If the US Empire is sinking, what will be floating?

Is the Big Ship America Sinking?
Contradictions and Openings
by Sam Gindin/Monthly Review

“There's something happening
What it is ain't exactly clear”
-- Buffalo Springfield, 1966

Are we in the midst of a momentous turn in world politics? Donald Rumsfeld has been shuffled out of the Pentagon. Daniel Ortega, Washington's nemesis from the Sandinista Revolution of the late 1970s, is back as President of Nicaragua. Hugo Chavez has been triumphantly re-elected, and Bolivia and Ecuador also have new left-populist presidents. U.S.-led neoliberalism is scrambling in Latin America; the U.S. state seems to be in the throes of a full retreat in Iraq; and, in its look ahead to the year 2007, The Economist is warning of the dangers of an "authority deficit" at the level of nation states, international institutions, and the role of "the superpower." The US economy is slowing down; Europe's economy is speeding up; and China, having quadrupled its output over the past 15 years, is becoming more confident and assertive internationally. The fall of the U.S. dollar has been imminent for some time, but now the talk is of its decline turning into a chaotic rout. And suddenly everyone is an environmentalist, with the Bush Administration being the main force against the Kyoto climate change protocols.

What next? With the Bush neo-conservatives on the defensive, will a new common sense emerge? Will the broad left regain its confidence and move to overturning three decades of increased inequality, erosion of social rights, and corrosion of substantive democracy? Will this also extend to challenging corporate power? Will Bush's humiliation in Iraq spill into Canadian debates over the war in Afghanistan and drag Harper down along with his imperial friend? Will the new reality in Iraq force the U.S. and Israel towards some substantive compromise with Palestinians? Will the turmoil within the American empire provide space for the populist experiments taking place in Latin America -- experiments that might inspire a more radical activism in our own countries?

An Unraveling Empire?

It is tempting to identify, in all of the above observations and questions, signs of the unraveling of the American empire. But to argue that the American economy may be on its last legs substitutes wishful thinking for sober analysis. The American economy retains a remarkable capacity to adjust to change (with great costs, of course, to American workers). American military power has limits but it remains the greatest military power the world has ever seen, and its coercive potential and reach should not be underestimated. Shifts are occurring among the hierarchy of capitalist states and regions -- the dramatic rise of Asia and the development of the European Union being the most obvious and important -- but American leadership in the making of global capitalism continues.

There are other reasons for caution. Empires aren't toppled by falling exchange rates. The U.S. dollar fell by 44% relative to the G-10 countries between February 1985 and October 1987. Although there was a recession in the early 1990s, this was followed by the great American 1990s economic boom. Empires do not collapse from particular defeats either. Vietnam defeated the U.S. in the 1970s, but a main priority of Vietnam today is to deepen its participation in American-led globalization. The American economy is clearly not focused on addressing popular needs, but that is not what matters to capital's successful survival. For American capital, the more important development is that US after-tax profits as a share of GDP are at their highest since 1929.

The U.S. is losing manufacturing j obs at an alarming rate: the number of manufacturing jobs in the U.S. is today below where it was fifty years ago, and as a share of total jobs, manufacturing employment is today less than half of what it was then. Yet because of the high productivity of the remaining workers, manufacturing production is not disappearing: the volume of manufactured goods produced in the U.S. has increased six-fold since 1950. Remarkably, given the decline in manufacturing jobs, manufacturing production has maintained its share of the American economy's real (after adjustments for price inflation) output. The U.S. continues to generate half the research and development done amongst the G-7 leading capitalist economies. According to the U.S. National Science Foundation, the American share of the global production of high-tech goods, in spite of all the outsourcing and the imports, actually increased from 25% a quarter of a century ago to 42% in 2003. It is certainly true that high-tech production in China and South Korea has increased much faster, but they started from a low base (about 1% in each country) and their global share has risen to what is still a fraction of the U.S. levels, at only 9% and 4% respectively.

Even if some U.S. multinational corporations have lost their former overwhelming dominance in certain sectors, others have maintained their strength, as with the aerospace industry, and new ones have flourished, particularly in such high tech sectors as computers, telecommunications, pharmaceuticals, medical equipment, biotechnology, and others. The leadership role of the U.S. is confirmed even as European and Asian companies increase their drive to catch up, or at times even surpass, American manufacturing. In other sectors, the advice and skills they seek is that coming from those with the most experience and expertise in the making of global capitalism, which overwhelmingly means U.S. banks, investment houses, consulting agencies, and law and accounting firms still dominate the financial and services sectors.

A Collapsing Trade Position?

What about the American trade deficit (including a trade deficit even in high tech goods) and the loss of competitiveness this expresses? American exports have in fact been very competitive and increased very significantly. It is the remarkable level of imports that account for the trade deficit. In high tech, for example, American consumers are buying, and American businesses using, more such goods than anyone else does. The result is that the U.S. ends up both producing more and importing more . It should also be noted that American multinationals now sell far more abroad through their affiliates than through exports from the US, so trade data does not give a meaningful measure of American corporate strength.

The U.S. has been able, for over a quarter century now, to import more goods than it exports and pay for this through other countries accumulating American dollars (dollars which are now falling in value). If any other country tried to do the same, it would be disciplined by international financial markets as capitalists would pull out their capital until that country corrected its "overspending." The U.S. can get away with this not just because the dollar is the dominant currency in the world: more important is that global finance is still relatively confident in the American dollar (the dollar remains the "safe haven" in an uncertain world) and the resilience of the American economy. The net result has, essentially, been that a larger share of global labor has been working to supply the US with its needs, and that the US has also captured a disproportionate share of world savings. In this sense, the U.S. has been able to run consistent trade deficits for over a quarter of a century as a sign of relative strength rather than weakness in relationship to other advanced capitalist centers.

The U.S. economy may face a significant degree of instability and uncertainty in the coming period. But a global run on the U.S. dollar is most unlikely because of the way the rest of the world is now structurally interdependent with -- and even directly integrated into -- the American empire. The countries currently holding large dollar reserves, especially China and Japan, hold dollars to keep their own currencies from rising relative to the dollar and so maintain their advantage in exporting to the crucial U.S. market. If they did convert their dollars to another international currency such as the yen or euro, the Japanese and Europeans -- panicking over a competitiveness-destroying rise in their currency -- would immediately turn to buying up dollars, thereby neutralizing the net impact on overall holdings of dollars. More generally, the countries with large holdings of U.S. dollars have come to understand that, given their integration into global capitalism, a crisis for the dollar is a crisis for everyone. This general concern to support the dollar even as it falls, and avoid a collapse of the US economy, reflects the contradictions of success within the American empire, and that structural interdependency has become a significant foundation of the American empire.

A Military Power in Retreat?

The U.S. military impasse -- and potential full retreat -- in Iraq raises the limits to the American empire. The Los Angeles Times (December 3, 2006) reports that the recent trip of top American officials to shore up their Middle East allies found "friends both old and new near a state of panic" fearing that "that the Bush administration may make things worse." But Iraq and the entire Middle East will still have to sell their oil on the world market, and the U.S. will keep receiving it (as it now does from Venezuela in spite of the Bush-Chavez conflict). American oil companies will continue to play a prominent and profitable role in the process (as they still do in Venezuela and Bolivia). Many of the new American military bases established in the Middle East and Central Asia in the course of the "war on terrorism" are likely to remain in place. And an unintended consequence of a less unilateral American state forced into negotiations with Iran may well lead Iran to become more "responsible" and integrated within global capitalism, an outcome not necessarily negative for American interests.

There are also other reasons for a more sober assessment of existing geopolitical alliances and balance of forces. The electoral rejection of neoliberalism in Latin America states, for example, is obviously a great electoral victory for the people in these particular countries and a rejection of neoliberal policies. But these neither yet represent a defeat of neoliberalism as a system of power and capitalist market relations or a fundamental challenge to existing global social relations. In Nicaragua, it is not clear that Ortega any longer represents a challenge to neoliberalism. Argentina has come back into the fold of global capitalism and is actively negotiating the repayment of its defaulted debt. Bolivia and Ecuador face serious limits on how far radical policy agendas in such small countries can be implemented given their international integration and poverty. And even Chavez, for all he has accomplished in Venezuela, has, to date, found it necessary to go slow in challenging private industry and finance. Brazil, with half of Latin America's population, is clearly critical to continental possibilities but Lula has not emerged as a threat to either the Brazilian or global capitalists, and, if anything, his government has served to contain the opposition from below. There is need for a careful calibration of the Latin American struggle against U.S. imperialism and political hegemony and the forces that remain to be defeated.

China raises a different set of issues and cautions with respect to shifting geopolitical forces. Chinese growth, much at the great expense of Chinese peasants and ecology, has indeed been stunning. But China has a long way to go to match the U.S. Its total Gross Domestic Product remains about one-quarter that of the U.S. The top 500 companies in China are still only one-fifth the size of the top 500 U.S. companies. China has relied on foreign direct investment as no other capitalist development transition has ever done. Even as China becomes more technologically sophisticated, its dependence on global technologies, components, and markets is not decreasing, but increasing. Between 1993 and 2003, the share of China's exports produced by foreign-funded enterprises (FFEs) increased from 35% to 79%. The FFE's share of exports of computer equipment rose from 74% to 92% and of electronics and telecom from 45% to 74%. Between 1998 and 2002, FFEs even increased their share of China's domestic consumption of high-tech goods from 32% to 45% (see George J. Gilboy, "The Myth Behind China's Miracle," Foreign Affairs , July/August 2004).

A crucial question is whether Chinese dependence on foreign corporations is just a pragmatic economic strategy that can be modified as China develops, or whether it carries with it a social significance. For example, the foreign dependence affects the making of a Chinese capitalist class, intertwining it with ties to foreign markets and suppliers. That is, the Chinese capitalist class has a developing vested interest, like capitalists elsewhere, in the conditions of global capitalism, as well as the Chinese economic space. This can be partly seen in the major political and economic summit held in December between Chinese and American political and business leaders over the nature of Chinese-American economic ties and their relationship to the global economy. To the extent that such a Chinese capitalist class is in fact emerging, the main global "contradiction" represented by China's growth may consequently not be found in its threat to the U.S., but rather in China's internal class and ecological relations.

There are also specific limits on China's emergence as global political rival in the immediate period. There are some serious potential problems with China's banking system and the unserviced debt that has been mounting; the inflow of speculative "hot money" and China's real estate bubble are becoming more difficult to contain with the Bank of China's main sterilization policy of building up U.S. dollar reserves; an aging population and weak social security structure that is putting pressure to shift resources from private accumulation to public services; an already-existing environmental crisis that will only get worse at present growth rates; and extremes of regional and class inequalities. There is, finally, the critical question of whether the Chinese state can contain the formation of popular forces, above all within the working class, and their growing expectations of workplace rights, material wellbeing, and democracy.

New Openings?

Where then does this leave us? There may be a downturn, strains, and uncertainties, even a degree of quite serious turmoil. Given that neoliberalism has, to some extent, been discredited as a pure policy framework, this may lead to some turn away from neoliberalism's harshest and most messianic policies. As The Economist (November 25, 2006) suggested after the fall 2006 American Congressional elections, rebuilding "America's social contract" may be "a prerequisite for shoring up support for globalization." As well, the Democratic Party most certainly will, in light of the delegitimation of Bush's international policies of unilateralism, be more cautious in its interventions abroad and more sensitive to multilateral incorporation of allies, as has already been evolving with respect to Middle East policies and North Korea. In the absence of sustained social pressures from within the U.S., however, the changes will be limited to a "kinder" (and perhaps more acceptable) capitalist globalization and the more "multilateral" (and perhaps more efficient) imperialism which the Europeans have sought from the U.S.

American capitalism and the American empire continue to have staying power. This is because of the absence of pressure from below. Without effective social resistance, American capital can restructure at the expense of the middle and working classes. Without organized resistance, the "competitiveness" of U.S. firms and the economy becomes the discursive and organizational framework for middle- and working-class discontent. The cracks in the neoliberal architecture of the empire in the military quagmire in Iraq, electoral revolts in Latin America, and the structural American trade deficit and dollar overhang are not the bursting of historic "contradictions" that lead to the crisis that will unravel American geopolitical hegemony. Rather, these are historic "openings" that challenge us to create a new politics that can lead to radical new political alignments. The real issue is not whether "the system" will fall apart, but whether a new kind of left can come together.

In Canada, it is significant that federal anti-scab legislation and a living wage are actually on the parliamentary agenda and that the new leader of the Liberal Party is an avowed "environmentalist." But these positive signs are more a reflection of the Liberals sensing a general and vague unease in the country than any fear of a radicalized and mass left. The question is whether we can build on such openings. Might the present moment be that long-awaited chance to place real economic and social transformation -- with all the difficult (and sometimes uncomfortable) questions of political capacities and organization this implies -- on the agenda once again?
(Sam Gindin teaches political economy at York University. This article was first published in Socialist Project's e-bulletin The Bullet 42, 8 February 2007.)