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The Global Minotaur

The Global Minotaur

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Published by Kostas Georgioy

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Categories:Types, Business/Law
Published by: Kostas Georgioy on Feb 14, 2012
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09/22/2012

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The Global Minotaur
Or how the voracious US deficit causes wars,economic domination, and pushes ‘old’ Europe into an embrace with Peace activists 
by
 
Joseph Halevi and Yanis Varoufakis
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1. Two seemingly unrelated questions
It is now common in Europe and Japan to consider the USA as
the
economicmodel in need of emulation. With their economies continuing along the road of prolonged stagnation, European and Japanese (mainstream) commentatorsare busily seeking out the causes of their economies’ malaise by comparingtheir micro-structures with that of the US economy. Even the recent savagedownturn in the US seems incapable of stemming this trend. In Europe, justas in Japan, prestigious commentators incessantly highlight America’scomparative advantages viz. the flexibility of its labour market and theatomistic (as opposed to corporatist) entrepreneurial culture (which is, we aretold, deeply entrenched in the collective US mind). Such narratives havebecome the foundation of mainstream explanations of the USA’s relativedynamism, in contrast to the unwieldy non-angloceltic miracle economies of yesteryear.No one, however, seems to be remotely interested in explaining why Japanand Europe have been led to such dire straits by the very features (aregulated labour market and corporatism) which used to be hailed as thehallmarks of their immense economic success in the 60s, 70s and 80s. It is asif no one recalls how the Japanese or German success stories were beingscrutinised in US business schools for decades, seeking clues on what wentwrong in America. The best analysis we get on this score are a series of mutterings about the paradigmatic shift caused by new technologies and onhow the ‘new economy’ has condemned the Euro-Japanese corporate modelof development to the scrapheap of economic history.
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) teaches Political Economy at theUniversities of Sydney and Grenoble. Yanis Varoufakis (yanisv@econ.uoa.gr 
 
)teaches Political Economy at the University of Athens. We would like to thank NikoPapandreou for some very helpful comments.1
 
So, this is our first question: What happened to turn Germany and Japan fromsuccess stories to, putting it impolitely, ‘basket cases’? How did the USeconomy recover from its sluggish performance to regain its competitiveedge? Our second question seems utterly unrelated: Why has Germany, andof course France, embraced the Peace Movement before and during thelatest Gulf War?In what follows we begin with the premise that neither of these questions canbe understood in terms of mainstream narratives on economics and politics;that the causes of the present situation are to be found neither in themicroeconomy of the world’s three leading economic zones (US-Europe-Japan) nor in the sphere of political ethics and diplomacy. We suggest,instead, that (in the spirit of Magdoff, 1978) useful insights on these importantissues can only obtain when we adopt the broader political economyperspective which takes seriously the form of globalisation guiding theinternational economy ever since the US gained the upper hand and emergedas the dominant force within Western capitalism.
2. The first phase of the post-WW2 era: A Grand Global Design
The United States came out of WW2 as the major and, in fact, if one excludesSwitzerland, the only creditor nation. For the first time since the rise of capitalism, all of the world’s trade relied on a single currency and financedfrom a single epicentre. Recognising this remarkable opportunity at achievingunhindered dominance (and, of course, taking on the USSR; a non-capitalisteconomic entity which, at the time, the best western economists thought of asa miracle-in-the-making), the United States took upon themselves the role of reconstructing the capitalist world. The grandiose project soon acquired twostrands:First, American policy makers were keen to end the dollar’s monopoly as theworld’s single convertible currency. This monopoly was undesirable becausea world trade system relying on a single currency (supported by a single realeconomy which is only a subset of the global economy) is inherently unstableand prone to major upheavals during the unsavoury parts of the businesscycle. Initially, they toyed with the idea of propping the pound-sterling up andusing it as a potential shock-absorber for the dollar-zone. However, withsterling’s collapse in 1947, US officials gave up on this idea.Instead, they favoured, propped up and cajoled the rise of two importantsupporting pillars for the dollar: one in Europe (the Deutschmark) and one inJapan (the Yen). According to Schaller (1985), the architects of post-war USglobalism were three men: James Forrestral (then Secretary of the Navy),Secretary of State Byrnes, and George Kennan. In their eyes, extending creditto Europe and Japan was to become a crucial component of US policy as itwould enable these two zones to buy technology and energy products,fundamentally oil,
1
as well as to attract and utilise (often) migrant labour.
2
 The choice of Germany and Japan seemed entirely logical. Both countrieshad been rendered dependable (thanks to the overwhelming presence of the
2
 
US military), both featured solid industrial bases (including oodles of humancapital), and both offered considerable geo-strategic benefits vis-à-vis theUSSR. Britain had to experience the Suez Canal trauma (and theundermining of its colonial rule in Cyprus by the CIA) before realising this turnin US thinking. It was at that point that successive British governments beganclutching at straws; namely, the ‘Special Relationship’, which turned the UKinto a minor executor of US policy in exchange for privileged access to the USmarket for British multinationals and the City of London.Secondly, the creation of the two non-dollar currency zones was to beunderpinned by political measures to ensure the parallel creation of free-tradeareas within these zones so as to carve out crucial vital space for the realeconomies ’growing around’ the new currencies. This strand of the projectdeveloped quickly into what eventually became the EU in Europe. In Japan,Mao’s victory curtailed its application. Although the yen and the Japaneseeconomy were bolstered inordinately by successive US administrations,
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thevital space that the yen required in mainland China was effectively denied it –until it was too late (see Schaller, 1985, Forsberg, 2000). Instead, the wars inKorea and Vietnam surreptitiously engendered an imperfect, yet stillsignificant, zone within which Japanese trade found space to grow for at leastforty years (see Rotter, 1987).The post-war reconstruction of the capitalist world, once these two vital zones(Europe and Japan) were set up, was based on the ability of the United Statesto extend credit and finance, partly through American multinationals,particularly to Europe and to Japan (Britain was an exception for reasonsalluded to above). The main function of this generous credit policy was toallow Europe and Japan to overcome what was then called the ‘dollar shortage’; a problem that was not eliminated until the mid-1950s (see Halevi,2001). At that point, the US realised that it was not enough to have ‘stabilised’Europe (with the persecution of the Greek civil war, the appeasement of Franco and the Portuguese regime, the safeguarding of the iron curtain’simpenetrability) and Japan (through a long and comprehensive occupation).Having financed these two zones sufficiently for them to be able to pay for their inputs (through the Marshall plan in Europe and war-financing during theKorean conflict in the case of Japan, see Hart-Landsberg, 1998), the US feltthe need to mobilise in order to guarantee low prices and a constant flow of such (energy and raw material) inputs to these two zones. The loss of China,the trials and tribulations of Latin America, the liberation movements in SEAsia (against the French), the stirrings in Africa – all these developmentsenticed the US into developing an aggressive stance against liberationmovements in the Third World (identified with the threat of rising input prices).In short, the US took it upon itself to relegate the periphery, and the ThirdWorld in totto, into the role of supplier of raw materials to Japan and WesternEurope. In the process, American multi-nationals in energy and other miningactivities were doing good business. As for the US domestic economy, therewere crucial, beneficial after-effects. During the 1960s domestic crises werelargely averted through three large public expenditure programs, two of which
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