large current account surpluses with the United States and the European Union is being directed in substantial measure to infrastructural development and to technological upgrading.

In this astute analysis Murphy, however, characterizes the actions of Japanese government and business elites as a paradox’ “Japan’s very resistance to the full transforming power of capitalist relations forms a crucial explanation for both Japan’s willingness and its ability to support the global capitalist order.” Here, he equates capitalism with market relations–but as Fernand Braudel noted, capitalism is anti-market.

It was not in the world of “‘transparent’ visible realities’ he had argued that large profits were to be made, but in the ‘zones of turbulence’ where monopolies operated and reaped huge rewards. Japanese company executives may have even considered excessive profits as ‘shameful’ as Murphy contends, but they were single-minded in increasing their market share and building monopolies

Outsourcing and Currency Wars

October 10, 2010 at 4:59 pm | Posted in Political Economy | Leave a comment
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The US Department of Commerce reports that in the last two years, the number of employees of foreign affiliates and subsidiaries of US firms grew by 729,000 while these firms cut some 500,000 jobs domestically over the same period.

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Candidates of both major parties lay the blame for this on the Chinese government intervening in currency markets to keep the value of the renminbi artificially low and thereby gain an unfair advantage against US workers as companies ship manufacturing operations off-shore to take advantage of wage differentials.

But the emphasis in this argument is misplaced. In the first instance, manufacturing jobs have been disappearing from the United States for several decades. The Bureau of Labor Statistics reports that in September 2010 alone, more private sector jobs were created in the United States than in the entire 8 years of the George W. Bush Administration.

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More significantly, a look at China’s trade statistics reveals that its huge current account surpluses with the US and the European Union is counterbalanced by substantial deficits with its East and Southeast Asian neighbors. Indeed, components and intermediate goods dominate intra-Asian trade and China has emerged as a assembly point for parts manufactured elsewhere. This implies that any appreciation of Chinese currency could mean that China could import more intermediate goods and thereby offset any gains that might accrue to US producers from the higher value of Chinese wages. There is also no guarantee that manufacturers wont shift jobs to other low wage countries like Laos, Cambodia, or Vietnam if Chinese wages increase

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