Structural Crisis in the World-System: Where Do We Go from Here? -Immanuel Wallerstein

I have written repeatedly on the structural crisis in the world-system, most recently in New Left Review in 2010.2 So, I shall just summarize my position, without arguing it in detail. I shall state my position as a set of premises. Not everyone agrees with these premises, which are my picture of where we are at the present time. On the basis of this picture, I propose to speak to the question, where do we go from here?

Premise No. 1 is that all systems—from the astronomical universe to the smallest physical phenomena, and including of course historical social systems—have lives. They come into existence at some point, which needs to be explained. They have “normal” lives, the rules of which need to be explicated. The functioning of their normal lives tends, over time, to move them far from equilibrium, at which point they enter a structural crisis, and in due course cease to exist. The functioning of their normal lives has to be analyzed in terms of cyclical rhythms and secular trends. The cyclical rhythms are sets of systemic fluctuations (upturns and downturns), in which the system regularly returns to equilibrium. However, it is a moving equilibrium since, at the end of a downturn, the system never returns to exactly where it was at the beginning of the upturn. This is because secular trends (slow, long-term increases in some systemic characteristic) push the curve slowly upward, as measured by some percentage of that characteristic in the system.

Eventually, the secular trends move the system too near its asymptotes, and the system is unable to continue its normal, regular, slow upward push. Thereupon, it begins to fluctuate wildly and repeatedly, leading to a bifurcation—that is, to a chaotic situation in which a stable equilibrium cannot be maintained. In such a chaotic situation, there are two quite divergent possibilities of recreating order out of chaos, or a new stable system. This period we may call the structural crisis of the system, and there is a system-wide battle—for historical social systems, a political battle—over which of two alternative possible outcomes will be collectively “chosen.”

Premise No. 2 is the description of the most important characteristics of how the capitalist world-economy has operated as a historical social system. The driving underlying objective of capitalists in a capitalist system is the endless accumulation of capital, wherever and however this accumulation may be achieved. Since such accumulation requires the appropriation of surplus value, this drive precipitates the class struggle.

Serious capital accumulation is only possible when one firm or a small group of firms has a quasi-monopoly of world-economy-wide production. Possessing such a quasi-monopoly depends on the active support of one or more states. We call such quasi-monopolies leading industries, and they foster considerable forward and backward linkages. Over time, however, all such quasi-monopolies are self-liquidating, since new producers (attracted by the very high level of profit) are able, in one way or another, to enter the market and reduce the degree of monopoly. Increased competition reduces sales prices but also reduces the level of profit and therefore the possibility of significant capital accumulation. We can call the relation of monopolized to competitive productive activities a core-periphery relationship.

The existence of a quasi-monopoly permits the expansion of the world-economy in terms of growth and allows for trickle-down benefits to large sectors of the world-system’s populations. The exhaustion of the quasi-monopoly leads to a system-wide stagnation that reduces the interest of capitalists in accumulation through productive enterprises. Erstwhile leading industries shift location to zones with lower costs of production, sacrificing increased transactions costs for lowered production costs (notably wage costs). The countries to which the industries are relocated consider this relocation to constitute “development,” but they are essentially the recipients of cast-off, erstwhile core-like operations. Meanwhile, unemployment grows in the zones in which the industries are relocated, and former trickle-down advantages are reversed, or partially reversed.

This cyclical process is often called Kondratieff long waves, and has in the past tended to last an average of fifty to sixty years for the entire cycle.3 Such cycles have been occurring over the past five hundred years. One systemic consequence is a constant slow shift in the location of the zones that are most favored economically, without, however, changing the proportion of zones that are so favored.

A second major cyclical rhythm of the capitalist world-economy is that involving the interstate system. All states within the world-system are theoretically sovereign but actually highly constrained by the processes of the interstate system. Some states are, however, stronger than others, meaning that they have greater control over internal fragmentation and outside intrusion. No state, nonetheless, is wholly sovereign.

In a system of multiple states, there are rather long cycles in which one state manages to become for a relatively brief time the hegemonic power. To be a hegemonic power is to achieve a quasi-monopoly of geopolitical power, in which the state in question is able to impose its rules, its order, on the system as a whole, in ways that favor the maximization of accumulation of capital to enterprises located within its borders.

Achieving the position of being the hegemonic power is not easy, and has only been truly achieved three times in the five-hundred-year history of the modern world-system—the United Provinces in the mid-seventeenth century, the United Kingdom in the mid-nineteenth century, and the United States in the mid-twentieth century.4

True hegemony has lasted, on average, only twenty-five years. Like quasi-monopolies of leading industries, quasi-monopolies of geopolitical power are self-liquidating. Other states improve their economic, and then their political and cultural, positions and become less willing to accept the “leadership” of the erstwhile hegemonic power.

Premise No. 3 is a reading of what has happened in the modern world-system from 1945 to 2010. I divide this into two periods: 1945 to circa 1970; circa 1970-2010. Once again, I summarize what I have argued at length previously. The period 1945-circa 1970 was one of great economic expansion in the world-economy, indeed by far the most expansive Kondratieff A-period in the history of the capitalist world-economy. When the quasi-monopolies were breached, the world-system entered a Kondratieff B-downturn in which it still finds itself. Predictably, capitalists since the 1970s have shifted their focus from the production arena to the financial arena. The world-system then entered the most extensive continuous series of speculative bubbles in the history of the modern world-system, with the greatest level of multiple indebtednesses.

The period 1945 to circa 1970 was also the period of full U.S. hegemony in the world-system. Once the United States had made a deal with the only other militarily strong state, the Soviet Union (a deal rhetorically called “Yalta”), U.S. hegemony was essentially unchallenged. But then once the geopolitical quasi-monopoly was breached, the United States entered into a period of hegemonic decline, which has escalated from a slow decline into a precipitate one during the presidency of George W. Bush.5 U.S. hegemony was far more extensive and total than those of previous hegemonic powers, and its full decline promises to be the swiftest and most total.

There is one other element to put into the picture—the world-revolution of 1968, which occurred essentially between 1966 and 1970, and took place in all three major geopolitical zones of the world-system of the time: the pan-European world (the “West”), the Socialist bloc (the “East”), and the third world (the “South”).6

There were two common elements to these local political uprisings. The first was the condemnation not only of U.S. hegemony but also of Soviet “collusion” with the United States. The second was the rejection not only of dominant “centrist liberalism” but also of the fact that the traditional antisystemic movements (the “Old Left”) had essentially become avatars of centrist liberalism (as had mainstream conservative movements).7

While the actual uprisings of 1968 did not last very long, there were two main consequences in the political-ideological sphere. The first was that centrist liberalism ended its long reign (1848-1968) as the only legitimate ideological position, and both the radical left and the conservative right resumed their roles as autonomous ideological contestants in the world-system.

The second consequence, for the left, was the end of the legitimacy of the Old Left’s claim to be the prime national political actor on behalf of the left, to which all other movements had to subordinate themselves. The so-called forgotten peoples (women, ethnic/racial/religious “minorities,” “indigenous” nations, persons of non-heterosexual sexual orientations), as well as those concerned with ecological or peace issues, asserted their right to be considered prime actors on an equal level with the historical subjects of the traditional antisystemic movements. They rejected definitively the claim of the traditional movements to control their political activities and were successful in their new demand for autonomy. After 1968, the Old Left movements acceded to their political claim to equal current status for their demands, in place of deferring these demands to a post-revolutionary future.

Politically, what happened in the twenty-five years succeeding 1968 is that the reinvigorated world right asserted itself more effectively than the more fragmented world left. The world right, led by the Reagan Republicans and the Thatcher Conservatives, transformed world discourse and political priorities.

The buzzword “globalization” replaced the previous buzzword “development.” The so-called Washington Consensus preached privatization of state productive enterprises, reduction of state expenditures, opening of the frontiers to uncontrolled entry of commodities and capital, and the orientation to production for export. The prime objectives were to reverse all the gains of the lower strata during the Kondratieff A-period. The world right sought to reduce all the major costs of production, to destroy the welfare state in all its versions, and to slow down the decline of U.S. power in the world-system.

Mrs. Thatcher coined the slogan, “There is no alternative” or TINA. To ensure that, in fact, there would be no alternative, the International Monetary Fund, backed by the U.S. Treasury, made as a condition of all financial assistance to countries with budgetary crises adherence to its strict neoliberal conditions.

These draconian tactics worked for about twenty years, bringing about the collapse of regimes led by the Old Left or the conversion of Old Left parties to adherence to the doctrine of the primacy of the market. But by the mid-1990s, there surfaced a significant degree of popular resistance to the Washington Consensus, whose three main moments were the neo-Zapatista uprising in Chiapas on January 1, 1994; the demonstrations at the Seattle meeting of the World Trade Organization in Seattle, which scuttled the attempt to enact worldwide constraints on intellectual property rights; and the founding of the World Social Forum in Porto Alegre in 2001.

The Asian debt crisis in 1997 and the collapse of the U.S. housing bubble in 2008 brought us to our current public discussion of the so-called financial crisis in the world-system, which is, in fact, nothing but the next-to-last bubble in the cascading series of debt crises since the 1970s.

Premise No. 4 is the description of what happens in a structural crisis, which the world-system is in at the present time, has been in at least since the 1970s, and shall continue to be in until probably circa 2050. The primary characteristic of a structural crisis is chaos. Chaos is not a situation of totally random happenings. It is a situation of rapid and constant fluctuations in all the parameters of the historical system. This includes not only the world-economy, the interstate system, and cultural-ideological currents, but also the availability of life resources, climatic conditions, and pandemics.

The constant and relatively rapid shifts in immediate conditions make even short-term calculations highly problematic—for the states, for enterprises, for social groups, and for households. The uncertainty makes producers very cautious about producing since it is far from certain that there are customers for their products. This is a vicious circle, since reduced production means reduced employment, which means fewer customers for producers. The uncertainty is compounded by the rapid shifts in currency exchange rates.

Market speculation is the best alternative for those who hold resources. But even speculation requires a level of short-term assurance that reduces risk to manageable proportions. As the degree of risk increases, speculation becomes more nearly a game of pure chance, in which there are occasional big winners and mainly big losers.

At the household level, the degree of uncertainty pushes popular opinion both to make demands for protection and protectionism and to search for scapegoats as well as true profiteers. Popular unrest determines the behavior of the political actors, pushing them into so-called extremist positions. The rise of extremism (“The center cannot hold”) pushes both national and world political situations toward gridlock.

There can be moments of respite for particular states or for the world-system as a whole, but these moments can also be rapidly undone. One of the elements undoing the respites are sharp rises in the costs of all the basic inputs both to production and daily life—energy, food, water, breathable air. In addition, the funds to prevent or at least reduce the damages of climate change and pandemics are insufficient.

Finally, the significant increase in the living standards of segments of the populations of the so-called BRIC countries (Brazil, Russia, India, China, and some others) actually compounds the problems of capital accumulation for capitalists by spreading out the surplus-value and thus reducing the amounts available for the thin upper crust of the world’s populations. The development of the so-called emerging economies actually compounds the strain on existing world resources and thereby also compounds the problem for these countries of effective demand, threatening their ability to maintain their economic growth of the last decade or two.

Davos versus Porto Alegre

All in all, it is not a pretty picture, and brings us to the political question, What can we do in this kind of situation? But first, who are the actors in the political battle? In a structural crisis, the only certainty is that the existing system—the capitalist world-economy—cannot survive. What is impossible to know is what the successor system will be. One can envisage the battle as one between two groups that I have labeled “the spirit of Davos” and “the spirit of Porto Alegre.”

The objective of the two groups is totally opposite. The proponents of “the spirit of Davos” want a different system—one that is “non-capitalist” but still retains three essential features of the present system: hierarchy, exploitation, and polarization. The proponents of “the spirit of Porto Alegre” want the kind of system that has never existed heretofore, one that is relatively democratic and relatively egalitarian. I call these two positions “spirits” because there are no central organizations on either side of this struggle, and indeed, the proponents inside each current are deeply divided as to their strategy.

The proponents of the spirit of Davos are divided between those who proffer the iron fist, seeking to crush opponents at all levels, and those who wish to co-opt the proponents of transformation by fake signs of progress (such as “green capitalism” or “poverty reduction”).

There is division as well among the proponents of the spirit of Porto Alegre. There are those who want a strategy and a reconstructed world that is horizontal and decentralized in its organization, and insist on the rights of groups as well as of individuals as a permanent feature of a future world-system. And there are those who are seeking once again to create a new international that is vertical in its structure and homogenizing in its long-term objectives.

This is a confusing political picture, compounded by the fact that large parts of the political establishments and their reflections in the media, the punditry, and academia still insist on talking the language of a passing, momentary difficulty in an essentially equilibrated capitalist system. This creates a fog within which it is difficult to debate the real issues. Yet we must.

I think it is important to distinguish between short-term political action (the short term being the next three to five years at most) and medium-term action aimed at enabling the spirit of Porto Alegre to prevail in the battle for the new “order out of chaos” that will be collectively “chosen.”

In the short term, one consideration takes precedence over all others—to minimize the pain. The chaotic fluctuations wreak enormous pain on weaker states, weaker groups, weaker households in all parts of the world-system. The world’s governments, increasingly indebted, increasingly lacking financial resources, are constantly making choices of all kinds. The struggle to guarantee that the cuts in revenue allocation fall least on the weakest and most on the strongest is a constant battle. It is a battle that, in the short run, requires left forces always to choose the so-called lesser evil, however distasteful that is. Of course, one can always debate what the lesser evil in a given situation is, but there is never an alternative to that choice in the short term. Otherwise, one maximizes rather than minimizes the pain.

The medium-term option is the exact opposite. There is no halfway house between the spirit of Davos and the spirit of Porto Alegre. There are no compromises. Either we shall have a significantly better world-system (one that is relatively democratic and relatively egalitarian) or we shall have one that is at least as bad and, quite possibly, far worse. The strategy for this choice is to mobilize support everywhere at every moment in every way. I see a medley of tactics that might move us in the right direction.

The first is to place great emphasis on serious intellectual analysis—not in a discussion conducted merely by intellectuals, but throughout the populations of the world. It must be a discussion animated by a large openness of spirit among all those who are inspired, however they define it, by the spirit of Porto Alegre. This seems anodyne to recommend. But the fact is that we have never really had this in the past, and without it we cannot hope to proceed, much less to prevail.

A second tactic is to reject categorically the goal of economic growth and replace it with the goal of maximum decommodification—what the movements of indigenous nations in the Americas are calling buen vivir. This means not only resisting the increased drive to commodification of the last thirty years—of education, of health structures, of the body, of water and air—but decommodifying as well agricultural and industrial production. How this is done is not immediately obvious, and what it entails we shall only know by experimenting widely with it.

A third approach is an effort to create local and regional self-sufficiencies, especially in the basic elements of life such as food and shelter. The globalization we want is not a single totally integrated division of labor but an “alterglobalization” of multiple autonomies that interconnect in seeking to create a “universal universalism” composed of the multiple universalisms that exist. We must undermine the provincial claims of particular universalisms to impose themselves on the rest of us.8

A fourth derives immediately from the importance of the autonomies. We must struggle immediately to end the existence of foreign military bases, by anyone, anywhere, for any reason. The United States has the widest collection of bases, but it is not the only state to have such bases. Of course, the reduction of bases will also enable us to reduce the amount of the world’s resources we spend on military machines, equipment, and personnel, and permit the allocation of these resources for better uses.

A fifth tactic that goes along with local autonomies is the aggressive pursuit of ending the fundamental social inequalities of gender, race, ethnicity, religion, sexualities—and there are others. This is now a piety among the world left, but has it been a real priority for all of us? I do not think so.

And, of course, we cannot expect a better world-system circa 2050 if, in the interim, any of the three pending supercalamities occurs: irrevocable climate change, vast pandemics, and nuclear war.

Have I created a naive list of non-realizable tactics by the world left, the proponents of the spirit of Porto Alegre, for the next thirty to fifty years? I do not think so. The one encouraging feature about a systemic crisis is the degree to which it increases the viability of agency, of what we call “free will.” In a normally functioning historical system, even great social effort is limited in its effects because of the efficacy of the pressures to return to equilibrium. But when the system is far from equilibrium, every little input has great effect, and the totality of our inputs—made every nanosecond in every nanospace—can (can, not will) add up to enough to tilt the balance of the collective “choice” in the bifurcation.

Notes

1. ↩ This essay is based on a talk given at the conference, “Global Crisis: Rethinking Economy and Society,” University of Chicago, December 3-5, 2010, Session on “Understanding the Crisis Historically.”
2. ↩ Immanuel Wallerstein, “Structural Crises,” New Left Review, no. 62 (March-April 2010): 133-42. An earlier, more extensive discussion of this topic is to be found in Utopistics, or, Historical Choices of the Twenty-first Century (New York: The New Press, 1998), esp. chapter 2.
3. ↩ For a broader explanation of how Kondratieff cycles work, see the Prologue to the new edition of Volume III of The Modern World-System (Berkeley, CA: University of California Press, 2011).
4. ↩ For a broader explication of how the hegemonic cycle works, see the Prologue to the new edition of Volume II of The Modern World-System (Berkeley, CA: University of California Press, 2011).
5. ↩ See my “Precipitate Decline: The Advent of Multipolarity,”Harvard International Review (Spring 2007): 54-59.
6. ↩ See my “1968, Revolution in the World-System: Theses and Queries,” Theory and Society, XVIII (July 4, 1989): 431-49; also with Giovanni Arrighi and Terence K. Hopkins, “1989, the Continuation of 1968,” Review, XV, no. 2 (Spring 1992): 221-42.
7. ↩ On the explanation of the ways in which radicals and conservatives became avatars of centrist liberalism, see “Centrist Liberalism as Ideology,” chapter 1, The Modern World-System, IV: The Triumph of Centrist Liberalism, 1789-1914 (Berkeley, CA: University of California Press, 2011).
8. ↩ I have argued the case for this in European Universalism: The Rhetoric of Power (New York: The New Press, 2006).

Source: http://monthlyreview.org/110301wallerstein.php

The Libyan Rebellion: The West’s Cloak over the Gulf (by Sukant Chandan)

( Source: http://mrzine.monthlyreview.org/2011/chandan180311.html )

Fidel Castro was right.  The West was planning an attack on a sovereign third world nation imminently: Libya.  Nothing like a good old war against brown and black people in Libya by the West to remind oneself of what Western civilisation is all about.  Many of us who have been politically active since the 1990s are painfully aware of the trauma that humanitarian imperialism causes on peoples of the Global South.

Libya has been one of the most controversial conflicts to have taken place in the Arab world, and the Goebbelsian propaganda machine of most of the media (except for Russia Today, which has been the only critical voice on Libya) has whipped up narrow-minded hysteria against Ghadafi, which has not helped anyone understand some of the more insidious things that are currently taking place.

Why did the UN Security Council pass the resolution last night?  Why at this time?  Up until the passing of the resolution there was a consensus in mainstream media that the rebellion in Libya had lost momentum around a week ago and was on its last legs, having been defeated everywhere apart from Benghazi and Tobruk.  It is even more interesting that the USA went ahead with supporting the no-fly-zone aspect of the UNSC resolution as it was one of the most vocal in expressing the great challenge that a bombing campaign on Libya with its associated civilian deaths would entail.  Perhaps the USA knows that there is little that actually can be done and there is not much to lose by posturing as the erstwhile ‘shock and aweing’ power.  However, there are some other factors to consider as well, especially in relation to the current people’s movements developing across the Arab world.

British Prime Minister David Cameron recently went on a business trip to the Gulf where he sold British weapons to his puppet states of the region just as the people’s movements were erupting in Yemen, Bahrain and even in what was always considered relatively quiet and stable Oman.  Al-Jazeera English (AJE), the voice of the Qatari gulf monarchy, instead of criticising Cameron’s arms-selling trip, decided to hand over its air time so that Cameron could conduct war propaganda against Libya.  While it is true that AJE and Qatar have one foot supporting the resistance, one has to be honest and state that Qatar also has the other foot hosting the USA’s biggest military base in the region — Centcom — and Bahrain hosts Centcom’s naval fleet.  Here you have AJE protecting British interests in the region while Arab people in Gulf are being killed by British-trained and British-armed regimes.

The West is terrified of the Arab and North African uprisings and going all out to co-opt them the best it can, or as one of my close colleagues Daniel Renwick states, imperialists are ‘reforming to conserve’.  AJE seems to be playing into this reform-to-conserve strategy by positioning itself as the voice and activist media of the Tunisian and Egyptian uprisings, but giving much less respect and airtime to the uprisings in ‘Saudi’ Arabia, Yemen and Bahrain, going so far as to even roll with the Western line that Bahrain has a lot to do with Shia-Sunni issues and Iran.  Arguably, as long as AJE has this editorial policy, it will be an obstacle to the development of a growing anti-imperialist strategy of the region’s uprisings.

The Gulf countries are the most reactionary, medieval states in the region, established by British colonialism and maintained by British and US patronage.  The Gulf States have the benefit — or tragedy, depending on which way one looks at the issue — of possessing vast amounts of oil reserves which is fundamental to the running of the Western military machine.  The US and Britain know that they may lose the energy resources of the Gulf due to the political changes rocking the region, and are in desperate need to secure an alternative source of oil and gas.  That’s where Libya comes in, and nearly every time pro-Western analysts speak of Libya, they seem to also salivate at the prospect of the vast gas reserves in Algeria.  The West wants Libya to ensure its energy supplies in case the Gulf is lost, and if it managed to have full control of Libyan oil, then this would be a boost for the West and might give it another half century of life when all indicators are that the West will totally lose its world position within a few decades.

While Saudi and Qatari troops are occupying Bahrain and killing the protestors there, while the US-drone-supporting Yemeni president has massacred around 50 people in the capital in the last day, the UNSC resolution on Libya and the whole campaign against Libya seems to be a well-managed manoeuvre to deflect, distract and divide attention away from the Gulf uprisings and has relatively successfully recruited much of Arab and Western liberal opinion in this campaign against Libya.

The forces of the Libyan rebellion are totally beholden to the West, with no sign of any real anti-imperialist forces in the rebellion.  Rather it is clear that all the forces so far have been fully supported by the West today and historically, with Western special forces openly going into Libya to train and arm the rebels.  Hilary Clinton, who seems single-minded in her crusade to slap down the Arabs and kill them with her version of kindness, was trooping around Egypt and Tunisia immediately before the UNSC resolution on Libya, showing how the USA and the West in general want to colonise the Arab uprisings, maintain and deepen the US hegemonic position in the region, squeeze out rivals such as the Chinese and Russians, and re-focus the uprisings against those regimes which are obstacles to their rule in the region: Iran, Syria, Libya, Sudan and Algeria.  It is no coincidence that Clinton was in Egypt the day before the UNSC resolution, and then after the resolution is passed, news emerges that Egypt is arming the Libyan rebels: a clear strategy to get the Arab people to sabotage their uprisings through divide and rule.  The West has also been trying to stoke uprisings in Algeria, Iran and Syria all in the first week of the Libyan rebellion, as well as in China, Zimbabwe and Vietnam, all countries where the West dreams of regaining its full control back, which was lost since the colonial days, an era at which it looks back with nostalgia and which still defines Western mentality by and large.

The West is doing everything it can to co-opt and sabotage the Arab and North African uprisings.  In comparison, anti-imperialist critique and strategies are yet to be worked out in the region’s struggles, apart from the heroic anti-imperialist impetus and instincts of the Arab masses, which AJE has censored out for the most part, whereas Iran’s Press TV has highlighted.  Western and Gulf State policies towards Libya and the associated media hysteria has thrown a considerable spanner in the works regarding the potential for anti-imperialist victories in the region, all the while spinning the Libyan rebellion as some kind of popular uprising akin to Tunisia and Egypt.

Ghadafi and Libya have always been a strategic problem for the West, even in the first decade of the 2000s when Ghadafi’s relations with the West thawed and developed somewhat.  Western puppets tend not to call for reparations of $7 trillion dollars to Africa from the former colonial powers, call out the UNSC as being a terrorist organisation, argue that Africa must have a permanent seat on the UNSC, criticise that Arabs are hopelessly divided when they should unite against the common enemy in the West and Zionism.  Leaders of the third world have often been killed by the West for only saying such things, Patrice Lumumba being a case in point.  Those elements in the Libyan state who were corrupted by these relations with the West, illustrated especially by those Libyan ambassadors who went over to the side of Europe and North America, have exposed themselves and done Ghadafi and his loyalists a favour by self-purging themselves.  The Western-backed overthrow of Ghadafi is not the path of liberation of the Arab masses.  Freedom never comes by hitching a lift on Ceasar’s chariot, or on a US F-16 fighter jet.

The Arab people have centuries of resistance to colonialism and neo-colonialism to draw upon.  They have a massive wealth of revolutionary anti-imperialist experience from Gamal Abdel Nasser’s successful anti-imperialist and Islamic-socialist revolution, to the experience of the factions of the PLO throughout the 1970s, ’80s and even early 90s, to the Popular Front of the Liberation of the Arab Gulf.  Liberation will come through ending the West’s most vicious and backward puppets in the region: the Gulf States.  The West knows this.  That’s why it never gives up on its central strategy when dealing with the ‘natives’: divide and rule.

In this Libyan debacle, the West has, with the support of the region’s news media, attempted to create divisions between the Arabs and the revolutionaries in Latin America, within the camp of the anti-imperialist nations of the Global South and between black Africans and lighter skinned Arabs, all the while being relatively successful in getting mass Arab support for its agenda on Libya.  However, already there are indications that Arab sentiment is slowly turning against the West’s interference and aggression towards Libya.

The historic victories of the Iranians, the Palestinian revolutionaries in Hamas and other factions, Hizbullah, the resistance in Iraq and Afghanistan show that that Arab and Middle Eastern peoples can fight and defeat the West and its ally in the Zionist state.  History will show that the Arab people will develop their fighting militant mass anti-imperialist organisations through the crucible of struggle.  And the sharpest edge of this struggle currently is in Arabia, Yemen and especially Bahrain.  Getting world opinion to turn away from the Gulf towards Libya must be resisted by those who believe in true independence and freedom from the West, the West being the veritable heart of darkness behind oppression across the world.

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Sukant Chandan is a London-based political analyst and filmmaker and runs the SonsofMalcolm.com blog.  He can be contacted on <sukant.chandan@gmail.com>.

Source: http://mrzine.monthlyreview.org/2011/chandan180311.html

ALBA and the Promise of Cooperative Development -Martin Hart-Landsberg

Monthly Review Volume 62 Number 7

Existing international economic institutions and relations operate in ways detrimental to third world development. That is why eight Latin American and Caribbean countries—led by Venezuela, Cuba, and Bolivia—are working to build the Bolivarian Alliance for the Americas (ALBA), a regional initiative designed to promote new, nonmarket-shaped structures and patterns of economic cooperation.1

ALBA does this, in part, by providing a framework for member governments to create partnerships between existing national state enterprises as well as new regional public enterprises. The resulting initiatives, although still few in number, have helped member governments strengthen planning capacities, modernize national industrial and agricultural operations, and provide essential social services to their citizens.2

In response to worsening international economic conditions, ALBA has recently stepped up efforts to promote a full-blown regional development process. In November 2008, member governments announced their support for an ALBA People’s Trade Agreement “that protects our countries from the depredation of transnational capital, foments the development of our economies and constitutes a space liberated from the inoperative global financial institutions and the monopoly of the dollar as the currency for trade and reserves.”3Although the precise terms of the agreement are still to be negotiated, official statements point to the creation of an integrated trade and monetary zone, with a new regionally created currency, the sucre.

This is a bold initiative that deserves to be taken seriously. Doing so requires grappling with some critical questions. How important/necessary is this initiative? How should the zone be structured? What are the potential challenges to, and benefits from, a successful outcome? These are big questions and, given that ALBA has not yet concretized its own plans, difficult to engage in a productive way.

However, we do have the benefit of history; this is not the first attempt at collective regional development. One of the most successful attempts, and perhaps the most relevant for understanding and evaluating ALBA’s effort, took place in Europe shortly after the end of the Second World War, when members of the Marshall Plan-sponsored Organization for European Economic Cooperation (OEEC) established the European Payments Union (EPU).4 Studying the EPU experience offers us a practical way to begin thinking about these questions and the promise of cooperative development.

In what follows, I first discuss the rationale for a cooperative development strategy. Next, I analyze the political-economic dynamics that led powerful European countries to commit to such a strategy. Then, I examine the workings of the EPU as well as the dynamics leading to its eventual dissolution. I conclude with a discussion of relevant lessons for ALBA countries.

The Need for a Cooperative Development Strategy

Third world countries face enormous obstacles to development, the majority of which are the consequence of their forced integration into the capitalist world system. One of the most difficult to overcome is a historically created import dependence. Weak and distorted industrial and technological sectors (and, in many cases, limited agricultural and primary commodity production capabilities) mean that third world attempts to boost economic activity normally trigger, at least in the short run, a sharp rise in the demand for imports.

If third world countries remain open to global market forces, their governments must find ways to obtain the foreign exchange necessary to finance the import surge. This means that most third world governments are forced, almost from the beginning of their development effort, to give priority to the creation of a competitive export sector, which involves channeling resources into satisfying foreign rather than domestic needs.

The complications quickly multiply. One of the fastest ways to establish a competitive export sector is to attract export-oriented transnational corporations. Unfortunately, because third world countries face similar development challenges, their governments end up competing among themselves to attract the desired foreign investment, offering ever greater labor, tax, and environmental concessions.

Growth is possible under such conditions, at least for a few countries. However, given the nature of transnational production networks, even the “successful” ones find it difficult to use their gains from trade to promote a domestically responsive and self-reinforcing process of technological and social development.

Aware of the destructive consequences of global market dynamics, some third world governments have tried to delink their respective economies from the capitalist world-system. However, this too has generally proven an unworkable strategy. Among the most important reasons is that few governments have the organizational capacity, much less power, to refashion or reorient sufficient economic activity to achieve significant delinking. Another reason is that few countries have the resources required to meet national needs without substantial trade.

Not surprisingly, then, there is need for an alternative development strategy. It is in this context that we can best appreciate ALBA’s interest in collective development, as expressed by its recently approved People’s Trade Agreement. In brief, this approach represents a “middle-ground” strategy of group delinking. ALBA governments hope that delinking will provide the protection they need to engage in the coordinated planning and production required to overcome existing economic distortions and weaknesses. And, by acting as a group, they hope to ensure that their respective national enterprises will have access to the broader markets they need in order to enjoy economies of scale and obtain scarce resources and technology.

ALBA’s effort is, in many ways, unprecedented, especially because ALBA is composed of countries with diverse political visions—for example, three, Bolivia, Cuba, and Venezuela, are led by governments explicitly committed to building socialism. Still, there have been other attempts at cooperative development that can help shed light on the challenges and choices facing ALBA. This is true even if they were organized by capitalist governments to further capitalist interests.

When capitalist governments are under great pressure—as they were, for example, in the 1930s when the Great Depression forced them to initiate a series of public works and employment programs, or in the 1940s, when the Second World War forced them to promote public ownership and production—their actions can often illuminate possibilities and even policies that can be adapted by governments with radically different aims (which is not to say that state policies are ever class-neutral).

I believe that the situation in Europe following the end of the Second World War offers another example. European governments at the time were under great pressure from the United States to liberalize their economies. Their response, specifically their creation of the European Payments Union, offers important and positive lessons for those supportive of the ALBA initiative.

Background to the Formation of the EPU

For complex historical reasons, the developed capitalist countries of Europe faced economic challenges in the immediate postwar period that were remarkably similar to those faced by many third world countries today. U.S. government and business elites wanted to establish an international economic system underpinned by freely traded (convertible) currencies and liberalized trade. This posed a problem for European governments.

European economies had been greatly weakened by the war. As a consequence, their import needs were far greater than their export capacities. If European governments accepted U.S. demands for liberalization, their countries would quickly run large trade deficits. Since they lacked sufficient foreign exchange, they would be forced to implement austerity measures (in order to reduce the demand for imports), leading to a downward spiral of production and employment.

Such an outcome would be nothing new for most third world countries, whose governments have routinely been pressured into liberalizing international economic activity. However, despite its weakened position, Europe was not the third world. In particular, European governments retained considerable negotiating leverage with U.S. policymakers.

Europe’s importance as part of the capitalist core meant that U.S. elites could not be indifferent to the political ramifications of Europe’s economic choices. European workers could be expected strongly to oppose the austerity required to restore trade balances if European governments embraced liberalization. Both U.S. and European elites feared that this opposition could dramatically strengthen the already considerable influence of the left throughout the region.

Equally important, European governments managed economies that were already heavily regulated, which meant that they had tools in place to control trade directly if they decided to resist U.S. pressure. Controls were first introduced during the depression era; among the most effective were quantitative restrictions on imports. For example, as of 1937, almost all German and Italian imports, more than half of those of France, Switzerland, and Austria, and approximately one-quarter of those of Belgium and the Netherlands, were subject to quota restrictions.5 The outbreak of the Second World War led to a further tightening of restrictions on trade. Many currencies ceased to be convertible for both residents and nonresidents.

Under these conditions, European governments found that the easiest way to organize trade was through bilateral agreements. By the end of 1947, more than two hundred such agreements were in effect, accounting for more than 60 percent of Western European trade.6

European elites did not oppose a return to a fully multilateralized capitalist world system; after all, they had greatly benefited from its past operation. Their concern was that, under existing conditions, they were not well placed to benefit from its revival. At the same time, they were also aware that the status quo was far from satisfactory. The controls that enabled European governments to regulate economic activity made it harder to restore business confidence (and, by extension, growth) and strengthened left demands for a broader structural transformation of existing capitalist institutions and relations.

In short, European elites desperately needed an alternative strategy, one that would support regional economic revitalization by providing protection from U.S. competition, while simultaneously weakening obstacles to Europe’s eventual participation in a renewed multilateral system. The U.S. government, for its own reasons, eventually agreed to support the search for such a strategy.

The EPU

OEEC governments negotiated several agreements in the late 1940s which, supported by Marshall Plan aid, were designed to promote intra-European currency convertibility and trade liberalization. But their limited scope yielded meager gains. Frustrated by the slow pace of change, the U.S. government eventually took charge. In October 1949, after the State Department overcame Treasury Department objections, Marshall Plan director Paul Huffman called on the OEEC Council to take concrete steps toward the creation of a single integrated European market. Two months later, one of his assistants put forward a plan for achieving this outcome. Significantly, this plan served as the basis for the EPU agreement which was approved by OEEC members on July 7, 1950.7

The EPU broke with bilateralism by establishing a highly regulated multilateral payments system. Trade continued to be controlled as before, but now, if intra-OEEC and approved by the governments concerned, it could proceed without regard to national holdings of foreign exchange. Previously, for example, if a Dutch importer was granted permission by the Dutch government to import tractors, and decided to purchase German ones, the trade could be completed only if the Dutch central bank held sufficient German marks. Often, that was not the case, which meant that the importer had no choice but to import tractors from another country, one whose currency was held in ample supply by the Dutch central bank.

The EPU changed this. Under the new system, the Dutch importer would simply pay its central bank in Dutch guilders, the Dutch central bank would inform the German central bank of the importer’s desired purchase, and (assuming the German government approved the sale) the German central bank would itself pay its exporter in marks. The German central bank would record a surplus position in Dutch guilders in its account with the Dutch central bank, while the Dutch central bank would record a deficit in German marks in its account with the German central bank.

At the end of every month, each central bank would calculate its net position with every other central bank and convert it—using existing national exchange rates—into a balance in its own currency. Then, it would total its separate national balances and report an overall final balance in its own currency to the Bank of International Settlements (BIS), which operated as the EPU’s financial agent. The BIS would take these national balances, convert them into EPU units of account, or “ecus,” and calculate final balances.8 In this way, EPU member nations registered monthly deficits or surpluses with the EPU itself, not other member nations. Because the EPU was a closed system, the sum of all intra-EPU trade balances had to equal zero.

Finally, the BIS would determine the payment required to settle these outstanding monthly balances. The amount depended on the value of each country’s cumulative debt or surplus (since the start of the EPU), relative to its assigned quota. And its assigned quota was set equal to 15 percent of its total visible and invisible trade with other member nations and their monetary areas in 1949.

A debtor country with a monthly deficit would have that deficit fully covered by EPU credit as long as its cumulative debt remained equal to or less than 20 percent of its assigned quota. As monthly trade results pushed a country’s cumulative debt above the 20 percent mark, a growing percentage of its monthly balance had to be paid in U.S. dollars (or gold). If a country’s cumulative debt exceeded its quota, it was obligated to pay its entire monthly deficit in dollars.

Surplus countries were treated somewhat differently. A surplus country with a monthly surplus would have to give its full surplus in credit to the EPU if its total surplus was less than 20 percent of its assigned quota. However, rather than receive a growing percentage of its monthly surpluses in dollars as its total surplus grew beyond the 20 percent mark, its dollar share was set at a constant 50 percent. It was left up to the Managing Board to determine how the monthly surplus of a country with a cumulative surplus larger than its quota would be compensated.

Of course, national trade balances fluctuated. Countries with cumulative surpluses sometimes ran monthly deficits, while countries with cumulative deficits sometimes posted monthly surpluses. In such cases, the “last-in, first-out” principle applied: the most recent credits to or from the EPU were erased and the most recent dollars paid to or received from the EPU were returned.

Depending on how the deficits and surpluses were allocated across countries, EPU dollar receipts from deficit countries could be, and sometimes were, less than required dollar payouts to surplus countries. Therefore, the EPU needed a capital fund; this was provided by the United States at the time of the EPU’s launch.

It is easy to imagine why deficit countries embraced this system—it provided them with credit and reduced their potential dependence on any one creditor country. But there were also benefits for surplus countries. For example, the system assured them that they would receive dollar payments for their exports, regardless of the foreign exchange holdings of the importing country. The EPU clearing mechanism also promoted trade as well as trade liberalization (discussed below), both of which disproportionately benefited surplus countries.

The EPU Managing Board

Key to the operation of the EPU was the Managing Board, and there were serious disagreements between U.S. and OEEC negotiators over its proposed authority. The U.S. government wanted a “supranational” Managing Board with the power to discipline governments whose policies were viewed as a threat to the region’s achievement of currency convertibility and trade liberalization. The OEEC countries did not agree, and they prevailed. The Managing Board was limited to making policy recommendations (which could be carried by majority vote) to the OEEC Council, where they had to receive unanimous support from all the member governments before they could take effect.

Struggles also took place over the composition of the Managing Board. The IMF strongly disapproved of the EPU project, fearing that it would strengthen regionalism, which was contrary to the IMF mission of promoting universal liberalization. In particular, the IMF feared that the Managing Board would become a powerful rival. At a minimum, the IMF wanted a voting seat on the Managing Board. OEEC countries disagreed, and won this battle as well. In 1953 the OEEC Council did agree to allow an IMF representative to attend Managing Board meetings, but only as an observer.

These victories by OEEC governments stand as tribute to the fact that European elites continued to enjoy considerable unity and collective capacity to defend their interests. At the same time, it is important to acknowledge that European and U.S. elites shared a common commitment to rebuilding a strong, functioning global capitalist order. No doubt, this made it easier for the United States to yield to European wishes.

It was originally assumed that, because the EPU clearing system would automatically ensure regional stability and growth, the work of the Managing Board would be routine. However, this assumption was quickly challenged by events; the enormous differences in national economic circumstances almost immediately produced significant trade imbalances that could not be handled by normal EPU operations. As a consequence, the Managing Board, with the support of the OEEC Council, was forced to take the lead in developing responses to a series of crises.

Challenges and Responses

The Achilles’ heel of the EPU was its asymmetrical treatment of surplus and deficit countries. Surplus countries enjoyed a structural advantage over deficit countries, and there was nothing in the EPU clearing mechanism that forced surplus countries to adjust their policies. As a result, deficit countries bore the full weight of adjustment, even if their deficit was exacerbated by the policies of surplus countries.

This was an especially serious problem for the EPU system because, given its regional structure, total intra-regional surpluses had to be balanced by equivalent intra-regional deficits. Thus, if one or more member countries succeeded in recording large, continuous trade surpluses, it was likely that one or more member countries would be recording large, continuous trade deficits. If these debtor nations suffered too great a loss of reserves, they might well be forced into restoring restrictions on regional transactions, thereby threatening the EPU project.

John Maynard Keynes worried about this very same problem in the early 1940s, while working on a draft proposal for a World Bank. He sought to overcome it by recommending the following: All countries were to have accounts at the World Bank, which would record their deficits and surpluses with all other members. The Bank would have the authority to create its own international reserve currency, the bancor; it would extend credit in the form of bancors to debtor countries up to an established quota limit. All countries with large trade imbalances relative to their assigned quotas (regardless of whether surplus or deficit) would be required to pay interest penalties to the Bank. Because penalties increased as the imbalances grew larger, both deficit and surplus countries would have a material interest in adjusting their respective policies to achieve more balanced trade.9

The OEEC created an EPU that differed from Keynes’s draft proposal for a World Bank in two important ways. First, the OEEC chose not to create a new international reserve currency; the ecu functioned only as a virtual unit of account. Second, the OEEC did not create any mechanism to force surplus countries to adjust their policies in the interest of achieving balanced trade patterns. In fact, quite the opposite was true. Deficit countries were required to pay interest on the credit advanced to them by the EPU, while surplus countries were paid interest on the credit they advanced to the EPU.

Not surprisingly, then, the first crisis to confront the EPU Managing Board was the result of a large and growing trade deficit. The German government had unsuccessfully tried to control its deficit. It had sharply raised interest rates in an attempt to slow down economic activity and, by extension, imports. It had also tried more direct measures to reduce its trade deficit. For example, it required businesses seeking an import license to make a bank deposit equal to 50 percent of the cost of the goods to be imported. Import licenses were required, even if the goods were not subject to quotas.

Despite these efforts, by October 1950, Germany’s cumulative debt had grown so large that it was close to exhausting its quota. If this happened, the government would have to pay dollars to finance the country’s future monthly deficits, something that it could not long do because of a foreign exchange shortage. The EPU Managing Board recognized that it would have to act quickly or Germany would be forced to take even more drastic actions. And, if Germany dramatically tightened its trade regime, other countries would find their own exports affected, which would make it harder for them to keep their markets open. The likely result would be a regression to the previous system of bilateral trade arrangements.

In December 1950, determined to avoid this outcome, the Managing Board granted Germany a special credit. The Managing Board also called on the other member countries to do what they could to increase their imports of German goods.

By February 1951, Germany had used most of its special credit. The German government, with the support of the Managing Board, suspended its trade liberalization efforts and stopped issuing import licenses. Even more striking, the OEEC Council, responding to a Managing Board recommendation, decided on the following:

If Germany’s payments position improved enough to warrant issuance of new import licenses these were to be allocated according to principles interpreted by a Mediation Group of three independent experts appointed by the Council. Taking account of “the essential needs of the German economy,” the Mediation Group was to recommend allocation of licenses “primarily in favor of Denmark, Greece, Iceland, the Netherlands, Norway and Turkey,” countries which were heavily in debt to the EPU and which would suffer particularly from a cut in German imports.10

Germany’s situation did improve enough for the Managing Board to recommend resumption of import licensing, but only according to the terms noted above. The OEEC Council, following Mediation Group recommendations, set an upper limit for the total monthly value of German imports. Within that total, upper limits were then established for the value of imports for different categories of goods; the biggest division was between the imports of goods that had previously been liberalized and those that remained restricted by quota.

The countries singled out by the Mediation Group, which were themselves struggling to finance their deficits, were given preferential rights to supply Germany with goods that had previously been liberalized. Imports of goods that remained regulated were to be divided among all suppliers according to another Council-determined formula based on past trade patterns. Germany was given the right to make minor adjustments to the plan and could appeal to the OEEC Council if it felt that major ones were necessary.

Germany was not the only country to suffer large deficits. Before the end of EPU’s first year, Austria, Greece, and Iceland had also exhausted their quotas and been given additional credits. The Netherlands faced a similar problem, but rather than aid, it was granted a larger quota.

What is perhaps most significant about the actions described above is that they demonstrate that the Managing Board and OEEC Council were willing and able to act in defense of the collective interest as defined by the objectives of the EPU. Said differently, member governments demonstrated an impressive willingness to yield significant power to higher-level bodies, power that enabled these bodies actually to shape national trade activity. Equally noteworthy, this power was used—most aggressively in the case of Germany—to impose a system of regulation that (temporarily) reversed past liberalization efforts.

New challenges arose in the second year. In response to growing trade deficits, France, in February 1952, suspended its trade liberalization and tightened its foreign exchange controls. However, the most serious threats to the system in this period came from surplus countries, in particular Belgium. At the end of July 1951, Belgium’s cumulative surplus almost equaled its quota. And, as noted previously, the EPU had no established rules specifying how countries in such a position should be compensated for their monthly trade surpluses.

Rather than compensate Belgium in dollars for its surpluses and risk exhausting the EPU’s hard currency holdings, the Managing Board decided temporarily to increase Belgium’s quota. This meant that future Belgium surpluses would continue to be settled on the basis of 50 percent dollars and 50 percent credit. Belgium continued to register strong surpluses into 1952, and the Managing Board successfully pressured it into five additional quota expansions.

Rather than allow this situation to continue, the OEEC Council pressed the Belgian government to change its economic policies. Eventually, the Belgian government consented; it limited the nation’s exports to other member countries and restricted imports from outside Europe in order to encourage greater regional purchases.

Although the agreement creating the EPU gave the organization only a two-year life, it was renewed annually seven additional times. However, these renewals were far from automatic. The negotiations were marked by growing tensions, especially between surplus and deficit countries, with the former increasingly unhappy about being forced to accept credits rather than hard currency for their surpluses.

European governments had always viewed the EPU as a necessary but transitional arrangement. Perhaps not surprisingly, the United Kingdom, because of its interest in restoring the pound as an international currency, and the major creditor countries—Belgium, Switzerland, the Netherlands, and Germany (which had overcome its previous trade problems)—were the most eager to terminate the EPU. In 1955 these countries succeeded in winning OEEC Council approval of the European Monetary Agreement (EMA), which called for termination of the EPU when countries holding more than half the total EPU quota requested it. The EMA did not establish a successor regime, only a financial safety net, the European Fund, to assist countries that found currency convertibility difficult to finance.

Finally, on December 27, 1958, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, and the United Kingdom informed the OEEC Council that they were ready to end the EPU. The next day, all member countries (except Greece, Iceland, and Turkey) restored external convertibility for nonresident holders of their currencies, which meant that those living outside the EPU area could now freely exchange any European currency they acquired through current account activity for any other European currency or dollars. The Council officially approved implementation of the EMA on December 30, 1958; the final business of the EPU was concluded on January 15, 1959.

Achievements

The EPU multilateral clearing system proved remarkably successful in promoting intra-regional trade and national growth. In particular, it encouraged trade by greatly reducing Europe’s need for scarce foreign exchange. Over the system’s roughly eight years of operation, 70 percent of all bilateral trade imbalances were settled by automatic EPU adjustments.

More generally, by structuring balance of payments accounts around the EPU rather than individual nations, and providing a number of mechanisms for harmonizing trade between surplus and deficit countries, the system also helped reduce austerity pressures on deficit countries, with beneficial consequences for the surplus countries as well. The economic gains achieved over this period are indeed striking:

In the OEEC area as a whole, gross national product grew, in real terms, by 48 percent and industrial output by 65 percent during the EPU period. This corresponded to annual compound rates of growth of about 5 and 7 percent respectively. No precedent exists in the records of market economies for such intense growth in so many countries over so long a period of years. The United States did not quite reach that rate even in the years from 1940 to 1949, when it mobilized a depressed economy for war and postwar reconstruction.11

For European elites, perhaps the most meaningful measure of the EPU’s success was the region’s return to a position of relative dominance in a renewed liberalized international economic order. European countries began the postwar period, forced to regulate international economic activity largely because of a shortage of dollars. The EPU supported European recovery in part by shielding European producers from U.S. imports. European exports to the dollar area were not, however, similarly restricted.

As Europe recovered, so did its dollar exports and dollar reserves. Europe’s reserves, which totaled $10.5 billion at the end of 1945 and $10.1 billion at the end of 1951, were $17.7 billion by the end of 1957.12 By the end of the decade, Western European economies had become strong enough to earn all the dollars they needed. In fact, Europeans began dumping dollars for gold, a clear indicator that dollars were no longer scarce. Significantly, 1958 marked the first year in which the United States suffered a major decline in its gold stock, raising international concerns about whether the U.S. government would be able to defend the existing dollar-gold exchange rate. The United States would soon be forced to seek European assistance to defend the existing international system.

The EPU and Trade Liberalization

The establishment of the EPU reflected the priority OEEC governments gave to achieving intra-European currency convertibility. Although important in its own right, OEEC governments also saw the EPU as a critical precondition to the achievement of another goal, trade liberalization. In other words, OEEC governments sought the creation of a regionally protected, integrated monetary and trade zone. Thus, shortly after approving the formation of the EPU, they signed another agreement that committed them to reducing their quantitative restrictions on intra-OEEC trade.

In 1952 a Steering Board for Trade, comparable to the EPU Managing Board, was established to oversee the implementation of trade initiatives and promote further liberalization (which referred only to reducing quantitative restrictions on trade, not tariff reductions).13European trade liberalization proceeded slowly but steadily over the decade. By the end of 1956, 89 percent of private intra-European trade had been liberalized. The combined effect of the EPU settlement system and intra-regional quota liberalization “contributed to a spectacular increase in intra-European trade. With 1949 equal to 100, the volume of intra-European imports rose to 141 in 1950, to 151 in 1951, and, by 1956, had climbed to 226.”14

For years, liberalization was strictly a European affair. For example, “At the beginning of 1953, only 11 percent of Western European (OEEC) imports from the United States and Canada were free from quantitative restrictions. By the beginning of 1954, this figure had been raised to 32 percent, by April 1, 1955 to 47 percent, and by June 30, 1956 to 59 percent. In 1957, almost two thirds of Western European imports from the United States and Canada were free from quantitative restrictions.”15

While OEEC governments had made great strides toward their goal of trade liberalization, it is important to recognize that, at the close of 1958, some thirteen years after the end of the Second World War, approximately 10 percent of intra-European trade and 30 percent of European trade with the United States and Canada remained restricted by quota. Moreover, tariff levels stayed high. It was not until 1961 that the leading OEEC countries fully liberalized their trade with the dollar area.

Lessons

I believe that the EPU experience offers many valuable lessons for third world countries pursuing development, especially those in ALBA that seek to create their own regionally protected, integrated currency and trade zones. One lesson is that states can effectively impose strong regulations over international economic activity for an extended period of time. Mainstream economists strongly criticize third world countries for trying to implement tough quantitative controls when faced with serious balance-of-payments problems. Yet, as we have seen, European governments resisted opening their economies to market competition, choosing instead to rely on an ever expanding system of state controls.

Another lesson is that it is possible to construct a cooperative development process that does promote the collective interests of its participants. As highlighted above, European governments did join together to create mechanisms that promoted regional integration and economic rebuilding, most importantly the EPU. During periods of crisis, EPU governing institutions proved willing and able to make decisions in the broader interest of the community, even when that meant implementing policies that discriminated against the stronger economies.

Finally, the EPU experience strongly suggests that it may be a mistake to conceive of development solely as a national project. European countries, among the most powerful countries in the world, faced enormous rebuilding challenges at the close of the Second World War. Rather than go it alone, they coalesced around a plan for a long-term, protected cooperative development process that was anchored by the EPU.

Significantly, many third world countries are already enmeshed in a form of economic integration, some by choice and others by compulsion. It is a neoliberal integration designed to promote greater liberalization, deregulation, privatization, and capital mobility. As a consequence, its achievements are best measured by exports, inflows of foreign direct investment, and corporate profitability, not social gains. In some cases, this process of integration has been formalized: examples include NAFTA, AFTA, and Mercosur.16

The postwar European approach to integration, although still shaped by capitalist imperatives, was very different—more protected and cooperative, and thus development oriented. No doubt, its embrace by European governments is best explained by the historically specific conditions of the time. Regardless, the operation of the EPU offers a productive starting point for thinking about the structures and mechanisms required to anchor an alternative, progressive integration project.

The EPU experience, however, does not offer a precise blueprint for today’s third world countries. For example, while European governments sought to structure a slow, sustained regional liberalization process, third world governments will need to structure a regionalization process that enhances their respective planning and regulatory capacities. And, while the OEEC Council rejected any overall regional planning, along with any mechanism to promote regional balance by forcing adjustment of surplus as well as deficit country trade patterns, these decisions are the opposite of what a successful third world effort would require.

At present, ALBA offers the most promising, if not the only meaningful, attempt at cooperative development anywhere in the world. Consistent with the organization’s state-centered orientation, most ALBA activities have, to this point, involved bilaterally negotiated agreements between state enterprises in which one country provides the other with goods, technical or financial support for investments in core industries, affordable energy resources, and/or assistance in delivering critical social services. However, ALBA’s declaration of intent to create an integrated trade and currency zone, backed by a new regional currency, appears to signal a serious commitment by member countries to move beyond existing bilateral efforts to foster a regional development process.

Significantly, ALBA’s early steps to concretize its People’s Trade Agreement contain echoes of the EPU experience. Although negotiations on zone operating principles continue, ALBA appears close to establishing a sucre system with a Regional Monetary Council, a Central Clearing House, a regional reserve and emergency fund, and the sucre itself.

Several countries have already deposited agreed upon amounts of their respective national currencies into a special sucre fund. These monies are then converted into sucre. At this point, the sucre exists only as a virtual unit of account, with an exchange value of $1.25, and is being used only for targeted trade of specific commodities. The first sucre-denominated transaction, involving Venezuelan rice exports to Cuba, occurred in January 2010. Bolivia, Nicaragua, and Ecuador also have plans to engage in sucre-denominated trade. ALBA’s long-term goal is for the sucre to become an international reserve currency much like the euro.

Drawing further on the EPU experience, one could imagine the ALBA cooperative development process unfolding as follows: the ALBA Council would first select several key development drivers—perhaps health care, education, energy, and food production—to serve as focal points for protected regional activity. Then, it would encourage the adoption of many of the same currency and trade policies employed by EPU countries to further the creation of regionally anchored health, education, energy, and food production systems. If structured properly, these systems would provide benefits to every member country (for example, offering access to affordable medicine and sustainably produced agricultural goods) and ensure that every member country had a role to play in its operation through an assigned area of specialization.

Although in an ideal world, each driver would be anchored by a different country, in reality, most ALBA members do not yet have the research-production-service core capacities necessary to play such a role. However, Cuba is well placed to advance regional efforts in health care and basic education, and Venezuela is capable of doing the same with energy. ALBA countries, as a group, have the ability to make meaningful strides toward the achievement of regional food sovereignty.

The aim of such an effort would not be the creation of identical systems in each country—which would be impossible even if desired—but rather a collective effort to ensure that critical goods and services are sustainably produced and shared within the ALBA community. For example, in the case of health care, structured trade could promote the development and regional distribution of Cuban pharmaceuticals. At the same time, other member countries could support the strengthening of the Cuban health system by providing Cuba with difficult to obtain inputs, such as lab equipment, specialty vehicles, and computer systems and services. Similarly, ALBA governments could increase their capital contributions to the ALBA bank and direct it to fund the sustainable production of basic food items in member countries, transportation networks to distribute them, and state-owned marketing outlets in each country to sell them at affordable prices.17

While successful national development ultimately depends on choices made by the citizens of the nation itself, collective projects like the EPU or ALBA do have a critical role to play. Complex struggles are under way in Bolivia, Cuba, and Venezuela to define and shape a socialist political economy appropriate for the twenty-first century. Significantly, the operation and evolution of ALBA could prove pivotal in tipping the balance of forces toward a favorable outcome. ALBA initiatives, such as the People’s Trade Agreement, have the potential to offer these countries an important degree of economic assistance and political protection, both of which are absolutely necessary to help counter U.S. opposition. Advances in these countries would, in turn, likely have a powerful and positive effect on the direction of the ALBA project itself, as well as development in the other member countries.

Economic development is a multifaceted and difficult process. Yet there is much we can learn from both the EPU experience and the ALBA project—and good reason to be optimistic about the future.

Notes

1. ↩ Venezuela and Cuba signed the first ALBA exchange agreement in 2004. Bolivia joined in 2006, Nicaragua in 2007, Dominica and Honduras in 2008, and Ecuador, St. Vincent and the Grenadines, and Antigua and Barbuda in 2009. A United States-supported coup in Honduras installed a right-wing government that withdrew the country from ALBA in 2010. In 2009 the member countries of the Bolivarian Alternative for the Americas changed the name of the organization to the Bolivarian Alliance for the Americas.
2. ↩ For a discussion of ALBA structures and initiatives, see Martin Hart-Landsberg, “Learning from ALBA and the Bank of the South: Challenges and Possibilities,” Monthly Review 61, no. 4 (September 2009): 1-18 .
3. ↩ Louis Bilbao, “Two Paths in the Face of Capitalism’s Global Fracture” (translated by Federico Fuentes). LINKS, International Journal of Socialist Renewal, 2009, http://links.org.au/node/817.
4. ↩ EPU membership included Austria, Belgium, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Sweden, Switzerland, Trieste, Turkey, and the United Kingdom, as well as all countries and territories that were part of an existing European currency area.
5. ↩ William Diebold, Trade and Payments in Western Europe: A Study in Economic Cooperation, 1947-51 (New York: Published for the Council on Foreign Relations by Harper, 1952), 217.
6. ↩ Fred L. Block, The Origins of International Economic Disorder: A Study of United States International Monetary Policy From World War II to the Present (Berkeley and Los Angeles: University of California Press, 1977), 237; Diebold, Trade and Payments in Western Europe, 19-20.
7. ↩ Jacob J. Kaplan and Guenther Schleiminger, The European Payments Union, Financial Diplomacy in the 1950s (Oxford: Clarendon Press, 1989), 31.
8. ↩ An ecu was set equal in value to the gold content of one U.S. dollar. This exchange relationship allowed the BIS to create a set of exchange rates between each European currency and the ecu.
9. ↩ The U.S. government successfully defeated this proposal. U.S. elites opposed it because it threatened the status of the U.S. dollar as the leading international currency and would have forced the United States, as a leading surplus country, into significant policy changes.
10. ↩ Diebold, Trade and Payments in Western Europe, 123.
11. ↩ Kaplan and Schleiminger, The European Payments Union, 346.
12. ↩ Randal Hinshaw, “Toward European Convertibility,” Essays in International Finance, International Finance Section, Department of Economics and Sociology, Princeton University, Princeton, New Jersey, November 1958, No. 31, 17.
13. ↩ At this time, there was little support within Europe for reductions in tariffs. The reason was that, as members of the General Agreement on Trade and Tariffs, European countries could not discriminate in their use of tariffs. In other words, if they offered tariff reductions to other OEEC countries, they would have been forced to extend the same reductions to countries outside the region.
14. ↩ Hinshaw, “Towards European Convertibility,” 16.
15. ↩ Ibid., 17.
16. ↩ NAFTA is the North American Free Trade Agreement. AFTA is the ASEAN Free Trade Area. Mercosur is a South American free trade agreement. Neoliberal integration does not require a formal structure for its operation. For example, transnational corporations have created a China-centered, East Asian regional production system. See Martin Hart-Landsberg, “The U.S. Economy and China: Capitalism, Class and Crisis,” Monthly Review 61, no. 9 (February 2010): 14-31.
17. ↩ ALBA governments have already announced their intention to create a supra-national food enterprise, ALBA Alimentos, with the aim of boosting regional technological cooperation and training, rural infrastructure investment, and integrated food distribution.

Source: http://www.monthlyreview.org/101201hart-landsberg.php