Valdai Club

The idea that the economic interdependence that capitalism creates leads to peace is as old as it is wrong.

The idea arose when the emerging capitalist classes won power from the aristocracy with an ideology that equated themselves with commerce, reason, markets and peace while the aristocracy was lined up with conquest, violence, states and wars.

In fact, however, capitalism has generated more war and violence than any other form of society. Despite this, the ideology that capitalism is peaceable is refurbished regularly, often just before a major conflagration of war. Norman Agnell proclaimed this in his multiple edition bestseller, The Great Illusion, that commerce made war futile just before the First World War broke out. It inaugurated a new ‘Thirty Years Crisis’ of 1914-1945 which also included the Great Depression, the Second World War, fascism, and pervasive civil conflict. Among its historic outcomes were the Russian and Chinese Revolutions.

More recently, advocates of ‘globalization’ started proclaiming that another age of expanding economic interdependence would bring peace just as the US Clinton administration was set to make a mockery of post-Cold War ‘peace dividend’ with the bombing of Yugoslavia and Iraq and inaugurating a new age of economic sanctions and wars in the name of democracy, humanitarian intervention, and a ‘responsibility to protect’ which abandoned the last pretence that UN agreement was required before the principle of national sovereignty could be overridden. His successor was only more brazen about all this.

Even today, after the disasters of the 2008 Financial crisis and the Great Recessions, and though its own growth remains stagnant, international trade is slowing and international capital flows have failed to recover after crashing in 2008, the likes of Tony Blair announce that ‘openness’ is the West’s test of an acceptable economy.

In reality, as Geopolitical Economy showed, ideas of free trade, US hegemony, globalization and empire were economically cosmopolitan ideologies whose function was to advance the Britain’s actual world dominance in the 19th century and the US’s attempted world dominance in the 20th in part by dissuading other states from challenging them in the only way possible, through state sponsored industrialization and growth, and in part by obscuring their own imperialist attempts at dominance.

In the world of such economic cosmopolitanism either no state matters or only one does. Its theory is free markets and free trade. Its reality, however, is One Way Free Trade imposed by dominant economies on their colonies or other weaker countries to entrench relations of economic complementarity where the dominated countries produce low value raw materials and the dominant countries, high value manufactured goods. Only countries strong enough resist such impositions could protect and industrialise their economies. Only such resistance – mounted as much by the US, Germany and Japan in their 19th century challenge to British dominance as by the BRICs and China today – has led to multipolarity, the spread of productive power to new centers which establish relations of similarity between the old and new industrial countries against the wishes of the former.

In the most recent iteration of economic cosmopolitanism, globalization, the lifting of all curbs on the free flow of capital was very central and it is important to understand why. Though we know that the countries that succumbed to the Clinton administration’s pressure to lift capital controls fell victim to the devastating East Asian Financial Crisis, we fail to see the larger pattern of which that disaster was part.

US hegemony, in so far as it refers to anything real, refers to the attempts of US elites since the early 20th century to establish the dollar as the world’s money in an effort to emulate 19th century British world dominance but without formal empire which it was too late to acquire.

However, the empire was the basis of the pound sterling’s world role: Britain could provide the world with liquidity only by exporting colonial surpluses. Without such surpluses to export, the dollar has never served stably as the world’s currency. The apparent postwar dollar ‘hegemony’ was actually a series of volatile attempts, each of which failed more catastrophically, to provide a basis to the dollar’s world role.

Contrary the idea that Chinese reserve accumulation supports the dollar’s world role, only the series of massive rises in international, dollar denominated, capital flows, of which stock market bubble of the 1990s and the housing and credit bubble of the 2000s were the two most recent and largest, have kept the dollar afloat. Taking place largely among the first world countries and serving only the interests of their financialized rentier elites, they have exacted a great cost from the world’s productive economy. Financial openness today serves only to maintain this dangerous set of arrangements. Though justified in terms of inflows of productive capital, it only brings in short term unproductive speculative and destabilizing capital.

Recent initiatives by the BRICs and the Chinese AIIB to provide long-term productive capital outside the dollar system offer more stable alternatives. The diversification of international currencies – and the floating of RMB denominated debt in London, high on President Xi Jinping’s visit to London this week – can also help.

These arrangements do not require unbridled free trade or financial openness which, as John Maynard Keynes saw back in 1933, are unlikely ‘safeguards and assurances of international peace’, entailing as they do ‘the progress of economic imperialism’. Rather, they can and must permit trade and financial flows to be mutually managed for mutual benefit.

This hopeful shift also portends danger, however. Just as the phase of violence in revolutions typically begins when the old regime fights back so in the dialectic of uneven and combined development, wars are often the consequence of established powers refusing to accept the fait accompli that new centres of productive power represent. The challenge of our times is to find a way of overcoming this refusal peacefully.