[Marxism] "Sarkozy Calls for Revamping of Capitalist System"

[Lüko Willms]

On Mon, 20 Oct 2008 07:18:51 +0200 (MES), Lüko Willms wrote:

>   I am really astonished how US-american "leftists" derail 
> a discussion about the pretense to dethrone the USA of its 
> single dominating role in internatinal finance into 
> a discussion of actions of the various capitalist politicians. 

  As a contrast, here is an article which I received today after having 
registered for "free geopolitical weekly" by Stratfor. 

  "This report may be forwarded or republished on your website with 
attribution to <www.stratfor.com>". So no problems with copyright. But the 
article may by unavailable after some time on the Stratfor website. 


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THE UNITED STATES, EUROPE AND BRETTON WOODS II

By George Friedman and Peter Zeihan

French President Nicolas Sarkozy and U.S. President George W. Bush met Oct. 
18 to discuss the possibility of a global financial summit. The meeting ended 
with an American offer to host a global summit in December modeled on the 
1944 Bretton Woods system that founded the modern economic system.

 
The Bretton Woods framework is one of the more misunderstood 
developments in human history. The conventional wisdom is that Bretton 
Woods crafted the modern international economic architecture, lashing the 
trading and currency systems to the gold standard to achieve global stability. 
To a certain degree, that is true. But the form that Bretton Woods took in the 
public mind is only a veneer. The real implications and meaning of Bretton 
Woods are a different story altogether. 

 
Conventional Wisdom: The Depression and Bretton Woods
 
The origin of Bretton Woods lies in the Great Depression. As economic output 
dropped in the 1930s, governments worldwide adopted a swathe of 
protectionist, populist policies -- import tariffs were particularly in vogue -- 
that enervated international trade. In order to maintain employment, 
governments and firms alike encouraged ongoing production of goods even 
though mutual tariff walls prevented the sale of those goods abroad. As a 
result, prices for these goods dropped and deflation set in. Soon firms found 
that the prices they could reasonably charge for their goods had dropped 
below the costs of producing them. 

The reduction in profitability led to layoffs, which reduced demand for 
products in general, further reducing prices. Firms went out of business en 
masse, workers in the millions lost their jobs, demand withered, and prices 
followed suit. An effort designed originally to protect jobs (the tariffs) 
resulted in a deep, self-reinforcing deflationary spiral, and the variety of 
measures adopted to combat it -- the New Deal included -- could not seem 
to right the system. 
 
Economically, World War II was a godsend. The military effort generated 
demand for goods and labor. The goods part is pretty straightforward, but the 
labor issue is what really allowed the global economy to turn the corner. 
Obviously, the war effort required more workers to craft goods, whether bars 
of soap or aircraft carriers, but "workers" were also called upon to serve as 
soldiers. The war removed tens of millions of men from the labor force, 
shipping them off to -- economically speaking -- nonproductive endeavors. 
Sustained demand for goods combined with labor shortages raised prices, and 
as expectations for inflation rather than deflation set in, consumers became 
more willing to spend their money for fear it would be worth less in the 
future. The deflationary spiral was broken; supply and demand came back 
into balance. 
 
Policymakers of the time realized that the prosecution of the war had 
suspended the depression, but few were confident that the war had actually 
ended the conditions that made the depression possible. So in July 1944, 730 
representatives from 44 different countries converged on a small ski village 
in New Hampshire to cobble together a system that would prevent additional 
depressions and -- were one to occur -- come up with a means of ending it 
shy of depending upon a world war. 
 
When all was said and done, the delegates agreed to a system of 
exchangeable currencies and broadly open rules of trade. The system would 
be based on the gold standard to prevent currency fluctuations, and a pair of 
institutions -- what would become known as the International Monetary Fund 
(IMF) and the World Bank -- would serve as guardians of the system's 
financial and fiduciary particulars. 
 
The conventional wisdom is that Bretton Woods worked for a time, but that 
since the entire system was linked to gold, the limited availability of gold put 
an upper limit on what the new system could handle. As postwar economic 
activity expanded -- but the supply of gold did not -- that problem became 
so mammoth that the United States abandoned the gold standard in 1971. 
Most point to that period as the end of the Bretton Woods system. In fact, we 
are still using Bretton Woods, and while nothing that has been discussed to 
this point is wrong exactly, it is only part of the story. 

 
A Deeper Understanding: World War II and Bretton Woods 
 
Think back to July 1944. The Normandy invasion was in its first month. The 
United Kingdom served as the staging ground, but with London exhausted, its 
military commitment to the operation was modest. While the tide of the war 
had clearly turned, there was much slogging ahead. It had become apparent 
that launching the invasion of Europe -- much less sustaining it -- was 
impossible without large-scale U.S. involvement. Similarly, the balance of 
forces on the Eastern Front radically favored the Soviets. While the 
particulars were, of course, open to debate, no one was so idealistic to think 
that after suffering at Nazi hands, the Soviets were simply going to withdraw 
from territory captured on their way to Berlin.
 
The shape of the Cold War was already beginning to unfold. Between the 
United States and the Soviet Union, the rest of the modern world -- namely, 
Europe -- was going to either experience Soviet occupation or become a 
U.S. protectorate. 
 
At the core of that realization were twin challenges. For the Europeans, any 
hope they had of rebuilding was totally dependent upon U.S. willingness to 
remain engaged. Issues of Soviet attack aside, the war had decimated Europe, 
and the damage was only becoming worse with each inch of Nazi territory the 
Americans or Soviets conquered. The Continental states -- and even the 
United Kingdom -- were not simply economically spent and indebted but 
were, to be perfectly blunt, destitute. This was not World War I, where most 
of the fighting had occurred along a single series of trenches. This was 
blitzkrieg and saturation bombings, which left the Continent in ruins, and there 
was almost nothing left from which to rebuild. Simply avoiding mass 
starvation would be a challenge, and any rebuilding effort would be utterly 
dependent upon U.S. financing. The Europeans were willing to accept nearly 
whatever was on offer. 
 
For the United States, the issue was one of seizing a historic opportunity. 
Historically, the United States thought of the United Kingdom and France -- 
with their maritime traditions -- as more of a threat to U.S. interests than the 
largely land-based Soviet Union and Germany. Even World War I did not fully 
dispel this concern. (Japan, for its part, was always viewed as a hostile 
power.) The United States entered World War II late and the war did not occur 
on U.S. soil. So -- uniquely among all the world's major powers of the day -- 
U.S. infrastructure and industrial capacity would emerge from the war larger 
(far, far larger) than when it entered. With its traditional rivals either already 
greatly weakened or well on their way to being so, the United States had the 
opportunity to set itself up as the core of the new order. 
 
In this, the United States faced the challenges of defending against the Soviet 
Union. The United States could not occupy Western Europe as it expected the 
Soviets to occupy Eastern Europe; it lacked the troops and was on the wrong 
side of the ocean. The United States had to have not just the participation of 
the Western Europeans in holding back the Soviet tide, it needed the 
Europeans to defer to American political and military demands -- and to do 
so willingly. Considering the desperation and destitution of the Europeans, and 
the unprecedented and unparalleled U.S. economic strength, economic carrots 
were the obvious way to go. 
 
Put another way, Bretton Woods was part of a broader American effort to 
extend the wartime alliance -- sans the Soviets -- beyond Germany's 
surrender. After all wars, there is the hope that alliances that have defeated 
a common enemy will continue to function to administer and maintain the 
peace. This happened at the Congress of Vienna and Versailles as well. 
Bretton Woods was more than an attempt to shape the global economic 
system, it was an effort to grow a military alliance into a broader U.S.-led 
and -dominated bloc to counter the Soviets. 
 
At Bretton Woods, the United States made itself the core of the new system, 
agreeing to become the trading partner of first and last resort. The United 
States would allow Europe near tariff-free access to its markets, and turn a 
blind eye to Europe's own tariffs so long as they did not become too 
egregious -- something that at least in part flew in the face of the Great 
Depression?s lessons. The sale of European goods in the United States would 
help Europe develop economically, and, in exchange, the United States would 
receive deference on political and military matters: NATO -- the ultimate 
hedge against Soviet invasion -- was born. 
 
The "free world" alliance would not consist of a series of equal states. 
Instead, it would consist of the United States and everyone else. The 
"everyone else" included shattered European economies, their impoverished 
colonies, independent successor states and so on. The truth was that Bretton 
Woods was less a compact of equals than a framework for economic 
relations within an unequal alliance against the Soviet Union. The foundation 
of Bretton Woods was American economic power -- and the American 
interest in strengthening the economies of the rest of the world to immunize 
them from communism and build the containment of the Soviet Union. 
 
Almost immediately after the war, the United States began acting in ways that 
indicated that Bretton Woods was not -- for itself at least -- an economic 
program. When loans to fund Western Europe's redevelopment failed to 
stimulate growth, those loans became grants, aka the Marshall Plan. Shortly 
thereafter, the United States -- certainly to its economic loss -- almost 
absentmindedly extended the benefits of Bretton Woods to any state involved 
on the American side of the Cold War, with Japan, South Korea and Taiwan 
signing up as its most enthusiastic participants. 

And fast-forwarding to when the world went off of the gold standard and 
Bretton Woods supposedly died, gold was actually replaced by the U.S. dollar. 
Far from dying, the political/military understanding that underpinned Bretton 
Woods had only become more entrenched. Whereas before, the greatest 
limiter was on the availability of gold, now it became -- and remains -- the 
whim of the U.S. government's monetary authorities. 

 
Toward Bretton Woods II 
 
For many of the states that will be attending what is already being dubbed 
Bretton Woods II, having this American centrality as such a key pillar of the 
system is the core of the problem. 
 
The fundamental principle of Bretton Woods was national sovereignty within a 
framework of relationships, ultimately guaranteed not just by American 
political power but by American economic power. Bretton Woods was not so 
much a system as a reality. American economic power dwarfed the rest of 
the noncommunist world, and guaranteed the stability of the international 
financial system. 
 
What the September financial crisis has shown is not that the basic financial 
system has changed, but what happens when the guarantor of the financial 
system itself undergoes a crisis. When the economic bubble in Japan -- the 
world's second-largest economy -- burst in 1990-1991, it did not infect the 
rest of the world. Neither did the East Asian crisis in 1997, nor the ruble crisis 
of 1998. A crisis in France or the United Kingdom would similarly remain a 
local one. But a crisis in the U.S. economy becomes global. The fundamental 
reality of Bretton Woods remains unchanged: The U.S. economy remains the 
largest, and dysfunctions there affect the world. That is the reality of the 
international system, and that is ultimately what the French call for a new 
Bretton Woods is about.
 
There has been talk of a meeting at which the United States gives up its 
place as the world's reserve currency and primacy of the economic system. 
That is not what this meeting will be about, and certainly not what the French 
are after. The use of the dollar as world reserve currency is not based on an 
aggrandizing fiat, but the reality that the dollar alone has a global presence 
and trust. The euro, after all, is only a decade old, and is not backed either 
by sovereign taxing powers or by a central bank with vast authority. The 
European Central Bank (ECB) certainly steadies the European financial 
system, but it is the sovereign countries that define economic policies. As we 
have seen in the recent crisis, the ECB actually lacks the authority to 
regulate Europe's banks. Relying on a currency that is not in the hands of a 
sovereign taxing power, but dependent on the political will of (so far) 15 
countries with very different interests, does not make for a reliable reserve 
currency. 
 
The Europeans are not looking to challenge the reality of American power, 
they are looking to increase the degree to which the rest of the world can 
influence the dynamics of the American economy, with an eye toward limiting 
the ability of the Americans to accidentally destabilize the international 
financial system again. The French in particular look at the current crisis as 
the result of a failure in the U.S. regulatory system. 

And the Europeans certainly have a point. If fault is to be pinned, it is on the 
United States for letting the problem grow and grow until it triggered a 
liquidity crisis. The Bretton Woods institutions -- specifically the IMF, which 
is supposed to serve the role of financial lighthouse and crisis manager -- 
proved irrelevant to the problems the world is currently passing through. 
Indeed, all multinational institutions failed or, more precisely, have little to do 
with the financial system that was operating in 2008. The 64-year-old 
Bretton Woods agreement simply didn't have anything to do with the current 
reality.

Ultimately, the Europeans would like to see a shift in focus in the world of 
international economic interactions from strengthening the international 
trading system to controlling the international financial system. In practical 
terms, they want an oversight body that can guarantee that there won't be a 
repeat of the current crisis. This would involve everything from regulations 
on accounting methods, to restrictions on what can and cannot be traded and 
by whom (offshore financial havens and hedge funds would definitely find 
their worlds circumscribed), to frameworks for global interventions. The net 
effect would be to create an international bureaucracy to oversee global 
financial markets.

Fundamentally, the Europeans are not simply hoping to modernize Bretton 
Woods, but instead to Europeanize the American financial markets. This is 
ultimately not a financial question, but a political one. The French are trying 
to flip Bretton Woods from a system where the United States is the buttress 
of the international system to a situation where the United States remains the 
buttress but is more constrained by the broader international system. The 
European view is that this will help everybody. The American position is not 
yet framed and won't be until the new president is in office. 
 
But it will be a very tough sell. For one, at its core the American problem is 
"simply" a liquidity freeze and one that is already thawing. Europe's and East 
Asia's recessions are bound to be deeper and longer lasting. So the United 
States is sure -- no matter who takes over in January -- to be less than 
keen about revamps of international processes in general. Far more 
important, any international system that oversees aspects of American 
finance would, by definition, not be under full American control, but under 
some sort of quasi-Brussels-like organization. And no American president is 
going to engage gleefully on that sort of topic. 

Unless something else is on offer. 

Bretton Woods was ultimately about the United States trading access to its 
economic might for political and military deference. The reality of American 
economic might remains. The question, then, is simple: What will the 
Europeans bring to the table with which to bargain?


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   Well, I really appreciate that someone is spelling out US-american 
imperialist interests in such a frank and straightforward manner. 

   I guess that really does reflect what the US capitalist class is thinking, or 
at least feeling. Am I right? 

   And who is this George Friedman? Is that the infamous columnist of the 
New York Times? 


Comradely yours, 
Lüko Willms
Frankfurt, Germany
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