http://socialistviewpoint.org/janfeb_18/janfeb_18_02.html
The Trump Era: An Economic Perspective
By Lynn Henderson
The following is a response to a July 29, 2017 letter from Dave Gilbert
who is a political prisoner serving a long term in federal prison. Over
the past year Dave and I have been in a fruitful exchange of ideas, a
recap of which was printed in the September/October 2017 issue of
Socialist Viewpoint. In his latest letter Dave posed a number of
issues: the character of Trump’s role as leader of the America
First/nationalist wing, the disputes in the U.S. ruling circles over
Russia vs. China, China’s industrialization, its future evolution and
impact on relations with the “Global South.”
Excerpts from David Gilbert’s letter:
•You see a clearer split within the ruling class about whether Russia or
China is the main enemy. As I wrote, I felt a lot of the focus on Russia
was to neuter the more vulnerable country to prevent what they see as
the main threat: a strong Russia/China alliance. Related to that, didn’t
Obama’s “pivot toward Asia” reflect that long-term concern about China?
You do explain about trying to force bigger military expenditures on
China, but didn’t it go deeper than that?
•Are you seeing Trump as a more strategically coherent representative of
a faction of the ruling class than he is? He arose out of mass
frustrations along with lack of effective ruling class strategy. Some of
the billionaires who back him do have the views you state, but he seems
more erratic.
Trump is hardly a “strategically coherent representative” for the
emerging “nationalist” faction in the U.S. ruling class. He is
increasingly seen as erratic and unreliable, particularly lately with
the growing crisis over North Korea. Neither wing of the emerging split
in the U.S. ruling class wants to stumble into another Asian war, let
alone a nuclear war, over North Korea. Steve Bannon, who perhaps
represents a more reality-based strategy for the nationalist faction,
argues that it’s now too late to prevent a nuclear North Korea. Rather
U.S. imperialism needs to concentrate on the real threat, the growing
industrial power of China.
But it is Trump who got elected president proclaiming a return to an
aggressive nationalist/America-First line, and successfully mobilized
racist, anti-immigrant sentiment in support. Whatever his other
limitations, the coalescing nationalist wing feels stuck with him and
they are falling in line behind him, at least for now. Even more
worrying for the nationalist/America-First wing is their growing
suspicion that Trump’s only real political commitment is to his own
personal wealth and ego. Bannon in an August interview with The Weekly
Standard1 gives voice to this sentiment; “The Trump presidency that we
fought for, and won, is over. We still have a huge movement, and we will
make something of this Trump presidency. But that presidency is over.”
More broadly, most of the elected politicians in both capitalist parties
are in confused disarray over the growing split in the U.S. ruling
class. They are not confident over how the division will play out, and
what position will best serve their own political futures in the end. As
Marxists we, unlike bourgeois historians and political philosophers,
adhere to the historical reality and validity of a ruling class. But
this of course does not mean that any particular ruling class at any
particular time is unified and in fundamental agreement. Or even that a
ruling class under all circumstances, especially under the stress of a
real crisis, is capable of correctly assessing its own best interests.
Background for understanding today
I think the most pressing questions in your letter were those concerning
China. One—how did China, while using a market economy, become more of
an economic threat than the USSR did? And two—whether China is emerging
as an imperial power and what does this say about the terms of their
economic relationships with Third World countries?
To begin grappling with these questions we have to again go back to the
world that emerged out of WWII, and its subsequent evolution. As I
previously wrote, U.S. imperialism was the completely dominant winner of
WWII. It won WWII not just against the Axis powers but against its own
allies as well. With the exception of the United States, the entire
capitalist world came out of WWII in social, political and economic
shambles. The question then before U.S. imperialism was how should it
proceed?
At the end of World War II, one option the U.S. government had was the
unique opportunity to use its economic and military power to dismantle
the major industrial corporations of its competitors. Under the
so-called Morganthau Plan, Germany was to be forcibly de-industrialized
and turned into a decentralized collection of agricultural states much
like it had been in the middle of the 19th century. The U.S. also had
similar plans for Japan. Indeed, why stop with Germany and Japan? Why
not forcibly dismember the capitalist industry of all of the United
States’ major potential competitors, including its so-called allies
Britain and France? After all, the logic of capitalist competition among
nation-states pointed in this direction.
If that had been done, U.S. corporations would have had the entire world
market—both as buyers and sellers—for themselves. If the U.S. government
had followed an “America First” policy in the years after 1945—and
gotten away with it—it would have meant that the stock market value of
U.S. corporations would have soared to vastly higher levels than is
actually the case today. The U.S. would have been “great” indeed! But as
we know, the U.S. government didn’t dare attempt this, especially with
the threat of the Soviet Union and the continued example of the 1917
Russian Revolution still before what would have been an increasingly
impoverished and radicalizing European proletariat.
Instead, with the launching of the “Marshall Plan” Washington adopted a
bi-partisan foreign policy, supported by leaders of the Democratic and
Republican parties alike, buttressing a world empire in which the
corporations of Britain; an economically resurgent Germany; and an
economically resurgent Japan, France, Italy, Australia, New Zealand, and
so on could actually compete with U.S. corporations, cooperatively
exploit the Third World, and appropriate a portion of the surplus value
for their non-American owners (free market imperialism). Things were
made easier by the fact that the world market in the wake of the Great
Depression, and the massive physical destruction of WWII, had entered an
extended phase of rapid expansion.
A key element in organizing this “New World Order” was the 1944 Bretton
Woods Conference in which 44 nations met in New Hampshire to “negotiate”
a new international monetary system. No real negotiations took place. A
completely dominant U.S. imperialism, holding all the cards, could and
did dictate the terms. The alternative other participants faced was some
version of the Morganthau Plan.
The lynchpin of the Bretton Woods system was the new privileged status
for the U.S. dollar. All international accounts and trade would now be
settled in dollars—dollars that the U.S. Treasury could just print. It
was true that dollars could be converted to gold at a fixed rate of $35
per ounce, which was redeemable by the U.S. government. But the U.S.
government held most of the world’s official gold reserves, and what the
rest of the world desperately needed and wanted was not gold but dollars
to spend on American manufactured goods—cars, steel, machinery, etc.
However, as manufacturing began to recover in the rest of the capitalist
world, resistance to the Bretton Woods system and the privileged
position of the dollar began to grow. In Europe the Bretton Woods system
began to be characterized as “America’s exorbitant privilege”—an
“asymmetric financial system” where non-U.S. citizens “see themselves
supporting American living standards and subsidizing American
multinationals.” In February 1965 French President Charles de Gaulle
announced his intention to exchange its U.S. dollar reserves for gold at
the official exchange rate. By 1970 other nations began to demand
redemption of their dollars for gold. Underlying this shift was the
broader reemergence of international capitalist competition, especially
in the sphere of manufacturing. In 1950 the U.S. share of the world’s
total economic output was a whopping 35 percent. By 1969 it had dropped
to 27 percent. The U.S. economy was faced with rising unemployment (6.1
percent in August 1971), recession and the threat of deeper recessions.
Flood tide of Keynesian economics
U.S. ruling circles became convinced that a policy of massive deficit
spending and monetary expansion could successfully stimulate the economy
and reverse its decline. The 1960s represented the flood tide of neo
Keynesian economics in both policymaking and academic circles. If there
was one time in the history of modern capitalism when the academic and
political mainstream believed that they could finally beat the “business
cycle” once and for all, it was then. In 1971 President Richard Nixon
was reported to say, “We are all Keynesians now.” Even many Marxists
seemed foolishly willing to accept these claims.
But implementing such a policy was impossible as long as the dollar was
tied to gold, which would allow nations throughout the world to flee an
inflating dollar by demanding the U.S. Treasury redeem their dollars for
gold. On August 13, 1971 fifteen high ranking White House and Treasury
advisors met secretly with Nixon at Camp David and unilaterally
abandoned the Bretton Woods agreement by suspending the convertibility
of the dollar into gold. Historically this is known as the “Nixon Shock.”
While the rest of the capitalist world was certainly not happy with the
unilateral ending of dollar/gold convertibility, nothing else was
available to function as the world’s reserve currency and the essential
vehicle for carrying out world trade. In the final analysis,
overwhelming military power enabled the U.S. to convert the dollar into
a token currency with an internationally forced circulation.
Now that this “metallic majesty” had been overthrown, the U.S.
government and central bank believed they could guarantee “effective
demand” sufficient to buy the vast and ever-growing quantity of
commodities U.S. capitalist industry was churning out. Throughout the
1970s these policies were now put into effect with massive deficit
spending and aggressive monetary expansion. But the results were not as
expected and predicted. Rather than stimulating the economy and
returning the growth rates of the ’50s and ’60s, the result was sharply
increasing inflation peaking at almost 15 percent by the spring of 1980.
This crisis required the coining of a new term in economic
jargon—stagflation.
But stagflation was much more than a crisis for just the U.S. economy.
The rest of the world began losing confidence in the dollar as the
reserve currency. Even though the dollar was no longer officially
convertible to gold, it began to be dumped for gold, whose price soared
to over $800-an-ounce. Conversely the dollar’s value plummeted on the
foreign exchange markets. While many capitalist countries have
experienced runaway inflation or even hyperinflation, runaway inflation
has never hit the central or reserve currency. If the dollar succumbed
to runaway inflation, it would drag down every other capitalist currency
with it. If this were allowed to happen while the dollar remained the
reserve currency, the result would certainly be by far the worst
financial crisis—not excepting the super-crisis of 1929-33—in the
history of capitalism.
Crushing inflation
U.S. imperialism was left with no alternative but to move aggressively
to crush the dollar inflation it had inadvertently set off. The job was
assigned to Paul Volcker, a prominent investment banker who was
appointed chairman of the Federal Reserve. Over the next two years he
quickly more than doubled the prime interest rate to an unheard-of level
of over 20 percent. This harsh medicine, known as the “Volcker Shock,”
brought inflation somewhat under control but not without significant
costs, precipitating the sharp 1981 recession.
U.S. imperialism and its Federal Reserve, admittedly in a pragmatic and
empirical way, learned that contrary to widespread hopes in the 1960s,
replacing the gold standard with paper money does not enable capitalist
governments and central banks to expand demand up to the physical
ability to produce and thus abolish periodic crises of general
overproduction under capitalism.
But beyond the 1981 recession there was another even more important
consequence of the rise of the rate of interest above the rate of profit
in the wake of the dollar crisis. The period of extremely high but
declining interest rates that followed the Volcker Shock led to a
massive destruction of heavy industry in the U.S., Great Britain and to
a lesser extent Western Europe. This occurred in two interrelated ways,
the first was called “financialization;” the second, a particularly
aggressive form of “globalization.”
Financial manipulation vs. production of things
Soaring interest rates made capital investment in the actual production
of things less and less profitable, but investment in various forms of
financial manipulation extremely profitable. Capital shifted away from
manufacturing to a proliferation of new (and often risky) exotic
financial instruments—hedge funds, derivative securities, credit default
swaps, securitized and bundled mortgages, etc. Between 1973 and 1985,
the U.S. financial sector accounted for about 16 percent of domestic
corporate profits. In the 1990s, it increased to 21 percent to 30
percent. In the first decade of the 21st century it soared to 41 percent
of all U.S. domestic corporate profits. General Electric, for instance,
became one of the nation’s poster-children for this development,
shifting from one of the premier U.S. manufactuers to more and more a
financial, money lending corporation.
Then as interest rates fell, and positive net profits in manufacturing
returned, capital in the form of money and loan money capital was free
to invest in new areas. It chose to do this not in the old industrial
areas of Britain, the United States and Western Europe but in areas
where the rate of profit was far higher, leading to what has come to be
known as “globalization.” No matter how much capitalists speak about
“love of country” as the highest virtue, the capitalists
themselves—whether they are American, German, Japanese, Russian or
Chinese—put profit first, last and everything in between.
Two political changes that occurred during the 1980s and 1990s played a
crucial role in making this aggressive globalization possible. First,
the counterrevolutionary destruction of the Soviet Union and its Eastern
European “socialist” allies meant that capitalists of the U.S., Britain
and Western Europe became much more confident that capital invested
outside the imperialist countries would be safe. It even raised
expectations among many capitalist leaders—such as George W. Bush—that
something like pre-World War II colonialism could be restored. But this
time it would be the U.S. Empire rather than the British Empire that
would be the chief jailers of the colonized peoples. It led to the Iraq
invasion and other adventures in the Middle East and now Africa.
China
The second crucial development was the outcome of the great Chinese
Revolution of the 20th century. With the rise of Deng Xiaoping to power
in 1978, the Chinese revolution had finally run its revolutionary
course. Unlike in the Soviet Union however, in China while there was
political reaction—epitomized by Deng’s “it is glorious to get rich”
slogan—there was no similar counterrevolution.
When the dust finally settled after decades of revolution, civil war,
counterrevolution, Japanese occupation, still more civil war, the
liberation of 1949 when China “stood up,” and finally the Cultural
Revolution, China emerged with a strong central government independent
of western imperialism. The new government was eager to attract foreign
capital and willing to respect bourgeois private property rights in
order to achieve rapid economic development along capitalist lines—but
on its own terms. It was determined not to allow a repeat of what had
occurred in the Soviet Union—the chaotic collapse of the Communist Party
apparatus and a Western influenced privatization and deindustrialization
of the economy.
The defeat of U.S. imperialism in the Vietnam War had led to yet another
crucial development favoring China. In the 1970s, unable to break the
resistance of the peoples of Indochina, the Nixon administration finally
decided the time had come to normalize relations with the People’s
Republic of China, including, most importantly, allowing China access to
the world market, something they never did with Russia as long as the
Soviet Union existed. Nixon-Kissinger had their own motives in this:
driving a wedge between any existing and future Russia-China alliance;
increasing long existing antagonisms between China and Vietnam; and also
the possibility of opening China to U.S. investment.
Handed down from the pre-revolutionary past, the new China possessed a
gigantic peasantry numbering in the hundreds-of-millions accustomed to a
very low standard of living and hard manual labor. This peasantry served
as the source for an industrial proletariat willing to put up with a
much higher rate of extracted surplus value than the workers of
North—and even Latin—America, Western Europe or modern Japan. Huge
amounts of foreign investment, especially U.S. investment flowed into
China. What the United States capitalists wanted most of all from China,
was the lion’s share of the surplus value produced by the Chinese
working class. Russian workers produce very little surplus value
compared to what the U.S. capitalists could appropriate from Chinese
workers in the form of profit, interest and dividends.
The problem from the viewpoint of the U.S. capitalist class and its
political representatives—the Party of Order of both Democrats and
Republicans and the emerging Trump America First gang—is that the U.S.
capitalists, in squeezing huge amounts of surplus value out of the
Chinese, have been forced to develop China’s productive forces at the
same time.
As a result of the convergence of historical forces described above,
including the failed attempt of capitalist governments and central banks
to solve the problem of periodic crises of general overproduction
through issuance of paper money, in an amazingly short period of time
China emerged as the country with the highest absolute level of
industrial production—though not on a per capita basis. Meanwhile, the
imperialist countries of the U.S., Britain and Western Europe have
become increasingly de-industrialized as result of the operation of the
same economic laws.
In order to make the empire last for even 70 years—a very short period
historically—the U.S. had to give up much of its domestic industrial
production. This initially was no great sacrifice for the U.S.
capitalists because in exchange they have, at least up to now, vastly
increased their ability to exploit the industry and workers of other
nations. Herein lies the answer to the riddle of why the U.S. stock
market has been able to perform so much better after the “Great
Recession” than was possible after the Great Depression, despite the
vastly stronger recovery of U.S. industrial production during and after
the Great Depression compared to the feeble recovery of U.S. industrial
production since the Great Recession. But as U.S. post WWII hegemony
continues to disintegrate, this becomes harder and harder to maintain.
The Trumpists fear that sometime in the not too distant future, the U.S.
capitalists will have to be content with a far smaller share of the
global surplus value produced. Among the consequences when this comes to
pass will be that U.S. capitalists will have much less surplus value to
maintain—actually bribe—a relatively large but already shrinking middle
class, which includes the “aristocracy of labor” inside the U.S.
Therefore, Trump and his gang believe, the U.S. shouldn’t let itself be
distracted by an avoidable war—or even war of words—with Russia.
Trumpists believe that it is not Russia but China that must be
confronted and must be confronted now. (I should say here that
throughout this analysis I have drawn heavily on Sam Williams excellent
blog, “A Critique of Crisis Theory”2 and encourage readers to avail
themselves of his monthly postings, past and future.)
China’s direction and
future evolution
The other crucial China question is whether China is emerging as an
imperial power, and what does this mean for their future economic
relationships with Third World countries?
After the victory of Deng Xiaoping’s grouping within the Central
Committee of the ruling Communist Party of China in 1978, China has
industrialized through the massive import of foreign capital, the
development of capitalist industry, and a massive expansion of exports.
The economic laws governing China’s rapid industrialization since 1978
have been the laws that govern the development of capitalism.
The Chinese Communist Party itself describes the current Chinese economy
as a market economy and not a planned economy like was the case with the
Soviet economy. During Deng’s rule the Chinese Communist party developed
the slogan “Socialism with Chinese Characteristics” to provide an
ideological footing for the Party’s embrace of market remedies. At the
just completed Communist Party Congress, which meets every five years,
President Xi Jinping introduced a new slogan which was incorporated into
the constitution; “Thought on Socialism with Chinese Characteristics for
a New Era.”
While this new phrase could be open to many interpretations it is
clarified by the dominant theme of the Congress and President Xi’s
repeated central goal—“Make China Great Again.” And further, only the
Communist Party of China can guarantee this “China Dream” of national
rejuvenation. This slogan seems to be an echo of Trump’s “Make America
Great Again,” but in reality, the two slogans encompass diametrically
opposed world strategies.
The Trumpists believe that to “Make America Great Again” U.S.
imperialism must abandon the globalizationist strategies it followed
since the end of WWII, including promoting “free trade” and
multinational trade agreements, which are no longer in its interests.
Rather the United States needs to return to a policy of aggressive U.S.
nationalism, including, when necessary, protectionist trade policies.
From now on, the U.S. government should directly use its state power to
enrich U.S. corporations at the expense of the corporations of other
countries; including so-called “allies” just like was done in the “good
old days” before 1945. The U.S. is still the largest economy in the
world and the planet’s overwhelmingly dominant military power. Before
China becomes any stronger it should use that leverage to impose its
economic will.
China on the other hand, as the world’s most rapidly expanding
manufacturing power, is now its strongest proponent for globalization,
“free trade,” open markets and multinational trade agreements. Under
China’s “One Belt, One Road” initiative, which is aimed at creating a
modern version of the Silk Road, a network of trading routes from China
to Africa and Europe, it has launched a massive economic outreach
dwarfing even the Marshall Plan of U.S. imperialism following WWII.
A nervous May 18, 2017 New York Times editorial titled, “China’s
Trillion-Dollar Foreign Policy,”3 warns: “China clearly aims to dominate
the international system…shaping how vast sums are spent and where, and
which laws are followed or not—it could upend a system established by
Washington and its allies after World War II.”
Through direct investments, loans, financial aid, construction and
engineering expertise, China is penetrating the economies of numerous
countries it considers among its geopolitical priorities. One revealing
example is the NATO member, Greece. China has poured money into its key
Mediterranean port of Piraeus, considered the “dragon head” of China’s
vast “One Belt, One Road” project. “While the Europeans are acting
towards Greece like medieval leeches, the Chinese keep bringing money,”
said Costas Douzinas, the head of the Greek Parliament’s foreign affairs
and defense committee and a member of the governing Syriza party.
And it is not just construction projects. As Europe’s banks demanded the
gutting of Greek pensions and sharp tax increases to guarantee repayment
of their predatory loans, the Chinese offered to throw Greece a lifeline
by buying toxic Greek government bonds.
Meanwhile China has transformed Piraeus into the Mediterranean’s busiest
port, investing nearly half-a-billion euros through the Chinese
state-backed shipping conglomerate, Cosco. As a result, Cosco now
controls the entire waterfront through its 67 percent stake in the port.
With a rueful chuckle, Mr. Douzinas comments; “It’s a kind of
neocolonialism without the gunboats.”
Today the ruling Communist Party of China still proclaims its ultimate
aim is to build a communist society in China, if only in a distant
future. But the party explains that to do this, China must go through a
preliminary stage called—“socialism with Chinese characteristics,” or
most recently—“Socialism with Chinese Characteristics for a New Era.”
While periodically the party does launch anti-corruption crackdowns on
individual capitalists, the size and weight of this sector continues to
grow. In his speech at the opening of the Communist Party Congress,
President Xi proclaimed the party would “inspire and protect the spirit
of entrepreneurship.” China now has 647 billionaires in American dollar
terms, according to The Hurun Report, which claims to track wealth in
China. Many of these billionaires began as members of the Communist
Party, others later acquired party membership. All of this poses the
question, what is the probable future evolution of the China state and
its economic relationship with other nations?
Impact of Stalinist ideology
Any assessment of the future direction and evolution of China has to
take into account the deep impact of Stalinist ideology on the Chinese
Communist Party. An impact that goes back at least as far as the
slaughter of the Chinese urban proletariat in the 1927
counter-revolution lead by Chiang Kai Sheki, who had been made an
honorary member of the Third International by Joseph Stalin.
The Stalinist bureaucracy and leadership that successfully displaced the
original Bolshevik-Leninist revolutionaries in the Soviet Union had many
reactionary characteristics—authoritarianism, opposition to worker’s
democracy, oppression of national minorities, material privileges based
on corruption, etc. But the essence of Stalinism, the core of its
counter-revolutionary character, was its abandonment of the Leninist
commitment to international revolution, its abandonment of international
class solidarity. Under the new Stalinist rubric of “Building Socialism
in One Country,” the role of the world proletariat, and the task of
Communist Parties outside the Soviet Union, was not socialist
revolution, but reduced rather to that of border guards for the Soviet
Union and its conservatized bureaucracy.
The People’s Republic of China today, with its access to the world
market and its aggressive “One Belt, One Road” strategy, is penetrating
and influencing the world economy in ways which were never available to
the Soviet Union. But like the Stalinized Soviet Union, in word and
deed, the Chinese Communist Party makes clear its goal in this is not
international class solidarity, let alone socialist revolution. Rather
its aim is restricted to developing political and economic
accommodations with select capitalist and third world regimes that
further its “silk road” trade expansion.
In the Soviet Union the left opposition to the consolidating bureaucracy
and its developing counter-revolutionary politics originally centered on
winning the party back to an internationalist revolutionary course. But
after the Stalinist role in the defeat of the 1927 Chinese revolution,
followed by the victory of Nazi fascism in Germany, with no real fight
from what was then the largest communist party in the world outside the
Soviet Union—a Rubicon had been crossed. Reform of the Stalinized
Russian Communist Party was no longer considered a possibility. Instead,
what was required was a political revolution that would remove the
Stalinist leadership and its bureaucratized base from power. Leon
Trotsky, the principal leader of the left opposition, summed up the
situation in 1938 with his now famous prognosis: “There are now only two
possible courses for the Stalinist bureaucracy in the Soviet Union.
Either the bureaucracy, becoming ever more the organ of the world
bourgeoisie in the workers’ state, will overthrow the new forms of
property and plunge the country back to capitalism; or the working class
will crush the bureaucracy and open the way to socialism.”
While China and its communist party has its own history, and is
certainly not a carbon copy of the Soviet Union, I believe the prognosis
and dichotomy laid out by Trotsky in 1938 very much applies to today’s
China. China in its amazing industrialization, even while carried out by
capitalist methods, is creating a massive, modern proletariat, with
tremendous revolutionary potential. Counterposed to this is the
increasing power of an internal capitalist class. The eventual outcome
of course remains an open question. A successful socialist revolution
elsewhere in the world, especially in an advanced capitalist country,
would have a decisive positive impact on the outcome.
1 “Bannon: ‘The Trump Presidency That We Fought For, and Won, Is Over’”
http://www.weeklystandard.com/bannon-the-trump-presidency-that-we-fought-for-and-won-is-over./article/2009355
2 A Critique of Crisis Theory
https://critiqueofcrisistheory.wordpress.com
3 “China’s Trillion-Dollar Foreign Policy”
https://www.nytimes.com/2017/05/18/opinion/china-xi-jinping-foreign-policy.html
Home
Current
Archives
Arsenal of Marxism
Subscribe
Links
Search
About Us
Donate
Contact
© 2001-2018. Socialist Viewpoint Publishin