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Financial Empire and the global debtors’ prison


Financial Empire may have reduced us all to debt prisoners, but we can still become the social protagonists of history’s greatest-ever prison break.

Let there be no doubt about it: we live in the era of Financial Empire. Unlike the military conquests that drove the territorial expansions of the empires of old, contemporary Financial Empire consists not in the highly visible exercise of a Big Stick ideology (although military imperialism undoubtedly continues today), but rather takes the shape of an Invisible Hand. Where in the late 19th and early 20th centuries the logic of domination was driven by the instrumental power of imperial states, the Empire of the 21st century no longer needs any sticks to enforce the submission of sovereign states: through the global enforcement mechanisms of market discipline and IMF conditionality, the structural power of finance capital now ensures that all shall bow before the money markets.

In The Accumulation of Capital (1913), Rosa Luxemburg noted that, “though foreign loans are indispensable for the emancipation of rising capitalist states, they are yet the surest ties by which the old capitalist states maintain their influence, exercise financial control and exert pressure on the customs, foreign and commercial policy of the young capitalist states.” So great was this financial control that in the First Wave of Globalization, which ran from 1870 until the onset of WWI in 1914, defaulting countries faced a 40 percent chance of being invaded, subjected to gunboat diplomacy, or having foreign control imposed on their domestic finances under threat of a naval blockade. In a telling and ironic sign of the times, even the Hague Peace Conference of 1906 recognized the legitimacy of the use of force in settling sovereign debt disputes.


Enforcing Debtor Discipline: the Era of Gunboat Diplomacy

The late 19th and early 20th century logic of imperialism thus took a military form that ultimately relied upon the instrumental power of the imperial states themselves. In 1882, for instance, following the Urabi revolt in Egypt, which had just deposed the French and British administrators who had taken control of Egypt’s finances in the wake of the 1870s debt crisis, Britain summarily invaded the country and incorporated it into the British Empire as a protectorate. Fast-forward some 130 years, and we have the foreign administrators of the IMF moving in on the heels of yet another popular uprising to make sure that Egypt does not default on its debts to Western banks. Today’s creditors no longer need to resort to the military force of their own governments to enforce their loan contracts: as a global disciplinarian, the IMF will do it for them.

The Ottoman Empire similarly defaulted in the 1870s, and although it was still powerful enough to withstand an outright European invasion, the Turkish government had to submit itself to a humiliating agreement with its foreign creditors: a Council of Foreign Bondholders, made up of representatives of the largest European banks, took control over its tax and customs offices. According to one member of the Council, Edgar Vincent, “There is no instance in which powers so extended have been granted to a foreign organization in a Sovereign state.” Fast-forward 130 years once more, and Turkey yet again finds itself in dire straits financially. The IMF is called upon in 1998 and thoroughly restructures the economy, marginalizing millions of poor Turks and leaving the Bretton Woods Project to conclude that, “over its long decade with the IMF, Turkey managed to replace public deficits with a democracy deficit.”

In 1898, Greece also fell under foreign financial control after defaulting on the debts it accrued during its war with Turkey. Mitchener and Weidenmier recount that, “As terms of the peace treaty, European powers were given authority to assume the administration of revenues on behalf of existing creditors and to effectuate payment of the war indemnity.” The historical parallels between the Greek debt crisis of 1898 and the one of today are striking. Since Germany had been the “major player in arranging the protection of foreign bondholders’ interests” in 1898, “it was given authority by the other European countries to come to terms with Greece about the operation and control over Greek finance as well as the terms of the debt settlement.” These terms were laid out in a new law; but, as Mitchener and Weidenmier stress, the approval of this law — just like today’s austerity memorandum — “was a sovereign act in appearance only.”

A few years later, in 1902, President Cipriano Castro of Venezuela refused to compensate European investors for the losses they made during the revolutionary upheaval that had brought him to power. The creditor response was swift and decisive: for four months, German, British and Italian gunboats shelled Venezuela’s coastal defenses and blockaded its main ports in order to force Castro to repay the debt in full. Two years later, largely in response to this blatant display of European imperialism in the Western hemisphere, President Theodore Roosevelt announced his infamous Roosevelt corollary to the Monroe Doctrine, which held that — rather than having the European powers messing around in its backyard — the US would now enforce the legitimate debt contracts of European financiers in Latin America and the Caribbean itself. Announcing his new foreign policy doctrine, Roosevelt issued a thinly veiled threat to his neighbors: “If a nation shows that it knows how to act with reasonable efficiency and decency in social and political matters, if it keeps order and pays its obligations, it need fear no interference from the United States.”

A year later, in 1905, US Marines invaded the Dominican Republic after it tried to default on its debts, taking over the country’s customs revenues to ensure full repayment to private bondholders. Nicaragua befell a similar fate in 1911-’12. Fast-forward another couple of decades, to 1982, and the United States is once again mingling in the sovereign affairs of its Latin American neighbors, sending in the IMF and World Bank on behalf of powerful private creditors. In Venezuela, seven years of IMF-sanctioned austerity measures eventually reach a dramatic apotheosis in the massive Caracazo protests of February 27, 1989, in which hundreds of thousands demonstrate against cuts in fuel and food subsidies that are part of the government’s agreement with the IMF. This time around, instead of having to fall back onto the gunboats of the US government, Wall Street bankers can rely fully on the internalized debtor discipline of the Venezuelan government: security forces open fire on the protesters and kill over 3,000 people. The debt, of course, is largely repaid.


Enforcing Debtor Discipline in the Era of Financial Empire

Today, the imperial era of gunboat diplomacy may have come to an ignominious end, but the era of Financial Empire is still in full swing. What the ongoing European debt crisis confirms once more is that financial capitalism, once fully developed and globalized, has no need for debtors’ prisons, gunboat diplomacy or US marines to enforce debtor discipline. The iron bars of the debtors’ prison are replaced with the global flows of finance capital; the gunboats have long since made way for what Warren Buffet called the financial weapons of mass destruction; and the foreign administrators of tax and customs offices no longer wear military suits but carry IMF suitcases. Through its control over capital flows and its ability to withhold much-needed credit, the global bankers’ alliance (made up of the big banks and institutional investors, along with international financial institutions and the financial and monetary authorities of the dominant capitalist states) has obtained a form of structural power that allows it to discipline the behavior of indebted countries without having to resort to military coercion. It is this discipline enforced by global capital markets and financial institutions that forms the backbone of Financial Empire.

When talking about Empire, Hardt and Negri remind us, we should not be fooled into thinking that we are referring to a metaphor. It is not that the abolition of Greek monetary and fiscal sovereignty is somehow reminiscent of the Nazi invasion, as both left-wing and right-wing protesters in Greece seem to claim; unfortunately, the reality is both more complex and more subversive than that. Rather than falling into the trap of making simple historical allegories between the territorial empires of old and the Financial Empire of today, we should conceive of Empire as a concept; a concept which, in Hardt and Negri’s words, “is characterized fundamentally by a lack of boundaries.” In this sense, the rule of Financial Empire — unlike that of the Third Reich or the British Empire — has no limits. Unlike Nazi troops or British navy vessels, finance capital cannot simply be expelled from Greece’s sovereign territory. Rather than posing a territorial threat to national sovereignty as an occupying force, Financial Empire dissolves the notion of national sovereignty altogether by subverting the power base and popular legitimacy upon which the modern state ultimately depends: its ability to direct the flow of capital through monetary and fiscal policy.

To an extent, capital always-already operated beyond the boundaries of the modern nation state. As Marx and Engels observed in the Communist Manifesto, “The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country.” But with the resurgence of global finance from 1973 onward, the state’s structural dependence on globally-mobile capital has been greatly increased. The state, which continues to exist in its territorial realm, is gradually stripped of its ability to control the de-territorialized flows of investment upon which it relies for its continued existence. As a result, Subcomandante Marcos, who in 1994 led the Zapatista uprising against the Mexican state — which had by that point become fully incorporated into Financial Empire – poetically remarked that, “in the cabaret of globalization, the state appears as a table dancer that strips off everything until it is left with only the minimum indispensable garments: the repressive force.” Thus the creditors’ need to exercise physical repression is greatly reduced: by stripping down the state and exposing its naked essence of institutionalized violence, the process of globalization serves to internalize debtor discipline into the state apparatus, rendering state managers structurally subservient to the logic of global capital.

In 1982, with the structural power of capital firmly on the rise following the collapse of the Bretton Woods regime, the American political scientist Charles Lindblom wrote a controversial article in the Journal of Politics in which he compared the market to a prison. By allowing private investors to withhold much-needed capital from the state and the economy, Lindblom observed, the market effectively functions as a disciplinary mechanism for state managers: you want to raise environmental standards? You’ll have to take into account the impact on business investment — and thus on jobs and your approval rating as a politician. Want to regulate the financial sector? You’ll have to worry about big banks simply moving their assets to another country. Want to raise taxes on the wealthy? You’ll have to consider the fact that your famous movie stars might move to Russia. Whatever you want to do as a politician, as soon as you’re in power, the first thing you have to contend with are business interests, and the punishments businessmen can bring to bear by withholding investment if they don’t like your policies. Most remarkably, Lindblom noted, “this punishment is not dependent on conspiracy or intention to punish … Simply minding one’s own business is the formula for an extraordinary system for repressing change.”

Lindblom’s notion of the market as prison can easily be extended to the global capital markets of today. As Robert Kuttner recently put it in his review of David Graeber’s Debt: The First 5,000 Years, “entire economies abroad, indentured to past debts, find themselves in a metaphoric debtors’ prison where they can neither repay creditors nor resume productive livelihoods.” Similarly, financial lawyer Ross Buckley has written that “we still have something very like debtors’ prisons for highly indebted nations.” As we saw in Greece and Italy in 2011, the automatic disciplinary mechanism of global capital markets ultimately serves to undermine democratic procedures, replacing them with technocratic administration. In the process, politicians are reduced to the role of temporary managers of the state apparatus in the name of financial capital; an arrangement that is ultimately much more convenient and much less costly to the global bankers’ alliance than sending in gunboats or physically occupying a country. In this sense, today’s Financial Empire is really not just a metaphor: it is the culmination of capitalist development into the perfected form of imperialism — one that hardly requires any bloodshed on the part of capital while still ensuring a massive upwards wealth redistribution from the poor to the rich.


We Are All Debt Prisoners Now

But for some, even the overwhelming structural power of finance capital does not appear to be good enough. Even though default has already been ruled out a priori as a “legitimate” policy option in the management of international debt crises, there are still voices going up for further intervention into the sovereign affairs of indebted countries. In the wake of Argentina’s 2001 default, for instance, MIT economists Ricardo Caballero and Rudi Dornbusch argued that “Argentina cannot be trusted” and “Somebody has to run the country with a tight grip.” Stopping short of promoting an outright CIA-assisted military coup — the preferred solution of US-based capital throughout the Cold War era — the authors suggested that “Argentina now must give up much of its monetary, fiscal, regulatory and asset management sovereignty for an extended period, say five years,” and allow foreign commissioners to take over financial management of the country. “Specifically,” they stressed, “a board of experienced foreign central bankers should take control of Argentina’s monetary policy.”

Similarly, Mitchener and Weidenmier, two economists who went to great lengths to emphasize the efficacy of military coercion in deterring sovereign debt default between 1870 and 1913, suggest that today “some type of fiscal or monetary control by an external financial committee may impose needed discipline on recalcitrant debtors.” One prominent conservative commentator on the Latin American debt crisis of the 1980s, whose book was notably praised by IMF Managing Director Jacques De Larosière, Federal Reserve Chairman Paul Volcker, and leading banker Charles Dallara, even went so far as to propose the somewhat frightening notion that “gunboats are the borrowers’ best friend.” Not surprisingly, similar calls for the abolition of fiscal sovereignty are being echoed in European policy-making circles today. In 2011, for instance, one leading member of Angela Merkel’s conservative party argued that “Greece must give up something, like some of its national sovereignty — at least temporarily,” to allow private creditors to be fully repaid.

During the negotiations between Greece and its private creditors last year, Larry Elliot, the economics editor of The Guardian, rightly observed that, even though “the warships have been replaced by spreadsheets … the Troika’s gunboats will [still] get their way.” The real pressure, he observed, now “comes from banks, hedge funds and the team of officials of the International Monetary Fund, the European Central Bank and the EU.” Perhaps, then, we are not as far from the imperial era as we would like to think — and while the use of military force may be considered off bounds today, its real absence is not just the result of some enlightened liberal morality but rather a product of the high costs of military intervention compared to the much more effective methods of financial interventionism that replaced it. Even though one-third of US states still allow citizens to be imprisoned for failure to repay their debts, the general tendency in Financial Empire has been to move away from the direct exercise of punishment towards more structural forms of domination. In this sense, debtors’ prison is no longer just a physical place where “recalcitrant debtors” are locked away from the rest of society; it has become a de-territorialized disciplinary mechanism that encompasses the globe as a whole. We are all debt prisoners now.

Luckily, the structural power of finance capital can never be complete. In fact, those who are willing to take a closer look can already see the cracks in the prison walls – some of them made by the countless escape attempts of the prisoners themselves, as they desperately try to break their way out; others caused simply by the inability of the global financial architecture to support the unbearable weight of the debt load that states, firms and households have accrued over the years. As Lindblom himself importantly stressed, wherever there are prisons, there will also be prison breaks, and the crumbling system of market discipline that sustains Financial Empire is clearly far from escape-proof. The Argentine experience of 2001 is a case in point. While there is no need to romanticize Argentina’s widely-discussed default — rather than a revolutionary act of defiance, it was simply a desperate (and successful) populist attempt by the established Peronist elite to cling on to power in the face of massive social unrest — the most important lesson to emerge from Argentina is that, in the face of a spontaneous and sustained popular uprising, even the strongest walls will eventually cave in.

Indeed, Financial Empire may have reduced us all to modern-day debt prisoners, but we can still become the social protagonists of history’s greatest-ever prison break — as long as we draw the right lessons from the long history of imperial domination that led us to this defining point in human history.


via Financial Empire and the global debtors’ prison | ROAR Magazine.

via Financial Empire and the global debtors’ prison | ROAR Magazine.

History Lessons the West Refuses to Learn

In the aftermath of the First World War, Britain and France famously created the modern Middle East by carving up what had been the Ottoman Empire. The borders of new states such as Iraq and Syria were determined in keeping with British and French needs and interests. The wishes of local inhabitants were largely ignored.

Now, for the first time in over 90 years, the whole postwar settlement in the region is coming unstuck. External frontiers are no longer the impassable barriers they were until recently, while internal dividing lines are becoming as complicated to cross as international frontiers.

In Syria, the government no longer controls many crossing points into Turkey and Iraq. Syrian rebels advance and retreat without hindrance across their country’s international borders, while Shia and Sunni fighters from Lebanon increasingly fight on opposing sides in Syria. The Israelis bomb Syria at will. Of course, the movements of guerrilla bands in the midst of a civil war do not necessarily mean that the state is finally disintegrating. But the permeability of its borders suggests that whoever comes out as the winner of the Syrian civil war will rule a weak state scarcely capable of defending itself.

The same process is at work in Iraq. The so-called trigger line dividing Kurdish-controlled territory in the north from the rest of Iraq is more and more like a frontier defended on both sides by armed force. Baghdad infuriated the Kurds last year by setting up the Dijla (Tigris) Operations Command, which threatened to enforce central military control over areas disputed between Kurds and Arabs.

Dividing lines got more complicated in Iraq after the Hawaijah massacre on 23 April left at least 44 Sunni Arab protesters dead. This came after four months of massive but peaceful Sunni protests against discrimination and persecution. The result of this ever-deeper rift between the Sunni and the Shia-dominated government in Baghdad is that Iraqi troops in Sunni-majority areas behave like an occupation army. At night, they abandon isolated outposts so they can concentrate forces in defensible positions. Iraqi government control in the northern half of the country is becoming ever more tenuous.

Does it really matter to the rest of the world who fights whom in the impoverished country towns of the Syrian interior or in the plains and mountains of Kurdistan? The lesson of the last few thousand years is that it matters a great deal. The region between Syria’s Mediterranean coast and the western frontier of Iran has traditionally been a zone where empires collide. Maps of the area are littered with the names of battlefields where Romans fought against Parthians, Ottomans against Safavids, and British against Turks.

It is interesting but chilling to see the carelessness with which the British and French divided up this area under the Sykes-Picot Agreement of 1916. The British were to control the provinces of Baghdad and Basra and have influence further north. The French were to hold south-east Turkey and northern Syria and the province of Mosul, believed to contain oil. It turned out, however, that British generosity over Mosul was due to Britain having promised eastern Turkey to Tsarist Russia and thinking it would be useful to have a French cordon sanitaire between themselves and the Russian army.

Sykes-Picot reflected wartime priorities and was never implemented as such. The British promise to give Mosul to France became void with the Bolshevik revolution in 1917 and the Bolsheviks’ unsporting publication of Russia’s secret agreements with its former French and British allies. But in negotiations in 1918-19 leading up to the Treaty of Versailles, only the most perfunctory attention was given to the long-term effect of the distribution of the spoils.

Discussing Mesopotamia and Palestine with David Lloyd George, Georges Clemenceau, the French Prime Minister, who was not very interested in the Middle East, said: “Tell me what you want.” Lloyd George: “I want Mosul.” Clemenceau: “You shall have it. Anything else?” Lloyd George: “Yes, I want Jerusalem too.” Clemenceau agreed with alacrity to this as well, though he warned there might be trouble over Mosul, which even then was suspected to contain oil.

Those negotiations have a fascination because so many of the issues supposedly settled then are still in dispute. Worse, agreements reached then laid the basis for so many future disputes and wars that still continue, or are yet to come. Arguments made at that time are still being made.

Not surprisingly, the leaders of the 30 million Kurds are the most jubilant at the discrediting of agreements of which they, along with the Palestinians, were to be the greatest victims. After being divided between Iraq, Turkey, Iran and Syria, they sense their moment has finally come. In Iraq, they enjoy autonomy close to independence, and in Syria they have seized control of their own towns and villages. In Turkey, as the PKK Turkish Kurd guerrillas begin to trek back to the Qandil mountains in northern Iraq under a peace deal, the Kurds have shown that, in 30 years of war, the Turkish state has failed to crush them.

But as the 20th century settlement of the Middle East collapses, the outcome is unlikely to be peace and prosperity. It is easy to see what is wrong with the governments in present-day Iraq and Syria, but not what would replace them. Look at the almost unanimous applause among foreign politicians and media at the fall of Colonel Gaddafi in 2011, then look at Libya now, its government permanently besieged or on the run from militia gunmen.

If President Bashar al-Assad did fall in Syria, who would replace him? Does anybody really think that peace would automatically follow? Is it not far more likely that there would be continued and even intensified war, as happened in Iraq after the fall of Saddam Hussein in 2003? The Syrian rebels and their supporters downplay the similarities between the crises in Iraq and Syria, but they have ominous similarities. Saddam may have been unpopular in Iraq, but those who supported him or worked for him could not be excluded from power and turned into second-class citizens without a fight.

US, British and French recipes for Syria’s future seem as fraught with potential for disaster as their plans in 1916 or 2003. In saying that Assad can play no role in a future Syrian government, the US Secretary of State, John Kerry, speaks of the leader of a government that has still only lost one provincial capital to the rebels. Such terms can only be imposed on the defeated or those near defeat. This will only happen in Syria if Western powers intervene militarily on behalf of the insurgents,

Tomorrow once upon a time in Baghdad 

via History Lessons the West Refuses to Learn » Counterpunch: Tells the Facts, Names the Names.

via History Lessons the West Refuses to Learn » Counterpunch: Tells the Facts, Names the Names.

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