Trade and Political Power: The Past and Possible Ways Forward

By Arthur MacEwan, professor emeritus of economics at the University of Massachusetts Boston and a co-founder and associate of Dollars & Sense magazine. This is the final part of a three-part series on the era of economic globalization, the distribution of power worldwide, and the current crisis. It was originally published in the January/February issue of Dollars & Sense, commencing the magazine’s year-long “Costs of Empire” project. Parts 1 and 2 are available here and here.  Cross posted from Triple Crisis

The rhetoric of free trade, in any case, is simply one of the tools that the U.S. government, its allies, international agencies, and large firms use in shaping the world economy. Economic and political-military power is the foundation for this shaping. Following World War II, when the U.S. accounted for more than a quarter of world output, it had tremendous economic power—as a market, an investment source, and a source of new technology. U.S. firms had little competition in their global operations and were thus able to penetrate markets and control resources over a wide range (outside of the U.S.S.R., the rest of the East Bloc, and China). Along with this economic power, the military power of the United States was immense. In the context of the Cold War and the rise of democratic upsurges and liberation movements in many regions, the role of the U.S. military was welcomed in many countries—especially by elites facing threats (real or imagined) from the Soviet Union, domestic liberation movements, or both.

This combination of economic and military power, far more than the rhetoric of free trade, allowed the U.S. government to move other governments toward accepting openness in international commerce. The Bretton Woods conference was a starting point in this process; U.S. representatives at the conference were largely able to dictate the conference outcomes. In terms of international commerce, things worked quite well for the United Sates for about 25 years. Then, however, various challenges to the U.S. position emerged. In particular, the war in Indochina and its costs, competition from firms based in Japan and Europe, and the rise of OPEC and increase in energy costs began to disrupt the dominant U.S. role by the early 1970s.

Still, while the period after the 1970s saw slower economic growth, both in the United States and in several other high-income countries, the United States continued to hold its dominant positon. In part, this was due to the Cold War—the Soviet threat, or at least the perceived threat, providing the glue that attached other countries to U.S. leadership. Yet, by the 1990s, the U.S.S.R. was no more, and China was becoming a rising world power.

In spite of the changes in the world economy, the United States at first appears to have almost the same share of world output in 2016, 24.7%, as it had in the immediate post-World War II period, and is still considerably ahead of any other country. Yet this figure evaluates output in the rest of the world’s countries at market exchange rates. When the figures are recalculated, using the real purchasing power of different currencies, the U.S. share drops to 15.6%, behind China’s 17.9% of world output. Of course, as China has a much larger population than the United States, even using the purchasing power figures, per person GDP in the U.S. is almost four times greater than in China; it would be almost 7 times greater using the market exchange rates.

The rise of China has not moved the United States off its pedestal as the world’s dominant economic power. Moreover, U.S. military strength remains dominant in world affairs. Yet the challenge is real, even to the point that China has recently created an institution, providing development loans to low-income countries, to be an alternative to the (U.S.-dominated) World Bank. Investment by Chinese firms, too, is spreading worldwide. Then there are the military issues in the South China Sea.

At the same time, the United States is engaged in seemingly intractable military operations in the Middle East, and has continued to maintain its global military presence as widely as during the Cold War. Having long taken on the role of providing the global police force, for the U.S. government to pull back from these operations would be to accept a decline in U.S. global power. But, further, the extensive and far flung military presence of U.S. forces is necessary to preserve the rules of international commerce that have been established over decades. The rules themselves need protection, regardless of the amount of commerce directly affected. The real threat to “U.S. interests” posed by the Islamic State and like forces in the Middle East, Africa, and parts of East Asia is not their appalling and murderous actions. Instead, their threat lies in their disruption and disregard for the rules of international commerce. From Honduras and Venezuela to Saudi Arabia and Iraq, if U.S. policy were guided by an attempt to protect human rights, the role of U.S. military and diplomatic polices would be very different.

Continuing to operate on a global level to halt threats to the “rules of the game”—in a world were economic power is shifting away from the United States—this country is threatening itself with imperial overreach. Attempting to preserve its role in global affairs and to maintain its favored terms of global commerce, the U.S. government may be taking on financial and military burdens that it cannot manage. In the Middle East in particular, the costs of military operations during the 21st century have run into the trillions of dollars. Military bases and actions are so widespread as to limit their effectiveness in any one theater of operations.

The potential danger in this situation is twofold. On the one hand, the costs of these operations and the resulting strain on the U.S. government’s budget can weaken the operation of the domestic economy. On the other hand, in the context of the rising challenges to the U.S. role in global affairs and the rising role of other powers, especially China but also Russia, U.S. forces may enter into especially dangerous attempts to regain U.S. power in world affairs—the treacherous practice of revanchism.

Are There Alternatives?

Although globalization in the broad sense of a geographic expansion of economic, political, social, and cultural contacts may be an inexorable process, the way in which this expansion takes place is a matter of political choices—and political power. Both economic and political/military expansion are contested terrain. Alternatives are possible.

The backlash against globalization that appeared in 2016, especially in the U.S. presidential campaign, has had both progressive and reactionary components. The outcome of the election, having had such a reactionary and xenophobic foundation, is unlikely to turn that backlash into positive reforms, which would attenuate economic inequality and insecurity. Indeed, all indications in the period leading up to Trump’s inauguration (when this article is being written) suggest that, whatever changes take place in the U.S. economic relations with the rest of the world, those changes will not displace large corporations as the principal beneficiaries of the international system.

Nonetheless, the Sanders campaign demonstrated the existence of a strong progressive movement against the current form of globalization. If that movement can be sustained, there are several reforms that it could push that would alter the nature of globalization and lay the foundation for a more democratic and larger changes down the road (Sanders’ “revolution”). Two examples of changes that would directly alter U.S. international agreements in ways that would reduce inequality and insecurity are:

Changing international commercial agreements so they include strong labor rights and environmental protections. Goods produced under conditions where workers’ basic rights, to organize and to work under reasonable health and safety conditions, are denied would not be given unfettered access to global markets. Goods whose production or use is environmentally destructive would likewise face trade restrictions. (One important “restriction” could include a carbon tax that would raise the cost of transporting goods over long distances.) Effective enforcement procedures would be difficult but possible.

Establishing effective employment support for people displaced by changes in international commerce. Such support could include, for instance, employment insurance funds and well funded retraining programs. Also, there would need to be provisions for continuing medical care and pensions. Moreover, there is no good reason for such support programs to be limited to workers displaced by international commerce. People who lose their jobs because of environmental regulations (such as coal miners), technological change (like many workers in manufacturing), or just stupid choices by their employers should have the same support.

Several other particular reforms would also be desirable. Obviously, the elimination of ISDS is important, as is cessation of moves to extend U.S. intellectual property rights. The reforms would also include: global taxation of corporations; taxation of financial transactions; altering the governance the IMF, World Bank, and WTO to reduce their role as instruments of the United States and other high income countries; protections for international migrants and protection of their rights as workers. The list could surely be extended. Changes in international economic relations, however, cannot be separated from political changes. The ability of the United States and its allies to shape economic relations is tied up with military power. Military interventions and the threat of military interventions have long been an essential foundation for U.S. power in the global economy. These interventions and threats are often cloaked in democratic or humanitarian rhetoric. Yet, one need simply look at the Middle East to recognize the importance of the interests of large U.S. firms in bringing about these military actions. (Again, see the box on Smedley Butler.) It will be necessary to build opposition to these military interventions in order to move the world economy in a positive direction— to say nothing of halting the disastrous humanitarian impacts of these interventions.

No one claims that it would be easy to overcome the power of large corporations in shaping the rules of international commerce in agreements or to reduce (let alone block) the aggressive military practices of the U.S. government. The prospect of a Trump presidency certainly makes the prospect of progressive change on international affairs—or on any other affairs—more difficult. There is, however, nothing inevitable about the way these central aspects of globalization have been organized. There are alternatives that would not undermine the U.S. economy (or other economies). Indeed, these alternatives would strengthen the U.S. economy in terms of improving and sustaining the material well-being of most people.

The basic issues here are who—which groups in society—are going to determine basic economic policies and by what values those policies will be formulated.

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26 comments

  1. Gman

    An over extended Soviet Empire collapsed in no small part due to its obsession with winning a war, albeit one that thankfully remained ‘cold’, that it never could.

    A corrupt, nepotistic distant, paranoid elite that instead of dividing its efforts into looking after its own society’s well-being, as well a apparently just defending it, opted for near as dammed bankrupting itself attempting to feed an insatiable military machine it could ill afford (and would mostly never use) at its increasingly disaffected, divided, restive people’s expense.

    Mind you, they were just dumb Commies.

    1. JTMcPhee

      First, did the Soviet state “bankrupt itself damm near” mostly by trying to feed an “insatiable military machine,” or did the wealth of the Soviets get dissipated into other ratholes as well, alongside various external pressures and effects? And what scale applied to each political-decision “allocation”? One view, among a flood of intersecting and competing interpretations, of course:

      The stunning collapse of the Soviet empire in 1989-91 has often been heralded in the West as a triumph of capitalism and democracy, as though this event were obviously a direct result of the policies of the Reagan and Thatcher governments. This self-congratulatory analysis has little relation to measurable facts, circumstances, and internal political dynamics that were the real historical causes of the deterioration of the Soviet empire and ultimately the Soviet state itself. Fiery political speeches and tough diplomatic postures make good theater, but they are ineffective at forcing political transformation in totalitarian nations, as is proven by the persistence of far less powerful Communist regimes in Cuba and east Asia in the face of punishing trade embargos. The key to understanding the reasons for the demise of the Soviet Union is to be found not in the speeches or policies of Western politicians, but in internal Soviet history.

      1. Stagnation in the 1970s

      The Soviet Union was already in decline as a world power well before 1980. Any illusions of global Communist hegemony had evaporated with the collapse of Sino-Soviet relations in the 1960s. As the Nixon administration improved American relations with an increasingly independent China, the Soviets saw a strategic need to scale down the nuclear arms race, which placed enormous strains on its faltering economy. The threat of a nuclear confrontation was reduced considerably by the anti-ballistic missile (ABM) and strategic arms limitation treaties (SALT) contracted with the Nixon administration in 1972. This détente, or easing of tensions, allowed Leonid Brezhnev to focus on domestic economic and social development, while boosting his political popularity.

      Around 1975, the Soviet Union entered a period of economic stagnation from which it would never emerge. Increasingly, the USSR looked to Europe, primarily West Germany, to provide hard currency financing through massive loans, while the U.S. became a major supplier of grain.[1] Despite moments of anti-Communist grandstanding, the Americans and Western Europeans maintained trade relations with the cash-strapped Soviet Union, which dipped into its Stalin-era gold reserves to increase availability of consumer goods.

      Foreign trade and mild economic reforms were not enough to overcome the inefficiencies of the Soviet command economy, which remained technologically backward and full of corruption. Economic planners were frequently unable to diagnose and remedy problems, since they were given false reports by officials who only pretended to be productive. Soviet living standards remained poor by Western standards. By 1980, only 9 percent of Soviets had automobiles, which was actually a vast improvement under Brezhnev. Very little was computerized, due to state paranoia about the use of telecommunications for counterrevolutionary purposes. The USSR was able to endure this technological lag because its closed economy protected it from competition, but its ability to maintain military superiority increasingly depended on the ability to keep pace with Western modernization.

      In his radio broadcasts during the late 1970s, Ronald Reagan complained that the capitalist nations propped up the intrinsically flawed Soviet regime, instead of allowing it to naturally collapse from its own inefficiency and inhumanity.[2] In contrast to his later hagiographers, Reagan did not envision defeating the Soviet Union by forceful action, but instead he perceived that the regime would collapse from its own failings once the West removed its financial life support system. It is this early Reagan, far more thoughtful than he is generally credited, who proved to be most astute in diagnosing the state of the USSR. It did not need a foreign enemy to “defeat” it, for it was deteriorating from within.
      http://www.arcaneknowledge.org/histpoli/soviet.htm

      And I recall the Soviet military leadership was largely (no, not exclusively of course, humans being what they are) reacting to the clear and present danger that “the West” presented. Among many other considerations, of course. In the Great Game of “chicken,” in which we all are mostly passengers in the speeding cars with loony drivers ya-hooing out the windows, I recall the Soviets were the ones to veer off from that head-on collision that might have ended it all earlier than it seems increasingly likely to end anyway. And Russian leadership seems more concerned about the survival of the nation than our own clown-car leadership.

      Seems to me that all of us ordinary people, many of whom would gladly take advantage of opportunities to do some looting themselves, to “get ahead” in the “rat race,” if only those opportunities were presented, have insufficient collective concern about the many systems, living and political-economy, that apparently are collapsing or running out of control. And patently the military-security monkey that’s riding our backs is doing a p!ss-poor job of “defending us” in any ordinary sense of the term, and not even a vary good job of playing Imperial Forces. Though of course the net effects of military and political chaos-building and destabilization do blast out a nice open-pit mine for corporate looters to get at the extractables..

      But yeah, the halls of history are full of echoes and shadows and reflections in a glass darkly… And I wonder if London bookies are running a line on when history, as recorded and debated and acted out by humans, will REALLY end, thanks to our wonderful unbridled inventiveness and lack of that genetic predisposition to survive as a species that ants and termites and rats and cats and other “lesser creatures” seem to have…

      1. Pespi

        It’s also worth noting that Khrushchev and Brezhnev’s economic reforms turned the Soviet economy into something like the American insurance market, a mixture of market economy and planned economy that simply could not coexist and was bound to fail its task of providing necessary food and goods for soviet citizens.

  2. jsn

    Training people for jobs does not create jobs for them. Training would be an organic function of profitable businesses seeking employees. I’m old enough to remember what that was like.

    The issue is JOBS pure and simple for everyone that wants or needs one.

    Prosperous, secure people make progressive change possible: desperate, insecure people don’t. If you want security, make people secure.

    1. dragoonspires

      There’s the rub. Because the only way in the future to ensure enough of these jobs may be by using tax money from the well off to at least partially fund the scarce and missing jobs that won’t be created otherwise. How willing do you think they will be to see their tax dollars funding progressive causes? We say progressive/they say socialist.

      Until we convince enough people of these ideas and they actually vote (if their vote is still possible as suppression intensifies), this won’t likely happen. If you have a better idea on how to create these well paying secure jobs in the face of automation, etc. outside of winning elections the old fashioned way and using policies, I’m open minded and listening.

      1. jsn

        Campaign on a platform of Jobs, Education and Medical Care. When you win, which you will if you do these seriously, you provide them: the US Govt can pay for whatever it chooses so long as the real resources are there in the sphere it’s military controls.

        Americans, real resources, are here needing jobs, health care and education. Providing actual jobs could address all the things wrong with our cities, suburbs and rural landscapes from transit to affordable housing, and most importantly unemployment. Providing actual health care, rather than unusable “insurance”, well, I hope that one is self explanatory. Providing actual education rather than the facilities and administratively focused BS that passes for that now will fuel the critical thinking required to invent a sustainable future.

        Ideology is the only thing stopping us and most Americans are disgusted by the ideology being used to slowly kill them to make the 1% rich. Fiat issuing central governments do not need taxes in order to spend. They only need taxes to create demand for their fiat: tax un-productive wealth until it is productive and all this pays for itself.

  3. Marilyn Delson

    Been down this “protections for workers” road before and the TPP (Obama, Clinton). Sorry neolib-neocon globalist oligarchs. Rewording the messaging still has the same shit outcome for the middle class.

    1. Synoia

      The potential danger in this situation is twofold. On the one hand, the costs of these operations and the resulting strain on the U.S. government’s budget can weaken the operation of the domestic economy.

      Really? When the US can just issue the dollars to pay the bills? How does this weaken the economy?

  4. TomDority

    “Following World War II, when the U.S. accounted for more than a quarter of world output, it had tremendous economic power—as a market, an investment source, and a source of new technology. U.S. firms had little competition in their global operations and were thus able to penetrate markets and control resources over a wide range (outside of the U.S.S.R., the rest of the East Bloc, and China).”
    IMHO
    – Of course we did because our investments were in technology, industry and production which was tightly coupled with investment in infrastructure with a “market” much more free from economic rent. Economic rent pushes all production costs up particularly where property prices (farm land, indutrial land and home land use) surge or boom.

    “U.S. government to pull back from these operations would be to accept a decline in U.S. global power.”
    IMHO
    We are loosing global power not due to military projection but, that military projection is in support of financial projection which is a plague – responsible for global destitution in all the plenty the planet offers – we are obviously doing something wrong? yes. Further to that, we should not have weaponized finance and unleashed it on ourselves or anybody else. Yes, let us cede all to private interests – look how well that goes..snarc.

    “The potential danger in this situation is twofold. On the one hand, the costs of these operations and the resulting strain on the U.S. government’s budget can weaken the operation of the domestic economy. ”
    IMHO
    The costs of these (assume military) operations have not put a strain on US government budget but, the biggest strain on the budget is our unjust revenue system and finacialization of our economy where “investment” drives asset appreciation, making everything more expensive for living and working but, in no way involves the employment of labor to produce something worth having….say something like a habitable planet.
    So the real issue is we believe our own hubris to the point of mostly extincting the planet.

    Sorry for the sad rant… we need to look at the basis for prosperity and of the opposite, instead we see the results and assume it to be a natural cause when in fact it is not natural.

    Below is a quote from near a hundred years ago

    GETTING SOMETHING FOR NOTHING
    ,.,The/reat sore spot in our modern commercial
    life is found on the speculative side. Under present
    laws, which foster and encourage speculation
    business life is largely a gamble, and to “get
    something for nothing” is too often considered
    the keynote to “success.” The great fortunes of
    today are nearly all speculative fortunes; and
    the ambitious young man just starting out in life
    thinks far less of producing or rendering service
    than he does of “putting it over” on the other
    fellow This may seem a broad statement to
    some; but thirty years of business life in the
    heart of American commercial activity convinces
    me that it is absolutely true.
    If, however, the speculative incentive in modern
    commercial life were eliminated, and no man
    could become rich or successful unless he gave
    “value received” and rendered service for service,
    then indeed a profound change would have been
    brought in our whole commercial system, and it
    would be a change which no honest man would
    regret.—John Moody, Wall Street Publisher, and
    President of Moody’s Investors’ Service. Circa 1924

  5. Left in Wisconsin

    Goods produced under conditions where workers’ basic rights, to organize and to work under reasonable health and safety conditions, are denied would not be given unfettered access to global markets.

    American goods, too?

    1. steelhead23

      For policy-makers, decisions made on the basis of power, prestige, and profit are far more palatable than those made on the basis of human rights and the environment. This may seem simple, and the right thing to do morally, but it really is difficult. Your counterparties (let’s say, the Saudis) are known to punish minor crimes severely and they routinely abuse foreign workers. So, you want to add a few dinars to the price of oil. “Not so fast,” says the sheikh. “You have the largest prison population in the world, so we’re adding a tax to the price of wheat,” and midwest farmers are up in arms.

      Don’t get me wrong. I happen to think that trying to even the playing field and improve the lot of workers and the environment worldwide is a great idea. I just think it would be very hard in reality and would create both domestic and international tensions.

      1. TomDority

        “I just think it would be very hard in reality and would create both domestic and international tensions.”
        Yes it would be hard given the buyout of the governments by the financial elites — as to “create both domestic and international tensions.” – I would think they are already derivative of the same forces and already well established.

  6. Dana

    In this factual and historical state of affairs, is it necessary to prove in detail that there is no room today for any so-called political neutrality – the neutrality of the trade unions with regard to political parties and political struggles?

  7. Altandmain

    There needs to be a push to reshore manufacturing into the US.

    I don’t agree with Trump’s other policies, but he’s got an important point on this one. The US began to lose its middle class as the worst of the outsourcing happened.

    1. Minnie Mouse

      What about the physics and logistics of trade? At what point is the loss of manufacturing an unacceptable loss of physical functionality, strategic capacity, and technological knowledge base? Is diversification and national self sufficiency always safer than external dependency on long supply chains and the unreliable conduct of other nations?

  8. photosymbiosis

    The U.S. has the Byzantine disease, and there’s only one plausible prescription that makes any sense: a 50% reduction in the military budget (currently at $600 billion a year) and a redirection of those resources to domestic infrastructure, education, public health – the basis of economic growth is, after all, a healthy human population not living in squalor. But all the political leadership has to offer is more Third Worldization schemes, extraction of wealth from the middle class to feed the wealthy while poverty skyrockets.

    Historical analogy: French Revolution.
    http://www.guillotine.dk/pages/drawing1792.html

    … To build a real French revolution guillotine model you need the right measurements.

  9. Gman

    “In the councils of government,” he warned, “we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

    “We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.”

    From an oft quoted 1961 address by ‘General’ (yes, I know, as in military) now President Eisenhower.

    A genuine warning from history rather than the pregnant pausing, middle distance staring, ‘us folks should all get along’ grandstanding instantly forgettable rhetoric we’ve gotten used to hearing under Obama and others in some form or another.

  10. JEHR

    “The basic issues here are who—which groups in society—are going to determine basic economic policies and by what values those policies will be formulated.”

    Answer: The Billionaires and Squillionaires who value profits.

  11. chuck roast

    Olde Art has regressed a long way from his URPE days.
    With the exception the anti-militarist stance, Cory Booker will be totally on board with this nonsense in 2020. Until corporations are brought to heel and we begin to actively promote worker co-ops and worker owned businesses all this will be a bunch of politico-academic blather.

    1. SteveB

      Chuck,

      I was employed by then 2nd largest ESOP (1980’s). Workers were the owners and Union heads on the Board along with independent directors.. It failed after 7 years.. IMO as a result of poor management.

      But my observation from the experience is that unless workers have an “out of pocket” stake.. there is no
      true feeling of ownership…. at one point the workers went on strike…. against themselves…

      Although that was NOT the cause of the failure… it contributed to the perception by customers that they could not depend on us as a longterm supplier…

      Ironically one of the first customers to bail was one to whom we had made major concessions on price and terms… When they were in bankruptcy…. They made it… we did not…. (Thanks Lee)

      1. chuck roast

        Hello Steve B…
        Thanks for that.
        I have been aware for quite some time that ESOPs were set up as tax scams for the swine.
        I’d like to see more serious analysis on ESOPs.
        Best

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