The Tragic Consequences of Success
Last month, British voters chose to leave the European Union, encouraging nationalist parties in most other member states to seek their own exit. This week, Donald Trump was named the Republican nominee for U.S. President, his popularity due in large part to his stated intention to reduce America's international obligations and entanglements. Internationally, China is asserting its claims in the South China Sea while Russia is defending its interests in Eastern Europe and the Middle East. Taken together, all of these events suggest that the post-WW2 international order established under the leadership of the United States is coming undone.
But how can this be? Isn't the U.S. the world's pre-eminent power? Aren't American-led international institutions like the WTO, IMF and World Bank cornerstones of the global economy?
The irony is that it is the very dominance of the American-led system since the collapse of the Soviet Union 25 years ago that has led to our present state of distemper and disorder. Almost inevitably, successful systems which eliminate their rivals cannot resist the temptations that come with success and so set themselves up to fail in their turn.
During the Cold War, the American-led system's mission was to promote liberal free-market democracy as superior to authoritarian Soviet central planning. As Dr. Mahathir Mohamad, the ex-prime minister of Malaysia, once said in an interview: “Once communism was defeated, then capitalism was no longer constrained by the need to be nice, so that people will choose their so-called free-market system as opposed to the centrally planned system.” Happily, this competition between the two systems had the effect of keeping Western political and economic institutions at least partly focused on improving the lives of ordinary people, both in the West itself and in the developing world.
However, with the collapse of the Soviet Union it was no longer necessary for Western institutions to prove themselves superior. In the very optimistic view of Francis Fukuyama, the question of how best to arrange human society had been settled in favour of liberal free-market democracy. In his book “The End of History and the Last Man” he stated confidently that with the ideological conflict settled, people would at last be free to create a peaceful and prosperous world.
As is the case with many intellectuals, however, Fukuyama failed to take into account human nature. As any person who has ever dealt with a monopoly like Ontario Hydro knows, businesses and other organizations that don't face meaningful competition rapidly stop serving the common good in favour of serving themselves.
In a similar fashion, after the fall of the Berlin Wall the European Union and other global institutions were transformed into exploitative rackets concerned mainly with increasing the wealth and power of those who controlled and administered them.
So, while in theory the global system that came into being in the 1990s ought to have been beneficial for the vast majority of the world's people, the benefits in fact flowed primarily to Western banks and multinational corporations and the governments who served them. As a result of this unbalanced distribution of gains, since the end of the Cold War industrialized societies have experienced rising inequality and stagnant income growth.
Meanwhile in the developing world, while into the 1980s Western banks and corporations were only free to prey without consequence in Africa and Latin America, after 1990 they were able to operate anywhere they pleased. The predictable consequence has been a series of financial booms and subsequent crashes that have rolled across the ex-communist east and developing south.
As explained by the writer and former development consultant John Perkins in his books “Confessions of an Economic Hit Man” and “The Secret History of the American Empire,” the exploitation of developing nations with valuable resources depended upon their first being encouraged to open up their financial systems to foreign competition. Western banks would then enter the country and shower borrowers with loans. When, as is inevitable, these loans proved difficult to repay, the banks (through the I.M.F.) would demand that the countries engage in further financial liberalization and structural reform until their sovereignty was sufficiently weakened to ensure continued and unchallenged vassalage.
However, every racket eventually runs out of marks. Having shaken down South-East Asian nations in 1997, Russia in 1998 and Argentina in 2001, it was time to start exploiting poor people closer to home. As the writer Charles Hugh Smith put it in a recent article entitled “Greece and the Endgame of the Neocolonial Model of Exploitation,” while in the 1990s the average American or European may have benefited from the system's subjugation of ex-communist and developing nations, by the early 2000s aspiring American homebuyers with low credit scores and borrowers in the poorer regions of Europe became the system's targets.
Viewed this way, it is not surprising that voters in Europe and America want out and that the leaders of nations like China and Russia are challenging the established international order. Who in their right mind would want to continue being bled by the global financial racket?
The capture of the American-led global system by the financial and corporate sector is nonetheless a tragedy as a functioning international order is needed if we are to effectively address the world's economic, political and environmental challenges. However, so long as our global institutions remain unchallenged, they will continue to serve the narrow interests of the big banks and multinationals. Until such time as a competing set of institutions can be successfully established, we will be simultaneously less able to address existing problems and more likely to suffer additional and entirely unnecessary instability as ordinary citizens and subject nations alike seek to free themselves from continued exploitation.