Building a ‘New’ Economy

 

While the developing world fell under the heavy sword of Western neoliberal hegemony, the Western industrialized societies experienced a rapid growth of their own economic strength. It was the Western banks and multinational corporations that spread into and took control of the economies of Africa, Latin America, Asia, and with the fall of the Soviet Union in 1991, Eastern Europe and Central Asia.

 

Russia opened itself up to Western finance, and the IMF and World Bank swept in and imposed neoliberal restructuring, which led to a collapse of the Russian economy, and enrichment of a few billionaire oligarchs who own the Russian economy, and who are intricately connected with Western economic interests; again, ‘indirect globalists’.

 

As the Western financial and commercial sectors took control of the vast majority of the world’s resources and productive industries, amassing incredible profits, they needed new avenues in which to invest. Out of this need for a new road to capital accumulation (making money), the US Federal Reserve stepped in to help out.

 

The Federal Reserve in the 1990s began to ease interest rates lower and lower to again allow for the easier spread of money. This was the era of ‘globalization,’ where proclamations of a “New World Order” emerged. Regional trading blocs and “free trade” agreements spread rapidly, as world systems of political and economic structure increasingly grew out of the national structure and into a supra-national form. The North American Free Trade Agreement (NAFTA) was implemented in an “economic constitution for North America” as Reagan referred to it.

 

Regionalism had emerged as the next major phase in the construction of the New World Order, with the European Union being at the forefront. The world economy was ‘globalized’ and so too, would the political structure follow, on both regional and global levels. The World Trade Organization (WTO) was formed to maintain and enshrine global neoliberal constitution for trade. All through this time, a truly global ruling class emerged, the Transnational Capitalist Class (TCC), or global elite, which constituted a singular international class.

 

However, as the wealth and power of elites grew, everyone else suffered. The middle class had been subjected to a quiet dismantling. In the Western developed nations, industries and factories closed down, relocating to cheap Third World countries to exploit their labour, then sell the products in the Western world cheaply. Our living standards in the West began to fall, but because we could buy products for cheaper, no one seemed to complain. We continued to consume, and we used credit and debt to do so. The middle class existed only in theory, but was in fact, beholden to the shackles of debt.

 

The Clinton administration used ‘globalization’ as its grand strategy throughout the 1990s, facilitating the decline of productive capital (as in, money that flows into production of goods and services), and implemented the rise finance capital (money made on money). Thus, financial speculation became one of the key tools of economic expansion. This is what was termed the “financialization” of the economy. To allow this to occur, the Clinton administration actively worked to deregulate the banking sector. The Glass-Steagle Act, put in place by FDR in 1933 to prevent commercial banks from merging with investment banks and engaging in speculation, (which in large part caused the Great Depression), was slowly dismantled through the coordinated efforts of America’s largest banks, the Federal Reserve, and the US Treasury Department.

 

Thus, a massive wave of consolidation took place, as large banks ate smaller banks, corporations merged, where banks and corporations stopped being American or European and became truly global. Some of the key individuals that took part in the dismantling of Glass-Steagle and the expansion of ‘financialization’ were Alan Greenspan at the Federal Reserve and Robert Rubin and Lawrence Summers at the Treasury Department, now key officials in Obama’s economic team.

 

This era saw the rise of ‘derivatives’ which are ‘complex financial instruments’ that essentially act as short-term insurance policies, betting and speculating that an asset price or commodity would go up or go down in value, allowing money to be made on whether stocks or prices go up or down. However, it wasn’t called ‘insurance’ because ‘insurance’ has to be regulated. Thus, it was referred to as derivatives trade, and organizations called Hedge Funds entered the picture in managing the global trade in derivatives.

 

The stock market would go up as speculation on future profits drove stocks higher and higher, inflating a massive bubble in what was termed a ‘virtual economy.’ The Federal Reserve facilitated this, as it had previously done in the lead-up to the Great Depression, by keeping interest rates artificially low, and allowing for easy-flowing money into the financial sector. The Federal Reserve thus inflated the ‘dot-com’ bubble of the technology sector. When this bubble burst, the Federal Reserve, with Allen Greenspan at the helm, created the “housing bubble.”

 

The Federal Reserve maintained low interest rates and actively encouraged and facilitated the flow of money into the housing sector. Banks were given free reign and actually encouraged to make loans to high-risk individuals who would never be able to pay back their debt. Again, the middle class existed only in the myth of the ‘free market’.

 

Concurrently, throughout the 1990s and into the early 2000s, the role of speculation as a financial instrument of war became apparent. Within the neoliberal global economy, money could flow easily into and out of countries. Thus, when confidence weakens in the prospect of one nation’s economy, there can be a case of ‘capital flight’ where foreign investors sell their assets in that nation’s currency and remove their capital from that country. This results in an inevitable collapse of the nations economy.

 

This happened to Mexico in 1994, in the midst of joining NAFTA, where international investors speculated against the Mexican peso, betting that it would collapse; they cashed in their pesos for dollars, which devalued the peso and collapsed the Mexican economy. This was followed by the East Asian financial crisis in 1997, where throughout the 1990s, Western capital had penetrated East Asian economies speculating in real estate and the stock markets. However, this resulted in over-investment, as the real economy, (production, manufacturing, etc.) could not keep up with speculative capital. Thus, Western capital feared a crisis, and began speculating against the national currencies of East Asian economies, which triggered devaluation and a financial panic as capital fled from East Asia into Western banking sectors. The economies collapsed and then the IMF came in to ‘restructure’ them accordingly. The same strategy was undertaken with Russia in 1998, and Argentina in 2001.

 

[See: Andrew Gavin Marshall, Forging a “New World Order” Under a One World Government. Global Research: August 13, 2009]

 

Throughout the 2000s, the housing bubble was inflated beyond measure, and around the middle of the decade, when the indicators emerged of a crisis in the housing market a commercial real estate bubble was formed. This bubble has yet to burst.

 

 

Andrew Gavin Marshall is a Research Associate with the Centre for Research on Globalization (CRG). He is currently studying Political Economy and History at Simon Fraser University.