Zombie Capitalism Global Crisis and the Relevance of Marx

Afghanistan. A similar logic worked itself out in the Balkans in the 1990s, when Austria's attempt to gain from Slovenian independence from Yugoslavia led to Germany encouraging Croatian independence and then the US Bosnian independence, even though the result was bound to be bitter ethnic conflict.

The worst suffering from proxy wars has probably been in Africa. During the last decade and a half of the Cold War the US and the USSR backed rival sides in wars and civil wars as part of their attempts to gain a strategic advantage over each other. In the 1990s the US and France vied for influence in Central Africa. They backed rival sides in the war cum civil war that broke out in the border regions of Tanzania, Rwanda, Burundi and Congo-Zaire. They helped set in motion a catastrophe resulting overall in 3 or 4 million dead. In such situations freelance armies emerged whose commanders emulated the great imperial powers on a small scale by waging war in order to enrich themselves, and enriching themselves in order further to wage war. Imperialism meant encouragement to local rulers to engage in the bloodiest of wars and civil wars-and then occasionally the sending in of Western troops to enforce "peacekeeping" when the disorder reached such a scale as to threaten to damage Western interests. Contradictions which arise from the inter-imperialist antagonisms of the advanced capitalist states in this way wreak their worst havoc in the poorer parts of the world.

From the new period of crisis to the new imperialism

The pattern of the old imperialism was one of coalitions of states with comparable levels of economic and/or military capacity confronting each other. Today there is great unevenness even between the biggest states when it comes to their capacity to advance the interests of their domestically based capitals. At the top of the hierarchy is the state which has the greatest capacity for getting its way, the US. At the bottom are very weak states, hoping to be able to beg favours off those above them. The states in the middle alternatively squabble with each other over their position in the global pecking order and form ad hoc alliances in the hope of forcing concessions from those above them.

This cannot be a stable hierarchy. The unevenness in rates of economic growth (or sometimes contraction) in a period of recurrent crises means that the balance of forces between the different states is always changing, leading to rival displays of might between those who want to advance up the hierarchy and those who want to keep them in their place. Weak states get entangled in conflicts with neighbours which draw in powerful states to which they are allied, while powerful states see exemplary interventions in weak "rogue" states as a way of gaining advantage over other strong states.

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The greatest source of instability has come from the attempts of the US to permanently cement its position at the front of the global pecking order. This seemed unassailable at the end of the Second World War. But in the decades that followed the US feared successive challenges from other states which were growing much more rapidly than it was. Russia was seen as an economic (as well as military) threat in the 1 950s, however absurd that might seem today, Japan in the 1980s, and more recently China. The determination of the US state not to risk losing its position explains its massive levels of arms expenditure and the wars it has waged in the Global South.

The scale of the problems it faced first began to hit home in the late 1960s when the US ruling class found it could not afford the escalating cost of trying to achieve all-out victory in Vietnam. The history of US capitalism since has been very much a history of its attempts to restore its old position, amid a world marked by repeated economic crises and generally declining rates of accumulation. Its attempts have involved alternating phases of reducing arms spending as a proportion of total output in an effort to ease economic difficulties (from the late 1 960s to the late 1970s, and from the late 1980s to 2000), and of increasing it in the belief that this could boost US global power and the performance of particular US corporations (in the early and mid-1980s and 2000-8). In all the phases the US state made some gains for the capitals based in it. In none of them were the gains sufficient fully to offset its long-term relative decline.

The collapse of the military challenge from the USSR and the economic challenge from Japan might have been expected to restore the confidence of the US ruling class in its global power in the 1990s. But its strategists had worries about the future. They reasoned that without the fear of the USSR to keep them in line, the European powers were more likely to resist US demands than in the past-as was shown by very hard bargaining at World Trade

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Organisation sessions. And in the East, Chinese growth was replacing the older challenge from Japan. Writing in 1994, Henry Kissinger expressed his unease:

The US is actually in no better position to dictate the global agenda unilaterally than it was at the beginning of the Cold War . . . The United States will face economic competition of a kind it never experienced during the Cold War . . . China is on the road to superpower status . . . China's GNP will approach that of the US by the end of the second decade of the 21st century. Long before that China's shadow will fall over Asia.48

What is more, a quarter of a century of growing internationalisation of finance, investment, trade and production made US capitalism vulnerable to events beyond its borders. Its great multinational corporations needed some policy which would enable the might of the US state to exercise control over such events. Already towards the end of the Clinton Administration there were moves towards a more aggressive foreign policy designed to achieve this, with the push to expand NATO into Eastern Europe, but this did not go far enough for a group of Republican politicians, businessmen and academics-the infamous neoconservative "Project for a New American Century" formed in the late 1990s. Their starting point was the insistence that the way to stop "a decline in American power" was a return to a "Reaganite" policy based on large increases in defence spending, the building of a missile defence system, and action to deal with "threats" from "dictatorships" in China, Serbia, Iraq, Iran and North Korea.49 "Having led the West to victory in the Cold War, America faces an opportunity and a challenge. We are in danger of squandering the opportunity and failing the challenge". ^so

The Republican electoral victory of 2000 and then the national panic caused by the 9/1 1 destruction of the World Trade Centre gave them a chance to implement their policy.

It amounted in practice to further building up the military might of the US-and then using it to assert US global dominance against all comers. Increased arms spending and massive tax cuts for the rich were meant to pull the US out of recession, just as the "military Keynesianism" of Reagan had two decades before. Increased arms spending would lead to recovery from recession, to further military handouts to finance technical advances for computer, software or aviation corporations, and to an increased capacity to dictate policies to other ruling classes-and all paid for by even bigger investment flows into the US as it demonstrated its overriding power. The aim was for the US to more than compensate for losing its old lead in market competition by using the one thing it has that the other powers do not-overwhelming military might. It was an updated version of the logic of imperialism as described by Bukharin in the early 1920s, with the difference that the rival capitalist states were not going to be forced into subservience by wars directly against them, but by the display of the US's capacity to wield global power through wars it and its client states waged in the Global South.

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Hence the attack on Afghanistan and then, 18 months later, on Iraq. The "neocons" believed they had a perfect opportunity to demonstrate the sheer level of US military power and to increase control over the world's number one raw material, oil. This would weaken the bargaining power of the West European states, Japan and China, since they would be at least partially dependent on the US for their supplies. The assumption was that the wars would be won by little more than a display of US airpower at very little cost. This seemed a viable way for achieving shared goals to those who ran US-based corporations, and the Democrats in Congress voted for war.

It was a gamble and by the spring of 2004 it was clear that the gamble was going seriously wrong. The US had taken control of Kabul and Baghdad easily enough. But its forces on the ground were not able to prevent the growth of resistance in Iraq-and of growing Iranian influence there. Within another two years it also faced serious resistance from a resurgent Taliban in Afghanistan.

The turn to military Keynesianism seemed at first to be successful in economic terms. There was an unexpectedly quick recovery from the recession of 2001-2: "Official military expenditures for 2001- 2005 averaged 42 percent of gross non-residential private investment" and "oficial figures . . . excluded much that should be included in military spending" .51 All this provided markets, in the short term, for sections of US industry. But the high levels of military expenditure soon showed the same negative effects they had shown at the time of the Vietnam War and under the Reagan administrations. They increased economic demand without increasing overall international competitiveness and so caused ballooning trade as well as budget deficits. By 2006 the combination of escalating military costs and the risk of defeat in Iraq was worrying important sections of the ruling class. A 2006 report from the Iraq Study Group, headed by Republican Party heavyweight James Baker and Democratic Party heavyweight Lee Hamilton, bemoaned the loss of "blood and treasure" with an estimate of the costs to US capitalism of the Iraq venture of a massive £1,000 billion (equal to seven months output from the British economy).52

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Meanwhile other states-and the capitals operating from them-were able to take advantage of the US's perceived weakness to advance their own positions. The most important West European states, France and Germany, had refused to back the 2003 Iraq War, unlike the first Iraq War of 1991. The French state in particular saw a weakening of US influence in the Middle East as an opportunity to advance the interests of French capital in regions where its interests clashed with the US's. China was able to benefit from the US entanglement in Iraq and Afghanistan to expand its own influence, particularly in Africa and Latin America. This went hand in hand with growing trade links, as it looked to mineral imports from Africa and agricultural imports from Brazil, Argentina and Chile. Soon Russia too was flexing its rather weaker muscles, as increased oil revenue allowed it to recover from the economic collapse of the previous decades and to exert pressure on some of the other former Soviet republics; Iran took advantage of the US's setbacks to increase its leverage in Iraq and Lebanon; the BRICS formed an ad hoc alliance to advance their common trade interests in opposition to both the US and the EU, so paralysing the Doha round of trade negotiations from which US corporations had hoped to get even easier access to foreign markets. The US discovered that when three of its client states launched wars for objects it supported-Israel in Lebanon in 2006, Ethiopia in Somalia in 2007, Georgia against Ossetia in 2008-it was not in a situation to stop them facing defeat.

Commentators who had not long before insisted the collapse of the USSR had created a "unipolar world" with one superpower were beginning to talk about "multi polarity", with the US only able to get its way by making concessions to other powers. Some thought this meant a more peaceable world. But the multipolarity is a world of states and their associated capitals which have different interests and are out to impose them on the others when they get the chance. It is the multipolarity in which old imperialist imperatives are strengthened j ust as it becomes more difficult for them to be successful. It is a world, in short, beset by a multitude of contradictory pressures and compelled, therefore, to experience one convulsive political crisis after another. This became clear when the great economic delusion gave way to a great economic crisis.

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Financialisation and the Bubbles That Burst

Credit crunched

The mood was one of "exuberant optimism", as the world business elite gathered in the Swiss resort of Davos in January 2007 to "enjoy" what the Financial Times called "the opportunities brought about by globalisation, new technologies and a world economy that is expanding at its fastest pace for decades" .1 The mood was rather different at their next gathering in January 2008. There was "grim determination"2-grim because the global financial system had begun to grind to a halt with a "credit crunch"; determination because the "real economy" was still expanding and it seemed that appropriate government action would get the banks lending again.

Governments took action in the months that followed. In January central banks slashed interest rates. In February the British government nationalised the mortgage bank Northern Rock; in March the US Federal Reserve provided \$30 billion for J P Morgan Chase to take over the failing Bear Stearns bank; in April and May central banks on both sides of the Atlantic provided hundreds of billions to the banks to keep them going, and in July they provided hundreds of billions more; early in September the US government took over the giant mortgage lenders Fannie Mae and Freddy Mac in what the former government adviser Nouriel Roubini described as "the biggest nationalisation humanity has ever known".3

It was all to no avail. The collapse of one of the pillars of the US's financial system, the investment bank Lehman Brothers, on 15 September caused what was generally called a "financial tsunami". Bank after bank in country after country came close to collapse and had to be rescued by government bail-outs that cost further hundreds of billions and often involved partial nationalisation. The credit crunch had become the most serious financial crisis the global system had known since the slump of the 1 930s. By end of the year it was clear to everyone that it was more than just a financial crisis. Tens of thousands of jobs were being lost every day in all the major economies; world trade was falling at an annualised rate of 40 percent, and the IMF was predicting "the sharpest recession since the Second World War for the rich countries" .4 But it was not only the rich countries which were affected. South Korea, Malaysia, Thailand and Singapore suffered sharp economic contraction; 20 million Chinese workers lost their jobs as its exports fell and its real estate bubble collapsed; Russian ministers began to fear a new crisis; Brazil's industrial output started falling; the economic recovery of Eastern Europe came to a sudden halt as millions of people found they could not keep up with their mortgage payments to West European banks. At Davos in January 2009 there were "ever more doom-laden prognoses" .5

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The rise of finance

The crisis followed a quarter of a century in which finance had grown on a massive scale to play an unprecedented role in the system. The stock market valuation of US financial companies was 29 percent of the value of non-financials in 2004, a fourfold increase over the previous 25 years;• the ratio of financial corporations' to non-financial corporations' profits had risen from about 6 percent in the early 1950s through the early 1960s to around 26 percent in 2001;7 global financial assets were equal to 316 percent of annual world output in 2005, as against only 109 percent in 1980;8 household debt in the US was 127 percent of total personal income in 2006 as against only 36 percent in 1952, around 60 percent in the late 1960s and 100 percent in 2000.9

The growing role of finance had its impact throughout the global economy. Every upturn in the recession-boom cycle after the early 1980s was accompanied by financial speculation, causing massive rises in the US and British stock markets in the mid-1 980s and mid-1990s, the huge upsurge of Japanese share and real estate prices in the late 1980s, the dotcom boom of the late 1990s, and the housing booms in the US and much of Europe in the early and mid-2000s. Along with these went successive waves of takeovers and mergers of giant companies, financed by credit, from the buyouts of firms like RBS Nabisco in the late 1980s through to the wave of takeovers of old-established companies by private equity funds in the mid-2000s.

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Meanwhile general levels of indebtedness tended to grow for governments, non-financial corporations and consumers alike, as bank lending rose much more rapidly in most parts of the world economy than did productive output. It doubled in the US and trebled in Japan in the 1980s; the US boom of the mid-90s was accompanied by an extraordinarily high level of borrowing by firms and consumers; the housing and property booms of the mid-2000s were similarly sustained by massive borrowing in the US, Britain, Spain and Ireland.

The impact of finance on the less industrialised countries was already very marked by the 1980s. The loans of the late 1970s had created a never ending dependence on further borrowing from financial institutions in order to keep servicing existing debt. By 2003 the total external debt of sub-Saharan Africa stood at \$213.4 billion, that of Latin America and the Caribbean at \$779 .6 billion, and of the South as a whole at \$2,500 billion.10

Overall the role played by finance within the system was much greater than in either the depression years of the 1 930s or the boom years of the early post-war decades. In those decades the banks had certainly not played the central role Hilferding had ascribed to them at the beginning of the century with his concept of "finance capitalism" (see Chapter Four). In the US the big industrial corporations relied on their own internally generated revenues for investment funds; in Japan and Germany the banks played a greater part, but it was one of aiding the expansion of favoured sections of industrial capital. It was with the ending of the long boom that finance seemed to break the bonds that had bound and subordinated it to industrial capital. By the 1980s funds worth billions-and later hundreds of billions-of dollars were moving into and out of economic sectors and particular countries, cherry picking the most profitable outlets for investment before moving on elsewhere, often leaving economic devastation in their wake.

Finance began to impact directly on the lives of the world's workers in a way in which it had not previously. Most people until the 1980s were paid wages in cash every week; now the norm was payment into bank accounts. The spread of home purchase in countries like Britain or the US from a third to two thirds of households provided a new destination for lending-and the diversion of part of wages and salaries into interest repayments. Insurance and private pension schemes likewise spread the tentacles of finance into wider sections of the population than ever before. Credit in the form of mortgages and hire purchase agreement was already important in the 1930s, but it was only in the 1980s that indebtedness began to become central in maintaining people's regular living standards. For the majority of workers in the US or Britain, the mortgage and the credit card became part of everyday life, while governments almost everywhere preached the virtues of depositing regular savings into financial institutions as the way for the workers and middle classes to provide themselves with pensions in their old age. As Robin Blackburn has shown, pension contributions fed into the mushrooming expansion of a financial system over which the contributors had no control.11

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