Some Thoughts on the Nature of the Period

 

I. The US Economy

The economic recession in the United States, part of a global contraction and the worst economic crisis since the Great Depression of the 1930s, appears to have bottomed out, and a recovery now seems to be underway.

As most people know, the United States and the world recently experienced the worst economic crisis since the 1930s. Although the downturn in the US has been classified as a recession (officially defined as two or more consecutive quarters of a decline in a country’s Gross Domestic Product (GDP), the total amount of goods and services produced within its borders), this downturn has been qualitatively more severe than others of the post-World War II period. It has already seen:

*The layoffs of millions of workers, with official unemployment rates rising to close to 10%. Unofficial rates, that is, those that include workers who have given up looking for work and those working part-time but who would like full-time jobs, are much higher, around 17%. (In the Depression of the 1930s, official unemployment was 25%, while unofficial rates were probably close to 40%.)

*Vast numbers of foreclosures of private houses.

*The collapse of several large financial institutions (Lehman Brothers; Bear, Stearns; Wachovia Corp.) and the near collapse of others.

*A panic on Wall Street that froze credit for businesses and consumers alike.

*The massive destruction of what had appeared to be real wealth (fictitious capital) of individuals, financial and industrial corporations, and institutional investors such as pension funds.

*The bankruptcy of  two of the largest industrial corporations in the country (General Motors and Chrysler), the failure of many banks, and the near bankruptcy of several states.

Making things worse was the fact that the financial panic that triggered the recession in the US also led to a global downturn. (Most previous recessions were not synchronized internationally, so that an economic contraction in, say, the United States, was offset by expansion in other countries, thus mitigating the effects of the downturns.)

The immediate cause of the crisis was the collapse of the housing boom that had reached its peak in the few years prior to August 2007, but which had in fact been underway (despite some slowdowns) since 1983. Particularly in the last few years of the boom, home purchases were artificially stimulated by the vast expansion of credit based on little or no collateral (financial assets to back up the loans). Millions of people who could not really afford to buy houses were offered the credit to do so, based on the questionable assumption that the prices of homes would increase indefinitely, thus (supposedly) creating the collateral that these people lacked in the first place. (Many of these mortgages required no down payments, others required no proof of regular income, while still others involved what can only be described as deceptive practices, such as low initial [“teaser”] interest rates, which would be “adjusted” upward in the future. Those who took out such loans often did not understand what they entailed.) The expansion of debt in the housing market led to a bloating of the financial sector of the US and global economies, as the questionable mortgages were combined into packages and sold as securities (e.g., bonds) to individuals and private institutions, such as banks and pension funds, and the “sovereign wealth funds” of foreign governments. This so-called “secondary market” also involved some very esoteric financial instruments, such as “credit default swaps”—essentially insurance policies against people defaulting on their loans—that even the “experts” do not fully understand. The market amounted to $1.4 trillion sloshing around the world economy and was entirely untracked and unregulated by any government body.

Despite the thinking of most economists at the time, what was in fact a huge speculative bubble could not go on growing indefinitely, and when homeowners began defaulting on their loans in August 2007, it began to deflate, gaining particular speed last September and October, with the bankruptcy of Lehman Brothers and the near-collapse of insurance giant AIG. Billions of dollars that had previously appeared to be real wealth were rapidly revealed to be fictitious, the health of large financial institutions, and through them, the well-being of the entire US and international financial system, was called into question, and the flow of credit ground to a halt, as no institution was sure that if it did extend credit, it would ever be repaid. Without credit, the capitalist system cannot function, and when credit froze, the entire US and ultimately the international economy started to contract. Businesses began laying off workers, consumers drastically reined in their spending, and in a vicious cycle, total economic activity screeched to a crawl. Indeed, for a while it appeared as if the global economy were headed over a cliff, so steep was the decline. Eventually, several key government officials, specifically, then-Secretary of the Treasury, Henry Paulson, chairman of the Federal Reserve Bank, Ben Bernanke, and then-head of the New York Federal Reserve Bank, Timothy Geithner (now president Barack Obama’s secretary of the treasury), figured out what was going on and threw huge amounts of money (about $700 billion) at the big banks and other financial institutions. Slowly, this unfroze the credit markets and reassured those consumers who still had jobs, so that economic activity, while declining sharply, did not cease altogether. Eventually, the “cleansing” effects of economic downturns -- the laying off of millions of workers; the bankruptcy and liquidation of many businesses, large and small; the drop in the prices of homes (and of commodities, such as oil); the destruction of some of the debt/fictitious capital; the consolidation of surviving firms; additional cost-cutting etc. -- started to do their work. Along with policy initiatives, such as the “stimulus package” of the Obama administration, this restored some confidence among business leaders (capitalists) and consumers (mostly, workers, and middle class people), so that, today, the downturn appears to be over. The US and global economies have now entered into some kind of economic recovery.

The recent economic crisis has much deeper roots than the collapse of an overblown housing market, and as a result, the pending economic upturn will not represent a return to pre-2007 “normality.” To fully understand our current situation and what it may portend for the future, it is necessary to look at the entire period from World war II to the present.

Looked at broadly, United States’ economic growth between World War II and 2007 rested on three pillars.

1. One was the emergence of the US after the war as the world’s predominant imperialist power. The defeat of the Axis had not only left Germany, the previously most powerful country on the European continent, in a shambles, it had also greatly weakened most of the Allied powers, particularly, Great Britain, France, and the Soviet Union. Stepping into the vacuum was the United States, which substantially reorganized the global capitalist system, both politically and economically, to further its own interests and to stabilize the system as a whole. Among other things, it set up the United Nations, the International Monetary Fund, and the World Bank, as well as military alliances in Europe (NATO) and elsewhere (SEATO in southeast Asia, CENTO in south Asia, the OAS in Latin America). In addition, the US, fearful of Soviet control of Eastern Europe and the perceived threat of “Communist” expansion in Europe and elsewhere, lent huge sums of money for the reconstruction of western Europe (including Germany and Italy) and Japan. These countries were thus enabled to rebuild their economies on the basis of the latest technology and to create expanding markets and investment opportunities for US and rebuilt European industry. Also significant was the establishment of the US dollar as the international reserve currency, which served to stabilize the global economy, expand world trade, and promote the interests of US imperialism. For its part, the United States emerged from the war with a modernized industrial base, manned by a disciplined and well-paid workforce (largely a result of the union organizing drives of the 30s and 40s and the high profits made possible by war production), and an increasingly efficient agriculture. In short, the reorganized international capitalist system gave US industry, then the most powerful in the world, growing global markets for its products, increasing opportunities for highly profitable direct foreign investment, and a privileged position for the dollar, which served as a form of subsidy for the US economy as a whole.

(Although from 1945 to 1989 it may have appeared that the Soviet Union was a direct competitor of the United States for world dominance, this, as the collapse of the Soviet bloc revealed, was largely a myth. Beneath the bluster, the Soviet economy was never even close to a match for that of the United States. Soviet agriculture remained at a very primitive level and was almost always in crisis. Industry was extremely inefficient, incapable of producing quality consumer goods and generating new technology. The central planning process was a bureaucratic nightmare, generating bottlenecks throughout the system and responsible for appalling levels of waste. The huge Soviet military, which seemed so threatening at the time, was only maintained at tremendous cost to the rest of the economy. That, and the other Soviet “triumphs” of the period, such as in the “space race” and in sports and in cultural areas, turned out to be largely bluff, costing a great deal but mostly serving to cover up a stagnating social system. This is not to deny that the ruling classes of the traditional capitalist countries were truly frightened of “Communism” and worried about Soviet [and Chinese] “expansion.” It is also not to discount the fact that for a while Russian/Chinese/Cuban state capitalism seemed very attractive to nationalist elites, as well as to broader sectors of the populations, in Africa, Asia, and Latin America, and to young radicals throughout the world. But it is to stress that, aside from offering Third World rulers a way to carry out certain tasks—usually extremely brutally—associated with the early stages of capitalist industrialization, Soviet-style state capitalism was not, and is not, a serious rival of traditional capitalism.)

2. The second pillar of the United States’ post-World War II economic expansion was a substantial increase in the government’s role in the economy. A major component of this was a vast increase in military spending (compared to other periods of peacetime), leading to the creation of what President Dwight D. Eisenhower termed the “military industrial complex” and what some figures on the left dubbed the “Permanent Arms Economy.” At least for a while, this served as a substantial economic stimulus, providing a guaranteed market (the government) and huge profits for some of the country’s biggest corporations. It also created a large skilled and highly paid sector of the working class, which in turn served as part of a burgeoning market for consumer goods created elsewhere in the economy.

The period also saw the significant  growth of other forms of government intervention. This included a great increase in the portion of the work-force directly employed by the government at all levels and an expansion of government programs that subsidized both non-defense sectors of industry (e.g., price supports for agriculture) and consumers (e.g., Social Security, Medicare, Medicaid, unemployment benefits, food stamps, and other programs for the poorer sectors of the population).

Since arms spending, state employment, and governmental social programs are not immediately affected by economic downturns in the private economy, such intervention, beyond serving as an overall economic boost, also worked to stabilize the US economy as a whole, moderating the “boom and bust” cycle characteristic of traditional capitalist economies. But it did so at a cost, at first largely hidden but later making itself felt. For one thing, armaments, unlike other commodities produced under capitalism, do not reenter the economy, either as consumer goods or as capital goods (plants and machinery). As a result, although arms spending provides large profits for the corporations involved in their manufacture and stimulates other sectors of the economy, it ultimately involves an economic loss for the system as a whole, as vast amounts of resources are in fact wasted. For another thing, government employees, unlike workers in the private sector, do not produce profit for the capitalist system. The wages and benefits of government workers, and the costs of government programs as a whole, are actually paid for out of the profits produced in the private economy. Although some of the government’s expenditures were financed directly through taxation (thus transferring wealth from the private to the public sector), to have financed the entirety of government spending this way would have been self-defeating; instead of stimulating the economy, the result would have been the reverse, as private industry would have had its profits substantially reduced, while consumers would have had less to spend.

The main reason this did not occur was because a great deal of federal government expenditure was financed through “deficit spending,” that is, running budget deficits and expanding the government’s (the so-called “public”) debt. This means that the government spends more than it takes in as taxes and borrows the difference from various lenders, including individuals, corporations, banks, other institutional investors, here and abroad, and foreign governments. In return for the money the government receives, it gives its creditors pieces of paper (securities, such as Treasury Bills and Bonds), which are promises to repay the loans, plus interest, at some point in the future. Since, as I noted, government expenditure is ultimately financed out of profit generated in the private sector, these securities are, in fact, claims on the future profits of US industry. Deficit spending was first proposed by the British economist, John Maynard Keynes, as a way to combat economic stagnation. The original idea was that the government would borrow money during economic downturns, which it would then inject into the economy through various government programs, thus providing a stimulus. But once the economy, in part as a result of such stimulus, was growing again, the private sector would generate enough profits for the government to raise taxes sufficiently both to cover its current expenses and to pay back what it had borrowed. As it turned out, though, the economy rarely expanded fast enough or long enough for the government to reduce its debt. The result, over the decades since World War II, has been a huge accumulation of government debt.

(There seems to be some level of government intervention that is ideal for a particular capitalist economy. Too much intervention leads to stagnation, with high rates of taxation and unemployment. Too little government intervention results in exaggerated boom and bust cycles. The precise level optimal for any given economy cannot be determined theoretically, but only pragmatically, that is, through experience, among other things, through the political struggle among the different sectors of the ruling class.)

3. The third pillar of US economic growth in the post-World War II period was what might be called, with only some exaggeration, the “suburbanization” of US society. This was the rapid development of the suburbs of our major cities that was ultimately to transform the country, economically, socially, politically, culturally, and physically. This involved the construction of millions of homes for middle and working class families who previously could not have afforded them. The creation of these suburbs also involved the tremendous expansion of the US transportation system, including the roads and commuter rail systems, the building of the shopping malls that now dot (litter) the landscape, and the creation or expansion of sectors of industry catering to the newly affluent “American consumer”: housing construction, home furnishings (including electrical appliances and furniture), consumer electronics, the TV, movie, and music businesses, restaurants and hotels, higher education, health care, the advertising, consumer finance, and service industries, generally, and above all, the automobile industry. In fact, it was through the rapid expansion of car ownership that a great portion of US industry became focused (and dependent) on the seemingly insatiable consumer. Many sectors of basic industry were involved in, and were greatly stimulated by, the expanding production of automobiles: steel, mining and smelting, rubber, electric, oil and other petrochemicals, plastics, glass. So central was the automobile industry to the US economy and to the country as a whole that, as president Eisenhower’s Secretary of Defense Charles Wilson (and former head of GM) could say without ridicule (but which now appears to be a sick joke), “What is good for General Motors is good for the country.” However, like the government’s expenditures, a great deal of the consumer spending that fomented this suburbanization was financed through the expansion of credit. And this debt, even more than the government’s, mushroomed in the period from World War II to the present.

These three factors, plus others (most important, the plundering of the environment), combined to produce a long period of relative economic prosperity, both in the US and around the world.  Although the expansion in the US seemed to run out of steam in the 1970s and early 1980s, during which the country experienced several rather steep recessions, the economy revived under the Reagan administration. This was largely the result of: (a) an attack on the labor movement and the working class as a whole; (b) a huge increase in military spending (which led to a renewal of the “arms race” that ultimately bankrupted the Soviet economy and led to the collapse of the state capitalist system there); (c) a significant expansion of consumer credit, particularly mortgages; indeed, the boom in home construction and ownership that so recently collapsed is generally considered to have begun in the aftermath of the recession of 1983. This expansion of consumer credit, which continued up until 2007, soon became a major factor in promoting economic growth around the world, providing the basis for a vast and expanding market for the products of many nations, particularly the “developing” nations in east, south, and southeast Asia. Despite two additional recessions in the United States, one in 1900-1991, the other in 2000-2001, the post-World War II era of economic prosperity can reasonably be said to have lasted until the onset of the recent downturn.

(I don’t want to give the impression that the post-war economic expansion in the US was based entirely on debt creation. During the period, the economy did generate significant technological innovations -- such as automation/cybernation, personal computers, the development of the Internet, biotechnology -- that led to the modernization of some sectors of the economy and thus provided some underlying substance to economic growth. Yet, while some of these innovations did serve to renovate US business, many of them were dependent on sales to the increasingly indebted consumers, and hence on the expansion of credit.)

The very nature of the long period of economic growth involved tremendous hidden costs, which gradually made themselves felt. To put it differently, the prosperity was to a great degree based on a tendency to shore up the profits of the private economy in the short and medium run, while delaying payment of their costs to the future. These costs were substantial. They included:

*The growing obsolescence of US industry, as US corporations, lulled by prosperity and a false sense of superiority, failed to modernize their plant and equipment as much as their foreign competitors, particularly, the Germans and Japanese.

*The “de-industrialization” of the country, as many corporations in some sectors (such as shoes and textiles) simply went out of business, while others moved their factories abroad to take advantage of easier access to expanding markets and to work forces that could be hired for far less than the unionized workers in the United States.

*The elimination of many well-paying industrial jobs (often but not always replaced by lower paying jobs in the service sector) and a significant reduction in the size and strength of the trade unions in the country, particularly in the private sector of the economy.

*The fiscal crisis and virtual collapse of many formerly vibrant cities (mostly in the east and mid-west), largely the result of the loss of basic industry and the jobs they provided and of the exodus of many (mostly white) workers and middle class people to the suburbs.

*The invasion of the US market by products (most noteworthy, cars and consumer electronics) produced by more technologically advanced foreign corporations.

*The decay of much of the country’s infrastructure: highways, bridges, and tunnels; railroads and airports; urban school systems; sewage, water, and power systems; aqueducts, dams and levees; inner-city housing and transportation systems.

*Massive environmental destruction.

*The accumulation of vast amounts of debt, both of government (at all levels) and of private consumers. (The federal government’s debt actually includes what are called the “unfunded liabilities” of Social Security and Medicare, monies these programs are projected to have to pay out in the future but which they do not now have and are not expected to have. These amount to trillions of dollars.)

*An ongoing balance of payments deficit and the buildup of huge amounts of dollars and dollar-denominated assets in the hands of foreign individuals, financial institutions, and governments. (In the early part of the post-war expansion, the United States ran a positive trade balance, that is, it exported more goods than it imported. At some point, however, the US became a net importer of goods. While this served to stimulate the global economy, particularly the economies of the developing Asian countries, it also contributed to the United State’s balance of payments deficit.)

Today, these costs have hit us with full force and will, at least in part, have to be paid for if the US economy is to be able to expand significantly in the future.

As a result of the nature and costs of the post-war expansion, we are now entering into a new era, economically speaking. The developing upturn in the United States is likely to be rather weak and uneven, at least for the next few years (indeed, the economy may relapse into recession), and it is not clear that a return to robust and long-term economic prosperity is on the horizon.

Businesses, either strapped for credit and/or in debt, will attempt to increase productivity and hence profits by squeezing more work out of their current employees (making them work harder and longer for the same or less pay) and by updating their equipment, rather than by hiring new workers. With millions of people unemployed and with even those who do have jobs buried in debt (the average family in the United States owes 25% more money than it earns), consumers are not likely to undertake a new spending boom. Since consumer spending accounts for about 70% of the US gross domestic product, this will have a significant dampening effect on economic growth. In addition, the government has largely shot its wad, having injected billions of dollars into the US economy just to keep it (and the global economic system) from collapsing. In other words, with a deficit of $1.75 trillion (13% of GDP, more than twice the peacetime average of 1920 to the present) and with a total debt of $11.3 trillion (and expected to increase over the coming decade, after which, according to some estimates, it may reach a whopping 80% of GDP), the government’s ability to stimulate the economy much further will be limited. Moreover, having funneled so much money into the system, the government now has to be worried about inflation; as the economic recovery gains some traction, the government will, if it is responsible, have to raise interest rates to try to keep it in check. (If it doesn’t, the country could experience rampant inflation, a frightening prospect.) This, too, will tend to hinder economic growth. Not least, since the United States’ position as the leader of the global economy has been significantly weakened (see below), it will not be able to use its global position to shore up its economy as it once did.

(It is worth speculating here whether imperialism is a net gain or loss to an imperialist power, when it is evaluated as a whole and over the long-term. There is little doubt that, at least in the short and medium runs, an empire serves to subsidize the economy of the hegemonic power [and to dampen class conflict within its borders] through a variety of means: profits earned from direct investments; income earned through unequal terms of trade; interest on foreign loans (the vast majority of “foreign aid” consists of loans, usually coupled with a requirement to buy the products of the donating country, rather than outright gifts); an international monetary system that grants a privileged position to the currency of the dominant power. However, it is not quite so obvious whether having an empire is an advantage in the long run. For one thing, as we have seen in the case of the US, the short- and medium-term gains often obscure underlying (and growing) problems of the economic system and of the society as a whole. For another, they also lead the ruling circles to take on military and political “commitments” that they often cannot fulfill (such as the war in Vietnam) and that are, in any event, extremely costly. Such commitments include maintaining a huge military apparatus, along with the ability to “project” their power anywhere in the world at extremely short notice, which requires a global network of military bases, several naval fleets, subsidies to client states, etc. It is possible that, on balance, having a global empire is a net loss to the imperialist power. The experience of the British Empire suggests that this might be the case. And it is likely that this will true of the United States as well.)

A new period of long-term economic expansion in the United States is not completely out of the question. Specifically, if the capitalist class were serious about rebuilding the country’s infrastructure and slowing down and (hopefully) eventually reversing environmental destruction, serious investment in the country’s infrastructure and the renovation of US industry to make it more environmentally friendly (e.g., by investing in the development of alternative energy industries and technology and by converting existing industries to renewable energy sources) might provide the basis for a long-term capital spending boom. Aside from the question of whether the ruling class (including both political and business leaders) truly understands the need for such a program, there is the issue of how it would be paid for, at least to get it started. As we have seen, the government has, in effect, maxed out its credit cards, so extensive deficit financing is not likely to be available. If the government were to finance such a program through taxing either industry or working class and middle class people, this would tend to curb economic growth as much as stimulate it. There is, however, one source of the needed resources that is available, at least theoretically. This is the humongous amount of money now being spent on the military, including the wars in Iraq and Afghanistan. A truly farsighted political leadership would recognize the necessity (even from the ruling class’s point of view) of ending these wars, drastically reducing military spending, and investing the freed-up resources in the country’s infrastructure, in alternative technologies, and in converting the rest of US industry to environmentally friendly production processes. Unfortunately, there is currently no sector of the US ruling class that both sees the need for such a step and is willing to wage the political fight to get it implemented.

In the absence of such a program, the capitalists will have little choice but to try to foment economic growth by squeezing more profits out of working people by eliminating jobs, reducing wages, forcing those who do have jobs to work harder and for longer hours, cutting government programs, increasing taxation, and through inflation, which cuts real wages.

II. The International Economy

With the recovery of the US economy, particularly the repair of its financial system, the global economy will also improve and may even experience relatively robust economic growth for a time. But rather than being powered by debt-ridden consumers in the United States, as in the past, it will increasingly be driven by some of the rapidly industrializing economies in the Third World, particularly Asia.

Several of these economies did not even contract during the international downturn; China’s and India’s continued to grow at a rate of over 6% per year, a substantial rate of growth even during times of prosperity. With a return to more normal economic conditions, these economies (which also include those of Taiwan, Singapore, Malaysia, and Indonesia) may see a return to the very high growth rates they were experiencing prior to the recession. To do so, however, they will have to make a substantial shift in their economic orientation. Up until now, these economies have been primarily focused on producing for export to the world’s most developed countries, particularly the United States. Given the likely lethargic state of the US economy, such a strategy will no longer be viable. Instead, they will have to find ways to expand their own domestic markets, putting more money into the hands of the workers, peasants, and middle class people, while simultaneously convincing them to spend rather than save it. China, in particular, will also have to open its economy more to foreign products and investment, and to make its currency, the yuan, convertible. If these countries do manage to reorient their economies in this direction, they may become the basis for international economic expansion for a period of time, among other causes, by providing export markets for other countries, including the United States.

However, this scenario is neither inevitable nor will it be a guarantee of long-term economic health. China, for example, has a number of pressing political issues to deal with. One of these is its own “minorities problem,” the justified grievances of the non-Han oppressed peoples on the periphery of the country, particularly the Buddhist Tibetans in the southwest and the Moslem Uighurs in Xinjiang in the far west. China also needs to alter its political system, now run solely by the Chinese Communist Party, to give more power to its growing and increasingly important entrepreneurial (capitalist) class and to grant more rights to its people in general. These are tough issues, and how they will be solved, or even whether they will be solved, remains to be seen. A failure to tackle them could lead to considerable unrest within China’s borders and will certainly have a negative impact on the country’s economic prospects.

There is another, more general, factor that will limit the viability of the scenario we have been discussing. This is the fact that the mounting international environmental crisis will increasingly impinge directly on economic issues. China especially is an environmental catastrophe in the process of happening. The country is virtually denuded of trees (cut down over the centuries for firewood), and the resulting erosion leads to the loss of cultivable land and to the periodic flooding of its two great rivers, the Yangtze Chang and the Huang Ho (the Yellow River, so-called because of the particles of eroded soil suspended in its waters). The government is now working on the enormous Three Gorges Dam to control the flooding of the Yangtze, but many environmentalists, both in China and internationally, believe the intended cure is going to be worse than the disease. Beyond this, China, India, and the other dynamic Asia countries have insatiable appetites for traditional (fossil fuel) sources of energy. As these sources are depleted, the costs of powering these economies will climb, potentially limiting economic growth.

Similar environmental issues (often resulting in humanitarian disasters, such as flooding, droughts, the destruction of vast areas of cropland, etc.) will have an increasingly powerful impact on the international economy as a whole, primarily through rising prices and shortages of key commodities, such as fossil fuels, potable water, and foodstuffs.

To the degree that the dynamic Third World countries do manage to refocus their economies, the world will see a significant shift in the international balance of economic power over the coming period. Specifically, within the next few years, the Chinese economy will almost certainly emerge as the world’s largest (measured in terms of GDP), knocking the United States out of the number one spot it has held for a century.

This will be an epoch-making event. To be sure, the US will remain a powerful global economic player. It will continue to be one of the world’s most prosperous countries, with a huge domestic market and a high standard of living (although not as high as it once was). It will also continue to be a leader in the development of new technology and a magnet for scientists, engineers, and other highly skilled people from around the world. (It will also have the world’s most powerful military machine, although this will increasingly be a drag on its economic growth.) Yet, the United States’ days of overwhelming economic (and political) predominance will be over. The effects of this shift are already being felt. Last spring, when US Treasury Secretary, Timothy Geithner, on a visit to China, lectured on the dangers of governments running overly large budget deficits, his audience laughed at him. More important, the Chinese government has raised the issue of modifying the international monetary system, moving away from the US dollar as the sole reserve currency and toward having a “basket” of strong currencies (including the dollar) playing that role. Not least, the fact that the Chinese government is the largest holder of the US government’s debt (holding more than $1 trillion of US Treasury Bonds and other government securities) has led the US to mute its criticisms of China’s human rights record, particularly its brutal treatment of political dissidents and of the oppressed peoples mentioned above.

Such a shift in economic power may not be smooth. Already tensions over trade have escalated between the United States and China. President Obama recently raised US tariffs against Chinese-produced tires, while China threatened to retaliate by raising tariffs against US poultry and other products. If the parties to this dispute are not careful, this conflict could result in an all-out trade war, which might well catapult the global economy into the depression it so recently skirted.

III. International Politics

However, instead of China simply taking the place of the US as global economic and political kingpin, we will more likely see the emergence of a multi-polar world system, with several of the most powerful countries (and in the case of the European Union, regions) jockeying for leadership. This will make the world an increasingly unstable place.

(Generally speaking, the international “order” has been most stable when one imperialist power has dominated the globe. For example, throughout most of the 19th century and the early part of 20th century, Great Britain was the dominant imperial power and the world was relatively placid. By 1914, Britain was being challenged by Germany, on the one hand, and by the United States, on the other. The international capitalist system needed World War I, the Great Depression, and World War II to sort everything out, for, as I mentioned above, by the end of that period, the US had emerged as top imperialist dog, and the world has been relatively calm (at least compared to the 1914-1945 period) since. With the continued decline of the US, we may well see a return to seriously chaotic conditions.)

I expect that the chief locus of international conflict for the foreseeable future will be the Middle East/South Asia. (By this, I mean the entire region from Egypt in the southwest to Pakistan in the east.) Here, several factors come together to make the area a cauldron of unrest and a real problem for US imperialism:

*The fact that the region has for many centuries (if not millennia) been the frontier/battle-ground between Europe and Asia. For much of this period and certainly in recent centuries (think Alexander the Great, the Roman Empire, the Crusades, modern imperialism), Asia has been on the defensive against an expansionist Europe and anxious to defend its land and cultural traditions. The memory of this ages-long conflict colors the struggles of the present, and it is no accident that as the power of the United States and western imperialism as a whole declines, it is this area that is the focus of the anti-imperialist struggle.

*The legacy of British imperialism. Great Britain dominated the region after the collapse of the Ottoman Empire at the end of World War I but left rather hurriedly after Word War II, leaving many questions unsettled, including the dispossession of the Palestinians and the lack of stable national states.

*The failure of secular nationalists, such as Egypt’s Gamal Abdel Nasser, to establish firmly based nation-states capable of unifying their people and successfully confronting US imperialism.

*The division of the area’s population into a myriad of ethnic and religious groups, each competing with the others for economic and political influence and easily used as tools by local elites and foreign countries seeking to promote their own interests.

*The desperate poverty of the vast majority of the region’s people.

*Oil. The area is the site of huge reservoirs of petroleum, an increasingly valuable commodity to an increasingly anxious international capitalist class. It is the home not only of the Persian Gulf oil fields, but also of the newly discovered sources of oil in the south-central Asian countries of the former Soviet Union; pipelines are now being constructed from these fields to the Black Sea to the west and the Arabian Sea to the south.

*The Suez Canal, an asset of considerable geopolitical and economic importance, particularly given the location of the oil fields mentioned above.

Because of the oil, the Suez Canal, and the area’s overall geopolitical significance, the region has long been of great concern to the US imperialists. Although they’ve enjoyed the solid and long-term support of such client states as Israel, Jordan, Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, Oman, Yemen, and, since 1979, Egypt, they have had to intervene many times elsewhere to keep the area under their control:

*In Iran, in 1953 the United States Central Intelligence Agency under the administration of Dwight D. Eisenhower engineered a coup (Operation Ajax) that overthrew the nationalist Mohammad Mossadeq, who had threatened to nationalize the foreign-owned oil companies. The CIA brought back the Shah, Reza Pahlavi (who had fled the country during the turmoil), who then instituted dictatorial rule. (This maneuver ultimately backfired by provoking the Islamic Revolution 26 years later).

*In 1958, the Eisenhower administration sent troops to Lebanon to secure US “interests” there after the pro-US monarch in nearby Iraq, the Hashemite King Faisal II, was overthrown and replaced by the nationalist Abdul Karem Kassim.

*The US supported (and ultimately financed) Israel’s two wars (1967, 1973) that led to the expansion of its territory at the expense of the Palestinians and the surrounding Arab nations. It also backed Israel’s three invasions of Lebanon (in 1978 and 1982, against the Palestinians, at the time dominant in southern Lebanon, and again in 2006).

*Through a series of coups, beginning with the overthrow of Karem Kassim in 1963, the CIA engineered the ultimate assumption of power of Saddam Hussein in Iraq in 1979. The US also financed his arms purchases from the French and Germans (George W. Bush’s secretary of defense, Donald Rumsfeld, then working for the Reagan administration, personally negotiated the “aid” agreements) and backed him in his eight-year war (1980-1988) with Iran over the Shatt-al-Arab waterway. However, like other US stooges (such as Manuel Noriega in Panama), Hussein eventually got “too big for his breeches,” and in 1990, he invaded Kuwait. (The Kuwaitis were pumping oil from an oil field that lay under both Kuwaiti and Iraqi territory). After the first Bush administration decided to “teach him a lesson” (but leave him in power) in the Gulf War in 1990, the second Bush administration determined to get rid of Saddam altogether. Hence the second invasion of Iraq and the current conflict there.

*In 1979, in an effort (code-named Operation Cyclone) to draw the Soviet Union into a Vietnam-style war in Afghanistan, the CIA organized, financed, and trained the Islamist Mujahideen Resistance to conduct guerrilla warfare against the Soviet-backed government there. When the Russians did invade the country later that year, the Mujahideen continued the struggle that ultimately ended in a Soviet defeat and withdrawal ten years later. Since then, the Mujahideen morphed into the Taliban, the Islamic fundamentalist organization that the US (now labeling its former proteges “terrorists” and “fanatics”) is currently fighting in Afghanistan.

In part because of this history, the region is one of the only places in the world where the fight against US/western imperialism is being waged through armed struggle. Also partly a result of this history, it is currently being led by reactionary Islamic forces, would-be elites who have posed the conflict in terms of a choice between a culturally corrupt, predatory West versus a return to a theocratic and patriarchal past. This choice has left many popular sectors of these societies, particularly women, confused and uncertain of which side to support.

Some specific countries:

1. Iraq. Although the United States government has drawn back many of its troops from direct fighting, and the country does have a functioning government (of sorts), Iraq will continue to be the scene of considerable strife; it may even descend into civil war. The country is riddled with religious and ethnic divisions: roughly, Arabs and Kurds in the north, Sunni Arabs in the west, Shia Arabs in the south, and everybody in Baghdad. It has also not been able to come up with a permanent political structure that simultaneously satisfies the desires of its disparate regions/groups for political autonomy while providing for an equitable division of its oil revenues. For example, the western part of the country, populated mostly by Sunni Arabs, has no oil; the regions that do have oil are populated by different ethnic/religious groups (specially, Kurds and Shias) who do not want to share their oil revenues with the Sunnis.

2. Afghanistan. The Taliban-led insurgency is gaining strength, particularly in the eastern part of the country, while the corrupt central government, along with the presumably accidental killing of civilians by the US/NATO/Afghan military forces, is alienating much of the population. Meanwhile, the only viable economic activity available to the country’s people is the cultivation, processing, and shipping of opium/heroin, which the US government is trying to stamp out. Recently, the US commander-in-chief in Afghanistan, General Stanley A. McChrystal, announced that the current US strategy is not working, while the Obama administration is weighing whether to send more troops.

3. Pakistan has its own Taliban-led insurgency in its northwest region (on its border with Afghanistan) to deal with. It also suffers from a stagnant economy, a legacy of US-backed dictatorial regimes, a corrupt and unstable government, a military divided between pro-imperialist and pro-Taliban elements, a popular-based coalition of Islamic organizations in opposition to the government, and a long-standing conflict with a much more prosperous India over the partitioned region of Kashmir (and other issues).

4. In Iran, political conflict between conservative and pro-Western/reformist forces has burst into the open. While this may please the US imperialists, who are rooting for (and are undoubtedly aiding) the reformist elements, an outright civil war in Iran will not be in their long-term interests.

5. The carnage in Palestine will continue. There is virtually no chance of a viable political settlement of the conflict emerging in the foreseeable future, since the Israelis, barring a complete economic collapse (unlikely, given US support), will not grant concessions significant enough to win over the majority of the Palestinians, who are struggling to regain the land from which they have been dispossessed. Making a deal even less likely, the Israelis continue to build settlements on the little territory the Palestinians still control, while both they and the US refuse to deal with Hamas, the only significant organization that, at least in some sense, defends the Palestinians’ interests. Meanwhile, the so-called Palestine Liberation Authority, which now controls only the West Bank, is little more than a brutal and corrupt tool of the Zionist state.

6. Lebanon, historically a bastion of French and, more broadly, western imperialist culture and interests, is very unstable, as rival ethnic/religious groupings, backed by foreign governments (among them, the Iranians, the Syrians, the Israelis, and the US), battle for control.

7. In Egypt, the venal regime of Hosni Mubarak, for many years the staunch ally of US imperialism, continues to be challenged by middle class forces seeking a more democratic government and, more threateningly, by vast lower class forces led by the Moslem Brotherhood.

Another locus of continued conflict in the coming period will be the Caucasus, the mountainous region between Iran and Turkey, on the south and southwest, and Russia, on the north. While geographically part of the broadly-defined Middle East/South Asia region I’ve just discussed, its history is different, having been under the direct rule of Russia (conquered by the Tsars and then again by the Bolsheviks) until recently. Here, too, the people are divided among a variety of ethnic and religious groups. They are also ruled by gangster regimes and threatened by their Russian neighbor to the north, which is anxious to retain control over the area. As in the Middle East, the conflicts are intensified by the question of oil, largely because of the pipeline under construction.

Sub-Saharan Africa will also be a focal point of global instability. The predatory legacy of European/western imperialism has combined with other factors to make the region a disaster area. Chief among these is the degradation of the environment, particularly the desiccation of the Sahel (the semi-arid area south of the Sahara Desert) and the resultant lack of fresh water and fertile farm and grazing land for people who are already desperately poor. Together, this and other issues make for a likelihood of an upsurge of civil wars, based on regional, ethnic, tribal, and religious divisions, and a parade of “failed states,” countries whose governments, usually corrupt “kleptocracies,” are unable to carry out the most minimal of functions.

In Latin America, many of its countries, including its largest and most powerful, are now ruled by left-leaning populist governments, which give muted expression to their populations’ long-standing grievances against US imperialism. Already, a bloc of such left-ish regimes, including Argentina, Bolivia, Chile, Ecuador, Venezuela, Nicaragua, and, of course, Cuba, is emerging under the leadership of Brazil.

Meanwhile, in Europe, a political development most in need of watching is the growth of extreme nationalist parties and movements, including outright Nazi elements. Among other issues, these groups are focusing their efforts on attacking, and ultimately expelling, immigrants, particularly those from Africa, Asia, and Latin America. If these forces continue to gain strength, the very existence of the European Union could be called into question, while racial/ethnic conflict among the lower classes will seriously imperil the prospects for working class unity.

To sum up, the most general trend in international politics over the coming period will be the gradual ebbing of the power and influence of US imperialism (along with its attempts to reverse that decline) and the evolution of the global state system toward a more multi-polar, and more strife-prone, structure.

IV. US Politics

In the United States, the political scene has been significantly affected by the election of the country’s first African-American president. Aside from his intelligence, erudition, and obvious abilities as a speaker, Barack Obama brought a lot of assets to his position. For one thing, he came into office riding a wave of popular enthusiasm, which has, at least temporarily, shifted the political climate somewhat to the left.

To some degree, this just represented the other side of the unpopularity of the Bush administration, whose belligerent attitude and ideologically motivated policies alienated many people, including large sectors of the ruling classes, in the US and internationally.

But Obama also generated a lot of positive feeling by his campaign promises and post-election rhetoric, and by the mere fact that he is Black (expressing many people’s hopes that the country has moved beyond its racist past). Propagandistically, his election was a great boon to US imperialism, which got a virtually complete facelift overnight; internationally, it looked as if the predatory Yankee had been replaced by a benign, peace-loving father figure. Domestically, Obama received tremendous support from liberals and considerable backing from independents, while simultaneously bamboozling a lot of radicals and former revolutionaries who ought to have known better. Many of the latter seemed to have thought he was actually going to mobilize people to fight for a program of radical social change.

(One of the things I find so striking about the election of Obama is its demonstration of the amazing flexibility and opportunism of the United States’ political system, which can accept—even facilitate—the election of a Black man as president, without fundamentally changing the social and economic structure of the country.)

Despite the expectations of his supporters, the new president proceeded to assemble a staff that is a centrist as it is possible to be, including pillars of previous Republican administrations, such as former chairman of the Federal Reserve Board, Paul Volcker, and Bush secretary of defense, Robert M. Gates. He is also pursuing a political line that is almost as conservative as George Bush’s. (During the election campaign, Obama repeatedly asked the voters whether they were “ready for change,” but the only changes he has brought about have been largely verbal, particularly a diminution of partisan rhetoric in a largely wasted effort to win Republican support for his very mainstream policies.)

Although Obama is not seeking to expand the powers of the executive branch, he has been in no hurry to give up those that Bush seized. He vowed to close the Guantanamo Bay facility incarcerating individuals suspected of “terrorism,” but is continuing to hold most of the detainees without charge, while denying them other basic rights supposedly guaranteed by the Constitution. He is also maintaining the policy of “extraordinary rendition,” under which terrorism suspects are transferred to foreign countries, where they are subjected to torture, despite his insistence that “America does not torture” (it merely has its stooges do the dirty work). Not least, the administration has gone to court to defend the use of warrant-less wiretaps, that is, tapping the telephones of organizations and individuals without getting prior approval from a special court set up for this purpose (not that that was much protection).

Obama’s foreign policy is basically a continuation of the previous administration’s: he is pursuing Bush’s approach in Iraq, while (this is his own contribution) escalating the war in Afghanistan and bombing suspected Taliban targets in Pakistan, despite considerable civilian casualties. Early words of criticism of Israeli for the non-stop construction of settlements (what the Israelis call “facts on the ground”) on Palestinian land have given way to the standard platitudes about the “unshakeability” of US friendship with, and support of, the Zionist state. Beyond that, he has done very little beyond toning down Bush’s more aggressive rhetoric.

On the domestic front, the story has been pretty much the same. Obama has given billions of dollars of taxpayers’ (our) money to the financial institutions that, in fact, helped create the current financial/economic mess we’ve recently experienced and to the now-humbled auto giants, General Motors and Chrysler. Meanwhile, he has proposed only the most paltry measures to help struggling working and middle class people. Instead of promoting gay rights, Obama has maintained the reactionary “Don’t ask, don’t tell” policy that continues to criminalize homosexual activity in the military, while going to court to block full spousal benefits for gay/lesbian couples. He is also continuing the campaign against undocumented workers: beefing up the border, fining businesses that employ workers without papers (in effect, forcing the companies to fire the workers), and deporting people who have been convicted, or merely charged, with the most minor of crimes. In education, Obama appointed as education secretary Arne Duncan, who several years ago came up with the brilliant idea of forcing teachers (and presumably administrators and students) to work over the summer, which would most likely result in the nervous exhaustion and demoralization of thousands of educators (and students). The administration is also continuing the ridiculous “No Child Left Behind Act,” which does little but reinforce the regimentation now running rampant in our public school system and intensify its misguided obsession with test scores. In addition, the new president is continuing Bush’s “Faith Based Initiative,” under which the government grants federal funds to religious-based charities, while allowing them to discriminate against members of other religious groups in their hiring. Not least, Obama has done absolutely nothing to address the conditions of millions of Black people who are suffering the full brunt of the recession and its after-effects. His only foray into this realm was to make, and then retract, a statement mildly critical of the Cambridge, Massachusetts, police department for its rude (and racist) treatment of Obama’s own friend, Harvard professor, Henry Louis Gates, Jr.

Perhaps most emblematic of Obama’s conservative (and in the long-run, self-defeating) approach has been his handling of health care “reform.” So anxious has he been to get something (anything) passed, and so convinced that the only thing preventing the forging of a consensus on the issue was a lack of political finesse, that he invited the drug, healthcare, and insurance companies into the preliminary discussions to develop a comprehensive proposal. This was like inviting the fox to guard the chicken coop. After trading away everything of real substance (probably even the pathetic “public option”) in an effort to reach agreement, he found himself on the defensive when these “special interests” and others mobilized shock troops among the Republican rank and file to disrupt the “town meetings” his supporters organized to explain the package. The only result of these meetings is to have scared a significant number of people so intensely that they are apt to oppose any healthcare measure at all, no matter how feeble. As of this writing, what looks most likely to emerge from the administration’s effort is little more than new laws requiring (but with many exemptions) businesses to provide health coverage to their employees, prohibiting insurance companies from denying coverage to those with pre-existing medical conditions (but not stopping the companies from charging an arm and a leg for such coverage), mandating currently uninsured people to buy health insurance (probably also at exorbitant rates), allowing individuals to organize insurance “co-operatives” to enable them to take advantage of group rates, and making some minimal subsidies available to the most needy people. This is not much more than a gift to the insurance companies and certainly no substantial reform. (It is, incidentally, very similar to a national health plan put forward by Republican president Richard M. Nixon in 1971. That proposal was torpedoed by the Democrats, led by the recently deceased Edward M. Kennedy, long-time senator from Massachusetts. Kennedy called the plan “a partnership between the administration and the insurance companies,” “not a partnership between patients and doctors.” Hmm.) The current proposal’s primary concern is to try to restrain the galloping rise in healthcare costs (now, at $2.3 trillion, roughly 17% of GDP), which is harming the entire economy.

(Real reforms under capitalism, that is, social changes that significantly improve the life of working people and make some inroads into the power of the capitalist class, are almost always the result of escalating class struggles and social movements, particularly when large numbers of people threaten to go beyond the bounds of the system. When faced with mass movements, such as those of the 1930s and the 1960s, the ruling class is forced to grant concessions in an effort to corral/buy off the movements and to address social issues that have become too obvious to ignore.)

Obama’s political method is typical of liberal politicians. Since they believe their most left-wing supporters have nowhere to go (that is, they won’t vote for conservative candidates), they take them for granted and cater to those in the middle and even to the right side of the political spectrum. Yet, in the long run, this is likely to work against the new president, since via this approach he is not likely to win any substantial reforms, but he will demoralize (and hopefully alienate) the more liberal elements of his base. This is already happening. After what seemed like months of what I call the “Great Mesmerization,” during which Obama seemed able to do no wrong, considerable dissatisfaction is setting in among both moderates and liberals alike. (Conservatives already hate him.) His approval ratings in the polls have dropped precipitously, while support for the war in Afghanistan is now said to be “softening.” Thus, despite his landslide vote and the enthusiasm he generated, Obama may well be able to achieve very little of his agenda, while simultaneously being revealed as the political neophyte he is.

All this is leading to a revival of the Republican party, which for a while seemed politically marginalized, and to a mobilization of the extreme conservative side of the political spectrum. The far-right, fomenting the most absurd claims—that Obama is not really a US citizen, that he is a Moslem, that his healthcare reform will entail the euthanasia of old people, that he wants the government to take over the economy and impose “socialism,” etc.—is really on the rampage; unfortunately, it appears to be picking up support from among independents and confused voters generally. Meanwhile, Obama despite the illusions of many radicals, has refused to mobilize his own supporters, leaving the liberals disarmed in the face of the right-wing mobilization. At the very least, these dynamics will result in an escalation of political tensions and an exacerbation of the political (and racial) polarization of the country.

(Somewhat surprisingly, the economic crisis and its political fallout have altered, at least temporarily, the political role of the Republican party. As far as can be discerned, the current political consensus within the capitalist class seems to be that massive government intervention in the economy was necessary to stave off global collapse. In other words, there are times when “free market forces” cannot be left to their own devices to solve the country’s problems. This standpoint, which many Republicans vehemently oppose,  leaves the Republican party, historically the party of big business and the banks, politically marginalized, and left to appeal to disaffected, right-wing, and mostly white, members of the middle and working classes.)

The history and current politics of the country, along with the strain of the economic crisis, may lead to a substantial increase in racial hostility and violence directed toward Blacks, Latinos, people of Middle Eastern descent and other Asians, and to all those perceived as immigrants. We may also see an increase in violence against gays and women. In general, we can expect to see a right-wing offensive all along the “cultural” front: abortion, sex education, the teaching of evolution in the schools, the environment, the rights of oppressed groups, prayer in public places, civil liberties, etc., along with the growth of far-right racist and militaristic organizations.

So far, there has been very little struggle on the part of workers and other oppressed people against the effects of the recession and the government’s policies to bail out the capitalists at the expense of the rest of us. This is not untypical. Usually, during the depths of a crisis, people are too concerned about trying to survive and too worried about losing what they have (such as their jobs, if they are still employed) to launch major struggles. It is when the economy starts to recover that people tend to take the initiative. Today, another factor is also at work. After the long night of the Bush administration and the good feelings inspired by Obama’s election, people are waiting and hoping that the new president will do something for them. Since he hasn’t, and isn’t likely to, I expect (at least, I hope) we will see some increase in activity once the economic recovery gathers some steam. Along with union organizing drives, this may entail new forms of combat, as well as rank and file struggles in the unions against the bureaucrats, most of whom are nervous about “embarrassing” Obama and jeopardizing their ties with him, even though, up until now, he has done little but take their support for granted. (There is, however, one sector of the labor leadership that may be more willing to move into opposition to Obama than the others. This is the wing led by the United Steel Workers of America, which is a strong supporter of a “single payer” [government-run] health plan and protectionist trade policies.) Hopefully, such an increase in struggle will involve the mobilization of undocumented immigrants in defense of their human rights and dignity. Unfortunately, it may not be only the union bureaucrats who are hesitant to launch struggles that might embarrass and/or jeopardize the reelection of Obama. The leaderships of the major organizations of Black people, Latinos, women, gays, and liberals in general, will probably share the same hesitations.

I do expect to see some kind of revival of the anti-war movement if the government escalates the war in Afghanistan while public support for it weakens. Success in that country is even less likely than in Iraq. Neither the British nor the Russians, among recent contenders, was ever able to conquer it, and it is not likely the US will succeed where others have failed. An imperialist war waged by a Democratic president offers significant opportunities for the left. When an unpopular war is being carried out by Republicans, those opposing it usually look to the Democrats to end it and focus their efforts on electing Democratic politicians. When, in contrast, the war is fomented by Democrats, there is the possibility that a significant part of the population will move beyond the Democratic Party toward more radical positions. This, at least in part, explains what happened in the 1960s.

As struggles pick up, we will probably see the revival of the Leninist left. With the brutal reality of the Communist regimes fading away, and with the global capitalist economy not looking so good, Marxism, in its various versions (and particularly, its economic critique of capitalism), will become increasingly attractive to people seeking answers to what is happening in the world and looking to fight back against their oppression.

Hopefully, we will also see some growth of the anarchist/left-wing libertarian movement. In many ways, anarchism is more congenial to the history and cultural traditions of the United States than are the pro-state ideologies of the reformist socialists and the Leninists/Stalinists. For example, many people in the country are suspicious of “Big Government” (although it has been the right wing that has most effectively capitalized on this sentiment). There also currently exists a considerable, though still vague and undefined, anarchistic sentiment among many young people, including and in particular, young working class Latinos, Blacks, and Asians. If our movement manages to organize itself into viable forms, while simultaneously developing its analysis and theory, many of these people, and hopefully others, will be attracted to our cause.