Armies march, but they must have a destination. Empires go to war, but they must have a purpose. It is natural that when we think of empire, we think blood. The aspect of the American empire that is involved in war, torture, subversion, and espionage attracts the greatest share of critical attention. Yet, this is not the point of empire, and—as with torture, or terror—we must not forget the relationship between means and ends.
When the billionaire New York Times journalist Thomas Friedman spoke of the “hidden fist” of the US military making the world safe for Silicon Valley and McDonald’s,1 what was most arresting about his claim was not the assertion of America’s overpowering military dominance, but the connection he drew between politico-military power and economic power.
Pre-modern empires tended to be about the acquisition of fertile or resource-rich territory for landed oligarchies, the enslavement of populations for exploitation, and the conquest of trade routes. The Roman Empire annexed land for its rich landowners. The Dutch Empire used piracy to take control of trade routes. And the Spanish Empire’s colonization of Southern America, put crudely, turned the continent into vast gold- and silver-mining enterprise, and its population into slave labor.
The modern American empire is a different beast. Its network of military bases from Greenland to Australia is not part of a system of territorial occupation or annexation, but rather serves to localize American military power in convenient ways, so that it can maintain a system of states whose features suit its interests. In general, the United States wants access to trade routes, and can back up its claims with impressive naval power, but does not need to control them directly. And it has learned, by and large, to do without slavery since 1865, as waged labor has proved adequate. In the modern era, we have trade agreements, debt bondage, and structural adjustment. What the United States wants is to expand the domain of markets. In any national state, business classes derive an overwhelming advantage from their strategic control of markets. This is also true on a global level, so that US corporations stand to benefit most from the progressive opening of markets and trade.
The grinding, crashing halt of world markets in 2008, just as the Iraq “surge” was winding down and a lame-duck President Bush was on his way out, served as a sharp reminder of what the empire is all about. The crisis of the US banking system quickly caused havoc in the world system, illustrating how far American finance had penetrated the economies of allied states, and how far overseas banks were invested in the US economy. The subsequent response of governments to the banking crisis illustrated just how much American political leadership set the pace for the rest of the world.
It is highly appropriate, therefore, that WikiLeaks, in the same moment as it exposes the doings of governments, discloses reams of documents about corporate corruption and the links between governments and business.
EXPOSING BUSINESS
“Be afraid,” the Economist warned in 2010 when WikiLeaks announced it would release five gigabytes of secret files from a prominent financial institution.
Having gone after states, it would now be targeting corporations. In the future, business would no longer be able to depend on secrecy. “Employees increasingly bring their own devices to work. Even the simplest can store the equivalent of several tonnes of paper. And more and more people use social networks at work, which thrive on exchanging information.”2 Forbes magazine, an American counterpart to the Economist, was similarly worried. WikiLeaks “wants to spill your corporate secrets,” it announced. And it might succeed, because it “offers the conscience-stricken and vindictive alike a chance to publish documents largely unfiltered, without censors or personal repercussions, thanks to privacy and encryption technologies that make anonymity easier than ever before.”3
This fear was well placed. The year before these worries were aired, WikiLeaks had caused the giant multinational commodities- and oil-trading firm Trafigura considerable embarrassment by leaking the contents of an internal report on a toxic dumping incident in the Ivory Coast. The “Minton Report,” named after the consultant who was its chief author, told of how the company had broken EU regulations in what WikiLeaks called “possibly [the] most culpable mass contamination incident since Bhopal.”4
The reason for Trafigura’s culpability was clear. It had spotted an opportunity to make a swift, extraordinary profit margin by purchasing cheap, dirty fuel being sold off the coast of Mexico. In order to clean up the fuel, it would use a process banned in most Western countries, which resulted in the production of a toxic by-product that internal company emails cheerfully referred to as “crap” and “shit.” The issue, then, was what to do with the “crap.” Eventually, a local contractor was found in the Ivory Coast who would dump the waste for a fee, either unaware or unconcerned about the grim effects of the substance on human beings, including—according to the Minton Report—“burns to the skin, eyes and lungs, vomiting, diarrhea, loss of consciousness and death.”5
The company went all-out to prevent the disclosure of the document’s contents, securing a legal ruling with the assistance of the distinguished law firm Carter Ruck that prevented British newspapers from directing readers to the location of the report, or giving them any information as to how they could access it. When it later emerged that a member of parliament could use his parliamentary privilege to ask the secretary of state for justice a question about the matter, Trafigura went so far as to seek a “super-injunction” against the Guardian newspaper, again with the help of Carter Ruck, which prevented the paper from reporting on the parliamentary exchange.6
The previous year, the Swiss bank Julius Baer had suffered a similar squirming fit after WikiLeaks began releasing documents about the company’s operations that alleged its involvement in the concealment of assets for influential political figures, money laundering, and tax evasion. The company overreached in its response to the WikiLeaks revelations. It obtained an injunction against WikiLeaks, obstructing the circulation of the documents it found embarrassing, but this was not enough. It felt compelled to try to shut down WikiLeaks entirely, suing both the organization and its online domain registrar.
It initially gained an injunction but, after a furious public backlash and a series of counter-actions filed by WikiLeaks supporters, was forced to back down. The negative publicity was even more damaging for the company when a former employee who had supplied the incriminating information came forward in 2011 with thousands more documents pertaining to high-net-worth clients, which he said would shed more light on the company’s practices7 and on the wealthy individuals avoiding tax.
Among the other corporate targets of WikiLeaks over the years have been Kaupthing Bank, Peruvian oil dealers, Northern Rock, and Barclays Bank. WikiLeaks was also passed information on Bank of America and British Petroleum that it was unable to publish, partly because it lacked the resources to carry out a thorough fact-check. All of this by itself may simply constitute some good old-fashioned muck-raking journalism, exposing corporate malpractice and its almost inevitable corollaries of political corruption and repression. Indeed, the ramifications of WikiLeaks for investigative reporting and the future of the Fourth Estate have been the source of much academic hair-splitting and journalistic soul-searching.8 But what does it tell us, if anything, about the American empire?
We have learned from the bank bailouts that, when business cries out for help, it is the state that answers. The United States, in particular, had to take over the central global role in shoring up the private banking industry, saving capitalism from itself in 2008. This seems contrary to the “free market” doctrine according to which individuals and enterprises must bear the consequences of their bad investment decisions, or else those bad decisions will be repeated. This is a “thin Darwinism” that does not necessarily describe how markets really work, but the belief that “free market” orthodoxy had been undermined so scandalized American politicians that it produced a congressional revolt that almost prevented the bailouts from taking place.
But what we discover from the WikiLeaks documents is that there is no such thing as “free markets” without strong states—that nowhere does the “invisible hand” work without the mailed fist of government. For example, one batch of documents depicts the US government’s attempt to support its GM technology giants in overseas markets. The US ambassador to France went so far as to urge the Bush administration to embark on a “trade war” with the country in order to penalize it if it did not support the use of GM crops. Other leaked cables showed that US ambassadors across the world had taken up the promotion of GM crops as a vital strategic and commercial interest, including lobbying the pope to express his support for the technology, and thus undermine opposition in Catholic countries.9
In fact, research after the boom years of the 1990s showed that, of the Fortune 100 best companies, at least twenty would not exist at all were it not for state intervention. Corporations are notoriously bad at managing their international operations, and rely on government agents to open doors for them. An example would be Apple, whose immensely profitable iPhones and iPads rely on technology developed in the public sector and passed on to private capital. The company’s access to East Asian labor markets, which keep the costs of production low, depends crucially on the role of the US government in negotiating the opening of those markets to American investors.10 Again and again, wherever American officials carol the virtues of “free trade,” we find that it is political power that makes it possible for the US to dominate world markets and enjoy the benefits of trade.
A key part of this story, discussed below, is the emerging Trans-Pacific Partnership (TPP) free trade agreement. WikiLeaks published the fruits of some of the negotiations on establishing the TPP—negotiations that were still ongoing in 2014—drawing attention to a grave threat to freedom of information, civil rights, and access to healthcare contained in the proposed new laws. The agreement would, WikiLeaks noted, amount to “the world’s largest economic trade agreement that will, if it comes into force, encompass more than 40 per cent of the world’s GDP.”11 In fact, this agreement is two things: first, it is a corporations’ charter, assigning a variety of rights and powers to corporations in the name of free trade; and second, it is a result of President Obama’s “pivot to Asia”—his attempt to incorporate East Asian national economies into a trading bloc with the US excluding China. This is where the lion’s share of future economic dynamism will be focused, and the US is using its considerable political influence to ensure continued access to its benefits. It is, in other words, a fitting exemplar of the “imperialism of free trade.”
THE DIRTY SECRETS OF “FREE TRADE” IMPERIALISM
To understand the WikiLeaks revelations, and all that lies behind the violence and brutality outlined in previous chapters, it is necessary to understand the political-economic basis of this “free trade” empire. The American empire is of a new type, in that its mission—its “manifest destiny” as it were—is the global spread and institutionalization of capitalism.
The process that we now call “globalization” is often spoken of as if it were a natural, almost climactic process: a flourishing of “the market” that moves ahead in leaps and bounds as long as it is not impeded by state-imposed rigidities or artificial monopolies. This is rather akin to the way in which news media talk of “the market” as if it was an angry god whenever a recession strikes or a bank collapses, and the image is profoundly misleading. There are markets, each leavened in its own way by cultural and political structures, but there is no “the market.” It requires political leadership and initiative to bring markets into existence, make them socially and economically sustainable, and develop rules and institutions that maintain them. It requires time and planning to incorporate populations into markets. The United States has been able to use its political dominance since World War II to develop, in an often haphazard or self-defeating way, a globally integrated economy in which its businesses are dominant and have privileged access to key markets and resources.
Schematically, in the postwar era we can see that the American empire has ruled through two international regimes: the Bretton Woods system, and what Peter Gowan calls the “Dollar–Wall Street regime.”12 Bretton Woods fixed international currencies to the gold standard in order to prevent destabilizing price fluctuations and enable an international economy to develop. The International Monetary Fund was the key institution set up to manage this global system and adjust currency prices based on a cooperative arrangement. Of course, the United States dominated, but it ruled in what might be called a collegiate fashion, taking the bulk of responsibility for the world system while expecting allied states also to participate in the global administration of markets, currencies, contracts, and property. This was linked to a series of controls on the operations of banks and on the movement of capital in and out of countries, in order to ensure that capital was directed primarily toward productive investment and industrial development. It gave national states a degree of freedom in broadly planning the pattern of economic development.
This was not yet an era of global “free trade,” but that—as the editors of Fortune, Time, and Life magazines pointed out in 1942—was ruled out by the “uprising” of the “international proletariat.” In order to satisfy this political “uprising,” it would be necessary to have some controls on capital for a while. “Third World” countries were encouraged to develop their national economies using import-substitution strategies, so that stable business classes could take root. Meanwhile, trade with Britain and Europe would be the “strategic pivot” on which “the area of freedom would spread,” eventually creating the opportunity for “universal free trade.”13
In fact, there was no guarantee that “free trade” would ever be universalized. Certainly, the postwar system boomed. Between 1945 and 1970, world GDP grew by an average of 4.8 percent a year—although this figure concealed the enormous “catching up” of defeated World War II powers. And with growth came an expansion of global trade, the total volume of exports rising 290 percent between 1948 and 1968.14 And yet, by the late 1960s, the US economy was weakening, and in relative decline compared to Japan and West Germany—the two powers it had helped defeat, then helped to reconstruct. The war in Vietnam and the armaments spending it demanded was sapping the Treasury and the productive economy of vital investment funds. Relative domestic peace had given way to turbulence and the breakdown of “law and order.” And it soon became clear that the global economy, which had boomed under US tutelage since 1945, was entering a serious crisis. America’s global dominion might well have begun an irreversible slide at this point.
Under the Nixon administration, a series of decisions that were largely fortuitous from the US point of view enabled a remarkable re-pivoting of the entire world system on a new basis. US dominance entered a new phase. What Nixon did first was to abandon the gold standard, ending fixed exchange rates. The dollar was still the major international currency, the one in which most trade was conducted, but now its value could swing wildly, depending on what the US Treasury decided. The next move compounded the impact of the first. The Nixon administration downgraded the role of central banks in the organization of international finance, empowered private banks to lend, and sought a new regulatory structure that would liberate financial investors. The “cold” flows of money investment in production were quickly overtaken by “hot” flows of cash moving across borders, reacting sharply to the slightest international stimulus.15 None of this amounted to a master plan for world domination, and indeed the changes were effected initially against considerable resistance within the state, and even from the banks.
But the effect was to empower finance, which also helped to solve growing domestic problems. American businesses, by the late 1970s, were convinced that wage-driven inflation and union militancy were the major problems holding back a revival of profitability. The Carter administration looked to Paul Volcker, chair of the Federal Reserve, to address the problem. He reasoned that, to provide stable investment conditions, it was necessary to anchor the expectations of workers and consumers to a fixed criterion. Whereas the “gold standard” and fixed exchange rates had created some stability in the postwar system, the new criterion of stability was counter-inflation. This was to take precedence over traditional postwar objectives such as full employment or managing consumer demand through incomes policies.
The Federal Reserve therefore embarked on a strategy of driving up interest rates to punishingly high levels—the so-called “Volcker shock”—in order to break the inflationary expectations of wage-earners. Soaring unemployment was an acceptable political price in order to establish the objective of counter-inflation. This was exactly the monetary policy that Wall Street had wanted for some time, and to some extent it was possible because of Wall Street’s frenetic expansion after the abolition of exchange controls in 1974. But, more importantly, it was possible because businesses in other sectors, such as industry, had come to accept that empowering Wall Street was a necessary condition for their problems to be resolved.16
With the freeing and expansion of international financial markets, the importance of the dollar was magnified, and with it the impact of any changes in the dollar’s value. This was a tremendous source of political strength, enhancing the global role of the US Treasury. And it landed other countries with a restriction that the United States did not face: they had to worry about their balance of payments and ensure they had enough international currency to cover the goods purchased from overseas, while the United States could always just print more of its own currency. Wall Street and its less regulated sidekick, the City of London, dominated the new international financial system, and a series of international agreements—most notably the financial services agreement arising from the Uruguay Round of the GATT negotiations, lasting from 1986 to 1994—consolidated a new global regulatory structure that favored financial “innovation” (the freedom of financiers to develop ever more intricate instruments for maximizing royalties, however risky). The IMF, meanwhile, came to play a key role in using debt to open the markets of the global South and force the “structural adjustment” of their economies so that they would become more tightly integrated into the Dollar–Wall Street regime. Finally, a flurry of new international treaties, regional trading blocs, and multilateral organizations developed: the euro was born, the North American Free Trade Agreement (NAFTA) was signed, and the World Trade Organization (WTO) was launched. IMF “shock therapy,” previously a treatment chiefly reserved for the Third World, was rolled out in Russia and eastern Europe.
This sequence of outstanding successes was linked to another change in the mode of American domination. In the postwar period, US attempts to manage the world system had necessitated reliance on a string of right-wing dictatorships that were relied on to modernize their national economies, creating an indigenous business class while averting the influence of communism. In the early, transitional phase of the Dollar–Wall Street regime, a wave of extraordinary violence was unleashed in America’s old “backyard,” beginning with the coup in Chile and culminating with the long war of attrition in Nicaragua. This was partly a counter-insurgency thrust against rising leftist movements that threatened the position of local business classes. But it was also linked to a series of reforms—economic liberalization that strengthened business elites with an international orientation, and later, as the wars were won, political liberalization tied to human-rights discourse.
In the post–Cold War world, the reigning world-view was that liberal capitalist democracy was the ultimate terminus of history, the endgame to which all states tended. And the more America’s “backyard” was integrated into the world system, the more it opened its markets, allowed public goods to be privatized and run by US firms, and the more it signed up to global and regional trade treaties, the less need there was for direct violent interventions. The political form of dictatorship often became more of an impediment than an asset, and the United States was even willing to offer limited support to some pro-democracy movements, provided they were congruent with the overall goal of expanding “free markets” under the direction of strong states.
But this was only a tendency. As we have seen, the United States cannot entirely dispense with the old, crude techniques of coups, puppet regimes, and wars. The world system, even were it not structured by inequities that propel conflict, can never attain perfect and perpetual coherence and thus ascend to the Kantian paradise of eternal peace. The “hidden fist,” as Milton Friedman called it, is ever present. But the “hidden hand” works wonders too.
WHERE ARMIES FAIL, MARKETS SUCCEED
Winning without fighting
Why does the American empire bother to support coups in Haiti or Ecuador? Why have repeated governments sent troops into the Dominican Republic? Why did Reagan go to war for the tiny island-state of Grenada? In many cases, it is difficult to discern a material interest commensurate with the outlay of American force. Surely, for example, Grenada was not invaded for the sake of the nutmeg trade? Could it be that, as Oxfam suggested of US policy in Nicaragua, they are worried by “the threat of a good example”?17 This would imply, at least, that “interests” could be interpreted more broadly than the usual assumption that wars are waged for oil companies, or Pepsi, or United Fruit. Of course, such narrowly self-interested interventions have been waged from time to time. But an empire in rude health has what might be termed higher aspirations. Its higher purpose can be summed up as the universalization of “free markets,” and the institutions and laws sustaining them.
One of the long-term benefits of achieving the subsumption of ever larger areas of the world under the law of the market is that, once institutionalized, it does its work almost automatically. In fact, the market can often succeed where military efforts might fail. Take Vietnam. Through the 2000s, over a quarter of a century after US defeat to the Viet Minh, WikiLeaks’ disclosures show the US embassy in Hanoi charting with some satisfaction the Vietnamese government’s incorporation into US-led globalization. This included laying the foundations for accession to the WTO, engaging in market-led reforms and privatization programs, and willing submission to IMF orthodoxy and compliance with all necessary prerequisites for participation in IMF structural adjustment programs.18 Such programs are notorious for the effects they have on national economies and for the ignominious nature of dependency they generate between debtors and creditors: in short, debt bondage. On the other hand, they are extremely useful tools for the United States, in that the loans can be selectively deployed to help countries more indebted to American corporations, or those that are politically close to the US government.19
Why did the Vietnamese government, nominally a socialist one that had defeated the American empire in a horrifying war, accede to this? The short answer is that the new Politburo’s attempt to reconstruct the economy of a unified Vietnam on a statist basis after the devastation of war was simply untenable in an increasingly integrated and competitive world economy. The attempt to make a rational allocation of economic resources and to plan efficiently turned out to be too difficult. In a global economy in which the price fluctuations of almost all goods and services were under no one’s control, and in which Vietnam was often isolated, it was practically impossible.
The Politburo’s eventual conclusion was that its problems were caused by a failure to obey the “objective laws” that guide economic affairs everywhere. The discovery of such “objective laws” was to an extent an evasion of responsibility. As US planners had learned, real-world economies do not behave according to such abstractions, which take no account of the complex relationships between political structures, law, property, and markets. It was nonetheless highly convenient, inasmuch as it allowed the Politburo to follow the Gorbachev administration in embracing privatization and pro-market policies. And in short order, since Vietnam owed over $1 billion in debt, the IMF offered its services and, of course, recommended the same policy mix as it recommends to all would-be debtors: cut subsidies, remove price controls, remove exchange and capital controls, privatize and let the market rip.
The classic debt trap was initiated. The more Vietnam borrowed from the IMF, the more it needed to borrow, and its rate of indebtedness soared. The more it adopted “free market” policies, the more dependent it was on markets and the less able it was to apply controls. The United States had visited an apocalypse on Vietnam to avert the danger of “communism,” and failed. But where it failed, debt, finance, and the institutions of global capitalism succeeded.20 And this, as the case of Ecuador illustrates, is a problem that still dogs attempts to revive socialism in the current century.
The Dollar–Wall Street regime
Ecuador’s Rafael Correa had frightened Washington badly with his promise to implement “twenty-first century socialism.” Studying the WikiLeaks cables, it is obvious that, from early on, the embassy in Quito was concerned about the appearance of this “dark horse populist, anti-American candidate.”21 As in the case of Haiti’s Jean-Bertrand Aristide, “populism” is troublesome to the United States because it is linked with anti-market politics. And yet here the US approach has been consistently far more subtle and relaxed than in Venezuela, Haiti, or Honduras. Its interventions were limited, selective, and free of the traditional sabotage, coup-plotting or military interventions—leaving aside the vexed matter of Colombia’s violations of Ecuadoran sovereignty in its US-backed war with FARC, which incursions the US does not seem to have supported.
Correa emerged as a leading figure in Ecuadoran politics in the period when the Bush administration was attempting to win Latin American support for a Free Trade Area of the Americas (FTA). Venezuela’s Hugo Chávez had already successfully blocked a US-supported coup attempt, and was implementing a left-populist agenda of redistribution and public spending. He had launched the Bolivarian Alliance for the Peoples of Our America (ALBA), an alliance with Cuba that would go on to incorporate Bolivia, Nicaragua, and Ecuador. More than a trading agreement, it aimed to integrate member states around a common leftist political and social agenda. Related agreements included an inter-government energy company called PETROSUR, which would fund social programs, and the regional media conglomerate TeleSUR, considered a hostile entity by the US government.
At the turn of the millennium, Ecuador had been a fully signed-up partner of the United States in its neoliberal “free market” project. It had participated in the drug wars by allowing US surveillance aircraft to use its airbase in Manta. It had undergone dollarization in January 2000, using the US currency in place of its own. This was the result of a policy turn initiated by the United States in 1999, at the tail end of the Clinton era. The United States had last engaged in “dollar diplomacy,” attempting to export the dollar to Latin American countries, at the beginning of the twentieth century. But this had been far more limited in the past, as US diplomacy had simply sought to encourage Latin America to adopt the dollar alongside its national currency.
This had its advantages, particularly in countries or economies that were only partially independent and where large numbers of American workers were based. In these cases, the dual currency could be used to maintain a Jim Crow structure, with US workers paid at dollar rates and indigenous workers paid at local rates. But in the Cold War era, under the reign of Bretton Woods, the US expressly preferred that Latin American governments de-dollarize and maintain their own stable currencies. This was partly because US policy-makers recognized the major lesson of the interwar period, which was that a monetary system where currencies were pegged to a single value could actually exacerbate international instability. It also constituted a recognition that, in order for these countries to develop a solid industrial base, they would need to make use of capital controls and deploy monetary policy to encourage economic growth.
The millennial turn to aggressive “full dollarization”—in which the dollar replaced the local currency entirely, at the high point of neoliberal transformation—was a significant moment. It meant national governments giving up control of monetary and exchange policy—important instruments for democratic intervention in market economies—in the interests of countering inflation, which had ravaged the Ecuadoran economy in the 1990s, and maintaining stable investment conditions for finance.
US government publications noted that this transformation would open new opportunities for US financial institutions, and also provide a vital material basis for a new Free Trade Area. Meanwhile, currency devaluations were no longer in the gift of the national government, but were now controlled by the US Federal Reserve.22 This helped local elites allied to Washington to lock neoliberal policies in place. This was hugely controversial in Ecuador partly because of the conditions that came with it: wage cuts, public-sector job losses, and gas price increases. The protests over the measure converged with a rising arc of mobilization by the country’s indigenous population and formed part of the basis for the popular movements that later brought Correa to power.
Already in 2005, when Correa was minister for the economy in a populist administration, the US embassy in Quito had noted that he was “a strong critic of the FTA negotiations.” Correa favored abandoning the tight fiscal policy of the former administration that had aligned closely with the US and using oil revenues to invest in public-sector wages and development. He was critical of “trade liberalization in general … of the IMF, and of any orthodox economic reform.”23 A further cable noted that “Correa made public statements on April 21 that foreign debt needed to be renegotiated, that Ecuador’s oil revenue needed to be spent on social programs, that Ecuador would be completely sovereign in its relations with the IMF, and that any free trade agreement would be submitted to a referendum (where it would most likely be voted down).” The cable went on to report concerns expressed by the central bank president that Correa’s statements might lead to “serious financial damage.”24 The next cable expressed even more alarm: “Of critical concern are early indications that brash young Economy Minister Rafael Correa is considering a debt moratorium.”25 This indicated the real source of US worries. On the one hand, the US should not be overly worried if a government in its sphere of influence made some concessions to a popular movement by raising public spending a little. Such measures can be temporary. But in the thirty-three years since Ecuador’s military dictator General Rodríguez Lara had promised that exploiting the country’s oil resources would help alleviate pauperism, the country was still blighted by poverty. Taking control of the oil and diverting oil revenues from debt repayment were essential if social spending was to increase, and the country’s debt was both a key component of the country’s financial interests and a critical lever by which successive governments could be encouraged to implement the Washington Model. Thus, the government was abandoning “fiscal responsibility.”
On top of this, Correa was a vocal opponent of dollarization,26 which he would reverse if he thought it practicable. He supported state control of the oil fields and had committed to ending the agreement with the US military. International financial institutions, unsurprisingly, did not like Correa’s ideas, which they found “naive and outdated,” and they were “reaching out” to key officials to frustrate this agenda.27
Nevertheless, any sense that the country’s business class would put up determined resistance turned out to be misplaced. Business murmured private “concern,” but there were “few signs of capital flight.” The US government, despite its worries, was tactically cautious, looking to the Organization of American States to keep watch over the situation. A visit by the OAS would be “viewed skeptically” by the Ecuadoran government, “its more nationalist backers, and by the protest movement which brought them to power.” The embassy recommended, in order to “blunt local resistance to foriegn [sic] oversight of the internal political situation [that] the OAS mission be encouraged to strike forward-looking themes, and deflect attention from recognition or judgment of the change in government per se.”28
Later, as Correa looked likely to win the 2006 presidential elections, the United States invested in an “elections working group” to try to ward off support for “populist politicians who promise magic solutions that haven’t worked anywhere.” The embassy noted: “[W]e have warned our political, economic, and media contacts of the threat Correa represents to Ecuador’s future.” As it turned out, the National Endowment for Democracy, an organization set up in the 1980s to take over some of the covert functions of the CIA, also invested $1 million in Ecuador that year, a large chunk of it being deployed to assist the major opposition to Correa. Even so, the embassy noted that it was keeping dialogue open with Correa to “avoid estrangement.”29
Despite US subventions, Correa won. Indeed, he rapidly had what the United States called—not without a certain admiration—“the strongest political organization that the country has seen since returning to democracy in 1979.” More importantly, its profile represented a profound generational change, with its representation in the National Assembly “relatively young and well-educated, with women, Afro-Ecuadorians, and the indigenous well-represented.”30 His program, the embassy noted, was a relatively “moderate” version of what Chávez and Morales called “twenty-first-century socialism.”31 And in fact, given the bogey alternative of full-blooded Chavismo, the US seems to have been pleasantly surprised by just how convivial Correa’s government was. Even the radical constitutional reform of 2008 generated little response from the embassy other than interest.32 The IMF, for its part, indicated that “a high level of anxiety is not merited.”33
Among the positive signs coming from Ecuador was that Correa was prepared to combat the social movements that had brought him to power, as when protests caused a petroleum shutdown: “In contrast to the previous administration that sent [Government of Ecuador] teams to negotiate with communities on additional benefits, Correa is sending a strong signal that he is not going to stand for protests that affect the country’s key petroleum revenues.”34
Certainly, Correa’s “tendency toward market interventions” was irritating. Citing the case of the cap placed on the price of milk, the ambassador noted that, while it was hardly an extreme policy, “it is not a good sign if this type of control ends up being used more widely.”35 The administration’s tax reforms were “breath taking” in their ambition and suddenness, but “probably more good than bad.” The embassy echoed the views of the Ecuadoran business class who, it said, were strongly critical of the imposition of a tax on capital movements, as it would lead to capital flight. But also, citing the IMF, suggested that the decision to freeze VAT rather than cut it suggested that the government was relatively pragmatic.36 Even as public spending rose dramatically, reaching 44 percent of GDP in 2013, the IMF was relatively gracious in its advice to the Ecuadoran government, acknowledging the important role of the public sector in driving growth while still championing private-sector investment.37
What the US government found consistently problematic were the administration’s measures aimed at strengthening national sovereignty against its incorporation into a neoliberal development model. As a result, Ecuador withdrew from several bilateral treaties,38 including with the United States; abandoned the International Centre for Settlement of Investment Disputes,39 a World Bank court formed in 1965 to arbitrate in disputes between states and private capital; rejected pleas from major firms such as Apple and RIM to abolish tariffs;40 and reformed intellectual property law to support access to medicine—including HIV drugs—as a vital public interest.41 Importantly, reflecting the administration’s support for a return to import-substitution, the production of drugs was to favor local producers rather than multinationals.
What the US government therefore did in Ecuador, rather than demonize the government and throw its support behind a military putsch, was to gripe. There is some evidence in the cables of lobbying, secretive maneuvering, and, in the case of drug patents, coordination with pharmaceutical business interests—albeit to little overall effect. But, for the most part, the embassy appears to have confined itself to grumbling. In regard to the rebuff to Apple and RIM, the US embassy petulantly complained that these companies, among the “most iconic” in the world, were not welcomed “with open arms,” and lamented that Ecuador’s leaders were evidently “not interested in unleashing the entrepreneurial spirit,” but instead had a “short-term” focus on “leveling society, protecting what they have, and allowing foreign companies into Ecuador on their terms.”42
Ultimately, for all these histrionics, and for all the warnings about the Correan “dark horse” and his “magic solutions” representing a “disaster” for Ecuadoran development, the US even found itself grudgingly acknowledging the success of the government as—far from fleeing—capital was attracted to Ecuador.43 The response of ambassadors and other diplomatic staff to Correa was certainly rich with bombast and self-righteousness, but when they remarked that the government’s policies were more “practical” than its rhetoric, they were shrewd. They saw that, if the administration genuinely aimed to develop in a world economy integrated under US dominance, it had limited room for maneuver. Capital flight was constantly invoked as a danger—and it would be perilous indeed for the government to challenge the rights of capital fundamentally.
As it is, the reforms reflected the moderate, progressive aspirations tied to what the embassy, also shrewdly, regarded as a generational shift in Ecuadoran politics. However much Correa’s nationalism and mild reformism grated against the preferences of American diplomats schooled in the US doctrine of “free enterprise,” the position of the country’s business class was not seriously threatened. At the time of writing, Ecuador’s participation in global institutions like the WTO and close work with the IMF continues. It is unlikely to abandon dollarization, which has offered the counter-inflationary bulwark that financial investors have sought. The long-term prospects for US investors might even be improved by the development of an autonomous Ecuadoran industrial base.
The previous chapter examined how torture had evolved as a tool of imperial discipline, and how the CIA had invested in decades of work trying to find more subtle and effective modes of torture, rendering the rack unnecessary. Analogously, the American empire is developing a far more subtle science of domination than its predecessors. The case of Ecuador shows that, once market-dependency has been cultivated and global capitalism thoroughly institutionalized under US dominance, what Marx once called the “dull compulsion of economic relations” will do much of the work by itself.
THE IMPERIALISM OF FREE TRADE
When sheep eat people: Enclosure in the twenty-first century
Thomas More complained in his fiction Utopia that sheep had begun to eat people. How had such notably mild creatures, “that were wont to be so meke and tame, and so smal eaters,” turned savage? More blamed the enclosures. These were a process by which lords, seeking to make money through the production of sheep wool, kicked peasants off the land they had customarily inhabited. The result was human starvation, while sheep passively grazed.
From the fifteenth to the eighteenth centuries, vast tracts of land were converted into private property. As the economist Karl Polanyi pointed out, were it not for the intervention of the Tudor and Stuart states to manage the fall-out, the resulting social catastrophe might have been enough to wipe out large swathes of humanity.44 This process was then repeated in one domain after another, as more and more areas of life previously held in common were commodified. First sheep ate people, then machines dominated humanity. Now, increasingly, information is our master.
In 2014, WikiLeaks revealed drafts of two obscure “free trade” treaties, one called the Trade in Services Agreement (TISA)45—being pushed through the WTO—and the other called the Trans-Pacific Partnership (TPP).46 As usual, it is a misnomer to refer to these as “free trade” treaties, since the scope of their action extends well beyond issues of trade. The central issue in these drafts is not trade but property, and the circumstances under which information can be held as property.
The origins of the idea of intellectual property extend back to the seventeenth century, but only with the rise of advanced information and communications technology did it begin to become the major global concern that it is today. The emergence of these technologies coincided with the globalization of finance and commerce, the emergence of transnational corporations as major global actors, and the spread and development of international commercial and property law. These are the forces that have made intellectual property in its present form possible.
Intellectual property rights in the era of the internet have become the modern legal form of enclosure—the means by which the status of valuable knowledge is settled at the expense of the majority who have no property in knowledge. It has been institutionalized through successive rounds of trade talks and recognized in global bodies such as the UN World Intellectual Property Organization (WIPO), the WTO (with its Trade-Related Intellectual Property agreements, or TRIPs), and the EU and OECD. This state of affairs is neither inevitable nor “natural,”47 but the discussions at the level of global institutions are largely predicated on agreement among the parties as to the naturalness and ineluctability of intellectual property, with differences largely confined to questions of application.
It is clear from the leaked documents that the American empire, in the person of the US trade representative, is pressing for the globalization of the most severe current interpretations of copyright law. The portion of the TPP draft leaked via WikiLeaks centrally involves a chapter on intellectual property rights, which demands laws punishing the circumvention of Digital Rights Management technology (DRM), lengthens copyright terms, and treats the breach of trade secrets as a criminal act (which could potentially penalize journalists). In addition to such measures, WikiLeaks highlighted the threat to healthcare, as the United States cited intellectual property rights to defend the creation in law of artificial monopolies in the production and retail of life-saving drugs, including cancer treatments.48
The draft TPP agreement is not, of course, lacking in sophistication. It recognizes that the commitment to TRIPS will have to be modified in each member state by a recognition of its legal traditions, and by flexibility as to the methods and tactics needed to implement such laws. It acknowledges that member states will need to implement certain protections for access to affordable medicine and healthcare, without which the agreement might be democratically untenable. In some versions of the agreement, this could mean granting limited exceptions to patents so that governments could—in a narrow range of cases—authorize the production of low-price drugs in return for royalties to the patent holder. However, in the course of negotiations the availability of even this option was restricted.49
TISA, driven by a coalition of member states of the WTO led by the United States, has similar provisions, seeking, for example, to prevent national governments from enforcing their own privacy laws.50 It also supports the privatization of public services—another form of modern enclosure—and promotes the lifting of regulations that protect environmental or labor standards. Countries signing up to TISA would be locked into their existing liberalization commitments and pushed to extend them, thus narrowing the scope for democratic policy-making.
As with previous processes of enclosure, however, the promised rewards are considerable. The US Chamber of Commerce supposes that the “payoff … could be huge” and “a once-in-a-generation opportunity” for American services firms:51 “Eliminating barriers to trade in services could boost US services exports by as much as $860 billion—up from 2012’s record $632 billion—to as much as $1.4 trillion,” the Chamber drooled. And indeed, with transnational firms given monopoly control over the development and sale of crucial medicines, technology, and content in the name of intellectual property, and with US companies invited to profit from the provision of what had been public services, it is difficult to deny their right to such hand-rubbing glee.
Like almost all such documents, these treaties are obscure. Negotiated in relative secrecy by national governments, they are implemented without consultation. We find ourselves being governed according to these laws despite never knowing how or why they were imposed. This is partly because such treaties are a convenient way of bypassing democratic processes. For example, when the US Commerce Department wanted to implement harsh laws criminalizing the circumvention of DRM in the late 1990s and was unsure of the congressional response to such proposals, it lobbied the US trade representative to propose them at the WIPO. With the rules thus included in a binding global treaty, Congress could then be instructed that it was required to implement them in law.52 The result was the Digital Millennium Copyright Act, which has played a key role in protecting intellectual property online.53
Were it not for the existence of Wikileaks, we would not even have at our disposal the scant information about these reforms that we do, and thus would not have the opportunity to protest, as hundreds of global organizations did when the disclosures were made. As these examples show, however, secrecy does not necessarily equal conspiracy. On the contrary, there are deep divisions within and between national governments over how to proceed, and over the correct institutional locus for action. The leaked TPP content demonstrates that the US is finding it difficult to mobilize agreement on its preferred copyright laws.54 In a similar way, while many of the policies pursued in international agreements are driven by powerful business coalitions—TRIPs being a case in point55—there is no simple translation between a business consensus and government policy. The TPP provisions are controversial with some elements of the pharmaceutical industry, while, as a whole, it could expect to profit from them: the producers of generic drugs derive their incomes largely from the production and retail of unbranded versions of brand-name drugs, and are directly threatened by the expansion of monopoly rights for the big drug firms.56
Nor is there necessarily a seamless fit between the components of this emerging global architecture. For example, one of the reasons why American politicians are pushing the TPP is because the WTO is deemed too resistant to certain agendas favored by US investors.57 These draft agreements, moreover, stand in a long line of failed agreements and collapsed negotiations, from the Multilateral Agreement on Investment (which was dropped after public protests led to France bailing out in 1998) to the Anti-Counterfeiting Trade Agreement Act (which fell apart in 2012 after the European Parliament rejected it). There is nothing inexorable about their success.
Bailing out the banks, globalizing finance
One of the most shocking aspects of the financial services annex to TISA, distributed by WikiLeaks, is that it shows that the world’s deepest economic crisis since the Great Depression has done nothing to alter the financial orthodoxy of the world’s leading states. The American empire is still evidently committed to the same financial regulatory model as it was in the days of the “goldilocks economy,” when Wall Street was booming and the internet was still on dial-up. How extraordinary this is: the banks were briefly panicked and, like the vessels of the Danaides, hemorrhaging public money as fast as it was poured in. Now, helped to their feet by aggressive state intervention, they are back in charge. As the general secretary of the International Trade Union Confederation lamented: “Governments are negotiating away financial regulation in secret, instead of tackling the unfinished regulation task that triggered the current global economic crisis in 2007. It defies belief that they are actually planning to help the already ‘too big to fail’ banks and other financial conglomerates to expand.”58
In TISA, the US and its allies are attempting to build an agreement on the model that had earlier been enshrined in the annex to the 1994 General Agreement on Tariffs and Services in 1994, and in the 1999 Financial Services Agreement: the GATS model of financial regulation. These are, as Jane Kelsey pointed out in an analysis for WikiLeaks, the same states that developed the pro-banker regulations that were essential in enabling the global financial crash—and the same states who blocked attempts to review the global rules on finance at the WTO after it occurred. They call themselves Really Good Friends of Services—in this case, “services” means financial firms. And their friendship has served the financial industry well, helping to ensure that Wall Street remains as dominant today as it was when it lobbied states to adopt the WTO financial services agreement in 1999.59
The basis of the earlier agreement was to “lock in” the liberalization of financial markets, thus compelling signatories progressively to remove laws and restrictions protecting their banking and industrial sectors. The GATS model required member states, in a pragmatic way that was sensible of the domestic context, to roll back all restrictions on financial investment that could reasonably be dispensed with. Covering some 90 percent of global finance by revenue, its job was mainly to integrate economies of the global South—there being relatively few trade barriers between the US and EU. Given that it was signed shortly after a major financial crash in Southeast Asia, this agreement took some selling. But a crucial ingredient of the elite debacle that led to the “credit crunch” and global depression was the extraordinary cultural success of capitalism in the era of neoliberalism.
Finance came to be understood as the true epitome of capitalism and was linked to the virtues of innovation, dynamism, and the allure of testosterone-driven aggression and risk-taking. With great risks, after all, came great rewards. And countries of the South were told that, if they opened their financial markets, the flows of “hot” cash would kick-start their slow economies. Such claims were pure myth-making: most of the movements of money in financial markets have nothing to do with kick-starting investment in the productive sector. They are bets—increasingly elaborate and risky gambling instruments, through which investors hope to make a royalty. And since that money does not materialize from nothing, by magic, it must come out of the revenues driven by productive investment. The profits of investment in, for example, capital markets, are essentially a drain on productive investment. There is certainly little empirical evidence of a link between financial “innovation” and enhanced growth.60 But the promises of growth were highly seductive.
Nevertheless, there was more going on here than just seduction. Significant groups of businesses in the global South stood to benefit from liberalization. They had felt constrained by protected domestic markets and capital controls, and limited by decreasing returns on industrial investment. The liberation and growth of finance, like privatization, offered unprecedented windfalls to investors able to take advantage of it. This had already been a significant factor in the “structural adjustment” of countries in the South. It was not merely a question of the IMF using debt to manipulate weak governments. The same Third World states that had pushed the Charter of Economic Rights and Duties of States through the UN General Assembly in 1974, mandating the use of nationalizations and expropriations to solve economic dysfunctions and social inequities, had already abandoned these strategies by the mid 1980s.
From then on, the debate concerned the speed and timing of reforms intended to open markets, remove obstacles such as financial restrictions and labor productions, and permit the access of foreign capital to national resources.61 The reversal of these measures would constitute a considerable loss for investors in these economies, leading to capital flight and currency panics. This in itself represents a significant incentive and disciplinary mechanism keeping most countries on the same trajectory toward ever greater liberalization and integration into the world economy.
There is also the changing position of the banks to take into account. A product of financialization is that the creditworthiness of states is now entirely determined by financial markets, and particularly by credit ratings agencies. The “big three” agencies—Standard & Poor’s, Moody’s, and Fitch—make up about 90 percent of the global ratings market. The government’s Financial Crisis Inquiry Commission deemed their pre-crash activities to be “key enablers of the financial meltdown,” “essential cogs in the wheels of destruction”62—due largely to their positive ratings of the mortgage-backed securities whose fundamental precariousness had precipitated the crash. Yet these agencies functioned, and still function, as a key regulatory mechanism in global finance. Moreover, as they are based in New York, they are answerable to the US government. Like all financial institutions, their functions and capabilities are a product of regulation and political authority.
Alongside these agencies, Wall Street banks have become the strategic nerve centers not only of financial capital, but of the world economy as such. In the United States, between 1973 and 2007, as a result of politically driven changes to the domestic and global economy, financial profits rose from 16 percent to 41 percent of total profits in the US economy.63 Wall Street accounts for just over a third of total global financial transactions. And with economic weight comes intellectual clout. Banks provide the technical expertise, training, legal knowledge, and professional discourses that financial communities organize themselves around. They assemble the economic advice that governments follow and distribute the information that determines media reporting. At the apex of the US banking system, of course, is the Federal Reserve, which has become a locus of high-end economic research.64 American finance is thus extremely well placed to conserve its position in the world system, defend its interests against democratic curtailments, and drive forward the integration and institutionalization of international markets from which it profits.
The durability of the GATS model is therefore less surprising than it would appear. In the context of the overall response to the crash by the US government and its allies, it is clear that the major goal of post-crash legislation is to conserve the system as much as possible. One of the first steps taken by the US government was to convene the G20 economies and win from them commitments not to enact the kind of restrictions on trade and capital flows that national economies had undertaken in response to the Great Depression. The state’s arrogation of considerable powers to intervene in markets, far from contravening this general tendency, reinforced it. Banks were bailed out in exchange for remarkably little change on their part. The government assumed all the risk of “toxic debt,” laid out all the finance, and allowed the private sector to price assets. As government officials repeatedly insisted, any reforms had to be implemented with the cooperation of the bankers, thus placing a limit on what could realistically be done. Those financial institutions that were nationalized were allowed to operate as commercial entities at arm’s length from the government, and mainly returned to the private sector when they became profitable. New regulations were modest, aimed at greater transparency and some limited consumer protections, but there were no new restrictions on the size of bank holdings, there was to be no reform of the ratings agencies, and there was no attempt to go back to the sorts of tougher regulatory structures represented by Glass-Steagall in the United States.65
The centrality of the dollar and Wall Street to the global system furnishes far too much political leverage to Washington for there to be any appetite to relinquish it—which would imply not bringing the banks to heel, but also reforming global trade institutions and the US state itself. Yet the nature of the global financial crash and its reverberations suggests a more unsettling truth about the empire.
The crisis arising from the US banking crash was global. It did not merely hit the City of London, with which US banks have strong transatlantic connections, and which effectively acts as an offshore haven for US investors—sometimes dubbed “Guantánamo” because one could get away with things there that were not permissible on the American mainland.66 It hit the Eurozone badly and precipitated a series of “sovereign debt” crises that almost sank the single currency. It also hit East Asia, despite hopes that the region would be able to ride out the storm.
This is a testament to the extent of economic interpenetration that has already developed, and the extent to which the rest of the world depends upon the US economy. It is also a very good reason why, after the worst economic crisis since the 1930s, the US can still lead a wide coalition of states as it presses for further entrenchment of the “Washington Consensus.”
The dominance of Wall Street is reminiscent of British domination of world trade in the nineteenth century, in that US interests have in a way become synonymous with those of the world. If it goes down, we all go down.