economic globalization and the internationalization of authority: limits and contradictions

Geofwurn. Vol. 23, No 3. pp. 269-283. 1992 001~718S/92 $S.O0+O.M)

Printed in Great Britain Pergamon Press Ltd

Economic Globalization and the Internationalization of Authority:

Limits and Contradictions

STEPHEN GILL,* Toronto, Canada

Abstract: The post-war internationalization and globalization of production, finance and exchange has not been matched by a corresponding internationalization of political authority, especially with regard to economic matters. Indeed, it could be argued that a central contradiction in the development in the post-war global political economy lies in the territorialization of political authority and identity, usually identified with the nation-state, and the universalization of economic forces, increasingly associated with the deepening and spread of commoditization and marketization of social life. Thus, in so far as one speaks of the problem of global ec:onomic management, viewed from the perspective of the most powerful states and social forces in the world order, one is discussing attempts to create a more developed international political and civil society, that is, involving formal organizations (such as the G7, IMF, World Bank, European Bank for Reconstruction and Development) as well as informal, private forums (such as the Trilateral Commis- sion, World Economic Forum, the Bilderberg meetings) in a strategic process which is designed to configure the limits of political discourse with regard to national and global economic policy.

Introduction

In the 1980s and 199Os, the nexus of policy conceptu-

alization and implementation has been informed by

what I call ‘disciplinary neo-liberalism’ (associated

with policies of market monetarism) and the ‘new

constitutionalism’ (i.e. attempts to insulate important

economic agencies and agents from popular scrutiny

and accountability, and thus to narrow democratic

control of the economy). However, the logic of neo-

liberal austerity and structural adjustment can be

queried in its own terms as reflecting what economists

call ‘the fallacy of composition’ (i.e. if all deflate then

depression ensues). The ‘new constitutionalism’ is

also politically self-contradictory, since, like neo-

liberalism, it rests upon the U.S. as its enforcer and

guarantor. However, the nature of U.S. domestic

” Department of Political Science, York University, 4700 Keelc Street, North York, Ontario, Canada M3J lP3.

politics, and the economic and political centrality of

the U.S. mean that the U.S. is not subject to the

disciplines associated with each.

In the 19x0s and 199Os, globalizing economic factors

are serving to integrate important aspects of material

life on the planet, whilst simultaneously disintegrat-

ing other forms of state, material and social organiz-

ation. The world is undergoing a shift from a rela-

tively hegemonic to a post-hegemonic world order.

Following the Second World War, a new world order

was founded under the leadership of the U.S. (or,

more accurately, its foreign policy establishment,

which included elements of both capital and labour,

and members of the state apparatus). By contrast

with the 193Os, a relatively hegemonic order was

created in the so-called ‘Free World’. The coherence

of this order was sustained until the late 1960s.

Thereafter, especially since the early 107Os, there has

269

270

been a crisis of the world order and post-war hege-

mony. This is not a crisis in the dominance of the U.S.

per se, although the policies of the U.S. have been

intimately bound up with the transition, albeit in a

contradictory manner. The case of the U.S. is connec-

ted to contradictions between political authority and

globalizing capitalism. This poses the questions: what

kind of order, what kind of crisis, and a crisis for

whom?

The scope and nature of the transnational structures

of power associated with the pax americana have

undergone a transformation, driven principally by

the restructuring of global production (involving the

gradual supplanting of Fordism by flexible pro-

duction and the peripheralization of economic devel-

opment, both within and between countries) and the

emergence of an apparently quasi-autonomous struc-

ture of global finance. These developments have been

accelerated by a deepening and widening of inter-

national competition and innovation as the global

economy has shifted to higher levels of knowledge-

intensive activity. Nevertheless, this has occurred in a

period of slowing economic growth, punctuated by

recessions of increasing severity since the mid-1970s.

The globalization of world capitalism, apparently to

be extended geographically and socially, following

the economic entropy and collapse and thus the

political capitulation of ‘existing socialism’, has gone

with economic polarization and deepening in-

equality. It now seems legitimate, however, to ask

whether the system is sustainable on present

economic and policy trends, particularly since the

thrust of the prevailing market-monetarist policies of

structural adjustment, macro- and microeconomic

monetary and fiscal discipline have been globally

deflationary.

In this emerging international political and economic

structure the role of the U.S. state and of the socio-

economic forces within the U.S.A. have become

more ambiguous and problematic. In the immediate

aftermath of the Second World War, not only was the

U.S. the unchallenged economic superpower of the

capitalist world, but also its economy was relatively

self-sufficient. The relative self-sufficiency and terri-

torial security of the U.S.A. allowed for the develop-

ment of a strategy which was predicated on the

outward expansion of U.S. economic, political and

Geoforum/Volume 23 Number 30992

cultural forces, consistent with the internationaliza-

tion of the New Deal/Fordist model of development.

Nevertheless, the internationalists’ vision of a new

world order was opposed by more inward-looking,

continentalist or isolationist forces. In the 198Os, in a

period when the U.S. economy was becoming rapidly

internationalized, the clash between the territorial

and globalizing forces within the U.S. became more

pronounced, reflected partly in the growth of U.S.

protectionism and the demonization of Japan.

This clash of interests reflects the fact that the U.S.

has had, and still has, a contradictory position in the

emerging global political economy. On the one hand,

the U.S. political economy has been central to post-

war economic development world-wide, representing

a universalizing moment in the historical develop-

ment of capitalism. On the other hand, the U.S.

political system and political culture tends to be

inward-looking and ethnocentric. This internal-

external dialectic, reflecting a contradiction between

territoriality and globality in the emerging world

order, lies at the heart of the problematic role of the

U.S.A. as embodying a ‘universal contradiction’ in

the context of post-cold war global politics. The U.S.

is the political and military guarantor of disciplinary

neo-liberalism, but is not subjected to the same levels

of monetary and fiscal discipline as other countries

(reflected in the ability of the U.S. to consistently run

balance-of-payments deficits and thus to transfer the

real burden of economic adjustment onto the rest of

the world). The U.S. government is by far the world’s

biggest debtor and its policies for much of the last 20

years have been a primary source of international

macroeconomic instability.

These issues can be related to the central fact of the

economic and political history of the late 1980s and

early 1990s: the cumulative, if uneven structural

transformation of the political economy. In other

words, the key change is not the ‘end of the cold war’

and the collapse of the military-political superstruc-

tures associated with world communism as such

(some might argue that cold war politics is far from

over, that is. in so far as it encompasses the struggle

between labour and capital on a world scale). Indeed,

the case of the economic and political restructuring of

the former U.S.S.R. can bc likened to a process of

demobilizing the enemy [under the supervision of the

Group of Seven (G7). the European Bank for Recon-

Geoforum/Volume 23 Number 3/1992

struction and Development (EBRD) and the Inter-

national Monetary Fund (IMF)]. Transforming the

successors to the former U.S.S.R. into functioning

capitalist economies is a process which could appear

to require many years to complete, if indeed it is

successful.

Conceptualizing the World Order

To begin to make sense of these changes we need to

be able to develop a theorization of the emerging

world order. In this regard it is important to identify

some of the difficulties associated with the realist and

world systems theories of world order and historical

change which predominate in the study of inter-

national relations. Many of these theories are state-

centric (that is the;,’ tend to reify the state) and assume

a transhistorical pattern of cyclical rise and decline of

great powers or hegemonies (KENNEDY, 1987;

GILPIN, 1981, 1987; WALLERSTEIN, 1984). In

other words, mu’ch of the analysis is based upon

cyclical, as opposed to dialectical conceptions of

historical change. These conceptualizations, along

with those typical of early Marxist theories of im-

perialism, with their implicit teleology and economic

determinism (or, in Lenin’s case, extreme voluntar-

ism), as well as more recent state-centric Marxism

(BLOCK, 1977), may be unable to explain many of

the complex and contradictory aspects of the post-

1945 order.

For example, the post-1945 global political economy

is much more integrated and more institutionalized

than in the period between the two world wars, and

the relations between the major capitalist states are

much more interdependent and configured by or-

ganic alliance structures. This means that the terms

‘ultra-imperialism’ and ‘inter-imperialist rivalry’

associated with the Marxist theories applied to the

early part of the twentieth century may be obsolete as

analytical concepts, partly because they fail to

capture the transnational aspect of contemporary

capitalism. We can now clearly identify a set of

transnational social and political structures which, I

would submit, are more complex than those concep-

tualized by Lenin or Kautsky. Moreover, war among

the great powers is much less likely to recur, espe-

cially given U.S. supremacy in military matters. In

other words, we need to avoid reification and

271

transhistorical generalization and develop limited

generalizations and historical concepts, such as the

power of capital, historic bloc, state and civil society,

and the process of hegemony/counter-hegemony in a

more dialectical form of analysis. This paper is merely

intended to suggest one, and by no means the only

alternative, to the prevailing theorizations.

With this is mind, I would like to advance the hypoth-

esis that the post-war order can be interpreted in

terms of a hegemonic congruence (in the Gramscian

sense) between the dominant social forces, social

structures and forms of state across space and time:

that is, operating at both the domestic and inter-

national levels, and lasting in the metropolitan

capitalist states for roughly the period 1945-1970.

Following COX (1987) we can categorize these social

forces in terms of ideas (including theories, ideologies

and social myths, as well as intersubjective mean-

ings), institutions (such as state, market and inter-

national organization) and material capacities (pro-

ductive power and military might). These came

together to create the relatively integral historical

conjuncture of pax americana.

The political coherence of this order then, rested on

what, in Gramscian terms, can be called the inter-

national articulation of historic blocs of social forces

(ideas, institutions, material capabilities) drawn from

the domestic state civil societies of the metropolitan

capitalist world in what might be termed an intev-

national historic bloc, under the leadership of the

prevailing social forces in the U.S. (GILL, 1990). The

bloc’s foundations were forged in a balance between

the material forces of domestically-oriented,

‘national’ fractions of capital and internationally-

oriented transnational capital, organized labour and

the state. This mainly transatlantic bloc was con-

structed around the primacy of production during the

late 1940s and 195Os, and probably retained its coher-

ence until the late 1960s.’

In the rest of this paper I focus on selected aspects of

the contradictions between economics and politics at

the global level. To bring my arguments into relief I

need initially to sketch in slightly more detail key

aspects of the post-war ‘hegemonic’ settlement in the

West, which went with high rates of growth and a

relatively high degree of political and social stability,

so as to highlight its transformation since the 1970s.

272

Post-war Hegemony, Pax Americana and the lnter~ationalization of Authority

The Allied victory over Fascism and Nazism allowed

for a programme of post-war reconstruction to

create, at least for the capitalist world, a more inte-

grated set of international circuits of capital and

trade. From the vantage point of the U.S. govern-

ment and the private interests of the more ‘inter-

nationalist’ elements of U.S. capital, represented, for

example, in the New York Council on Foreign Re-

lations. the aim was to create a neo-Wilsonian ‘Grand

Area’, which would provide the maximum political

living space for the international expansion of U.S.

economic forces (SHOUP and MINTER, 1977). Fol-

lowing the Bretton Woods conference of 1944 the

U.S. government sought to institutionalize aspects of

this new international economic order, for example,

in the shape of the IMF, the World Bank and the

General Agreement on Tariffs and Trade (GATT).

This viewpoint of the internationalist organic intellec-

tuals associated with the CFR was, however, opposed

by isolationist political forces in the U.S.” The isola-

tionists stressed the U.S.‘s hemispheric interests and

also took as their essential strategic premises the

military impregnability and economic self-sufficiency

of the U.S. Liberal internationalists, such as Cordell

Hull, argued that economic internationalizati~~n was

a necessary condition for a lasting post-war peace

among the great powers. This argument was based

upon the view that the quasi-autarchic economic

blocs of the 1930s and their associated interstate

rivalries were in large part responsible for inter-

national disorder and the eventual outbreak of war.

The political battle between, broadly speaking, the

‘internationalist’ and ‘isolationist’ blocs of forces in

the U.S. was only resolved partly in favour of the

former with the onset of the cold war and the im-

plementation of the Marshall Plan,

The Grand Area strategy envisaged an open door for

U.S. foreign direct investment (FDI), a gradual liber-

alization of trade, and a relatively controlled system

of interIlationa1 portfolio and short-term capital

JJows. The policy was developed in accordance with

New Deal principles and the experience of wartime

planning in the U.S. Treasury, and to a lesser extent

in the State Department. The original global concept

of the Grand Area was reduced to that of the ‘Free


World’ after Stalin refused to accept Marshall Aid

and the cold war developed, and became the counter-

part to U.S. policies of containment. U.S. military

capabilities were consolidated and institutionalized in

the military-industrial complex, which fused the

scientific, technological and economic prowess of the

U.S. and formed the basis for U.S. power projection

on a global scale. It is also worth noting that a central

prerequisite for the implementation of the Grand

Area strategy was the subordination of Britain and

the destruction of its imperial sphere-of-interest.

Eventually, U.S. financial pressure succeeded in forc-

ing the U.K. to abandon the Sterling Preference

Area.

Over time, aspects of this new policy came to be

expressed in transatlantic compromise of political,

economic and social forces. This compromise has

been variously termed ‘embedded liberalism’ (RUG-

GIE, 1982), ‘corporate liberalism’ (VAN DER PIJL,

1984) and ‘neo-liberalism’ (COX, 1987). Here we use

the term ‘neo-liberalism’ to conceptualize the domi-

nant forces in the period since the mid-1970s [COX

(1987) uses the phrase ‘hyperliberalism’ to refer to

the conservative, market-monetarist strategy of

Thatcher and Reagan]. Central to the political repro-

duction of this order was a synthesis of public and

private elements from the states and civil societies of

the tr~~Ilsatlantic region, reflected, for example, in

private international relations councils such as the

Bilderberg meetings, and in official organisations

such as the Organisation for European Economic Co-

operation (later to become the OECD), the JMF and

the World Bank, and a process of international

organization which encompassed, but went well be-

yond, the United Nations system (GILL, 1990, pp.

122-142)’

The post-war capitalist order had a wider political

dimensi~~n in so far as the metropolitan capitalist

states were bound together in a series of ‘organic

alliances’ (GILL. 1986b) built under U.S. leadership

in the context of the Marshall Plan and the cold war.

This had the double effect of lessening the likelihood

of a war amongst the major capitalist nations, by

reconfiguring their domestic security and political

structures so as to restrain the growth of communist

forces in the West and in Japan. This meant that

political identity was partly constructed in the form of

a negation of, or antithesis to, communism in the


world order. In politico-military matters, this took

the form of a security-insecurity dialectic both within

the major capitalist states and between them and the

communist states. In particular, the U.S. and Soviet

military-industrial complexes grew rapidly in size,

and the resulting military interdependence and arms

race meant that Soviet military expenditures were as

much as 25% of her net material product and became

an eventually intolerable burden on the Soviet econ-

omy in the 1970s and 1980s.

In this sense, the order had an ethico-political dimen-

sion in so far as the broad-based political consensus

was linked to civilizational concepts partly expressed

in the language of the cold war:

The concepts of liberty, modernity, affluence, welfare and the ‘end of ideology’ were fused into a concept of ‘the West’. These social forces were consolidated into an anti-communist alliance. geared towards the defence of *the West’ from the threat of totalitarianism and, in Koestler’s memorable phrase, ‘darkness at noon’ (GILL, 1990, p. 49).

Forms of State, Finance and Production in the

Pax Americana

The post-1945 international economic order initially

associated with the pax americana rested on a core

group of liberalizing, welfare nationalist forms of

state (COX, 1987). The productive elements inter-

acted in an international political economy with a

level of economic internationalization which was

relatively low, at least when compared to the pre-

1914 period. Nevertheless, the post-1945 period was

to become the era of the transnational corporation

par excdlence, with production increasingly planned

and organized on a global scale. Now perhaps 40% of

total world trade takes place within transnational

firms (UNITED NATIONS CENTRE ON TRANS-

NATIONAL CORPORATIONS, 1988). Moreover,

until the 1950s the majority of international supplies

of capital (especially from Britain) were used for

infrastructure and raw materials extraction, and for a

limited range of productive investments (e.g. plan-

tations). Since the 1950s FDI in manufacturing indus-

tries has grown significantly and has been associated

with the emergence of a new international division of

labour. For most of the 1950s and 1960s international

finance generally served to lubricate trade flows and

273

to finance the operations of transnational firms and

governments in a relatively controlled system. How-

ever, especially since the mid-1970s the relationship

of production to financial capital is more problematic,

in an era which has been described as Casino Capi-

talism (STRANGE, 1986). Indeed, the role of

finance in the emerging world order is increasingly

controversial, as it was in the 1920s and 1930s.

It is worth emphasizing that the internationalization

of the New Deal settlement entailed control over

finance so that, to paraphrase U.S. Secretary of

Treasury Morgenthau, it would become the ‘servant’

rather than the ‘master’ of production. Political con-

trol over finance would allow for, in Keynes’ termin-

ology, ‘virtuous’ circuits of capital, that is, capital

flows would be linked to productive purposes and to

trade in goods and services. Basing his prescription

on a critique of the orthodoxy of the 192Os, Keynes

had called for the euthanasia of the rentier class and

the elimination of short-term, speculative flows of

capital. Such ‘vicious flows’ of ‘hot money’ could be

profoundly destabilizing for autonomous policy mak-

ing in the ‘national’ economy. In the Atlantic region,

then, the internationalization of production and trade

involved some restrictions on the mobility of financial

capital (although less than Keynes and Dexter White

had argued for prior to the Bretton Woods confer-

ence of 1944) (DE CECCO, 1979).J

At the domestic level, controls over capital mobility

in the context of relatively fixed exchange rates and

the limited convertibility of currencies created the

possibility for Keynesian steering of the macro-

economy in the ‘welfare nationalist’, or ‘corporate

liberal’ form of the state (COX. 1987; VAN DER

PIJL, 1984). This was premised on some state control

over supplies of credit to finance investment and, of

course, the international role of the dollar, both of

which were to change in ways which would later

undermine the coherence of the Bretton Woods

order:

In this form of state, the interests of productive capital and labour sought, through interventionist policies, to protect the national socioeconomic space from destabilizing aspects of market forces and the international economy, for purposes of economic welfare. The welfare nationalist states were products of the Great Truns- formutiorl (POLANYI, 1944) of the 1930s: the rc- assertion of the state and society over the self-regulating market of liberal capitalism. and more specifically the subordination of economic activity to the defence of

274

exchange rate parities in the partly resurrected international gold-exchange standard (GILL, 1991a, p. 8).

In the post-war system, engineered at Bretton

Woods, the U.S. provided dollars for international

liquidity in the form of consistent balance-of-

payments deficits, partly generated by U.S. military

expenditures and the activities of U.S. transnational

companies. Initially, this was welcomed by other

countries in the throes of economic reconstruction in

an era of dollar shortage (roughly 19441958). This

situation, however, was increasingly unsustainable

after the return to convertibility in 1958 (dollar glut) if

the dollar were to be fixed in terms of the price of

gold: indeed, President Nixon acknowledged this

contradiction when the dollar was finally severed

from gold in August 1971. After the Second World

War the U.S. had about 75% of the world’s gold

supply: thus the rest of the world was willing to accept

dollars backed by gold as the international money

supply.

The U.S. was passive in its role as the anchor of this

system since it served both U.S. economic and geo-

political objectives: U.S. deficits meant that other

countries could avoid competitive devaluations or

domestic deflation (and could concentrate on export-

led growth). However, after 1958 the U.S.‘s net

reserve position deteriorated as its liabilities abroad

grew faster than its domestic gold stock, and gradu-

ally there was a loss of confidence in, and speculation

against, the dollar. The contradictions of the system

were reflected in the fact that confidence in the dollar

could be restored if the U.S. were to eliminate its

budget deficits, but in so doing it would create inter-

national liquidity problems. The international

liquidity problem was solved by U.S. deficits, but

confidence in the dollar was eroded in the process

(COHEN, 1977, pp. 89-98).

Other elements which were also serving to unravel

the post-war order in money and finance included the

role of expanding international credit, the growth of

large-scale capital movements, and rising inflation,

especially in the U.S. For example, the Euromarkets

had grown significantly during the 1950s and 196Os,

and following the first ‘oil shock’ in the 197Os,

expanded enormously and came to constitute a gigan-

tic pool of quasi-stateless mobile capital, not subject

to political authority or accountability. The Euromar-

GeoforumlVolume 23 Number 3/1992

kets were the first relatively free international capital

and money markets to be created after the Second

World War, and their emergence was crucial to the

internationalization of money capital and the con-

struction of an international financial system of

unprecedented size. Their emergence has structured

regulatory efforts and international macroeconomic

co-operation in the OECD region since the 1960s

(WEBB, 1991). The rapid growth in supplies of

international credit in the 1950s and 1960s was crucial

to the long post-war boom (and was much more

important than the lowering of trade barriers or the

supposed stability arising from fixed exchange rates).

Indeed, STRANGE (1988, p. 105) notes the dialecti-

cal quality of these developments, since rapid credit

expansion and growth in capital mobility helped to

sow the seeds of the subsequent monetarist deflations

of the 1980s.

Nevertheless, an autonomous macroeconomic capac-

ity was an essential counterpart to the more funda-

mental corporatist ‘politics of productivity’ which

characterized production relations and state inter-

vention in the economy (MAIER, 1977). In other

words, the ‘politics of productivity’ was the political

ccntrepiece of the dominant Fordist mode of accumu-

lation. This involved the restructuring of social life in

so far as it made new demands on workers (discipline,

the control over time, including leisure time). It

prioritized policies associated with an intensive,

growth-oriented mass production. Moreover,

workers’ purchasing power (and savings) became

central to the process of capital accumulation. Fordist

politics assumed, despite considerable struggle in the

workplace and in political life more generally, that

labour was politically, physically and psychologically

subordinated to capital. This subordination was

achieved, respectively, through corporatism, Taylor-

ist scientific management and the appeal to workers

of mass consumption and the ‘American dream’.

However, as with an international monetary system

which was configured around the primacy of U.S.

consumption and accumulation patterns (partly re-

flected in persistent balance-of-payments deficits) the

work ethic of Fordism also contained a contradictory

element for capitalism: workers were expected to be

disciplined but were nevertheless active agents of the

mass-consumption society which implied that

sobriety and a willingness to forego aspects of con-


sumption were essential in order to generate savings

for investment. This contradiction (and others) was

captured by the neoconservative sociologist Daniel

Bell (1976) in his book, The Cultural Contradictions of Capitalism, and, in a more subtle manner by

HIRSCH (1976) and STRANGE (1986). Moreover,

the political organization of workers under Fordism

meant that they had increased political represen-

tation, and their leaders pressed for and defended

universal programmes of social protection and wel-

fare. The role of the state in the post-war OECD

countries expanded considerably, and, when re-

cession began to strike more severely in the 197Os,

there was widespread fiscal crisis as well as rising

unemployment and inflation, especially in the U.S.

A counterpart to the process of interpenetration of

the security structures of the capitalist states was,

initially, the outward expansion of U.S. transnational

firms and banks in the form of increasing FDI (often

funded from the Euromarkets), especially in western

Europe. Over time a pattern of cross-cutting inter-

national productive and portfolio investments

emerged, with European and later Japanese capital

increasingly invested in the U.S. In addition, the

growing activities of transnationals put pressure on

the tax base of the host states, though a variety of

means which allowed for the maximization of profit

on a world scale (DICKEN, 1992). Again, when

recession hit in the 197Os, this element became a

factor in the fiscal crisis of the state. Both wealthy and

poorer governments turned to the Euromarkets to

fund their balance-of-payments deficits (the bulk of

OPEC surpluses were placed in the Euromarkets for

recycling). The ‘national’ coherence of economic

development was increasingly being undermined by

cumulative forces associated with the internationali-

zation of capital. Production structures became

increasingly globalized, and the ‘identity’ of capital,

understood in terms of the nationality and allegiances

of its owners and managers, became, in some ways,

gradually more independent of the parent states and

increasingly transnational in scope.

Economic Restructuring and Political Authority

The relative economic stability and political coher-

ence of the 194551970 capitalist world order was

deceptive, then. since cumulative forces were serving

275

to unravel its political consensus and economic inte-

grity. Moreover, the order was at its most integral and

hegemonic in the urban core of the metropolitan

capitalist states; it was much less so in the post-

colonial ‘periphery’, as the war in Vietnam was to

partly illustrate.

Whereas the post-war settlement was premised on a

large degree of national autonomy in matters of

macroeconomic policy, at least in the metropolitan

countries at the core of the Bretton Woods system,

crucial cumulative changes were taking place. In

particular, the growing internationalization of capital

was partly embodied in the shift away from Fordist

economic development towards the introduction of

more flexible and knowledge-intensive forms of pro-

duction in a globally organized production organiz-

ation. Fordist, polluting industries were increasingly

shifted towards the peripheral countries in the new

international division of labour, for example to the

Maquiladoras in Mexico, where the vast bulk of

industrial workers are women. These processes were

accelerated by the recessions of the 1970s and 1980s.

with the 1979-1982 recession of particular import-

ance, not simply because of its purgative quality, but

also because it accelerated a broader process of econ-

omic restructuring and ushered in the debt decade for

the Third World and the communist indebted states.

The change in U.S. monetary policy under Paul

Volcker in 1979-1980 was significant in this regard. as

real rates of interest rose to unprecedented levels to

prevent a liquidation of international confidence in

the dollar. Interest rates rose to such levels that they

broke the usury laws in many of the states in the U.S.

union (GILL, 1986a, 1990).

The restructuring of production and the globalization

of finance, especially in the 1970s and 198Os, served to

accelerate a shift in the predominant forms of state-

economy relations away from the welfare-nationalist

forms of state towards disciplinary neo-liberalism and

what has been called the ‘competition state’, as states

changed their taxation and regulatory structure to

offer a more hospitable business climate for (foreign)

investors, as well as being active in capital and foreign

exchange markets in order to raise revenue for gov-

ernment programmes (CERNY, 1990). Often under

the auspices of IMF conditionality (and sometimes

under the direct supervision of TMF officials), many

states were forced to attempt to restructure for simi-

276

lar reasons. These changes created a crisis of embed-

ded liberalism and were, of course, crucial to the

demise of ‘existing socialism and the collapse of

Third World demands for a New International Econ-

omic Order (COX, 1979; VAN DER PIJL, 1989).

Many such changes benefited the interests of inter-

nationally mobile and large-scale economic agents,

for example transnational corporations and banks,

relative to less mobile and less resourceful economic

agents, although the interests and time horizons of

productive and financial fractions of capital are not

identical. Thus central to my analysis in this paper is

that many of the changes in the 1970s and 1980s can

be understood in terms of growth in the structural

power of capital, especially internationally-mobile

capital, relative to most governments and the bulk of

organized labour (GILL and LAW, 1989). COX

(1992) captures other spatial, temporal and political

ambiguities and contradictions between production

and finance in the emerging world order:

Global production is able to make use of the territorial divisions of the international economy playing off one territorial jurisdiction against another so as to maximize reductions in costs, savings in taxes. avoidance of anti- pollution regulation, control over labour, and guaran- tees of political stability and favour. Global finance has achieved a virtually unregulated and electronically connected 24-hour-a-day network. The two components of the global economy are in potential contradiction. Global production requires a certain stability in politics and finance in order to expand. Global finance has the upper hand because its power over credit creation dcter- mines the future of production; but global finance is in a parlously fragile condition.

These ‘economic’ changes have gone with a recon-

figuration of forms of state, so that there has been a

process of political restructuring which can be vari-

ously termed the internationalizing, transnationaliz-

ing or, indeed, globalizing of the state (COX, 1987;

GILL, 1986b, 1990). What this means if that states

have become increasingly attuned to, conditioned

and restructured by the pressures emanating from the

global economy. In this context, then, we can speak

of an emerging global political economy which exists

alongside but is gradually supplanting the inter-

national political economy. The latter has been the

traditional focus of the political economy of inter-

national relations, understood as the interaction be-

tween states and markets (GILPIN, 1987;

STRANGE, 1988). The global political economy is,


of course, still configured politically by the division of

the globe into territorial entities and rival political

sovereignties, whereas economic forces, in particular

production and finance, are increasingly planetary in

scope.

Thus the prevailing forms of the state are changing.

However, there is a partial, but still relatively under-

developed internationalization of political authority.

It is reflected in the development of both public and

private forums which seek to reconcile, or to politi-

cally manage the economic and political contradic-

tions associated with capitalist development, during,

and perhaps following the cold war. In this sense we

can speak of the embryo of an international political

and civil society as a counterpart to the processes of

economic globalization.

In this context, the attempts to develop an inter-

national political society, and more specifically to

extend an international steering mechanism and

arrangements to underpin the systemic weakness of

global finance [e.g. under the aegis of the Bank of

International Settlements (BIS)] in the context of the

debt deflation of the late 1980s and early 1990s appear

both inadequate and incomplete. The transnational

policy nexus of the 1980s and 1990s has narrowed its

social basis (to exclude organized labour) since the

early 197Os, and this has implications for not only its

hegemonic appeal, but also for its economic priori-

ties, the number one being a monetarist ‘war on

inflation’ in an era of much higher unemployment in

the OECD regions than between 1945 and 1970.

Since the 1970s economic policy in the OECD (with

the exception of Japan) has had little impact in

generating sustained economic growth. This is dc-

spite the concerted efforts of the policy nexus of the

G7 governments, the IMF, the World Bank, the BIS

and the OECD. and a range of private organizations

(such as the Trilateral Commission and World Econ-

omic Forum). Moreover, there are substantial div-

isions in the ranks of these elites of globalizing capital

(GILL, 1992a; VAN DER PIJL, 1992). Thus this

process, fusing elements of international political and

civil society must be considered to reflect a still

limited and partial internationalizing of political

authority. In my work on the Trilateral Commission

and its associated networks (GILL, 1986a, 1990) I

GeoforumNolume 23 Number 311992

came to a similar conclusion to that developed by

COX (1992):

There is, in effect, no explicit political or authority structure for the global economy. There is, nevertheless, something that remains to be deciphered, something that could be described by the French word ntbuleuse or by the notion of ‘governance without government’. a transnational process of consensus formation among the official caretakers of the global economy. . . transmitted into the policy-making channels of national governments and big corporations [which] tightens the transnational networks that link policy making from country and country.

What Cox is referring to is the process associated with

the trilateral (U.S.-EEC-Japan) steering of the glo-

bal economy, in so far as it can be said to have been

practised at both public and private levels since the

inception of the economic summits of the G7. Since

1975, this centralizing of power and influence over

the making of economic policy, that is, the way it

informs and sets limits of political discourse with

regard to national and global economic policy, has

gone with the internationalizing of the state. This

somewhat obscure and contradictory process of econ-

omic co-operation has often been driven by initiatives

from the U.S., often at the expense of the U.S.‘s G7

partners, notably Japan.’

One is forced to conclude that G7 and IMF policies

have been applied inconsistently and with very mixed

success. The collapse of the U.S.S.R. in this sense

cannot be explained with reference to the triumph of

capitalism or the superiority of the Western strategy

perse, although the speed with which the ntbuleuse of

policy institutions and intellectuals was mobilized to

first restructure Poland in 198991990, and Russia in

1991-1992, was impressive. The Soviet collapse

mainly reflected the entropic tendencies of the post-

Stalinist models of political economy. The U.S.S.R.

was unable to compete with the more dynamic and

innovative forces within globalizing capitalism, and

to sustain the arms race escalated by the rearmament

policies of the Reagan Administration. However,

now that the collapse has occurred we see the process

of the internationalizing of the state in the direct form

of G7-IMF reconstruction efforts in east and central

Europe, and in the former U.S.S.R.

Again, to draw on Polanyi’s analysis of the

nineteenth-century rise of the market society, the

277

liberal state, the international balance of power and

the gold standard, it might be suggested that the new

forms of capitalist cosmopolitanism-both regional

and global in scope-appear to go further than the

previous high point of capitalist internationalism,

reached before, rather than after, the First World

War. This was politically embodied in the form of

hautefinance ‘a permanent agency of the most elastic

kind’:

Independent of single governments, even the most powerful, it was in touch with all; independent of the central banks, even of the bank of England, it was closely connected to them. There was intimate contact between finance and diplomacy; neither would consider any long-term plan, whether peaceful or warlike, without making sure of the other’s good will (POLANYI, 1944, p. 10).

Of course, this type of transnational nexus of public

and private power which is part of the process of the

internationalizing of the state is not new in the history

of capitalism. The political role of international

finance can be traced back at least to the financiers of

the Italian city states well before the Renaissance.

However, there have been important historical

changes since the time of the Renaissance, and in-

deed since the heyday of the International Gold

Standard, when international finance was practised in

the eras of feudalism and early industrial capitalism.

One of the most important is the rise of mass political

parties and political forces. Some of these have been

progressive, others reactionary. In this regard,

POLANYI’s (1944) analysis of the ‘double move-

ment’ of the 1930s is instructive, particularly given

that many parts of the world have been in a de-

pression for a number of years (e.g. Latin America

for at least 10 years, most of Africa for perhaps

longer, and east and central Europe and the former

U.S.S.R. since 1988).

The free movement of market forces in the 1920s and

1930s went with the subordination of domestic econ-

omic activity to the whims of international finance.

This often went with political authoritarianism.

Social forces associated with productive capital and

the state began to remobilize so as to protect society

from the ravages of market forces. The reaction

against unfettered market forces in the worsening

depression had a wide range of variants: the relatively

unsuccessful New Deal; the relatively successful (in

278

economic terms) Nazi system of planned economy.

Perhaps the 1990s will witness a new version of the

double movement of the 1930s: the globalization of

economic forces will meet a counteraction from state

and society to control the unfettered movement of

capital and to press for policies of social protection. It

is in this integration-disintegration nexus that we can

analyze the internationalizing of the state and the

changes associated with the crisis of hegemony in the

emerging order, and move towards a critique of the

prevailing orthodoxy: the economics of disciplinary

neo-liberalism and the politics of the ‘new consti-

tutionalism’.

Economic and Political Limits to Neo-liberalism

and the ‘New Constitutionalism’

Two trends stand out in terms of the analysis of the

1970s to the present. The first is the growth in the role

of the state in the economies of the metropolitan

capitalist nations. and a tendency towards fiscal crisis

which became especially pronounced during the

1970s. The second is the growth in the operations of

transnational corporations and banks, and a broader

growth in the structural power of internationally-

mobile capital. These trends are linked to the fact

that: (i) there is now an intensified process of inter-

state economic rivalry, reflected partly in the growing

ideology of competitiveness. that is an outward-

looking form of mercantilism; and (ii) the new mer-

cantilism is practised in a more integrated set of

international markets, and is driven by knowledge-

intensification and innovation in the context of the

‘Third Industrial Revolution’.

These trends have served to accelerate the globaliza-

tion of economy and polity, understood as both cause

and effect of the restructuring of production and

finance, and the restructuring of the state. This has

included, inter da, the internationalization of the

state. One aspect of this was the way that competitive

pressures have led states to reduce direct taxes, espe-

cially on capital and highly-skilled labour, whilst

attempting to sustain their tax base and income flows

by introducing regressive value-added taxes, by bor-

rowing in the financial markets, and by privatization

of state assets. With regard to the internationalization

of the state, this has involved a reorganization of the

agencies of the governments of many countries, often


under the direct or indirect supervision of inter-

national public agencies, such as the IMF. In this way

there is a hierarchy of the processes and effects of the

internationalization of the state, in so far as the G7

and IMF come to gain control over economic policy,

especially in the more economically vulnerable

states, and press for economic liberalization and

structural adjustment.

The changes noted above have gone with an intensiti-

cation of the dialectic of globality and locality in the

world order. This has nevertheless not produced a

more fully fledged internationalization of political

authority. Partly because of the hierarchical aspects

of the world order noted above, and because of the

contradictions of globalization for the G7, global

economic forces are not subject to any substantial

political control or popular accountability (see the

discussion below on the ‘new constitutionalism’).

This means that there is, to use the terminology of

public choice and nco-classical economics, an under-

supply of ‘public goods’ at the international level.

There is no adequate global political process or set of

political institutions with the capacity and legitimacy

to sustain, for example, the ‘public goods’ of macro-

economic stability, environmental protection and

international security. Attempts at the coordination

of economic policy by, for example, the G7, have not

produced stability. Indeed, the continuing systemic

weakness in the sphere of global finance is a key

indicator of this.

The restructuring of global production and finance

has involved substantial changes in the international

division of labour and the peripheralization of pro-

duction. This has been linked to a long decade of

indebtedness (personal, corporate and sovereign)

and the subsequent debt deflation in the 1980s and

1990s. There have been environmental problems and

economic chaos in many parts of the world. Together

with political violence and repression, these ‘econ-

omic’ forces are driving enormous movements of

peoples in a global process of economic migration,

with perhaps as many as 60 million people ‘on the

move’ in the late 1980s (SIMMONS, 1992). This

process, which has both internal and external dimen-

sions, especially in so far as it involves the movement

from ‘South’ to *North’ tends to deplete the poorer

regions of their skilled labour, creates problems of

urbanization in the Third World countries, and polit-


ical problems and pressures in the so-called ‘receiv-

ing’ countries. It helps to demarcate ‘winners’ and

‘losers’ in the processes of economic and inter-state

competition. As the renaissance of racist and neo-

fascist political parties in Europe attests, it provokes

atavism and racism in the politics of ‘receiving’

countries. Moreover, if unemployment in the ‘South’

continues to rise during the 199Os, we can expect the

number of migrants to continue to increase.

How are we to interpret the nature of these changes?

Of course there is no single or straightforward way to

do this. I have elsewhere used the term ‘patterned

disorder’ to describe the process of the recomposition

of dominant social forces in the ‘core’ metropolitan

capitalist nations (GILL, 1991a, 1992b). Whilst there

is economic chaos and a breakdown in social order in

many parts of the globe, ‘business civilization’ con-

tinues to weave its transnational political, economic

and social webs at the apex of the social structures of

world order (STRANGE, 1990). Thus, whilst global-

izing economic forces are integrating important

aspects of life on the planet, these same forces, in

conjunction with more locally based social forces, are

simultaneously serving to unravel and disintegrate

many of the social structures and forms of state

associated with the relatively hegemonic post-1945

order.

Moreover, since the crisis of the post-war order

emerged in the 1970s attempts have been made by

elites and political forces associated with globalizing

capit~~lism to redefine democracy in more limited

terms, grounded in the revival of the nineteenth-

century separation of economics and politics. This

has been linked to attempts to roll back the economic

frontiers of the state (e.g. through privatization) and

limit interventionism. A more subtle example of the

attempt to separate economics and politics is what I

have called the ‘new constitutionalism’ (GILL, 1992).

By this I mean the efforts by capitalist elites to legally

or constitutionally insulate economic institutions and

agents from popular scrutiny or political account-

ability (e.g. arguments in favour of independent cen-

tral banks, and the broader economic proposals for

EEC economic and monetary union).

Indeed, in the EEC discussions over economic and

political union there have been moves to consti-

tutionally restrict the possibility of future govern-

ments from not only manipulating exchange rates,

279

but also to limit the scope for budget deficits and thus

constrain their (and their successors) freedom of

manoeuvre in fiscal policy. In the EEC the lack of

accountability and popular appeal of European econ-

omic and political institutions is called the ‘demo-

cratic deficit’. Moreover, the ‘new constitutionalism’

seeks to gain ‘protection’ for the interests of

internationally-mobile capital from the intervention

of (politically accountable) governments who might

intervene to favour ‘domestic’ firms relative to

foreign ones, for example in the GATT Uruguay

Round negotiations, and in the way that IMF and

World Bank conditionality mandates open market

access for foreign capital, as well as privatization and

economic liberalization. Neo-liberalism and the new

constitutionalism are central to the IMF-G7-EBRD

proposals for the economic and social reconstruction

of eastern and central Europe (GILL, 199la,

1992b).”

As I have noted, the U.S. is the military guarantor of

neo-liberalism and the new constitutionalism. Never-

theless, it is the least likely of all the major states to

submit to its disciplines, in large part because of the

structural limitations of the U.S.‘s own political and

constitutional system, and because of U.S. centrality

in the global political economy. In addition the U.S.

politicians see themselves as being ‘bound [destined]

to lead’ (NYE, 1990), rather than, like Ulysses fore-

going the temptations of the Sirens, prepared to be

‘bound to the mast’ since this would imply the accept-

ance of c~~nstraints on U.S. freedom of manoeuvrc in

the interests of global macroeconomic stability

(GILL, 1991a). Nevertheless, even within the U.S.

itself, the contradictions of the Reagan-Bush era are

becoming more and more apparent, especially in

major U.S. cities and the agricultur~~l hinterlands. In

both locations there are similar phenomena to those

found, for example, in Brazil: racism, intensifying

economic inequality, growing (gangland) violence,

the outbreak of epidemics, and a general crisis in the

public infrastructLire, including heafthcare. In addi-

tion, the mood of the bulk of the U.S. electorate and

1J.S. political leaders is becoming more and more

anti-Japanese, whereas it has been Japanese inves-

tors who have supplied the bulk of the foreign finance

to keep the U.S. government afloat for most of the

I98Os.

More broadly, the economic logic of neo-liberal aus-

280

terity can be regarded as contradictory in so far as it

may be associated with global macroeconomics prob-

lems in the 1980s and 1990s. It relates to what

Marxists call the realization problem, and Keynesians

call a shortfall in global aggregate demand. In other

words there is the potential for an enduring global

depression, or a long-term crisis of underconsump-

tion. The economic crisis partly results from changes

in production which tend to eliminate the quantity of

labour and thus increase structural unemployment,

and from the simultaneous application of market-

monetarist deflationary policies which lower demand

in an era of slower growth. Deflationary macro-

economic policies, and the emphasis in the dominant

discourse on microeconomic rationality are also

bound up with concepts of economic development

which are still associated with ecologically and

socially insensitive thinking.

The engine of post-1945 economic growth was partly

fueled by cheap energy, and partly by the pump-

priming of global aggregate demand through

Keynesian policies to mobilize the Fordist structures

of mass consumption. The government expenditures

used for these purposes included, in the U.S. case,

substantial military expenditures at home and over-

seas. In the context of the debt deflation of the late

1980s and early 199Os, comparable in some ways to

that of the 193Os, and given the fact that much of the

world has been in an economic depression for several

years (involving the liquidation of capital and the

destruction of institutional and physical infra-

structure for economic development), there would

appear to be good grounds for arguing that capitalism

is entering or is already in a crisis of underconsump-

tion (PALAN, 1992).’ Workers are both producers

and consumers, and if there is a sustained decline in

their relative income shares then this is likely, at some

point, to mean a shortfall in aggregate demand, a

realization problem. This problem is accompanied by

indebtedness, financial fragility and macroeconomic

instability, to say nothing of corruption in high places

associated with the speculative bubble in the asset

markets in the late 1980s. especially in Japan. Whilst

there is no simple relationship between economic and

political crises, it seems clear that global politics in the

1990s will be highly unstable and the emerging world

order will fall far short of the hegemonic congruence

of social forces associated with the pax americrmcr.


Concluding Reflections: Counter-hegemonic Politics in the 1990s

FALK (1992) has referred to the emerging global

political economy as resembling a process of ‘global

apartheid’. This powerful metaphor, however, only

captures part of what is at issue, that is, the sense of

injustice, inequality and moral outrage which should

be attached to any evaluation of the causes and

consequences of global restructuring, which needs to

be understood as a reordering of global power re-

lations. Apartheid was a system of enforced labour

control which resulted from competition between

fractions of capital for labour in conditions of labour

shortage.” However, in the conditions of the 199Os,

with high unemployment and fierce competition for

mobile capital, the global political economy has

entered a period characterized by expensive capital

and cheap, plentiful, but ostensibly ‘free’ labour.

Moreover, rather than labour and capital being

politically allocated, increasingly questions of the

supply and demand for labour and capital are deter-

mined by market forces and in the absence of political

accountability.

Moreover, in contrast to the secular decline of organ-

ized labour world-wide, the really powerful force for

social change in South Africa today is the labour

movement with the armed struggle of secondary

importance. Change in South Africa has thus been

brought about mainly because liberation forces have

engaged in both what Gramsci called a ‘war of pos-

ition’ (the unions) and a ‘war of movement’ (the

African National Congress). In this context, the role

of the South African trades unions has gone well

beyond the defensive economism of unions in the

OECD countries during the 198Os, to encompass

questions of education and culture and their role in

the liberation struggle. The trades union movement

has made it clear that the whole structure of cdu-

cation is irrelevant to a post-apartheid South Africa.”

Perhaps a better metaphor for the contemporary

process of structural transformation is that coined by

COX (1992). Cox has termed this ‘global ileres-

troika’: a structural crisis in all of the main categories

of state and civil society in the emerging global

political economy (where the entropy and collapse of

the U.S.S.R. is an extreme case), driven in large part

by the forces of globalizing capital. ‘I’ What is emerg-


ing is a harsher and less legitimate social order, one in

which, to use STRANGE’s (1990) term, we can

increasingly discern ‘the forces of darkness’ (e.g.

intolerance and racism, that is, the fundamentalisms

of a religious, social, political, or economic type), as

well as an apparent narrowing of the substantive basis

for political participation as global social inequality

deepens. In the 193Os, as POLANYI (1944) noted,

the movement of globalizing forces provoked a social

backlash, which took not only the form of the New

Deal, but also German Nazism and Japanese militar-

ism, and multifarious variants of Fascism.

Nevertheless, what the South African case suggests,

in so far as the domestic struggle was related to

international mobilization of forces against aparth-

eid, is that, for a democratization of the forces of

globalizing capitalism to take place, it requires con-

certed and long-term political action across all levels

of society. It also implies that transnational links must

be forged between progressive political parties, social

movements and intellectuals to both theorize and

generate political change, world-wide. This political

process can be understood as serving to propagate a

counter-hegemony at the local, national and global

levels. Such counter-hegemonic forces, organized

and articulated on the basis of mutual tolerance and

respect, rather than premised upon a totalizing vision

(e.g. that associated with globalizing capitalism or

previously with Soviet-style global communism) can

insert itself into the changing configurations of polit-

ical and civil society, and begin to change the ‘limits of

the possible’ for individuals, groups and classes in the

emerging world order. It may be possible then that, in

the 199Os, we may reach the political limits of the

processes of social atomization and commodification

which have gone with the brave new world of disci-

plinary neo-liberalism, structural adjustment and the

social transformation of ‘existing socialism’. This

might involve a remobilization of the forces of state

and society in a range of countries against the rule of

transnational capital and of relatively unfettered

international market forces.

Notes

1. A historic bloc, for GRAMSCI (1971) is a political constellation of ‘objective’ and ‘subjective’ forces. and can operate at both ‘domestic’ and ‘international’

281

levels. An international historic bloc is conceptually quite different from the idea of a transnational alliance of ruling classes (or what orthodox Marxists would call an ‘ultra-imperialism’ of core capitalist states). This is because the post-war international historic bloc involved elements of more than one social class, albeit under the leadership of a forward-looking group, drawn from the internationally-oriented fraction of the ruling classes of the metropolitan capitalist states. Be- cause it encompassed both labour and capital it was more widely rooted in the social structure and its ideas were embedded in the ways of seeing and understand- ing the political and social world of key elements in both state and civil society (including those drawn from the media, education and perhaps churches). For such a bloc of forces to become hegemonic in the Gramscian sense, that is, to be considered as providing legitimate leadership and a broad, universal appeal so as to incorporate subordinate groups and classes, it would imply that rule by consent, rather than by coercion. characterizes statexivil society relations. Put more negatively, its perspective and policies become accepted because no credible alternative can present itself and mount a challenge to its political, social and ethical hegemony. Organic intellectuals, following GRAMSCI (1971), are those who seek to theorize the broad conditions for the reproduction of the hegemony of a ruling class of class fraction. They also help to articulate a hegemonic ideology and thus give identity to a given social order, expressed in relatively universal norms, values and social myths. In addition, organic intellectuals can bc understood as the practical organizers of hegemony in so far as they are able to theorize ways in which hegemony can be developed or maintained. This depends upon a long and often contradictory process. whereby ‘conceptions of the world are created and destroyed, reformulated and reconstituted by intellec- tual activity’. This group is *the entire social stratum which exercises an organizational function in a wide sense-whether in the field of culture or production or political administration’ (GRAMSCI, 1971, p. 97). Such intellectuals develop their ideas in ‘ideological apparatuses’, such as in political parties or informal organization (such as the cold war internationalists’ Bilderberg meetings, founded by J. A. Rctinger in the mid-195Os, or, for market monetarists, the Mont PCl&in Society, founded by F. A. von Hayek in the lY4Os). Whether the political masses adhere to the dominant or hegemonic ideology is a critical test of the ‘rationality and historicity’ of the ‘modes of thinking’ of organic intellectuals (LARRAIN, 1083, pp. 78-70. 80, X5). The embeddedness of global economic forces in domestic political structures is to be understood in both the Polyanyian and Gramscian (GRAMSCI, lY71) senses: I assume hcrc following my previous work (GILL, 1986. 1900; GILL and LAW, 1088) that the post-lY4S order in the metropolitan transatlantic heartland was relatively hegemonic at the international Icvel, especially when contrasted with the state monopolism and spheres-of-interest politics of the 1930s (VAN DER PIJL, 1984). Pcrx- nrnericnrrrr was underpinned by a broad-based, centrist political consensus at the domestic Icvel. underwritten by relatively consistent ccon-

282 Geoforum/Volume 23 Number 3/1992

omit growth and a commitment to social welfare, typified by Beveridge-type social protection.

6.

4. Nevertheless, despite the fact that discriminatory currency practices and exchange controls were disallowed under the Articles of Agreement of the IMF, there were two exceptions. Members could defer convertibility obligations for a transitional period (for most of Europe this lasted until 1958, and for Japan until the early 1960s) and members were allowed the option to regulate capital account transactions to avert the destabilizing effects of short-term speculative flows of money. The obligations concerning convertibility, moreover, only related to current account transactions. Indeed the IMF was designed to have three functions: (i) regulatory (the administration of exchange rate rules and currency convertibility); (ii) financial (the supply of international liquidity), and (iii) consultative (international monetary cooperation) in a type of modified Gold Standard where currency values were altered through the mechanism of the ‘adjustable peg’. that is to avoid the rigidities of a fixed exchange rate system and the shortcomings of floating exchange rates. The U.S. assumed a passive role in the adjustment process but provided global liquidity by running balance-of-payments deficits. However. after the return to European convertibility (1958), U.S. deficits soared and a dollar glut was created; gradually conf- dence in the dollar was being undermined and speculative attacks against the dollar occurred. The lack of sustainability of the system Icd to President Nixon’s decision to end gold convertibility of the dollar and undermine key aspects of the Bretton Woods monetary order in 1971 (COHEN, 1978, pp. 89ff).

Indeed, Jacques Attali, the Chairman of the EBRD, proposed at the October 1991 IMF-World Bank annual meeting in Bangkok that the republics of the former U.S.S.R. adopt a constitution modelled on the Treaty of Rome. On 14 April 1992 Attali also threat- ened withdrawal of the G7’s $24 billion support pack- age ($18 billion for balance-of-payments support and $6 billion to stabilize the rouble) to assist Russian economic reform if the Russian parliament voted no confidence in the draconian and unpopular IMF-style economic policies being implemented by Mr Ycgor Gaidar, the first deputy prime minister responsible for economic reform under President Yeltsin. The parlia- mentary opposition to the plan argued for lower prices of necessities and a slower pace of change to avert total economic collapse. The viewpoint of the U.S. government was reflected in the following comment dclivercd by James Brady, the Secretary of the Treasury on 11 April lY92:

The matter of world confidence in a reform programme here in Russia is one that is very important in terms of the transfer of money to this country. Some of the steps we have read about this week are steps backward in generating confidence (Financial Times, IS April 1992, my italics).

7

5. For example. the BIS’s rules on capital adequacy formed in the so-called Cooke Committee of central bank officials are, on the surface, intended to short up the capital base of the global banking system by 1993. This was because of the imprudent lending policies of the 1970s and 1980s which had exposed the weak foundations of the international financial system. In- deed the system was near to collapse in both 1974 (the bankruptcy of the Franklin National Bank) and 1982 (Mexican debt default). The BIS agreed international standards for defining capital and capital adequacy, which. in effect, made Third World lending much less attractive to the banks which were already pulling out of Third World lending and undermining the objcctivcs of the U.S. Brady Plan (PAULY, 1989). Moreover. BIS moves, led by the U.K. and the U.S.. appeared to be directed against Japan, which was accused of subsi- dizing the international expansion of its banks by keeping interest rates artificially low in Japanese domestic markets closed to foreign competitors. Ncverthc- less, Japan has also taken on a more significant leadership role in the G7, consonant with its status as the world’s major creditor nation; for example, coming to the rescue of the U.S. following the world-wide stock market crash in October 1987, as well as by providing the bulk of the long-term aid to developing nations. However, it is not clear whether G7 pressure resulted in Japan’s subsequent decision to expand its money supply and cut interest rates significantly after the crash. resulting in the bubble economy of 1987-19139. The subsequent deflation in asset and real-estate prices has severely weakened the Japanese banking system.

8

9

10

This argument contrasts with those theories which sought to explain the crisis of the 1980s as one of over accumulation and surplus liquidity. In the 1980s real rates of interest were very high (German rates rose in 19Y1 to levels greater than those experienced in the 1930s). However, the glut of global liquidity in the 1970s was deceptive since it was mainly in the form of recycled petrodollars invested by OPEC nations. Much of the rise in global interest rates can be explained in terms of the fiscal crisis of the state, and more spccifi- tally the growing indebtedness of governments at all levels in the system: national, provincial and local, and the subsequent competition to obtain financing in the global markets. PALAN (1992) makes the point well. Remarks made by James Mittelman at International Conference, Changing World Order and the United Nations System, Yokohama, Japan, 27 March 1992. Remarks by James Mittclman, Yokohama. Japan, 27 March 1092. “It is the result of structural changes in capitalism, in the actions of many people, corporate bodies and the state, that cumulatively product new relationships and patterns of behaviour. The project of globalprrestroiX_rr is less the conscious will of an identifiable group than the latent consequence of these structural changes” (COX. lYY2).

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economic globalization and the internationalization of authority: limits and contradictions

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