The Global Gamble

lVashington 's Faustian Bid for

l1VorldDom:inance

PETER GOWAN

"
VERSO

London • r,JewYori:
 TO MY SONS

First published h~• Verso ·t mm

© Peter Gowan 19fl9
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The moral rights of lhe author havu b()Hll ass!irtml

3 5 7 U 10 R 6 ~ 2

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 Contents

Preface vii
List of Acronyms and Terms XIII

PART I THE GLOBALISATION GAl\.JBLE

Introducuon .,
"
2 'Capnal Marke Ls;;Financi,11 Syswms and Lhe Postwar
l11Len1ational l'vloneLary System
,l The Dollar-Wall SLreeL Reg-11ne
,1 The Evoiuuon orLhe DWSR from the 1970s Lo Lhc I 9~10s
:'i Power Politics, the DWSR and the ClinLon Acim1111slrauon
orthe Pamc or '98
6 The Poliucs and Eco1101111cs
7 Concius1ons 12(i

PART II POLITICS IN THE GLOBALISATION PERIOD

H The Gulf War, Iraq and Western Liberalism 1-lI

9 The Theory and PractKe of"Neo-Liberalism ror
Eastern Europe 187
JO Neo-Libcralism and Civil Soc1cLy
11 The Post-CommumsL Parties 111 Lhe East 260
12 The Enlaq~cment of NATO and the EU
 Preface

During the I 9~)0s,American g-o\'ernmcnt and business elites ha\'e attempted

to \\"o global'· 111 other words, to entrench the United States as the power
thal will control the m,~1or economic and political outcomes across the
globe in the twenty-first centurv. This is a commonplace amongst those who
follow such matters; but the distinCLivemethods employed in tillS pn~JCCL arc
iess w1delr recog111secl.Thts book ts an attempt to 11wesl1gatesome orthese
me1hods, many of them mnovauve, and some ortheir ellec1s.
In htstoncal perspecllve, the clisLJnctivelealllre of American expansion, in
contrast to the west European jui-iclical empires of the first hair of' the twen-
tieth century, has been the attempt to use the mternauonai system of
sm11'1ng11.1·/a/1'sas a mechamsm of Amencan giobai clo111111ancc. Durmg the
postwar decades, the mternal en\'lronment of manv states was determined
bv threats from Communism and other leftist mm•emen1s, while their exter-
nal environment. was determined bv the Amencan-Sonet contest. Both
these contexts encouraged the clommant soc1ai !-{roups Ill such states to
accept American 'leadership'. Bm the decline and collapse or both
Commumsm and the Soviet U1110nhas prompted a search for new ways or
imgadin!-{ states under American leadership and of anchodng American
economic ascendancy.
The American post-Cold War g-Jobal pn~ject, as practised by the Clinton
administration, has invoived two new ways of alt.ermg- the mternai and exter-
nal environments of states m dirccuons winch will induce them to continue
to accept US political and economic dominance. The transfrmnation of
the domestic environmen ls of slates goes under the 11amc of neo-libcralism:
this mvolves a shih 111 the mternal social rclatmnsiups Within s1a1es111 favour
of creditor and rcnuer mterests, wILh the s11bordinat1011of prnducl!ve sec-
tors to financial sectors ancl wnh a dnve to shift wealth and power and
securny awav from the IJulk of the working population.
The transformation of lhe external environment or slates goes under the

vii
\'I II PREFACE

name of gJobalisauon: this m\'oivcs tile open mg of"a state ·s poliucal t·con-
omy 10 1hc entry or products, companies. Jinanci,il flows anci linancial
operawrs from the core countries, making state policv dcpcndelll upon
dc\'elopments and cleusions taken m \·Vashmg1on, New \brk and other main
capualisl centres.
Tht· two changes recd each othe1·: the shih m domestic ,on;1i pown 1da-
t11111sh1ps,t-nown as neo-lilx:ralism ..,1.rcngthe11s the co11sutuenc1es fan>llfllll-{
g-lob,ilisatmn. And the forces favouring g-Iobalisacwn \\'ill favour thesl' s:1111c
domesltc transf"ormauom. Those states and social svstcms that try LO resist
these transformations will !incl themsc1,·cs increasinglY shut out from L11eUS
mark.ct and from 11sallied EU market, and sul~jectcd to hostile cco1w1111C
s\a\L'crah. The most 111ternat10nallv compeutn'C ol"their proclucuve sectors,
re,mng such cxclusmn. can thus also l)e \\1rnecl 11110supporters or ~l1>IY,1li-
sation and neo-libcralism. Both types or change f;wt>11rthe transnac1011al
expansion of US economic ancl poliurnl influence. srnce both provide opcn-
mgs for US financial operawrs and the US financial marl,ets, as well ;is for
US transnational corporaLions.
Both globalisatmn and neo-libcralism were spreading across the \\\·stern
world before the collapse of the Sm·1ct Bloc but 11 has LJecn clurn1g the
1990s thal Amencan a<lnumsu·auuns have actively souglH to radicalise and
gcner,ilise these trends, aruculatmg l11em in way.~which wouid anchor or her
poliucal econun11es tu Amencan poliLicai and ecm101111c111Lerests.This
anchoring process has been pursued both bilaterallv and through reorgan-
1s111g the programmes of multilateral orgamsauons so that they, too, ()l'comi:
mstruments of the campaign.
These changes in the internal and transnauonal linkages of states arc
consoliclatecl 11110 a new reg11ne, wiuch in turn tcn<ls to make state iea<ler-
sh1ps want what American state and business elites want. On the other side,
the pn!Jc:Cl involves ensuring that 11is the states thcmseln·s that reta111c11m-
ple1e responsibility for everrthmg that befalls their populauons. Thus the
benefits orthe global transnational order will accrue to the Umted States,
while the nsks and costs can be distributed abroad. This 1s t.he ma111dis-
tinctive l"orm orthe US's glolJai prc~iect. Tl11S1s the glotlal gambie.
Ahc..:ran uneasy start at the IJq~innmg of the decaclc. the main \,\'est
European powers have become _1u111cJ1"partners 111 this pro1ecl, 111 a rela-
uonsh1p wluch combines subaitern co-operauon wllh some clcmen t\ of
fricllon and competllJOn. The relationship between the United States ancl
Japan, on the other hand, has been much more conflictual. smce the
nauonal and regional dvnamtcs or.Japanese capitalism have been far ll'ss in
lUne with Washington s globai pn~Ject than have those ofv\lestcrn Europ<.:.
The processes usually :L~soc1atcdwnh giobalis.,uon arc often thoug;tll to Ill'
clriYen by rechnolug1cal and/or econ om IC forces rather than by the poliucai
capauues and capitalist mteresls orthe American stall' and busmess l·litcs.
 ix

But 111 the 11rstpart of this l)ook I arg-ue that the process of glohalisauon has
been driven most cruciall\' bv the enormous poliucal power placed in the
hands of the Amencan state and of US business through the particular type
or internauonal monetary svstcm and associated intcrnauonal tinanc1al
rcg-imc that was constructed - larµ;elv by the US g-nvcrmnelll - 111the ashes
of the Brcllon Woncis svs1em. Once we appn:nate the natun: of the n1ne11L
monetary anct financ1al reg11ne. we can apprcnate how it can bt· used as a
fl>rm1ctabie instrument of economic statecraft 111 the hancls or successive US
aclminisu·ations, and how thev have used 11.to drive forward both the glob-
alisation process ,met the associated nco-liberal domestic transformauons.
The seconcl pan of t.h1sbook consists of studies of \'anous ;1spects ol' inter-
11a111malpolitics in tins era of the g-iol)at gamble. The US capacit\' to exclude
and target states wlucll resist lls sway takes a pararlig-mauc form 111 the lung
siege of irag followmg Desert Storm. The chapter on chis topic 1s dcvotccl
above all LO the ideological.111stilicauons for such sieges through appeals to
supposedly liberal values. Other chapters 111 tlus part or the book exam me the
poliurai economy and ideolo).,'Yof the Atianuc stales drt\'e to impose rq..~imes
favourable lO their interests upon the stales of East Central and Eastern
Europe. The conciucling chapter argues Lllat \•VashmgLon's deten111nauon to
111a1111a111lls poliucal leadership on:r Western Europe through NATO expan-
sion 1sbouncl lO generate new threats Lo European secunt.\'.
A cemral irom· orthe g-lobal gamble lies 111 lite fan that, allhough it is pre-
semcd as dnvcn by orgamc economK and tedmolog1cal change rather 1ha11
bv politics, ll 1s 111 fact cconom1callv clestabilismg - and probablr eco1wm1-
cally unviable. It bnngs m us wake chro111c linanctai 111s1;1bilitvand
svstemat1cally generates economic biow-ou1s m the most ,·ulncrabie and
sensitive econmrnes. At the same lime, 1t tends to produce extreme forms of
boom-bust cycles 111 those advanced capitalist economies which follow llw
,\mencan neo-liberal patli or locking the eco11om\'·s fate 111totile perfor-
mance of scn1riues m;u·kets. Tht., economtc weakness has l111herto been
combmed with extraordinary political success: the Un11ed States has, so far
Ill tile 1990s, faced no signilicanL threat or challenger.
\ct this poliucal success has been the product ol' two absences during till'
last ctecacte: lirstl\', the clisan-ay on 1he mtcrnauonal lef't and the consequent
retreal by mlernat1onai labour; and second Iv, the long hab1t.s ol' subordina-
tum to US leactcrsll1p hrecl \\'lth11111s 'allied' states dunng- the Colet War.
Ne11her or these absences is likely LO iast for C\'er. Anet becausl' of' this, we
should bear in mind the opporu1111tYcosts or the global gamble, the poten-
llal costs or the path not taken: 11lenonchalant rejection on the part ortile
American g-m·ernmem anct its Atlantic junior partners oLmy attempt to con-
struct a more rncit1s1vc and more mstttuuonalised s~•stern or g-lohal
1-{0\'ernment for the twemv-firs1 centurv, both a1 a 1ransnat1D11aland al a
domesuc social ievci.
X l'REE-\C:1-:

The collapse of tht' Sm·1el Bloc presented :\mcncm elites with a lc111pta-
uon remm1scenl of Faust's. A door Sl'l'llll'.(I Lo swmg open 1111to a ,·1sta of
hitherto u111mag-1nabiecosmopolitan power. Yet wilhin a liltll' ck·cacie, the
s1gnalllre or ivleph1s1opheies 1salrcadr visible. The cco1101111c formula or lhc
'Washmgton Consensus· is sLructurally llawecl but is simultaneous!\' ntal for
the dynamism or the American economy. States have been restrunurcd
wllh great poliucal success bul 111ways thal will make them, 111the l'uture, far
less capable of con1a111111gand manag-111g-their own domcsuc revolt;
American miliLary ascendancy ove1·the g-loht' 1sg-realcr than that 111" am· state
in world history, IHll !ls panoply orpower 1s of linle use 111 the li1cc orslate
breakdowns ancl popular revolt.
Tlus book is nut an al.lempt lo produce a comprehensive treatment of
these transnational clevelopments in the I !J90s. ILsimplv allempts 11,analyse
some nnportant aspecL~ of the story. The studies con tamed here arc not
guided by any coherent, selI~conscious grand theory. But they arc guided bv
what could be called two rules of thumb.
The first 1sthat the externai policies ol' the Atlantic powers are not trans-
parent, and that their operational goals arc rarelv captured hv their public
presentauon. The cuiturc or Lile Foreign Onices of the Western powers 1s
that of realist power politICs: media prescntauon 1s never co11cl1ed Ill Ihose
terms. And smce the foreign policy-making prncess both m state l'xec11uves
and 111 many of the multilateral organisatmns 1s iargelv closed tn public
scrutiny, understanding \Vestern strategics 1s never straightforward. Ir a
democratic public opm1on 1sto be able to exercise its responsibility IO in• to
mfluence the beha\'1<1t1rof'thc states 111 which we are living, then we must 1ry
to understand how the powers of those stales arc being w1eideci and for what
purposes: and this requires Lirntwe don't take policv on trust. It also, I ha\'c
found, usually reguircs cielvmg 11110 the detail and engaging- 111 'backwarcl
mapping'; reading bacl, from actual policy outputs w hypntlwscs about
policy goais.
The second rule of tlmmb is that the statecraft of the great powt'rs in Lhe
modern worid, Lllough often hlundermg and inept when viewed withm a
longer iustoncal perspective, 1s sophisticated, arcane and complex 111Its
Lactics and detail. or special importance here 1sthe fact Lhat comcmporary
stalecraft encompasses policy 111strumc111sthat go well beyond 1hc 1racli-
uonai co<::rCtvecmnage o(' diplomacy, and incluclc at the11·centre a range or
tools of ec:u1101111rsiatccral'l, ma1·kcLmanagement and 111format1011manage-
ment.
The mtegration or tlus repertory or instruments wt thin slate cxcc1111ves1s
often nqt matched by an equivalent mtegrat.mn or social sc1cntilic disn-
plines for the study orstate policy. Manv of the real dynamics seem to work
111 zones which f;11lb1•fwei!11Lhc territories covered by professional acaclcmic
social science clisc1plines, whether eco1101111csor poliucal sc1c11n·. The
 !'REF.·\<:!•: XI

studies in tius book, therefore, have required that I stray across disciplinary
boundaries even where I have felt ill-equipped to do so.
The material in Pan II has either been published already in the form of
arncles or has drawn upon earlier published essays. Chapter 8 first appeared
as 'The Gulf War, Iraq and Western Liberalism· in N1iw /.1:fi R,rui1m,187
(May-:June l !J~ll). Chapter 9 was pre\'lousir published as 'Neo-Liberal
Theory and Practice for Eastern Europe' Ill N1w I.1jt Re1111•w'.!I'.~
(Scptember-Ocwber 1995). Chapter IO previously appeared as' Liberalism,
Neu-Liberalism and Civil Society' Ill /,abo11r Forn.1· 011l~astn11 E11ro/Jt'53
(Summer 19!:J!i). An earlier version of chapter 11 was published as 'The
Post-Commlm1st Parues Ill the East' Ill Donald Sassoon, eel., I.oohing l.,ji
( 1B Tat,ris, 1997). An earlier version or chapter 12 appeared as 'The
Dynamics or "European Enlargement"', /,a/m11r Fonn 011Fas/NII E11mp,,5fi
(Spnng l!J97). I am gratcfui to these publishers for permission LO reproduce
this material here.
I woutcl like to thank a number of people lc.>rvery helpful cnuc1sms orvar-
ious parts or tlus l>ook, notably the followmg: Perry Anderson, Rohm
Blackburn and other colleagues on Nn,, Lt!fiR1.711no; Leo Pan itch, Gus Fagan
and my other colleagues on Labour Forns 011HaslrTII /:'11m/H';Laszlo Andor;
amt Donaicl Sassoon. I wouid like to thank my colleagues 111 the l·lumanll1es
Faculty in the Umvers1ty or North London and in the Schooi of European
and Language Studies 111 parucular for the way 111 which. despite the clifli-
cuit1es facing higher educat10n, Lile\' have managed to preserve an
extremely congenial context for both teach mg and research. I owe a special
debt 111 this context LO Mike Newman. And I would also like to 1itank mv su1-
dents at UNL for bemg a constant sumulus and challenge ll>r my thmking.
I would like to thank Verso, and in parucuiar Sebasuan Bmlgen, the cop\'-
editor Jon Haynes, and Susan Watkins, who macle a linai comprehensive
(and extremely thorough) check on the manuscript, for being so dlicient
and accommodating.
Finally, I woulcl like tu thank two people ver\' close to me. One 1s lll\'
friend Patrick Camiller, w1tll whom I have been talking for a quarter of a
centurv and from whom I ha\'e learned so much. And tile other 1smy wile,
I-lalva, whose imegnty, sens1U\'llYand generosity have been an inspiration as
well as a great support.
 List of Acronyms and Terms

AFL-CIO Amencan Feclcrauon or Lahour-C011gress of lnclustnal

Orga11isauons, the main American trade union l'ecleratio11
Af\ff Asian i\'lonetarv Fund, a .Japanese proposal 111,llllumn 1997
that was not m1pkmented
APEC Asia-Pacific Economic Co-operation. IL includes the USA,
Canada and the main Asian economics
ASEAN The Assoc1auon orSmn.h-East Asm11Nauons
The Arab Socialist Renaissa11ce Part\' - the ruling part.v 111 Iraq
and Svria
BEMs The Big Emerging Ivlarkets, as delinccl lw the Clinton acl111111-
1strallon
BIS Bank fo1· Imernalional Sculeme11ts - the 'celllral bank' or ce11-
Lral ba11k~
BSP Bulgarian Socialist Panv
CAP The Ell's Common Agnculturai Policy
CEE Central and Eastern Europe
CEECs Central and Eastern European Countries
CFE The Treat\' on Conve1111011alForces III Europe
Cir\ Ccmral Intelligence Agencr
CIS Commonwealth or Independent States
CiVIEA The Council fr1l"Mutual Economic Assistance - the Soviet
Bloc's cc0110mic associauon
CPSU Com11111n1s1 Panv or the Soviet U111011
Co111eco11 Another name for tile CMEA
CSCE Conference on Security and Co-operation· i11 Europe, now
transl'ormecl in10 1hc orga111sauo11for Secuntv and C:o-opera-
uon Ill Europe
CSFR Czech and Slovak Federal Republic

xiii
XI\" .-\CRON\'ll!S ,\ND TER/IIS

DGB German trncle 11111011 ledcra1111n

DWSR Dollar-Wall Street Rq.:1111e
EBRO European B,111kli.,r Reconstr11c11011 ancl I1evelop111t·111
EC European ClllllllllfllllY. now called the European l'111011(El!)
ECB European Centrai Ba11k. li,r1m:<I to 111a11ageLin: euro. Iii(' El:'s
smglc CIIJTeJJC\'
EU European Un11111
Ex-Im Bank The US gm·crnment\ trade aedit an(I credit g-u;1rantet·
agencr
FDI Foreign direct im•esunen L
FRG Federal Rep111>licof'Germanv
FSU Fonner So\'tel Unum
G3 Group of :1: US:\. German\", ;111d.Japan
G7 Group of 7: USA. Germany . .Japan, France, Bri1a111,C:;111ad.i.
ltaiy
GAIT General Agreement on ll1rill~ and Tracie
GDP Gross Domestic l'roclt1c1
I-ISP Hungarian Soualist P.iny
HSWP Hungarian Soc1alis1 \Vorkers Pan\·, the n;1111e or thl'
1-Iunganan Commu111st Pa1w
ICP Iraqi Comm111ust Party
IFis International financial inst1lllt1011s (the Ii\•IF and WB}
ITT lnu·a-Jirm trade
ICC EU Inter'-governmental C:onlcrencc for amending the EU's
basic treaues
IMF lnternat1onal i\.Jonetary Fu11cl
ISi Import Subst11\H111gluclustnalisation
LDCs Less Developed Counlnes
LS£ or
London SchoL>I Eco1101111csamt Polit1cal Sncnce
LTCM Long-Term Capi1al l\lanagcment
MA1 The i\·1ultilatcrai Agrcemelll on lrn·cstmenl
MDF I-Iunganan DcmocratJC Forum
l\·lERCOSUR .-\ li·ee trade area III Latin Amenca 111,·olnng Brazil, Urugu;1,·.
Paraguay and Argentina
MIT Massachussets Insutmc ofTechuoloh'Y
MNCs Mulli-national corporations
NACC North Allanuc Co-operauon Council
NAFTA The North J\mencan Frce Trade Association, 111volv1ngtlw
USA, Canada and Mexico
NATO, North Atlanl1c Treat\' Org-a111sat1on
NEC Nauonal Eco1101111cCouncil. Sl'I up lw the Cli11to11 adnu11-
1strauon
 ,\CRONY;.ts :\ND TERMS X\'

Nl'T Nrn1-Prulili:rauo11 Trcatv

NSC: Amcnca11 National Scnintv Council
NSF Nat1011al Salvauo11 Front or Roma111a
NTns No11-1ariff barriers
OEC:D Orga111sa11on li,r Eco11om1c Co-opcra11011 and Dl'vdopment-
an asson:111011orthe nchest capllalist states
OPEC Orga111s,111011 or Pe1.rnlc11111
Exporting Countries
Ol'IC Overseas Pn,·ate Im·estment Corporation
OSCE Organ1sa11011 for Security and Co-operauon i11 Europe, for-
merly the CSCE
OTC Over-the-counter financial deals, as opposed 10 trades through
exchanges
P--IP Partnersl11p li.ir Peace
PCA Partnership ;incl Co-opcnuion Agreement. tn:ause i>elWl'ell
thl· EU and the lcirmer Soviet republics
l'DS (Italy) Party of th 1: Democratic Left. successor lo tile I ralian
Commumsl Pany
l'DS (Ccrma11,·) Partv of Dcmm:rallc Socialism, successor lt> IIH' East German
Co111111111l1slParty
PHARE The EU ,ml programme for East Cemral Eurnpl'
PLO Palestine Liberauon Organ1sat1on
PSDR Party orSnr1ai Democrats of Romania
PSL Polish Pcasalll Party
P\VP Polish Uuiled Workers· Party, the name or the Polish
Communist Partr
SDPR Soc1ai Democrats orLile Polish Republic
SEO Sonalist U11n1· Party, the name of the E.1s1 Cennan
Cnm111u111slPart\'
SLD Democrauc i.l·fL Alliance
SPD German Soc:talist Partv
ST Siwek Therapy
ST:\RT Str;11l'g11:Arms Reclurtwn Treatv
Super ,ml :\n .-\ml'ncan traclc iaw obligmg the Prl'S1Cll'11lto act ai4a111sL
states us111g1111fa1rtrade practices
TABD The Transatiam1c: Busmess Dialogue
TNCs Tra11s-11a1101ialc:orp1,rauons
Tl'CC Trade Prn111ot1011Co-orclinau11g C:01111111Ltce - a US govern-
mcm 111ter-agency body
LIAR Un11eclAral) Republic, formed by Syria and Egypt Ill the 1950s
UL Union or Lahour
UNC:TAD United N.iuons Conference on Tracie a11d"DenJopmclll
UN ECE United Nations Eco11om1c Com1111ss1onfor Europl'
UNICEF Now ortinally till' 'U111tcd Nations Children s Fund'. (pn:l'ious
utle UN l11tcr11auo11alChildren's E111eq~e110·Fund)
USTR US Tr;1de Reprcsc111at1\"L'
X\'l .-\CRONH.tS ,\Nil TER~IS

VER Voiuntarl' Export Rcstraim

VIE Vuiuntarv lmpun Expa11s1011
\liscgr,1Ct Puiaml. Czech Rcp11hlic. Slovakia, Hun~an
WB \•\'oriel Bank
Vi'EU West European U111011
\\TO \·\lurid Trade Or~,1111satio11,~ucccssor to th(: CATT
===== PART I=====

The Globalisation Gamble

 In trod ucti on

The 1990s have been the clecade or g-Iobalisat1or1. We sec 11.scffecb cvcrv-
whcre: m economic. social and politkal life, around the world. Yet the more
all-pcrvas1vc arc these dlc.:cts, the more elusive 1s thl' a111malitself: An enor-
mous outpouring oracaclcm1c literature has failed to pru\'ldc an ag-recd view
or its physHmomy or its localloll and some repmable academics or Right al1(I
Lcl't even question ns very existence. Others. notablv Ang-lo-Amencan jour-
nalists and poliuc1a11s, ms1st 1L1s a nughty beast which savages all who fail to
respect Its needs. They assure us that us gaze, 'blank and pniless as the
sun·.; 1 has turned upon the Soviet Blc,c, the European Sona I l'vloctei, the East
Asian Developmelll l'vloclel, hnng-ml-{ them all to their knees. For these pun-
dits. globalisat10n is the hearer or a new planetary nvilisat1011, a Sllll-{le
marketplace. a nsk snnetv, a wndd bc~•ond the securiLv of states. an unstop-
pahh:, quas1-11atttral l'orce of global t.ransfrmnauon.
Yet, as the East Asian crisis turned into a global mternauonal finannai
scare, some who 1111ghthe thought Lo he deep inside t.hc hellv or 1.his
beasL. the big operators on l11e · glohai linanc1al markets·. \1•01Hkrcd
whether giohalisa11011 m1g-ht be mus death agonv. At Lhl' start of 1998,.Joe
Qmnian. sen10r analyst for the Anwncan 111ves1mcnt hank iVlorg·,111
Stan le\', raised t.he possibility that globalisa11rn1 ma,· he commg 10 an end.
He notcrl that 'g-lol)alisat1011 has been the dcns1ve cronom1c ('\'l'nt or this
decade' and stressed that ·no ont• has reaped 111on_•hcnc11ts from global-
isation than the United States and Coqmrate America. The greater the
veloc11.yand mobilitv orglohai cap11ai, t.hc more capital al'ailablc to plug-
Lhe nation's low icvel of savml-{s and boost the liq111ditv or linannal mar-
kets. In short, g-iobalisation has been bullish for the world t·conomv Ill
general and li>r the United States in particular.' But Quinlan worried that
gol'crnmcnts 111 vanous parts or the wodd might be turnmg against glob-
alisauon and m1g-ln decide 1.0 bnng- 11 to an end 111 1998. As he put n:
. the biggest nsk to the world cco11omy next \'car 1s 11ot slower growth.
 THE c;1.oll.\l.lS.-\TION C.-\~IBI.E

but rather an unra\'elling orgioba·1 111Lerclepenciencc - and thereforl' the

encl orglobalisal!on.'~ For Qumian. then, globalisation 1sa rather frag-ile,
vuinerable creall1rc. depencleJH upon the nurturing- can: of states.
Thus, we arc lef"twitll an awareness that there ha\'e tndced been powerful
new forces in the mternatmnal political economy or the 1990s, whH"h we
label globalisauon, bm their contours, cly11am1csand GtllSl·s remain obscure:
as elusive to our grasp as a black cat m a dark n,om.: 1
This 1s yet another attempt to catch this cat called giobalisatio11. or
rather Lo catch one of its main oq~ans: us central nervous svstcm. We will
argue that Li11slies 111 the wa\' m which 1111ernauonai monetary ancl (inan-
cial relations have been redesigned ancl managed over the last quarter or
a century. This new monetary and linancial reg11nc has been one of the
central motors of the mterlocl,mg mechanisms or thi: whole dvnarnic
known as giobalisauon. Ancl ll has been not 111 the ieasl a spontaneous 011t-
come of orgarnc econonrn: or tcchnolugical processes, but a deeply
poliucal result or poliucal chmces made by successive govern men ts or one
state: the Umted States. In this sense we arc closer to the i\,Iorgan Stanley
view orglobalisation as a state-policy-dependent phenomenon tl1an LO the
notion of giobalisauon as a deep structure favoured by Anglo-Aml.'ncan
media pundits. To mdicate Jls location 111 mternauonal reality we call ll a
·regune', aithough, as we will expiam, It is not a regime in thi: guas1:1uddi-
cal sense m which that term has been used 111 American mternauonal
relauons literature.
lnternationai moncLary an<l li11ancial relallons arc always the procluct or
both econonuc and above all political choices by leading states. SLL1dicsof
giobalisation which fail to explore the polittcal dimensions orthe mterna-
tional monetary reg11ne that has existed smce 197'.l will miss cen 1rai
features or the dynamics or 1-{iol)alisation. Tl11s inten1.1uonal moni:tan-
reg,me has operated both as an mternauonal 'economic regime' and as a
potential mstrumcnt or econonuc statecraft and power poliucs. The n;1me
given to it here 1s the 'Dollar-Wall SLrcct Regime' (DWSR). Wi: will tn' to
trace lls evoiuuon from ongms 111 the 1970s through the internauonal cn>-
nomics and politics or the 1~180sand 1990s 11pto the Asian crisis and tile
pa111cof '98.
\Ve are not going to claim that the historv or inti:rnationai monetary ancl
financial relations or the last quarter of a century 1-{l\'CS us the key to under-
standing the contemporary problems in the advanced capitalist ecmHm11cs.
As Robert Brenner has demonstrated, these problems of long stagnauon
ha\'e their ongins 111 a cleep-seateci cns1s of the productive system or aclv;mred
capitalist societies: 1 The onset of this stagnation crisis fornwd the hruhgm11ml
to the ch;mges i111uatcd by the Nixon admmistration 111 mti:rnauonal mone-
tan· and linanc1al affairs: but the producuon uisis did not determini: the
form of tlu' rf'sj,om,,. There were a range of npttons for the le;1cling-cap11alist
 I NTIH )l)ll( :Tl l )N

powers to choose from and the one chosen, wluch has led I.O what we call
globalisauun. was the 0111come of intern;n1onai poliucai conflict~ won by the
.·\merican g-m·ernnient. Since the 19i0s. the arrangements set III motion br
lht: Nixon administratton havl" clevelopecl mto a pauerned uuernational
regime which has constantlv reproduced itself, has had very far-reaclung
dTects on transnauonal economic, poliucal and souai life and which has
been availahle for use IJy succcssl\·e American admm1strauons .1s an enor-
rnously potent mstrument of their econonuc statecraft. One of the most
l"Xtraorclinary features of the whole Stell"\' is the way 111 which t l1esc great
il"wrs of Anwncan power han: s1mplv been 1g·noreclin most or the literatures
on globalisauon, on 1111ernauunal regimes and on general de\'elopment.~ 111
the inten1ational political economy.''
In exploring thts Dollar-\Vall Su·eet Regime we need no algebra or
geometrv ancl almost nll arithmeuc or even statisucs. The IJas1r relat1on-
sh1ps and concepts can !Jc unclcrstoocl w11hout Lhe slightest familianLy
wtth neo-dass1cal economics. Indeed, for unclerstanding mtcrnauonal
111one1aryand linanc1al relations. iack of familiaritv with Lhc beauties ancl
111g-en11111es or 11en-class1cai ccono1111cs 1s a pos,uve ach·antage.
Part I orthis book, The GlolJalisatton <.:amble, examines workings or the
D\•VSR.\.Vebegm with a brief discussion of terms, concerning the meanmg
or·capllal markets' and the roles and lcffms or iina11c1aiwstems. In chapter
:~ we look at the new mechanisms established liir 111ternauonai monetarv
relations b~· the Nixon adm1111stration 111 the I9i0s. The resulung regm1e
~a\'e leverage both Lo the US government and to Anglo-Amencan financial
markets ancl opcratms. One orthe E.1scmatmg fealllrcs orthe regime ts the
way 111 which 1t establisl1cd a dvnam,c, dialccttcal reiauonslup l>etween pn-
vatc mternational linanctai actors in finanrial markets and US govcrnmellt
dollar policv. i\•lost of' the literature on giobalisallon tends to take as a g-ov-
crn mg assumptHm the idea that the rela11onship l)etween Lill' power or
markets (and market forces) and the power orstates 1sone mainly markl'cl
by antagonism - an tclea deeply ernbedclecl 111 much liberal thought.'; Yet, Ill
a semmal article writLen at the time or the Nixon changes, Samm·i
Hu111mg11111noted boll" foist" 1ha1 1clea 1s: 'Prcdic11011s or 1hc cll'atll or the
11atton-statc arc premature ... Thcv seem to be based on a zero-s11rnassump-
110n that a growth 111 the power ortransnat1onai orgarnsattons must be
accompanu:d bv a decrease Ill the power nf states. This, however. need not
be tile case. ·i We LI"\" to sl10w how tile DWSR, stct:reci by the l 1S gnvernmerll.
workecl in and on the mternattonal poliural cconom,· ancl how it latched on
lo and changed the internal ec1mom1cs, politics and sociolo_h''Y of states and
their illlernational linkages.
Chapter -I looks at tile operations of Lile Dollar-Wall Street Regime o\"er
the last quarter of' a century. \Ve iook at llow US aclm1mstrat1ons havt:
so11gl1tto use the reg11ne, and the 1·espo11sesof the European Communtlv
li Tl-IE C;f .011,\I.IS,\TION C.-\r-1111.E

scales.Japan. lhe cou111nes or the South and or the former So\'lcL Bloc to
the regime. We also look al how the rcg11nl' conlribull'CI towards ciiang-ing
the US domestic financiai. cconomte and polittcal systems.
In chapter 5, we LI"\'lo place Lile DWSR and its effects in Lo the framework
or Lhe dynamics or intcrnattonal politics as a whole 111 tile earl\' I 9(10s. \Vl'
iook al th1:se issues, so Lospeak. from lhe an!{le or lhe kacl stale: lhl' Uniter!
States. And we try lo build 111 Lhe effects or tile Soviet Bloc collapse on how
American ieaclers formulaled their slrategic !{<>aisand recombined t11cir
tactics. I argue that tiler rattonallv had to, and did, recog-111sethat their kc\'
challenge lay 111 East and Snmh-East Asia. To tackle that challenge and to
rrustratc f'uture challenges to US giobal lcaclership, thev had lo radicalise
che D\VSR ancl may perhaps have used 1t as an 111strument or economic
statecraft 111East Asia: the e\'Iclcnce is c1rcumstanual but s1gnilica111.
In chapter 6 we argue that the conventional view or the unfolding or the
central drama orthe East Asian crisis in the auwmn of 1997 - the events
m S011lh Korea - is n11stakcn msol'ar as ll assumes the central actors lo ha\'c
l)ecn cxclusi\'ciy market. forces. A criucai role was pla\·ed hv the US
Treasury. wluch acted 111 q111tcnew ways clurm!{ the Korean cns1s. It. was
this Treasury 111tervcnl1011in South Korea which was 1·csponsiblc for the
subsequent Indonesian collapse and wiuch mdirectlv a11cl11ninte11t1on,tlly
set in motion the tn!-{gers which 1.11rnedthe East Asian crisis into a 14lohal
financial crisis during 1998. :\t the same 111ne, till' reason whv the US
Treasury's action coulcl play this triggering role lav in the effects of 1wc11tv
\'ears or US explonauon of the Dollar-Wall Street Regime 011 the world
economy. \Ve conciude bv ccms1clcnn~ whether there 1s a possible social-
clcmocratu; capi1alis1 alternati\'e strategy wluch could reverse I.he dvnanucs
orglobalisation.

I. \\'. II. \t,ats: "The Secom! Co111111g ·.

'.!. .Joe Qt1111la11,"[k\'aha.111011s, Ddirus ancl the E111lor Clohalis:111011?". :-.torga11 Stanlcv
(:tuhal En,11oi111c·Forum, The {;Johal En,1101111csTt·a111.Sp.-nal Y...ir-Et11llss111·.'.!'.!lkn·ml>t·r
l!l!l7 (Mnrg,111 Stanier & Co., 1!1!17).
:1. I must ;1ck11owledge rhe source of rhis metaphor III an <·xn·lle111 y,k,· hr l'rol't-ssor
Wage11t,r al a recent co11li,r<'rrcc III Berlin. The_rokl' gm·s as follo\\'s: ,·crn11m11chis1orr 1s d1as-
111µ; a hlack car III a dark n10111:econornro 1s chas111g a lilark cat III a dark morn 1dre11 the cat
1,11·1there. En,110111etri.-s 1s d1:Ls111µ; a hlacl cal 111a dark rnom \\'l1t·11111.-cal 1,11·1then· ,111<1
yo11daim ,hat you ha\'c ra11gh1 11!
-J. Sec the ,upcrb anah·sis 111Rohen lln·1111er, 'Tiu• Enmo1111rs of (:Johal T11rhuh·11n· . .\',w
L,ft 1/,,,,,,,, :!'.!!l( I !198) .
.'i. ,\ m:\1nr <"l'Cl'(lllon to this hlirul11ess has hcen 1)11·\\'ork of Susa11 Str,mi-:•·. \\'ho consta111h·
sm1ght tel ,·ducat<· us on tin· pulitirs of i11ter11a11011al111011<:lary and li11am·ial affairs ,·,pecral11·
111her d,1ss1c. St,·1/i11K11111/ JJ,-iti,1,/'o/i,:r (()xf11rcl U,m..-rsltl' Press. l!lil ) . .-\ pa1h-lm·aki11µ; anr-
dc on the n,k ofs1a1es 111gl11halisa11<m ,s I.co l'anrtd1, ·Tiu- Role ofSi.tt,·s 111 l:lullalisa1m11·.
Sor·111/i.1I U.:1;w,·1· ( l!l\1:1).
 INTROlll 1<:TIClN 7

tj_ I tin l\rll ,n,h 10 s11g,~est 1ha1 tl'IISlons ln.·twt·•·u the ~o;.tb of ~l1\'t:r11111t·111S. and th(• cly11a1n-
H ·' .. r 111arke1., :111· 11111:m 1111pun:1111 olij1TI or i11n,s11gal11JJI. Sci· Ruh,·l'I flllyl'r and lhnn·l
IJra.-11<·(,·,b.). St111,·,.·lu,1111s/
,\lwl:,·1.1: Th,· l.i11ut,u{l;l,,l,n/i:11r11111
(Rcnnh,dgc·. l!l!Hi).
7. Sa111u,·I l l11111111g1n11: Oq,::uusa1in11s 111World Poli(1cs'. l\in{r/ {'olitin, '.!:i
'Tra11,11a111111al
(.-\pril 1!17'\t.
 Tl 11-:(;(.Oll,\l.IS,\TION CA~ll\t.1-'.

states, Japan, Lill: countries orI he S0111.hand of I Ile former Soviet Bloc to
the rq{1mc. \.\'t• also look ,IL how the n·g1me contributed wwarcls cl1a11g-ing
the US domestic linanc1ai, t'Conom1c and poliurnl sysrems.
In chapter .S,we u·y to place the DWSR anct its effects into the framc\rnrk
or the clvnamics orinternauonal politics as a whole in the earlv 19\JOs. We
took at these 1sst11:s,so LO speak, from the angle or the lead stale: the Un11ccl
States. ,\11(1we t.n' to build 111 the elfrcts of the So\'let Bloc collapse on how
American leaders formulated their strategic goals and recombined t11eir
tactics. I argue that they rallonally hacl to, and did, recognise that their ke\·
challenge lay in East and S1>uth-East Asia. To tackle l11a1 challenge and 10
frustrale li.nurc c11allenges LO US giobal lcadersh1p, they had Lo radicalise
the D\VSR and may perhaps have used 1t as an mstrumenl or economic
statecraft in East .-\s1a: the c,·1cil'llcc is c1rc11mstanual hut significant.
In chapter li we arg-ue that the con\'entional view or the 1111fi,Jdi11g oJ' 1he
central drama or the East Asian cnsis 111 the autumn of 1997 - the c\'ents
in South Korea - is mistaken msofar as 1l assumes the central actors to have
IJeen exclusivciy market forces. A cnllcai role was p!.1,·ecl bv the US
Treasurv, which acted in qu11e new wavs clurmg- the Korean cnsis. It was
this Trcasurv 111Lervent1on 111 South Korea which was responsible for the
subsequent Inclones1an collapse and which mdirectly and 11111111entionallv
set in motion the triggers wl11ch turned the East ,\s1an cns1s 111L11 a ~lohal
linannai cns1s during 1998. At the same time. Lile reason why thl' US
Treasury's action couicl play this trig-gcnng role !av in the effects or 1we111.v
years ol' US cxplotLauon or the Dollar-\Vall Street Regime 011 the world
economy. We co11cl11ciebv constclerin~ whether there 1s a possible soc-1al-
dcmocrat1c capu,1list alternative stralq.,•y which co11lc1reverse the clvna1111cs
or globalisation.

I. \\'. I\. \i.·;11.~:

'Till' Second C1J111111g
'.
!!. .Jo~· (211111lan, ')k\'ah1a11011s. Lklir11s am! 1111·Em! or< ;)ohalisa11011:' ~Jorgan S1a11J.-r
t;Johal Ec111mmn: Forum, The Cl1Jhal F.co111111111"s Team, Spenal \'ear-Eiul ls.,11,·,!!'.!lknciullt'r
19!1i (!'llmgan S1:t1ill'y & Co., l!l!li).
:1. I m11s1 ad:.1101,·letlgc the source or 1his llll'laphor III an l'Xn·lle111 .)1Jkl· In- l'roli•ssor
\\'agt·ner :11 a 1·l·cc111cu11li,rcnce III Berli11. The _Joke goes as follo\\'s: ,·011101111<'hist on- 1s chas-
111ga hlack cal III a dark room; cco1101111Cs1s cha,111~ a hlad, c11 111a dark n,0111 whe11 1h,· ,·a1
1s11'11h,·l"I'. Enmo1m·1nrs •~ d1as111g a Illar\:. 1·;11 111a d;u-k 1<>0111wh,·11 1he cal 1,11·1llH"n· and
rou rla11111ha1 rou hain, ca11gl>111!
-1.See 1he superb anal\"s1s 111Rolll'l'I Brenner, 'The Economics or(;Johal Turhull'11n·· .. \',111
1.,:/i//,,,11w '!.'.!!l( I !1!)8).
5. :\ 111;\JOrl'XCl'J>llOII lO 1his hlimh1.-ss has h,·t·11 1he work oJ"Snsan S1ra11g,·. who co11s1;u11h-
1<:l'd11ca1,· 11,011 1h,· poli1..-s or i111er11a11011al111011e1arya11d li11a11n;il ;11la1r, csp,·nall\"
s1111i,:l11
111hl'r cl;iss1e, S1,·di11~,riul /Jrilish /'11/i,)· (Oxford l 1111n,rsm· l'n:ss, ]!Iii).:\ palh-hn,aking ar11-
clc 011 1h,· roh- ofs1alt's III glllhalisallllll 1s I.en l';i1111d1, 'Thl' Role ofS1a1<·s 111l:J11halisa111>11·,
( I!l!l:1).
So,wli.,1 U,·g1.1i,·r
 I NTHOl)ll( :J"IClN 7

(). I clu that t,•11.,;1uns hctwn:u lhl' ~nals or go\'erun1en1~ a11d the dy11a111-
11ol w1sli 10 ~ug'-(t'Sl
H"S or 1n;1rk,·1, an· 11111 ;111 1mpun;m1 uhj,·n .,r inn·,11µ;;11iu11. S1:l" R11lier1 lion'!' anll 1);11111:l
:lg11m,1 ,llml:,·11: Th,· l.imm of 1;/,,/mli:oiwn IR"ntl,·dge. J !l!Jl,J.
D1·ad1<·(1·1'-.;, S1111,·.,
7. Sa1111wl l·l11111111µ;wn: 'Tra11s11a111111al Orµ;a111s;1L1011s 111World l'oliucs·. 11;,,1,1l'oliti,:,, ~:,
(,\pril l!J7'.\).
=========2========
'Capital Markets', Financial
Systems and the Postwar
International Monetary System

Most of the various no lions or what globalisation is about focus on the growmg
mobility or capnal across the globe in the 'global capital market; and upon thl'
nnpan or tl11smol)i!ity on nauonai economics. But the Lenn 'capital markl:t
1sanalvucally mcoherent, because 1Lembraces radically diflerenL phenomena
111 the lield of finance, most or wh1c11havt' nothmg dircctlr to do wnh capllal
111 the usual common sense meanmg of the Lenn, while at the saml' tlllll" It
excludes a great deal ortile opcrauons of what capital actually docs. So we
need to claril)' our notious about 'cap11al markets', global or otherwise, 111
order to understand this international phenomenon known as globalisation.

Th,, S11-rnlll'dC:ap11al
M11rh1•1J

In common sense language we associate the word capnal with the ide1 of
funds for producuvc 111,·cstmc1ll,for putting together machmes, ra,,· mate-
rials and cmpioyees to produce sellabic iwms. Tlus is a useful starting po11n
for usmg the word capitai because it stresses H.ssoually beneficial role with111
a capnali.st system.
One of the central confus1011.sconcerning globalisation lies in the w1cle-
spread belier that the so-called 'global capital markels', 111 which trillions or
dollars arc bouncing back ancl rorth across the globe, are in some wav ass1sl-
111gthe clevciopment or the procluruve sector or capitalism. It i.sbecause we
1m,1g111e that the 'global markets· arc integral to production that we 1111agrne
that we have no chotce hut to accept them. \et m reality the great bulk ur
what goes on in the so-callecl ·global capital markets' should be viewed more
as a charge up~m the procluctlve system than as a source of funds ii:>rnew
production. The idea that the current forms or'capital markets' arc limc-
tJnnally mclispensable inve.~unent mechamsms is a senous error. The 'caphal
market' is both much nH>rl' and much less than the funnel rm· procluc1iw

s
 "C:\l'IT:\L l\1.-\RKETS' :\ND INTERN,\TION,\I. /IIONEY

1m·eslrne11L.IL 1s much Illtll"e IJccause IL mci11des all forms of credit, savings

;111dmsurancc ,'-~well as large. cli\'ersificd marl,ets m LJtieslo fmurc mcurnc
a11d not_JIISt credits for prociucuve 111,·esunent. :\nd IL is much less because
1·ery large flows orfunds 111Loproducuve mvcstmcm clo not pass through the
su-callect ·capllal markets· at all.
Tl11s confusmn about the role or capital marJ,ets is linked to another,
concernmg mergers and acqwsitions. Thus, it 1s often assumed that when
one company buys control ol'anoLher companv, some kind of capllai invcst-
nwnt is takmg place. Yet frequemir such acqu1s1uons or assets may have
nothmg to do with new real mn·stmenl at all. mctel'cl, the reverse may be
occt11-r111g: the acqu1s1L1onmay fJe conct-r111:dwllh runnmg down thc activ-
lllcs or the acquin:cl asset., 111orcler that Lhe fJm·er of Lhe asset can eliminate
competition and gain g-reater market power. During the lasL quarter or a
century this process or· ce111ralisation ol' capital· has been proceeding apace
i11ternat1onally. It 1s called 'Foreign Direct Investment" 1ml 111 most cases 1t
s11nply means changing the ownership or compames and may have Lo do
with disinvestment 111 proclucuon rather than 1he commitment of new
n·suurces to expanswn of procluction.
The not1011 that a great expanswn of the size of ·capual markets· 1s a
svmptom or pos1m·e trends 111 capitalist pruducllon 1s as false as 1mag111111g
that a vast expansion of l11e insurance mchtsLrY 1s a sign that the world 1s
hecommg a safer place. Insurance can operate 111 the opposite war: the
more cnme the bigger the properly insurance markeL. Similariy, when great
fortunes are being made overmglll on ··capital markets', the most usefui rule
or thumb for interpreung such Lrends 1s one wl11ch says that somcthmg 111
cap11alism 1s runctionmg ,·er~· badly from a social pomt ol'v1ew.
\-\'e will explore some of these terms, startmg wnh tile most. ob,·mus fea-
ture uf !inanciai s,·stems, their role 111 supplymg credit.
Credit mvoives lending money to peopic on Lile understanding ti1;u they
will pav the money back later along wllh a bonus or ·rovalty". usually 111the
!<.,rm or a rate of intcresL. 1 There 1s nothing necessarily capitalist about
credit and large parts or nauonal credit systems are not 1·clatecl LO produc-
lltm at all. ·workers can put Lhe1rsavmgs 11110 a credit co-operative and draw
lo;ms from 1t m hard t1111t·s 111 the hope orpaying tlw money bacJ.; 111 heller
llml'S. They pay a ro\'allv for the service but Liltscan be small because the co-
operauve ts 11011-prolit-makmg. Such co-operauves serve cons11111ptton
needs, not prochtCLion and thev arc not capnalist. Building soc1et1es co11-
!i11edIO the housing- market piav a similar roie 111supplymg credit for pcople
to purchase hous111g. A common feature or these kinds of orgamsatinns ts
Ll1at the credit-money that they issue is directly cle1:n,ed f"rom savmgs
depositecl within them. In mher words, their resources come from the past
producLion of vaiuc in the economy: employees' savmgs come from wages
that they have aireadv earned m proclucuon.~
10 TIIE <a.Oll:\I.IS,\TION ( ;,\:\!Ill.I-:

Banks arc diffcrcnl because thcv arc able to cl"l'a/1! 1ww 1110111')'in t.hcir credit
operations. We can sec this when we realise that at any one t.11nc,the banks
as a whole could be giving overdrafts to everybody in the enun: eco1101m·.
Thus. far more moncv is circulating 111 the economy than the money derivecl
from sav111gsgeneratecl by past value creation. Pan of the money 1sact.ualh·
what we can call lictiuous mmwy - money derived not from the past but.
from expectations that it will be validated by future productive acuvttv.:1
\Vilhm capitalism. banks also do not. have to be operated as private capital-
1st compames. At llie begmnmg oft.he 1990s, for example, more than ha!J'
or the 100 biggest banks Ill Europe were publicly owned and their l1nanc1al
criteria for operatmg were, in principle, matters of public choice. And even
if they are private, the hanks play such an essential ,md powerful role in the
public cco1rnmy because of their capacity t.o issue credit.-moncy that am·
sensibie capitalist class will ensure that the state 1sconstantly mterfernig 111
their operations (even though, for ideological reasons, one wants LO keep
these stale functJons 'low prolilc •). As Kapstcm puts 1t: 'Banks are toid how
much capnai the\' must l10ld, where they can operaLc, what products 1.ile1·
can sell, ancl how much they can lend LO any one lirm.'' 1
The existence of Lhis fictitious credit-m011ey is very beneficial for the
whoic economy because or its roie in facilitaung the circulauon orcom-
mocliues. Without IL, econonuc development would be far slower. ll ts
especially important to employers, enabling them to raise large amounts or
money fi.ir equipment which will yield up its full value in production onlv
over many fultn-e years. Ir employers could mvcst only real savmgs - the
munc\' denvcd from past value-creation - mvesting in fixed capnai would be
far more costly - too costly for a lot. or invesuncnl. And credit has aiso
become a very important means or expanding Lhe sales of goods to con-
sumers. This is anothc1: way of saymg that modern economics run on large
amounts of debt. So the banks do play an imponam role m both chan-
nelling sanngs and creating new funds (lictitious money) for productive
investment. An entire capitalist economy could be run with a Jinanc1al
system consisting cnllreiy of such banks.
Hut lnstorically, other forms of financial institutions have grown up, espe-
cially 111 the Anglo-Saxon worid which has played such a central role Ill the
i11stoncal development of capitalism. First there has been the development
or shares and bonds as means orraising funds. A company can oner shares
for sale and use the funds from the saie lO mvcst in the busmcss. The shares
are pieces orpapc1· gwmg legal titles 10 a claim on fraurc profits from the
company·s activiues. Companies or governments can also sell bonds and use
the f'unds from, the sale for an infinite variety of purposes. These bonds arc
similarly pieces of paper giving legal titles to a fixed stream offulllre mrnnie
to the holder for a fixed period of ume. A special realllre orshares and
bonds (known collccuvcly 111 England smce the eighteenth ccnwry as
 ·t:,\PIT\1.1'1,\RKETS' :\ND INTERN:\TION,\I. ;\JONEY Il

'stocks') 1s that secondarv markets h,we g-rown up enabling people to buy

and sell these pieces or paper entnling the holder to fi.11ureroyalties. Today
then: arc all kinds of' pien·s orpaper that can he bought and sold and that
enmie the holder to some kind ol' l'uturc rovait.v or ngln. 1 can buy and sell
paper giYing-me the ng-ln to buy or sell a crn-rcncv at a ccrtam rate at acer-
1a111ume 111the future. There has lwen a hugl' g-rowth III markets for such
paper chums. The generic term for all such tradalJle pieces or paper is 'secu-
nllcs
It 1s important 10 recognise that while the 1111ual1ssumg ora set of shares
or l)oncls Ha means or raising l'unds that mav ( or mar not) he used ror pro-
d11c11vecapttal invesunent, the secondarv markets 111these securities are not
contributing dircctiv at all to prodttCU\'C 1m·cstmcnt.'' Instead the people on
these markets (such as the Stock tvlarkct) arc huymg- ancl selling da1111s 011
Ji1t11n'11al111·tn'at,.,/ 111_/i1/11n·/mHl1tfl11lf' ar/1111iy. Ther are not handing over
funds for that produc11n: act1v1tv:the,• arc da1mmg ruture royalties from it.
These cla11ns011J'utu1T rovalties from li.1trn-eproducuon ;ire either direct or
mclirect cla1111s.A share 111 Ford Motors 1sa din:n claim on ruwre value cre-
ated in Fords. A Russian guvernmcnt bond which I hold is an indirect cla11n
on future Russian producunn orvalt1c. I hoid the bond not because I think
tile Russian government will produce the value hm because I 1mag:mc that
11 will pav me mv royalty by extracting taxes from the procluct1ve acU\'llY or
others in Russia: no proclucuon, no rovalty on mv hone!.
Against this background, we can now relllrn to the phrase ·capital
market'. What is mainly (although 1101only) rcrerrcd t.o h,· this phrase is
actuallv s1'wni11's 111r11Ji,•1s.And we thus discover that ·cap11al market; in the
sense of'a sccunt1es market ma,· have nothing- direc1l~-to do ,1•1111suppl~•ing:
runds f'or capitai inveslment. II may have IO do with the opposite process:
trading in clam1s to draw profits Jim11Jitltm' /m1r/11rt1111' At the
11n/111•-rr1•at1011.
same tune, both bank credits and bonds ma,· he used for c.1p11alra1smg:hmc-
tions but they may equallv be used ror other purposes. Anrl nenhcr foreign
exchange markets nor the so-called derivatives marJ.:.e1s have anvthmg
clirectlv to do wllh capllai 1m·estmc111- we will examine later what their
runctinns arc.
I-low couid such an apparent abuse oflanguag:e. whercbv various kinds or
financial 111arkc1sare all clcscrihed as capttal marJ.:.cL~.occur? The answer is
that 111snot an abuse or lang-uage li1r one 1-{rouporthe populauon: re1111ers
and speculators. Renllcrs arc those who dcnve the1r income from extracting
rovalties from future producu011. The speculators arc those who dcri\'c their
mcomc l'rom tradin~ in sccunllcs or cm-rencies b\' 1n:111gto sell them at
iu~her pnccs than thev bou~ht t.hcm for.
As has been 11nplicd by our analrsis. rentiers are not, m pnnc1ple, an 1111.e-
grai eiement 111cap11alism. Those pans of the svstcm \ reproducuon which
neccssarilv m,·oJ\'e tile channelling or run els or monc\· from past value-creation
 THE ca.OB:\l.lS,\TION l:A1'1113LE

and from credits in the form of fictitious money could be handled cnurclv bv
commercial banks (wluch could themselves be publicly owned).
Thus, when we examine the growth of the so-called 'global capital mar-
kets\ we will find that much of their activity is not about the supph• of
capital for producuve activity. It 1s abom trading in royalties on future pro-
duction in differelll pans of the world or about businesses engagmg 111
various kinds or insurance against risks. And the trend in the orga111sat1onof
the flows of finance has been mcreasmgly one which privileges the interests
of rent1ers and speculators over the functional requirements of productive
investment. This fact is revealed through an examination or the tensions
between what we may call the two poles or capitalism, that of money-dealin14
capllal and that or the employers or capllal in the productive secwr.

Tlw Two Pofl.s<!/Capitalism and Their R,,g11/aiio11

Whether tl1e financial system is organised predominantly in the form or

commercial banks or in the form of securities markets, we notice a div1sw11
which is inherent in capitalism: the division between money-dealing capital
on the one side and proclucuve capital on the other. These two entitles
have different kinds or concerns because or the clifferem circu11s of theH"
capitals. For the employer or capital in the prncluct.ive sector the c11-c111L
runs as follows: capitai stans as mone)' (some ol'wluch 1sborrowed from the
money-capitalist), which is then LUrned mto plant, raw materials ancl
empioyees m the production process. The capital then emerges from pro-
duct1011as a mass or commocliucs li:,r sale; when the sale is completed capual
reappears m the form of money with the extra-surplus extracted from the
production process. Otit of this extra-surplus, the employer of capital pays
back the money-capnalist the sum 1111uallyadvanced, along with royalues.
Bm from the angle or the money-capitalist, the circuit looks clilTercnl. It
starts with a fund of money. TlHS money 1s then iocked 11110 a pn~Jcct for a
cenam tune. At the end of that lime, the money-capitalist hopes to get the
money back with a royalty. For the money-capitalist absolutely any pn~iect
which will offer a rmure royalty 1s what captLalism is all about. Ir bnymg a
share in Forcls gives a royalty of 6 per cent in a year, while a Ukraiman gm·-
ernment bond will give a royalty or 34 per cent ancl buying a case or Chfiteau
Lafitte to sell it ma year will y1elcl I fl() per cent, the problemal!c 1sthe same
for Lile money-capitalist in each case: in an uncertain future, which of these
diflercnL ·capital markets' will give me the best mix of sa!cty and high v1eld?
Property that can be used as capital Lhus appears simultaneously in two
poiarised embc;diments: on the one side stand the J110lltj'-m/1ilalist.1· control-
ling enormous accumuiauons or funds; and on the other side stand the
cf m/1ital managmg Lhe enterpnses. These are two ii.ffms or the
11111/1/oy,n
 'C,\l'IT:\L 111:\RKETS':\ND INTERN:\TION:\L :'\!ONE\'

same thmg, analogous to God the Father and Cod lite Son. But their polar-
isation Is very Imponam IJec.mse IL enabies moner-capital as the conu·oller
ur funds to play a plannmg rnle in capitalist development. By bemg dis-
tancecl and relatively autonomous from the empioyers or capnal 111 the
productive sector, the rnoney-capnalists can pick and choose what sectors
they advance money capital to. If a branch has reached 'maturny', barely
ach1e\'lng the average rate ofprolit. then resources or value from that sector
as well as fictitious money can be advanced to other sectors which seem
likely lo procluce !uglier rates or return. Through such redeplovments, the
Jinannai svstem in the hands or the money-capnalisLs IS supposed to spur
growth.
For supporters or capnalism this development co-orclinatmn role ort.he
money-capnalists 1sconsidered to be one of the most mge111011sand bcauti-
fui aspects of the entire S)'Stem. One might say that the relationship between
the productive sector and the linanc1al sector is one where the producllve
sector 1s detennmant but the financial sector 1s dommant. The productive
sector is determinant because IL produces the stream ol'vaiue out ofwiuch
Lhe money-capitalists 111 Lile Hnancial sector ullimatelv gam their royaiues,
directly or mclirectiy. On the other hand the financiai sector 1s clommant
because IL decides 111/icn'11will channel the savmgs from the past and the new
fictiuous credit-money - who will get the streams of finance and who will
not. The actuai power baiances between the two sectors arc paniy governed
by the busmess cycie. In the boom productive capital 1sflush w1th cash and
can. so IO speak, clic1ate terms to the monev-capnalis1s; but m the recession
the monev-cap11alists become nnhless, bullymg tyrants as Lile empioyers of'
productive capital beg for credit to tlCle them over. But power relauons
between the two are also crucially affected by insmuuonai design - by the
social reiauons or production. The stale, t.hrnugll a 111ghlycharged and
polillcised process, can and docs tilt Ute balance between the money-capital
pole and the producttve-capital pole and between the money-capnai pole
ancl all pans of the credit system, keepmg, for example, money-capital out
of whole sectors of the credit svstem, if'it wants to. The state aiso mat,es cru-
cial clec1s1ons about the internai structure ancl mteractions within the
monev-capital pole nselr. \>\1hat will banks be allowed to clo, and what will
they be kept out of? Will we have a private secunues market or not? And so
011. Anet we must also remember that the state IS not.1ust designing relations
between the two poies or capital; it 1saiso designing 11.-;
own reiauon with the
financial poie IJecause IL too will wish LO use the credit system.
Fnun our analysis of these two poles of capttal, another very important
clistmct1011emerges, between the tempos and rhylhms of Lwo kinds of linan-
nai flows linked LO the two different kinds or cu-cmts. For the
mnnev-capitalist there 1sa tenclencv to seek quick returns and to keep cap-
Hal in as liquid a state as possihie, for reasons or safely. The employer of
 1-1 THE GLOBALISATIONGA111BLE

cap11al seeks Lo set up much longer-term circuits, particularly concerning-

funds for fixed capital investment, which yield their full \'aluc only o\'CI"
many years. The tendency for the first group is thus to generate 'hot 111onev·
Hows, extremely sensitive to even very small changes in their environment:
while the second group tends to generate cold, long Hows which have lO he
mbust to s1gnilicant changes in their environment.The hot llows arc linked
to royalty seeking from either securities trading orfrom very shon-term
ioans. This difference is extremely important when we seek Lo analvsc mtcr-
nauonal movemcnrn or funds. Insofar as all kinds of money can llow l"redy
mternauonally, we would expect to sec very radical differences between
these t:wo kinds orflows: a small change in the exchange rate or one coun-
try or in the short-term, gm·ermnent-Jixcd interest rat.cs in another can
produce sudden, 111,~jor shifts in Hows of hot money, but exert no sig11ilican1
influence on flows of hinds concerned with real, long-term uwestment 111
prnducuon.li ··
The relationship between capital and labour within the productive sector
1s, of course, an absolmelv limclamental social relationship 111 the function-
mg of any actual cap1talisl system. But t.he relationship between
money-capital and the productive sector is anOLher absolutely central sonal
relationship. Some of the sharpest conllicts within capitalist. societies ha\'e
occurred around these social relationslups between the linannal sector amt
t.he rest or society.
At the end or the war, politics in the Atlamic world was governed by fr,rces
who favoured what the nco-libcrais call 'linanctal repression' ancl what
Keynes approvingly referred to as 'euthanasia for the rent.iers', The story of
the iast quarter of a century has been that of the resurrection orthe rentiers
in a liheratton struggle agamst 'linanc1al repression', This has gone hand in
hand with the idea that the approach to the design of financial systems
championed by people like Keynes and the US uccupauon regimes 111
Germ,1ny and Japan aft.er the war - 'linanc1al repression' - is an approach
alien to genume capnalism, apparently or Far Eastern ongml These debates
concern not only the mstitutional-powc1· relations between monev-capital
and the employers or cap1tai but also the role of the state and the forms or
class relationships across the entire societv.
But to understand tlus whoie story we must. appreciate 1hat 1hese social
and institutionai design issues are not necessarilv resol\'able at a purely
nauonal level. It is actually an activity also oft/11! i11/m:flat1•.1yst1•111, 111.m(aras_/i1111/s
("(/II .flow 111/J/"/'or /1!.H ji·t•/!z)'
Jim11 ()JI/' /l{J(/(/1/(/l r11n~'III-)' :.0111• lo (JJl()tlll'J". For the
money-capital poie plays !ls ro1e oniy through act.mg as monev. And insol"ar
as the currenci,es orstates are more or less freelv com·enible by private eco-
nomic actors into the c111-renc1csorother stales, tinannai relations in one
capitalist society can be sul~jected to powerful influences from the financial
sectors or other capllalist states.
 ·t:-\l'IT.-\1. ~l:\RKETS' .·\NII (;-.;TER'-1.-\TION:\l. ~I< INEY 15

Thl' transfor111a1ion or the 1·dat1ons between the 111onl'y-capital pole and

the product in- senor of nauonal cap11alisms has been a rt·1Hral feature or
what has comt· lll be known as 'neo-libt·ralism' over the last quarter a ccn- or
tun•. But thts transformation has been achieved in close connection with
prnf"n1111dchang-L'S Ill the lieid of"intl'rnattonal 111011e1ary ancl financial rela-
tions. Against thts hackgTolllHl, we will cxamme lilt: 111tcr11auonal monc.:·tary
s,·stem and how II relatt:s to interna11<mai and national linannai s,·stems.

'f'l11, Jn1,,nwl1011ul 1'lo111•iar_\'S\'slnu

The 11ecd for an interna110nal m<.mctarv svstem 1s 110L in 11sdf, so111cthing

clenvecl from cap11alism. IL anscs front the political as well as economic J'act
that t.he worlcl 1s dinded 11110 separalL' s1all.'s with separalL' n1rrenc1es and
from the fact that groups wllh111 011e state \\'ISII 10 do lms11wss with (and
111s1dc)other statL's. l·listorically, mos! of 1iia1 mternauonal husmess has been
co11cen1cd with trade 111 goocls. Thl' problem or in1crnauonal 11w11e1arv
rclauo11s anscs 111the first place over how two groups 111 difli.:re111 currency
zones can bu,• and sell g-oods. One ob\'tous wav orhandling thts problem is
to use ncnhcr orthe currencies oreach state buL instead 10 use a third form
or monev, sav g-old. which has an cxch,111ge pncc WJth t:ach or
the two cur-
renctes. Ahl·r11;1uvl'lv. there mav he an cstablisllecl exchani-:·e rare clirectl\'
IWl\\'l'l'II the two cu1Te11ctes a11d the sclk-r of the goods 111a\· Ill' prepared to
accept parmt·nt 111l"Hht:r orthe two c111-rt:11nt:s,etc. Tht• tmporratH pomt. for
t.lte moment, 1s simply 1hat some son or in1crnatio11ai rno1a·tarv s,·stcm is
necessary l11r the ftmctionmg of a11 intL'rnattonal cconom\'.
Thesl' cxchang-es m 1hc mtcrnational mcHielary svstem are m0111tored
clnsclv al an lllll•rstate lt'\'el to answer one 11nponant quesllrnt: an.· the eco-
nomic operators or a state huymg more from othl'r states than thcv arc
selling 10 <llher s1atl'S~ In other words. \1'l1a11s a state's so-called balance of
pa\'111c11tsm n11-rt·nt tr;msactmns? ls the ;11-cmm1 111 surplus or m <1din1?
These q11es11ons arl' 1mpor1an1 ht·c111sc iL1 stall: ts hcaYilv 111 clelictl people
s1an to wondl'r whether ti will be able, 111 the li.nurc, 1u line! the 111terna-
1ionallv acceptable monev that it will need to pav all tts mtcrnauonal
obligations. Does a delicll state have c111n1g-hreserves or 1111erna1ional
moue,· to keep pavmg- off its ddictL°:' Can it borrow 1111er11.11mnallvaccept-
able nwncr from somt·wiicre 10 keep Illl'Ctlllg tis obligauons? The more
such doubts g-row. t Ill' IIHll"l' the eco1101111coperators wit 11111 I Ill' stale con-
n·rned Gill f:irt· cliHinii11cs of om· kind DI' a1101her.
But this system ts not a ·namral' i,r a pure!\' cconomir ont:. It ts both cco-
11om1cancl poliucai. The whole CDnn·pt of the haiance of pavn1t:n1s rests on
1hc poliucal division of the wodd into different states with dil't<..·rcntmoneys.
The arrang-ements li>r estahlislung acccptablL' forms or internal.tonal money
16 Tl-IE GLOil,\l.lS:\TION c;,\~1111.E

are aiso established bv polilical agreement among states. And 1hc 1.reatme111
of cou11tnes \,'llh cu1-renl account delicll.~ or surpluses 1s also poli11calh·
established. Should there l>e an arrangement whereby stales with current
account deficits cut back on their pmchases from abroad to get ncl ol' thL"ir
ctelicits? Or should the surpius states be pressurised to buy more from the
deficit countnes? Arrangements of either sort can be plll m place. If the
deficll countries must ac~just, that will have a depressive effect internat.1011-
allv, because they will cit back on their international purchases. If the
opposite approach is used, 11.will have a sumuiatin: effect on mtcrnauonal
economic act1v1ty.Whic11 approach 1s acloptcd will depend upon 111Lerna-
tional political ,1gn·ement between states over the 11at1irc or tl1e
1men1auonal monetary reg11ne that 1s to operate. Ancl this agreement will
not be one between c.:q11ais. The biggest powers, or perhaps even one single
l)ig power, can lay down what the reg11ne will be. All the other states will be
'regime takers', rather than 'regime makers',i

'J'l11,Brt!lfon Woods R1•g111w/i1r

hit1•rnatumal Mo1111lm)' and Fi1u111cud
R1•fatwns

The concerns or Keynes and Dexter \,Vlute m their eJ'li.,ns to con stmet a new
mternauonal monetaf\' system for the postwar woricl were to constn1r1
arrangemems which wouicl privilege mternatmnai economic de\'eiopment.
This required a preclictabie and stable international monetary regnne that
would be niie-basecl and would not be ma111pulal,le by powerful states (i.ir
mercantilist advantage.
They therefore rcta1necl gold as the anchor or the system - a monev sep-
arate from the currency or anv nation-state. Anet tiler laid down that the
dollar would have 11sprice lixecl against gold, Other states then fixed their
currency pnces agamsl the clollar and were not allowecl to unilaterallv
change that price as they pleased. Changes m currency prices wouicl hl' set-
tled co-operauvely between states through a supranauonal body. Lile
International Monelarv Fund, which would be obliged to accept the change
111 a currency's par value only if it was neecled to correct 'fundamental clise-
quilibnum' 111 the state's current account (mainlv concerned wnh tracte).
The aim of these arrangements was to ensure tl1at economic operators
en.royed stability m the pnces or the mam currencies agamsl each othc:r
since all were iixed at a gwen pnce agamst gold. In pracuce, the dollar \,'as
the mam international currency 111 use for trade, IJ11t 11sexchange pnlT was
fixed like that or anv other cu1-renq•, agam.~t golcl, which remamed the
numeraire of the system as a whole.
The seconci m,~j~lrfeature or the Keynes-White system was that n largel~•
banned pnvate financial operators from movmg li.111ds around the world freeiv.
gt\'ing stales authority to control and prevent such linancial mm·ements.
 ·c:.-\l'IT:\I. ~l:\RKETS" :\ND INTERN:\TION:\l. MONEY Ii

Pn\'ate linance was allowed to transfer l'umb for the purposes orIi11am:i11g
trade. Then: was ais1>prm•1s1on for runds w l>l' mm·ect across frontiers for frir-
e1gn proclttellve inn·stlllL'lll. But other mm•enn·nts of' pnvate finance werl' to
he banned: 'financial n:pn:ss1on' 011an llllernauon.il scale. Such repression
then meant that mvestmcnt resources would be 'home-grown' wnhm states.
And 11also meant that monev-capllai had to confine Its rovalty-seeking oper-
;111rn1sto those acth·1ties which its nauon-state would allow. In other words.
states were gwen the nglll to dominate and shape the act1vn1es ortheir ii11a11-
c1ai senors 111 ways that wuulci suit the state's ct·rn10mic development goals.
The Brcllon \Voods reg-1me had a rather short and turbulent lik for the
simple reason 111;11Ille tll'o powers which designed ll, the US and the LtK,
became hostile to ,·ano11s central aspects or the rules they had themscl\'CS
ctcs1gned. The regime was des1gnecl cluring the w;1r and approved 111rn+t,
iong before the Un11ed States liad established 11sg-iohal poliucal-military
stratq.,"')' m the Cold War which wouid 111 turn l>ecome the internallonal
underpinning or the expans1011 or American capualism. The Roosn-elt
;1dministration, thercli,re. could not imagmc a s1wa11on III which t.hc US
would face a strucu1rai ddint 111its externai paymetlls. But the US's military
power pn!iecllon was tu produce .JllStsuch a stn1n11ral dclint and tl11swas to
take an acllle form w11h the Vietnam war. And the cldicll was exacerbatl'd b)·
the US's export or capll,li mto the EC in the I 9l,Os ;1sll sought to ensure 11s
umunuecl clummance in kcv West European markets within the EC.
But under tile rules of the Brellon Woods svstcm, the states in surplus -
the other side or the coin or the US deficit - could demand that their sur-
plus dollars he exchanged for gold and by the latl' 1960s, US goid reser\'l'.S
wl'rc becoming msurtic1l'.nl to honour the Bretton \-\'nods requirement or
the dollar's free com·ertihilitv into gold. There IHTl', or course. ob\'1011s
sot1111ons IO this problem wuhm Ill<.: Brcttor1 Woorls rules: c1L11crtill' US
could undertake the nL·cessal'\' economic acljustlllL'nL~ to llrllll-{ 11:-ddiu1
11nclcr control - cu tung b;1ck on extcrnai militan expenditure and reducmg
11npons, perhaps through ctomestic deilation - or ll could dcrnlue the dollar
ag-ainst gold. thus ensuring- that the sm-pius countnes could bur less gold
wllh thetr surpius dollars. But the Nixon admmistration was not prepared to
take either of' these steps: 11prel'erred lo break up till'. Breuon Woods regune
IIIStea<i.
As f'ar as · financial repression· was cnncernecl, both \Vall Street and Lhc
CiL\' of' I .ondon were 1111happvwllh Lhe resuxuons imposed upon them b\'
the BretLon \Voods l'rallll'll'Orks. Alrearl\' 111 the I~l-lOs,Wall Street had man-
aged to water clown Wh11e\ original scheme for Ji11anc1al.repress10n. \Vhlle s
own fate svmbolised the dramaLic shifL m political climate between I ~M'.land
tJ1e late I ~HOs: he died from a heart ,lllack while before the House LIn-
American A!Eurs Committee 111 the late I ~Mils.charxt:cl wllh hemg or having-
bl'cn a Commumst. Fi11aucr;1Iinterests in the Cit,· of'l.ondon also mana~cd
18 Tl IE ( ;1.f >H,\LISATII >N C;_.\\1111.E

LOexert sunicic:nt polil1cal mlluencc: ln l'Slablish themselves as an olFshon·.

unrcgulatL'CI rntcn1.111onal prn·atc lin;111nal n·utrl' and acq111r1·cl grow111g
s1gnilic.111cc 111 tlH· I ~H10sthn>11~b l he: so-called Eurodollar and Euro-bond
markets . .-\lHI the growth orI .ondcm and orUS banks ;1ml mulunauon,tl rur-
porations operating wuh of"l~shore funds creat<:d growing spl'r11la11n·
pressurt·~ agamsl the l\n:tl1111 Woods systl'III of lixl:d b111actjus1;1bk t•xch;111gt·
rates 111t11c:I 9fi0s.
The: Nixon adm1111s1rauo11's rc:f'11salto accept the Brl'tton Woods disn-
pline of n:ciumng the US to n:rnam 111surplus was,1ustilh·d by lht· arg-umt·111
that 1L~ clelint was cn1scd by European and Japam·st· 111LTC.llllilis111. thc:1r
cieterm111at1011to 111;11n1a111 1111dcr\'alucd n11-rc11nes i11order IO st·11.c market
share from US compamcs and challenge American industrial capitalism.
"With this argumenL tL sought 10 .1us1il}' 11:-;campaig11 111the e;trl\' 1970.~ 10
scrap tile central mstJL1111onsof the Brei Lon \\'oods rqtimc.~

Nolt'S

I. Tia, ll'flll 'royah,· ,·o,,·rs 1111t·n.·,1. !-(round rc111, rax<:s, li11;111n;il s,·n·1n· It-<', ;11111clin-
<kuds. I <lt:r\\·<' th<: ltT111 from Sh·,1ikh ,111()Tonak (1hm1gh 1hc1· ti" 111>1111.-\ml,·lli\"itlt·111I., Ill
1hc11· cldi111111111).Sl'c :\Jl\,·ar XI. Shaikh ;illll I•:.:\l11m·I "Ji,11ak, 1\/,·m111111g tlll" lli·///th ,,f Xrlltrm,:
'/11,•l'olitim/ /:.-,mum_\'of .V1111mw/:lr-m11111, ( ( :am hriclg,· LI1111·crs11yl'rl',s. I !l9-I).
'..!.Thnmi-:ho111 this d1.1pkr, 1\w 1,·nn ·pr11d11n11,n' r,.f.,.-s 111tho."· ar11n1i,·., 1ha1 prrnl11n·
11se-1,1l11es.Nol all such prwhtclJOll rn capllalisl sonl'lll"S 1s nm1roll1·d In· pn1·a1,· r.1p11al; ,·.g ..
,·onkini-: or 1hl' snpplv of h1111smi-:111;1ymH 1,.._ But 1IH"hulk of 1h,· pn11h1r111·1·,.-nor 1.-ill l11·.
On the d1·li111111,n 0J"1ilis tt·rm, Sl'C Shaikh and Tonal;., ihid.
:1. Sel' B,,t, Ro\\"llrnr11, C11/11ioli.1111, (.imjlid 1111,Ilujfatw11 (l.awn·1ac..- a11d \\'islt;,n. I!lH0) and
Dal'icl l·J;u-n:1. "/11,·l.i11111.,,if r:,1/J1to/(lllad,1,·.,]I, 198-l). I iarwy·, wn- 11npor1;1111hook prurnln
ill) l'XCCIIL'lll ,11n·er or 1h,· rules of li11;1111T\\'llhi11 r:1p11ali,m.
·I. E1ha11 I\. Kaps1,·m. (;111,,•n,1111< 1/1,· ( ;fr1/Jt1fFr1J11<1111_r: lrtfrrtrn/101wf Fi111111r,· 011,I JI,, Slai,·
(1-lan·ard l'111n:rsL11· l'n·s,. l!l!l·l).
:>.The tT011u1111~.111siilira111111fi,r 1h,·s,- st•co11clar1 markl·l.s· 1, 1h;11 llll·ir c:<ish·11n· bcili-
1a1t.·s the :-icard1 of co111pau11.-saucl g-u\·t·nllllt.'llh JfJr lu1~'{'.J"S of 1Ju·1r uffen11~., o( -.11:u-csor
hllnds: lhl' hll\cr., haH· 1h,· salo.-ry 111" k1111w111g1h.a1 1h,·,· cm s,·11 Liw1r lu111cb ur shan·s 1·a,ih-
l;11cr 011 1h,· ,c·co1Hlan- 111,11 k,·ls.
(i. Fllr h1nh.:r disnis,11,11 1111llll'se dill",·n·nn•s, s,•,· C. Ep,1,·111 a11d 11. (:i1111s. ·1111cn1a1u111al
C;1p11al ~Iarkt·l."i ;uul Ni1l1t ►Jli1) Eco11ut11u-P,)licv·, U,·Pu-H',~fJui,·n1r1fro,r,J/Pulilind F,11111011,. ~; ·I
(A11u111111I(1~1°, J.
7. 011 the"' 1ss111:,, ,e,· l>avicl C:alkll and S11sa11 S1r.111ge. ·:-.irnll'I" ;111(1\\".,rid 1'11li1ics. 111
S11sa11S1i.111g,· (ed.), l'111fr., 10lrtirn111/11111,1//'oli1iml /:'ro11111111·(:\lll'II & ll11w111, 19H-ll.
8. On 1h,· his111rr of IIH' llrc-11011 \\'011<1, rq~11ne, s•·•· ~f. Ill' Ce,:n,. 'Th.- Ongi11, 111"thl' Pust-
\\'ar l'a~·m..:111, Svstem • C11111/111rlg,•.founwl o//cw11111111n.:; ( I \17'.l);J,1111<·,( '.ro11,· '( )11 \\,·1·11e, :111<1
Cap11al l'lii.;111, .fo11n111I o{ fcowo11111 l.it,·mi11rr•. 10I. '.!I ( 19H:;); Ri.-hard ~- c;ardnn.
S/,·1/m/!:-lml/a1·/Ji/1!0111,u)· /',·npn111,,· (( :11\u111hi;il 11111"1·r.,11v
111l."1111,·111 1'1,·ss. l~Hlll\: aiul ..\111\n·w
lli,dd ,\/011,:r(ll,1n·n1 .. r \\'lll'a1.,h,·af. l!l!J:ll.
\\'ahcr, 11;,,-f,J/'u11,,-r1111rl
=========3=========

The Dollar-v\Tall Street Regime

The New International Monetary System Created in the 1970s

Th<: collapse 111 cc111ral pilbrs of" 1hc Brc11011 \l'uo<h rq.,:-1111cin I Ire c;trl\'
1970s has oJ°Ll'll IWl'll prese11ted. both 111the US and 111othn co1111lnl·s, as
some son or def'ea1 for a weakenL'cl .-\mencau c.1p1Lalis111.1m·oh·111g 1he
breakdown or i1s fa\'ourccl 11111.:rnat11111al monetary order and a slicte into a
chaotic' no11-srstcm . But 1hc rL'alitY was ,·en· cliffcre111, Tlw Ni:--011ad1111111s-
trat1on was de11.:rnu1wcl lo bre;d, 11ut or ;1 sci of 1usut111ion,ilisL'ci
arr,111gemenls which limitcci US rt«11rn11ann· 11111llL'rnation;tl mo11c1;1n poi-
ll1O 111order tu cstahlish a 1ww regime winch would g1,T II 111011m:ra11c
powcr m·er iutcniauonal rnonet.1rr ,ilI11rs. LIS capnal was 1ndccd l>t"111g
challcngecl ll\' 1t.~c.1p11alist n\'als in product 111arkl.·tsat till' 11111e.The break-
up or t lw Breum, \Voods system was pan or a st.ratq..,•y for res1or111g thc
clo111ina11ce of' US capllais through 1t1n1111g the 1111er11at1oual ll!OJH'lal'\'
S\'SIL'lll mto a dolbr-s1,1nclal'Cl rcgimc.
\\'c will 1101s11n•t:1· the dc1ails of !he 1111en1;1111111al
mo1H·!;1n· LTJ.~1s of 1he
late I 9(10s and carh· I 970s. 1 Therl' 1,·erl' l11·0cleus11T mo11u·11ts III the ston-.
The first was Nixon ·s dec1s1on to cut the link tw111-een !Ill' dollar and g-uld in
.-\ugt1s1 1971. And Lhc second was till· oil pricl' nse 111till' ,H1tum11 or I ~l,'.\
and Ille \\'a\' 111whKh the finanu;tl conseqm·m-es or th,11 pnce nsl' \\'L'l'l.'
hamllcd bv the rna111 \Vestcrn p(1\1'l'n,.

Th,· l111111g11mlw11 /Jullrn-\\rt/l S/1'1'1'11/,•p;,1111•

11(1/11•
u11ilStr11r111r,·

The .-\ugusL 1971 dec1sw11 IO 'ciose the gold w111dow mea1111hat the US was
1w lon~er sul~fCl'l 111the disnplint: of' ha1·111g-to ti'\' to m,1111ta111 a lixcd par
,•aJm· of the dollar ag-amst !-{Oldor am·11l111g·clsl·: ii co11lrl let 1he dollar move
as !Ill' US Tn:a~11n· wished and po1111ccl 1,,11·.1rrb ilw l'l'llH>\',ii o/' gold from
 Tl IE (;(.()11.-\1.IS.-\TIOS C:.-\\11\U:

1111ernat1nnal monctan· affairs. IL thus mm·erl 1.he world econo111\' 011 11, a
pure dollar standard.
Support r,,r such a JllDl'L' to\\'arcls ;1 pun: dollar standard had blTll g-ro11·-
111gwithtn Lhc Umtecl States dunng the l !HiOs. Supponers or 1!11smm·c.
such as Paul \lolcker, had e11Lered the Nixon admtnistrauon al the encl or till'
(lH)(Jsand thl' 111ter11auonai monetar\' crisis of 1~)71~an: them Lhl'tr oppor-
tunm·. But Ille probicm was that ;1 pure dollar standard was 1101acccpt;1hk
to \.\'estcrn Europe or.Japan. \Villiamson, an 111s1dcr111t11c nq~ouauons at
1h1s lime, has expressed what was at stake clcariv: 'The central polit1cal lilCt
1s that a dollar standard places the direction or the world monctarv pol in· 111
thl: hands ora singk cm111u·,·, which tlu:rei)I' ac9111res ~reat ml11tl'IICl' on:r
the ccnnom1c desuny or nthcrs. ll 1s one thmg lo s;1crifin: s1ivL·n·1g111Y m tiw
111wrcs1sof i11Lcrclepcnclc11cc;JI is guile another when the rcla1.ionsh1p 1s one
way. The dilTercncc 1s that between the EEC and a colomai empire The
ran 1s that acceptance or a doll.ir standard neccssarilv 1mplil·s a clcgrt'L' or
asvmmellT 111 power whtch, aiLhough ILanuallv existed 111 tile earl\' pDsLwar
vcars, had \'a111sllcclbv the lime that the.:w1Jrld founrl itself slid in~ to a reluc-
tant dollai· standard.'!!
In order to managc the rest of· the world's hostility to 11sclosmg or the gt iicl
wmclow, the Nixon admmistrauon supportccl the establishment of a confcr-
c11<.:con world 111one1,1n· reform. The confcrencc was 1111U,1Lcd w1thlll the
IMF throug-h the so-called Crnup of Twenty anci it carried on 11s work
l>t.:twcen I 97'.! and 197-1.The mam idea, whicll nwt with broad suppon at the
confcrence. was to establish a new, reformed s,·.~tem 111 which Spanai D1~l\\'111g
Rig-hts (SDRs) would play a ccntral role as the imcrnauonal monL·larr anchor
or n11mera1re to wluch 1hc clollar would be suburclinatccl. But ll 1s now clear
111atthe Nixon adm1111sLrauo11h.id 110 mtcnt1011 or gomg along w1th such a
scheme or with rcspectmg the consensus orthe co111"cn:nce. It was 11s111g the
whole exerusc as a means of buymg- Lime while 11imposed lls own will on
c,·cnts outside l11cconference discussmns. With the <1t1adrupling ol' oil prices
111the aunnnn of 197,\, as Williamson prnn ts 011L,all the cunl'ncnce parun-
pants realised that collccu,·c plann111g or a 11cw consensual ma·rnat11>11al
nmnctarv orclcr was dead and the whole negouauo11 lizzlcd out.
The Nixon admimstrauon thus gaincd its dollar standard and 111the
llphc;\\'ais or the early 1~17(bmcrcas111g numbers or cmmtncs were forn·cl 111
al>andon auempts to ma1111a111 11xed exchange rates hl:twecn their c111Tc11-
ncs and the dollar. This sllltecl the US adm1111s1ration because II wisher! to
force a 1·cvalualion 011 other states and could now clo so throu,14"h 11s0\1'll
policv for the dollar. This was an cnormnuslv 11npona11t clcvdop111cn1.
because, li.,r reasons wh1c11we will disn,ss iatc1: Lill' LIS gm·er11mc111 coulcl,
alone amo11g governments, mol'c !he exchange pncc or
the dollar ag;11ns1
od1c1· currencies by huge ammmL,; withom suffering- the economic conse-
quences that would face other states whteh attempted to do the same.
 The Nixon adn11111~1.ra11on s scco11cl step was to tr\" to ensure l11a1.
1111crnat1u11ailina11ual relations should be taki:11 out ol' the control of state
cc111ral ba11ks and should be 111cn.:as111giy Cl'.lltrcd upu11 p1·i\'atc financial
operators. It sought to ach1c,·e this go.ti thnn1gh expl01t111g US control over
mtcrnatm11al oil supplies. It is still w1dclv bclkvecl th.it tlw sharp anrl steep
llllTl'asc 111oil prn..:cs 111 197:~was c1rncci out h\' the Gulf" states as part oL\ll
,111u-lsrad a11<1alll1-l 1S polin· connectecl 1111he \11111Kippur war. \c.:t as we
now know, the oil price rises were the rcsuit or US 111l]m:nce on the oil
states and thcv were ananged 111part as an exercise in cconmrnc sta1ccraf1.
directed ag-ams1 Anu:nca·s ·allies· lll Western Europl' and Japan. And
;111othL-rdimensum ol" the Nixon aclmmistra1101ls polin- nn oil pncc nst:s
,,·,is to gt\'l' a new role. through them. to the US pri\'ate hanks in 111tcr11a-
t1011alfinancial rcla11011s.
The Nixon adm1111strauon was pian111ng tog-ct OPEC to greatly mcrl':tse llS
oil pnc(.'s a full two \'Cars bdore OPEC cliclsoi 1 and as earh- as I q7~ the Nixon
aclminisLrauon planned fi,r the LIS pnvale banks to rec\'dt· Lhe petroclollars
when OPEC linallv die\ take U.S advice ancl .1ack up oil prices." 1 The Nixon
adn11mstrat1011 understood the wa\' 111 wl11ch thl' US state l·mild use expanrl-
111gpnvate lin:mnal markets as a poli11cal muluplier ur tll!' 1mpan or LIS
Treasury moves wnh the dollar. But .icconliug to Nixon·s .-\111hass,ul11rin
Saudi Arabia at the ume, the pnllnpal poliucal ol~1ecu,·e behind Nixon·s
drive for the OPEC oil price nse was to cleal a crippling blow to thc.Jap,llll'St:
and European ecrn10m1e.·s.both overwhelming-Iv dcpcncll'lll on Middle East
oil, rathl'r than to deus1vely transf'orm 1111ernat1onal lin;111uai alfairs.''
Ne\'erlhelcss, Nixon s oflietals showl'd far more strategic ms1glll mtn the con-
segm·nces or what the,· were altempung than most polillc,11 scientists \\'ould
credit am' ~on.'rnmerll 1r1th. lts cap.inly for dn:epuon both rn·er the oil pncc
nse and 111 the "'aY 111 wJ11ch1t m,1111p11lateddiscussions w11it 11.~ ·allil·s· 111the
11\·lfm·er so-called 'i111t:rnaLional monetary rdi,rm' was brilliant.
The US government realised that 1.hc oil price rises would produce an
l'normous 111crease ill the dollar carntng-s or oil states th,ll could 11ot absorb
s11ch ru11cls 11\lll their own prodttCll\"L"Sl'l"tlll'S. c\t the S.1111l' 11m1.·, Lhl' oil pnrc
nsl's would plunge n:r,· man\' slall''- lllto scnnus tracl<.'rldiu1s as lhl' ro~ls or
their oil 11nports soared. So Lhe so-calkcl petrodollars would ha\'e lo he rccr-
dcd from the Gulr through the westl'l'll banking- svstems tu 11011-oil-prnch1u11g-
sL1tes.Other go\"eri1111en1shad wanted the pctroclollars to iw r1.·c,·ckd ,hrou~h
the Ir-.•IF." But the US njccted this. 11is1sungLill' .-\tlamic world's pnvatc hanks
(;ll that time led iw Amencan hanks) should be the recvding \'cl11clcs. Ancl
because the US was polit1callv dominant 111 the Cull", It ~011ldg-et 11sway.
The deh;lll' a1>1,ut n·n·ding thl' petrod,1llars 1\':is pari of a wirier ckba11.·
:11no11gLh1.:ma111capitalist powers o\'l'r whellll'r to scrap 1nttT11al1011,tl'linan-
ual repression' ancl the system of ma111ta111rngcontrol 1Jver internauonal
linanc1al movements firm Ir 11\ thl' hancls or the central hanks or states. 111
 Tl IF. i a .Olt\l.lS.\Tlll'.': L \\1111.F

these debates, winch to1Jk place \\"tLhlll the li\·IF. the US 1ras ci,mpletl'lr 1s1J-
laLecl, a~ all other g-1Jn·r11me11ts as well as the li\lF staff w;111tl·d tu rt•t;1111
sLnct cmnrols on pnvale m1er11auu11;1lli11a11n;tl lllm·emL•Jlh. 7 But thl.' US g-01
\ls wai- Lhroug-h unilaLeral aclmm. supplc11Jl'lll.u1g· thL' pl·troclollar 11111\'l' wllh
iL'i own aboliuon 111 197-l or restncuo11s 011 Liw lhlll· 111"l"l111cls
11110and 0111of
Lile US (known, m thc_1arg-011,as the almli11rn1 or·c.1p1tal conlrols').
It 1s true that the Nixon aclmm1stratw11 was able tu exploit a breach 111the
Bretwn Woocls svstem that hacl already t·x1sted s111n· thl' I !J:iOs: thl' 1111er-
natio11,il role or the CitY of I.011d1111111ri11a11nal tra11sac11u11s. Bnta111\
go,·en1nH.:11t hacl ;11lowccl the Cil\' of 1.onclon to oper;1tt· as an · orl~shon:
centre for in1ernat1011ai pnvall· fi11a11u;tl 11pl-raun11s 1>1" all SllrtS ;dmost
emirelv unregulatcd.H During- the l 9(10s, the CitvS i11tn11;111011alIH1s111ess
grew rap1dlv through the de,·L'lopmnH 111" Lhc.:so-rallt-d Eurocloll;ll" 111;1rkl'I:
banks 111the Ci1,· accepung clt:poslls 111ol1~sl1111Tdnllars a11cl 1hell lendinµ;
these ol1~shorc dollars lo go\'crn11H:n1s and bus1ncssl'S Lhrougho11t the work!.
Bm this role of the Cit,· as an ufl~shorc centn.: was itself largch· depcmienL
upon LIS gDvcrrtmenL poliC\' (winch allowl'd US banks to operall' lrl'e or
clomestJC US ban king- rq,{t1lalio11 by cstablisl11ng- opnat1011s 111Lo11clo11),
The new roie for pnvate finance m intcrnat1onai mo1H·tary n:lauo11s was
qualitat1\'cl\' cliffcrcnt front the mm·ernc111 or p1watc capnal 1111dn tht·
Brctton \·\1nnds ~,·stem. While IL1s true that 11ncln almost am· capnalist 111Ler-
national monetai-r regmw private capnal will devise wavs to nwn· Its
monciarv propt.:1'l\' across fronuers, and while ll is also trill' 1.ha1 pril'ale
~pcn1la11vc rap11;1i llH>\Tllll'llls wen· grow111g s1r011gcr 1111cltTBreu1,11 \\'1,ocb
in the l~H10s, 1he new arrangeme11ts brnugh1111Lerna1io11al prn·;ne li11a11n·
inLo th'-'. very centre or the workings of' the new llllernational 111rn1ctar\'
S\'Slcm a11d enabled 1h1s li1rce tD oper.lll' on a scale q11;di1;1tl\'d\" cliffL'n:IH
from that under tll(' olcl n:g1mc.
IL 1s ll'orth strcssinl-{ that in 'libera1111g' the private banks from interna-
llonal ilnancial repression the Nixon adm1111stratirn1 was ll<>l mamh·
rcsponclin~ lo 11Hcrest-group lobhv111g from r\menca11 banks or al11 ► ,\'J11g
supposed!)' spontaneous market forces 111 finance to do as they pleased.
The US hanks tl!cmsclves were 1111Lialh·far from h.ipp\' ;1lm11l rcn·ding- the
petrodollars to counlnes Ill the South. ThL· US g-m·(.·rn11H:111 liacl to il'a11 Oil
them to do so and had LOpronde 111ccnt1,·cs for such lt'11di11g.'' <)1w such
mcc11u1·c was to 1nvol\'e the IMF/WB 111new, parallel le11cli11glo such co1111-
tncs; another was the n·rnoval of co11trnls 011 the liS capnal al'Cou111 111I ~!7-1
to cnal,ie clomt·suc US banks to become 111\'olwd i11such lt'ndi11g so 1h.1Ltill'
opera11nns were not conlinerl to LIS a11clother hanks opera1111g-111I.1111do11,
A runher 111rent1vc was the rlec1s1011w scr,1p the n·ili11g 011 the amo,1111 or a
hank's total.le11cling that coukl g1, to all\' s111g-lcborrower. 111 .-\11rllin,dlv. th('
US gm·crnmcnl ga\'e !ls banks to 11nclcrsta11d that ii' dwr g111111todil'liculties
as a result orsuch lenclin!.{, tlwtr gon:n1mc111 w1Hild hail 11lclll ot11.11
 The Nixon s1ra1egv 1\l 'lihera11111-( IIHl'rnaLional li11:11Jcial markets was
h;1scd m1 till' 1dl'a 1ha1 cloinµ; so would lih,.,-,1{(• /hr :\111,·1·11·1111.1/11/,•/im11 .111r-
i"I/ 111/Ji11p: am/ would .,t/"l'IIKl/11'11flu· /111/i/1mi/mrun o/ llu~
/11 1r.1 nmw11111 11wa!.·111·.1s1'.1

.-\1111'11/'al/.1·/a/1'.Acn,rding 10 Enc Hellc111cl'. LIS olfiuals uuderstood in the

l 9i0s that a liberalised inter11aum1ai linannai m;irf;,l'l would preserve the
pn\'ilcgccl global li11,111nal posll1<H1 or I hl' l 1S ancl graspl.'.cl also that this
would hdp prl'SL'rn· the flollar s t'Clltral 1111crna11onal n,ll.'.. 1-lt:lleinl'r sums
11p the f"1111danwmal prnnt about the m·crall poliucal and eco1101111cs1g11ili-
c.111cL'ol' the changl·s: 'the basis or An1t::nc111 hcge1110ll\' was hemg shif'lcd
l'rom one of' direct pmH·r over other slates to a more market-based or ''str11c-
1ural" J'onu of ()Cl\\'CL •I~
\·\'•· shall stT below holl' these pn,cl.'.S.~l'S;1c111;1II\' ll"Cll'kl'cl to strl'ngthen the
poli11cal po\\'er ,IIH( l..'l'Olltllllll' pnlin· l'n·ec\0111 or till' L,S. 1~111first \\'l' 11111st
p01nt out Lin-s1g-11ificann:: 1J!'the nse of'pnY,ltL' 111tern;1l!1Jllal lin,111ce for 1111er-
na11onal IIHHIClarv relations hl'tween slates. This l'ISl' ahl'red tl1l' basis upon
wh1d1 l-!,'O\'l'rllllll'lll.~ 111;11111aml'ci !Ill' lllleni.1111111al stahilitY ,,r thcir 01\'1) l"lll'-
rl'IICIL'S: 11nctcr the ulcl lke1to11 \Voocls s,·s1c111. lhl' h.is1s t'tn a n11-rt·11cy·s
s1abilit\' was closelr lH:cl both tolls trade bala11u· and lO lhl' atlltucll' ol'tlll' li\·IF
and or thl' gm·t-rnml'1Hs (central hanks) or the 111a111 c1pnalist powers towards
the gon:n1me11t or !ht· UllllHn· 111trade bal;1111.:eclillin1lues. St.ites w111Js11r-
plu~cs ,m tlll'Jr clll'!'l'lll .icco1111t· (lrade 111g()(>cls and 'i11\'lsihlc l'an1111gs. l·.g.
from proli1s and di\·1ck11ds from !ls cnmpa111es m·l'rseas or l'rom shal'l'S in
companies on:rseas) had stabie, strong- c11rrl'11ctes. IL1 slatl' de1·l'loped ;1 cur-
rent account delint, 1t wmdcl nt·ed 10 ust: lls forl'1g11 exd1a11gc n:sern·s 10
delt:ncl its currenn· or persuade 1he IMF a11cl other go,·n11111cn1s to help.
Uncll'r the Ill'\\' svstl'lll stales 11•11hcu1Tc111 accou111 surpluses IH'l'l' ~,ill
gl'llt'l'.tllv 111a stron~ pos1uo11. Hut the dl1:ctl\·e h;1s1s ol' tl\l'1r n11-renn· ~ sta-
hilit,· came 10 depend upon another fanor: thl' slate's rrl'ditworthi11,•n111
/nn 1a/1• 111/1•n111ilo11a/ji11a11nal 11u0Jwts. Under 1he pt't::VIOIISsv.s1e111.prn·ale
li11a11nal markets had hcl'n largl'J\· l'Xciudl'<I - ha1rnccl h,· 'li11a11cial n..:pres-
Sll)II - from rn,·oh-t:111l'lll 111 thl' 1111ernal11i11al Illlllll'l.11T s,·stl'lll. Now 1hc,·

were lo plav a central role.

At l'irst sight, these Ill'\\' arrang-cmcnts 1111g-htappl·ar to bl' a lihL'.rallllll (ill'
).!;O\'t.'l"llllll'IIISl'rom l';trlicr rig-1clilll'S. E.\'l'II if' 1hc,· go, IIIICl l"lllTl'llt aLTOtllll
dt'liuts tl11:1· could borroll' 1111iie al lir.\l l.011clo11-L'l'llln-cl. Liter .-\iiglo-
:\rnencan, p1'1\'alc li11a11nal markets lO tidl' thl'mscl\'l'S 11\'l'I".,\ncl the\' would
lw free to allow their cw-renc~'·s t.·xci1ang-t· rate 10 mm·l· 111ore lkxibly ratlil'r
1ha11 h,n·1ng 10 st1bl1nlin,ttc all DIher et.:0110111icol~Jl'L'li\'L'SIII m;1111ta1nmg-;1
fixt:cl rate aga111st other ma111 n11Tenc1cs. \'L'l I lw hulk I LI.thl' s1alcs 111voln·cl
i11 thl' 111ternauo11,tl c1p11alist n·1111om,· so1111 discm·ercd 1t1at the lilll'r,1ti1111
\\'as, o\'l-r till' io11ge1 term. an illus1on. It 11•a~more likl' a tr.ip.
The way the svstcm would act11allv wod;, clcpcncled 011 its two cc111ral 111ech-
a111sms: Ille dollar and the mcreasmglv :\mcnca11-n·11tr<"d 1111ernat1011al
 THE (;J.OB.-\I.ISATIO~ (;_.\:.JBI.E

lin,1110:il markets. Thus, Lhc nc,,· m1ernauo11al mo11L·tar\' arrallgt·rnc111s ga\'c

the llll1Led S1a1cs go\'crnment far more 111(h1l'.llCL'over 1h<.:1n1crna11011al
moncL;u-r and linancial rclauons or Lhe world I han ll had c1~1oved 11lldc1·lhl'
BrcLtoll Woods rules. It could freclv decide the pricl' or the dol1;1r. SLall'•
woulcl become rncn::as1llgl\' depcndcnL upon ckvelop1111.:nts Ill :\nglo-
Amt'ncan linancaal markets for managing their 1ntcrnauonal mo1w1ar\'
reia1io11s. And trends 1n Lhesc lina11c1ai 111arke1s could hl' shirted 11\' till'
:1ct11111stam\ worc\s) lll' the US puhlic ,lllthonllL'S. 1n the Trcasun
DcparlnwnL and the Fcclcrai Reser\'L' Board (the US C:emral Bank). Thus.
Nixon ga\'c \VashmgLon more lc\'erag-e than e\'er al a 11111ewhen ..\nwrican
rclau,·c l'Ulllo1111c weight 111 the c1p1talist worlrl had suhstanuallr clccli1wd
and al a ume when the pn,clucu,·e s\·sLems or Lile ad\'anced rap1talis1
econllmles were en Lenn!{ a ion!-{ pc nod of' stagnauon.
The D11llar-Wall Street Regime (DWSR liir short) was 1101ofcomse 1'.\'rl11-
snw~,·centred 011 the dollar: other ClllTl'llCles. p;1rllnilar1,· Lhl' m;11k r\id
acguirl' large roles as intcrnat10nal currencies. And Wall Street and its large
l.ondo11 satellite were not the cxclus1,·e sources of li11ancc. B11L Lh<:
Dollar-\.\'all Slrl'ct nexus has been the clDn1111,111L one h\' far thr1111gh11t1Lthe
last quartl'r of a ccn turv.
And 1t 1s important lo note how Lhc two poles ot· this svstem - the dollar
and Wall Street - have rcmforccd each other. First we can sec ho\\' 1hc Ill'\\
eenlrality of the dollar Lurned peopic towards Wall Su-eel for finance.
Because Uie dollar has IJeen the dom111a11t world cu1Tenn·. Lhc gn·at m;11or-
1ty of states \l'nuld want to hold Lhe great bulk ol' thcll' l'oreJ!{ll n1rrcnn
reserves 1n dollars, placmg Lhem with111the Amcncan li11a11c1alsvstelll (or 1n
London). Similarlv, because 1m11wcentral cornnwdi11es 111 the world econ-
omy were pncl'd in and u·adccl for dollars. those trading in s11e11commocli1ies
would wish LO raise, Lhe1r trade Jinan cl' in New '\iH'k and I.on don. Thus, lh('
dollar·s role grl'atly boosted the s11.l·ancl lurnm·er m the .-\nglo-.-\111erica11
linanuai 1n-.1rke1s.At the same tlllll', Lherc was l'l-l·dbacl;. the other wa,·. Thl·
strengLh of\Vall Su·cet, as a Jiuannal ccmrc, rem forced the clom1na11n.' of 1he
dollar: for anvrnH: wanLmg LO borrow or knd mo1w\·, Liw stZl' and sUTll~Lh or
a li11;111o;iisvstem 1s a ,·en· important facwr. The l)lggcr ;1 linancial 1n;1rke1's
resources ancl rcach, the safer n 1s likclv to be. and the mot'l' compcuu,·e 11s
rates for borrowers. And Lhe same ts Lrue of' securities markets ( for bonds or
shares). For Lhose seeking rovalL1es from sccunues a h1g mad,c1 "'ith ,·cp·
high 1~Hesol'buvmg and selling 1s safer bemuse rou can easih· withclr;1\\' at am·
Lime lw liriding a buye1· for vour bonds t)l' shan~s. Furthermore, il"\'oll arl' a
sa\'er lookm~ for high returns m more nsk,, 111arkc1s. 11 1s rnuch hcttl'r '"
place \'lllll' funds m Lhe hancls or a big. di\'ersilied operator which can ;1l)surh
losses 111one area of Lrading and compensate w1Lhgams elsewhere. Thus thl'
size and clcpth nf' Lhc US linanc,al markets and the g-rm1·111g- s1rc1112;t11
of US
!inanual oper,uors acts as an aurau11,n for people 10 piaCl' 1lle1r f"11ndsat thl'
centre or the riollar area or 10 raise hmcls m tllat centre. In this way, the
stn.'.ngth or Wall Street has re1nli.>1-cerlthe dominance or the dollar ;1s an
inter11at1011;ilcurrcncr. 1:1

Tht• /:"m1101111r
011dPoli11,,ilSig11!fim11a-o/J)ol/or S,·1g111omw-

The ecmJC11111c and poliucal s1g11ilic111n·or this m·,,· n:gnnt· c;111 be appn:cr-
atl"d onlv when we understand the n,te or se1gmorage m gn·1111.;- the
American government an 1mmensclv potent poli11cal 111stn1111e11t in the
rorm or the Ill'\\' rq.;-11nc.
A, we saw when wt· 11utialh· discussed 1n1erna11011al mone,•, a state has to
acquire runds or internationallv acceptahk: mrnwy 1n order lCl be .1hle tu pay
for goods and services from atwoad. To t.ik.e an extreme examplt:. few
peopk: woul<l accept pavment rrom Chad in Chad's own curn:ncv: 11would
be useless to all but a handful nf' people 011ts1de Chaci. So Chad has Lo earn
(or bo1-.-ow) an 111ter11auonal n11-re11cr,sal' the dollar. before ll c111 IHI\" any-
th1nµ; l'rom at1roacl. Uut tills huge constra1111 1s 111m-ex1stL·ntlor the US u11cler
the new, post-Bn:tton \,\foods 1111ernallo11;tlmonetary reg11ne, because the
mternational ClllTt·nn· 1s the dollar ancl the US does 1101need to earn dol-
lars abroad: 1t pnnts tl1em at lwnw!
Se1g11111r;1ge 1s the name for the pri\'ilegcs wh1d1 tl11s pos1t1011gn·cs: these
can he summarised h\' saying that the US does not face the same haL111ceor
pavments constraints that other countries !"ace. 11 c;m spend far more
abrnad th,111 1t earns there. Thus. IL c;111set up cxpe11s1n· mili1ap· bases·
1n1houl a foreign exchangl· constr.1111t: rts tra11s11a11011alcorporauons cm
buv up other companies abroad (JI" eng-agt· 111other forms of J"ore1g11direct
111,·csune11t1,·1thou1a pavments constraint; 11snwnt·\·-cap11alis1s can send ou1
large flows or funds 11110 pnnJolio 111,·estmc111s ( h11v111g Sl'Clll'llles) sunilarlv.
A~ ll'l' haH· ;1lreacl\· StTII, dollar sc1gniora.~c 111cludl'Sg1nng lhe US lin;mnal
svstt·m great ach·antag-cs as the woricl's main source uf credit. And II is ,·er~·
1111pona11tto appn:natl' the s1g11ilicance ol'seig1111,rage Ii.II"tr,1cle relauons-
1mports ancl exports. \Vhen many of the kev goods bDught and sold 111
international markets have thetr trade denominated III dollars, Anwncan
companic:s 1111pnrt111g- or exponmg are f"ar less a/frctefl h,· changes in the
dollar exchange rate than is the c;1sc 111otl1cr countnc~. Tints. thl' 11Hcn1a-
t1011alg-ra111trade clues busmess 111 dollars. Ir the dollar exchange rate nses
mass1vdv against other currencies, US exporters ur gram ,ire far less scri-
oush· afl"l-cted than thev w1,11l<lotht·n,·1sl· bt'.. .-\ncl. if' 1hc high dollar
produces ;1 llood DI"imports Illltl the U1111c(IStates. g-enera1111ga n:p· big,
long-term dclint on the ClllTent account of' its balance or pa~·me1Hs, the
clclicH can Ile l"u11decl III dollars. Th us sc1g111orage gives the US g-ovcrn-
mcIH till" allilitv tt> sw111gthe pnre of the doll;ll" mternatH>nally tl11s''';"' ;me\
 Tl IE ( ;1.oll,\l.lS,\TJO;\; C.-\;,.1111.1-:

that, hanng grc;1l l'.COIJ!lllllC CllJISC()lll'llCL'S rur thl' rest or Ill!' ll'llrld ll'liill'
tht: US rcmams cushio11cd rrom the conscq11c11ccs th:it would apph· to
other slall's. 1·1

'/"Ji,,Ern11m11,.- {'olii1rn/ Sig11ifir,rn.-r11/\\iii/ Slrn·/

11111/ /)1111111111n,.,.

The Nixon adn11111strati1111·s \'JCtorv Ill •1ibera1111g- lht'. .-\11glo-.-\111l'rica11 pri-

,·;1tt: b,mklllg svstl·tns for 11ucr11;1111>11.1l opcrauo11s h;1d h>11r kc,· l'llcns. Firs1.
1t suddenly catapulted pnvatc ba11ks mlo the centre of' i111crna1.1011al fi11a11Cl'.
pushing- our the earlier dominaucc of tl1c cc111r;1l hanks and kd q111cldr 10
the 111tcrn;1Ltonal clom111ancc 111'rhc A11glo-.\mcnca11 financial s,·stcrns and
Amencan linanc1ai operators. Sccondlr. ll 11pencd 11p a11 e11or111ous holl· in
the public sttpcrnstclll ol' i11Ln11ar1onal li11:111daloperators. Tlurdlv, IL 111.ide
tl1c linanciai systems ancl l'Xchangt· 1·,11csur otlwr states. cspeci;1ll}' coun Incs
of the South, 111crcas1ng-lv nllncrnblc to de,·clopments 111 th(' .-\mcnc111
li11anc1al 111.trkcls. And li11alk ll µ;e1H.T,1H·d pmH·1 l\1\ ro111pe1111w prl'ssun·s
wrthlll Lill' l)anking S\'Sll'lllS or the OECD COLllltnes and l'llilbled till'
American gover11mcnt iargcl\' to cletermi11e what k111ds compl'lllh·e pres- or
sures .md what kmds of i111crn,11Hmai rcgula1tc,ll or in1t-rna1u,11,il li11a11nal
markeL~ sllould exist. It 1s nnpossibk lo exaggcra1e.111st how important these
changes \\'ere.
The lirsl henclinanes or the lilwra11on 1>fin1t·1·nauou,d p1wa1c lin,llH'l'
were the Cit~· or London a11d the ))Jg-, in1crnat)()llally-orientcd L1S 11101ll'\'-
ccntrc banks. 111 1981 till' Reagan ad1111111stra11on en,Ktecl a iall' allrn\'111µ,
so-called 'lntcrnallonal Banking Faciliues in the U.S. thus g1dng \\'all SIil-Cl
the same ofl~shorc status as the Ci1vY• It nught hc thought that the roll' or
the Cit\' ol' l.ondon su~µ;esls th,ll IL should he [.!;l\.l'II ,\l k;1s1 l'(j\1·,11 s1a\\1s \\'llh
'Nall .Street. But tills 1s wrong for one simplc 1·eason: the ( :it\' was anmg as a
linanc1al marketplace in dollars and its elllirc par tern ol' oJ'f~sltore opera-
llons was clepencll"nt 11po11 l 1S g1>\'ernmcn1 polica·s for 1111erna11011al
linance. 1l thus operated pnncipallv ,L~a scr\'icmg ccmre for liH' dollar c11r-
rcncv zone and ;1s a satellite ol'\·\'all Street.
Since thl' early I !)KOs, thc great bulk of LhL·1111ernat1011.d linancial 111;1rkl't
acunty has thus been centred 111Wall S1rce1 (and 1rs London salellirc). It 1s
ncc<:ssar\' to hc prense about what tlus s1g11ilics.Frl'qul'nrlr, ll 1s iil'ld Lo s1~-
11ifr that there 1s a s1H.:alll:rl·global' linannal 111arkl't.This 1s true if i1 11wa11s
that London and New Yi>rk do business witll peopk !i-0111all m·cr thl' wodrl.
Funds llow out from and back 111to thosl' 1,,·o n·1Hrt·s f'rom rnos\ n,11111nt·s or
the world. But this docs 11111r1t all mean th.it all tht· li11;111nalmarket~ of rlie
world arc t\11ilied m a single. llllcg-rat.ccl li11a11cial markt·l. On the conrrar\'.
lina11c1.tl 111arKe1s rcmamL·cl - a11d large!\' still n:111a111 - rnmpartml·111aliwd,
not only between co1111tncs but c\'Cll w1tl1111 cou11Lncs: we can Sl'C this if Wl'
realise that c\'cll w1t11111 Eurolaml after the launch or lhl' curo 1hcrc will still
he .~11hst;11111;iJ or 1i11anual markl'ts. But what
b;1rner., lU the full 111IL',!.(Tat11>11
did happen 111thl' I 9i0s was that l .011dun a11clNew \i.,rk opnaturs clid bq{ill
lO estahlis11 linkag-es between their international linannal IJlarkets and
naucmal li11:111cials,·st<.:ms around the world which \\'en· far strong·er than in
the l91i0s. The exp;111strn1 ol'thest· 111tcrnat1011ai private !i11a11nal operatioIIS
can be apprt:c1a1ed I)\' con1pan11~ the size of i111cr11aun11al hank loans and
bond lenclin~ between I ~17:1and l~)q(): hank ioa11s rose from S-IO billion in
197:i 10 well onT S:100 l>illio11lw I \J\JO;during the same period bond lendiug-
rose almost 1e11folcl.from S 19 billion LOow-r S 170 hilliun.
T.ilk or a ,!!;/11/111{li11annal m;1rket. rather than or the mneas111~ 111lluc1Ke or
thl' American fin:mu;tl market over other na11011;il linannal markets,
obscures the power dimc11s1011 of' US linancial dom111ance. Tliosl' who
hclicvl' that I.he ar\jt'Cll\'l' 'Amt•ncan· is tn\'lal or l'\'l:n rl'duudant should
ask themselves a s1111plt·question: would the\', then, be (]lllLC happy from an
t·co1wm1c ;11Hl poli11cal pnmt of new if the mien 1alHlllai fi11a11c1alsvstcm was
do111111ateclhv tht· mark\·1s and ope1·:nurs or Cln11a or lraq,.1us1 so lung as
the,· could offer similar kinds of credit or othl'r financial scr\'ices on similar
terms to those ol"\·\'all Street? llu1 10 makt· tilt' point 11111chmore dirccllv. 1vc
C:lll s1mph· 1w1e tll;11 hcrausc tht· .-\mern.:an fin,lllnal markl't~ Ii.in: bt'cll
dommant wnhm the hierarch1cai networks nf lii1.u1nal markets. access to
that market. dilTl'n.•111 kinds or liukaµ;es l1cnwe11 11atio11al ec1111om1es and
th.ii markl't. and pnce nwvem<:nt~ wllhlll that markl't. have had e11nn11011s
l'CI lllOllllC {Ill(/ j)(}{i/lmf s1~11iliGlll('t'.
The stun· smn· till' I ~l70s has hecn om· or µ;rowing pressure from 1lw \-\'all
Strl'el centre to wl'aken the barriers tn lls penc1r;1111,1111110donwsuc (i11;111-
nal svstem~. This pressurt' has a tnpk targt't: first. to re1111>\'t•barriers lo tin.·
free !low or funds 1n 110111clirecurn1s bctwn·n \-\':ti! Street ;111dpn1·a1c opt·r-
ators wllhlll the tar).{el state: second, LO gn·e full ng·hts 10 Wall Street
opl'rators to do businl'ss wllhm tlJC lina11nal srstt·ms and econlilllll'S or lhe
target stales: am! tl11nllv, 10 redesign lhe Jinanu;il S\'Slt·ms of t:irgct stales to
lit 111wnh the business stratq{ll'S or Wall Street operators ;111d or their
A111t-rtcu1 clients (tra11sna11onal rorporat11111s. moncr marh:.e1 m111t1al1"1111cls.
L'll'.).
or course, Wall Street and I.011do11 haH: 11ot hacl a monopolv. Tok~'o ltas
µ;ro1,·11and somt· uf t IH: biggest li11ancial operators ;ire _Japam·st·. Frankl'un,
Zurich, Pans. I-long Kong and Singaport: are all 1111pona111. 1>111110111: or
these olhcr centre.~ as \'Cl comes dose Lt>1walli11g-thl' .~11.cor Wall Sln'l'I ;md
London. :incl m lin.111n,1! affairs l'H'll more..· than 1n .ill\ 01 ilt'r ~<·nor of h11s1-
nc..•ss.size - both market size and the size of the l'unds that operators can
m• 11Jilisc- 1s m111/wl1inlf'(\' <f,,ns11•1'.
i,; 'r11u c;u1 rlo whal smaller pbn-rs can•,, so
Yt>llcan st'L the pace of'111t1stof'lltl' 11111ovauo11s111tht' lidcl.
This competit1,·t· advantage was mult1plil'cl b1· the almosl en11rdv
 Tl-IE (;i.011:\I.IS.-\TION r:.-\;\ll\1.(-:

unreg-ui,llell na111n: or thl' London and Wall Stn:el operawrs. S11rl1rc/.{11lauon

as ex1steci amounted onlv LO-rather \·ag-ue. non-leg-al g-tmlelines ag-rced bv cc11-
trai banks 111 li1e Hant;. Jiu· lntt'l'llatio11al Settle111e111.~.1' This. l<J~l·thn 1,·tth
sc;ile ach·antages. 1101 onJ\' 111a1111amcd Wall Street's clom111a11ce11111 started a
corrosive process or undcrrnming the pulJlic regulauon of linanciai oper,llors
1111//1i11u1htT s\a1t:s. as Dp1·1~11ors
1here csr.11)L·c\olfshorc tht·m~ch·c:s 11, C1J111pc1e.
linmd wa\·s around local rules ancl exerted pressures on their g-on:r11111e111s IO
lihcralise 111 order Lo cnaiiie thern Lo colllpl'te ag-ainst Wall Street.
~.,w
,\s Wl' ahDn:, 1t 1s cLingcn>11s for banking s,•stcms if hanks oper.1LJ1J11s
an: allowerl 10 go unreguiated. Unbridli:rl competition between l1anks leads
llu:11110 u1mpe1e wllh each other tu the pomt ofcollapst·. But lwcausc 11fthl·
d11mma11n.:or\V.111Strecl 111 pn\"ale 111ter11auo11allinanet.:. what compeuuo11,
what regulaum1 and what mternallonal arrangements for banks beco111111g
111rnl\'e1Hshould he establislu.'d becanll' qucst1011s iarµ;el\' 111 tiw hands nl' 1he
American gtffernmcnt, 111alliance with the Bnus11 authornies. If the US gov-
ernment c:hosc not to rcg-u1ate, 1t became extremelr rlinicult li.ir tlw other
111am cap11;1\is\ slates to main1,11n their regulat11n· fr;1111c\\'01ks.If tht· LIS
clcc1dcd to regulate, other banking authorILies woulci follow sun, but the US
could still largeh· dictate the form and scope or regulation. Thus a whole
charn n:art1011 ol' effects ,me\ pn:ssures on hanking WSll'lllS around the W1Jrlcl
was unieashed by tile decisions taken in lVashington.
1.l't us 111enuo11some orthese cham rcacuons. First. thl' L'S Federal Rl·snn:
could largclv diuate the Jc,·eis or in1ernat1011al in tcrcst rates through 111m·111g
US domestic Interest rates. It could thus determine the costs of credit 1111t:r-
11aum1all\', with e11ormouslv powcrli.il clfccts on otlwr cconoi11ll'S. ~\'!w1,
mternatmnal pn\·,He credit 1scheap. economic operators with ai.:cess to cheap
international credit stan pr<)JecL-;winch seem viable 111the current conditions.
B111if llS dcns10\1" suddenly make i:a·clit ,·en· cxpc11s1Ye, htll(lamt:111.11l,·
sound emcrprises mav find themscl\'es go111gbankrupt because or a smkle11
contractwn of ch<:ap credit. And an 1111ernatio11al li11at1ctal s,·stem do1111-
11all.:clby the US li11ancml market cul swm/.; wiklh·, 1i\'ers11pplnng crt:dit al u11t·
moment ancl clramaticallv i:ontract.mg it at another. To make maners worse.
till' tempo orthe L'S busi,wss cvcie is 11npossihle to predict w11haccurac\' ,Hid
lhl' direuwn of US poliC\' 1s egualh· impossible lo predict l>L·c.tusethe US has
qualitattvcl\' greater freedom or policv ch1>1ceas a result ,if its d1>1111nantp11lit-
1cal posiL101, m the intcrnauonai ecom1111,·.
Secondh·, through 11s regulatory rntervemions or the lack of thl'lll.
Wasllington was the manage,· of' what might be called I.lie micrneco1101111cs
orin Lernauonal linance: ILcoukl clic:latt· how mucl1 rq~11latto11 and supn\'J-
swn of hank lending there would be. De facto 1t ma11ag-ed the 11llernat1011al
1e11s1onbetween encourag-111g the banks to Lal,c risks and prc,·ent111g lhl'm
li·om aclln~ rcckll'sslv and then cnllaps1ng. Frnp1t·11tl\' dunng the last q11.1r-
Lcr of a ccnlltrY, \,\lash1ngton has been happ\' Lo forget about reg-11la1i11g11.~
 Till•: [)01.L\R-\l':\I.I. STREET REt;L\JE

in1crna1ional linannal opcrarors, whethc:r, as m rhc l 970s, the~· are the big
US monc\'·CL'lllre co111111e1-cial h,111ksor whether Lhcv ;1rc Lhc 111vcsll11cnt
banks or hcdg-e r11nds or 1hc l 991ls. \Vhcn 1111shappt:ns, e1H>rmous compct-
iLivc pressures an: piacl'ri upon li11a11cial operators clscll'hl'rc, and they
pn:ssunse Ll1cirgovernments w rebx Lhc1r reguiat11ms, or li11d wavs of l'\'ad-
ing what rq~ulaLions exist. The cry 1s often heard 111Washmgton that fur
Lechnolog1cal or other reasons rcg-ulauon 1s 1111possihlc. Bm when iL suits
\Vashrngloll to 111lr11cl11ce rq.\'ulat,011 it has hecn sho\\'n to h:l\'e hccn able to
acl11cvc it, with remarkable case.
This was shown wllh the so-railed Haslc Accord or 1988, lavmg- down
g111clelim·s l"or mter11at1onai hanking s11pcrv1s1on. The Hash· :\ccord was
acl11c,·ed through the LIS governrncm formmg an alliance with l.onclon Ii.Jr
:l_loint Anglo-A11wnca11 rcgulatorv rcg-1mc. This was e11Cn1ghto ensure that
all l)ther OECD goven1111cnts wouicl come tugethei lD estalllish a u1m1110n
rq~1111c.The resultmg rq~ulatorl' rcg11nc has bt.Tll a 'gc11tiemc11\ agrce-
nH.·nL' skewed to\l'ards scrnng LIS mlcn:sts since IL gives all banks an
mccnllve to privilege th<: buying orgovernment bonds, a prcssmg US 1wccl,
g1V(:n Its gn\'!:rnmc111 ·s 111rlcb1ccl11c:ss. and a clismu.:nu,·e to 11.:n(Ito 111rl11s1ry.
Tl11s Accord clcmo11stralnl.1usL how casr ll ts for states to rq~lllate i11tn11:1-
tio11al lina11c1al marl,ets, on one condiuon: that the regulatiDn 1s clonl' ll'llh
US support. 1H
Thll'dlv and vt•ry 1111por1a11tlv. LIS gm·ernmc111s disco,·cn•(l ;1 1,•a1·of co111-
bw 111g unregulaied 111ternauo11al bank111g- ;m(I linanual markets w11h
minimal risk nf' the US banking ancl linancial svstcms sllllering a resulting
collapse. ll,111g its control over till' IMF/\\'H ;me\ brgl'lv w11h \ht· suppllrt 11f
its European partners. \-\';1sh111gto11discovered that when ns 111Lerna11011al
linancial operators reached the point of' insolvency through their 111tcrna-
uo11;ilacU\'illcs. they could he baill'rl out 1,,. the populauons or tht' borrower
countries ;1t almost IH> s1g-nilican1 Lost to the LIScconom,·. This soluu1111was
lirst llll upon dun11g the Latin American 1111eniaun11al linanu;tl cnsis at the
s1,1n of thl' 1980s and it was a snl\1t11111 w11h rcallr major l'Connm1c and p1>li1-
1cal stgnilicancc. We will rl:'turn to this cxpericncL· l:tll'l".
.-\1 the sa111eume. th<..·US gm·(·r11mc1H <kvelopcd wa\'s of <..':-.l<.'11di11g- 1l1e
influence of Wall Street over i1111:rnational finance w1Lhou1 JHtlllllg Its big
co111111crnalh;111ksat nsk. It successfully snug-ht to change the form orlend-
lllg 10 till' 1110n: rc11ucr-fr1e11dl\' blind marl-ct .111d1ow;1rds 111on· short-11.:n11
lending rather than medium or lo11g--ten11bank loans.
The final and most important area m wi11cl1Wall Street domi11ann: owr
1111nna111inal 1"111,111n: h;1~ political s1gnilic1nn· lies 111I.lit· be1 1h;11linalll.:1al
svstcms arc both cnormouslr important pans of'.un· capitalist svstcm and that
the\' arc. at the same llme, 111tc1·\,·m·e11 with core controi f11nLt1011sof cap1-
tali,t .~tatl'S. h 1s through control over linann;tl llows that cap11alist s1,1tcs
exercise much of their polilJCal t)llWl'r over soc1l't1·. Insofar as \Vall S1reet
 Tl IE< ;i .l 111,\l.lS.Yrll IN <;,\,\I Ill E

could strc.:11glhc11Its linkages wuli nat1011al lin,111nal svs1cms, 1Jreaki11µ;clm,·n

~late.: b.irnc.:rs Lo 1hc.:th1ckc11111gIll' linkag-es with clo111e~1icfi11,111nalsvstems,
these latter would tend to slip mil or
the conlrol of' 1hc.:1rdo111es1ic slall·s. In
a c:r1s1s with111 .1 11atronai fi11a11nal wstc.:111,the ,\mcrH·a11 st;tll' llsl'lr n111lt\
or
open Llw whole capualist svs1c.:n1 1hl' stale.: roncc.:rned to lw111g rc-l'11g1-
or
11cercd in the 11nc.:res1s Amcncan rapitalisrn. 1'·'

1111'US all(/ Glollfll Mrlllflf!,t'/111'//I

Just as Lile stale plays a central role III domcsuc monc.:tan· an<l financial
affairs, wl1c.:ther the donH:sllc n:µ;11ne 1s Kc.:,·11csi;u1111structure or 1H:o-lilw1al,
so the mam states or stale piay a Cl'lltral role in 111Lernat11>nalnwnetary and
financial affairs. The fact that these cont11111al political 111tl'rve11Lio11sIll
these central aspects or the 111tc.:rnauo11al eco110111y Lend not 111rc~1st1•r 111
much ur the literature.: on mtcr11at1onal 1.:conom1cs 1s the result or idl'olc ,g-1-
cal blinkers, all the more.: powcr!'ul for l)('mg entrenched in the profi.:ssmnal
academic div1sio11 o!'lahour bc.:tWl'<.'11 poliucal s1.:11:11ce
a11d l'CtllHIIIIKS. Tlw:--t·
blinkers arc evidc.:nt m those de!in!l11J11s or globalisation wl11ch sugg-c.:st 11 1s
a purely tech110-ccono1mc force not 0111\' scparn1c from s1at<:-poliucal con-
trols but inimical to them.
But these blinkers arc n·mforced also lw the fact that state-politKal i11Jl11-
cncc ovc.:r the ltlternationai mo11etan· and linanual s,·s1c.:m 1s 1\llt 11e,11h·
parcelled out hc.:tween stales. To put ll mildh·, political 1111l11c.:11n· 111 thl'sc
an:as is distributecl r1.1ym1111•/nrnl~,•: d1tn11g//1t•las/ q,u,ril'r o/11rt'll/111:r 11 ha.\ b1·1·11
tlist1i/mtnl 0111•110/11,/1111//g~l' to 0111• siatl'. Under the Breu on Woods re,l{1111c.
.1·111,r!/I'
1hcre w.1s somethlll~ like a global a111horny, 1-es1mg 111\ 1he ro-oper;11nT
agreements laid c,lown 111 the I 9-IOs: gold h111cuo11ed as a supra11a11011:il
monetary ancllor, the 11\·IFand central hanks soug-ht Ill 111a11ag('llllllll'l,1n·
and linancial llows. or course, the US was m·cn1·11elt11111glv till' most 111flu-
entiai plaver wulun this J;\·IF system. But Jl too was co11slrai11l'd 111what 11
co11icl cln b\' the supranational r11ll's of 1he s,·stc.:111.The central po1n1 alioul
lhc new, post-Nixon rcgm1c was tha1 thl· US was ~till m·c.:nvhd111111gl\·d01n1-
nant but not ll was noL co11sLrained bv rules. The Dollar-\Vall S1reel Re!-{lllll'
ha~ been a hit like 1he Brlllsh consuwuon: tlw d11111111;111tpm1'l'I' itas hn·n
abfr to make up lhc rules as It went along. The.: US could dende the doll,1r
pncc and IL could also ha,·e the deciding 1111lue11u·011 thl' cnilv111g· dv11a111-
or
1cs inten1auonal linanual rcl.inons.
So we arnvc at a gucsuon or ahsolutcl~, cardinal 1111pona11cc both t•c11-
nom1c.1llv and Jmli11mll_):would the US govc.:rnme111 n111the 111.·11· Dollar-W.ill
Su·cet Rcg1,mc 111 tile Amenca11 llillHmal i111eres1?Or would the Un11ccl States
goYernmenl. nse al>o\'c mere nauonal intcrcsl ;ual pretl'nd 11 was a s11prana-
t1onal world guvernment s11borclina1111gall 11;11.Jonali11tcrcs1s 111d11rli11g1ho~l'
 rl IE Ill >U ..-\R-\1'.-\l.l..'iTREl·:T RFI ;J,\11-:

nl' the US:\ to the colleCll\'L' giobal 1111cn·st? Or - ;1 third pm,ibilily- wot1ld
the US g-on:rnmcnt s1eer a 1111cldlccourse, and Sl:l up a collegiate board or
the m,1111capllalist states m ;i more or less larg-c (or small) oligarclw 111which
the LIS would crn111H·o1111~e 11s 11a11011al1111erest to snnie t·xrent for the col-
lecuve g-ooci of the olig·archv?
The ans\\'lT 1s thal the U111tcd S1a1es gm-ern11w111. has done 11s constitu-
llonal du LY.It has put :-\mcnca first. The whole pu11ll ul' the Nixun rnm·es to
destro\' the Bretto11 Woods system and set up the Dollar-Wall Street Reg-in1e
wa.1 io /111f:I 1111·nm11
jint.
There 1s a straightforward test that Gill be: applied to detect the direction
m which US polic\' has been applied. Has the LIS sou14ht to establish rules
.111CI1nstn1mc11ts !'or the elleclln.: public ma11a14eme11t of' 1nteruatm11al
moiwv and m1e1·n,1LHmal finance wnh111the DWSR of' the kin cl shown to he
necessan· 111domestic eco1101111c ma11agemc11t? \Ve c.111 nm through the
rl1ed.-\ist or issm·s:

I) There ts a ,·en· stro11g 111tcrna11onai 111tcrcs1 ui 111Lcrnallo11al t11011etary

stabilit,·. \'ct 1ns1ead, the D\YSR has st·e11 tht· pntT Ill' thl' m;1111 111tern;1-
uonai UllTl'lll"' clnven up and do\\'11 lll wild sw111gswtlhuut h1swncal
precedent, swings that make e\'en the I~J:10slook likl' an era of'rclat1n·
11H>nt•1;1rvc,1hn! This cxtraonli11an· ,ubt.ilin· has Ileen the prorl11ct of
cldibcratc US polin· ;111d of' Washu1g-10n s n·fusal to wurk to\\'ards a
stable. r11ic-1Jasl'cl svstem.
'.!) l'uhlir rnacro-n:g-ulauon or thl' suppl\' ur cn·dit \\'ltl11n tlte ,,·odd l'con-
omy to ensure some measure nr stability: 1nstcad intcruatwn.il flows of'.
credit ha,·e S\\'1111g11'ildll- from O\'lT-s1tppiv to chauttc contr:1ct1ot1 111
crck aher cycie, agalll overwhelminµ;lv bcra11sl' \,Vashmgton has w1slwcl
matters to be handkrl m this war.
'.\) Public 111icn,-rq~ulat1<111or thl· 111.1111 pnvatt· credit supplier.~ to trY to
ensure mm1mally responsible behaviour, lo tr,· to rl'stnct (la11gcrolls
competitl\·e pressures ancl pn·,·t·111 ma1or collapses m elllll'r the linan-
nai sector or procl11e11,-e SL'Uor: 111s1cad of' thls \hl'rt: h;1s bt..Tn a
frl'e-f'or-all 111tilts are,1. except insofar as the Amencan gon-rnmem
has w1siicd to 1111posesuch rcgulau1111.
-1) P11blir managemcm of the 1111erfaet· bel\\'l't•11 ti11a11lT ;111ci1he prnclt1C-
11n: senor 1111cn1a1.1011alh·10 proncle 111cen11res li1r channelling li.rncls
mto pruduct1,·l· acti\'11\' rathl'r Lhan spec11i.L11011,m,ll'kct ngg-1ug a11ci
corr11pt1011. The record m tin~ area speaks hlr 11self': thl'n: ha~ been a
s,·stem,ll1c dnn· to mal;.c stale after state suhorclin;lte its m,magc111e11t uf
procluc11,·c at11,·11,· 111the unreguiau.-ci dnm111ancl' of' in1erna11oual
fi11a11ce and tn rnakl' ;di states 111nt·as111gil· IHIIH-rll'ss to resist such
clom111a11ce(aga111 using the IivlF and the World Bank as central i11stn1c
llH.-1\ls:igamst 1hl' rolt- of' public a111hortlll'S 111tlus ;ircal.
 Tl-IE t;I.Cm.-\l.lS,\TION C.-\i\1111.E

A 11umlwr 111' authors 11an· sugµ;csLccl that tlte subscciue11t h1slon· of l;S
i11tl·rnauo11ai nH111c1ar'.'and Jinannal policv has hcc11 ·hound br the rules of'
co-opcrat11·c oligardw wnh the rest of the G7. Iha the e\'ldence 1,,r 1h1s 1s
cxtrcmelv weak as regards the ma111 stra1cg1c lilll'S of L1S polin·. The cx1s-
tcnrc of the (;7 pro,·es notl1111gexcept that the LlS has sought 10 ust· II to gel
tiw other ma111 capitalist powers Lo clo what tin: US has watlll'Cl. The fau 1ha1
on mam· occ.1s10ns othcr G7 countnes ha\'c not hec11 prepared Lil do the
US's t)1c\di11gdoc, m>I mL·an tile l;S iL~clf has ,Hloptccl a rolll'glaH.: ;1pproacl1.
SomL· authors havc pomtecl to the supposed Ir great s1gnilicancc of thc: I ~178
Bo1111summit as an 111,tanc:e ol' co-opcrau,·e polin·-makmg.:! 0 It w;1,. but 111
thc: form of Gennam•s government agrl·cmg to do most of \\'hat the US gm·-
e1·nmcnl wa111ecl.And whatl'\'er co-operative sp1nt 1here w;1s 111 Lite Caner
1
adm1rns1.rauon Ya111shedunder Rc:.iga11.'.! The strongcsL claim li.ll' collegial-
1tv Ill l11gh mon<.'larv poli11cs concerns the Pla .... a Accord 10 iower 1hc rlnllar
prrn· Ill I 98:). It is guHt-· true thaL 1i11smecLmg did agree to JJnng <lown the
dollar and it subsequcmly was broughL clown. But as Destlcr and Ra11Clall
I-k1111mgshow. US Trl'asurv Secrelar\' ltiker l1aci already ckcided to hnng
clown the dollar, had alreacl)' slanecl to bring ILdown and was llllerested in
usmg the G7 agreement as a tanic:al plov \\'llhm US <lomesuc politics aga111s1
those who were oppos111g his alreadv clcc1decl polic\' f'or a fall i11the rlollar.~'.!
And in lhl' management of internauonal finance, the America First pol in
has been erJLiallv ev1dc:nt. Dunng Lhe Hl70s, the LIS gcwcrnmenls Jirst
treated the Iivlf wJLh contempt (under Nixon), then allowed II to slllk
wwarcls Dblh·ion (in the late 1970s). \Vhat clisc11ssHms 011 the reg11lauou or
mternauonal finance did take place shifted 10 the Bank for Internauo11al
Sctllements a11d to bilateral discuss1011s. The Reagan adm1111sLra1111n was at
Ii.rs! downright hostile {and \'llnolicallv hostile lo the \,\!oriel Bank). It
changed 11slune 10warcis these oq{anisaw,ns not out 0L11w aha11clonna·111
of Amcnca First unilateralism. but because Baker s,1w, dunng the Laun
Amen can debt c:ns1s, ,1ust whal cxtraordinarilv \·aluable tools or .·\men can
eco1101111cstatecraft these two mstllullons coukt be, once their ne\\·. subor-
dinale roles were defined. Oligarchic collegialitv had nothing to do 1,•ith die
mallc:r. The rec:Drci is one or US ad1111111strauonsseeking to lw extn·mctv coi-
legial, prnYiclccl the co-operation 1s about wm·king togc:ther along the lines
0L1cuon laid clowll 111\VaslHngton alreaclv.
A whole academic paradigm has been construc1ccl in the L1n11ed States lo
.1ustifi; this .-\mencan unilateralism. This t·xpla1m that then· can be s1ahili1,·
1n mternauonal monctarv alfa11·s oniy when one smglc power 1s m·cr-
whchrnngir dom111an1 (hcgemo111c). Tilt: theor\' goL·s 011 111 e1-;pla1111lw
lllrlmh:ncc:: ll 1s l)l'Glllse the US 1s no longer Lowllv dommant. Thl' Lheun
has been 11uellec:lllally demolished.:!'.! But 1t at least has the merit ortrving- tu
expl.i1n the exLrnordinar\' bcha\'lour or LIS governments 111Lhc 111a11agc-
me11l of inLcr11ational monl·Lan- affairs oyer the last quarter ora Cl'llllll'\'.
 THE DOI.L\R-\\'.-\1.1. STREET REGltllE

This. then. hn11gs us LOa final question: if" US polin- O\'cr ltllt'rnational
111<111etan;111Ci lina11c1al affairs has gm·cnu:cl Ille US nauonal interest, docs
1his mean th<: percc1n_•cl 11auonal economK llll<:rest or the natiPnal political
11HL-res1or hoth? To provide a sausfactorv answer 10 ll 11squcsuon we ncl'.d lU
ha\'e a tln·11n• or what the L'COnomic and political intnests of rap1talisl states
at the tc,p of' till' 111ten1atmnal h1erarclw of' cap11alist stales actually arc. This
111turn requires a grasp or li1e dynamic i11tcr11at1onalis111gclnvcs within cap-
11alism llsell'. We will not aclcln.:ss lllese ques!J1111suntil later. Instead, we 1\'ill
s1mph· reslnCl 011rsel\'es to the propos1uons which we lia1·e sought to demon-
strate so (;1r: first. that a new mtcrnational regime for money and financial
relauons w,1-.; cre;1tL·d 111tlw 1ll70s. Sccimc\ly, that the clvnam,cs of this n·gtmc
wen: 1ncscapal>lv ;mci 111tq.1-rallrtied to the behanour or one state III the
i111er-slate svstern (tlH: llSA) and or one financial market III Lhe networks of
1111crna1m11ai linance ( '\-\'all Strcc1 ·). ,\ncl th1nllv. 1ha1 US adm1111stra11011s
(i1llowccl thctr constit11tionat duties 111 appniachmg- their manag-cmcnt of
this regime from a natwnai mtcrcst pcrspcct1,·e.

Tit,· l)WSN {/J {I S1•IFS11Ji(lllllllgRt'Kl//11!

We arc now 111 a posllion to noucc 1J1epauern orli.111ruoning or the DWSR.

The clollar 1s the 1111er11atio11al111011e1·to which all other convcrtihlc c11r-
1c11cics arc li11l;.1:rllw exchange rates. The :\111enca11 government chooses
not lo Sl'ek fo,l·ci exc:l1angL· rates with the other 111a111 cnrrcnncs, s1nrt· that
would rcqurre tlic US gon::rnmenl LO gwe up 11.~use of th<: rlolbr pnce as an
111strumcnt for achicnng other goals. Therefore. under Lill' rcgrnll', the
dollar mo\'l'.S 111g-rcat gnallons up and clown agamst the othl'r ctllTt•ncit:s,
uttcrlv Lranslc1r1111ngtheir trading ancl other l'll\'ll'011111c111s. c\ml w1t111nthese
111acro-swi11gsthcrl' 1s constant mH:ro-vola1ili11•. Stales and eco11on11c ope1·a-
1ors around till' world must stn1ct11r,11l\' ad;1pt 1ht:1r opL'ralions 111 this
constant macro- and 1111cn1-volatilitv of the dollar or risk ,·ar10us kinds or
dn111es11ceconomic imbalance or crisis.
Al 1lw same 1mie. the ArnL·nc.m-domma!ed i111crna11011allinanc1al market
;111cl11.~pn\'ate linanc1al opt:rntors llllt:ract to ;111 evcr-~rcatcr extent wnh the
111ter11a11onal mo11e1arv relations of 1he dollar svstem. The dollar's clomi-
11a11ce ;1s till' 11uerr1at1011ai <..:urreric1· mean., that states builrl up rore1g11
es.change reserves rna111iv Ill dollars. Exchan~e rate turbulcnn.: means that
states w1shm~ to trY to mamtain the stahili!I' or tlwir own n11-rcnn· need
larger rl·scn·cs 1ha11 l1el'on·. Thesl' l'l'serves arc plan·r.l 111 tht· L1S li11.111nal
mad.;,ets (such as US Treasun· bonds) because tlw1r liqwdi11· mcam the
hinds can easilv be Wllhdrawn for exchange rate stabilisation purposes. At
1llc same llmL·. \Vall Strccl nffers the most compet1ll\'C ler111s for g-m·cni-
me11Lsw1sh111gto borrow 111m1evfor ,·anous purposes (including- dcl't'11di11g
 Tl IE Cl.< >11:\I.IS.-\TlllN ( :.-\\1111.E

their c111-rc11c1cs) and it offers 11c1,· 111s1.r11111c11ls so Lhat 14m·cr11111c111s a11d

l'COl\111111(' ll!)l'l",llllrs Gill wckle problL'lll~ 111'exd1a11w· !'all' ll1J"ht1ll'11cl':1101
0111\·a \'asll\' expanding fore1g11 exchange markct but a ll'lwlc new range of'
~o-called rle1Wall\'l' 111arkl'ts sul.'.h as li~rw,11 d i"orcig11 csd1:rngl' ck1wall\'t•s.
sll'aps of' cu1-re1H.:1es.loans etc. Althoug-h many allributc 1hesc m110,·a11011sto
'tech1111lug,·. ihc\' an.: simph· a nc,1t1,·c rL":-;ponst·to c>1,1nllnt1s mrbult·11n· 111
the n11Tenn· markets: the for\\'ard foreign exchange markets a11cl >111c:n·st
r,1\e swaps markt'ts, for exampll', enable opcrat1H·s to hedge ag·,1111s1 Ilic nsk
nf f'uture shifL~ m currc:un· pnn·s.
Much ul' the gloh,tlisalHHl li1erat11re \\'llldl seeks 10 pns11a<ll' 11sol' lhl'
unstoppablc, crusl1111gst.n:ngth of'· in ter11auo11al cap11ai market~ rd'crs 11sIO
the huge size orthe: f'ore1gn exchange dern·ati\'es markets. the huge ,·oh1111es
or clllTl'llCICS 1r;1dl'd 111 the fi)re1g11e:--change marke1s or the c:xrraordi11aril\'
rapid wrnover 111 the US Treasurv bond markets. Yet these \'oh1111t"san·
uverwhei111111giv the result of' poliucilh· dn,·e11 voi.i1ilit,· 11111tten1aL1011al
monetarr rcla11011s.
To cope with thL·1r \'(1la1ile l'll\'JnlllllWlll, gorL·rt1111t:nls borrow from till'
private financial markets. but such borro\\'1ngs arc typKallv themsdres suh-
Jl·Ct tu \'l)latill- repav111c1ll terms (h\' \wing link.cd !U lllo\'e111ents in US
short-term interest rates) and rurthcrrnore thcr arc borrowmg 111rlolbrs
·,111<\ s111cc the dolt1r s\\'mgs \\'ildlY, thL· \'ah1c ol' 1\w1r debts (in terms or rl'al
domestic resource cla11ns) will r;1ry with llll'ir exchange ratl'S \1·11h1hc dollar.
Tims the link~ with Wall S1n:c1 sul~JL'('Iburrower~ Lt1 further ltlrhulcnu·.
The mternauonal dvnanm:s or IIH" 1·eµ;ime then mterau with clolllL"stic
cco1111m1c m;111agt:111t·n1011 t-he part of inclivHittal gon:rnml·nts. Sudden
swmgs lll the dollar produce sudden swmgs m a statc·s trade balance aud
1enns ol' trade. Tlw go\'LTJ\llll'lll races ;1 climce: use \,\'all S1rl'et borrow111g as
a cushion, or cng;ige 111clomc:suc macroeco1101111c ac\just11w111.East· ol' the
buer clw1re depends 011 thl' donwsuc Sllt:>o-poliucal strength 111'1hc go,·-
crnmc111: Clll II easilr balance Its budget and right a trade dcfin1 h,·
1111posrngcosts on Yanous dDmestic sunal groups or not? Ir 1!11s1s diniu1!1.
the go,·tTllllH'I1l 111ar choose to bonow <lollars rrnm \Vall Strl'l't. When \\'all
Strei:1 1s flush wnh 1111luw111g- funds, ll 1s eager, ii' 1101cksperale lo km\ ancl
offers µ;o,-crnme11ts 111d11t:eme11tsto borrow. But th1s may onlr <·ausc ;1
greater adjustment probkm do11·11 tile road, a prnhlc111 whKh c.111 strike
suddl'niy 1hrough a further shirt m 1he dollar 01· 111 L:s lllll'l'l'Sl rates (or
Treasury bond rates).
These dilemmas ;in: tared panicularh· acutelv hv cu11101n1es weakly
inscr1ed in intcr11atio11al produc:t markets. with weak 1..·co11om1csa11d ac\jus1-
llll'l1l problems wlrn;h thl' gon·rnmL'llls arc Lou wt·ak sucw-poliuc.dh· to
111anag-c:.Tl,wse prohkms ;ire, of' course. espcnallv pn:\'ak11t 111row11ncs llf'
the South. Thus thi: n·g1ml.' svstcmaucillv gl'nerates pay111c1Hsa11d finanoai
crises 111tlw South. Even• 1·car one ci111111p· after a1101hcr suffc."rs finann;d
tTJSl'S. :\s !Ill' Wall Strt'L'I ecmw1111st Henn· h.aul"man porrns 0111. national
li11a11c:i,d cnscs han.· n,1m· rcpt'atcdl\' 011 the 111H:r11at1n11al s1clc 111'Lhl: last
LWl'lll\' vcars·.~·l .-\11i11IL'J'llalio11alh· prm·okecl cns,s thc11 prondes the role of
1hc li\lF/\\'B III thl· rq.pmc as :1uxili;11y pbHTS. Ir such lioanrial brcak-
clow11s were 1101 a svstcmatic element Ill the regime. the IMF's rule would
h,1\·1· hlTII 1H,1rg111,1I.il' 1101 rcrh111clalll. Their 1asl, 1, to cns\lrc th,11 thl' stale
co11cl'r11erl adjusts ctomesllcalh· so tha1 11.c;111 111,lllltalll the scn·1c111g- ul' it.~
Wall S1n·c11kh1s. ,\1 tlw same llllll' the !;\IF :tcts 111ter11a11011all\'. i11 the way
that a domcsuc s1ate acts whl'll us cc111ral ti11a11cial opcrawrs get Jlllo trou-
bk: ll bails tht't11 out. B111 there 1s ;1 lTlln,ti clif'krl"11Cl' Ill 1l1c 1111cr11aliunal
!ielcl. Whc11 an American haok gets 111lo tn111hlc 111the American domestic
cc11n11111,·the LIS tax-paYL'I' baih ii nt1L. But when the same :\mcncan bank
gets intP trouble ahroacl. the b:1il-0111 1s p,11<1/'or 1101 I)\' tht· .-\nwnca11 1ax.-
p:t\'l'r but IH' the pop11lat1u11 or the hurr<1w111g c<Hllltn·. Thus lhl' bank's risk
1s f)or11c hr the pc.,plc or the b11nowcr co1111tr\'. ,·1a thi.: ll\lF's a11spa.:cs.
Through l\lF/\YB 11llen•e1111011 Lill' stall' 111lTISJs 1s t'\'l'lllli.tllv ,1hll' lo rc-
1111egTalc llllo the DWSR. hut 1l11s tlllll' w11h hean- dcbt-sl·rnci11g prohlL'mS
a11d usuallv with a 11·cal.:.e11ed domes11c /i11;t1Jcial a11cl lT0110111ic s1n1nure.
Meanwhile lht: cxtcn1al t·m·iro11me1111s as ,·olatik as e\'l:r a11d t.lle stall' con-
Cl'rllecl ts more lil.:.clv tha11 not 10 fact· a l't1nlwr li11a11nai blow-nut i11 the
110H110-clist,11ll huun·.
B111one or the paradoxes or the D\VSR is 1ha1 such li11a11cial lT1scs 1111hc
Sonth dn IHI! weaken till' rq~lllll''. !her ;1t:tuallv sLrc11gtl1c11 IL. 111 !he Jirsl
place, 111the cnses. t'1111dsLc11d to llel' l'rom pn\'aH.' Wl'alth-holcll'rs 111the state
co11n'lm:d mto Wo1llSIH't'I, thus deepen111g- and .,1n:ngtlH·111ng thl' \Vall
Street poie. Thus dunng the rk:bt crist:s ot'Llie t'.arlr 19H0s111l.at111 .-\mn1c,1,
!ht· follow111g n:n bq.\T 011t.l111wsoff1111clsorn1rrccl: rrn111 .\rge111111a. $!:>.'.\
billion; frrn11l\kx1n1, $'.t!.7 billion: frrn11 Vent•zueia, $10.H hilli011.~', Scco11cll~·.
to par nff its nuw htghl'r cleht!-. the SlaH· ronn·nwd 11111s1l'X()lll'l 111111the
rtollar area 10 !ind the rL·s1HIJ't-es !cir debt stT\KlllJ.\'- This run her strengtht·11s
the ct·mrality ol'tlil.' c\nll.ir. Tlmdly. !ht· nsks facl'd lw liS li11a11nal (lpnawrs
are 11·1Cid,·<·on·n·d hr the Iil!F. t·11ahli11g them lo reu1r11 Ill lllll:n1atwnal
ill'll\'ll\' lllOl'l' agi;n·ssl\'l'k 1h;111e\'l'r. Finalh-. llie \\'l.',ll~l'lllll,L!;or tile St.tll'S ur Lhl:
Somh strengtlll'ns thl' ho1rga111111g· powl'r or till' Wall Strl'et l'!'cdit 111sti111t1ons
111dcus1ons rn1 tht· Ii1r111t11'l'utllrl' lit1:lllri11g. Ft1r111s \\'lllrh are sa!i:r for the
l'J'l'clitor 11Hi11c\·-capitalis1 arl' 111tTl';1s111glYadopted: seninuscd deb1 and
shon-1er111 lo,111s r,11her t llan l1111g-1t-r111lo,111s. ,-\11d so 011 and so 1111.
Through all thl' 1-,':Tations 0L-\mencu1 policii.:s for the world economy, the
D\.\'SR has n·111;1111edlir111h· 111 pbcl'. t·ons1a11LIY n-pn,c]11n11g 11st'!f. In 199.S
the dollar still rc111a111erl o\'crwhclmrngly thl' clo11u11.1111 world currc11ry: ll
nun prised !ii .:i 1wr ce111 of'all n·111r;rl h,1111,liin•1g·11 t·xcha11g-t· rl'Sl'rves: it was
the n1rrcnn· 111winch 7li.H ptT t-e111 or all 1111er11a111111.il b,1nk loans were
dt·1w111111a(l'CI. 111winch '.l!J.:1pl'r Cl'lll of' all 1111t·r11atit111alhond isslll'S ,1·erc
 Tl-IE (;J .Oll.-\1.IS.\TIO:'i .I-:
C.-\~1111

clcnom111atecl, amt ·H.:i per cent Dr all Eurncurrencv deposits: the dollar also
ser\'eci as tile m,·rncmg currcnn- for -Ii.I) per cent of worlrl tracle and w;1s
Olll' of the lwo currencies 1118:-; per ce111or all foreign ex(·hange trans;n:-
llons . .-\net ir 11\lra-European transactwns were elin1111al!:cl from tlwse
ligun:s, tile dollar's dommance on:r all other transactions 111the c;Hc!-{unes
• . ~ •)I'
hstecl al>ovc becoml's overwhclmmg-.-'

'/111•
JJ\VSI?am/ t/11•C1>111•r11i1011a(
Notum of"U1•g·11111•s

The nouon that there are regimes 111 internat1011al rciauons was first put for-
warcl 111the lqios bv Rohen Keohane and.Joseph Nye.'.!' ancl was g-1,·en 1LS
class!l' rlc:liniuon hv Stephen Kramer 111 198'.t'.!KKrasner cldi1wd regimes as
'prmciplt:s, norms, ruies and clcc1swn-mak111g proceciun:~ ,irotuHI winch
actor expectauons con\'erge m a g-1,·enissue area·. This concept has become
extremelv mlluential m the analysis or international reiauons ancl 111the
runcuonmg or mulu-lateral orga111sat1011s.Th<.· notion or regime which 1s
used here overiaps Ill some respects with Kr;1sncr\ notion inn differs frum
it 111 cena111 funclamcntai respects.
The D\VSR is a regime m Krasner's sense 111 three 1·espects. First, It cPr-
responcls to the 1ctea that 111ter11auo11alrc1auons do not consist simpl\' or
states 111teracung with each other Ill an anarcl11c vote! alongside eco1101111c
operators 1111cract111g- with each other as atoms 111:t wodd market. Therl' an:
pauernccl, structun:rl regimes g-m·ernmg thl'sc 111tcract10ns. The DWSR 1s;1
rcg1111L· in this sense of an mternittmnal mecha111sm wiuch .~tructures ancl
patterns mtcractions. Secondly, the DWSR corresponds to the iclea 1rnplint
in Krasner\ nouon, that the states participating- m these rcg-11nes ,10 so
because thev !incl it lll their mtcrcst to co-operate 111the n:g1111e.This 1s true
also of' the DWSR. Thirdly, Krasner 1s preparecl to accept that one state, the
clominant state, is often the dec1s1ve and even unilateral actor 111establish-
ing·the regime: it is not to be imagined that it 1sestablished consensualh· or
111 a colleg-1al fash10n. Tlus 11npo~ecl character or a reg-11nec.111applv also to
the DWSR.
But hen: the agreement cncls. Krasner co11ce1,·es or his rq.~1111es as be111g
quasi-lc~ai in character. States have. 111h1s new, come to adopt ,1scl ofrul<.::-.
or norms or principles or a lixecl set or collective cleciston-making proce-
clun·s. \ct dollar dommance and the governing- or international c111-rc11n·
prices bv lite dollar exchange r;lle 1snot a quasi-leg-al norm or rule: H 1s rtjisrl
which rq~ularly reproduces iL~elf.All states that mamtain am· degree or c11r-
rcncv convertibility part1n/mi1' 111 ll1n_/rlft: the price ortheir currenc,· will he
lixed, direc'tly or indirectly, in reia11011 to the dollar . .State.'i do have the
opuou of exn from the regime: rite,· can make their cw-re11cy mcom·crtihl<:.
But ii"tht.:\' <lo tltcv will tend to he excillcll·cl f'rom s1g11ilic.mt par11ctpat11m 1n
thl' \\'oriel t·conomv. And the fact that staLL'Sdo paruc1pate in the regtme
dnl's not milicatl' tll~ll thev !ind ll benclinal: It s11npl\' mdkates that they lack
lllL' pol\'l'r lri do anv1ilmg abn111 ll.
Thl' same applies w the othl'r pole o!' the: rcgune: Lile .\1mT1c111Jinancial
market. Stales and economic opl·ratnrs rlo not ha\'e lO parLJcipate Ill this
market. Thev can aYrnd placing their reserves there, they can a\'01d bor-
row111gthlTl", hut 111 prarLJce 1t 1salmost impnssibic for them LO a\'01d bemg
drawn 111 bt·t·ause of their need for finance for their econom1c acti\·ities as a
whole . .-\11d ii' Lile\' need lo borrm\' from abroad. the most cco11omically
r,1t1unal source of' horrowmg is !'rum the biggest, most compc11u1·1..·/unreg-
ula1ccl and most liquid markets - ·wall Streel.
Tlwre 1s another problem wnh tile Krasner dcli111t1rn1. Its att1:mpts to
present rcg1m1..·sas opl'ra1111~ wnhm ,lisuTle 'issue ,Jrl',Js The DWSR rloes
1wl ocntp\' an 'issue area . ll ucc11p1cs a pns1uon as the uwnetal'\' and linan-
nal framework facing states 111thcll' attempts to come to gnps ,,·1th a \'aSl.
range o!" issue areas Ill 111ter11atto11al and domesttc politics and eco1Him1cs.
Ami the attempt LO con!ine regtmt·s to 'issue areas· chops realitv up in tr11·-
1alismg ways: there 1s 110 equivaicncc: or kind between an 1nter11at1onal legal
rcgit11c for ensunng air sal'etv and a framework regrn1c like the D\VSR. A fur-
ther problem lies 111 the fact that n:g1me theonsts will tend to treat
111sttt11tto11:. like the IMF/\VB as Krasnl'r-type reg11nes, cliv01T111gthem f'ro111
the pauenwcl rq,\'ulantics or the: DWSR m which thev operatl'. and which
gives mca11111g!<l the dv11am1es ortile I r--lF/WB's acl!\"l\ll'S.. .\ncl ;1!in;d proh-
il·m \\'Ith the l,.ras11cr cidimt1011 of reg1mc:s Is tllal IL prl·supposes a scp;1rauon
hetll'Cl'll rcg-1mes 011till' one side and both states and markl·t.~. Yi:t the DWSR
111dt1rlesas integral pans orits structures both states and markets.

I. Th .. n1srs 111" lhl' Bn·11011 Woods s,·st<'III 111lhl' late l!ltills a11d ear-II' 1\170, rs 11.-II Co\·,·rt·1l
1111-:rrll'SI l-.la111kl, /J,.,./i11,· of J/11·/)o/lar ·( ~liurad l'rl'ss, l!l\l:I) a111I. !'rum a11 11nhod11x p,11111 111'
\WI\', h1·Jol111 \\'illiamso11, T/i,•/·i1i/11r,·ri/ \\i11/,I ,\/ri11,'itl1y//1_i11n11, I !Ji 1-197-1 ( Nd so 11. 1!177).
'.!. S,·,- J11li11 \\'illia111so11. 'J"/u·/-i,i/1111• 11(/,i1,·1·1111/1111111/ ,\J,,11,·trnv //,-fi,1·111.I <1;1-i·I (:\,·l"m·
l'.liil, I' :Ii
:\. Sl'l· Tc, 11:111,()/'l-:C. T/11·/11111/,.\1,,,r.
·l. S,·,· A . .-\. li.nbun and S. \(;111,ur. 'Thl' 1'111ir1r:ilEn111om\· or \liddle E:1.,11·rn <Iii'. 111( ;_ R.
ll. l '11rlt·rl1ill ;incl R. S111hlis. /'11/iliml 1:,-,,,,,,,,,_,·
11111/ 1/11• C/11111g111g (;/u/111/(Jr,Ja { ~l:1nnilla11. 1~l!l-1).
:,. Sel' \'. 1-1.Oppc11lll·1111, '\\'hy Oil l'rrres r ;., L'pc Tlw 1':1s1: \\'c l'uslwd Thl'ln. /ior,·1g11
/',./11,-,'.!:",(\\'i111,·r l!lifi-i7). Oppcnh,·1111 clr:i\,·s 11po11 Nixon\ .-\111b:1ssaclor III S.111rli .-\rahia,
.\kin. fi,r l11·r 111sigh1 IIIIO 1111':11lm111Jstra1w11, 1hi11ki11g.
Ii. S,·,· Ern· l-ll'll<-11ll'r, ·t-:xpl:i111111gthe Cloh:ili1a11011 or Fi11:1111:1al~larkl't,: llrr11g111g Stales
!lack In, J/17,1,w11(fllt,-r1111/w1111/ /'11/itiml Fn11111111r,'.!:'.!(Spn11g 1~1~1,11. Ti1is arllclt· a11cl othl'rs hr
l-1,·lkml'r :1n• ,·ss.·1111al n·adi11g 011 thl' l'n1lu1io11 or li11a11nal 111arl;l'I.S1hrrr11:s 1h.- la.,t quarter
11f a (l'Hlllr\',
,. S,·,· l-.largar.-1 lk \'ril's. ·n,,, /111,·rnr111111111/ ,\/r,11r/11ry F1111rl/'Ji2-7S. Ii,/. i (l1111·rr1a11011al
\l111u·1:1r1"1'111111. l~ll-\:1).
 TIIF. ( ;u rn.-\l.lS.-\TH IN< ;\l\1111.E

H. Tl11, d.-,"lilll. pushed 1hru11gh hv l·l.irnld \\'ils1111111l!J:ill wl1<·11lw was l'«·,1d,·111 111" 111,·
Hu~1nl 11f ·11;ult- ID lhL· :\111c.T gon"ru11u·I11. wa~ 1u11l1 ,11hll·1lly\\"ihn11', u1~~1urn1111riln1111>11 111
tl1t· hi,1un- "' IIH· world :1111\ i111l\'l·d '" 1\11·,11hs,·•111,·111 .-n,\11111,n.,r lln11sh •·ap,1.ili,111.
!I. l':1111\·cold.•·r lalt'r .id,111J1d•·•lg•·il I l,;11 !Ill' n·nrling uf pctn,ch,llars hr 1lu· l 1S i>.1111"wa.,
illTOIIJj>ilJllt'.d hy .:I n:rt~l111 ;1111011111•• r dtL'l"rleadiug h~· ll1t· Ll1t11ecl Stalt:S gon·n111u·u1·. SCl'
(;onlu11 S11111hall(l Fohn C11ddingw11 (L-cls), lutrnlll/1111wl /Jd,t t111dth,· /i111,•lo/1111g C1111111r1,·1
(World ll:1111;,l\lH:,). Tiu- \\·ord 'dwccrl,·:11li11g' is a .-1q1lw1111s111 l,,r \bshi11g•o11 , :1t·•1n· rnl.-.
10. S,·•· l,a1"••·111.who po1111smu 1h;111111,l\lill l 1S grn·i,rn1111·11•cl,·n,io11 "·•·nl h•·\<111<1 "·h;,1
;uw of llll' l rs bauks thL·1H~l·h-c.·, li;ul a.,k..~d for. c;m•nJ11n,.:th,· (;/ulml f:n11wnn·: J,11,.,.11,1t1111u1I
Fi,;"'1,·,·a,u/ th,· Stal,· (l·lan-.,Hl l'111n-r,m· Press. I !l!l•II.
11. S.,·c.: l~;1Jhll'JD, (;m,,·,·11111}:th,· (;/nha/ l·.',·011um.\·.
1~. l·ll•ll•·11••·r.'Expla111111g•Ill' (;J.,l,;lli1.1•1011or Fi11,111nal~larki·i-.
1:1.Thi, d •..-, 11111 11a·a11•hat Lil<'L'S co111111t·n-1.il h;u1k, han· lll·,·11 •he h1v;v;,·,11lll.-r11a111111:1I
ha11ks. F"r 11111.-11 or •he p•·nucl •111·.f;1pa11,·s,· ha11ks ,11111,.,,n<·ol th<: E11rnp1·a11h.111b h.,n·
hel'II hiv;ger. 11111•he llllllll')' 111ark.-•s.,r olla,r ce111n·s 011•sid,· N,·11·Y11rka111Il.011d1>11h;in·
he<.'11n11tch smaller a111Ithe .-\111.-ncau 111n·s1111,·111 hanks han· plavl'd an 1111n·as111gh·rlo1111·
11:111• rol.- 111prnvicli11g cli,·11•s w11h ,t<T<'" lo lhesl' P""ls of li11a11n·.
1-1. Tlu:~l" a11d olhl'r acl\'~llH:1,,.l·:-.th:n\·Ju~ fro111 posst·,..;u11t 11(" Lite dn1u1u.1u1 n11TL'IH"\" ~1n.:
k11n\\'u. lt·t·h1~11-.ill~·. a~ M•Jgu1ur~;l'. Fn1 ;1 ;:lass1<·di.'"lnlsslt11\, :-.tT S11.,a11Stra11~t·, .,·1,-,/,ug ,,,ul
/!1iti,h l',,/i,-:o-011 dollar si·1g111urag,· al"ii-r •h,• ch·s•r11ni.,11 of llr.-11011Woods. see l'i.-r C:,rln
u/ 1111,·rnflll"""/ Fi11t1nnall111lahili11·
l';u(oa11, Tit,· /',,litiml l•:,-,,,111111r (C:rnrn11 Heh 11, I \IHliJ.
I:,. S,·,·J<"t rv <:,,aklcv :uui 1.:1un·11n· I brr is. F/1,·l :,1y o( ( .i1J,1i,ill llb.-1,wl'II, I \11-:l1.
Iii. s•..- Fr..- llellcuter. Tlw l:h;1lh·11~•· rro111 •Ill' Li,•: .Jap,111, Fi11a11n,cl Ri"· .111cl•lw
( :h;ingmi; I ;1,.h:II Onkr i11I'. <;. (;,•r11r (<-rl.), Fi111111,·,·
11ml l\i,,/,l /'11/itin: ,\/11,/,.-1,.l/,g1111n,11ul
J:111( Edward Elgar. I !HJ,\J.
S1111,•.1111 I/i,• /'.,,J.J-l,~1·11111m1·
17, The so,call,·d llasle l :11111111111ec of •he BIS drew up a ',:011n,nla1' among n·111ral hanks
111lh-n·mh,·r 1!17:, whieh was n·nsi·cl i11 1!18:land .i~;un Ill l\l•JI. It was a g,·u•h·n•au·, agn·•··
111.-111. wl11,h 1:til.-cl 10 1·s1ahlish dl'a,·h· ·1,•nd,·r-ol:bs1-r.-s1>rl 1<·,pu11,ihili11,·,. '"P•·n-1,11,11 of
hauk.s un•f~t":1, ~11hs1cliarw!-.:uul ;ag\'IH'H'"· n·:-.t.·rn· n·«111u·t·111,·nh;11ul Hll';1s11n.·.-.1i,rc:u1nh:11111~
fraud.
IH. For h1r1h,·r 1h-1ails ,.f 1h,· llaslt- .-\n·unl. "'<' t-ap,1<·111,c;,,,.,·rn111:.r1I,,· r;/ol,u/ ,-;,,.,,,.,,,,..
l!I. ()11 1111·n·111rali1r ol li11,111nal"·"•'IIIS for SI.ill· 1'"""•·1·. "··· _l.-lfr,·1· \\'i,111·1,. 'Prnn-r ;incl
th,· l:11111n,Iof ( :ap11al'. lli,r/,/ l',1/illn, •Iii (\\'in•cr I !l!l•I1. S•T abo Sj·l\'la i\laxiil·ld. I ;,,,,,·rnrng
(.'11/11111/:
/111,n111lwualFi11u111·,· (( :ur11,·ll l'1rnrr.,111· l'n·ss, I •11101; ;111d]1111g-•·11
11t11l,\kr,,·1111 /'.,Ji11r.1
\\'uo, Har,-'" t/11·.\'11 11/t: Slai,· 11,11/
Fi11r1111t' 111A"m;·,111 J,ul,n1ru1/i.,r1tm11(C:ul11n1hi.iL1111n ..·rs1t~· l'n·~,.
1!1!11).
'.!Cl, Richard N. Cooper. Rolll'rt l'u•11a111,Barrv Eiche11gn•t•n. C. Ra11clall I h-1111111:~ ;11111
( ~t·rald I loltha111. C:au :Va11un.\ .·\g,1·,·! J\_,11,•.,11, l11f,·r11,u1111,al ( .'o-flp,·1ui1011 (Tiu· l\rnoki11~,
111,•1111111,11. l'.•1-q).
~1. Sl'(.' t(,1ht'fl n. Puu1,uu ;u1d Njcfl,~LI:, Ba\'11(:. Jlu11;:1r,g ·1;,p,dhn:·11,,,.\(,,,.,,.,,,,,,.,.,.S11w11u1,
(l·ll·1m:111a1111.l(IH•I). Th,·,· ;,rv;m· 1h;11th,· ,1111111111s 1H·n· 11wf11l. hut m;ik•· 111>d:11111fnr ,-,..
opt•r;1110IJ 011 1111t·r11a111,11al 111011(·1~,r\· p,,li,·r.
~~- I. :\I. lk,der and ( :. Rand:111 l·l.-11111111-:. IJ11//11r/'11lit1n:l:".1·.-l,1111g,
l!ai,· l'oli11··111,1/;111g
,,, //,,·
l'ru/,·,/ S1,11,·,(lnslllllh- !i,r l111.-n1a111,11al I·:1·n1101111.-s.l!IX•I).
~:I. Se,· .-\111ln·w\\'ah,·r, 11·,,,-/d /'m,•,·rr11rrlI for/,/ ,lfou,·r (l·Iarw,Lt·r \l'lll'alShl'al. I 11!1:I).
'.!·I. l·l•:Jff\. Kanf111a11. 'F11mlanH•111al l'ren·pts G111di11g F11111n·Fi11:111nal Regul:1111111
address lo 1h.- l111,·n1a•w11al Orgams:l11<Ht or S1'c11ri11,·sCo1111n1ssco11s. l.1111do11.~, Onoh,·r
I !1!1:2,c:11,·clin Kaps1,•111,( :m•,·nuug th,·<;/,,/,al l·.'n11w11n-.
'.!:,.S,·,· ~(olhlll S. Khan and N:1eln·r11 Ul l·bq1u·. ·c-.q111;d Fliµ;h1 fru111 lh-,·•·h•p1111-:
Cn111111w,. hw1111·,·1111d /J,,,,·/,,/wi,·111.:!·1:-1(~lan-h 1!18i).
:.11;.Sn· s•a1<·111,·11• h,· C. lb1ubll l k1111111g h,·f11n• •lu- llS S,·11:11,·l:111111111•1t..- 1111•lu· l\ndg,·t.
:!I (k1ob1·r l!l!li.
'.!7. s•.,. R. l-,·oha11c a11dJ Nr,·, I'm,,,·,anti fot,·rd1'Jwwl,·111·,· (l.i11!.-. [lrrnrn & Co .. l'l7il.
~H. S. I). hr;h1u:r. /11i,·n1rrt1,mal U,-,._,,,,,,.,
({ '.t,rnl'II LI u1n-rs1L\· J'n·:-.,. 19~:\,.
=========4=========

The Evolution of the DWSR

fro1n the 1970s to the l 990s

The US Policy for the Evolution of the DWSR from Nixon lo 1993

.-\f"tcr Nixon tht· stun·, ,rUS ad1111111stratu111s and the l)\\'SI{ 1s a llllXtttrl' of l\\'u
strands: lirst, an l'X t1;uirdi11an· s<'ril's or gambles both With the dollar and with
mtcr11a11011;il pri,·,11,· Jinance, Ill hnth casl's exph1J1111g·the rcg-1111e:a11d sl-rond,
a grm,·111g helil'r in 1hc central i111portancc or the [)\.\'SR li,r LIS intcruatiunal
mtcrests and alll'lllpts Lu deepl'II tht· D\\'SR and radicalise 11. These two
themes both imul\'crl an approad1 or·,\nl('nca first. hut there was 110 co11s1s-
te11t 111;1stt-rpla11 until the l~l!JOs ;1ml thl' ( :(in ton adm1111s1rauu11. Ratlwr, a
sLrall'g1c Yll'I\', ,rt he rt·g11m· s ruk- 111a L<S11at1,111,tlstr;11q,•y {'llK'l").~t·dgr;u.luallv,
ohe11 111the nuds1 11r crises ca11secl lw earlier gambles go1J1g 11Tong. :\L e,·eri:
sta14e. Anwncan ari1111111sLraLio11s rn,111,1gt·d Ill expel the n,sts or these blunders
outwards 011 Lo others and thn>\\' the111seh·es 111to new tactics wl11ch had the
dfrct of dt·cpc11111g· 1hc n:g1mc. <)111~·Ill ihe I ~l!JOs,and cspl.'uallv 1111dn lhl'
Cli11to11 acl1111111str.1u1111. did a u111sensus Sl't'lll lO emergl' w11l1111 the .-\merican
rap11alist rlass that 111avhc at last thn had discon:rcd a 111astl'r plan. co111pre-
he11s1,T 111srupl' a11d w11h all t.hl' 1.in1cal i11stn1rne111s li,r 11sult1111all' cumplcte
.,11rc1..:ss.But this IC1<1, 111Lile fi,rm p11rs11l'cl hv dw Cli111u11;1dn11111',Lra11011. Ill,!\'
also 111r111111t10 hl' ;11101her b11111dL-r11114 gamhll'. Eacll ph;1sc or thrs slllr\' docs
not end with thl' world hack where It sl.trtl'CI. Instead i1 1s marked lw a l'llllstant
t·n1ltl1Hlll nf"llll' inner iogK ofa DWSR l'xploitl'd 111A11H-r1c1111111erests.
Thl' ( :,1ncr arl1111111s1ra1u111 was attl·111pt11114'" 11st"a 111\\·dollar to 111.11111am
some sun of grC1\\'d1 ,lratq.,')' n·1111·ed 011 the 11ul11s1nal ~n tor a11d 011 1radi-
t1011ai quas1-l,en1es1.111 1erh111qul·S. lkt1\'et.·11 197:>;111cl l!J7\I the clullar lost
onT a quarter 111' i1s \'ah1e ;114,1111~1 lhl' \'L'll ;u1d thl' mark .is thl· adm1rns1.rat11>11
so11gl11 to boost ,,u1p111 a11d expllrt.~ "r thl' L'S m;111111'ai: 111nll).{st'.Clor. .-\t the
saml' t1111l',apan from Its inllTl'SI 111us111g lhl' lkxihll' clol1,11°pnn· for 111du.s-
tr1al policv. the C:anl'r admm1s1ra1u111 was 111dillen·111 tn the po1e1111alit1cs of
clcvelop111g or l'Xplnw11g the DWSR.
40 Tiff (;(.Ull:\I.IS:\TION C:\t-.1111.1-:

l\fatters changed oni\' with the Reag-an admm1strauon. The shirl 111doll,ir
polic\' had begun before Reagan ·s elecuon. \·\'orncd that the dollars fall
miglu slip olll or control and worried about rismg inflauon co111h111edwllh
mdusu-ial overcapacllY, Federal Reserve Chairman Voickl:r made his famous
turn,_Jacking up mterest rates, swrngmg towards a strong dollar and a drnT
lo resLOrc money\ role as a stable slanclard ol'value (ratiH.:r tha11.1ust as an
mflauonary means or nrculat1011). These steps were taken much further lw
liw Reagan adm11us1ration.
The cc.:ntral fcaturc.:s of'the Reaganne turn m matters or political cconom\·
were twofold: first, to put money-capital in the po lie\' saddle for the lirsl time
in clc.:cacles;and secomllv to cxtc.:nd and exploll the DWSR 111 the mtercsts or
Amenca First. Puumg moncy-c.1pitai 111 the saddle 1m·oln:d squeezmg out
mllation (which eroded royalties on money-capital), taking steps to ckreg-
ulate the l>ankmg and financial sector. offering t1uge tax cuts for thL' nch
which always boost the financial sc.:ctor and renuer aniv11v and pursuing a
high dollar policy. Induslriai growth would he.:driven prinopally bv a great
expansion of the defence budg-cl, n111111ngan c.:xpanding- budg-c.:t ddicll
and sucking rn capitai from abn)ad. This aspect DI'policy cssenuallv meant
that the US stale was acting as a surrogate.: export markc1 for the mdustnal
sector. The.: new dominance ormonev-capnai and tile anli-inllatton dnve was
essc.:nually an mcenu,·c to em plovers or capital to beg-111an assault on tile
power, rights and sc.:cunty of their workc.:rs to n:storc.: profitability.
But Rc.:agan·s tc.:am also began lo seek to deepen the DWSR, mniallv as a
pragmatic set or solutions to discrete problems. Thus, mamtaming a vc.:n·
lltgh dollar couict have meant chokingiy high US domc.:suc intei-est rates
unlc.:ss the US g-overnmcnt could attract very large mward llows of funds into
US linancial markets. To achieve such tlows, 11 began a d1wc to g-ct nd or
capllal controls in other OECD counlnes, especially .Japan and Westen1
Europe. Thus began a long campaign to dismantlc capital controls.
The first dc.:c1s1onof tile Thatcher adm1111strat10non co111111!-'; mto orlice 111
1979 had been to end Brillsh controis over financial mm·cmenls. Holland
followed m 1981 and Chancc.:llor Kohl swiftly did lhe same 111 l 98~ 011
commg into ol'lice. A m:~1or brc.:akthrough for the.: campaign came.: ll'llh the
Frend1 government's dcc1s1011m 1984 to promote lilt: idea of the European
Single Market: ll1is was above all a dec1s10n Lo remove controls on linannal
mm•cments throughout Western Europe. Dc.:nmark libcralisecl in 1988, ltalv
started a phased liher.ilisauon 111 the same year ancl France startecl phasing
out c:tpllal controls Ill 1989. 1 Dunng the 1980s, the US prcssu1·erl the
.Japanese govc.:rnment wnh some.: success to liberalise Its 1·estnclio11s 011 tht·
free exit and entry orfun els. This was a m;~Jor step m boosung the size and
weight of the Angio-Amencan financial markets.
At the.:same ume, the.: turn to the 111gbdollar/htgh interest rates postun·
from tile Volcker shirt 111 l 97~l set the.:stage for the Laun A111enca11and East
{ :cntral European ciclJt cnses of Lhe earh· 1980s. Volckcr did noL raise mter-
cst r,1tes and support a high dollar i11order LOproduce this cns1s. lL nearly
prnducccl a collapse 111the LIS bankmg sysLem. but in Lhe course of ma11ag-
111g the cr1s1s. Lhe Rcaganites, who wcrl' \'ery rntcrestecl 111 brmgmg Third
\\'oriel capnalisms Lo heel, learned SOllll' n:ry powcrhil lessuns. The~· lcarucd
an old Lruth from the davs or European 1111pcrialism: the 11npcnal power
could Lake ach·,mtagl' ol' a co1111Lry"sch:bL cns1s to rcoq.~,1111seits 111Lcrnal
sonal relaw111s or proclucuon 111such ., wav as to fa\'our the pcneLration of
us own capnals into LhaLcountry. Thus started Lhe use or the D\VSR to open
co1111Lr1es'domcsllc linannal reg-1mcs and domesuc produCL markeLs Lo
,\nwncan opl'rawrs. The SL'COIHIless1111.learnt l>VAmcncan {inannal oper-
ators, was Lhal the kinds of long or medium-term S\'ndicated bank ioans used
for rcc\'cling the petrodollars was Loo ngid smcc it lrn.:ked the funds of Lhesc
hanks up 111 tile fates of Lhc bw-r011•1ngcou1llnL·s. Thcrdi,rl' Lhcv slll1ght t.o
shil'L towards much sali:r npcrauons w1l11111LL·rest-bcan11gcapital: lending
Lhrnug-h bonds li·om which thev could wi1hdr,1w lw trading them on Lhe
scc11ri11es 111,lJ'kets.The\' also learnt that Lhcv rouid get cnsis-ndcten targcL
Clllllltnes to build clomesllc stock mark.CL<;and could start Lo pla\' these as a
profitable ,,•,n· Lo earn royaiues. But Lhesc kmcls or operations would rcquire
renmvmg 1lw controls on the Gtpnal accounts ol'such co11111ries.\'cl anothL•r
1'1111clame111al lesson from the Lalin Amenc.111 cr1s1s was a \'Cl'\' 1mponanL
paradox: financial crisis in a country orLhe Somh could acwally boost Wall
Stl'l'L't LhnH1gh capital 11ight. \Vhen a linannal cr1s1s hll a country, large
1'11ndswould flee noL onlv Lhat unmLn' lnll ot11ers li:ann!-\' co11Lag1011 and Lhc
htncls would llec to tile Anglu-Amencan financial nexus. hoosung liqtmlity,
iowcnng 111tcrcsl rates and ha\'lng- a generalh· lwaltlw 1mpac1.
:\nd the l'inal, and 111some wavs most 1mponanr lesson was that 1hc
11\·IF/\,VB\\'l'.re not, af"Lerall, a wastc or Lime for Amencan capllalism. WiLh
the es1ablish111enL ol' the DWSR, Lhe 11\·IFwas elbowed out or Lhc wav lw thl'
Ll.STreasun- am! Ille US financrai markcl.<; and seemed hcadcd for histon-'.~
prol'erb1al dusLhm. Reagan c.1me in with no i111cnlion or rev1v111g- IL.As for
1he \Vorlci Bank, the 1-kagarntL'S \'lewed it as a scnu-suiwl'l'SIVL' 111st11uL1tm, sat-
urated ll'lth old-.~tvlL' quas1-Ke\·nes1an 1~1:'ill.~ LIS 'cle\'Clopllll'lll. nonsense.
Hut Reagan's Trcasun Secrc1arv,Jamcs Baker. learn! 111 the dehl crisis_Just
whal a powerf'ul tool Lhesc bodies could hL' as facade-cosmopolita11 agencies
fi,r ad\'anc111g the intl'l'l'SLs of.-\mcnc.m capitalism. Thus from Ille unveiling
of Lhe so-ca lice! Baker Plan fi,r generalised 'Struc1t1ral Ac~jttsLmetll in Seoul
111 l 9H:1Lhc I i'v!F/vVB found Lhemscives with new in iernational roles.
It 1s 1mport;111t to 1111Leho\,· the\' ha\'c served above •!II US 111rercs1s:Lhe~·
haH· not done sn ma111lvthro11gh co11sp1rawnal ma111pulat1011 (which doi:s
lll>l mean, or course, thar there were 110 consp1rac1cs- there were no doubt
lors - hence the extr.1ordinan· \'di or SL"lTl'C\' surrounding thcll' rledsion-
111ak111g-).l11s1ead their rok has rester! on rwo lllt'Cha111s111s:lirsL, by
 Tl IE C;]_! lll.-\1.IS-\Tlt >N (;A~IHI .E

ddc11rli11g- thl· 1ntcgrm· or thl· 1111l'rna11()11alfinancial s\·stl'llt. tht· l!'IIF 1\";1s

cldending a svstem of l 1S cxplo11a111111or the DWSR. Scronrl. hY n·s1r11c111r-
111gdomeslu- l't'llllOlllll'~ to l'11;1hle thelll lo pa\· off lhl'1r dl'hls. lhl· \VB \,·;1s
aclapt111g thl'lll 10 1he same LIS-1.:cntrl'cl i111ernauo11al sysLL'lll: lhl' Jll"Cl'SSIUl'S
or its struc111n: pushed them 1owards domestic dcflauo11. nnTt·nn· clt·1·al11a-
Lio11 and an expon dnn· along with ml'asures lo eas<: IJndget ddints and
earn foreign currcJILT 1111 tlw l·;1p1tal an-ount bY pnva11s111gll'llh !ht· help, d
foreign capi1al and a11ran111g 111wanl Jlows of harcl-c111-re1HTf"t111cls throug·11
liheralismg- lhl' capual acco11111.Tlrns did US rcllliers gc1 their ckhts paid.
US 111clustry go1 cht:apcr 1111por1.,or the mp111s 11eedl'cl for procl1Kl1011. l 1S
n>111pan1t·s couid h11r t1p ;1ssets 111cl11cliug pnvausccl 1llili11cs Ill till' n>11111rr
c1mn·n1t·d. and thl' capuai account would be lil>l'raliscd so that local stud,
111;irkt·1scould he plan-cl .. -\llCI tile whole svstt·m couid lw mack l'\'t•n 11u,n•
r11lc-basccl by the fao that 11coclass1cal ecm10m1cs supplil's us wllh hun-
dreds of' rules and norms and almost all or them an: ne\-cr q1111e( 1peratlllg
111 any countn· at am· 11ml'. Su the li\·lF and WB coulcl s1111ph· pick and
choose whll'hc\'er aspect ol'a domestic cc0110mv the\' wanted to cm1cc111ra1l·
change upon ancl could aiwavs point to some rule or norm of 1worlass1cal
cco111111licsthat was not hell\g met!
.Just as the Nixon-Ford-( :ant·r phase leJ't a hang-m·er for the Rt·;1ga11i1es.
so the Reagan pcnod lel't a hang-on:r for Bush: 1h1s llllll' the hugt· doubk
clelints 011 thl' balann: of p;1vme11\s ;md the cklint and 1m m1>1H·,· Ill till"
kllt\' l"or cxc1·1111g-inllucnce over thl' S,nwl Bloc n:g1011 a., ll collapsecl. 1·s1)l'•
c1alh- because 111' the domestic spendau,·c blow-out 111the housing Sl'l'lor ol'
thl.' linannal sysLL"lll. ilu1 dw diakn10 ol prnµ;H·ss throuµ,h hl11nckrn1g )!;,lm-
hles u>1l1111ued10 work s111n· the debt cns1s had produced a dcq•lop111c11t of
the DW.SR which could he explrntcd by the US to O\'(Tcomt· ILS 11·(.:akncsses
111us cffons to clnm111a1cdc,·t:lc1pn1<:n1s 111R11ss1;land Eastern Europe. The
ll'vlF-Worlcl Bank S1.run11ral AcU11stme111 .rnh-srstl.'lll could he imposed upon
the rcg10n with the claim that ILwas the new global de1·clop111l'11Lparadigm
;ind 1101an ad hoc dc\'ICL' l<1r scr\'ing LI.S1111erestsIll the l.:1t111.-\meric111
crisis. Bush showed g-reat si~ill in persuading the \Vest. Europe.ins !1> knuckle
1111derLO IMF (US Trcasmv) leadership over the tra11sitio11 111thL' Easl. and
the result was lo pcrpetuatl' :111rlstn:11g-1hcn the reach nrrile D\\'SR. g1n11g
grl'al sn>pe !or US li11;111nalopl'r:11ors 10 link up ll'llh tin· t·x-11n111t·11kLll11r,1s
ol"thl' rq~1on 111org11.:s ol"speculall\'C, corrupt and cxtrcml'il' prolitabit· n:11-
tures. through pnrausauo11s. L11rough m111g-local stock 1uarkt·ts as pbnh111gs
111 tht· hands ol' US 111n·s1mc111 banks, through 11smg dollars lt1 IH1\· llllgt·
guanutics of assets in R11ss1a ancl t:!scwh1:rc, through can11ng L'Xtraorcli11ar-
ily high v1clds 011 East Europt"an gon.•rnmenl c!L"hl 111the ho11d markets.
through 'enormous 111,1cn1ons of (largdy criminal) East European fligln
capnal into the Ang-lo-American markets and through. at l'.\'l'n' turn. 1ak111g
large . .1u1cy lees !c,r scrnccs r<:mlt-rcd. It was. all in all. a rcmarkahll' success
Sit II\', ran
l'S!Jl'U,dh· )-\1\'l'Il tlw rupl11c costs or I Ill· \\'hok l'lltcr-
tli,11 t hl' ca1;1:-.1
pnsl' lil' 111l'ar-aw.i\' EasltTll E11n11w as :1 pnihkm which the \\'l'st Eurupt·am
h,l\'l' lo tl'I' to Clllll;tlll, II() douht \\'llh lhL· l!dpor NATO .
.-\1 thl' llllll' 1ha1 (:linton became Pres1dt·111111 19~J:~the DWSR had thus sus-
t:1111eclJtsl'IJ' for a !'11111wt·11ty years. Thl' dollar was s1ill the m·en\'heh11111gly
d11111111a111 1111er11auo11al n11Te11n· a11d the wc1gh1 or \·\'all Street Ill the i111.er-
11at1011;il cu1110111v was for g-reallT than 11had ht-ell 111the I ~J70s. The various
ki11rls ul' hot111dancs ll'hwh had t·x1s1L·cl bc111't'l'll 11a11011allinancial and ecn-
no1111c s,·stems a11cl the Wall Strct·t-n·11ta·d 1111er11atiu11al fi11,111ual markets
haci hel'll L"rocll'rl and 111some r1111n1rw, ;ilmos1 t·11t1reh- swep1 awav. ,\ncl thl'
li11kagl's l>ct\\'l'l'II U>lllllrws 111ihl· l'i1r111t-r 1-:asttTLI Bloc and 1[1t· South 11·1Lh
\-\'all Slrl'l'I l!ad bt'l'll grc.itl\' strl'11g1ht·11t·d throuµ;h rlt-l>t clqwndt·11n·. while
1lie l'lll'lll 111'l11a1r!t-hL dl'J)l'lldt·11n· was ch.i11g1ng l'rom Dill' based upon l1111g-
or 111edi11111-tt'l'lllhank lo.ms to 011c t1asL·d 11po11dd11 SL'Cllrtllt'S or shorl·Ll.'1'111
loans - ,l li,nn of dl.'pe11dt·11t-e Etr 1110a· \'Llllll'rahil' 10 sllort-tl'rm llW\'t'llll'llls
111thl' \Vall Strl'l'I st·um1tt·s 111arkl'ts. :\lu11g~1dt· tht·sc de1·dop111l'1lls the <1tht·r
111,u11katurc of the reg-1111l''s e\'olu111111\\'.ts the 1llcrcas111gly 1111pon:11n roll' 111'
thl' IMF as a public a111hor1ty li,r rn.111ag111g 1hc erli.·us or 1he rcg11nc 011
n11111tnt·s or the Suu1h and former E.1stt·n1 Bloc. Tlw IMF \\'as Ill>! act111g ;1s
a pllhlic ;1111hon1y ubflll1' all slui1•s but as ;1 p11hlic authoril\' for trans1111t1111gtill'
pn)ir1· of lhl' sl:IIL's co11trnlli11g 11-wh1rh llll';1111.aho\'l' ;ill, the l 1SA-111t1) thl'
states m ,·.irnng dq~rees lll' cns1s as a rl'~lllt uf the rq~1111e's opcratHHIS.
D11nng tht· Cli111011 admi111s1r;1t1011. as ll'l' sh.ill Sl't', there would hl' ;1 rlnn·
to radic;1li~t· till' IJ\\'.SR, hot!i 10 S\\'l"l'P ,1wa1· till' harrwrs ht·t1\'t'l't1 rf1t· H'.i/1
Stl'l'l'l•ce11tn'.cl 1111cr11at1onal li11:111nal 111arkt·h ,111dstates and to 1111p11sca
11t·1,·set ol' rl'stnn11111s 011 the d1111H·s11c;1ct1t111s111's1atl's. Therl' would ,also Ill'
a dramaut aue1111>1IO radicalise the ll',11·tile LIS go,·l'rlllllt'tll used the l)\\'SI{
Ji.,r tlw purposes or nallonal eco1101111Cstatecrart. B111before t•x;1111111111g the
( :li11t1111penorl 11·t·will hridh- st1rH·1· thl' 1111p,1n of 1la· D\VSR CJII thl' re~r or
1lw 1111ernational poli11cal cc01111111,· clur111g the penorl lro111 thl' I \l70s 10 thl'
c;11h- I \Jqfls.

II The Responses of Political Economics to the DWSR

Lip lo 11<11,· 1\'l' ha\'l· n111n·11tr,1tl'rl olll\' 11po11 tht· roll- 11[the LIS in thl' !)\·\'SR.
1\111\\'l' 111us1 hndh· s111Tc,· thl· rcspclllSL'S 111'(hL· 111lter 111,1111 u1111pont·111s ol'
thl' world l'Co110111v to t111ss,·s1t·111s111n· 11s la111ich in Ille l~l70s.
D11n11g !ht· pos(-\\"ar (>t'l'l()(l. till' l'Ol"L' 1,r lill' \\"()!'leilTOIICJlll\" was 111.l(k up
or,1 {;n111an-<.·c11Lrl'cl Western F.11rnpt· ;111cl,lapan. alo11g- 1hth :"Jonh .-\111l'tK,1.
Till' rt'\'1\'.il ur the capitalisms at illL' t\l'o oppositl' l'llds or E11ras1a had l'ol-
lowcd \'l'I"\' dilll're111 pa11t·r11s l'rom thl' a11gll' or llltl'rll;1t11111,il puliuc.il
eco11omy. C:er111a11\'·s rc\·1,·al wa~ h11il1 1qHm 1l1l' den·lop111t·111 or ckcpl'11111g-
+I Tl·IE ca.Olt\1.IS.-\TION c;,\i\1111.E

regional links wllhm Western Europe. Japan's rcn\'al took place largclr 111
isolation and through deepening linl;;s wllh first the .-\mcrica11 and then also
\1'1th the \-Vest Europl·an markets. Thus the mm·e tmvarcls the Dollar-Wall
Street system m the 1970s had ver)' diffcren t impacts upon these two non-
Amcncan centres, as we shall sec. Ne!lher the ieackrs of' German capH,ilism
nor those olJapan welcomed or appro\'ed of cllher the maugurauon or the
e\'olution ol' the DWSR nor ur Lile vanous wavs 111which tlw US has sought
to expl01t 11.On the other hand, 111 both regions the D\VSR has hacl 11ssup-
porters and even enthusiasts, especially, of' course, 111 countries like Britam
and Holland with powerl'ul linancml sectors anct amongst those most ciosclv
mvolvcd with private internauonal linancc.

Both Western Europe and Japan \1·ere, of course, extremclv hostile to an<I
w01-r1cd hr the mtcrna11onal monewry chaos maugnrated b\' the D\VSR 111
the early 1970s. The West European responses de\·cioped along li.>ur axes.
r-irst a defensive response to the regime 111 the monetary lielcl by building a
new regmnal monetary regime 111 \·Vcstcrn Europe: the exchan~c rate mech-
amsm, leading towards a full mom:tarr unmn. Secondlv, a shit't to\\'arcls a
new accu11n1lauon strategy which placcct money-cap1tai 111 domm;mce over
employers orcapital. Thll'dly, an aucmpt to expl01t the DV11SR 1nternatio11-
all)·; and fourthi)', an 111u·a-Europcan conl1ict o\'er the role or renller
capitalism w1thm \Vcstern European society. \~1c will look at each ol' these
stranc\s 111 turn.

1) Tlw rtgw11af uwul'lary rtI!;l/1/1'

\Vith out a clcfcns1ve rq~mnal response to tile DWSR t Ile developmclll of' the
European Commumty towards a customs u111011 would ha\'e hcl'n destroyed
by chaotic 111tra-Europcan currency mm•ements which wouirl h,n·e made a
mockery of intra-European free trade. So Gerrnanv was able to persuade its
mam \.Vest European partners to manage thcll' cu1Tcne1es u11cll'r
clcutschmart, tcaclersh1p. 1n this war, monetary stability could be 111a1111aincd
\\'!thin \~'cstcrn Eun1pe. The ma1·1;;,wouici be the po111t orcont.ict betwcc11
the West European economy and the wild dollar. And German governmen ls
m the l 970s were prepared to claim that their leactership would be just a
phase on the road to full monetary union (as the French wanted). Despllc
a verv shaky start in the 1970s and \'anous crises 111the I mms and I 9~Hls,this
svstem ids held.
The Soviet Bloc collapse raised unccrtamty about tius srstem, through
raismg uncertamty about the future dirc,cuon of Gen11an capitalism.
Chancellor Kohl responded w1Lh the cleciswn lo maintain tlw regional
arra11ge111cn1s h\' clecpenmg them 11110/idl monel,ir~· 11111011. Tiu, decision
has held.~

2) /.'1wji11r1111wl.fl11111J
m11I lh1•111wffll/m/ii)' 11/11w111:r-m/11lrt!
,\ numhl'r of"Wl'sl Europl'an states sought Lo ma111tai11the E.evnesian mode
ol' accumulation m which industrial cap11al's expansion was the ccmral
target of policv. The French .,onalist govern men l a11empted this Ill the early
1980s. This effort was frustralecl noL least because or the Reagan adminis-
tration's economK statecral"t. IL used the high dollar and lug11 interest rates
as a ,,·capon agamst the French pro.icct.: 1 The failure ol' the French pro.Jl'Cl
led 1hc 7vlitterrand gu\'ernmelll Lo accept the scrappmg or controls on 111Ll'r-
nat1011al linannai mm·cments as part ora Meler stratq., 1-y ( the single market
and the acl11e,·t·nwnt or monetary unmn). With a pol in• framework consist-
ing of Jixecl cxch,1ngc rates and free mm•cmt·nt or linann'., West European
gonTnmcnt., except Germanv's lost most of' th<:1r cotHrol over monetary
policr lO rhc pn\'atc linanc1al mart-.e1s orEurop<:: 1When European gov<:r11-
111entsdeciarecl that 'globalisation had meant that the,· had iost the ahilit,·
to steer thvir rtomesuc economies as befr,re. th<:\' aclll:tll\' meant that their
deler111111atio11to subordinate domestic ecu1101111cmanagement to lixed
European exchange rates and !"rec movement or Jinancc was what was tying
thl'1r hands domesucally. This shift brought about a s1milan1y m domesuc
111acroccono1111epnonucs bcLWL't:ll\Vesten1 Europ<: and the L1S,\: th<: pn-
ortl\' orlow mllation, ma111t,u11111g m<mcv's roic as a fixed standarcl ol'\'aluc
111the 111tercsts or mone\"-capital and pushmg cmpiovers or capital to engage
m labour-shedding acll\'ll\' and dowmrarct pressure on wag<: costs. This was
1he real basis for the 111augurauo11 or Alian lie neo-libcralism.

3) TIii' 11f/1•i11/)/ /11t'.'1:/)/{)}( th,• l)\·E"iR /Jllt'f/1(///(}}II//~)'

At the same time, Western European capnaL faced with domestic long-term
s1agnauo11 ovl'r tht· last quarter of" a centurv. was able 10 exploit the poss1-
hilit1es ofli.·1Td l)y the D\VSR to turn outwards he\'ond the corl' 111 search of
new lit:lcis or accumulauon. It was thus ahic Lo live with and bendit from th<:
use or this regime tn open economtcs elscwlwre, and Lo li\'c wiLh US leader-
ship Df the r<:g1111<:.

-/) T/11·rm1/lirl or1rr rl11•ml,· of'lhl' rl'Jll11•r

s,~rior

Althoug-h the power ofnHm<:y-capttal w1lh111the baiann· ormo11ey-capi1al-

1s1s/l'mplovcrs uf'cap1t,tl was sharply shilkd by Lhe chan~cs clescrihcd abmT,
must gm·cn1111cnts in WesLcrn Europe did not go aiong wnh the idea or
-Iii Tl n: <;( .<>11,\1.IS,\Tl< l?\ <;,\\1111.E

dis111amli11g-the l'l\llre 111st111111onal framework for controlling their li11annal

S\"ste111sand l11c1r 1111erfaces \\'llh the pr11d11cll\'l' Sl"<."t11r.
A11empts WL"re made
to m:11111.1111a li11;innal structure t-e1llrl'd on large, regulatt'd banks. rela11n•Jy
small securities m,ffkets ancl Yerv larg-e parts or the linancial s,·stem in stall'
hands. In domg so thev faced growmg compeLiti\'e pressures rrom rleregu-
laLed :\11g-lo-A111enca11operators a11cl a grnwi11g chor11s of propaganda Lo
tr;111skr all those parts ofthl' financial S\'SH:111 cornH·cterl Lo h111di11ghealth.
pensions and welf;1rc programmes into the pn\'ate senor under rentier con-
trol. The propaganda c.1mpaig-11had a strongly anti-workensL edge to appeal
to t·111plo\'lTS or c.1p1Lal Lo rcclncc their tax Irnrclens In- El\·ourmg the pn-
vausau011 or these pans of" tilt' linanual S\'Sll'lll. !~111 the cap11alis1 rlasses of"
Wcstl'rll Europe generally m;untaincd rt"s1stance to thrs campaign, parth· for
poliucal rl'asons (fear of f11t11rcdomestic poliucal nilner.ihilit\' to rt'\'olts)
and partl\' because s11ch mm·cs would cnormouslv increase the 11pportun1-
tics for :\11glo-.\1J1lTtcan li11a11nal opl'rators to acqu11-e sw:I\· on·r their
producu,·e sectors as well as their Ji11a11nal sectors.'' The hattll's m·l'r thesl'
issues wen: fought out mamiv between the German a11d Bnush gm·cn1-
mc11ts o,·er alter11al.!\'C approaches towards the rcgulatio11 or 111n:stme111
banks (merchant hanks, m 1.radiLionai British parlance). In I.He 1~19'..! a n11n•
promise EU dirl'Cll\"c ml mn·stment sernccs and capital adequacr standards
was actopted, one whICh fa\'ours greater liheralisatJ011 111this area.
Thus the spontaneous d\'namics or 1he Eurolancl rq..\"ion will lead to tla·
hollo\\'111g--m11or the nexus of instnu11011al harriers w lhe tnu111ph of the
renuers because the regional rel-{inH' 1s cons1.r11ctcri for a u,mpctiLHlll
between regulatory authorities that ensures that the least rcgulatccl opera-
tors i11 the linannai sector Will. Without a strong politicai authoritr Ill
Eurol:t11cl its curo shield ;1gamst the dollar will be sl11eldi11g a rinan(·t,tl
SYSll'lll and pri,rl11ct1,·c sector unctcr the mcreas111g swar or Wall Street a11cl
American bus111ess.

.Japan found Itself in a far more rnlncrahk position for cop111g wllh the new
monctan- chaos Lll,ll arose 111 1.he 1970s. Because or
its dcpc11cle11cc upon 1hc
US markl'l, it faced one ,\llll'rtc.1n-11Hluccd a<UustlllL'lll crisis aher ano1her.
has been sul~Jectcd to greaL poliucal prcss11n· tu establish a ma11agl'd Lradl'
regime with the US and constant altempts b,· the US Lo 1111crlcrc w11il its
intcr11al sociai n·lations or produc11011. Attempts to di,·ersifr i11LoLile West
E.urnpea11 mad~el met with strong EU opposl\Hlll. univ partialh- ovt·1-romc
through Llle !knish back door. The vcn· rkpenclcnn· of" the Amen can stall'
upon Japanese financial !lows mto New York only h1dlcd the grnwlh ora11
aggn:ss1ve trc11d in US public op1111on towards.Japan. lh succ11mh111~ to US
 pressures III the latl' 1980s 10 loosen.Japaucsc domesLK ee<111<11111c policy, the
.Japanew gu\'ert1n1l'llt found 11sdr unleasluug thl' kiml or l'norrnous huhble
in its li11a11nal S\'slem that German gm·ern111e111shad al\\'ays managed to
repuclia1c. and the h11rst111gol' the bubble al Llw stan ur the 1990s plunged
t he]apanl'Sl' doml'sl 1c t·co110111v 11110a long s1agna111mfrom whirh II has not
ren>Yl'rl'd.
'\t·I 111the Sl'('mJd hair of the I ~J80s. .Japant'se elites did stan 10 rlevdop a
11c1,·,u:cumulat.ion stralq.,rv: 1hc den:lopment 01'.1strong rq~ional lll'l\\'<>rk 111
Easl and South-East .-\.~1aand om· 1w1 based 011 \-\'l's! E11r1>pc;rn-s1ylcneo-
llH'IT,llllilist regmnal ,rack policv. hm rather 011 the export or prnducuve
capital 111!0the rq!;Hlll Lo boost rq.,\"1onalgrowth - the k111<lor poliC)' so ob\'i-
ously lacking 111Wl·st Europl'all politT towards Eastern and East ( :l'ntral
Europl' or (i,r Lhat n1a11er in :\111cncu1 poliC\· towards L11m .-\nwnca.
Through this s11·;11q!;,·.JapanesL'cap11ai could cope wtlh the wild swings or
the dollar: a high dollar g-an- scope li,r tlteJapanesl' donll'sllc base. while a
low dollar gaH· scope liir the rl'g1onal bases ofJapanese a11d.JapanL·se-linkcd
capi1al IO flourish smn· thl'sl' t·cono1111es had l'Xchange rates laq{d\- lied to
1lle dollar. The n.·g1onal cco11omies 111 1ur11 were exporting 10 Nonh
Arncnca a11d Europe as well as clc\'elopi11g-1111ra-rl'gwnal trade and financial
/1()1\'S.
This.Japanese rlcfcnsin· :-.tralch~·lll('Shed wuh the aln:adr s1ro11g gniwlh
m East and South-East Asia a11d greatly remforrecl that g-rowth. The result
was to lTt'att· an e11t1rdv Ill'\\' growth ffllirt' 1,·11h111
t.lle world eco110mv and
one whtclt has aued likt· a mag-net for capnal throughout the rest or the
core cco11omics III the l~J~lOs.Thus, the rq{1U11alist respunsl' of.Japanese
capi1alisn1 to 1he Dollar-Wall Street s,·s1cm was a s1u11n1nglr sucn·ssrul one
from t hl' po1111of \'lell' or spontaneous t·cononuc ralionalit,-. Japan \\'as cre-
ating a grea1 ,·1nuous circle or dYn,11ntc accumulat11111 lll't\\'ce11 11;. o\\'n
capitals and East and South-East :\s1a. In purdl' reg-im1al lerrns 1!11s1,·asa rar
mon· dy11a1111rsolu11on Lha11that found by Gerrnan cap11alisrn w11iim the
\-\'cs! European arena. Bt11!hen.: was also a di111t•ns1onof grcar ,·ulnerahi!ity.
Cerrna11 g-o\'t•rn111e11tshad liel'll ahk 10 co11s1run a stroug- poli1ko-111onc-
1an· shield 111the forlll or a ivlonetar\' llrno11 and a mass political idea
(Europea11 unit\'), both or which !he cap11alist classl'S or (;t'r111a11y's
European m:1g-hb<J1Jl'S shared. But Japan ·s regional stratq.,'')' had no such
po!i11co-mo1w1ar\' nn1111erpar1. tr c:cnnam· had. Ill tins field. somcrl11n~ like
1hc shil'ld oL-\chilles,.Japan was left wnh his hn-1: mus! of 1he rcg1u11 111the
dollar zone and 1l111sa splir Ill thl' politic;il-mo11t·t;11·~·ce111n- u/' the l'l'l-{IOllal
slralcg~·: and no political hlo<.·in 1hc reg-ion aL cnlwr the lt-n·l of clo11111ia11L
sunai g-roups or a popular !e\'cl. lns1eacl. the rq~ion ,,.;1srt\Tll \\'Ith political
suspicwns and leg-anes of earlier hostili1ics: lwtWL't'll Clnna and .Japan,
bct\\'L'en 1,;_0.-eaand ,Japan. hct\\·cen ( :11111aand Taiwan. t'lc. elc. \·\·'hik
Wester11 Europe had ll\'L•rcomt· hos1i!i11t·s a1 ll'aSI as cll'l'p, parrlr w11.h
-18 Tl IE (;LOB,\US.-\TION (;_.\l\1111E

American support in the early po.~twar years, no such C\'olulton hacl

w:n1rrccl m.Japan\ rcg1onai h1111crlancl.

TIil' Bi/iirmlw11 of flu• Sou/I,

During lhe long boom 111 the poslwar pcnod the countries of thc Sotllh 011
the whole abo experienced lugh rates of gro\\'th: fifh' of these countries had
average growl11 rates of 11\·cr 1 per cent per vear between 1960 and I~)75."
Total factor productivity growth was parucularly hrgh m the Middle East and
Latin Amen ca: 2.:,ancl 1.8 per cent rcspccuvcly- a belier performance 1han
East Asi;1whmc annual producuvitv growth was only I .:l per cent.
With lhe start or the Dollar-\Vall Slrcet Rq~1mc and the oil n1s1s, a bifur-
c;1t1on IJcgan on the basis or one cntenon: how well the state concerned
coped with the volatile and often s,l\'agc dvna1111csorthe new Dollar-Wall
Street Regime. With the oil shocks and the onset or stagnation Ill the core,
the oven,·liclmlllg lll,\JOrtty ol' countries orlite Somh cxpcnc11cccl slra111on
lhe current account. Th(.'.ycouid either borrow massively abroad un<kr the
new Dollar-Wall Streel Regime, or thev could make sharp domestic internal
macroeconomic ac!justmcnts, ughtcnmg liscai policv anci dcvaiumg their
n11-renc1es. Borrowmg abro,1d was the easy opuon: tilt' r\nglo-r\m(.'.rfClll
hanking S\'Slems were cager, as we have seen. to lend and hnrrowmg allowed
these :,talcs to avoid lhe domestic social conflict lhat macroeconomic ac!just-
ment reqrnrccl.
It 1s 1mport,11H to stress that borrowmg from Wall Street was 1101 only
easy, It was 1·rn11111111ai/~1• miw11al for governments 111 the Cll"Clllllstances of"the
1970s. In 1983, US Depuly Secretary of Stale Elinor Constable explained lo
Congress how US g-ovcnuncnt policv created lhc condiuons lhat would
make govermnenLs 111 the South pursumg current econonw: rauonalitv want
to steer a cour~c towards disaster: 'Our pulicy did not focus on thl· need l(l
ac\just. Rall1er, our pnmary concern was the encouragement of' efliciem
"recycling" of the OPEC surpius - a euphcnusm for lhc assurance thal coun-
tries would he able to borrow as much as thev needed. The incc11uve lO
borrow r:uher than to ac!just was strong. Intcrcsl rates \\'ere ID\,·or 11cgat1vc
Ill reiat1on lO n11-renl and expected mllatmn; liqu1dity was abundant: ancl
both borrowers and lenders expeCled lhat conlinuecl inllalion would lead lo
evcr-mcreasmg- export revenues and reduce the rcai !Jurden of f<irc1gn
dcbt.';The cnucal failun: 011 lhe pan nfthc borrowing gcl\"crnmen1s was lO
l"o1shioneconomic policy w11hin a framcwork or current ccDnomIC ratmnai-
11\' rat!1er than g-rasping th;ll the cnure macrocco11om1c framework the,·
fi1ced could be lransllffmed by poli11ml dec:1sw11sahoul the dollar /mo· a11d
1111,•mstm/t!s of th,· US gov1•n1111r11t lhrougli //11•world 1•nmo111_)'
tm11.1·1111/it'd /~\' lh1•
D\E"iR.
 Thosl' colllllnes wlrn:h tDDk the bDrrowing cD11rse - Ill 1ht· l'vliclrllc East,
L1t1n .-\nwnc, and pans nf tlw Soviet Hine (cspcnallv Poland anrl l-11111gary,
as \\'di as Y11g11slav1a) - were then trapped in debt crises a11cllong stag11a1io11s
or lil"icc11vcars or more as tl\cv were clr;1gged through the 'structural ar\just-
mt·ul nngcr oJ' the li'vJF/\VB. TlH>SL'ro11111ru:s wlllch undertook Hitcrnal
ac\j11su11c11ta11d avrncled the rlt-ht trap wert'. main iv 111East Asia a11d were able
IO wl..'ather the onset of the new n:g11ne ancl u,11ti11ued to grow.s Othl'rs were
drag-gecl down hr the DWSR 111to a svstcmicalh' mrtuccct se1ws or li11a11cial
IJ!ow-onts. Durn1g- the I ~)70s. the nu miler orli11a11nal cnses neYer ruse alm,·c
live countncs per year. Between 1980 and 19~1:ithe mtmbcr fell heluw live
1wr year onlv 111two vears ( l \188 and I q8~1) and in sumt· \Tars the numbers
ran at o,·cr ten u11111tries per \'l'.tr. .-\ccorcling ro the 11\·IF.two tl11rds 0L1ll ir.~
members ha\'l' cxpericncccl ~even.' linannal t.:r1st·s s111cc l SJHO,sm11t· more
than onccY
It 1s important lC> unclt:rlinc one poi111 about tlus cxpcnence. Tin· ick-
olog1.~ts of' the l)\VSR claim that the debt lTISlS of the Lllm ,\nll'ncan
countncs (ancl states in Eastern Eun,pc) was rn11.\/'rl/,y the hankruplc)' of
their earlier 1111port-subsut11t1ng development straleg1es 111voln11g iarge
state sectors and prorectin111s111. Thus. they had to cm bran· a new strategic
paradi~m - che so-called 'fret· mad,ct' <Jill'.. \'ct as Da111Rodrn.:k has shrnrn.
the debt cns1s ,mcl lhc atll:nrt;mt rlomesuc lin;111n,d cnscs m thest· coun-
rrtcs had been caused 110/ by their i111pnn-subsut11u11g. staust au-u111ula1ion
.~lralcg1l'S - in ma111sL1-cam tenns thcsl' an· II11ITo1•rn1101111r dL'VL'lopmc111
devices - hut h\' their gonTnmL'lll s failures ul' m11nw·m111111111· pol in· ac\just-
mcnt to the 11npact or thL' oil pncc nsvs and the llC\\' 111011ctan·-Ji11a11cml
svstcm of rhc 1970s. A~ Rodrick cxplarns, lmpur1 Suhs1111111ng
Industnalisauon (ISi) 'brought unpn:ceckntcrl cco1101111cgrowth 10 scores
of co1111tnes 111 Laun AmL'nca, the l'vlidcllc East and Norll1 .-\l'nca, all(I e,·cn
to some m S11b-Sallaran Africa' for two decades. ' when the ero11om1es
or these same n>1111Lnesbeg;111 Lil fall apart m lhl' ~ccoml ilalr or the I !)70s.
tile reasons iiad vcrv lil!lc l<l do with ISi [JOlines per sc or tlw t.•x[clll ofgo1·-
cr11111e11tmtl-rvenuons. Cou11tnes that weathL'red the storm were llH1SL'in
which governments undertook the appropnare I11arm,•rn1101111r acljustmL'1lls
(in the arL'as of fiscal, 111111w1aryand l·xchangl' ra1e polic\') rap1clh- and
dce1s1vdv. •Ill
Tlrns. the real paucrn ol rausalitv 111thL' 1.ra11:-;forr11auo11s follm1·111g-the
adoption or tile Dollar-Wall Street Rcg1mL' was as follows: a sucressf'ul
clevelopment E.1cL'rtsudden, brge challenges
.1·1rt1l1'.!!,')' to mat-roec11110111ic
t11r/,rs produced by the orcllL'stratcd chaos or tlw IIL'Wlllll'rllatiou;tl 111011-
e1ar\'-li1Ja11c1al regime. The macnieu11H>lll1t 1;1cucal (1il11rc led to rnrihle
ClllTL'llC)' and financial cnst'.S and t.hesl' L'nabted \-Vash1ngw11 to impose a
Ile\\' strategic modd 011 t11esc co11ntr1e.~. Tlus model was then dai111ed lo be
a supenor straLL'/.:'\' LO an l'arlier failed stratL'g\'. Yet the new n1ockl was
 Tl IE Cl.< ll\.-\11~.\TION C \;>.JIil F

nolhmg more than a co111b1nauo11 ol ad hoc sol11t1ons to pay off llS hanks
pius a new v11itwr.ibili1y Lu thl' dr11a1111csof LIS capllalism.
That this \\'as indeed the case lwc:1111estarklv dear wlwn 1he sho11TaSL'ol'
thl· new ll\O(\el. aflcl" ',\ rii:cack l)r S\;)~IL\lll>ll ;111da shun ph;l',L" or
gtll\\"th.
suddenly phmgerl Ill to another terrible li11anc1;1lcrisis: the l\frx1c111 cns1s 111'
199-J-~15. Bccaust·, as a result or the us11al 1clcolog1cal rnt-rha111sms, Ilw Iugh
prn:sts of the \Vaslung-to11 Consensus realh· lwlieH·cl their Ill'\\' model \\'as
superior to the ISi mockl. as ·prn\'C:d' In- tlH· t•arlicr ckht cns1s. till'\" µ;t·11-
u1111.:lv
couid not 110ucc Mexico's ext1Tme nrl11erabilit,· ;111dfragility alld I lw
blow-out was a great shock. But lls \\'art1mg 1hat the so-called Eco1101111c
Reform li·L'l' market mmkl was a path only 11, mcn:;1scc\ n1l11erahili1y Ill 1he
J"uwre was s11npir brushed as1cle. // lwd lob,· a _!!,Wu/11wr/1•/bt·c:111sl' I( was 1l1t·
1J11/_,•11wd1"!Iha/ /illnf il'llh th,•jrtrl.\ o/u /)\\'SI? /11 ,t'hirh JI,,• blg~1•sl ,·,m,11111_,.
111 th,•

world, .·\111n,m11 m/ntuli.rn1. was 111rn'"s111~~)' 11

h1111hl'rl.
These crises, thl'n, hil"urcaLt:cl the South 111to two zones: the new ckpe11-
dcnc1es or the DWSR and the new growth centre 111East ancl South-East
r\s1a. The new dcpende11c1es rhemsel\·es co1\la1ned str1111g111Ler11alclilli:r-
enllaUons. between poliuc1l cc01wm1l', wi11ch l'llh:red a pa1h tl!\\'ards s,,ual
dismtcgrauon ( nlllch oL\li·ica) and others which t:n lerecl a par h ol' stagna-
tion, p11ncwa1ecl h\' litl"ul growth (most or l.au11 ,\menca a11d the i\licldk
East).
The stDn· of the ncw, post-l 980s clependennes has been L>IH'or clrn1111C
finanual instabilit,• and .,1agnat1on, p11nctuatl'd hr fitful groll'th ;md l'urthcr
li11anc1al blow-outs. Since 1980, serwus l111annal crises ha,T bt•l'll happl'lllng
m one cou11tr\' after ano1her, .11•ru1/1m ;111<1 affecung twL11l11rclsof the me111-
bcrs nr the livlf at least 011cc. Ead1 llllle, the .-\11glo-.-\mcnca11 111ec\iaot' the
DWSR trv to l'ntcnain us l\'tth_1t11c,·stones, full ul'\ocal colour a11d cle1aib nf
local 111compete11.ce, corruption or whatever 1hal _1ust happened lo caust·
each indinclual one or over hair 1he countnes or the world 10 1urn 011110 I)('
a IJasl,ct case. But after a while these s111nes hcg111 to pall as \\'l' rcalisl' 1ha1
illl Lill' countries or the worlct sccm full or corrt1pt11m and mcompcll'llrt·
C\Usin)!; hhm·-m1ts. whik ;It thl' same lllllt' tlte same llll'<lia assurt' tis that thl'
worlcl as a wllole 1s doing- tremencloush· well, except for one counrn at a
wnc!
As a pcn:enta~e of l:t)P these linanc1a\ cnses can he l'Xln·mcly u,stl\',
cspeciallv wl1ere 1hcv take the form or crises al the heal'I or lht· hanking
system: 111 the Argen ti111a11cns1s 1980-8'.:! these cost!i amou111cd to 111,less
than 55.:1 per cent or GDP; m C:hilc. I98I-8'.t -11 per cc111: 111Urugua,
1981-8-1, :H.:! pcr cent 111; Israel 1~180-:·t>. :\0 pn lTlll ;111cl 111 i\lcx1co
I mM-9:>, I :\.5 pe1· ccut. 1~ The IMF h;1s piayeci a centrnl role Ill dis Irihul 111g
those costi;, clolll!,!;so in tile act11·e sernce or
the Lf1111edStall's hut wuh dw
passive: acceptance: or tile other G:1 states.
 ·1·11EF.\'l >l.l;·rn >N<>FTl IF IH\'SR :ii

/:'as/ Ci•nl ml a 11d1-.'rrsft>ru

Fu ro/H'

Tiu: l"l'Cor<Iol"thc..·s1..:
co1111tnes undn the DWSR Sllll'l'. 1\1!101so\·en\'lll'l111111g!y
the same swrv or 1r,1geclvas L11ator most uf Laun :\menca lll the l 980s. The
propagandists or till' DWSR hm·e e,·en rcaso11 to crn1gralllbtc thcmsehes on
i111rodt11.:Illgcapitalism 111toa nurnbcr or these uiuntnt·s, g1vc11.1usthow ter-
rible the experience has been for the bulk or the populauon of' the region.
Ten \'l'ars a1"11.:r lhl· process s1aned 011I\' ont· cot111tn·. l'ol:t,ul. has da1n:d
itself' b.ick Lo ILs stausucal GDP per Glplla or 1989. :\nd 1hc deep gloom
across the lrnnzon or the cnurc region has l)ccn lifted onl\' by flashes of
lighu1ing- from linancial 1.:nses, exploding- Ill one cou1JLn· ,11'1n;mother.

T/11•A°l'W Growth Cmtn·

The lll'1,· growth l:C11trc 111East ;111dSouth-East ,\sia 111dudcd China, South
Korea. Taiwan and increasmgh- also the counlnl·s runlwr so111.h.Tht.•Ywere
11nilied nn1 hv 1he fan tha1 thn ,ill sll;1rcd the same lllltTn.il den:iupmelll
nwclel but br the Eict that their 111acroi:conom11.:tactICs cnabll'd thelll 10 sur-
,·ive the l!l'.W 111Len1;11ionalreg11ne or the l~l70s. IJ\"the fac1 that tlw\' had
atTt.·ss to the .-\mem.:an markl·l arid, 111 the late ! 9H0s, h,· 1he r,1n l hat man\'
of them could c1~io,· ,Ill expanding milux nol or ho1 llHllll'\" l"rom New \'od,
b11t or prociunin: investment fr1>m Tokvo. Thev constl111ted ,1 Ill'\\' growth
1.:e111rcnot 111 the sens<: that till'.\" had strong g-rowth rates but 111a 1m1ch
more ru11damc111al sense: they were the one lar14e centre 01·dvnam1c. sus-
taml'd t·apllal at:r11m11buon 1n 1he enllre world .
.-\t 1hc start of the l~JHOs,tlw rq.~mn (cxcl11cli11g-.Japan. .-\ustralia arnt New
Zealand) accmm1cd li>r only one sixth or wodd output. Blll lw the llll(l-
1!l90s ll accounted Ii ,r abou I t ,111.: quarter or world Cl) P ,111purchasiug
pmwr parll\·-ac~justc<l Ll:nns. Ir tlus trend had cunlllll1t·cl. tile rq~1011would
l1an· acn>11111erlfor olle third or wurlcl 01np111b\' the n·ar '.!IHI:'>.B,· ;1clcling
.Japan 10 the agg-rcg-atc we can see that the ce111re or 1hc cnure workl econ-
um,· was. for the firsl lllllt' 111 about :j()() vears. shirling cn1t or 1hc control of
the ,\tlauuc rcg-1011.
Similarlr, o\"er 1he iast decade the ckn·Jopmg n1111ltnes or :\s1a havl'
St'l'll their share nl' worlcl exports nearlv cio11ble, Lo ab1111tone Jirth of the
tulai. Thest· counu·1t'.S arc also l,il~111g- a growing share or industnai cou11-
t1T expons, a fauor tllal helped rush1011 the impan or successive
n·u·ss10>1s Ill thl' ,-\il;1n11can·a dHrn1g- \~l~I0- 1.1:t Dnrmg.1ile 1!190s to l~l~li,
the rcg-1011accou111cd for somt.· two thll"ds or new 14lobal 1111'estmc111and
for about half of the to1al growth ofworid GDP grow1li. Thus i1 was ln.:com-
mg lll(Tl'as111gl\" llll port,llll as a di reel Sllllllll:ttor or I lw CCOl}Ollllt'S ()rthe
:\tlanuc world.
 THE (:1.01\.-\I.IS.-\TION c;,\l\lBl.E

And it was achienng these results wJLhouLclashing with the internatltlnal

logics of the Dollar-Wall Street Regime and the Angio-Amencan rent1n
mten~sts entrenched with111 that reg11ne. Thus i\-JicheJ Camdessus likl·d Lo
stress the wonderful opponunllu:s offerccl by some of the stock markets ol'
1he rcg'lfm to western renller capual: for example, in Hong Kon/-{,r-.-tala\'SJa,
and Sing-apore, stock market capHalisatwn, as a sl1are of' CDP, exceeds that
of France, Germany, and llalv. t:i He also, of course, would make rhe spurious
cl.um that the mllows of spcculauve Atlantic funds into these secunues mar-
kers 111 Lile 1990s were a kind of net aid for the cie\'eiopmenl of productive
capHal in the region. The reality was exacllv the reverse; in his Per.Jacobsson
Lecture to the assembled centrai bankers and government onicials 111 Hong
Kong for the IMF /WB meetmgs 111 Septembe1· 1997, the Chief Execuuve of
the Hong Kong f\-Jonetary Amhodtv explamed the s1Luat1011as follows:

'Much or Asian savings, 111particuiar ol'lic1ai scclor savmgs and priva1c Sl'nor sa\'•
111gs thal have IJeen msmutionalisccl, arc srill 1m·estccl m assets of OEC:l>
coumrics ... msofar as Hong Kong 1s concern eel, in excess or !l:i per cenl or onr
USSH:i billion or fi1re1gn resen-cs arc in\'Cstcd ot11s1cle.-\s1a. Specilicalh·, 111Ihl'
111a11agemelllof our foreign reserves, we work agamst a prcferrccl nc111rai pos111011
of' aboul 75 per cent m US dollar assets, mosli\' 111 US Treastir,· Sl'cunucs. I uncll'r-
stancl also that more than 80 per cent or total Asian forcJ!-{n exchange rescr\'cs
a111011111111g 10 USSG00 billion arc i1wcstecl large]\' 111 North Amcnca and
Europe ... ll c;m he arguccl therefore thar Asia is linancmg lllnch of the bndgl't
dclic11s or clevclopccl economics, parucnlarh- 1he Umtccl S1a1es, 1ml has ID 1rv hard
10 anract mone\' hacl, IJIIO the region through foreign investments. :\ncl 1hc
voiatility or fiirctgn portl'olio 1m•est111cmshas been a lll,11orcause ol' disrup11011s to
the 11101w1arvand linanc1al svstcms or the Asian eco1101111cs.Some ha\'l' l'\'l'II
gone so far as to sav that the Asian economics arc providing the !'uncling to hedge
funds m non-Asian cmmrnes 10 plav ha\'oc wnh 1he1r currencies and Ji11a11c1al
lllarkcts. TIHS comment 1s perhaps a linlc nnkincl ... But tlt1•r1• n•rta111()'
ts a Jmib/1•111
1111th /Ill' e/ji-rtn1t111•.u "ffi11a11rmli11lnwnliatw11111thi.1·rt/.('IOII, whirl, I.I"111hibiti11g J/11'_jlo111
S(IIJ/11/.('S 111/0 loll/.(' ll'r//1/lll!/'J/1111•11/.' I-I
· of'loll/.(' 11'1'111

Th,•Au11•r1m11
Polit,ml Ero110111_1·

The cons1.n1cuo11 ol' the D\•VSRhas had 11nporlalll feedback effects 011 the
US financial system and cconomv, while endogenous US de\'elopme111s ha\'t'
exerted 1mponanl and growing effecL~ upon trends w1thm Lhe DWSR.
The Amencan financial system has had one structural feature which has
made 1l very different f'rom almost even• other capllalist svstem: ll1e extra-
ordinary l'ragmenlation of ils bankmg system. Whereas aimost even· other
capnalist svstem tends LO have larg-e, national rerail banks ciom111at111g-tht'
credit svstcm and havmg a close mter-relauonsh1p with the stare at a central
level. Lhis has not been Lhe pauern Ill Lhe Un11ecl StatcsY' In Lhc cha11g111g
economic condiuons or Lhe lasL quarter or a cenlllrv, new forces ha\'e
emergecl 111 Lhc American financial srsLem, filling whaL one might describe
as the \'oid lel'Llw Lhe frag-mentauon or the hanks. And as these new forces
have anscn, Lhev haYe escaped from Lhe kinds or n:gulaLion needed LO pre-
vent the most clang-crous kinds nfvuincrabilit,· from becoming pervasive.Hi
We can list a 1n1111heror the most. significant changes.
First, thc1·e has been a dramatic decline 111 the role or the commernal
hanks 111 the supph• or credit to the producu,·e sector, with the nse or the so-
called mlll.ual hinds. These orga111sauons offered credit to co111pa111cs 111 the
rorm or bonds instead of bank loans. The co111pa11,·would issue bonds
bought by the mmual funds. The mutual funds can then nlTcr sanTs a
lug-her rate of interest on their dcpos11.~Limn the hanks couid. Thl'. deposi-
tors would hendit also thnmgh the diYersilicauon or the mutual f"unds'
holdings of bonds and other securities (paper claims for royalties that can
he bought and sold 111 linancial market piaccs). Thus the supph· or money-
capital to American emplo\'ers came Lo he tied in to the rise and fall of
pnccs on the securiLics markets. And the savings of Americans 0L11l classes
came aiso to be tied 111Lo pnce mm•cmcnts 011 Lhese markets. The scale of
the funds in these n1111ualfunds has soarccl u11til n 1s as larg-e, if not iarg-er
than the deposits within the entire American hanking svs1e111.
The second m,\jor trend has been the breaking down orLhc walls between
different sectors or finance. The rise or the mut11al funds was f"ollowl'd by
hanks l>emg allle 10 cle\'eiop 1heu- own mutual f"u11doperations and 1hus
become more and more mvolved 111 stock market trading. The American
Savings and Loans inst1tt111ons ( the equivalent or l~uilding Snnettes) were
dc1·egulatecl so that thcv could trade 111securities and start aeling- like com-
mcrc1ai banks. And 111 these wavs the l'ntu-e Amencan financial svstem has
been sucked into the vortex of"the secunucs markets, a f"ormula for 01x-11111g
the financial sysll'm to strong speculative pressures.
The third m,~1orcl1angc has been the development ofa rcrv large rang-e of
new types or securities. l'vlortgage contracts, for example. han· become tracl-
abie blls or paper. So-called _p111kbonds wllh ven- l11gh 111terest rates. used to
amass huge quantillcs orf"unclsfor huving mil compa111cs, became vcn· pop-
ular. And a whoic new ucr or scct1nt1cs, called dcnvat1ves, has grown
enormously. Thcv mvolve trading III secunucs whosl'. pnces are denved from
the 111m·emc11tsin prices in other, primary sccnritics or c111-re11ucs.The great
hulk or dcnvauves trading 1s unrcguiated because II takes place 'n\'er thi.:
co1111ter' (OTC) between two msutullons, rather tha11 through regulated
exchanges. One important effect orthe grow1h of denvau,·es trading- 1s that
IL links together pricl' movements 111 one market - say, shan:s or bonds- w1Lh
price movements 111another - sav foreign cxch,mg-c. Shocks in one market
therch\' become much more contag-ious to other ma1·kc1s than in the past.
 Tl-IE C;u lit\! .IS.-\TI<)N <;_\;-.IBl .F

The li>urtll m;11orchangt• has been 1lw nse of tile hedge funds. The nanw
1s a eupht·m1sm: these arc spcculawr organisations li.1r 111al,111g1110111:,·
through the buv111gand selling ofsccuri1ies 011their mrn an·111111tLo exploi1
pnce mm•ements o\'er time and price diffen:11ces het,1·t-e11markets. Th<"
biggest of these hedge funcls arc not marginal speculators. The,· are the on~
spring or the \'ery ))1g-gestor the im·cstmcnt banks and the llllltll,d runcls.
Hedge hinds arc not necessarily called hv that name. Thus Colcl111a11 Sachs,
which 1s a partnership, is laq~elv a hedge fund: Ill other words the hulk or its
profits in 1996 and 1997 clert\'ed from speculau,·e trading on us own
account.. Salomon Brothers was also, 111essence. a llcdg-c f'u11d. Since llw
banks arc not allowed to engag-e in specuiau,·e acu,·llv. their n1anagcrs haw
hciped to csta))lish hedge funds that an· allowed to do so. because tht·,· an·
not l)anl,s but partnerships, often rq.~istered orl~slwrc for tax-doclg111g pur-
poses. The bigg-est orthe banks then lend huge stuns t1f money to wh,11arc.
m dTect, the11·crcauons, m order that the hedge funds can pla,· the markets
with truly enormous resources. Tlus scale or resources is 1·1Lallv1mpona111
because il enables the speculator to shift prices 111the market m the direc-
tion he wants the pnccs to mm·e in 1hrough the sheer scale or 1hc runrts
involved.
\Ve will return to this issue or market power later. But II 1s 1111porta11tto
slress the capac1tv or the heclge funds to use huge loans from the hanks and
from nrntuai funds to play the markets. These borrowings arc k1111w11, m tile
_jargon, as ·1c,·erage·. According to HvIFstudies, hedge fu11clscm b,: usmg, at
anv one time, loans twe11t\' umcs thell' own capital. Soros. boss or one of the
biggest li.111cls,
has said he was aiJlc to gain leverage fif'ty Limes l11scapllal for
his operations. But it now turns out that Long Tenn Capllal i\fanagemc111
was able to be icveragcd '.!BOtimes !ls own capital. WiLh a capital base of $'.!.fi
billion ll cnuld, in other words, w1clcl ahout SliOO billion of funds. If we
bear m mind that the Lola) capital of US hedge funds m 1~)97 was esumated
to be about $'.\00 billion and assume Lhat average leverage 1s fifty times the
c;ipllai base, we get a total financial power or a staggenng SI fl,000 billion -
a speculative strike force of tills dimension or iarger II.is thus been built up
al the vcrv heart or the American system. And IL 1s a force which is com-
plcteiv unreguiated.
The linal structural change III the US Jinannal s\'st<:'111 during the las1
quarter ora cemury has been an enormous grow1h in its cxchangl's w1th the
rest or the world. All the key piavers m the do111es11rmarket - the nrnt 11al
funds, investment and commercial banks and tile hedge funds - ha\'e
become more or less heavilv itll'Ol\'cd 111 international business. Till' most
dynanuc sector orgrowth has been the foreign exchange marl;,ct and the
foreign e~change dcri\·at11·es marl;,ets, which arc overwheln1111gh· unregu-
lated OTC markets. At the same time there have been huge growths 111the
llows or li.mds illlo and out or the .--\mcrican financial markets from around
 the world and the big .-\mencan inslilulions ha,·c spread their ol1ices across
1hc giobe as other linanc1al markets have been pushed open.
Two g-cneral co11ch1s1011scan be drawn from this bncr summary: 11rst,
the securities markets Ill the United Stales have become very large in terms
or 1he \'oiumes or busmcss which 1ake piacc 111them 111 normal umcs. This
g-1vcsthem a qualiL\' wlrn:h 1s htghlv pnzed by the holders or inLcresL-bearing
capital: the markets arc, 1n normal umes, htghlY liquid - in other words,
am·onc wanting to sell and lea\'c Lhc market can normally do so very easily,
,1ust as am·one 11',\lltmg-to Im,· can casih· find a seller. But the Sl'Cond con-
dus1on is that. the rnner structure or the whole linancial S\'Slcm has become
stra1cg-1cally vcn· vulnerable Lo crisis. ,\11 the accumulated expcncnce of
credit svstcms under capualism p1>111ts to the fact that the American linancial
markl'.lS ,u-e far more n1l11erable to a hideous collapse as a result or the clis-
11Hegratim1 of"the regulaton· order, the increasing cent.ralitv or the secunues
1p;u-kets, the huge growth ol' extremelv nsk,· Ill'\\' types or scn1nucs and Lill'
extraordinary nsc LO dommance w11hm the whole s,·stem or speculative
rumls. En:11 in the banking sector where strong-er reg11iatorv superv1swn 1s
supposed to pre\'ail. this control seems to ha\'e iarg-elv brol;.en down. O1w
recent surve,· found that onir three 0111. or 100 LIS hanks were obscrnng the
reg-ulatorv rules fully.
Tht: question Lhcrcfort: arises as to whv the Amencan state has allowed
this set or dcvclopmcnts to occur and c0111111ue11nrhl'.Cked. The most
stra1g-l1tforwarci answer as to wlw tlus extraordinary strategic nilncrahilit\'
has been allowed LO spread through till· US linancial S\'stem is that 1he rcg-
11lators thl:mselves are cioselv linked to the ()lg spt:culators. The US Treasury
Secreiar" Roben Rubm is himselr a speculator lw professwn. since he comes
from the management or Goidman Sachs. Ga·l·11span ,ll 1he Fl:rlcral Resern·
l1as spent Ills whole life plavmg the markets when not 111go\'ernmcnt.
Federal Reserve Boani members mm·e continually 1hrough re\'(>iv1ng doors
between Wasiungwn and trading 011 the markets. This explanaturn 110
doubt contains an important truth, vet so much 1s al stake 1hat one might
expect the other areas of will formal.Ion w1thm lhc Amencan stale 10 step 111
and assert control: the Prcs1cicncv and Congress. for example.
A second cxpla11atio11 m1g-ht be that thcSl' other mstances or g-0H·n1me11t
have themselves become dependent upon the linannal operawrs for cam-
pa1g-11runcis: the\' have in larg-c measure become the cro111c.:s or Wall Strel'.I.
This 1s ractuallr true. As Rothkopr has rlcmonstrawcl, Democrauc Panv
Chairman Ron Brown pomtecl out to Clinton the importance or cle\'eloping
econonuc polines that would appeal to Wall Street in oi;der to Lap into huge
pools of potential campaig-n funds there. 17 Tlus agam, 11tidoubt, has force,
but there are other 1mmcnsel~' powerful centres or American capualism out-
side the fi11anc1ai markets, wluch wo11Jclsure!\' ca\'il if"the decisive control of
the political establishment had been m/J/url'fl I)\' specula1i,·e linann·.
 THE <a.cm.-\l.lS,\TION c;:\;..1111.E

Yet another expianallon mtghL be LhaL all Lhc strategic sonal groups
\\'1Lh111 Amcncan socieLy have Lhcmsei\'cs been caplllrcd lw Lhe insti11nio11al
ctvnamics or Lhe linanc1al markeLs. The 111co111c and wcalLh or Lhe managl'-
mems or Lhe h1g corporaunns have become Lied to future pnces on thl'
stock and bond markets, they have lll\'estecl their sanngs in Lhe im·cstme111
hanks. muwal and hedge funds ancl ha\'e hecn resLrucLm·ing their o\\'ll cor-
porallons to make Lhe augmentauon of ·share-holder value· their gm·en11ng
goal. And Amcncan ,,•orkcrs also have come to rciy upon Lill' secunLies mar-
kets for their pensions, heailh care and even their wages, which ha\'e been
111<::reasmgiycombining cash wllh senmues. Any reg-ulaton- dn\'c would
111c,·11ablyhave a depressive effect on current activiLies and would tilereforl'
cut off the poliuc1ans mvoived in pushing- for the reg-uiauon from 1mpor1a11t
and broadly basecl political constilllcnc1es.
This poliucal barrier is then powerfully httllressed by Lhe renticr 1dcology
or la1ssez-fa1rc and free markets. Bul Lhc power or ideology should not be
cxaggeraled. The lives orworkers m modern capnalism an: Lied LO capnal
not emir through Lhc wage reiauon, but aiso Lhroug-h the sanngs reiat1011. If
the sa\'lngs relaLion is mediated Lhrough the stale, as in Western Europe.
workers·· sccurily is less uecl to markcL developments and renucr mLcrests.
Bul iflhc sanngs relaLion is in Lhc direct c01nrol of pnvate linancial markets,
Lhen workers Lhemsclvcs acqmre a rcnuer interest.
Such docs, indeed, seem to l)C the political siniauon wllhlll Lile Un1tcd
States in Lhe 1990s. IL1s 111 iarge part the result orLile atLempts by successin·
adm1111strauons to expioiL the D\VSR 111 supposed American capitalist 111tcr-
csts. WheLhcr IL has strengthened the foundauons of US capitalism rclaun·
to oLhcrs we shall explore below. Bul 1Lhas had spreading narcouc and
acldicuvc effects through Lile US clomcsLic poliLical cconomr and has grcatl\'
encouraged the di"ifr towards f1nancial nilncrahiliLv.
And wllh the arnval of the Clinton aclm1111smtuon the evolved DWSR has
become more Lhan an instrument for gainmg quantitalivc molecular gams
from US linanc1al and monclary dommancc. It ltas become radicalised as
Lhe acuv1st programme for cstablishmg- a world impcnum and II has also
found tis place al the very hcan or Lhc Clinwn admm1stratwn·s political
slratq, 1-y for worid order.

III The DWSR and the Dynamics of Domestic

Socioeconomic and ldcoiogical Change

Tl11SaccounL or the impacl orLhe DWSR on poliucai economics has al c,·cn·

stage poiri1ed wwards the way Lhc rcg11nc, Lhrougll the media don or politi-
cal cconom1es, Lransforms socioeconom1c struclllrcs wiLhm Lile slalcs or the
world. ILdocs so I)\' g-cncratmg social conflicts within stales. conllicts which
1he DWSR ensures do noL take piace on a lc\·eJ playmg field: certain social
groups w11h111a stale c.111exploit the DWSR in crisis situations in order to
strengthen thcll" clomcsuc, poliucal and social posnions.
We can present l11e pauern \'Cl'\' schemallcallv: when a linancial crisis
occurs, ccna111 social gnmps can g-ain from 11'1-IF/vVB rcsln1c1unng propos-
als. i\·lonc,·-capnal can escape to \Vall Street and the restructuring package
will tend to streng-th<:n llS clollll'Sllc social posllmn: p1wausations of state
mdustncs to restore slate finances again benefit those sectors nfthe capital
class wnl1 access lO large funds of monev. Export sectors can benefit from
the rcstrucwnng package as w<:11,ancl capllal as a whole Jincls i11the HvlF
package a war or imposing Its rule over other, suhordinatc social groups.
The sectors of domestic capital that are weakened are those engaged in
1111por1-suhs11tu11011, while those supplvmg stapic products l'or domestic mar-
kets will Lenci lO be taken over by foreign m11lt111a11011ais pronded wnh new
ac::ess Lo domestic assets by the ll'vlF package.
None of these outcomes 1s t111iomal11: Lile\' clepe11clupon domt·suc poliucal
struggles between social groups, political s1n1gglcs whose outcome depends
upon the political strucwre of a stale and Lhe balance or political forcl'S
wnhm 1t al the turn: oJ' the cns1s. And desplle the li'vlF/WB efforts lo impose
a one-size-lits-all standardised package. the exact algcbr,uc li.1rms (1101 to
speak or the anthmc1ic 011<:s)orthese outcomes will van• from one state 10
another. To take an obdous example. there ha\'e been great \'a nations 111 the
aig-ebra or p1wausauu11s 111 1he former Sonct Bloc. And the impact or th('
outconw w1thm the soc1etv 1s typically a new round of' sonai and political
conllict involving- a backlash agamst the outcome. That 1s wlw the snctal and
institutional engineers or the I1\·IF/WB make great clTons lo ensure 1ha1 tlw
package is robust aga111sLexpected backlashes. 1s
Nevenheless, tile gencrai trend has been one ol' at least parual success in
social transfor111a11011for the alliances ol' domcsuc sonal groups and tht·
li\·lF/\•VB. This does not or course mean sustained macroeconomic s11cccss-
l;,11'from it: new lTlscs are 1.yp1callv.111s1aro1111d the next IJcnrl 111 the road.
But whatever the go\'ernmenl thrown up br 1hc backlash, 11 will face a new
sonai baiance or forces 111 lls society and one which IL will largely have lo
accept ii' ii wishes to a\'oid new linancial turmoil - pantcking the markets.
Thus a clccpe11111gsonai transl'ormauon or the internal sonal dn1amics or
states 1s produced hy the DWSR.
These changes then feed hack 011 to transnatw11,ii 1dcoiogtcal life. The
dt:cpenmg transna11onai sonai G/nd1sdut/11111ggenerates an 111creasi11gi111er-
11a11onai com·crgence m the liclci or ideolo1:,r-y.whose b1ghest expression is
the '\Vash111gto11 Consensus·. The ongms or the consensus at Jirst sight
appear 10 he a mvsterv. It 1s presented as the result or a purely 111wllect11al
learning cu1Tc: how people have learnt that so-called sta11st strategies do
1101work or do not work as well as 'free market' n·1111er s1ralq.{1cs. Ye! this
 Tl n: ( ;1.011.\I.IS.-\TION ( ;_.\\I111.F

explanatu111 for Lhc n>J1Sl'11s11s ca1111Dtlw tn1c. SIIHT the old stalls! stratl'g1t·s
secmc<I LOwork hcttcr 111 the p;1st than the 1ww free: market s1r:11cgll'Shan·
work.cc! in the contemporan· pL'nPcl (the last quarter ur a n·n 111n). And t ii,·
Dilly rcallv dv11am1c cco1101111t·s111thl' tTcc1ll pcnorl han· lwc11 thosl' Pr
East and South-East Asia. some nf wh1d1 h.t\'l' had h1g-hh· statist stratl'g-.r
mecha111sms.
Thc truth. of coursc, lies m u1r11111g- the relation hct1,·cc11the ideal and the
material upside clown: 1t was not the Washing1011 Consensus idea that 1:111gl11
people to transform social relauons; 11.was the matenal 1.ra11sfon11auo11sor
soe1ai relat10ns which produced the powcr or the Wash111gto11Cnnst·nsus
idea. And the whole process was dn\'Cll 1101hr a quas1-lq{al regime orrult·s
and norms and prinnp"ies m an 1ssut.·arca, hm by the mtghtv material forces
of money and finance 111the ()\-\'SR. :\s soon as 1h1s tr,111s11a11011ai soCl\ll'l'o-
110111icreg11nc stanecl to cr;1cl;, so 1011wouid its rdkntun in the \Vasl1111gto11
Consensus.

Nv/1•.1

I. Ruth Kdh·, 'Dcn\·at1\"es - :\ Crrn,·111g Thn·at w thl' h11erna11"11al Fi11:111nal S\·S1e111 i11_I.
;>.titchic am!J. 1.;nc,·L" Snuth (eds.), Marwg,111,;th,· (;/,,/JIii l-.'rn110111r (Ol 11'.l!l!l:1).
~- The spo111anc"ns rauoualit\· for (;cn11a11 capnalism \l'llt1ld han· r<"q111rl'd a smaller mark
11111011, wi1ho111 the l\lecli1erranea11 e1111111n<·s. ;11ul w11h a11 eastward one111atio11. B111c ..n11:111r
was pu.,hcd politicall)' 11110the hi!{ El' nu>11t·tary 111111,11, Sll111L·thi11!{
which "·ill n·q1111T a lll:\l"r
ac!j11s111w111 crlhl·r hi' Gcr111a111·(lina11nal tra11sJ'l'rs) or h)· the 1'.I..di1,·na11ea11 1·rn11111ws.
:I. On this sec I. ;>.I. D,·stl,·r arul C. Randall l·l,•11111ng, /)111/,,r /'olii,r.,: l·.'.whflllJ.;I' 1/11//'
l'oliry11111/:i11g111 1/11·l'111i,.,/ Slf/11'.1 (lnsllllll<' l,,r l11ll'r11atm11al En>11um11·s, I!IH!I).
·I. U11clcr the l)\\'SR gm·cn1111,·111s,·xn·pt th,· US, c;,•r111a11y:11ul.Japa11 c;111ha\'l' u11lr two "r
the follmrnrg three fcatnn·s: co11trul O\'l'I" ,·xcha11~l' rates, full lioa11nal muhilitl' a11d i11dq1t·11-
dc111 11w11c1ary polic\'. On the g,·11.-r:d pn11r1pln, set•, for cxa111ph·. Charil's \\'yplo,,.
G/"/111/i:n/1:i,11111n11/ ,\litrli,•is (///II Fi1lf1111-wlCi-ii,·,, papa Ji,r For11111011 D,•ht a11cl lknclop1m·111 .
.-\111,1crcla111,l1>-17 l\larch l!l!IH.
,,. Th,· hugi· ,·xpa11s1011 of thl' ,rop.- 101 prl\"at,· li11a11,·,· 111pc11s1011s ,·tc wu11lcl rl'qt11n· a
\'cry l:trg-t·,:xpansu.u1 uf SL:"~:unli1...•!-. 111ad~l·ts. would undt..·r111111t· h,uil~·corporat,· ~c·t·tur litd~agl·~
:mcl op<·II E11rop,··s coq,,,rat,· S<Tlur l<,r acq111s111111is h1· .-\111,·rrc:111
li11a11n· Cl(lllal.
Ii. Thl' clata used hen· :i.-.· ln1111 D:1111 R11clnd., ·c;Juhali1a111>11. Sor1al C11111lic1 ;111.J
En>1111m1r (;ruw1h', rt'\'ISl'cl \TfSIOll of 1111'l'n·hi,1'11 I .,·rim,· d,·lin·n·d at l IN( T ..\D. I ;,-11<·y;1,
~-I Onolwr l!l!Ji.
7. S1a1emen1 hy Elinor· C:011s1ahl,· 111thl' L:s I-11111"·11flfrprl'se111a11n-s, lu1,·rna11011al lla11I.
l.1:11cli11g (Washington nc, CPO, I\IH:I l. I'· :,H. q1101,·d 111Kaps1,·111, (;,,,,,.,.,,11,gth,· <;/11h11/
Jo:rn1111111y.
8. ;\ cn1nal fac111r m !Ill' ,·apac1t1· 1t1 mak,· ,wifr rl11111,•stu·;uljuS1111,·111S 1s tht' do111L·s11t·dass
halam·c of li,rces. It Illa)· be that the Eas1 :\s,:iu s1:11"s h;ul a far greater capacm· tcr 111111<,s,· 111..
costs of ac!j11s1me111011 tin· worki11g class 1ha11 i:m1111n,•s that li1il,·d 10 aclj11s1.
!I. Sec Charil's \\'\'plnsz, (;/o/111/ivdFi111111,wl (.'ri,,·.,.pap,·r r"r Fon1111 011
,\1111}:d,111ulFi111111,·11,I
Debt and lkn:lop111e111. :\mswrda111, l1>-17 7'1:1rd1 l!J!IH.
IO. Da11i Rodnck. 'Clohaliza11011, Sona( Cunllin and Ecouo1111c ( ;ro\\'th'.
11. The ilkxican cr1s1s was also 11ltl'res1111g as th.- lirst big hlmr-u111 l)l'l\\"1'<'11th,· LIS and
\\'cstern Europe within thl' 11'\IF. i\kx,co 1ra, a ,·11;,I US puliur:tl i111en•s1 so II was ckll'rnuu,·d
to stahilisl' II e\'cn if that meant 11s111~11,·c1·$~0 hillion of \\'est E11rnp,·:111morW\' 111d11 s11.Tlw
\\'<'SI E11rnp,·a11s said lh<"rc \\·as 111>glob,,! 1hr.-a1 fr11111\l .. x1c11 lo th,· 1111<·nr.11ronal li11:111nal
.,1si,·111so the L1.'i ,h1111ld pa,· ;111<1 th<" IIIS 1nmld .~rs,11111111v hriclg:111g1111>11<e1· while the LIS
h11111,·dli,r 1"1111cls el"·1dn·n·. 11111 T1t·as11n S,-.-n·t:in· llc·11s1,·11 pnsuaclt·d l\lidu-1 Camclrssus of
1111·L\IF 10 a1111111111n· p11hlich· 1h;111ht· \\'n1 E11r11ptea11s ,.,,.,.,.1"11111'
<"lllllllltt1111g:
1111,monc·y. lllll
proncling llllh- hrulg111g: 1111111,·,·. Thi., nn·:11ll 1ha1 if the Europeans p11hlid1· s,·1 1(1<·record
s1ra1gh1. 1hc1· n11ild han· 11pp.-tl ;-.ft,x1n, un·r Litt· dilf and C:ll11ldthus haw h,·c11 hl;1111edfor a
101al n,llaps,·. For the lirsL t11111· 1111;..1Fh1,tllr\', th,· 111111111,·s uf all ll\lF board 111ri:1111g ll"t·n:
mad,· public lll.'ca11st·E11rnp,·a11ollir1,1I, l,·ak,·cl 1he111to d,·111t>11s1ral<' that 1hc1· had uni l'lltl'd
for thl' hail-0111 (h111had ahs1:11nl'dl.
I'.!. :-.Jamn Woll", 'The Ins and Olli,; 111" C:ap11al Flows", Fi11r111n11/ Tim,·.,,Hi.J1111,·1!198.
1:1. ·1;Johaliza11u11 and :\s1a: The C:halkngcs f.,,- Ri:g1.,11al C.,opl'ra11011 a11cl Lhc
l111plirnt1011s l,,r Hung: Kou:.:, address h,· l\lid11·I Ca11uless11s, \la11ai-:111gDirectur ur the
l111,·r11a11011all\lo11e1ar\' F111HI,al a n,nli:n·11ct· spo11s11recl hv the l-1011g Ku11g ;..1011,·t.tn•
.-\111l11,n11· a11d th.- IMF t>II 'Fi11a11n:il l1111·gra111,11 111Asta ;11ul th<' Roi<- ul" 111111gl~uug·, I long
1-i.ong:.i l\lard1 l!l\li.
I ·I. l'cr .Jan,bssu11 l.,·cl\tr1· 011 .-\-i:1111111111c1a1·y r11-11pl'rat11111h\' .fos,·ph \'am. JI'. Chil'I.
Ex,·c1111n·of till' 1·1011µ; Ko11g :-.111111•1an· .\111hon1y. H1111g:Kong. '.!I s..p1emh,·r 1!1!17.
l:i. This central role: l,,r n·rl' latg:<· 11a111111:1I hanks 1s 1n11· 11111 u11h· 111.fapau. Fr:111n· autl
c;,.r111a11y(which has ;11'0 l1ad ,11011g L111d ha11ksl h111also III the llK and 111th,· li,rn11:r
llnush clo1111111011s Iii.,· Ca11a<la. Ital\- al1111t·;1111u11g th,· l ;; co11111n,·sappro;1t·l11·, 1111'L'S i11us
l;u·k 11fslro11µ;11at1011alh;111ki11gpill,Lts 11111sli11a11nal ,1n11·111n·.
]Ii. It IS, or l"l>lll"SI', 11"111' Iha! "IIIH' p,1r1s of th,· LIS li11;111n;1I Sl'Sll'lll r,·111:1111
s11hj,·r1 Ill whal
UK oplTalors would n·~;1nl ;1s h·nH·11n1s and 11.~h1nuurul: 1h,· p11\\'<.:rs ,,r 1l1t·Senir11·1l S and 0

Exchange ( :rn111111ssioJJ an· 111JJ1>t•1,sc. 1\1111h,·,· n·g11b1,· th<' acll\'lli,·s of 1huS1· 111n,ln·rl i11tht:
stock l'XCh;ulgl' uni\' frrnJJ 11H';11,gh-11i"pns11nal pr11hi1r aJJrl 1101li,r fill' p11rp1is,· uf 11111111111,-
tng 111acnu.:cu1101111c nsk.
Ii. Rothkopf. 'Ikyonrl ;\l,11111· ,\li-1-r,1111ilism·,(Co1111dl nu F11re1gn Relation, pap,·r. I \1!18).
I 8. For ;1 rletailt>d a11cl J;,irl\" nu11pr1·h,·11s1,·e suney of the 1ac11n 11sl'clfor at11·111p1111g 111
mak,· lhl' social rng111e,·rn1g roh11s1 ;1ga111s1backlash, S<'l'.J.\\'illiamson (I'd.). Th,· /'oliliml
1,·,-,11111111\'
of"l:i"tmmmt' U,:Ji11·111 ( l11s1111111·1<,r l111,·r11a11onalEn,111>1111cs, I !19ti).
=========5=========

Power Politics, the DWSR and

the Clinton Administration

So far we have allempted to explam the mechanisms or the Dollar-\Vall

Street Regime, Loshow that 1t reproduces it.~elfas a polillcai as well as an eco-
1101111cmccha111sm, steered bv the.101nt acuons orUS go\'ernmcnls through
1.hcJr dollar policies and controi or the Iiv1F/WB and or the US-centred
mtcrnational linanc1al markets. \Ve have also u·iecl Lo trace m rough outline
some or it~ effects upon national political economies and the social struc-
tures of slates. We also sought to m1111mallrdemonstrate, from the war both
US dollar policy and the US allllllcle LO international linanciai rcgulauon
and Lo the roles of the ll'vlF/WB have operated, that the DWSR was run from
the angle of US nauonal inten:sts. But the quesuon we must ask is: how are
we to understand national interests under contemporary capitalism? How
can we arrm: al a general conccpn1alisauon or the political and econon11c
1111eres1sof a leading capitalist state? This is the issue which we want to
address now 111 order Lo try to provide a framework frff understanding th<:
radical ac11v1smor the Clinton admi111stration m us ellons in the intcrna-
t1011aipoli11cai econonw.

I National Interests and International Challenges

A/a111slrl'fllll ·n,nm,·s o/Stflll' /11/l'rl/fl/lO/l(I/ Froll0//1/(" ln/1•rt'.1"/S

ivlainstrcam economtcs and political cconomv tells us that the ccono1111c

1111crestsor capitalist states should procluce 1111 intcrnationai poliucal cunllin
whatever about cconom1cs as such, except li:>rtransitionai ar!justllll~nt f'ric-
uons, pronclccl a state;s poliucal leaders act in their own rational
sclf:interest. These 111terestsare clelinecl as the lc:.11Iowmg: first, growin~ long--
term prospenty ii.ir their domestic populauon throug-h raising domesllc
productivity - lug-h productiviLv in one state does not weaken 1hc cln,·e for

(j()
 l'O\\'ER l'OLITICS AND TIU: CI.INTON ,\D.\11:'\ISTR.-\TION Gl

higher procluc11vil\' in others: second, exploiling the advanLages to be

clenvccl from the mterna11onai clins1011of labour by adhcnn!-{ to free trade;
and thirdly, m,w11amrng- co-opcrauon wnh othl'.r !-{O\'en1mcnts m a11crfon
10 mana!-{C cffenivelv inlernatiDnal macrocconorn1c !lows. \.Vith growing
prospcnt\', the statl'.'s own revenues will nse, !-{l\'lllg·IL great intcrnalional
political power. SD, accordin!-{ to 1h1s view, the 111tcrnaL1011al111Lcrcs1sof
states arc essclltiallv har111on10us with those of other states, provided the
others retain similar. open rational policics. 1 Thus. the mainstream thn1ry
sug!-{csts Lhat. Lhl: auempts h\' states to enga!-{e 111poliucal mten•enuon 111
111ter11atio11aleconomics arc the result or ccnain special interests within
the slate trring to use their political inlluencc 011 the gm·crnme11t for 'rent.-
seeking' acl\'anla!-{cSwhich are actuall\' damagmg for the wider economic
II\ tercsl.
ivlainstream economics docs acknowledge tha1 ac\justmcnt tensions c.111
arise between states as a result of internallonai payments 1mbaiances. These
call resull Ill states being tempted to unpose protectionist restrictions 011
imports or subsidies for exports in order to escape the need ror domestic
acUustmcnts. A robust international set of rules 1s needed to pre\'ellt such
ulumalely sell~dc!catmg attempts I)\' states to escape Llw need for 1nten1al
ac!justmcn l.
Mainstream theory then adds extra suplusucauons c01111ec1ccltu the sup-
posed rise oJ' economic mtcrdependence, wherelw the clomesllc ac11ons of
governments can have unmLendcd transnauonai spillover dfects w11hm
otl1e1· domestic poliucal economies and these Lhe11reqmrc the de\'l'lop-
ment of 1ww mten1at1onal l'l'.1-{imesfor co-ordinating- 11atio11alpolicies in
more and more fields. But such extra dimensions arc presented essentiall\'
as technicai responses to techrncal prohicms wnhm a basic fra11H·wo1·1;. of'
deep harmonv between the national ec01101111cinterests of powers.
This mainstream economic theorv dovetails well with mamstream plural-
1st politicai snenre. This news poliucs 1n a liberal ciemocracv as a
competition be1ween parties for the votes or citizens whose prel'erences arc
grndecl bv a sell~regarding concern to maxm11sc their own welfare. Since
such welfare 1s conccrnccl wtlh mcreased 111div1duaiprospentY, ,·1ners push
gm·crnments to di1·ect all their efforts towards econom1c growth anrl
nauonal prospenty. And governments will thus gam thcll' optmn1m political
pav-uffbv pursumg- these !-{Dais111 the wavs prescribed hv liberal cco110111irs,
which holds the key 10 assunng their popuiauons prosper11v and thus prn-
dunng sausJicd voters. Agam. there are dan~ers that parucular g-roups of
\'<>t.crswill tr\' to capu1re the poliucal process in sea1:ch or 'rent-seeking'
arl\'anta!-{es whll'h will enhance the private welfarl' or sectional interests at
the expense or overall welfare max1111isat1011, but these spenal 111tercs1scan
he and should be suppressed throu~h the appropna1e clcs1gn of svstcms of
democratic accountahilin·.
 Tl IE (;[.OI\AI.IS.-\TION (;_.\~IBI.E

These lllalllsLrcam cco11om1c ,md poliucal sc1c11ce\'ll'\\'s sll sligl1tl\' 1111t·asil\'

with Lhc mamsln~am lnlcrn:nional Relations 1hco1T or 'neu-n.:alism', 1his
argues that states arc dn\'cn bv Lite mcscapabie charactcnstKs ur the 1111cr-
stalc systclll 11110a stn1ggle for rclauvc power - puwer relative lO 01her states.
Because states exist as isolated cntnies i11a11anarchic world where securitv
can be guaranteed uni\' bv each state max1m1smg ns own power rcla11,·c ID
other states, there 1s a ceaseless s1ruggk betWtTll states for puwcr.'.!
Rcconciliauon between these mamsLr<:am disnplines is ad11en·d 1hrough
the Neu-Realists' claim that m this ceaseless power s1r11ggle, states arc 111tcr-
ested overwhcimmgh· m the comagc or militan· capantv: eco1101111cs1s or
Jillie mtercsl lo them.
But m recent years, neo-merca11tilisl theories have cn.1oved a rev1,·al
agamsl mainstream liberal polilical econ om\'. This 1s less a cuherc1ll body or
theory than a view that mternational economic outco111es arc prufoundlv
shaped bv mternallonal poliucal condiuons all(l forces.: 1 But from 1h1ss1art-
mg poml the neo-rncrcamilisLs arg-uc Lhal the hierarchical i11Len1ational
division orlabour 1s 'path dependent" and is 1101the prncluct of spomaneous
free market outcomes. This path dependency 1s established through states
mampulaung marla:t.~ LO prevent the 'normal' opcra1ions or international
markets, as em·isag-ecl by liberal international economics. As a rcsuit, then.
or the 11npact or the mter-state system on 111Lt~n1:11mnal markets. there 1s an
mevnable poliucai struggle for nauonal prospenty between sta•es as each
state tnes Lo use ils external political inlluence Lo manipulate !ls external
environment for national advantage 111Lrade. These kinds ur views can
accord with neo-realism but clash with mamstrearn 11eociass1cal ec01101111cs
al a cogniuve level (even if those holding a 1wo-mcrcantilis1 new or what
actually happens share liberai views as to what should happen).
The problem wtth Lhese differelll theories is that while they seem to pro-
vide explanalions or much or what goes on 111 mternallonai rclauons, thcv
also seem to n11ssa grea1 deal. lVlamstream economics rcmmds us or the n·11-
tral ,mponancc or clomestic productivil\' and ol" Lhe value or internationai
macroeconomic co-orclinauon. But it ieaves an cx1raordinarih· large l)urdcn
on the idea orwclfarc-destrucuvc 'rent-seeking· 10 explain the great swathes
ofacuv1ty in the international political economy which clash wnh !ls nurms.
To take a simple exampie which 1s complete!\' 11Tat1on,d from a ma111strea111
eco11om1c pomt nrnew: the wild clancc or the dollar ll\'Cr 1he last quarlL'r or
a century has been completely irrational from a mainstream new: can 11.
really be explained lw l.'.ertam groups ·n'.nL-seekmg':. And ir ll is tti he
cxplameci like that, surciy sonw groups seek re111sfrom a high dollar and
others from a iow dollar. So how do we expla111 the seeming- mustcal chairs
among rcnl-seekers within Lhe span of single pres1clcncics?
As for neo-mercamilism. it offers an cxpla11aum1 or en~rythmg that 1hc
mainstream fails to explain hut bv the same token fails Lo explain evcrv1hmg
 1'0\\'ER l'OI.ITICS :\ND THE CI.INTON Am!INISTR-\TION 63

that the ma111sLrcam docs explain - the m1xLtire ol" co-operation as well as
conllicL between the greal capnalisL cconomtcs. Neo-mcrcamilism would
suggest. that I.here should be a stale of almost pcrmanl:nt. cco11om1c warfare
between the ma111cap1talist states. Yel the degn.:es ol' tensions between them
varv gn.:ativ through ume and across space.
To makl'. sense of Lhe nauonal 111wrcst Ill ccononucs, we will suggest that
1hes1.:t.heones suffer from a common weakness: Lht.:ylack any mediation
between the 'economic' and the 'political', with the t.:conomic ddined as
·growth-. · prosperllr . jot)s or prncl11c\J\'1Lv. The\' thus Lal,t.:ii.ir granted what
net.:ds to be mvt.:sLigaLcd:whal kinds or social inslillllions actually control
acct.:ss to ·growth· etc.? Whal arc their compulsions and how do their com-
pulsions and interests operate Ill domesl!c poliucs to structure the ddirnuon
ortilt.: nauonal in Lcrt.:sL?\Ve need a theory which includes these social medi-
ations between the ·economic· and slate political acuon on economic
mallers. One ob\'lous such mcdiauon ts prondecl by the concept of mj1itnl-
whtCh gi\'es a lwisl to the heha\'Jour both of the economy
Is111as a .mrwf .Iysi1•111
and the state.
We will not allempL here to furnish an alLernauve thcor~' or the nauonal
mterests of rn/1itnfisI states: 1.h1swould require a fullr fledged theoretical
altcrnall\'e to mainstream sonal science. We will simpl\' sugges1 some con-
ccplllal rules of thumb LhaL ma\' help Lo produce a more 11ua11c1.:d
appreciation of' the extent Lo which powerful capnalist states may define
1.he1rnaum1al econon11c m1ercsts Ill wavs LhaLallow for bo1h the cn-opera-
uon sought after bv ma111strcam economics and r,ir the conflict slressed by
11e<>-mercantilism.

A Ho11Kh o/(.'a/niafisf Sia/I'S' Nat1011al lni1'rvs/.1·

C:011re/1I
111lni1•n1a/w11al frn11011111"s

Within a capitalist ec01wm\', elected politicians surely do want what main-

stream economics savs LhaLther should want: ever-i11ghcr prociuctn'llY and
growd1. B11Lsuch maLtcrs ,u-e not directlv Ill Lhe gonTnmcnt's hands: Lhcy
are in the hands of pdvalc capital which owns the procluc11\·e iabour.
Democraucallv ciened poliuc1a11s, 1herefore, must ser\'c tile special needs or
the empiovers or capital, because Jt 1s this group which takes the decisions
about whether there will be 1m·esLme1lland gn,wth. Thus 1iie 11auo11alinter-
es1 111 eco1H11111cshas to bt.: co11ce1vecl as the 11a11011alm/nialist interest,
msufar as the capllalist sonal group exernses sm·ere1gtll\' o\'cr economic life.
Pnvate capllalists do not wmH growth as such: Lhe\' want capital growth
and security. And these goals do not have to come from acL10ns whose end
result is expanding naLionai producu011. Thev can come from one capitalist
concern extending- i1s control over exisung- producLHlll 111 the seClor. lrLhey
(j.) THE <:!.OB.-\l.lS.-\TION (;,\/'.1111.E

face compcuuon, liicn one of Lile wavs or tackling that compcut1on 1s

1hrough a dn\'c IO raise their producu,·11v, lower their unit costs. 1mprm'l'
qua lit\' anct thus ln' to sell more u111tsand theretw attract a iaq.:cr sltart· ol
tht: market. But there an· other wavs or o\'ercommg thc compet1tron: usmg
the size or vour capital for stralcg1c acuo11 to clestrov smallcr n,·als or poten-
tial n\'als or co-optmg your nvais mto a cartci to controi thc market. .-\net
w1t11monopolisauon Ill a dosed cco110111\',1t 1s il\' no means obnous tha1
cxpans1vc 11n·cstn11::1\l for higher outpul 1s the roval roact to runhcr prog-rcss
of' capital growth. And if thc markcl 1salrcaclv san1ratcd and co111rollecl, it 1s
nol o!w10us th.tl vcrv large new investmcllls in new 1Cchnoiog-1cs (the kc\' w
rapid and sus1a111cclproductivity growth) arc rauonal.
Thl' eco11om1c pressures towards 111011opolisauo11 arc \'err strong 111
advanced c.1p1Lalist economics because advanced 1nch1strv Lends to ha\'c
verv high capnai-output rauos (or, 111 l\farxisl tenmnology, a high or,i.{,llllC
composJLton of cap11al). Each extra.£ or
capnai invcstmem produces oni\' a
small cxtra-amot111t of value added. Ven· iarge inn:stmcnts m fixccl capitai
arc ncecicd to enter the Sl'.Ctor and capitalists who make such outlavs nct·d
to be assured orlong-term control of markets 111 ordl·r to 1-ealisean aclequale
return 011 thetr capnai. This kind orcapHalist entcrpnse has certain com-
puisions: to block new entrallls lo its markets; and to control pnces to assure
adequate iong-term return on fixed cap11ai investments.
Another very 1mpon,1111feature oradvanced mclustry 1s the l:1ct that II
tends to benefit from important economies of scaie. Tints, the greater the
market share a company can acqrnrc, the more effectivclr ll can compete
with potenuai rivals. Thus compames have a compub1nn Lo expand market
share to assure maxnnal scale economies.
In earlier conclittons of many small capJtals compeung wnhm dmncst1c.
pluralistic markets, bankn1ptnes on the pan or market leaders have Jew sen-
mis consequences for the state. But if l11gmonopolks colh1psl'. and foreign
mo1wpnlisttc entcrpnses capture tile market. U11shas scnous consequences.
The producuve sectors of lhc national econom1cs of' the leading capital-
1st powc1·s arc mdeed lughly m01wpillistic today. Thev seek to ma111ta1n
control over their markets through blockmg new entrants and through
· ccntralisatHm of capital' - ll1g compames gobbling up small - and through
concentr,111011 or capllal - dcvclopmg prociucuon svstems to gam maximum
scale economies. Stales arc also enlistecl to solve these problems botl) by prn-
\'1ding large siale-markcts li>r monopolistic 111dustncs and by pro\'icling a
,·en' large range of support scrnccs (inf'rastructures. iahour lra111rng, etc)
!'or tllcsc monopolistic compames.
In condillons where the mam market.~ for such ciuas1-monopolis11r 1ncl11s-
tncs arc ex1~anding imernauonallv and where a state's capitals m those sectors
face no senous internauonal compeulion, there an.: likclv to hc hig-h rates or
mn·stment and tccl111olog1cal innovation as the companies conct·rncd li:el
 l'O\\'ER 1'01.ITIC:S :\ND Tl-IE CLINTON :\IH,IINISTR.-\TION 65

assurccl or future capi1al growtll. But where new entrants challenge these
quasi-monopolies succcssli.illv for market share, ,·c1·r great problems can arise:
new iargc im·cstmclll.s Ill Iixcd capital become extremely 1·iskv,profit margins
arc cut br the new compeuuon and cren the big-gcsl comparncs can face the
nsk or bankruptcv- economic collapse.
tr this is a roughlr accurate picture then we can explore Ils implications at
an n1tcr11auonal level. The capHals or the mam capnalist states operate
intcrnationallv for a number of 01~1ecuves.First for raw matcnals needed in
thcu- production process and not available clomesocallv. Some of these mate-
nais arc so ,·nai - energy and strategic goods like alum1111um, bauxite,
copper Cle - that they cannot lea\'e mallers wholh· to the market: their
state is enlistee! 10 use political influence to assure supph·. Another need ts
10 controi mtcrnauonal markels m conditions oflen of acute competition.
In tile face or this, as with securing raw materials, national capnals will 'rcnt-
seek'. Irv to enlist their state in their cause, to heip beat the compeuunn. But
lhe H:rm 'rcnt-seekinif is hardly an appropriate one since H 1s a 111•n's.1mJ,.IJ'S-
fr111irn·q11m•1111•11/111romlillonJ of' mo,wjmlistlf 11valry. And tht~~•have another
intcrnauonal need: to gain access to cxtc1·11al sources or labmll" - cllhcr
vcn' highl\' skilled iahntll" sources in high-tecl1 licids - or low-tech cheap
labour for domg the labour-i11tc11s1vcparL'i or their Ill tern al labour process.
The state can also help 111 Lhcse areas.
Against this clomcsuc capitalisL background we can ask what the rauonal
roie for Lhe given advanced capitalist state 1s. The state is not, or course,
simph· !ls eiccted politicians: l11ev come and gn but the state must remain
anci 11 1s the task or the top c1\'il scr\'anls LO present theff poliucal masters
with the facts: the svstcmic facts or the state's situation and nllcrcsts within
a much longer 1m1e honzon than the eiectorai cvcle. From this angle, the
state must aucmpt to ensure the best possible condiuons for Hs capitalists to
want to 111,·cstand improve proclucuv1Ly and expand output - the malcrial
basis of' the slates own resource strength. Since Il 1s up to capitai whether JL
docs tht~sc ti1111gsor not. the slate has an ovcrwhclmmg 111tercst 111 serving
11smost important capllals. And since these operate internauonall\' 11 must
st'ek to serve thell" 1ntcrnatmnal interests, Insofar as thev send streams orrev-
enue and prolits back lo their home llase and msofar as t.hev extend their
c011Lrolo\'cr overseas markets, the state will co11s1c1<.:r !ls mternational pns1-
11onstronger: the bew:r piaccd its capnals arc m wndd markets, the stronger
its pos111011and mllucnce.
This migh1 suggest that Ill gencrallv stagnant condiLions m the core coun-
ll"ll'S,there will he a war or each against all. tr a slate ·s npm monopolies arc
1hreatcnecl b\' the behanour or the nwnopolist1c entcrpnscs or other states,
there will be acute mter-slatc rivalries. But there tends to he an mtcrnauonal
di,·ision orcapILai as well as an inlernauonal di\'1s10n of labour. Not c\·cry
arl\'anccd cap!lalist state has a big mtcrnaunnal car compa1w. Onh· some do.
 Tl IE Cl .011,\1.ISATI<lN l ;_\;',I Ill .E

The Bnush state was prepan:d Lil g1\'e up the stn1i4g-ll' 10 mamtain its car
compa111es: It h.icl 01hcr 1111cr11at1011al champ1011s (il hoped). such ;1~ 11s
finannal SL'ctor. militarv 111rl11s1nes.ph;1nllacc1111cals 1·1r. l\·b11crs wo11lclhl'
HT\' difft·rcnl for Germany if its car rmnpa111es were bcmg- sh111out of i111er-
na11011al markl'.LS. B111Cermanv 111 Lhl' pos1war period has not mark ;1
lTlllral pnorlly to build a large. mlcrna11011allv dommanL se1 of' financial
markl"IS. Both s1a1es will seek to ensure that the interests or their kc,· senors
of capllai arc well proll'Ctcd 111ten1auon,tll\·. Across most sectors there Illa\'
be a ·capital lit' between 1wo states. Then thcv can co-opcralc. perhaps each
helping- the othcr Ill a.1omt 11cgouat111g-elfon with third states.
The extent lo which ach·ancccl cap!lalist slates can co-operate in thl'sc
ways 1sshown bv the rccenL history of the ELI. and most cspcnallv ll\· the l11s-
llll"\' of' the .Single l\farkel. \,Vhile presented ,1s an at.tempt Lo bn'.ak down
barnns Lo internauonal competiuon w1th111the EU. the Sing-le !vlarkct
e11.1hlcd each member state Lo encourag-e !ls 11at1011aldrnmptons to cxtc11d
their 11a11011al monopolisuc power a11d then 10 lind ways lo co-opcr,llt' 1v1th
others 111thctr sector wllhm the EU. so that thev nn1lcl \\'ork togt·ihcr 111a
mtJ1H>polis11c cliv1s1011 or capitals . Such dli,ns at co-opcrau,·c cartclisa11011
work more easily 111some sectors than 111others: the Sing-le i'vlarket has 1w1
been fullv 1mplcmcntcd hv anv means and canelisation tends Lohe 1111s1ahlc.
Nevertheless, the programme has l>ee11far more successful III mai111ainmg
and deepening mter-state cn-operat1011 than am· neo-mercantilist theonsL
wouicl haw predicted.
AL the same tune, the success of thc EU states 111achie\'111g 1·eg1011alco-
opcration would ha\'e becn impossibie Lo ach1e,·e had IL not been for the
g-real \',due of the EU for its member states as a lever for i111cr11at1011al influ-
ence m·cr the rest of the woricl eco1101m·. Thc EU aCls as a powcrrui
co-opcraun· opera'tion or European cap11als for pressing together for a
m1mlll'r or i11tcrnationai ol~1cctivcs:

1) Each member state can use the Eli's traclc rq~1mc LDbluck co1111x·t111on
from 1mpons mto the EU from the outs1fle.
~) The member stale c.111use the ELI as a \"crv powerful lc,·t:r in 1111er11a-
1mnai rliplomacv concerning the oq~a111sauo11 ol' the 111ternat1011al
political ccononw: using the threat or cxclus10n from the EU market
agamst those external states rcluclanl to open thell' markets.
'.I) The Ell trade regmie does not co\'er cxpon promotion 011 1hc part or
member states, so each can tal,e what measures II wishes to promotl'
the intcres1s nf its mcmopolisLic 11aurn1al champ10ns abroad.

In crn1di1u,ns of stagnation withm the core l'Co110111ics,the search for 111·w

openmg-s m11s1de the core 1sa central preoccupaL1011 and the ELI pro\'ides a
,·en• \'aluahle collecLI,·e scn'1cc J"orl!s mcmlwr states 111this lask.
 )'()\\'El{ l'Ol.rnc :s .\Nil Tl IE CI.INTON .-\D:'llli\lSTR.-\TION 67

T/11· i\'(1/wnal /,J/,•n•.11.1 o/lhr l>o11111l(J11/C:"/nlalisl .\/(I/,'

:\g;1111s1this h;1ckgn,uncl 11·t· rail n,11s1der the 1111eres1sof' thl' dom111ant cap-
llalisl slate w11l11111lw 1111nna11011:il S\'Slem. the Unllt·d States. It gains
c11ormo11s ad\'all1agl's from ill'llll-( 1iw <10111ma111 militar~·-poliucal slate as
ll'l'II ,is from bemg ;1hk IO c\0111111atethe mechanisms of' i11Ll'r11a11onalcco-
n1>1111c111a11ageme11t. Tl11., g1,·cs it rar grea\er capad1ics Ln change its
111tcrnatio11al em·irn11111e11110 its ad\';1111ag-cthan a11,·1>ther stale. Thl' DWSR
1s a ccn1ral example or the pre111111111s or clon11namT. The whole wodd is its
sphere of' i111l11e11tT and il wishes to assure its co11L11111ed do111111ann:through
the urntmm·cl s1re11gth of i1s capuals 1111crnat11>11ally. And II has a far wider
range or sccwrs than ulhcr cap11alist powers m which It seeks to e11sure the
dom111a11n· or its capitals.
For the leaders of' the l'1111cd S1.11cs. a cap1talis1 map or lht· 1rnrlcl looks
1·e1-ydifferent f'rn111a nan1r;II geograpill' map. <..~uamtlll'S of' tl'IT1ton· as such
ha1·<· Jillie s1gnilic111n· cxn:pl 111terms nr geoslratq.~y ;111d the rcsullmg-
hasmg a11cl log1sl1c reqmn:mt·111~. \.\'hal counts an:. 111 Ille firs, piacc, lorali-
ues w11h eco11om1ralh· str;1lt.'!4lr raw n1atenals (oil etc.). Tlll'Sl' must hl' firmly
under crnlln,i ii' possibll': ;1 s111t·qua 11011ror 111a111ta1111ng don1111a11cc. l\uL
othl'rwise what stands out ;ire quill' slllall te1-r1tonal areas: thust· \\'Jill wda\'°s
and tonH>1T01\'·s key pools of" labour ancl kc\' markcls, par11c11larh· lc,r the
decisive seelors or the LIS's cap11als. Command owr l't'.I'\' htghl\' skilled
labour Ill the sectors of the hnure and over the 1llach111es tha, it produces is
rcall\' 1·t1al. But lht'. vallll'. produced by this labour ca11 0111\' hl' realised
Lhro11gh 111tcrnational market sales. In the 11111etcenth century. th1.· markets
for the sale or goods proclun:cl. sa,·, h,· Brn1sh labour. lcncled lO lie sctlll'red
all m-cr 1he world 111the s111all wcalt.llH:r dassl's or t'H'l'\' co11111n·. In the
co11lelllporan· world. 011 the other hand. Lhc realh· h1g markets lt'.nd 10 he
much more n111<-e11tratnl 111small areas where Lhc hulk ol"the sl;,illt-d labour
:1lso lives: North .-\uwnca. 'v\'l'stern Furopc anci.Jap,111. 11li,llows 1ha1 ror the
kacli11g cap11;dis1 slalt' st'ek111g to s1rengthe11 ils capllals. do111111ann· 111llwse
rather rcstncled arl';1~ 1s cr11n;1l. But the lead stall· 111t1s1;dso 1·1t·1\· tl11s 1ss11c
d~•nam1calll' and look ;11where 1hc ke,· skilled labour pools and lll,trkels ol'
the next quarter or ;1 1-c11tu1T;ire likcll' to appear and ga111 n1111rnl of the
hulk 111'1hc streams or ,·;due from 1lwse. :\s for the great mass ,,r1hc L'arlh \
tern ton 1>111s1dethese arl';ls, 1t 1s of' lilllc s1g11ilicancc and the people who
li1T there can he 11r1111111rn-cthan auxilian· lllll'n:st, or e\'en or 110 1111erestal
all. except 111sufar as one has to cm!la111 disturbances and a slicll' i11to forms
or barhansm that may han: 11llt'1'11at1011alspillovers. •
\.\'ith111 t.i11sframework. l)l'n1ml the general principle 0L1ssunn~ the con-
u1111cddominann· ur L'S c1p11alism. we c;1111Hllsay the extent to wl11ch there
will he co111lict or t'l 1-upcr;t11011ht·twec11 the L'S a11rl other parts or the world.
:\11swl'ri11g tha1 qt1l'St1u11 1\'ill dqw11rl upon hnw 11111chor ;1 lit thne is
 Tl-IF. CI.OB:\LIS,\TION G,\/\faLE

bl"t1n-en the need for Lile Amencan stale Loensurl' Lhal Jls cap11als Ill kl'~' Sl'C·
tors clom111atc the kev gL"occono1111careas and what 1.~ going 011 Ill llll'sl'
areas. But we can sa\' one thing: anv aucmpl i>\'a11vpower Lo exclude the US
from havmg assurccl i::ntrv for its capitals mto these ccntrai pools or lahour
and markets, ict alone an attempt Lo throw a nng around that area to
clcvclop it as a regional launch pacl for an assault on US capuals in ki::vsec-
tors, would produce a sa\'agc American response.
Thus, the US interest 1s to ensure beroncl senous doubt that the othl'r
ma111capitalist regmns an: securclv, instilllllonall\' open to Ils capitals ancl
that there is no nst;. or these rq~ions sur1cicnlr becom111g closed to US capi-
tals, perhaps as a transuio11al step to t.l1at n:g1un acqu1nng gn:ater strcugth
111 Lile mtcrnational div1s10n or labour than t11e US has.
The US, 111such c11-cu111stances,need not constantly fear Lhal other parts
orthe world may be growing faster than the US domcsllc economy, as nH:r-
canLilisL~would cia1m: after all tins growth should be a growth for the US
companies playing a clcnstvc roic 111 these areas. On the other hand, ;mv
region which exclude thi:: US while Jt was growmg dvnam1callv would he ;111
ad\'crsarial region.
One Jina) pmnL m n:lauon Lo US strategy shouici, howcw:r, be menuoncd.
Insofar as the US rctamed clonunancc 111 the lina11c1ai lick!, the US a11d tts
capnai would want LObe able to cxi::rc1sc that lina11e1al power 111 order tu he
abic Lo take over captLalisL companies 111 other regions, where possible.
finanoal strike power offers this opportunity for taking over compeutors for
market clommancc, but it does so only if"the leg.ii rules 111the other rq{tons
arc such that hostile takeovers of companies ari:: legally possible. Thus open-
ness shoulcl mean mmc than .JUSLli1c ability or LIS companies Lo es1ahlisl1
thcll" own unclcrtakinµ;s m other poliucai econom1l'S. It shoulrl ;1lso me;m
that the relations of p11oductto11. 111cludi11gthe icgai forms of corporate gm·-
crnancc and the rules for takeove1·s, should be frii::nclly towards such ct"liirts
on the pan orUS operators 111 key sectors for Amcncan capllalism tu mm'l'
111and Lake control ordomcsuc markets.
Agamst tlus background, we can sec that, contrary Lo the arlncc or current
realist thconsts or intcrn,llional rclauons, the US will want LO cut 11s militan-
cloth to lit its drives as ,1 rn/niflfisl slate: military power is not an encl 1n
11selL Bm we can also sec that the great advantag-es which the Unllecl Stall's
couicl dl'rivc from Lile Dollar-\-Vall Street Rq~11nc through us clollllll,lllcl"
w1l111nIt arc br no means a sulfic1cnt condiuon for assurmg- US dtJ1\llllanc1·.
Donunancc 0\"er 111tcr11at1011al monetary ancl linannal rclauons 1s not e\'en·-
thmg. It needs an ancllur 111 dommancc w1th111 the productive sector orthe
world economy ancl indeed wnhoul dom111ancc 111 that sphere, controi over
111tcrnatmnal 'money and linance remains ultimately fragile.
\Ve can thus Lrv LO use our rough theory as Lhl"basts for a set of hyputhe-
Sl·s:
 l'Cl\\'FR POI.ITIC :s .-\Nil THE CLINTON .-\D\IINISTR-\TI< >N

I) Thai 1he LIS gover11111e111, auing rauon,lllr. should wish Lo ensure thal
11scapitals Ill 11s kc,· sectors would gain control 111the most dynamic
regwns or marke1 growth.
~) Thai 111w1ilcl want Locnsurl' that the most clvnamte pools or labour and
of product markets shouid lw maximallv opened to its capitals.
:1) It 11·01ilclreact wnh l'XLraorclinarv ancl emcrgenc,· measures to prevent
1hc nsk or exclusmn from such markets.
-Il Thal 11 \\'ould require insLJLuuons 10 be built that could ensure slruc-
tun.-d do1rnnancc o\'er Lilt: k.evgeograph1cai areas wluch were the main
centres orinternauonal surplus-\'aluc cxtranion.
:1) It would gear 11ssteering- or Lhe D\-VSR towards ach1evi11g these ends,
t•nless II harl other more appropnalc 1ns1n1111t:nlsof statecrafl for
clomg so.

7'l11·Pr1t1,n1 of"lnli'rnaiw1111I Ca/ntafi.1·/ /)_,·11am11:1·

111/ht' l:"ar~1·
/ 9CJOs

In I ~19,1when Clinwn came 11110oHice, alkr 1wcn1vYears or the DWSR, 1hc

US's overall share of the world GDP was ro111-;hl\'111 the saml' posllHlll as 11
had been 1111970. Hut there was a wm-rvmg new svmplom orweakness, 1101
present 111 1970. This wmptom !av 111 the US balance of pannents. There had
been a clclicn 111 the late 1960s and early 1970s. !',111the clclirn at that time
cuuid be t:xpia111ed bv non-structural factDrs: tile \'ielnarn war and the verv
l;1q.{eflow 11110 \Vcs1crn Europe nl"US prod11ct11"t'rnp1tal to tal,c up laq.;c pos1-
t1011sw1Lhmthe EEC market, pt>s1uons which would gene1~1te a h1111rcstream
orearnmgs 111tothe US n11-rt:nt account. But hv 199:~ there was a scnous
struc111ral dclic1t 111 the cu1-rc11Laccount. And 11dcnvcd both Ii-om a 1radc
ddicll and from the need to sL·n·tcc an ever-growing US intcrnawmal debt
position. Thl' .-\mcrican stale had allowed Its debt Lo grow to 70 per (Till or
CDP, The n11-rcnt account bala1Ke 1s 1101a tnnal mdicator. ILtlemonstrates
whether a st;11c·s capitals arc earning more from the rest orthe world than
Y1cc,·ersa: 1The Lradc cieficll pomled LOmcreasmg US compeli11vc weakness
in 11sprnduc1i,·c scctrn: Ir the current account 1s not 111surplus, 1.hen the posi-
tion of" lht: stale\ CUITenC\· Gill lll.'\'l.'r be compictl'iy secure. Or Course,
sc1grnor.1ge from clollar dom111ancl' gives lhc L1S far greatt:r freedom from
1l11spm·me111scons1ramt than anv other state. But 111ss1ill a s1~n ol"weak11ess,
one that could count 111 a cns1s. And serncing- those weaknesses 111 the cur-
rent acco11111had. Ill' the 1990s, come to clepcncl upon the co-opt:rauon oran
·allv (though ont· 1ncreasingfr branded in \-Vash1ngLon as an 'adversarv'"),
.Japan. The Japanese government was helpmg the US Treasun- wllh a con-
flow ol"_lapancsc rull(ls 11110LIS Treasun· bonds. 1i Ont: of Bush s final
111111:il
acts as Pres1clent had been \"el agam Lo 1.rylo bulh· 1lwJapanl'Sl' g-m·t:n11nent
mlo wt:akenn1g llselr to sun the US. 1h1s 11ml' 11vcr compcli1ton 111 the car
i0

1ndustrr. Thl' result was humiliaLmg- for Bush and clisq111e111114 for US eliLes.
The Jap,111csc hacl s1mplv brushed Bush aside and had shown sell~awarent·ss
or t.heir role in ha11krolli11g the us l-{ll\'ern1ne11L.
We musl LhereJ'ore look al what Iav bch111clthis current accou11t wcaknl'ss
and summansc Lhe gcneral snuaLion or US capitalism w11h111the wider
dynamics or inLcrnauonal cap11alis111.A whoie American literalun- has grnw11
up around Lhc Lhesis or what 1s called 'clecli111sm· - Lhe idea Lhat the LIS 1s
following Ill the fontsleps orpre-191-1 Britain down a pnmrusc path to e\'cr-
lasting weakness. Whilc tlus literature was much exag-gcratecl, the
comparison wllh Braam Ill thc earh· part or the cc11t1ir,· is ne\'crtlwk-ss
instructi\'e.
Indeed, Lhe conlemporarv pauern or poliucal-ccono1111c lllltTacuons bore
s1g11ilica11L parallels (as well, orcourse, as differences) with tlw dnia1111cs or
the mlcr11auonai svsLcm al Lhc L11rnor Lhc century. The kcr 111111s for analr-
sis m holh cases arc the li.11luw111g: the lead countrv, the core compelitors,
Lile new growth centres, Lhc dcpe11dc11L suppon-rcg-1ons, and orµ;a111s(·d
labour.
The respecuvc lcacl countnes were ol" course Lhe UK and Lhe US. In both
cases, the lead cm11Hries· en11101111eshad g-rown for a whole historical period
Lhrough 111teracuon wnii the rest or Lhc crn·e: for Lhc UK that had meant
\,Veslern Europe dunn!,{ Uie nmetce1llh cenwrv; for Lhl' US it had 111ean1
\.\'esLern Europe and Japan durmg the postwar boom. 111both cases Lhe end
result was a slrong- compeLiLi,·e challenge from Lhe rest. or the core as 11
caug-lu up and slarterl l'atmg- llllO the 111ark~t oJ' the lead country.
Stagnauomst Lenclenc1es appea1-cd wit.hill Lhe core in Lhc late rnnetec11th
ce11Lun· and 111t.he I ~li0s. Tenswns aiso arose within Lhe core. exacerbated
by poliLical shirts such as Lhe unilicaLHlll or the Cerman states mto a single
en LiLyin I Sil and Ll'iede\'elopmenl or bloc tell(lenncs, notablv 111 \VesLern
Europe from Lhc l~li0s.i
-In such c11-cums1ances, there wen'. powe1·J'ui pressures from w11h111the
core, and noLabiY fro111wiLhin its lead co11111ry,LO look outwards hevn11d thl'
core to explotL npporr.1111ucs 111 Lhc lrnuerland for solving- mternal problems
111 the metropolis. One pan or the h111Lerlanrl mav he called dependent
support-rcg-wns. For Britain. Lhis was. or course, the Empire, aho\'e all the
lnclia11 empire. Products los111µ;compellll\'encss w11h1n Lhe core nnilcl he
dumped in Empire markets, whose 111Lernalsunal relat1u11s or produc11t111
couid be restn1clurcd Lo acco111111odaleLhe111.On Lhc e\'e or the First World
War, LexLiles made up nu less than !jJ per cent ur Bnush mam1facu1rcrl
exports. Whereas pre\'louslv they had gone to E11r11pe,Lhc\' now went to the
Empire. Th~· As1a11colonial 111arket ,1bsorhecl anv1h111g up to (i() per cent or
Lhcse expons 111Lhe years hel'ore Lhc Firsl World War. :\s Eric Hobshawm has
put IL, ··_.\sia sa\'ed Lancashire· Bul iL did 11101-eLhan thaL: b,· kecprng
Lancashtre afloat IL s11sta1ned demand in the UK market for exports from
 l'(l\\'ER l'Ol.lTICS .-\Nil Tl IE <:I.INTON .-\ll:-.11:-IISTR.-\TION 71

the rest orI he world. thus cas111gte11s1011s wit h,n the core. En:n more impor-
tan l. India 1ndirertly sus1a111l·dthe 1111crna1mnal motll'larv svstcm or the day.
Ir the Indian market had dosed and Lancashire had collapsed, Lhe pn:s-
sures, alreach· grnwi11g w11h1n the LIK mclus1rlal heartland III the early
l\\'L'Illlcth ccn1un-,s for protectionism would han· been tmstoppable. IF the
UK hacl opted for pro1cnionlsm. Lhe 1111ernauo11al nwnelary system would
l1a1·l·been scrapped.
:\n analog-ow; svstem has clt-1'<:lopeclin the con1ext or the core stagnation
or llw las1 quarter or a cL·n1t11·~·- The LJS has sought to use the ckp,:ndent
suppor1-reg1ons as clurnpmg grounds for US procluc1s through both an
cxpc>rl drive and markl·t-sed.ing FOL II has used the li'.-IFand 1he dynamics
or I he Dollar-Wall St reel Regiml' to open up these states. to restructure
their 1111crnalscJt"i.drelations ol"prod1Kllm1 to ensure that the~· could absorb
these products. 'The rcsulung s11hsw11ual i11creasc Ill US cxpons has, in
lllrll, sustained the US don1es11c product market, eas111g tensio11s in lhe
core. !11a similar paltL"rll lo Llw Brt11sh case, o\'er hair ur US expons in the
1990s \\Till to cou11tnl's or the South, not lcas1 l.at111:\111er1ea.Y«ill'\"l'll in its
ow11 l.atl11 .-\111enc:u1 l11111erlaud, lhe L1S exported less than did the EU.
.-\11(1both III the earlier pertod a11d the t'll!Tel\l otll'. 1he clepl'11dc11ts11pport-
rq41011s were 1·cn· 1111porta111so111-ccs or cheap. \·nal inputs 11110 the
produc111·l· processes or the crn-e s1a1esY
Therl' is. 111" course, au 1111porta11t dillerc11n· ht'l\\Tl'll :\111erlca11 a11cl
lfritish co111rol 111echa111smsover Lhl' dcpe11denl support-regions: Bnt1sh
direCI llnpcnal rule meant there was 110 bala11ce or panne111s constra1111 rn1
1hc colcH11es s111cc their 111011etarysyslL'm was sterli11g. The Bnush could-
ha\'e 1hem r111111i11g perma11ent deltc11s 1\•Jlhthe metropolis w1thou1 ha1·i11g-
llJ prnddc them wnh a market 10 con:r their delint-11Hlurl'cl dl'hts. For the
U111terlStates, us111g-1lw Dollar-Wall S1.n:e1 Rcg1111e,there is a cc,11s1a11t need
to pro\'Jrll' the depe11clc11ncs w11h a s11nicien1 expon 111arlze110 cover debt
st-r1·in11g Lo thl' L1S linannal sector. On the oilier hand. 1he British had lO
Lake direr I resp011sihili1y rur 111a1111ammg- order in th ctr depende11nes, while
1he LI.Ss,·s1em 1hrmvs tha1 respo11si1Jilit\' 011 to the kg-all\' sm·cre1g11 rlepc11-
dc111state. So 1l 1s a case, probably. ofswmg-s and roundabouts. even thoug-h
the fi111n1011or !wing · markt·l orlast resort' ma\· st·t·m a hc·aw burden for
the US.
Bui as Pa111aik has shown in !us 111astnl~· and seminal s111d\',111 1hen· was
a1101hcr aelor 1111hcworld en,nrnm· m11sidl' !Ill' core at llll' cud or till' nine-
tl-ellth cc111un· \\']Wsl' n>le was also 111tcgral to lht· cln1amirs or 1he S\'SlL'lllas
a whole. Tlus 01hcr kill cl or actor was made 11por the \tales which could he
called the 11cwg-rowth centres. These could ahsorh surplus capllal from Lhe
core as \\'l'll as surplus labour Jiir 1he purposl'S or produc1n·c cap11al acu1-
muia1io11. Bct\\'ee11 I 8G!'ia11d I ~lI-! 1he hulk or cap11al exports rrom the core
1001~the form or Brt11sh portfolio mvc·stme111s. .-\ml durn1g tha1 period as
7'2 TI-IE la.Ot\:\LIS,\TION (;,\,\IBLE

much as GH per ccnl or toLal Briush portfolio 11weslmcnl went to the nl'w
growlh regions. some _Jundic.:allywuhm the Brnish Empire, others 0111s1clt·
1t.11 This oulpouring of funds from Bnush renuers to the new g-rowlh cen-
tres was Itself a shirt from Lheir earlier dcsunauo11 towanls the mon·
backward ·west European core.
The same kind or panern has occurred 111 the iater period. thm1gh wnh
significant modilications. In Lhe lirsl place, stagnat1011 111 the core has not
cn,1oyecl Lhc safety vaive or huge labour migrau011s ouLwar<ls. And Ill the
second place t.he outllows orfunds from the core for productive investmelll
111 Lhe new growlh centres has come nol oniy from renlier.~ m Lhc lead co1111-
Lry, but from productive capnal in the resl of Lile core as well.
Another parallel is also 11nponanl: in both periocls, orgamsed labour ancl
the socialist movement seemed very weak and as a result strategics could he
adopted for displacmg tensions between the core countries not only towards
the hinterland hul also on Lo the wort,:mg ciass (w!lh iabour emigralion
making tim especially easy in the earlier period). Similarly, bv Lhe 1~190s,II
was hoped thaL iabour was so pennancnLiy weakened by Lhc collapse or Lhc
Soviel Bloc that Lens10ns could larl-{eh•be displaced downwards via so-called
neo-liberalism.
or course, there arc 11nporcanl differences between the Lwo periods as
well. The illlcrnaLionalisaLion orfinance ouL or London was mrn-c exlens1Yc
and deeper 111 the earlier period than il has been m Lhe current pcnod.
Bnusll hanks alone had over 8,000 branches around the world. Secondly,
Lhe.1unclicaJ empll'e form or externai expansion is no longer Yiablc: direct
conLroi or populations 111 Lhe Sotnh can no longer be sustained by impenal
centres: institulions like Lile Il'vIF, the WTO, bilateral secunl\' Pacts and
multmaLionai companies musl be used in combmauon with _1undicallv so\'-
cre1gn slates wiuch a'rc Lhen required by the imperiai system, as wt:11as bv
mlernauonai law, Lo shoulder exclus1,-e responsibiliLy within Lheir Lerriwn·
for whale\'er the resulL~ or in LeracLing w1tl1Lile core economies may be.
Thll'dly, Lhe mternauonalisation 111 Lhc earlier period took place in a con-
text or extraordinary stability or Lhc mlernauonal mtmetary and linannal
sysLem or Lhe core, unlike the chaos of Lile Dollar-Wall SLrect Reg11ne.
Blll the !)lg q.1esuon for h1sLOrically-minded American policv-makers m
the 1990s has been whether Lhere wouid be two more parallcis between Lhc
earlier period and the curren Lone. First, m Lhc earlier penod, a challenge
Lo Bnush power came from withm Lhe core 111 the li.>rm or Lhe FirsL World
\Var; Britain survived this challenge, hut was faLally weakened as a dommanl
power in monetary and financial rclaLions. Coulcl a s11nilar kind orchallenge
face the US? Bm secondly, Britain faced a diffcrcm kind orchallenge from
Lhe new grm:•th cenlres. The counu·ies 111 tius gnmp included such clomin-
10ns as Canada, Australia and New Zcaiand as well as oLher sLaLCssuch as
Argcntma,Japan n11tl !ht' USA. The USA took Lhe exponed f'uncls from Lhe
 l'O\\'ER 1'01.ITICS AND TI-IE ( :UNTON AD!'IIINISTR..\TION 73

core and seized con1rol from Bnta111 through hclpmg ll cope wnh Its chal-
lengers 111 the European core. Couid this happen again in. of course, a
110\'el form?
It is 1101 wo difl1cult to percel\'l: actors that could reproduce for the
Llnited States both the kinds or challenge that had faced Britain: the first
could be describecl as tilt: monetan-linanoal Llll"eaL:the second, the new
prodtKll\'t: n:n1rc thrt:at.

I) ry rha/11•11w-
T/11·.fi1u111mil-111011,•ia
Tl11Schallenge could ansc above all from the combmauon or the construction
or 1h,~euro with financial instabilit\' within the United States nsdL A serious
,\mcncan linannal cns1s could 1urn 1he Dollar-Wall Street Regw1e mto !ls
opposlle: there couid he a llight from US Treasurv bonds, prompting a llight
rrom the dollar reeding back irno a rcallv serious US foreign debt crisis: if
somethmg happened to produce a rlrvmg up or US linannal market~ Jen-for-
eign borrowers, 1hc latter might dump lhe Treasury bonds they had been
using as a sal<.·haven for their dollar reserves. There could be a double effect:
the costs or servicing the US debt in the dollar market lt>r Treasury bonds
would soar, as mLcrcsl rates shot up; at tlw same lime mteres1 rates Ill Europe
would fall as people clumped dollars for marks ( or curos). The US has Loser-
,·ice i1s debt bv borrnwing in marks and ven, yet has a current accou111dclicit
wllh both t.hese cu1Tenn- zones. A1 this point, pcopie hegm to worn aholll the
mcclium-term Ii.nure or the dollar. and the g1ganuc mass or greenbacks now all
m·er the world after a quarter or a ccmurv or the Dollar-\·\'all Street svstem
,,·ouid g-1\'ethe cns1s a new quality as people all over the worlcl started to Jlce
1hc dollar O\'erhang: in such a situation the dollar could hq-:-in to resemble the
rouble - a n1rrcncv whose fall seemed to ha\'e no lloor. This, of course, ts a
n1giumarc scenario. 1magmable oniv Ill the c,·cnt or a collapse or the
Amencan linancial s,·stem or Mexican proportions. Yet the same results could
occur o\'cr a longer pcnocl in a st:ncs or fairly small, mcreme111aljohs. And the
end result would be the same 111either case: American poliC\·-makers would
wake up one clav 10 face the inescapable fact that world leadersl11p had passed
elst·wlwre.
This trend could, or course, 0111\'occur if"there was an ob,·iuus alternauve
global currcncv to the dollar. Such an ahernauvc could not be the vcn.
because clesplle the unmatched size orJapan 's linancial surpluses, its clomes-
t1c li11anc1ai market 1s far too small to suppon the vcn as a world currency
and the .Japanese ec011omv is rather closed 111trade Leqns - its exports and
11nports arc a small pruporuon or i1s GDP. But the euro could be a ,·er~· di!~
J'crc111 maucr. It couicl qu1cklv establish itself as a m,~1or international
currency, backed b\' lar~e current account surpluses and larg-c capital
expons. And if' i1s linanual markets were 1111eg-rated,the,· could quickly
7-1 Tl-IE (;(.01\ ..\l.lS:\TION C:\i\1111.E

nval Wall Stn.~el as sources or i111cr11a11onaiJi11a11cc.\,\'l'rl' the EL1 thl'II lo

adopt tough 111tcrpre1atHlllS or its laws on reciprnnlv in rights for foreign
financial Sl'J"\'lccs Dpcrating within the EU, it could curtail the operations ol
US banks and other linanc1al operators \\'1th111the EU lllllil 11.,Dpcrators
gamed equal scope m the LIS market (which the,· do not han· al present).
Tl11s prospect 1s. ID put ii milclh·, an uncoml"onablc one for an\' llS
government.

2) Tlw 111w /1rod111"/nlf' 0•11/n' thrl'III

This 1s a scemmglv less 11rgem threat, hut a more dangerous one. It would
arise from the snnbiosis of.Japanese cap11alism wllh the growth centre or
East and South-East Asia as hDth becDme the centre or graYitv or the global
production svstcm, making the prolitabilitv or American capital dependent
upon Hs links wllh the regw11, while simultaneouslr reorga111smg the 1111cr-
11ational division or labour m such a wav as to place US 111dustrv 111 a
subordinate pos1uon: the h1g-h prestige · positional g-oods" - the high status
proclucts for the 111ter11at1onalwcalthv classes - and the fixed cap11al to pro-
duce them would he East Asian. This threat could matcnalisl' w1tll special
force in the e\'ent that a nng was thrown armmd.Japan and the region in t.hl'
form ufa \'en-zone cum trade bloc along West European lines. Suddeniy the
US could find 11sclf faced with collecti\'e resistance to its efforts 11, use Its
political muscle to break into strong pos11mns Ill thl' regHrn. The DWSR
would be crippled IJy the yen-zone as a source of leverag-e while .Japan, not
a debtor cou11Lry, woulci be g-encraung huge lina11cial resources for pro-
ciuco,·e mvestment. And thc nuance mimsters of the South and even from
the US would be queuing in Tokvo ror m,·csunent and li11anc1al support,
while the offices or the ll\'1F and World Bank wouicl be occupied onlv with a
dwindling- band or cxclusn·e US clcpenclcnc1es. And 1he Japanese rq.[ional
ieaders could be happr to help the UniLed States solve all Its problems ol'
manag-ing- its clcclinc, as the US had been with Britain earlier 111 the cenllln-:
they could cn:11 prop up a Dollar-\Vall Street area analog·ous 10 the
Sterling-City or London area prnpped up bv the LIS in the postwar wars.
Both these pownual threats ha,·e been central preoccupations of US pulicr
mtellcctuals smce the hne 1980s. or course, tiler were not the only topics or
disc11ss1011.The US had huge poliucai n:sources for comba1111g 1hc111and li>r
reshaping- the post-Cold War world in wavs that would emrench the US as thl'
donunant power throughout thc 11ext centtir,·. And smct· the US has thl'
lowest lax rates m the aclvanccri capllalist world, 1t could take the 11eedccl
structural measures- a sharp 111crcasc 111 the share or taxallon m GDP, 10 p111
ils Slate iinances Oil a sounder fr,otmg.
But thc ievel of poliC\· analysis and debate as the Clinton Adm1111strat1011
camc mto onicc was qualitallvelr diflercnl from the past: the issues lo be
 I'! 1\\'F.ll I'! >l.f"l'l(:S _.\;,_:[)Tl IE! :J.INTON .-\ll'.'111:s;ISTR.-\TIO~

acldn·sscd WlTl' 11n lu11gcr thost· ul"i11t-rc111c111al1an1cal ac\jw,1111c1111\'1Lh111 a

l,1q!;l'l)'g-n·cn s1r,lll'gH· t·111·11"0111m·111. F11111 laml'll 1;1I.111st,1ncal sl ralC:.{ICre\'ll'I\'
was 011 lht· agenda.
or 1hc (\\'(l 1hrea1s, lhl' Eli Olll' looks SllfWrlinally more lllCllaci11g. Yet
1hcre were cou111cr-h,1la11c111gfanors. First, IIH' thn:al from the euro did 1101.
cc,me from 11s crl'at1011. hut rrom 11s lw111g-abll' tu challt·11g·t· the dollar as a
,,·ortd l'lllTl'lll'\'. S11rli ;1 ch,dlengc wo11ld H'[Jlllrl' a 11u111lieror s11ppor1s wl11d1
1hl' El' was u11like11· to acquire q11Kl-lv: a .~olid poli11cal h.ist· that could lw
n111111crl 11po11 LI> an as a smg-le poliuc,d 111111 111a cns1s: .i m;~jor mili1ary-
poli11cal capability .1uto11onHHIS from the US, some1hi11g 011 which therl'
11·erc li.:w s1g-11sor progress: a unilicd and powerl"ul fi11;111nal senor, hut-
t rl'.,sed b1· a 1111ified poli11cal au1hon11· - some1lw1g a lo11g way off: a
u1lwrc111 and poli11calh· ;irccptahil' d1J1Jll'Slll' Eun1la11rl errn1111mc ancl soci;li
p11lilT framl'wnrk. so1netl1111g-wl11ch sp1J111,111t·rn1s 111arkc1 li1nTs wrnild 1e11d
10 umicrmine: a llll'ans or exiting the iong European s1agna11011, s1111H·tl11ng·
1ha1 the ECB was hanlh· likch- to produce: a means or
l'nding the polit1calll'
clis1111cgra11n· 1emlc11nes w11l1111Euruland poliucs. 11·1111esserlIJ\· the grow1h
or the extreme Right ;111clthe deep splits 1111sucial polin- and EU-wide cll'mo-
nalll' tclenutl': pnhaps most crippli11g. 1herc \\'as till' p;11dmork or
torn or
sh.tllt"ll'd snn.11 ;111<1l'l"IIIIOIIIIC Slrtlrllll'l'S Ill l.hl' l',ISll'J"ll pan or thl' l'lllll)-
lll'lll a11d the l·1·1clc11L1ncapant1· or Llw Furoland s1a1es tu l'H'.11 bcg111 111
ul"li:r a coherc111. Sl'nuus answer 10 these problems . .-\ncl finally, \-\'l'st
E11rnpea11 leaders had such a11 endless c1pant1· to bicker among 1hemsdves
1ha1 it did 11111t,Ii,e nrnch 011 the pan 0L1 US achni11is1rat1on 10 throw them
11110sixl's ,111cise,·cns. i'-.kanwhile. L'S rap11ai 11111uni\' h;1d ,·en· easv arn·ss
111101he EU marke1 l,111the cx1s1111gEL 1 poliucai s1n1uun· w,1s an ex1re111l'h·
l:1\-ourahk 011e li,r US opcr;w,rs s1nn· al 11s hl'arl 11";1s a ( :111111111ss10111111Co11-
1rolled h,· Ell lllll'l'llal dcmotTalll' ll!ccha11isms, lixa1cd 011 cllll'
prohle111a11c - clcrl'g11la11011 10 assist u-a11s11a11onal bus111t·ss - and thcrl'ii.ll"l'
l'asily caplurecl IJ\· the 111llue11Ct'.of the LIS 1r;111s11a111inalcurporauons.
The East and So11th-E.1s1 ,\s1an regilln Sl't'Jll(·ci al first s1gi11 to ])l' less men-
;1n11g bccallSl' or IIS political frag-111enta1io1l. 'YL'I then· \\'L'J"C." two SL'IS or
po11·l'rh1l and p111c1111;11l\' compie11a·111i1n· sunal 11t·1mirks 1n11g· the reg1011 s
cap11als 1ogecl1l'r: the lll'l\\·orks l'l'llln11g e111.Japa11l'Sl' h11s11H·~~and lhL' 11t·I-
\\'orks li11ki"l1gm·t·rsl·,1~ ( :111nest· bus111t·ss wnh thl' m;1111b11d.. -\11cl Llwsc lll'o
lll'l\\'orks were rn·a11ng growlllg li11kagl's and cumplc111e111an11es 111the Olll'
n·g1011 or 1.he world w11h n:alh" dv11am1c accumulallllll. F11nhermore, 1.he 11e1-
ll'orks wcrL' 1e11di11gto lean· L'S capitals out. \Vorse still. thl' more adl'ancecl
t·1·111H11111es, pan1nilarl\' South Korl'a, 1nTc clirl'ctl\' l'al111g 111Lomarkets of
curl' L'S r:1p1t;ilis1 SLTl11rs. .-\nri 1hc region \\'as bt·crn1Hng 111tTcas111gl~· rn},{a111c
11·1thJapa11csc cap11alis111.. -\ll(I in most ol the nllllllnt·s llll'rt' \\'t'.re barriers ul'
\'anous kinds to lhl' L'S ilL'111gable lo t·s1ablish lls preclu1n111a111 111llue11n·
w11lrn1 their poliucal cco1101rnt·s.
76 TMF Cl.OB.-\l.lS.-\TION I ;A1\IIILE

While from lhc angic or mamstrcam cconrnrncs, lhc Clinlon adn11n1stra-

uon raced no polilical-cconomv thrc,ll at all, from the angle ol
I\L'o-mercanLilism, threats would be ,·1sible evervwhere. But from the augk
or our hypotheses, the direcuon or the lhreal for Lhl' Cli11to11
Adnunistration would he from EasL and South-East A~ia. Aud 11 was poten-
uallv a verv serious one because rooLeci 111 dvnan11c capnai accum11lauo11
which was showmg- every sign or moving up lhe hierarchical i11ler11auonal
dinswn or lahour. Of course, there were mcenu,•es for US cap1Lilism to
swim w11h the sponlaneous tide, SllH.:l' 11 was making- large absolute g-ams 111
terms of l'xporls, mtra-struc.:ture 1m'l'stments etc. But this was also a kmd or
danger sml.:c the more lhesc absolute gams loomed large, the mon· the,·
wnuicl make IL di!Iicult li.,r the .-\mencan slate Lo lake lo11gh aclion to prevail
on-r lhe rq~ional challengt·.

II The Strategy of the Clinton Administration

Thr C:li111011
1i!flm and 1/s Gr!lll'ml Str111n'

The aunosphcre 111 the U111tcd States when Clinton came mto power was
one suffused with a sense of great histonGtl drama, a sense that the U1111cd
States was facing a greal worlcl-htstoncal e1lher/or. There was the awarenl'ss
ofAmcnca·s g1ganuc power 111 the militan· lielcl and in the nH111etan·-!ina11-
nal rq~um:; on lhe other hancl, t11ere was lhc challenge or East .-\s1a and
uncc.:rtamlv al)out Europe. There was the sense lhat the Unncd Slates was
about Lo give b1nh to an cnt1rcl\' new sc::tof global growth motors through
the new informalion industries and a feeling that these could pla\' the role
or the molor car as a "huge pathwa\' to revived mternauonal al.:cumulation
wluch the US could hope lO dommalc; yet after very iai·ge un-estmcnts 111
this scclor !ls supposed transl'ormative potential ror US produc11v1tr has
s1mpir not 1muenaliscd. And llnally there was the tnumph over the Soviet
13loc and the mternattonal Left; alHI \'Cl paradoxically that collapse posl·rl a
111,!JOI"
gueslmn-mark over lhe means that the US couicl use for cxenmg
polittcal 1nllucncc 111 the world and consolidatmg that mllucnce thro11g11
inslitulmns s11nilar to the secunty zones of the Cold \·Var.
Tremendous American mtellectual energy was being de\·otecl. therefore.
to 1hcsc strategic issues as Clinton came 111looffice. As onc polin· 1111cllec-
tual put 11, 'essentially, we have to en:cl a whole new conceplllal basis for
fore1g-11policy al'ter the Cold \Var.' 1'.! Others equated the lasks facing Cli11ton
to those that faced Truman in 1945: Clinwn, said one writer, is 'present at
the creauon'' or a new epoch 111 wori<l affall's and 'the next half century
hangs m the baiance· _i:,
Thc Clinton team 11.scirwas not. or course, gomg- to spell out publich· how
 l'O\\'ER 1'01.ITICS .-\ND Tl IE CI.INTON .-\D'.\IINISTIUTI0:--1 77

11crn1ccplualis1:d i1s sLraleg1c problem ancl us su·,uq.,,-yand 1ac11csfor tackli11g

11. Till· Sl!-{m had 10 be 1·cad more 111direcll\', for example, through Climon\
appm11L1111.:111s and insu1uuonal arrangemellls as well as through us policr
s1ateme11ts anrl mitiaLives.
Clinwn ·s top foreign policy appo111Lme111s, like Warren Christopher
(Stale) . .-\mhonr Lake (Nauonai Sernnty), Madcleme Alb1·igl1L(UN), Lloyd
Bensten (Treasury) were com·emional, rather passive ligures with links back
lo IIH' Caner days_1·1 i\fanv obscrYcrs wondcn:d why Clinwn had recein·cl a
rcp111auon for exlernal acttvism when lie made such pe1·so111wl appoml-
11H.·111s.1.·, Bui 1h1s perception was ust.:11" tlw produn or old thmking whereby
fon:11-{npo lier llll'allL whal 1hc SecreL;1r,· of S1a1e or 1he NS(: clrn:I' or the
Secre•an· or Del"t:11n: di(L It 1g-m1re(l the msLrunH:111.sor cconomrc state-
cran.,·et these were 1he 111strume111s1,•h1ch Climon placed III the hands or
I I lt' dn la Ill K ac ltVIS(S.
Tht· new Learn bnrngln in LO w1elcl thc levers of economic statccrafL werc
a disuncuvc gnrnp: Robert Rubm, Ron Brown, Mid.ev Kantor, Laura T~•son,
Larrr Summers, Jcff Garten, Ira Magaziner ancl Robert Reich (as well as
Vice P1·csident Al Gore) had disuncuvc general approaches to Lhe dclcnce
oL-\.nwncan power: 1r' li>r thcm. it was alJoul 'the econonw, sLL1p1d'.ArHI 1her
belie\'cd that strcngliwning American capnalism was above all LO bc tacl:..kd
1hro11gh 11llernauonai political acuon. In line with this was their belier ill
the 1mponancc, even the centralit\' or sl,Hc-poliucai action in economic
al"Ei1rs: a conncllon llrnt Lhc s11cu.:ss ol' a n;ll1011a·1cap11alism was 'pa1h
rkpemlcnt a11cl1he path coulct iw buil1 ol" insutttllons faslw111ed hv s1a1es.
,.\11ci there siwuid not be IJarren cot11Her-pos1uons or national states and
n1arKCLforces: thev should worlz togeLher. help each olher, wheL11er in tecli-
111>101-,':'·trade or finance. They were not classical nat10nal prolecuo111sts, hut
ther were also not frec traders. The term used to describe Lhc school or
thoug-ht represented bv 1h1s 11:am was 'globalists\ promoters or a kind or
global nco-mcrcanLilism. The new concept was tllal compclll1m1 among
states ll'as shirting- from the domam or poliucal-mili1arv rcsourccs and rela-
111,ns to the l1elcl or control of sophis11c:1Led technolog1es and Lin·
rlo1rnna11on of markets. 17 Th<.: na111n· or the new game was ,ilso given a
name: ·g-L'm'conom1cs', Llovcl Bens1en maY havl' been or a clilfere1H gc11cr-
a11011and or a dilkn:nl background from the olhers, hul hL' also shared a
'g-lobalisl · v1c1,·.
Till· outlook of Lh1sncw lcam \\',ts exprcssed 111 hooks like L1m~1 Tvson \
I I 'lw\· /J{/_\lii and bv a hosL or other such works bv (hose wnh1n or dose
11!-;\·\'lw111
to thl' aclmuustration. is The ollllook was ol"len express~d mosl hluntl\' by
Climun's new US Trade Representatwe, ivlicke\' K.anlor, who openly argued
for a new kind oL-\merican Open Door sLratq,,1y Loensure Lhat lhc twcnlv-lirsl
cent11rv will he thc 'Ncw Amcncan Centurv' As he pm 11: 'The days of
lhl' Cnlcl War, when wc sometimes looked Lhe other war when our Lrading
7H Tl·lE t:I.01\.-\I.IS:\TIO:S: <;_\\1111.E

partners failed 10 live up to their obligaL1011s.an: o\"l'f".Nauonal Sl'ctlrlL\"and

our 11atro11aleconornK sccunlY CllllH>l iw .~cpar,llerl. . No more so11H·th111g-
1
ror llt>Ll11nµ;. Ill> more fnT riders.' 1!

K;1111nr·s linka14e or ex1crnal l·rrnH>lllK ol~Jl'l'll\"L•s and US Na11on;1]

Sen1ntY w;1s relll'ctecl Ill Clinton's remoulding of insmutions in 1hc con·
execu ll\'L•: J 11st al't cr Cl i II ton's ma ug·ura ll oil lw created a Nat 1011aI Econ 01 me
Council ll'ILhlll the White House aio11gs1dl' the Na1io11al Sccunn· ( :ouncil.
The choJCc or name was des1g"ned LO indicate that the new horh- would
accp1ire the kind or nodal role 111LIS giobai strale!,•y which the NS(: had
played dunng 1hc Cold War. At the same umc Congress 111structecl IIH'
Commerce Depanmc1\l to seL up Lill' Trade Promo11on Co-ordi11ating-
Con11111ttce (TPCC) to co-orclinaLe 1111H:teenLIS gon:rnmenl ag-encies in Lhe
area or co111111e1-rial policy. Jnstrunh-e also was Lile fan that Lhe head ol" till'
Na11011;tlEco1111m1cCouncil was Lo he a n:n· cxpl-r1cnced hedge fund spec-
ulator. Roi>cn Ruhm, former senior partner 111(;olclman Sachs. the heclgl'
ht11d 111asqueradi11g as an 1m·esL111enthank.'.! 0 Tl11s ga\"l' the Clinton tca111
prune links with Wall Street.
The wav that the Clinton adm1rnslrallrnl ddinecl tis approach has hlTIJ
summed up l>Vsomeone who was 1111ualh'part 111" it, David RoL11kopL He has
charartensecl the Clinton adm1111straLio11· s ue,1• 111ter11ational stratcm· as OJH'
or 'M,1111cl\kn:a1nilism· '.!I Stanley Hoffman makes a s1mila1· po1111,1w11ng
the new US acunsm in world economic affairs under thc Clinton ad111111is-
Lrat1011and its clri\'e to open borders to US goods, capital and servicl's.'.!'.!

Tlw Stmligll" Forns 1111Ens/ 011d So11th-J•:m1

.-\sw

IL has iJcc11 w1cich· s111.mestccJLhroughouL the Cli1111111 Presidenn· I)\" mam·

ancnuve obscn·ers LhaL11sefforts Ill economK s1a1ecra1"1ha,·e been 111,1111I\"
directed at 1111cpan1c11lar gcograplucal area: East and South-East Asi.1.
RoLhkopf suggests Lh1s was the 111;1111 mou,·e fo1· the cnurc d1we. sa,·111g:
'Commerc1.1l cliplomacv. howe,-cr cldim:cl ;me\ practised, owes us devdop-
111l'llls as much to the rise or A~ia's et1wrg111g cc11nom1cs as IL docs to am·
other !"actor.• East and South-East Asta WlTC or dcc1s1,·c 11npona11n· if thl'
United States ·was LOmaintain its CC!lllOlllK le.1clersh1p '.!:I
The ( :linton acl111mistrati011ncYcr aclmmed cpute tl11s,111" course. It claimed
mstead Lhat its target was to b1·eak mLo whaL 11called the IO Big- Emerg-mg
i'vlarkets (BEi\·ls): but six or the ten were in Asia: Chma, Indonesia, Korea.
Thailand. i\Iala\'sia and India. or Lhe other (in1r. the Unued States aln:acl\' had
Lwo: i\·lc:xteo and Argentina. A 111n1.h,Poland, actllallv fought Its way on to the
acim11m1rat1e;11s list. That left only Brazil ou1s1clt: Asia as a lll,!Jor taq,\"ct or
A111enca1111Herest.So ()asically, the list or IJE;\l taq.{ets meam Asia. The Cli11to11
targctl'cl :Sl.:11rillio11 LoS~ trillion 0J"co111111erc1al
ad1111111st1~111011 oppor111111t1l'S
 l'O\\'El{ I'( ll .lTI( :s .-\Nil THE ( :IJNTC lN .-\ll:-.11'.\'ISTR.-\TIO'i 79

in lhl' \\'orld's l'IlHTg111g 111arkl·ts 11·11hSI 1rillio11 111export 11ppor111111ry targets .

.-\ccordi11g 10 R111hkopr US '1111elli)-\t'llt:c;1gc11nes were dra\\'11 11110till' co111-
111ncial fray. prornli11g a11ai\'s1sa11d other Ii mus 0L1ss1s1a11n· l<n·these dliirts'.'2- 1
The BE;\l s1ra1eg1· was lirst otlllilll'<I lir U11dersl'lTl'tan· of C11111111cn:el'nr
l11ter11a111111alTradl'_ll'lf(;ar1e11. 111a,la1111ary I\J~l-1S[Jl'l't'h 10 the Foreign
PoliCI' .-\ssona11011 111N<'11·York. ,loh11 Strembu, lkpm1· Director or PtJlicy
Pla1111111gat the Stall' lkpart111c111. I 98~)-9-l. po11Hed m11 1ha1 although it
appearl'd 111ws11alfor ( :li11101110 dl'li11e his 'li,rcig-11 poliC\ dm·1nne Ill terms
0

or special US interests 111a limnerl 11uml>n or key rountnes· Reagan had

large!\' do11c so l>r target ml-{Alg-h;1111sta11.A11gola, ( :,unhodia a11cl Nicaragua.
Strc111lau p<>lllll·d out 1ha1 lndmwsi.1 had hee11 singled out for spenal auen-
tum. 1101le;1s1 hec,n1se there the US was losmg 111.1rkt·1share 10 the Japanese
and the E11ropca11s. I-le also explamed 1ha1 thl' US dnn· 11110 l11do11esia
'could co111plicall' l.lS relat11111s \\'Ith .Japan, which \'iews l11clo11l's1a;is ly11114
\\'llhlll 11s sphere or i11lh1L'lllT The key word was lU hn1114 about l'et11111111ic
and politil·al cum·ergL'IICl'. IWl\1'l"l'll the U1111L·clStall's a11d the targ-ctl'd
states: 111 olhl'r words 1r,msfornrn1g thl' rlo11n:st1c t•cu1101111cs,me\ p1>litKs or
thesl' states tu ad11t·1·l· ;1 k111rlof (;/nd1sduilt1111,!!,·hl't\\'et·11 thl'lll ancl L1S capi-
talism. As St.rcmb11 ptll 11: ·cti11to11 admm1s1ra11on s1r;1Leg1sts st:l'm 10 have
urncluclcd that domt·stJC llllj>l'nlll\'l"S and 11ller11at1u11al realilll'S l'l'C]llll'l' a
111.:11'and morl' subtle \'lTs1u11 of "dollar cliplomaC\··· - greatl'r LIS n:011om1C
and polittcal crn1,·erge1H"l' with the re11·cou111nes that make up 10cla1•'s Big
Emngm14 ivlarkels. Success 011 all those diplorna11c fronts 1s as claumi11g a
liireign polin- goal as ;1111·l1l 1he count.I"\' s l11s1orv. hu1 success L·otdd lead Lo
a n·111un· 1>1'u11s11rpasscrl pruspl'nl\· and security for thl' LInitt:d States .. .-~••
The Cli111011ad1111111s1rat11111 open I\' called r,ir a pan11ership w11h L1S hus1-
11ess to break m111 tht'se markets a11cl Co111mcrcL' Sl'rn·tan· Ron Brnw11
directl~- uq.{cd L 1S c11mpa111cs to Sl'l'k poli11r.il help rrom thl' .1dm1111stra1i011
1111 /)(/rf1mlur t'(J/tfmd,. In adcli11011 thl· Ex-Im Bank. OPIC a11d tht· Tracie
lk\'l'lop111l'lll .-\ge110· IHTl' gcarl'cl up liir prov1cli11g pnunty ass1sta11ce to L1S
n1111pa111esSl'l'Klllg t·11tn· and ciu111111;1111H1 111 markt·ts 111the BEi\h.
But tins could 0111~- lw a 1111111,r dl'tail. i-\ccurdi11g u, a s1111h·co11rlunl'cl ()\'
the D111ch secllon l>I tlw 1111cr11auunal assunatH111 or .-\tla1111cro1111cils (the
cil'ilian op1111011-form111g arn1 or N.-\TO), the Cli1J1011 aclm1111s1rat11,n's kev
COlllT(H Ill IIS t'Xlcr11al l'l'llllllllllC strategy was that compl'.lllltlll ;Jlllllllg states
was shil"ti11g rrom thl' cc11trali1y or poli(JCal-militan- reso11rces to thl' riclcl or
c0111rol or s11pl11s11c11L·cl tL·drnologies a11cl the clo111ma111111 of 111arkc1s.~1• This
\'1t·1,·closeh· correspo11rls Ill our hypothesis as Ill the rational l'Xler11al strat-
e).,"'for the US in thl' I ~J~JOs.directccl towards East a11rl ~011th-t·:as1 .-\s1a. The
h1g problem was what 1111xof Llrl!Cs the US co11lrl clcplo~· 111dl·ns1vl'lv open
the regm11 11p 10 l1S l11·gl·111011\·.
 Tarlnal 0/1/wn.l'

\Ve can outline some opuons availabie to a state with the resources of the
USA for bringing tile poob or labour and markets or the rq~1011 pcrma-
11<.·ntlvun<lcr tlw swav orthl' US and 11si:conom,c operat1>rs.

I) The okl Europe.in 1mpenal power approach: di reel militarv coercion

and s11llordination.
~) Brigading the states or the region 111to a US-led alliance against some
cxtcrnai threat: the classic postwar US approach to gain111g hegemony
O\"cr key centres or productmn.
:-3) La11nchmg all-rnuncl cco1HJ1111t: wart,rc ,1ga111stthe rt:µ;1011 {including
oil-war like that used by the Nixon admm1strauon against Its 'allies· in
the early 1970s).
-I) A more radical, ,ICll\'ISlstratqi;H" ust: or tht: multilateral oq.~;1111sauons.
S) Usin.~ .i n11x of carrots and .~11!:ksIll bilaLl·ral and reg1011al t·ronomic
statt:crafr.
Ii) Sed,1ng domes11c social linkagt:s Ill target slates through propa-
ganda.
7) Using the mstrumcnl<; ,l\'ailable through the DWSR for cu1Tcnn· and
finanuai warfare.

We will bnelly survey each of these possible rnstruments Ill order to ga111
some insight into the tactical dilemmas of the Clinton ad111i111strat1011.

I) Din•rt 111ifitmyrn1·1nrm a11tf .rnfmrdi11(1/W11

This, of course, was·not a scnous option. but IL 1s mstrucll\·e to sec wiw not.
Quilt: simply, despite the enormous ;1<l\'anccs III weapons technoloh~' ancl
Lhc overwhclmmg supenonLy of' US military capacit\', direct milit.in· coer-
cion followed by cffccll\'e coloniai sulmrdinallon 1s umh1nkablc 111 today\
world. The lirst reason 1s that as the US militarv·s capanty \(1 kill nses
towards 11ifi111ty, its capacity to die sml~s towards zero. And to dirccllY control
popu"Jauons and deal wllh popular movement.,; 111 the contcmporan· wo.-lcl
requires that militarr l'orces have a substantial capauly to die_:!, The rist'.' of
the world's popuiauon to poliucal aw,ll'L'l1Cssand thell' acqt11sitH111or scime
free lime rules out the old nmctt·<.·nth-ccntury tactics nf the gun-boat ;ind
coiomalism. The aht:rnauvc course 1s to acllle\'e asccnrlancr through s1agmg
domcsuc poliucai coups 111 orcit:r lo impose dcpcnclenl groups in power who
will serve US busmess interests. But such activllv cannot be cor~iured out ol
the air: 11 us\tally rcqrnres the existence oJ'a pcrcc1vecl domesuc threat (tra-
cliuonallr from the Lcl"t) which the government ur the cla\' is percc1\'cd b\' a
g-roup 11·1tJllll tile c\om1nant class as failing lo deal with. Such prcn>nrli11ons
 l't JIITR I'<ll .ITI< :s .\\'ll Tl II-: Cl.lNH IN .-\I l,\lls\'ISTR.-\TI< IN

did not exist in a n:g-inn e1~JO\'lll~unparallelt•d economic adv,mce and raced

by 110 s1g-11ilicanLdomestic social thn:aL~.
\i:t if both these t;1e1icsan: 1111aY.tilab!t:,then· seems lO bl' an irresuh·ahlc
dilt.:1111na:g-1,·e11tllat stale suven:1g-ntv has lo be accepted. the LIS has IHI
clloicc but Lo achieve Its goals w1Liu11them states tl,m11gh the existing dumi-
11,111L soc,al class 11°1Lh111 them. The problem thus becomes one uf how to
cha11~e the nnentauon orthese dominam sou al groups.

2) /J11wuli11g.\'/(1/t'S 111/0 ti US-hi of/ia11U' llW/111.1"/.1"111111'

t•Xl/!l"/1(1/ //,rt'(I/ .I'll
//,(I/ 111 1·.\·du111gl'jiir US /Jro/1•r/1f111 /hr slm,•s m11r,•n11•,Iojwn lh1•11"1•w1101111r
asst'i\ lo [IS o/Jl'mlon

Thts 1s Lile classic L'S 1acuc of"tlle Cold \,Var penocl. Samuel l·h1111mgto11has
expla111ecl how US iacucs worl,ccl: 'Wesler11 Europe, Latin America, East
.-\s1a. and much orSouth Asia, the ~-liclcllc East a11clAfrica l"t-11w11h111what
w.1se11phem1sl!l"all\' reh:rred w ;1s ''the f-ree \\'oriel". and \\"hat was, 111fact, a
sentrity 1.011e.Tht· g-o\'ernmn11s wnh111 Lh1sz011c fo111HI n 111 lhell" 1111erests:
(a) Lo accepl an explicit or 11nplict1 g-uarantce I)\' Washmg-ton ol' Lhe 1nde-
pende11ce or Lhe1r co1111Lryand. in some cases, Lile authortl\' nl' the
~m·er11me11L: (b) I<> penrnl acn·ss 10 lhe1r l·11u1nn Lo a \';tl'll'l\' of' US g-o\'-
crnmental and 1wn-gon·rnmen tai 1Jrgarns.111on~p11r.,11mggo;iis wh1d, th1Jsc
organ1sauons co11s1dcrecl importa11l. The great bulk ol' tile cm111Lnesor
Europe and the Thin! World found Lite advantages or transnatwnal
access to oulwe1g-h the costs or auempung lo stop 1t.•~s
r\11d as David Rothkopl' has aclded, m tlu: postwar vears 'Pax .--\mn,cana
c;1111c,,·11h ,1111mpliut pncc tag- to 11,1t1ons that acn:ptt·cl the LIS seu11 n,·
umbn.:lla. Ir a cot111tr\' depencll-d on Lhe Llnned States for st·u1nty protec-
tion, iLdealt w1l11Lile Um Led States on trade and commercial mailers.·~!' The
enican of' the tacLJCdependerl upon two condiuons: first. the abilit,· orthe
US 1n persuade the local dom111,11llsocial groups that thn Etn·d an extl'rnai
thn:at: and scco11dl\', the US's ai>ilit\' l!l persuade Llwse sanll' 14roups that Lhc
LIS and onl\' thl' LIS had the rt·soun-es l!l copt· with the threat and the will
to do SD. 111\Nestern Europe the threat was, ur course, the i11Lernal-ex1ernal
one or { :ommumsrn and Lhe clom111a11tclasses or the rq~wn needed liule
persuasion - on tiw crnnran· the:,· were Ill ma11,· cases hcg~m14 for l 1S i11ter-
ve11L1011.:loThe disu11ct1ve US or~a111sauonal model orthe g-1a11L cnrporatinn
coulcl thus enter foreign labour and produn markets, spreading- lirsl to
C.111acla then LU Wt·stern Eurnpl' (facilitated bv the EC's rull·s and rt·de\'cl-
op1m:11t) anrl Lllc.:n011 to othc.:r p;1rts or the world. In this war, rather th,111111
liw pnmnive milit:mst concept1011s or realist Lllcor\', militar~· power played
a central role in postwar capitalist power polittes.
With the u11lap~e of' the Sonet Bloc. tlw l\uslt adm1111strallon had still
hopul Lhal li1t.: lin11ed States n,JL- ;1scontrolln of'senmt,· zones and \\'1t·ldcr
HO Tl-IE Cl .t >11.\I
.IS-\Tlt >N l;_\;<.JIll.I-.

T11r11ml0/1/tmis

\Ve can ouLline some opuons availabie to a state wnh the 1·csurnTes or the
LI.SA for bnngmi; the pools or labour ancl marl-a:h of lhe rq~1011 pL'rma-
1wntly under tht· swav of the US and Its econom1t operawrs.

I) The oicl European 1111penal power approach: direct military coercion

and subordination.
2) Hngading the stales of thc region 11110a US-led alliam:c ag-a111s1S01nt·
external threat: the ciass1c postwar US approach 10 ga1111nghL'ge1nonr
over key cclllres or producuon.
:)) Launchmg all-round ccnnom1c warfare again.~! the n:g1on (inclucling-
oil-war like that used lw the Nixon aclmmistrallon against 11s'allic< in
the early 1970s).
-I) .-\ more radical, acttv1sl slratq~1<.:use of the mullilater,11 orga1w,at1011s.
fJ) Usmg a mix or c.u-roLs and sucks m hilatnal and n~g1unal economic
sla tec1·aft.
(i) Seeking domestic sociai linkages 111target states through propa-
ganda.
7) Using the mstrumcnts available through the D\-\'SR for currL'tK\" ancl
linancral warfare.

\1/e will brrelly sur\'ey each or Lhcse possible msLruments 111 orcler lo gai11
some insight 1nl0 the tactical dilemmas orthe Clinton adminrsLr,nion.

I) Di,,•rf 111i/i,ar_\'
nwrrw11 11111/
.rn/l(m/i1111111m

Thrs, nf'coursc, wa~ IH>la scnous option, l>Lll ll 1s 1nstrucuve to see wll\' not.
Qunc s1mpl\', clesp1lc Lhe enormo11s advances in weapons technolo1-,~· ancl
the overwhclmmg supcnority orUS military capacny, cli1·cct milit,ir\' coer-
cion followed bv dkcuve colomal suborclinauon rs unthmkahlc JII today's
world. Tlw lirs\ reason 1s \h,H ;1s 1he US mi\i\;1n·s capaul\' l1> l,ill nse:-
LOwarclsmfimtv, 11scapacny to die sinks towards zero . .-\nd to directly co111rol
popnlations and deal wnh popuiar mm·ements in the cm1tcmporary world
requires that miliLal'Y li.,rccs have a substanual capacnr Lo die.~ 7 The nsc or
the world's populauon to poliucal awareness and their acqu1s1uon orsome
free tune rules om the old nineteenlh-cenltln· lacucs of the gu11-boat and
colo111alism. ThL' alternauve course 1s to ach1c\·e ascendancy through s1ag111g
domcsllc poliucal coups Ill order ID m1pose rlepcnclent grnups Ill powl'r who
will serve US busmess mtercsts. But such activJLy cannot be co1~jured oul or
the ,11r:it u1;11allvrcgu1rcs lhe existence ora perceived domcsttc threat (tra-
clitto11ally from the Left) which the ~m·ernmenl ol" tltL' day 1s pc1-ce1,·ed h\" a
~roup \\'I thin tiw domtn.ml. class as l;1ili11gto dt·al wnh. Such prcconrlitwns
 l'O\\'ER I'<11.ITICS :\,"ii> Tl IE Cl .INTON .-\l>,\/1'-JISTR,\TII IN

did not exisr in a rq_\'1011e1~1ov111g unparalleled eco110mtc advance and faced

bv 110 s1gnilica11t domestic sonal threat~.
\i:1 ii' both these 1;1ctics arc 1111;1Yailable,lhl'rl' seems to be a11 irresol\'able
dilcm111;1: gl\'l'II tllat state sovc1c1gn1y has to lw au:cptcd. th<.: LIS has 1H1
cJwice lmt to ad11c\T its goals w1U1111 them states thrr111gli the existing- domi-
na11l sonal class w1Lhm them. The problem thus 1,ccnmes one how Lo or
chang-e the orn:ntauon of thesL' dominant son al groups.

2) /Jngwli11g slr//1•s 111/0 11 US•ll'fl a{/ia11u· "W""·'' 1°.\"ll'l'llfll //,rm/ .10

s111111·
//,(I/ /1/ 1•xdw11w·Ji,r us /!rol!'r/l()// ti,,• S/(J/t'S rn11n·m,•r/11/11'11 ''"'II'
f'/'0//()/11/('

as.H't.1 w l rso/11'mi11n

This 1s the classic LIS tacuc 111'tlw Cold ,,\'ar penod. Samuel l-lu111111gto11 has
explained how l 1S tacucs worked: 'Western Europe, l.atin Amenca, East
Asia, and much ol' South Asia. the i\liddle East and ;\l'rica fell wnh111 what
was L'1tphen11sucallv referred to ;is "the Free \\'orkl", and wha111•.is, Ill fact, a
sec11ntr zone. The govenlllll'lllS ll'llhm this 1.ollL' lt,1111clll Ill 1he1r 111terests:
(a) tu accept an explictt or 1111plic11guarantee iw Washmgton ol' !ht· inde-
pendence of their country and, ill some cases. the a11ti10nt\' of the
go\'er11me11t: (h) 111pcnmt access to the1r cou111n· to a ,·arict,· or l 1S g-o\'-
LTnrne111al and 11011-gov<:r1111H·nt.1i organ1saLJ011s pt1h111ng goals wh1rh thosl'
orga111sauons considered important. The grl'at l)ll]k of' the co11111ncs ol'
Europe anct the Third ,vorld found the aclvantagt'.s or tc1ns11a11011al
access 10 0111we1gh the costs of auempung 10 stop it. •:.!H
.-\ml as Dancl Rothkopl' has aclcled, 11l the postwar \'l'ars 'Pax .-\nwncana·
came with a11 1111plint pncc tag to 11at1ons th,tt accepted the L'S ~cnll'llV
umhrdla. If' a co1111Lrydepended on the l! 111ll'd States for sec11n1,· prn1ec-
1
uo11, 11dealt Wllh tlle Unned States on trade and commer-cial 111,111ers_':.!! The
elfican· or the tactic depenclecl upon two condiuuns: first. the ahili1v of the
US ID persuade 1lw local rlommant sociai groups tha1 tile,· faced an external
threat: and seco11dh·. the US's allilit,· 10 pcrsu;1de these same group~ Lh,tt Lhe
L'S ;mcl only thl' LIS had the resources to copl' wllh the thrl'al and the will
IO ciDso. In \Vcstl'l'll Europe t.hl' threat was, ofnn1rsc, the 1111er11.il-external
011e or Commu111s111 and the do1mnan1 cl.isses of 1he l'l'g1on nl'ecled liule
persuas1rn1 - on the contrarv the,· were 111many cases heggmg l11r LIS i111er-
111
\'l'll LH111_: The dist111cLJYeUS orga111sat10nal model or the g-ian t corporation
could thus elller foreign lahour and prorl11c1 markers, spn·acling first 10
Canada then to Western Eurnpt· (focililated by the EC's rules and reclewl-
opme11 t) and Ille)),,.. I!> other pans of the world. In tbis war, rather 1ha11Ill
the pr11111tive111ilitans1 concepuous or rc:alist theory, militarr po\\'er played
a central n1ie m postwar capitalist power poliucs.
With the collapse or
the Son<.·L Bloc, the Bush adm1rnstra11011 had st.ill
hoper! 1hat thl' llrntl'ri Stall's roll' as ro11trolkr orsen,rnv zones and wielder
 TIIE <:J.<)IIAI.IS.-\Tl<>N (;.-\\1111.E

or enormous mili1ar\' rl·sources could remain a potent 111s1n1nH·11tfor

sLrengLhenmg the position of' :\mcncan cap11alism ,·1s-i1-\'ls11s ccono1111c
n\'als. His great efforts.LO ensure that a 11111tcd(;ermam· remained 111NATO
were followed by his war aga111sLIraq, one of'wlwse ma111g"Oals\\'as to silo\\'
the resl or the capital world Lhat IL had to 1rea1 the 1111eres1sor US capllalism
with respecl. But Lh1swas a false daw11. \Vith the collapse of' !he Scl\'lct Limon
itselr, the US's ability to make poliucal use or its extraordinary milit;1rr supl·-
nontv was bound LOdim1111sh.
It has 1101. or course. disappeared. The Etn 1ha1 the US lias mili1ar\'
resources todar greater than all or Wes1er11Europe, Cluna._japan and Russia
put together is a fundamental fact ahout world poli11Cs. It 1se\'lde11tl\' cle1cr-
mined Lo retalll lhe capacit,· to light and prc,·ail 111a war aga111st lhe
combmed forces of' Russia and Cl1111a.: 11 Tlus 1s 11ot. of course. because 11

w1slws a war with these two stales. But if these two states did li,n11 an allia11ce
111 hosLiliLy Lo the cap11alisLworld, the US could cash Ill 11ss1ratcg1C miliwn·
power poliucally again, by being able to bni.:ade the rcsl of !he core more
lin11ly under its influence. And Lh1smilitan- power also has another ,·en·
nnponant function: iLcan deter 11s allies· from makinl-{ 111ternauu11al polit-
ical alliances which might Lhreale11 US capitalism. When Germam· and
olher pans of WesLern Europe seemed 111the laLc 1970s lo be 111m·111g
LOwards a new regime or deepe11111geco1101111cco-operauu11 wnh thl' Sm·iel
Bloc (in the race or Lile economic s1ag11aLio11a11d the chaouc roncli1ions or
Lhe DWSR al the Lime), the US had been able 10 cul Lhc 111m·cme11Ldead
wnh its baule cry agamsl Lhe 'Fi11lanclisat1rn1· of \Vcstern Europe. wnh Its
missile cleplovments in Germany and hair and wiLl1its general offens1,·c 111
the second Cold War. This, 111llself, rules oul eiLher of the two other tnaclic
ccnlres even contemplating momlling a di reel challeni.:e 10 .-\mnican lcad-
e1·sh1p of world capitalism. NciLher (;erman\' nor .Japan has sholl'n 1iic
slighLest hinl ofan inLercst 111 such an adventure.
Bul the problem for Lhe US has 110Lbeen stoppmi.: the 01her 1r1aclic
powers from mouming a direct poli11cal chalknge. The pnlhlcm has bl'l'll
losing political leverage 10 secure its cconomir 1111eres1swulw1 1lw1r 11ew.
posL-Colcl War h1111erlands: Easl Cemral and Eastern Europe and East and
Soulh-Easl Asia. Insofar as sucl1 rei.:wns face 110 e:xLen1al 1hn·a1 ll'hosl' tack-
ling reqlllres military resources such as oni\' the US can supph', the
insLruments or Cold \.Var diplomacy lose their dficac,·.: 1~
In 199'.~Lhe Clinton arlmm1stratio11 did allempl to llSl' 1l11sCold War-stvk
clipiomac\' Ill East Asia through usini.: a cloul)lc-barrellecl approach. ILs1111ul-
Laneously raised two th reals: firsl, Lhc supposed danger Lo lhc rq~il>II of' ;1
Nonh Korean nuclear sLrike; and second]\', a lower-lc\'el kind or 'threat -
China's hu11;;111nghts behav1our.: 1:1 Both, or course, had an a1111-Comnn1111s1
lla\'ourmg. These d('.marches were coupled \\'llh a clnn.· 10 bni.:ark- 1he non-
Commtm1sl East and South-East Asian counlrtl'S. mcluding .Japan. in10 a
 l'U\\'F.R l'<>I.rrn:s .-\NI) THE C:I.INTON .-\l>MINISTIUTION

111.~1or clnve to open their econorn1cs to the US w11hm the so-called Asia
Pacific Economic Co-operation (APEC), the a11n or wluch was both to open
up the economics or the region in wavs which faniured US penetration
and to weaken the 1mpt1ises towards regional economic co-operation within
.-\SE.-\N Lil the t·xclusion or the US.-\_:H
But these efforts Lo use the old Cold \Var teclrn1qm·s for cconorn1c ol~jeca
11ves railed. The confrontation wtth North Korea mislirecl as t.hc US
rlisn,,·ered that P,·on'-,~·,111gcnukl be pushed 111to actual military conllict as
a result orrear of,m American strike - a11rlmilitarv co11l1ict was actually the
last L111ngLill' US wanted - while the US s1muhaneousiv linmd that other
states III Uw 1·eg11111 preferred C:/11111•s1•
mediat11111 /Jt'iw1•1•11Pvongyang and
Washi11g1011Lo li11111gup behmd US hiuster agamst North Korea. It w;1s a
diplomatic disaster and humiliauon for the US. As for the allcmpt LO
mobilise poliucal support 111 the 1·eg1011for an alliance agamst Chma based
011human nghts rhewnc, this nYerlooked the fan that most orthe potcmial
allied governments found US rhetoric about human nghts distasteful, at
l>esl. Arter dedanng earlr 111 199'.~that conunumg US-Chmcse trade rela-
uons would depend upon 1mpn1,·emcnts 111 Chma·s respect for human
rights,: 1'' thl' Clinton administration fell compclll'd to dl'ciarc a ,·car later
that ·we need to piace our rclauonsh1p into a larger and more producti,·e
framework· tllan one centred upon human nghts_:i,; Tlus change or line
caml' at a ume when \Vashington needed Pckmg·s help o\'cr Nonh Korea.
But it also came al'Ler a vea1· in which WashingL011\ European allies had
refused to follow Washmgton 's lead on the human rights card and were
cager Lo ga111as much extra business in China as possihle.:r,

3) /,a1111d1i11gor lhrl'(l/t•11111gall-ro11111l 1•rn1101111C w111ft1rt'"f!/1111.\i t/11:

ngw11
(i11d11di11g oil-wa1;/i//1•thai u.mf !~\'th,· Nixon ruh111111slmi11111 11p;r111ni1/s
'affii•s' i11 tfi,, ,•rir~\' 1970s)

This idea has been mtcnsn•clv and publiciy aired w11h111thl' Ulllted States
111rclauon to.Japan smce the llll([-1~)80s.The scnowilless oftius was demon-
strated lw the way Ill which a public media campaign tu identil~•.Japan as an
t·nemv and a threat was clevcioped In· some 1nlluent1al groups w11hm the
llnitcrl States. Yet a direct, frontal campaign or economic warfare anrl
hlockacle against the whole region or agamstJapan \\·ouid have been cnor-
mouslr cost]\' and counter-product1,-c. The European powers would
probably not ha\'e co-operated. The c;1mpaig11 could ha,-c rlestroved the
11ssue or US-led mternational 111stitut1ons and could h.-1,·edestabilised the
American economy nsclr. l11steacl, the concept or.Lil-round cco11um1c war-
fare was deplovcd i>Vthe Clinton adnu111strauo11 as a threat, a potenuality,
supported hv the assembling or a ballt'.IT or i11stn111wnts a11rl opt·rauonal
co11n:pts. These instruments included mech,11i1sms such as the S11per-'.Hl1
8-1 Tl IE Gl.Oll.-\1.1.S,\TION <;,\:\1111.E

111s1rumc11l for unilateral trade-war, crcatcrl 111the Reagan pl'nod. the

~u-cn~thenin!-{ of su-callccl anu-ctumpinp; anw11s, 1he dec:larau,111 th;ll L'S
eco11omu: access ltl other economics was 1J111,· a 11r1/tr)//fll J1•r11n/_1· 1u11r (L1111s
an issue on which economu: warfare could l)l' used), and the dm:tnnc ol
the existence orl'ro1w111/I' mltwr.rnr1·J/a/1•s to wluch liberal economic pnnn-
pies shouicl nut be applied. Alo11gs1<ie these nmccpts. lite Clinton
actmi111strauo11 clroppeci even lip-s1.:rv1ce Lu so-called (;,.\TT multilatn;tl
pnnnples in trade issues. adopting instead as its kc\' pnnnple renpront,·
;111<1n11sing the slogan or "fair' tr.ide. And li11allr the threat 1ila1 the L'S
would huilcl a rq~1on;1I fonress 111the .-\ml-r1c111hemisphere w\11d1 would
be used to cxducll' Ea.~IAsian opcraLors.

--I) :\11 art11•1.1/ dm•I' lo clw11g1· th,•/1m.~·1m11111r•sof'lht• 11111/tilalnal111gr1111s<1/1011.1

Withm the workings of Lile DWSR, LIS adm1111~Lratio11s111 the l 9N0s had
extracted gains from cns1s-hit countries in Ler111sof openmg their lina11nal
markets to rn:e !lows of in tcrnational li.Jncls, , ,pen111g their financial marl,l'ls
to LIS linanc1ai opcrntt1rs, opl·mng their asset markets for lmv-out hv LIS c11r-
po1~1uons and so on. But tl\esc were p1ecemcal g;1111s associated with parucul.ir
cm111u·1csand crises. Some of the garns, p,u-ur11larl\' 111rela11on Lo llw frel' llow
or internauonal limcls. wen: partially reversed. as occurre(( in Chile ,11HIDtlier
places. But Lile prohlem \\'as that East and South-East Asia llacl largl'h· escaped
such Lreaunenl because t11cse states had largely avoided linancial cnses.
Building upon work already achieved under the Reagan and Bush adn1111-
1suauons, the Clinton ad1111111su·,nio11 cll•cidcd to radicalise the prog-r,w1111csor
,·anous multilateral organisations 111 order to co1111111t them Lo Lhl' radical
opcn111g-of national eco11nmics. This wouid then lllrn them 111totlw 1'1111c-
uonal equivalent or the role played by what l·h11111ngto11 called thl' secunt.v
zones or the Cold War. States that w1sllcd lo h111cuun witlun these multilatt·r.il
111sutt1tto11s
wouici, Lop;irap11rase what Rothkot'pl s;ucl in the c.:ontexl of bodies
likr.:NATO, have Lodeai ll'llh the Unllecl States - the comrnlling- power wnl\111
t.hese organisauons - on their domesuc economic assets. And ifa state meci to
evade 'dealing with l11c Urnted States on these issues. ll co11iclhe cxdud<:rl
frllm memberslup oftlw multilateral instituuons . .-\11clifit was so exd11ciccl. u
could he sui~1ected to a full ra11g-eorinstruments or ecoi1111mcwarfare and he
clc111edsecun.: 111seruon 111 1tHcn1auonai markcb, since such secure 111sen1011
w01ilcl 111crcas111g-ly
dept'ncl upon a state's µ;oocl s1,mcling Ill the m1illib1eral
orgarnsations, The res111lwas four mterlinkecl r;11npa1g-ns10 change till' pro-
grammes of these bodies as follows:

1) First, ch,ingmg the programme of the 11\IF10 Cllmmll It tu Lia· ulwnalL'

complete dismantling of conlrois on the capual acco1111l111 en:n· co1111-
Lrv,Jelling funds !low into and out of' counlnes frel'l\'. The g1·eat political
 l'O\\'ER POI .ITII :s .-\Nil Tl-11-:( :1.INTON .-\mllNlSTlt-\TION

tnu111ph on Lilts 11':tsthe decis1011 al L11ell\·IF/\-\'l\ g-aLhenngs 111I-Ion!{

Kong 111 1997 to d1.111gl' tile Hv!F :\r11cles or .-\g1c-e111elllto commit Lhe
I l\-lF to complete liberalis,11w11 111 this way.
~) Second. adding a new progra111111,1t1cp,teka~c LO LhL' World Trade
Orga111sauo11\ pnigr,1111me through an agret:111c11tto liberalise Ji11;111cial
sernces with the ulumale ol~1ec11veor complcll' freedom for linaucial
operaLors tu enter every finannal system with Lhe same nghts as local
operators (so-called nauonai Lreaunelll). The g-reat political Lriumph
here \\'.IS, supposc·cllv. the deal ach1en:d in till' Wnrlcl Trade Orga111~atio11
11\Dccl'mhcr I !197 011 the g-lob.11libl·ralisa11011 c,f financial sl'ntn·s. :\H
'.I) Third. ch,mg111µ; the programme or
thl' OECD 111two ma111w:1ys: li1s1,
making Lile ending ofcontrois 011 capuai acet>Llllls and on Lhe lllOH'.lllCllt
of" fi11a11cialscr\'ll'l'. operators a prcconclit1011 for OEC:D memlil'rsl11p;
and second. Lhrough arlcling a package ol"rules known as the ivlultilateral
Ag-rt:ellll'lll on ln\'eslmcnL (1vlAI).which would gr;1111compicte frl'edom
li1r lllduslnai corpurauons to mm•c llllo natu111al l·l·o1101111es and hm· up
ioctl compames, so:.:tup Lhe1r own operallm1s and clominale local produt"L
markets: Lhe great poliucal lnumph here was supposed LOoccur 111 I~)q:-,_
wnh the final ;'v!AI agreement, aithough tllc OECD horse wo11l<1,as 11
turned out, slumblt at Lhe last fcncl' Ill Lhl' ncgDllallons.
-1) Fottrthl\', a wlwle baHLTY of other meas11rl'~. from thl' orga111s:i11rn111l'
sec11nL1cs markcLs ln the proLL'ct1011or ll·ch1111log1cal m1H1<1poliL'S(so
called intcllecrnal propcnr righLs), to he adopted lw Lhl' 11111ltilah·ral
orga111sations µ;ivi11g Lhe1r (US) icaclt:rship thl' nghL 10 rl'orµ;a11be a
state's 111tern al social relatHms or producuon to lit wnh thl' req11irl'-
mc11ts or US opl'rators. or, to put Lht: pomt another wav. In matd1 the
11111st recent ·snL:IILilic advances 111..:conomK 11louglH as e~prcss1:d by
the Washing-ton ( :onsensus.

The point about thesl' campaigns was 1111tac111allv to ll'ar down all tht' 111s11-
1111io11aibarners even·1,·hcrc at one 140. .-\s a m;lltt:r or fan. the Clillton
adm1111sLratHIIIwouid not 11eccssaril\· have had the sli1--:hLcsL obJl'rt1011 to an
;div like Chile rc-1mp11s111gsome elcme1JL or capital controis. The pomt was
Ill use Lhesc challges Ill the programmes or the muitilaLeral orga111sauo11s as
whaL might be descrihl'Cl as poliucal c111-npe11ers to open t.hl' licls orn•r/11111
.1/11•riji,·
Jm(it1m( ,•m11m1111•.1:Jl111seof East and South-East .-\s1a.
It 1s 1111portanl to 111Hkrst;1ml Lhc exact poli11rs mn1ln·cl i11Llie 1:1dicalis;1111111
or Lhe pro14rammes of the muitilateral orga111s,1L11111s. First, tile dnn· could
appear to respond 10 tiw great power or Lhe idl'a or estabjishmg a cosmop11li-
1;1nsvstem ol' 1--:lohalgovernance for 11.sresponds to deep, wide and thoroughly
.111stilil'dhuman vearnmgs Ill Lhe contemporary work! Lom·c1-come 11aurn1-stme
n\'alnes. The pn1gramrnc radicalisatH>11 seems to act11cn: Lins. .Sccondh·. thl'rc
JS Lhc grl'al power or tile 1clca or rcpbn11g thl' l'Ollllll;llld poliucs or I lilt' state
8(-j TIil·: (a.Oil\1.IS,\T(()i\; c;,\~11\1.E

aga111sLanother b,· lhl' ruk of law. t1111n·rs;tl lairs l>r wl11d1 all will bl· lmnnd.
The radicalis;u11111 progra111111t·sl'ellls to corrl'sprn1cl lo this cles11'l' s111n· 1w11pl('
assume LhaLthl' 11111ltila1eralurga111sat11111swork 111a 11ile-basl'cl w.1,·. But 1l11rclh·
and most crucialh·, 1hese 1.,,·o powl'rhtl 1cll',IS co-t·x1s1 wllli a realit,· 11"111ch
enurelv conlradicls them: the multilateral orga11isa11011s arc supr;111a111111ai
forces for most of Lheu- member s1alt'S but 1111\lill" all. 110Lli1r those sUtl's.
abo\'e all Lhl' US.-\, ,,·\11chco11Ln,I them. :\n oq ..(a111sa1m1111sec\ h~·011l' s1all' to
govern LIH' globe 1s IH>L a supr,111:11w11al 111suw11011or ·giuhal gon·n1;111n· .
The U.S can l>lock lll'llls JI dislikl·s off l.hl' ag-l'mbs of thl' 11\·IF/WB ;111d the
OECD. IL agn:t·d L11Lhl' WTO's crea1io11 011 the cxplint basis Lh,11if HT<) rul-
mgs were ·unfair' Lo the US. then L'S gm·l-r111m·n1.~ ,rnukl hl' chm· hound 10
ignore them . .-\llCi this ll';l\"es tiw \·\TO as a lr,um·wurk not of law h111ol h;1r-
ga111mg. 111casl's 1dll'n.'. tlw US c;111s1rike a lw111_,.r rlt·al hilatl'ralh- outsid,· 1ilc
framework or UH: WTO 11,rill hL' clo so allCl will strikl' such rlt:als rn rn1l;111011of
,,vro pnnopll's .. -\ml as Lhc Dutch .-\Llauuc C:OlllllllSSIOII 's Slll<h· of" l!S track
policy shows, tlus polic\' was 111ov1111-4. umlcr Cli11to11, 1111derthe code word 'fair
trade'•: in the clirL'clloll or managed trade. us111~ the g-ow-r111111-4 pri11uple l<>r
Lill' United Stall:S or rl'nprociLy rathe1· than 11111ltil.1tl'ralis111.:\\J
Tht: Cllll('("PI or
111;111agcdtrack, S\'Slemaucallv pursued ()\· the L'S Lo1\"arclsJapan. Ill\ olH·s
rcpiacmg a rull'-hasecl tr.idt: rq.\'1111cwuh a n:sulls-hasecl rcµ;1111l'. 111othl'r
words, target states must ;1cccpl Cl'rtam q11,111t11,111n· 1.irg1.:1sf"or thl'1r 1111p1,r1s
and ex.pons or parucular sets of goo els, as i11Comt·co11-s1vle trade pl,11111111g.
lluL a final h:auire or the US poliucs or radicalising the programmes or I ht·
multilateral orga11isauo11s should be noted. The enure cln\T could nut havt'
been accomplished wnholll the support of the Eurnpcan ll111011 and lls
member slates. Follow111g the co11d11sion 01· the l.1ruguav Round d1t:rc \\'t'IT
t111m1stakahle s1g-11sof a Ill'\\' :\tl.muc PartnL'I ship lor 1"Co1·g;1111s111g anrl rl'st1h-
ordin,1L11t!; thl' wo,·lcl ccrnwmv 111tltt· mten·sts 1>1'thc~l' two tTlltn·~- .-\., LIS
Assistant ComllH'ITL' Sl'crc1arv (for markl'l access and compliann·) \ 1;1.-go
has expla111ed, 'Experience has shown tllal. large as we are, we c.1111101open
the global marketplace 011 our o\\'n. \Ve must ha\"l' partners Ill tha1 l'11dc;iy-
our No trade round or olhl'r 111;\Jor 11111ltila1cral 1111t1;1t1\Tha~ iwe11
achic\'ed wnhouL Lill' jomt icaclershtp of till' Un11ed St,1tes and EurPpt·.· 111
.\nci Vargo goes on 10 expbm iww pnor L'S-El 1 agrel'llll"l\l was ntal (i1r thl'
Uruguay Rouncl. the lnl"orrn.it11>11 Tl·d111ologr .-\grecme111 and till· l\;1~1c
Tdecun11nu111cat1011s .-\gnTment. The saml· was also trtll' or 1lw \·\TO fi11a11-
c1.ii services agrce111e1ll and. until thl' Fre11d1 go\'l•n1me11L\ rl'nill. onT lhl'
OECD's dral'L M.-\JTreat,· ;1s well. Swan Eizl'11s1at. Ll11dcrsecre1an- or Stale
for Economic, Busmess and Agnc111Lural .-\Jfarrs. has also u11derli11ccl th<'
centralil\' or thts co-opera11,·c dlort, crealln~ prl'ssure 011 .-\s1a11aucl Lalin
Amencan'countnes to fall mw linl'. 11
The 111suu111011which has plarecl the central roll' 111preparing the ;.:round
for such Lransatlanllc coaliuon-h11ilding has hcen the so-called Transatl,1111ir
 l'Cl\VFI{ I'< >I.IT]( :s .-\ND Tl-IE ( :1.INT< >N .\();\IJ'IISTIUTJ07'; 87

l\us111ess Dialnguc cr.-\BD). proposed al thl' n111dus1on or till' L1n1~u,1~•

Ruuncl in Decl'111hn Hl~H hv US Co111mt·rct· Sene1an- Ron l\row11 ,uHI cstal>-
lishl'cl 111 a lirsL lllL'L'llll/4 111Seville in NoH·111lwr l!l(l-1. As Assistallt Secretary
of"Commercc Vaq~" has notccl, his clepannn-nt acl\'ancccl the Tr\.BD cnncL·pt.
because ll hclic\'ed that 'g-i\'en the emir111tH1s crnss-1m·cstme111 hy LIS and
E11ropl'a11 lirms Ill each otlwr's markets, a singk transatlantic busirn:ss com-
11111n11Y aln·aclv t·x1stL·clth:11 could agrcc.1umth· on common solutiuns which
1,·ould henl'lit both the US and European 1·n111011m·s.'·1:.! The T\l\[) llll'l:IS
1·cgularly before the t\\·1cL·-1·e.irlvUS-ELI su11111111 llll'l:tings to reed prupmals
1111o I hcsc sum m 11.\.

5; l \111g a 1111.r
1!(mrm/.1 a111/st1d1s 111 l1ilait'ml r111tlri:l.',wllul1•rn1101111r s/"t,·rm/1

I\\' romb111111g ront1111111us 111a11oeun111g bc1,1·t·t·11 bilateral, mtr;1-n·g11111al,

1JllL·r-rl'g11mal and multilaternl 11H1vcsin a 1·en· soph1s11rn1ecl Wa\' thl' C.:\i11to11
:1clm1111su·,n1011 has soug-ht to 111ax1m1se11sga111s. .-\1 one 111ome1ll ll seems to
mu1-e towards a clJ'll'l' !'t1r a new eco11om1c i\·lo11roc.:cloctn11e lO takl' oHT
Lain America. \\'c.:akc.:n i\lERCOSUR and threaten to exclurk Jap.111 ,111cl
East :\s1a or l'\'l'.n E11ropL·. \Vhl'n lcar runs luµ;h 111olhl'r rq~1u11s, 11 thl'n
olTns peace 11·11hsav. E:1s1.-\s1a Ill excllangt· for ;1 h1g access cleal of' llll' right
son there. E11ropt' then pamcs !hat the llS 1s rm1s1n1n111g a hil;nnal
llHHmpolv with Japan and ollt'rs either a hib1eral EU-US m<HH>poh· or a
14iobal lllllltilatc.:ral cll';1l. Such offers are thc.:111ake11 back to Asia a11cltllnll'cl
11110 an111her threat 0L1 l)ilatc.:ral monopol\' unless ,-\SEAN deals . .-\nd so 011.
Tht· Clinton aclm1111strauo11 illus used the [;KUC or Lhn·atenc.:cl exclus10n
with skill: it laid e11onnml'i early emphasis Oil ii1l· s11pposedl\' 111ass11·l· s1ratc-
g-1cs1g11iJicancl' of" N.\17'.-\. making the EU am! thl' East Asian cou11lnL·s li:ar
( :linttm wan tee\ a rq.{llJllal fortress from ll'h1cl1 tt1 wage rracle war. Tlus ,1·as an
ideal atmosplwn· 111 winch Clinton could li11alh· 111ckhorns wllh till· FJ"L'nch
<>\'LTthl' Uruguay R1111nd. .-\1 the saml' 1i1111.: rlw Fr,111co-.-\111erica11111:1r;11lw11
11c.:;11\ytT1m-rlecl Olll all other n>lllltrws l'011tTrns 11\'l-r thl' proposl'cl \\TO
1rc.:a11·since there \\"as s1mplY no llllll' Lo tackle such problems: .-\s1a11co11-
ceri1s coulcl be 1g11url'd. :\11cl an11ecl wnh the WTO cleat. the Clinton
acln1lllistration then agreed with Congress th.it thl' LIS \\'oulc\ resnH· thl'
nght to ignore the WTO if' it startl'd Lrl'aling the LIS '11111"a1rl\''In lhL· cu11-
tl'Xt or tills ,lllXll'l\'. ( :li11111nmade lllltch pi.1,· of mal;.ing .-\l'EC: a 1111gl1ty
ll'\'LT !'or nmstrue1111g a LIS-J1panese bloc, prm·1clecl, oJ' courst·. 1ln· F;1s1
anci South-East ~\s1an, 111d11di11g.Japan ll))L'tll'rl their econom1l·s up to
ilw LiS.
Thl' Open Door dn1·l' 111 East Asia 11·.is prl'SSl'ci iw thl' C:lintull
.-\ch111111stration both hilaterall\' and through .-\l'E( :. Tlw :-\PEC s1111111111 111
Seattle 111 I ~19'.1 agrl'ecl 10 create ·a com111111111,· of' .-\s1a Parilic cco11om1cs'
and spurred I he s111-ct~sshilconcl11sio11 or Ihl' l 'i-11g11a\'Ro1111clin 1he ( ;.-\1~f.
88 THE CU)ll.\l.lS:\TION C:.-\,llll.E

.--\PEC:'s Bogor Decla1auo11 111l11dones1a 1iw l"ollow111g\Tar pleclgecl ·1c1

ad,wre free and open trade an<l m,·eslnw111 111the rcgH111 lw ~010 l"or till'
111d11sm;ticountnl'S L11atmake up /·Fi per cent nl"t\l'EC tradt· and h\' '.!O~Olor
the rest. The 199:i Osaka APEC srnnmit adoptt·d a so-called .-\c11011Agenda
that sets out the prmc1ples. the menu of issues ancl Ihv !l111ctahles throu.~h
which APEC's poliucal commitments woul<l l>t· lransl.ited 11llo 1a11gihil'
results. The APEC leaders ,\l Osaka piedgcd to stan libcralisat11111m_);m11an·
I 9~17.The No\'ember 1996 summit at Subic 1111he Philippines clemonstrated
LhaLthe governments or 1he reg-ion wi:re E.trfrom 11na111m011s on 1hc need
to transiate their l11gil prn1<.:1piesUllo praCLicai liberalisat1011 measuri:s. B111
as prepara111ms for tile Nm·ember I ~)97 Vannnin-r slllllllltl got underwa,·.
IIH: mo111hpieccs or American li11anc1al globalisallon 111lcrl'sts were pn·ss111g
more strongiy than e\'er for Lile open door. Fred Bergstt·n. li1r exampk.
from the lnsunue of lnternauonal Economics 111Washlll[{ton, was still ins1s1-
mg: 'Liberalization and den:gula1ion or linannai sen·1ces arc essenual IO
susta111 economic clt:n·lopment tl1roughout tht· APE<: n:g-1011 (as clse-
WhLTl').' '\'t:t APEC's actual pr.ictical progress 111thl' cliren1011 the Clinton
aclmi111strat1on wanted was mmimal, even tnvtal.
v\'ashmgton took an exc:epuonall\' tough stance for the radical dcmoliuon
of comrols on the m1wcment of 11nancial sen-ices, 1)111 It did so in a cardulh·
targeted Wa\', threa1c11111gto pull out of a \\'TO agrccml'lll and huilcl its own
llt'l\\'l>J"K orliberalisecl linannal services marl,ets unless ct:rt;un specific 1.:111111-
tnes great[\' liberalised entr\' of linanc1al scrvtci:s: naniel\' Thaila11cl.
I 11clones1aancl other East and .South-East Asian co11111ncs.:\1 Ihe same llllll'.
Lhe Clinton adm1111strat1011ensured that the OEC:D commllt<:d llSl'II" tu
ms1sting any new members m11s1lirst dism;mtle their c;1p1tal controls or gel
a plan for thcff dismantlinl-{ agreed and then used that as a \l'eapon aga1J1st
Korea, which was se~king OECD <:ntn·.
The campaign to open up East .--\sia'sfinanctaJ sectors had begun in 1he
1980s, focused on capnal account libcralisa11011 and linannal dercgula-
uon. Dunng the 1\)8Ils, Korea remm·ed 111,111\" or its controls on cap11;ii
outflows, mcluding portfolio 1m·estment abroad. out\\'ard lina11nal cn·d-
lls and bank dcposns. But It retained many res1nc11011s on varwus kinds or
capnal 111llows, espl'nalh· those resulung 111 clt•l)l ohligaLI1111s.Up 10 I \J~J7
ceilings were placecl on total amounts or dmnt·suc scr11n11es lllat could he
issued abroad. There: wvre aiso ceiling-son le\'els or ponrolio 111\'estnwnts
m Korean stocks. But forc1gn inn·stm·s were g1,·c11easier access tu clomcs-
Lic bond markets. r\nd before Korea's accession to the OEC:D 111
December 1996, ll removed a number of restric11011s, such as those 1111
1111ra-companv ioans or an FDI character. and those 1111fr1endh- mt·rgl'rs
lwtw<:en l'ote1gn and Korean cmnpanies (Lhough mergers or the btggl'st
chacbols w1th rore1g11 partners were still prohihnecl). lh .10111111g thl'
OEC:D. Korea was oblig-cd LO design a schedule for 1111pkmen1111g 1he
 PO\\'ER I'( ll .lTICS :\Nil THE CLINTON :\Di\llNISTIUTION

OECD Cocks of l.ihnalisation or C:.1p1tal \lm·emcnls and Current

111\'isiblc Opera1101is ;mrl to enctursl' the l 971i OECD Dcdara111111 on
lntcr11at1011;1I !11\'L'S!lllL'lltand Mult111.1111J11;1I Ente1vnscs as wdl as (II(•
OECD's 'Natwnal Treatment DL:c1s11111.
:\nothe1· 11nportant climt·11s11111 is
the rclaxauon of restrictions on cross-border trade 111lina11nal ~LTYices.
The liberalisauon schedule which K1>rca agrl'e<I wnh the OECD 1nYoln:rl
speeding 11p liheralisal1011 mcasun·s to compkte most of them hy
December 199.'-land the rema111<1cr )w Dcccmbl'r I ~J99_-n
While rcpcatc<I US attempts to L'ngage 111 trade conllict wilh Japan had
pro\'ed 111creas111gh·lllcllccu,·c because or the .Japanese capacity to resist
and even retaliate, Washington was al)le to wagr a vigorous trade war against
Korea: IL imposed .11111-clumpingan1011s aga111st l,nrean TVS. 1mposcrl so-
called ·\'!1111111.in· cxpon l'l'Slramts 1111Korean stl'l'l. !t'Xtill's and clothing,
used ll1t· Super-go 1 clause agamst l~11re.m products lwcausc it da11111.:cl h.orca
was using 11nfa1r pr,1n1ces and demamled grl'atcr and grcat<.:r 01w11111gor
Korea to specilic US proclucts.' 1·1 Tl11s wave of' trarte war agamst h.orea
worked.,-\ Korean track surplus wnh the LISA or $9.(1 hillio11 1111987 was
1
turned 11110a 1raclc cldint with the US.-\ of over $-1 billion ll\' l ~19(i_• '•

l'vlca11while both Thailand and l11do11cs1asuIJsta1111alk remm·ed thl'II' cap-

ital cm11rols, hm they did 1101open up full rights for US li11a11c1aloperators
LO compete III their domestic ec0110m1es. i\·lala\'s1a took a similar li11t:.These
countries' resistance tn US operators g-a111111g- frt·t· ('IllrY and national tn·aL-
mcnt 111 Lht'lr linannal sectors was treated ;is a cardi11ai international issue ll\'
1.hc L1Sgun·rnmcnt a1 1he start of' 1\197. It threate11cd to block tht· t·1111rc
\VTO package ctcai on the liberalisallo11 orlina11c1al ser\'lccs unless Thailand
and l11ciones1.1 111particular but other East Asian countries as wdl hilly
s1gncd up to libcralisat111n. In the spnng or I~)(17,the Bnush government 011
behalf of \Vl'sl Europl',lll gm·crnmcnts sought to mediate a11d pt·rsuade the
US government to morlcratc its demands. But for thl' Clinton ad1111111stra-
t1011, these countries were tiw kc~· and the kc,· to tlwm was ope11111gup
their linannal Sl'ctors. This was the position 111.-\pril 1997 when a Ill'\\' actor
cntcred the h,1rgam111.~arena: the b1~ US heclgl' 1'11mlsbegan tlw1r auack ,>11
the Th,11 li11a11nal 111;1rkel.
But th<.:,11111 of 1l1n1· !;.111cls
of ;iuack WilS 1lOl _p1.,1a q11.11111t:1ll\'L'
[)lit'. Jr Sil.
b\' 19~17tht· LlSA should have been wt·II sausficcl: Korea had btT11111t·the
USA 's lif'th iargcst export markl'L. Thc ,lllll was a radical restructunng orthe
social relations of product1011 within Korea 111 order to cng11wer an t•c11-
nomic ( :tnr·hsrl,11//11IIK orKorean capit,ilism and or others 111Lhe region w!lh
the 111tcrests or Amencan capitalism .. -\ml that rl'(Jllt~·L·d seeking lllll'rllal
allies \\'1th111Korea and other stall's III the reg-1011.all ks who could help to
open the lid 011 thl'ir social rl'iauons.
90 TIii·: ta.<lll ..\l.lS.-\TION (;.-\\11\I.F

r/011ws/1r
6) S1'1•hi11g sorwl /i1ilwg,·s l!I iH!'/.!/1sifll,·s //,m11,!!,h/1ropagollfifl
The C:IillLOIIad111m1stra11011s 111erc.111Lilis1 !rack diplo111an· was simph-, thl'rl'-
forc. one 1ac11cal prong of ;1 1md11-pro11ged slratq.,"'· .-\nothcr n·n· 1111pon:1111
tac11c was thaL or building and stre11gthe11111g1ckolug1cal linkages wult str,tll.'-
gK soual groups 111s1ciethe slates of' the reg1011 . .-\t 1hc len·I 111"111ass
propaganda, the kc\' was the 110L1011 1i1a1all had to Etce the rl'alit\· ol all 11n·-
s1stiblc forn· WllL"thcr for good or ill: tltc Ii >1-n:was not, ol l'<Hll'~c. 1he L11111ed
Stah.·s: if it had been. tlll'll 11 would lia,·L" nrnfr"n1111g the IWI 111s1g11ilic.1111
fr,rcc oJ' Korean nallonalism. No, !he force 1n qut·s111,n was. orcourse.· gloh-
alisauon' But for a mon: sophisuc:aterl huurg<·o1s audienn: :1 difl'l·re111 k111d
or mon.: f'on1scd propag;1nda campaq.~11 ,,·as launchc..:d, ,1pp1·:tli11g to !he 1T11-
11cr side of the passums oflocal capnalists. To appt·,tl 10 this rentier 11111·n~st,
cconom1c life 1s rc..:co11lig:111Trl as 1he cons1a111 s1rug·gle of' 1lic sa\'cr aga111s1
brutal 'fi11auc1al repression' for freedom to place his or iier r11nds l\'herl'
s/hc..: likc..:sand for lus or her nglll to a_1us1rovalt\' 011 a 1ws1 q~g.
In Lhe nmt-l9!10s a lar).{l' US propaganda c.unpaig:n was 1arg:c:1ed al lhc
Korean busrness class's renLier i11clinauo11s bv the ins11tu11u11s ol' the
\Vashmgton conse11sus, including: 1101least thl' p11hlica1io11s of' the li\lF and
World Hauk. :\ go()(\ t'.'.'\;llll()lc of s11cii prop,1~a1Hla 1s pro\'ldl'd b,· 1he
lns!llllll' for ln1er11auo11al Eco1101111cs111 1v\'ashmgto11, a 11rdesslv 1·epc1u1,·c
source orsuch transparentlr ..\merican-scr\'lng material. ThL·ir g:ramlly 1i1ll'd
APEC paper called 'Rt·stntclurntg: Kon:a's Finanu,d Sector f'nr
Compeuu,·ent·s.~· 1s a c\iatrihc ag:,11n.~1 'li11auu.1] rcpn:ss11111 on he hair 111' the
wiling Kon:an ren11ers. I! explains that without freedom 'sanTs arc ulkrl'ct
low rau.·s or n:1111·11 ', with financial rcp1·L·sswn pniJeCls arl' L\'p1calh· nut
funded according to their rates or rel ur11, hut rat lil·r 011 Lill.'I us1s ol' 11011eco-
1101111c nms1dera111,L1s In the cas1· uf Korl'a. 1h1s ts rl'fl\'ned 111 the I01r
a\'erage rate or return on bank assel.,. which is among 1hc lull'csl of' thosl'
obsc1Ted in emeq~111g-markets ... Mon: generalh·. g-m·<..-nmenl llllel'\'l'l!Liu11
m till' linann,tl markets <:rodes thi..· ;11tl<lllOlll\' ul' the..:pnvatl' sector \\'hlC'h
becomes inncas111gh" n1lnn:1hk 10 polin clccis1011s hY g11\'L'l'llllll
0
1111>1'li-
c1als The result IS mcomc growl h that 1s slu\\'l'J' than needs he
Furthermore 'Markets c.1rn101 work d'ficicntl\' Ill the ahsl·11ce or reliable
1nli.Jl'ma11on. Sirnpl\' 1hinl, 111' the prnhkm or tl'\'ing LO,·alt1t· sharl's 111lhl'
stock markc:t 1111clersuch co11rlil1011s·and ·taslh'. li11a11n,tl rl'J)rl'ss1011 ;ll'h as
an Implicit lax on holders of gm•enrniem debt. Bl' res1ric1111µ;cap11al llo\\'s.
the ~o\·ernment c.111Ill cfkct force drn11es11cres1cle111sLOaccept go\'t'I'ltllH'tll
dehl at lower 111tercs1 ral(:s 1ha11would lw the..:r.tsc if' there ,n·rl· 110 n11111·ols
on cap11al.'•lli In short, for 1he authors, cu>1iu1111rs 1s 111a1nly about the
human ng-h~s ofsa,·ers to l'ill'll tha1 cx1ra percentage..: po111t uJ'intl'resl, ,1 roy-
aily cn1ell\' repressed for decades lw Sno1h Korca·s 111align co11cc..:111ra11011 on
ccononuc growth.
 I'<l\\'ER l'Clt.lTtCS .-\Nil Tl lE CLINTON _-\(}\[ll'\ISTR,\TI< IN

7) { Imig ti,,• 111.11rn m1aifa(J/t, tlmmp/1 !'11·DI \'.\'R/i1r n,rlt'llt)'

1111•11i.1 llml
ji11a11nal c1•r11_jrir,•

B\' I ~l~li, 11was pDssible to argue that till' L'i had ciialkccl up a s1g11ilicanl
range or quan111auvc successes 111!ls East and South-East Asian campaigns.
11 ha<I ach1cn:d succc:s.,L·s ()Olh 111 ga111111g Ill'\\' legal rights llf' c:nlr)· and in
g;11111nf!_ a greater qua1111t1· ot'prolits from the rq{1e1n. h:t the rdatrn: 1n-i).!;hl
11f'US capllais 111the rcgum's economy was still 111rii:clinl'.
The 1~197annual report or
liH' Amcnr.111 TPCC (Trad<: Pro111011on Co-
orrli11a1111.1.r C:ommillL'L') showl'rl a cledinnig llS share 111"the .-\sia11..:xport
111arkL·t. \Vhik Lill' L1S had 111C1"eascd its share ul cxpons tu i\-kxtco,
:\rgl'nlin.i and Brat.ii. 1he US's markl't share: in Ch111.1. India, all(( Somh
Korl'a (as well as Ill So111h Africa ,111Cl T11rkl'1·) harl clt·clined.
ThL: share of" wtal L;S exports tli.11 went lo ,\s1a 111n-L·ascdfrom 15 per cc11l
11119~10to~() per l'l'lll 111199!i. Bue 11sshar<.· ol' llllal l'Xports to Lhl· rq{ton m
1wet1tY-lin· kl'y proclucl cati:goncs f'ell frorn I ;).:l per relll 111I ~190to I '.:!.:Iper
l"l"llt in 19!H1.Japa11's sl1an.' fell from !.!O.:iper tTilt to JS ptT cent ;111cl the
ELI's from 111.·1per cc11 t Lo 15.i per cent. ThcsL· ckdi11es c111 lw cxpl.uned
for the most part hv the nse of" inll"a-As1an expnrls: tlll'lr shal'l· rose from
Tl.~ per lTlll 111 Hl~I0 11, ,>8.li pn lTnl i11 l!JWi. ·(-lmwnT. in kt·1· 1mt:1nces,
US share loss was clue spcrilically to gains h,·Japan and the EU. ·-Ii Tat1ll' 5.1,
us111g-a differi:nt dd1111t10110L\s1a and excluding- intra-.-\stan 1rack. 11nder-
lint·s ho\\' \\'l'ak 1h1~LIS pos11m11 \\'as. rclaun· 1o_Japa11.

Table 5.1 G7 Exporl<; to A'iia in I !)!Iii

l·.'x/111rl111g
,w111/ry l',·,n.·111r1_w·
11(. l.,11111 1'.\'/1t1rl 11unl:,·1

l!S:\ '.!!I
_lapan -J'.\
Cn111;1111· Ill
UK G
haiy :1
Fr:111n· ·1
( :anada "'

'.'-:11tt·~:
,.\,1:1 1111·huha~S1)111li 1.;,nre~1.·\SE.·\;\. l1uli.1. J':1ki,1.11t.
( :hiua ~uul I Jr.mgl\,uig. Tua.iJ,.·,xpo11., ir, J~)~JI)-:- S:F,O hi1Jin11.

Such stallslics s11gges1 that ll\" l'arh· l 9!li I he US cap1pa1g-11 (m\'anls the
rcgu)I] 11·.is hiling-.
Or was 11: Tlll're 1s ()Ile weapo11 1111.he lockl'r ol'llll' US Trcasur\' ll'h1d1 we
han'. 1101vc1 iooked a1: 11sabilitv to exploit the Doll.ll--Wall Street Rq-{1me as
:111 i11s1nm1t·111 for c111Tenn· and li11a11cial\1·.1rl':in·.Thl' 11sl' of th(' DWSR as
 Tl IE ( ;1.0ll.\l.lS,\TION C.-\:-11\1.l·.

such an 111stn11nenl is easily expia111ed. The regmn ·s polittcal t'C!ll\Olllles did

110Lsuffer from the usual kind or Third \-\'oriel vulnerabiliLY: doml'st1call\'
poliucallv weak s1a1es wlrnse weakness was expressl'rl as !ugh budget dl·li<.:JLs
kading LOhi!-{h bnrrowmgs and debts 1>11 inter11auu11al linannal 111arl,c1s.
The rq~1011s stales were not 1ncleb1ed in 1h1swaY.Their niinerahililY lo lilt·
DWSR arose 111the lirs! pl;1n· ;11 ll1<.:ClllTL'llCVpole Ill' the D\VSR. Tht·Y were
mainly n:li.1111on ex.pun-led growth. This made thL'lll ,·ul11erallk to strong
mm·emenls m currencies. Since 1he1r cm-renc1es were mamlr lied to the
dullar and L11cvexported s1gnilicamlv to.Japan, a low dollar agamsl the n·n
boosted exports, but a l11gil dollar aga111s1a falling \'en hit their exports.
During the cari\' 19\)0s, as pan or what many see a~ a deliber:u1: poliucalh·
mspireci L1S campaign ag;unst Japan. the US Tn:asun supportl'cl a falli11g
dollar aga111st the yen. This pul n:rv g-rl'al pressure on Japanese 111rl11stnt·s
and they responded hoth 1>,· shirting new 111vestmen1 11110 the rest or Lhl'
rq~1on Lo benefit from the lo\\' dollar, and Lhrougl1 many ,•oices being ra1s!'d
for the construcuon of a ven-zone tvi11gthe rq.;101110gethcr under.Japam:sl'
leaclersh1p. This woulcl ha,·e been a catas1roph1c blow tu the llltl'l"csts or
American cap1talism.
But with the appoinLmelll or Larr\' Summers as l'ncler Secretary at 1he L1S
Trcasurv 111 I9~1!l.Washington reversed Its clollar-\'L'll polin· and allllwccl the
clollar to nse ever higher agamst the vcn. This s1.1ned 10 n:en grc,tl prcsst1rl'
on the exp1irt.<;of many nrthe rel-{ion's economics. 1\t the same urnc, iarge
flows of hol money started pourmg 11110 the region from the Unite(I States.
Those stales in the rq~ion which had libe1·alised their capital accounts 10
allow such llows clllry found their currcnnes bemg pushed still higher iw tlus
1111low or hot munev, while s1111ultancousiv finding clo111l's11c 1111la1111nar"prL'S-
sures building up. In 19911llows mto Inclones1a, l'vlalavs1a,the Philippmcs a11cl
Thailand increased •()y 4:1 per cent Lo $1 i l>illion: 1K Prn·ate flows Ill .-\s1an
emerginl-{ rnarkets 111 the I 9~)0s are gwen in Tabk !l. '2. The effects or I he
squeeze on exports was 10 cause difliculues 111,·c1'\' importalll pans orthl'1r pn-
vaLesectors and Lhev were tempted Lilborro\\' ahroacl rrom US ancl European
as well ;1s.Japane.~c IJanks to 11de L11emselvesover the l'Xpon SCJLIL'<:ZL'.
In short, the combmccl effects orthe two poies orthe DWSR were. lw I ~197.
ensnan11g till' region's eco1101111cs111a Lrap. US dollar politT was the lirs1 cn1-
1c;1lprecondiuon for th<: lT1s1s.The success orthl' L1S g11,·crn111e11L ;111d or US
linanoai operators 111 persuading a number of g-ovl'nlll1L·nts 111 thl' reg,1111!CJ
open their li11anc1al sectors to mllows or hot moner w;1s the scco11cl preco11-
dit10n. The actual !lows orhot monc,· that tllen occurred 111 1995-Di were
responding tu the effects nffalling mteresL rates in Lill' US Jinancial s1·s1e111 111
the nmlcllc uf the US boom: thcr \\'l'rt· seekinJ,!;higlll'r short-term rovallll'S 1n
the still rapid Iv grnwmg eco11011111:s orthe region. The1· l\'tTc the 1l11rcllT1ucal
prccondiunn. All that was needed hy the spnng or I t)tl7 was li>r suml'l>lll' to
pull the lnl-{gcr. That.Job was one for a handf'ul of US hcclgc hinds.
 !'( l\\"EI~ 1'01.ITICS .-\NI) Tl-IE< :I.INT< IN .-\I J~IINISTIUTH IN

Table 5.2 Pri\'ate Financial Flows to Ac;ian MarkcLc; (billions or US$)

I <HJO I,,,, I /I)')? J()()} I 'J'J·/ [ ')95 /996

"Ii,1al 11cl prwalt· c;1prral inllrn,· '.!1.-1 :~i.7 '.!'.!.·I :i!l .:i i:-..r \18.H l(Hi.l'I
Net frn·t·1g11cliJ'L'CI 111\'L'Sllllelll \l.:1 I:>.'.! I -'·-" :;:,.~ -1-1.li :,0.7 :18.0
Nt:t portfolio lll\'e.,111n·111 (Ul ~.X \l.11 ~~tH 18.:) '.!II.I '.!(l.l
?-kt other 1111·es111u-111 l'.!.\l )~l.7 -l.:1 11.:i )'.!.fl '.!H.I 28.8
Nl"l external horro\\'lllg from
11rtinal tTl'clirors :J.li 10.7 Ill.'.! H •J
' ·- _,.,.11 :,.0 (i.7

S11urce: l11[t•r11auo11al.\lollel:1n· Fu,nl; lnh:J'llallollal Fi11:111c1;d

~lallsurs and \\'nrld l-:n111011m:
Uutlc.1ok
da1al );ISes.

fo/1•11/w111111,I:\rfw11 111Iii,· N1111-U/1'" ti,,, 1~·asl.·lsum Finannol (.'ris1s

The quesLHlll, or courst.:, anscs as to whl'thcr thl' Clinton ad1111111stral!on was

consciously using I he D\VSR ,is an ms1n1111en1 or ecunmrnc s1:11ecraft against
the East and Somh-East Asian economics. \,\'hat 1s cena111 1s that the dollar-
\TII exchangl' raLc 1s 111the polic~' gil't ol' thl' US Trcasltr\' ancl Feder.ii
Reserve. Srnnnwrs was dclib1.:ratl·IY oq~a111smg ;i stnmg dollar against the n·n
and was rullr commlltcd to 11. \,\'hat we <lo 1101 know 1s w11,· l1L·wanted the
dollar lO nse agamsl the yen. One expi.lnauon 1s that he w;uHL·cl to help out
.Japanese busmess and 111 parucular to help IL expori more to tlw United
States. Is there anvonc 111 the world who would belic\'e that? Another expla-
nation is that he wanted to prc\'ent all\' mon:s towards thl' rrcauon of a
n·n-zone. H11LLlll'_l;1pancsc government hart nenT_J0111l'rl Lhl' 111on·mc111 liir
such a zonl·. We ;ire Lillis lcrl wllh a mystl'P' over the sou!'Cl' or Summers·
policy, unless lw ll'as mtcrestccl III sq11ecz111g.J:1pan's c\ollar-li11ked hmtcrlancl
L'Conom1es 111the region. Eventhmg that we know about thl' Cli11to11 admin-
1strauon 's obsl'ss10n with the challeng-c or the rcgllln also pmnts Ill this
direction.
The Cli111u11ad1111111slrauon was al.,o, Ill I he 1111d-l~)90s. conn·111ra1mg 11.,
campaign to l'IHI umtrols rn1 tht: capnal accot11ll upon E.1s1 a11cl South-East
.-\sra. Enormuu~ pressures and u1cl11lTlllCllts 1,·l'rc ht·111g t·xencd LU this end.
There was 1w s1g11or sucJ1 a campaign directL·d at Chile. The roc11s was 011
Asia . .-\nd so ton was the focus 011 lilwralismg the entn or li1re1g-n linancial
sernccs. This was directed L'Spl'n:dlv at Thailand. lndones1;1 ;!lid Korea. Thl'
US guvcnlllll'lll did not, of coursc. 1Jrga111sl' the !lows or hol ponfolio funds
111Ln thl' rcg-1011. But the\' were lmunrl to occur: tile dy11a1111csul' such out-
llows or l'unds, linkl'd to the domesuc US hus111css C\'cle. arc Wl'II known. US
Treasury Secretarl' Ruh111 is ;111old hand from (;o(d111,111Sachs and u11clcr-
perfectly. :\s Nixon h;HI l'orl'Sl't'II h,1ck Ill the 1970s,
sla1Hls thcst· rl\'11;11111cs
li11:inc1ai markt·I~ r;m hl' used as 1nstr11men1s or llS l'Xter11;1l po lit'\'.
 THE l ;J .<>lt\l.lS.-\Tll)?\' c;_\\IBI .E

,\s to h;rnk loans 111 East and So11tl1-Eas1 .-\s1;1,till' L'S g11n·r11mc111 ah,·a,~
cla1mccl clunng !he ( :olcl \\'ar th.ti while ( ;ermall ;mcl J;1pam·sc hanks
workecl hand in gll)\'l' with Liie1r-goren1111t·111s' politwal strategws. tlw LIS
goven1me111 approach was al\\';1\'S dilll'renL.· 1'.' Ye1 Lhen: was. 1n fon, ;1s1r11ng
element ofgo\'ernme111 direcuon lo US hanks i11lhl· 1!170s 1111iic US banks·
recyclin).!; of pctrodolbrs to u1111llnes ol' 1l1t· Snulh.
But, or co11rse, Wt: can ha,·e 111,proof ol illll'lllH>n,dit\· ,UHiol cu-ordi11a1u111
wiLh Lhc pri\·ate secl<>r on the part or 1he ( :linwn adm1111s1ra1io11. This
absence of proof is (ornmon Lo rnuclt work 111Irving 10 anah·~e 1lw actual
pranin· of 1.Tonom1r !-.tatccrat"l. \·Ve tnllst IISl' nrcumsL11111al l'1"1clc111T.
Thus, to take a famous exampll', 11migh1 appear w11h hi11dsig·h1 that Paul
\!nicker, head or the li.S Federal Reserve. understood :ll the 11111etha1 when
Ile sharply raised US 111ten:s1 ra1es Ill I ~17~1he would plunge much or Lati11
Amcnc:111Ho a lll,\JOJ'linann:1i and cUITl'JIC\' cnsts. Hut rlicl he 1l1111kof that
before Ile ratsl'ci inLcrcst ratl's? .-\nd did ill' r;usl' 111tert:st rall'S 111 on/,•,-lo
ad11nll'that n·.rnlt?Ht: has ins1s1ecl tha1 the prol)lem was not uppt:rmost 111l11s
thmking- and that the Fed am·wa\· iackl'd the resourcl's al the 1i111l'to make
a pnor studv or the 1111p;1n ol the 1111cn:s1r:111.·nsc 1m the rq?;t011. \-\'e c.11rno1
_Just take his word fiir 1L. But un:umstant1,d L'\'iclencc suggests 1hat wt: can
believe bun: there were ob\'ious other domestic reasons for raising lllllTcst
ratt:s at least to some extent m \qi~I: am\ if he had l't'alisecl he woulcl CIUSl'
a gig;111L1ccrisis 111Laun .-\menca he would also, sun·lr, h.1,·e n:aliscd that ht·
would bnng the US l)anks LO the brink or total collapse. Volckcr 1,·tJttld
hardl\' have wanted lltat.
On the other hand, when anal\'sls who 111a1·he ass11111<_•d lo h;i\·l' cxn:llc11t
access lo US polin·-m;1kers ciaun that Lhl' Re:iga11 tt·,1111clelil>erall'h· used ;1
htgh clollar and high J1Ht:rcs1 rates 1111981-8:1 with the ;11111 ofcxertlllg pres-
sure on 'Socialist France' we mav well new 1hat as a casl' or cco11omic
statccraf't, usmg 111011etary pulicv.'• 0 The so111l'L'is credible a11d t ltt· puliticai
1mpllrt,mce of tht: go;il 1s all 11, oh\'unrs: the failure 1>1' the Frc11rh d1wc for
growth bet11•ct:n 1981 and 198'.~was 10 he ,·1t:wcd 111 \-\'l'.stern Europe :ts the
linal defeat or Kt:vnes1a111sm." 1 1-krc then we have ;1 1yp1cal example or the
US gm·crnllll'tll using the dollar as a lll,)JOr weapon in a campaign fi,r ,Lratc-
gic pnliucal ul~JL'Cll\·es. And tlw s1gnilirnnct· li>r the Rl':tg:m :1dmm1s1n111011
111 clcl'eattng the Fn:11dt experiment c:1n11ot hl' do11b1t·ci.
C. Randall He1111ing or the main W:tshmgloll rh111k-t:lllk or the LIS i1ll(•r-
nauonai fina11c1al inslllllllons.''~ claims tha1 .-\menc;111 gon·n1111e1!ls ha\·t·
l'rcqm:ntlv 11se<.It\w1r umtrol o\'cr 1ln: cl11ll;1rpnce as a dipl"matit· ,n-,1pu11
111 dealings wnh \-Vcst1.•r11 Europe. Po111ung 0111that the US is less ntln<.:rabk
to exchange rate shil'ts than \-Vcstern Europe. l-k1111i11g1vr1tes: "Whl'n dash-
mg 11·Jlh European gm·crnmcnts over m;1n11cco111>t111r pDlines Dr Lhl'
balance of pavmenls. Amencan of'fin,tls ol'tc11 look ,tdYalllage llJ' 1h1s asv111-
111ctn·. In several 111s1ances. 1hc threat or a precipitous t·xcha11.~l' ra1e
 l'OWER 1'01.ITICS AND THE! :LINTC>N ,\mllNISTl{·\Tll >N

111on·111L'lllprnsecl European g-<l\"1..Tllllll'llls tu 1dlatc or d,unpe11 their

cco11tim1cs 111 accorda111.:e wllh r\nwncan prcfi:n•ncl.'s.''': 1
The urcu111s1;111tialcv1cll'llCl' 111the E,1st and Smnh-East ,\sian case ()Pints
overwhclmmgl\' tuwards strategK clcstg-11llll the pan ol" the US Treasury. Hut
dcs,g-11 for whaL exactlv~ To wcakt.·11 L11csc cou11Lnes i11 111acroeconomic
terms. c1.:r1a1111\·. and to generate li11a11c1al1nstahilitv and currL·nc,· nil11era-
hili1\'. Bw IO se1 them up for hedg-L· f1111dli11a11ual warfare~
The acL1vit11.:s oruw il1g US heclg-c li.111dsIII the Eas1 and South-East Asian
cns1s mav seem LO most or us to have been a bolt f"nim 1hc hluc. Until 1he
ITC :i\-1tTISIS nr Scptemi>n I mis llll>Sl people h,1d pn,habh· lll'\ l'r lw;1rd ol'
0

hedge funds. Bui for Uic leaders orthl' US Treasun- thcv wen- a n·11tral part
of their cvernb,· rurnllurc. Thcv had been the Cl'Illral actors in all the
lll,\I' ,r ClllTellC\" and li11a11nal crises or I he: l \)90s, such as thosl' or I he Italian
lira and the poun<l 111 19\J~. that ol 1he franc and Lill' EU's E.xdiangl' l{atc
i\-lcchanism i11 19~1:~.that or lhc i\kx1can peso in 199-1 a11d a host of others .
.-\11d when \\'l' speak or hedge run els Wl' are no[ spe,11,ing or the lll!Jl"C than
I 000 such organ rsauons sc.cllered across llw U rntnl St,lll·s: 1,·l· arc t;clk111g
abo111 a hanclhtl of funds of this name which Pper.itl' on the 1111cr11at1onal
n11-re11cy markets and which han· mo1·e or less 11nlimi1ed ;1cccss Lo rl'ally
giga1111c loans from the n·1T biggest or the ,-\merrcan hanks . .-\lthrn1gh lhl'~'
arc opaque a11rl ,·en- st:cret about tllctr opera11011s. Llwv arl' at tiw HT~'
summit or the ,-\mencan linanoai strunun·. :\nrl 1hc1r pu\\Tr makes ms1ru-
mc1w; like S11pcr-'.ml or anu-dump1ng 1nstn1men1s look lib· pea-slwo1ers.
\Ve must iook a tlll closer ,it how 1hcv operate.

1-frdt/ Fu,,,/ Fi111111C1ti! I l'mji,,,.'• 1

'T'he growth or hedge funds uperat111g in fort·1gn l'Xchangc rnarkl'ls and

l'.spcualh· in Ii,re1gn cxch,111ge clcnYatJ\T, 1s a dirl'l"I nutgro\\'l h of thl' D\\'SR
wnh 11swild sw111gsof the dollar agamst the ve11and mad,. Fon.:1g11cxchange
dt:rirntiYes can he used for gcnu111e hedgmg (i.e. insurann·) agamst swift,
large changes 111the e-.;cl1a11gc ratl's or two cu1Tcnnes {li1re1g11L'Xrha11ge
risk). Wc will l'Xpia111 how this hedg111g c:111 hl' 11secl ancl thc..·n looJ;. a1 the
hind of specul.1t1,·e operauon use<l bv hedge hinds. You may he doing b11s1-
11ess tl1at mvolves vou cornmlltmg ~·ourself to making purchases O\'LTa limg
pl'nod of"tinw 111France ;111cl rile: p1Kl' 1s<k•11omc11;ctl'dlfl Frt·11cl! franc~ . .-\t
the rnoment sterling is, sav. high aga111s1tile..·franc at IO francs lo the po1111cl.
B111somcthmg could happen w11lim 1hrce months to 111ake the pound fall
111ass1,·t'J,•ag-amst 1he franc 111!°) franc~ to tlw ()DIIIHI. l'urcl1a.~i11g·al that 11111c
wi II cost n>u dm1hic what ILclues toda\'. But 111 thl' de1wa1ivcs 111.irket,·ou can
pa,· a hank a kl' to gam the optHlll ofb11\'1ng francs liir pound.~ at 950 fi~rncs
LO the pDund. Jr 1he franc stavs al IO 10 the pnuncl all YOII losl' 1s nnir frl' t.o
 Till-'. (a.OB:\I.ISXl'f()N (;\~1111.E

the bank. You only hacl till: rigln LO bur francs at 9.SO to the pound. but ,·011
didn't have to buv at that pnce. But ii' the pound clocs fall to. sar, Ii francs to
the pouncl Ill three nHHHhs Lime. the upuon covers most ol' vour losses
because It allows you w gl't ,·our francs not at 6 LO the pound hut al 950. So
this so-c;1lled forward foreign exchange den,·atn·e markl't pro1ens vou lo
some extenl.
The Kl'.)' for the heclge funcl spen1lators bemg able to use these forwanl
markets lies above all m the size of the funds that thcr can honow relative
to the size of the market. Ir the spcculawr's runcis arc big rciallvc to the
market, he can shirt market pnccs with his ow11runds then g;u11a multiplil·r
effect .is other smaller speculators strengthen that price shirt by follow111gll.
and as Lile multiplier effect proceeds, he c.111wnhdraw from his posll10n.
Laking prnlits.
Usmg the same example of the franc-sterling exchange rate, the specula-
tor starts 111the same wav, except that he tal,es out huge forward contract.~
Lo sell pounds lcir Frencl1 rrancs at 950 to the pound 111 one nwnth's ume:
say forward conU".KlS totallin~ [10 billion.''" for these he must pa\' a kc to
a bank. Then he walls until the month is ncariy up. Then sudrh:nl\' he starts
borrowmg pounds aga111111vcrv large voh1111csand throws them agamst the
exchange rate through sdling them. So big 1s his lirst sale ol' pounds that the
cu1-rencv falls, say :~per Cl'IH against the franc. At thts pomt orhcr, smaller
players sec the pound gomg clown andjom the trend he has sraned, dnvmg
1t down another :1 per ccnL Overmght he borrows another ,·ast chunk or
pmmds and sells 11110francs agam, ancl meanwhile the worcl is go111gann111rl
the market that none other than the mastl·r speculator is 111acuon. so even-
one _joms the trend and the pound drops another IO per n·nt. And on the
day when the liirward contract rails due for lrnn to sell pounds li1r francs at
950 the pound 111the spot market 1s dow11 al:> francs. He takes up his for-
ward co11tract and makes a huge proliL. tvleamvhile there 1s a stcrlinl-{ crisis
etc. etc.
Tiu: orliual line or the Washmgton Consensus, or the li\·IF ivlanagmg
Director Camciessus and ol' Stanlc>' Fischer (Camdessus·s deputy and the
central opcrauonal designer 111 the livlF) 1s that the hedge rund speculators
arc of little significance except as tnggers which cssentiallv reveal trends
alreaclr present in the so-called fundamentals or an cco110111,·.The ar14u-
mc1ll 1s that no speculator can cng111ccr structtu-ai shil'ls 111 prices 011
finannal markets beca11se the1·c arc so 111anvplavcrs on these markets aml
these plavcrs acl largcl\' rat10nally, linkmg- their buymg ancJ selling LO their
_Judgements about the unclcrlying cconom,· concerned. (Fischer has had 10
become somewhat more nuanced, acknowlcclging 'swmgs Ill market senti-
ment [which] . may on occasion lw cxccssi\'e, and they 111avsomc1imes
rellect contagion effects, which mav 1hc111seh·eshe cxccss1\'e on occasion.'f'';
This 1s a superlinal new, that can be clefcncled onl\' on thl' basis of
 l'O\\'ER 1'01.ITH:S ,\ND TI-IE< :l.lNTON _.\()'.\JINISTIUTICJN

experience 111la1·gc financial markcL~ Dpl'rating normall\' with high levds of

liqu1dirv 111large ach·,111cerlL'con111rnes.Bui as.Juseph Stiglitz. the chief'econ-
01111s1 al the \Vorlcl Bank, and manv others have pomted out, this is far from
be111g the case for smaller, much less secure financial markc1s m smaller
l'co111111llcs.Nor 1s II true even 111ach'anced markc1s m many circumstances:
the sudck-11 fall of 1hc dollar agamst tile vcn, bra staggenng 10 per cent in
less than a week 111October 1998, was w1delv put down to the acuon orone
or two \'erv iargc f'unds unloading dollars f'or vcn. The\' had this effect
because lllL' market was 111111: ll'hcn li..·11·
pcopic ,ire willing to lrnr {or sell),
falls (m nscs) arc likelv to bl' magnified.
The Camclessus ,·1cw 1s also not shared by leading speculators m forward
foreign exchange markets, for whom the size or tl1e linancial war chl'sl of
the speculator relaun: to the scale or act in tr on the gwcn fi_1re1gnexchange
market ts decisive. Bill Lipschutz. rormer top currency speculator /'or
Salomon l~rothers, cxpiams Lhts nv1dly 111 the l<lllowmg illlcn·1e1,· wnh Jack
Schwager:~''
'I-low 1slurgl' s1:,· r111mlvr111lflg1•r
You're kidding.
No. /'111s1•1uJ1ts.
If a hi!-{buyer en mes in and pushes the market ·I per cclll that ·s an ach·an-
la~c.
/-ft,still /1(/J lo gl'i out rf tlutl /ms1tw11.U11les.1·
l11<~
rtght aboul tfi,, 111arhd,1/ rlo1•rn 't
W/'1/1 fill,· /,11:w!
Jl:1• il/Ollld /11·
(Ill ru/r1a11iug1•.
He cloesn L ha,T to get out 1,1'that poslltOll all at once. Foreign exchange
1sa very psycholog1cai market. You're assuming Lile m,u-ket 1sgomg Lo mm·c
back Lo equilibrium vcrv gt11<.:kly - more quickly than he can cover his pos1-
t11>ll.That·s nut nccessaril\' the case. lfvou mm·c the m;irl,et -I per rent, for
example. nm'rc probably gumg to change Lile markt'.L psvcl1olo1-,ryfi>r 1hc
next l'cw davs. [In other wonts, when others sec a big swing created b\' a pow-
errui hedge fund. 1hey follow !Is lead for the next l'cw ctaYs, also hin·mg,
enabling tile heclge fond 111scII LO tiwm and take !Is profits.]
So yo11'n• sa)'l llf:i s1:1·1s "11 ru/i,a 11/age.
It's a huge advamag-e m foreign exchange.
r
1-Jow1(//g,·a11 arro11111wt!l"1'yo11trading"' Safo1111111
That quest11111really lias 1H1direct 111<:alllng.For a compa11v like Salomon
1herc arc no assets directiv underlvmg Lile trading acll\'IL\'. Ra1her. over Lime,
the tradns and treasurer build up greater ancl g-rcater amou111s orcredit
I"acilit1es at thl· banks. Tht: banks \\'ere l"ager 10 extend these credit lines
hecausl' we were Salomon Brothers. This is an example or ,mother \\'a\' Ill
which size was an advantage. By 1990. our clcpanment pr~ibahly had $HObil-
lion 111cn:dit lines. However, 110specific assets \l'l·i·c segregated or plerlgccl
to !Ill' foreign exchange acLl\'tUes.' In rnenuo11111g.$80 billion. Lipschutz
was ref'ernng Lo Lile encl or tl1e 19H0s. Br the 1111d-l9~10s.the lererage
 Tl-IE (;(_01\:\1.IS.-\Tll)N c;:\\1111.E

available to the top speculat1n: operators could he lcn llllll'S tha1 ligure .
.-\ncl L1psch111:1.\iasl answer bnngs us to the hug-c financial strike powl'r
that these big lH:dgc funrls can mobilise from the LTShanks. One or the rnosl
dramatic revelations from the LTCivI affair was the wav ll revealecl lllal tius
hind hacl more or less 1111lin11tedaccess lo loans from the biggest of" the
American banks. Althoug-h the ae11,·1ues or funds like lTCM, Soros s
Quantum Group and Robertson ·s Tiger Fund arc verv Sl~cre11n~the\' oper-
ate 1·igh1 at the vcrv centre or Wall Street networks. The li'vlF has suggested
these funds can borrow twentv tunes their capital. Soros acl1111ued w li1"1v
tunes. But the LTCl\·I was revealed to have borrowed 250 Umes lls capllal
hase_,-,H The ma111hedge l"uncls arc supposed 10 have a coml>med capllal base
nrs~mo billion. Let LIS assume that their leverage IS onlv I 00 times their cap-
ital (and not the 250 times or LTCM). That would g·ive them a collec1ive
leverage or S'.\Otrillion. or course, they don't all work together: univ some
or the top hedge l"uncls cto. Thus, auacks on cw-rcnc1es arc usually the work
of hair a dozen or the biggest hedge funds operating together. They can
mobilise funds far larger than the GDP or m1ddlc-s1zed rich OECD
economies like, say, Australia.
The derivatives markets clwarrall other lina11cial sectors and the biggest or
these markets is that fo1· foreign exchange denvauves. A 1995 studv lw tile
Bank for InternauonaJ Settlements pm thl' total pnnnpal 111 fore1g11
exchange denvauvcs at SI 6 trillion/>!' While daily turnover 111the ordinan·
foreign exchange market was $5~0 billion in April l 995, clailv 1m11m·cr i11
the foreign exchange de1wauves market m that month was $740 billion.
It might be thought that such a huge market would mn,Ive a large ancl
diverse collccuon or operators. Yet tills ts not so. The centn~s or Lh1smarkl't
arc i11 the US, i11 London and in Canada a11cl no less tha11 7fJ per cent or
business in these ce1itres is handled, according to an IMF study, by_just ten
hedge li.mds.lill And these ten compames work very dosciv wge1her. The
g-real bulk of their busmcss is 'o\'er the counter· rather than within
exchange institutions and it is totally unregulated. And they an: very secn:-
uvc. According to the li\·ff, some m1 per cent of foreign exchangl' den,·au,·e
bus111ess 1s conductecl between these dealers. And collecllvelv these
companies can mobilise enormous financ1ai resources. The IMF estimates
that llll' foreign exchange denvauves hedge funds can mobilise between
1
$(j()(I hillio11 and$ I trillion to bet agamst currencies in speculath·e at 1acks. "
This is truly staggering firepower.
There 1s no doubt whatever that the hedg-e runds were the driving li,rce or
the auacl, first on the Thai baht, then on other regional currencies and the
Hong Kong ~lOck market. The lirst hedge hind assault on the hahl occurrl'd
i11May 1997, one month after the Clinton admuustrallon la1111chcd its cam-
paign ciemandin~ that Thailand and I11do11es1aopen their linanc1al sectors
rullv to US li11a11c1aloperators. Thailand was the most ,·ulnerahk· tar~et for
 l'O\\'ER 1'01.ITICS .-\ND Tl IE CI.INTON :\D\IINISTIUTION

attack because ll was actualh· the most npl'n econumv Ill the rq.~ion, the one
whose gm·cn1111(·11thad adopted a mndl'I closest to US dl'mands. It was also
suffering fi-0111that typirai feature uL\mcncan-style open li11,111nalsystems-
a larg-l' spec11lat1,-c bubble in its property markcL
The ce111ral roles or the hedge funds in the triggen11g of the ,\s1a11cnscs of
19~17\\'as fully reported at the t1111chy tile Fi11a11mil'/'i1111·sand ot.her financial
papers.';'.! 'ret 111uch or the 111,unstream .-\11glo-.-\111encanmedia ha\'e treated
this as ir it was the paranoid populism or Malaysian Prune l'vli111sterl\-lahathir.
l\lahathir was s1111pl\'stau11g a fau aholll the role ur these operators. And he
\\'as not alone. A dispute ,1111011gst thl' IMF directors thcmsel\'cs has exploded
11110pul>lic ,·1c,,· on this question. an 1111prcccricntl'.cl l'\'cllt. Linder pressure
from East a11rl South-East Asian gm·lT111m:11ts, .is well, perhaps, as fellow
directors or the I ivlF, !vlanagmg Director ( :amclessus agreed to carry out an
1m·esugaLHlll or the hedge l'unds· actn·It1es 111tile (T1s1s. I-le then chose a
mamstream .-\mcncan cco1w1111st ror the _Joh. \\'hen the report came Ill,
Camrlcssus ag-reerl wnh 1t. But other IMF directors did nol. The~· considered
the report 1111sat.isfacton because it undcrpiavcci the rnlc of these 111stilutio11s
111the tT1s1s.The~· did IHll.JllSLdisagree. They insisted that Camrlessus publicl~·
record the clisagrcemcnt 111till' mam directors' report f'or thl' a11Lum111998
\Vash111gto1111\·IFconl'erence. This 1s 11nprecccle11tccl m IMF h1slorv. IL sug-
gt:sts much mon: than an anal\'tkal clisagrtTllll'llt: a belier Oil the part nr
some directors that the,· were faced \\'ith some son or cm'cH1p 011 the issue.
()[' COUJ"Sl'one of lite n:aSllllS for the cxtrCllll' Sl'llSit.intY or thts ISSLleIS
llccausl' the LIS gm'lTnme11t 11111st han· been ,·en· well 111l'on11edabout the
acm·111es of these hedge runcls. The,· \\'ould knoll' this hl'c.111se t.he Federal
Rl'scrw would k110\\' that thl' ))lg US hanks were bankrolling the East Asian
nper.1t1011s or these funds. US mtelligenn.· would also be 111fon11ed. The
ma111banks uLnt\' state work l'Xtremeh· closely w11h their st,lle.w Cnmmonlv
goven1111e11tsget their lt•ading pri,·;lle sector l>anks tl) extend credit to a for-
eign g·overnnwnt nr larg-c company in the f'urthl'rann· or fon:1g11 policv
ol~iect.i\'cs. And the top banks can 111turn gam access Lo 111Lellige11cl'mror-
mauon from 1hc1r g-on•n1ments. important for assessing poli11caJ ancl other
kinds or risk. All this 1sso to speak normal. US oflicials alwavs used to argue
that the US government was diffl'rent from others 111 tJ11s respect. Such
claims ma\' have carrtl'd some force during- thl' C:uld War. But alter the
damage clone IJy the US heclgl· l'u11ds to C:lin1011·sl\-lcx1co polic~· 111199-1-95,
1t 1s scarcely credible that the US go\'ernment would have clone 11otirn1g to
hri11g some oversight, at the least, m·er what its hedge ltmds were up to. tr
LIS 111tcllige11ce has, as \IT know, been large!\' s1,·1tched_IOll'arcls eco11omic
and commercial intelligetKl' we can doubt that tlus work 1s conlinecl to the
small change of negouau011s 011 b11s11tL'SS deals while steermg dear oft.he
politic.div ahsolutel\' central field or i11Ler11auonal linancl'.
But whatever till' t·xact relat1011sh1p between the activit,· of' these funds
98

aYailable 10 Lhc top spccuiauvc opl'.ntlors could he ten Limes 1hat figure .
.·\ml l.1pschu1:1\ last answer brings us to the huge linannal strike power
that these big hedge funds can mobilist· from the US banks. One or1he 111os1
drnmallc re\'elauons from the LTCJ'vlaffair was the wav it re\·ealed that this
hind had more or less unlimitcrl access 10 loans from the biggest of the
American banks. Although the acunties of funds like lTCi\·I. Soros·s
Quantum Gn,up and Robertson's Tiger Fund arc very secrell\"e ther oper-
ate right al the \'crv celllrc of Wall Street networks. The li\-lF has sugg-ested
these funds can borrow twc1Jl\' Limes their capital, Soros admilled to firtv
tunes. Bui the LTCivl was revealed to have borrowed 250 times its capit.tl
hasc.'' 8 The ma111hedge funds arc supposed to have a combined capital base
of$'.100 billion. Let us assume that thcll" leverage 1s onlv 100 tunes their cap-
nal (and not the 2:10 11111cs nf LTCl\·1). That would give them a cnller11n·
le\'crage or s:~otrillion. or course, they don '1 all work together: only SlllllC
nf the LOphedge funds do. Thus, allacks 011 currencies arc usuallv the work
of hair a dozen of the biggest hedge funds operaung together. They can
mobilise funds far larg-er than the GDP of middle-sized rich OECD
economics like, sav.. \uslralia.
The denvatl\'es marl,ets clwarr all other linancial sectors and the b1g-g-estor
these markets is Lhat for fi.>reign exchange derivatives. A 199:1 stuclv bv I he
Bank for lnLcrnational Scnlcmcnls put Lhc total principal 111foreign
exchange dc1wau\·cs al SI 6 trillion.''!' While daily Lurnovcr III the ordi11ary
foreign exchange markeL was S:120 billion III April 1995, dailv turnover 111
the foreign exchange derivatives markcl in 1ha1 111011thwas S7-l0 billion.
It 1rngh1 be thought that such a huge market would im-olvc a larg-e and
diverse colleclmn or opcralcll"s. '!cl Lh1sis not so. The cen trcs of Lhis market
arc 111 the US, m London and 111 Canada and 110 less than 7:1 per cent of
business in these cen'trcs is handled, according- to an Ii"vlfstmlv, hv .1us1 Le11
hedge funds.'"' And these ten companies work ven· closely tog-ether. The
great bulk of Lhcir busmess 1s 'over the counter' rather than 11•11h111
exchang-c instllutions and it is LOtallyunreguiatcd . .-\nd they arc vcn- secn·-
uve. According Lo Lhc IMF, some 69 per cent of foreign exchange dcnvaLI\'t'
busmess 1s conducted between these deaicrs. And collcc11veiv thesl'
companies rnn mobilise enormous linannal resources. The Iiv!Festimates
that the foreign exchange ricnvauves hedge funds can mobilise between
$600 billion ancl SI trillion to hel agamst cu1-rcnc1cs III spcn1lal1\-e a11acks.1; 1
Tl11s 1s trulv staggering- firepower.
There 1s no doubt whalcvc1· that the hedge hmcls were the clnvmg force or
the auack lirst on the Thai baht, then on other rcg-wnal cu1-re11nes and the
Hong Kong-stock market. The lirst hedge funcl assauit on t.lw baht occurred
in t\fay 1997,'imc month after the Clin~on administration launched its cam-
paign demanding that Thailand and lndo11cs1a open their linanc1al sectors
hill\' 10 US lina11dal operators. Thailand was Lhc most \'ulne1·able target l"or
 l'll\\'l·:l: l'<>l.lTICS :\ND Tl IE Cl.lNTON :\ll~JJ;-.;JSTR:\TION

attack becausl' 11,l'as ac111all\' the must opc11 cco11om,· i11t.he rq.{io11, the one
whose gon:rllllll'III had adopted a rnmld closest to US demands. It was also
suffrri11g from that typical feat11rl' oL-\1m:ncan-stYll' open Ji11aucial syst.ems -
a large specula11vc bubble in its property market.
The Cl'll tral roles ort.hl' iwdge funds Ill the tnggenng ort.lH.:,-\Stall crises or
I ~1~17was fullv reported at the time b,· the Fi11a11,wlTi111,·s and other li11a11cial
papers.,;~ \'et n111ch of' the 111a111stream.-\11glo-r\111crica11media have treated
1!11sas if it was the paran111d populism or i\·lalays1a11Pnme i\·limster i\-lahath1r.
Mahath1r was simph· stating a fact about the role of these operators. And he
\\'as 1101alone. A dispute amongst the IMF directors themseln·s has exploded
11110public new on tl11sqt1L'SlHH1. an 1111prccede111l'd event. l 1nder pressure
from East and South-East .-\s1an go\'cr11111e111s.as well, perhaps, as ldlow
directors orthe li\·IF. i\·l:111aging Din:ctor Camdessus agreed to earn· out an
111,·esugauon or the hedge funds' acuvHK'.S m the cns1s. Hl' then chose a
mamst.ream ,\menca11 eco11om1s1 for the _1oh. \\'hen tlw report came in,
Camdessus agreed with iL But other IMF directors did 110L.Ther co11s1ckrcd
the report unsa11sfactorr because IL underplavecl the role ort.hesc msu111t10ns
111 the cnsts. The~· diet 1101.1ustdisagree. The,· 111s1s1ccl that Camdessus p11bliclv
rl'cord the disagrecmelll m the main dirl'nors' report fcir the autumn 1998
Washmg-1011 IMF cont'crencc. This 1s 1111prercdc111cd III Ii'vlF l11swn-. It sug-
14t·sts much morl' t.han an analvucal disagreement: a belier on the pan of
some clin:ctors that thev were faet:ci w11h some sort or rm·tT·llp on tiw 1ss11e.
or course one of' the reasons fiJr the cxtrc111e sensiti\'ity of' this issue is
because the US gm·cn1mt·nt must ha,·e been ,·en· well inli,rmcd aboltl the
act1\'it1cs of' these hedge f"1111ds. The,· would know thts because the Federal
Rescr\'e wouid !~now that tilt· h1g US banks were bankrolling the East As1a11
opcrauons of' these funds. US 111tcllige11ce would also be mli>rmecl. The
111ai11 hanks of'am· state work extremely rloselv with thl'ir state.Ii:\ Commonly
go\'en1me111s get their ieading pn\'ate sectm· banks LI>extend credit to a for-
e11411g-0Yer11111e111 or lar14e companr 111the rur1hera11re or forc11411policv
ol~jecti\'es. And the top banks can 111turn gain access to 111tcllige11cc udclr-
111a11onfrom thetr 140H·r11mc111s,important for assl'ss11114poliucai and other
kinds or risk . .-\IIthis is so to speak normal. US officials ah\'a,·s used to argue
that. the US gm·t·n1llll'lll was dillen·nt from others 111tlus respect. Such
cla1111sm;n·· ha\'c earned some fmTl' durn1g the ( '.old \Var. But aher the
damage done hr the US hedge f'unds tu Cli1111lll's i\kxtco polin· Ill 199-1-9:,,
ll 1s scared\' nedibk that till' llS g-ovenll\ll'lll would ha\'l' done 1101h11114
to
hrmg some o\'l'rsig-ht, at the least, O\'lT what its hedge funds Wl'rl' up to. If
L'S mtcllig-cnce has, as we know. been largely s1\'ltchecl .towards eco11111mc
and commcrctal mtelligcncc we cm doubt that tins work 1s confined lo the
small changl' or nq{otiat1rn1s 011 hus111ess clcais while steenng- dear of the
politic.div absolute!\' central lie lei nri111er11atio11alli11a11t-e.
But whatcn·r the l'Xact relationship between the ani\·ny of these funds
100 Tl-IE (;t.OIHI.IS,\TION G·\MIH.E

and Lil<.:acuv1ty of the US Treasurv, thcv wc1-c both acting 111tile same direc-
tion in the summer and autumn or 1997.

Noft!S

I. :\ 11scf"11ln.:s1a1c111en1 or these pos111011s ts fo1111clIII Krugman. 'Comp,·1111,·,·m·ss: :\

Da11g<:ero11s Ohsessu >11', fon·1~11:IJ)i11n(1\larch/ April I ml-I).
!!. The classic Sl,llemenl of' this pusllion ts found in K,·111w1h\l'all7.'s work.
'.l. The work or Rohen Gil pm has done much 10 rc\'l\'c this 1rc11clor thought as a means or
1111clers1ancli11gtlllernattunal l.CC011on11cs. His work 1111his liclcl began al th" start nr lhl' l!l71Js
wtlh 'The l'oli1tcs of Tra11s11a11011al Enmo1111c Rel;i1iu11s', l111,·n1111w1111/(}1~11111011/mn. !!:,::I
(l!lil).
-1.lkcatls'-' 1he currelll an-011111combines hoth trade 111goods a11cl im·1sihlcs, 111ducli11g1!1t•
stream of car11111gsfr11m 1\INC procluctn,n ahroacl and debt ,..,n•1c111g, JI ts tlw most 11.sl'f'nl
mdicator 11fa s1a1c's hastl' l'Co1101111crclauonship w11h the rest of' the world.
:i. 111th" clr.il'l LIS Senate track hill, m I !l81i, 1111"of i1s SL'.Cllonshegan: 'When 1racli11g ll'llh
adn~rsancs, like .Japa11 Suc:h language has become s1a11clanl 111\Vashi11gto11. Sec C.
/\lichacl Aho, 'Amenca and the Pacific Ce11111n·: Trade Co111lic1 ur Cu-opera11011?'
/n/,•mt1l1111111I:ljji1ir.\,li9: I ( I \l\l'.I).
Ii. The mllow or fu11cls dich1 't come 01111'from.Japa11: the biggest mlloll' ac:111all\'c.uu" from
1hc UI\ and n,n· large llows also came from l·lolla11cl. But the Japanese bought a lot uf thl'
Treasurv debt. With the fall or th" dollar III the ],Ile l!lHOs, 1hcse 111;1111ly pn\'alc Japanese
holders or US clollars saw o\'cr S!!OO billio11 wt peel off the ,·aluc or thcll' holcli11gs as a result or
1his dollar clcvaluatio11 am! Ill' the 19!l0s, the US gm·crnmc111 came tu rely 111crcas111gll'upon
Japanese slat,· lii11cls llm1'111!{11110Trcasun· bn11cls. Tims. the s1ahili1y or the ,,·stem cam,· 10
clepc11cl upon the political cum11111melll of the Japanese govcn1111c111to LIS stability_ 011 this.
sec Susan S1ra11gc, M11d ,\10111)' (/\lanch..,ster llm,·crsm· Press, I !l\18).
i. These began with the cm1s1r11cuon 11r"E11ropca11 1'11litil'al C:o-opcrauon· and the pn>Jl"CI
ol' 111011e1,1ry11n11111 both la1111ch.-cl al the start or the l!lHOs. Though both wen· largcl\'
abortl\·e, the 1111p11lsesbehind thl'lll remained, aml gathered strength.
H. These pressures \\'ere cha111pio11ccl hy Jo Cha111herla111, the political ll'acl,·r or th,· \\',•st
l\lid[;uals 111clus1nal honrgeo1s1c.
!). Although nuw 1111ellcct11allyclisc:reclitecl hi' th" work of Walt,·r and others, tlw :\mcncan
1heo1-y or so-callccl hcg"emo11ic stahilit\' which argues that the world needs rn1,· m'l,rwhdmmi-:-
1\' clo111111a111 stale ir there is to be stabilitr 111the wo.-Jcl ccoawmy (ancl cs1wdally us 111011e1an·
system). hacl 1hc gn·a1 mcnt orpo1111111g tu the lack ol'a1110111a11cs1ahiliscrs 111the con· ,·co11-
0111y.Thell' C[ll'-'Sllo11:who will prm·icl,, the 'public goucls· or stability as hest a11swcrccl hy sa\'-
111g·11 ts pro\'iclccl by the clcpc11rlc111suppnrt-cmmuws or the South, C\'CII thoujjh the i;;oocls
1hey pro\'iclc an· 1101 really 'public:' s111ce the)'.are et\JO\''-'cl only h\' 1h,· con, ,•co110111it."s.011
the 1hcor\', see \\'alter, lliirld I'm,,,.,.mu/ l\'mld ,\/om;· (1-lan·..,stcr).
10, )'_ 1';1111aik.:lfl.'1111111/11/wn 11111/
Slabilily U11d,·r(:11Jnl11/i.\111
(Clan·ndon l'rl'SS, l!Hl7).
11. Es11ma1cs hi' Ma11hcw Simon, c11cd hi' Patnaik III l'alltaik, _-\,·,·11m11/a/u111 11111/.'i/11/,i/itr.
I!!. Will Marsli°all, head or the l'niJ.\Tess.in· Polin· lns111u1c, ll11.1lti11g11111 l'osl. !!I lkn.,mlwr
1!)9!!.
1:1_Roger 1\lorns. ':\ New Fore1g11 Policy for a New Era·. N,.,, li11J.'/i'111,•.1,!l lkn·mhl'r I !l!l!.!.
H. Aspcu 111Dcl'cncc had a mon· ani,•1s1. radical a1,;'-'ncl,1-
l:i. Sec, for example, Anthony 1-lartlc\', 'The C:li111011,\ppro;u:h: lclealis111 a11d l'n1Cle11n·'.
'11irll\11ld'fi,d111· (Fehrnary l!l!l:l).
Hi. Of this list one pari1al clissicle111was Rohen Reach: he shart'cl a hcli,•r in state act11>11111
1111erna11011alt·conomics and his concern for labour stamlarcls aucl protec11on c:oulcl h1· 11sl'l'ull\'
111strume111ali~ecli11cnH1t11111ccliplumac\' o,·cr 1mcle ISSlll'S. 11111 he lackccl some of the :\111.. nca-
Firs1-111-b·cry1hing zeal of the others and clruppecl 0111of'1he aclm1111s11~111011 e,·en111all\',
Ii. Gioia l\larn11 and Jan Rood, '1'la1111;1111111g (;Johal Do111111,111n,:Tit" Unuecl States as a
Eun,p..,an and ,\s1a11 l'uwcr' 111l\lana11m· ,-,m Leeull'cn and :\nke \'t.-tu,111a (,·els,) . .'frl,·r111,,·
 1'01\'ER l'OLITICS ,\NJ) THE CLINTON .-\D1'IINISTR:\TION 101

J:'11gng,•111,·11i:
:\111,·nrn11f(!r,·r!{II /'olin· al th,· Turn of ti,,• C:,·11/11r1· (N1·1herla11ds :\1la111ic
ClllllllllSSl<lll, [!)!Iii).
IH. S,·,· I.aura ll':\11drl'a 'l\·su11, 11'/w\ l/1nlti11g 11'/t(!//I.' Tmrfr C:mtfliri 111 lligh-'Ji,d1110/r,g)'
/11,/11.,/11,:1 (lnslllllll' lill' l111er11a11011alEc11n11111n:s.19!)'.!); Ira :'llagaz111er and ;\lark l'a1i11ki11,
'1111' Silnrt llilr: /1/.\irl,·th,· Gfolir1/1/11.\1111·-'-'l/1111/,•1
S/111/1111g:l111mm ·.,Fr1111n·(Vi111age llo11ks, l!l!JO);
Jdfrc,· E. c;ar1e11. :I (.'(1/rll',·nr,·: :\111,·1m1, _/n{'1111,c:,.,-111,wy 11111/ th,· Strnggl,· for S11J,r,·111111y (New
York Tillll'S l\11oks. )!l!l'.!).
l!J. USIS. '.!'.\F,·hrnarr l!l!Hi: 'Ka111or sa)·s llS 10 Fi).!hl Farm T1~1de Barners.'
'.!ll. Rubin was la1,·r 10 lwn,ml' Treas11r\' St'crelarl' - his c111T,:111 pos11io11.
'.!I. llancl J Roll1kopL 'l\evund 1\lan,c '.\l,•rcm1ilis111 ·. C:011111:il011 F11re1g11 Rda1ions,
l!l!l8.
'.!'.!.S1ankl' '·l111lma11, lvlanm \\'igh1 ;,.1e11111nall.,·e11m·. I.SE . .J1111t·I!l!lH.
'.!:l. Ro1hkopl'. 'lkl'<>lld ;\)a1m: 1llerca111ilism·.
'.!-1.Ro1hk11pr. 'lkrnnd '.\la111r :-.kn:alllilis111·.
0

'.!:,.John Stn·111la11.•ctin11111s Dollar Diplumac\' , l'o/iry, 97 (\\'i111er El!M-!l:i).

J,iir,•1g11
'.!li. Ci01a ;\l;in,11 ,md Jan Rund. ';\la1111a111111g Global Do1111na11ce: Th.- U1111ed Slates as a
E11ropt•,111and ,\s1an l'owt'r 111~lana111u, \'all L,·,·11we11 aml :\t1kl' Vem·111a (eels.). S,·l,·r:ln,,•
l:ug"fs''m,•11/: :l111,·nrn11 F11r,•1p1 l'olin· at tlr,· T11r11of th,· <.',·1111,rr( N,·lhl'rlancls ,\1la111ic
c:,,mm1ss1011, 19!Ui).
'.!7. Th'-' cll'alhs or 1w,·111yLIS soldiers 111So111alia was t·111mgh lo ahon th,· US m1ss11111 tlu·re.
In 1lie Bosm:u1 and l,11son1 cases. the Cli111on ;ul11111nstra111111 was nol prepared ID ptll lhe
ft ... 1 of US soldiers 1111till' gro11rnl whih, ligl11111gwas grnng 1111. :\ir pow,·r cu1 deslroy s1a1es
h111,·a1111u1Cllntrol pop11la111111s.
'28. Samm·I I'. H11111mg1011.'Trans11a11011al Orga111sa11011s 111\\'oriel 1'11li1ics· lli11-t,//'11/itin.
,·111.'.!:i. 110. :1 ( 197'.l) p. ,l.J.1.
'.!!I. Da\'iclJ. Rothkllpl". 'lkn111cl Ma111r i\lerca111ilis111'.
,\IJ. For l11t, Bntish, the threat c1111e wuhin 1he11"E111p1n· (and mcll't'cl, partly Ii·om 1h,·
LIS,\'s <h·s1rt· 10 op<'11 11 np). B111 hr getllng th<' LlS 10 lakl' on·r till' haltle agams1
C:011111111111s111 111Eurllp<', lhl:)' hoped 111frn· tlw1r ow11 rL·so11rc,·s Ill sa,·1· tin· E111p1n·aga111s1a
whole rani-:,· or pn,ssures. 111d11cli11g :\11wnc111 ones.
:II. See (.;jlhen :\chcar. 'The S1ra1egll' Triad: Till' ll1111t'cl Stall's, Russia aud China . .V,w
/.,:ft l{,711,a11 '.!'2H(Mar.-11/:\pril l!l!l8).
:1'2.or course. µ;real p,nn·rs du 11111s1111pl)'haH, 10 r,•.1/w111/ Ill local!\' created clangers aml
LTISL's,Tlwl' Gill m·,m· l11cal cnses and 1hn,a1s which 1h,·11 lead olhl'r s1a1,·s 1n the vic1111tyor
,1, .. LTis.·s tll wdconw or al lt'asl ,u·n·pl the gn·al JHM1·r s lllll'l'\'<'1111011w 1ackll' 1h,· cnsis.
Thow who ha,·c li11l11w,·d au,·1111,·eh· thl' Bush acl1111111stra11on ·s 11pera11011s 111relation lo
llos111a 111I !l!l'.! c:111see tlw 11111111s1akahl,· s1g11sof the US cleploy111g such tanll·s 111lhl' Fl.l's
hi111erlawl. SL'l' Susan \\'ooclward, '/'/,,· /111//,1111 '/ia:s.-rly(Bruoki11gs. l!Hlli).
'.I:\. This 1·a111paig11clun:1ailed, or co11rse, with 1h,· Br11ish c1111pa1g111u J;,·L·p Hong Kong s
w,·ahh-stn·am 1lcnrn1g 111llw nght din,ct1011 ahe1· lhe haml-un,r or 1lw colony 10 Chi11a.
Tl. 011 US p,·1Tep111111sof :\SE:\N in 1he L"arly l!l!llls as thl.' ,·111hr1'0 of' a mm·" 1uwards a
Jap,1111·s,· n·i::1onal h[r,c. SL'l' C. '.\lichad :\ho, ':\111,·rKa and lhe l'acilic ( :e1ll11ry'
:1;·,.lla,·id l.amp1u11. '.-\11wnca s China l'olicy 111till' .-\1-1,·or 1h.. Fi11a11n· 1'li111sl<'r:Clinton
Fuels l.i11kagc·, Thr l.'hi1111 (l1wri,•r/y, 11<1.l'.1!1(Sep1emher l!l!J-1).
'.Hi. l'n·ss n111ft·re11n· s1a1eme11t, Tlw \\'hit<· I·lo11si·. '.!Ii ~la,· l!lll-1.
'.\7. l.a111p1011.':\111,·1·1ca'sChina l'oliry
:\8. Tlw \\TO Fi11annal Sen·1cl'S .·\gnT1111:111clicl nol, 111fal'I. gu a., far a, tht· US had
hopt'cl. S,·,· \\'l'llcll' Dohso11 a111I l'il'rn• .farqm·r. l-'i11r111,·wl .'i,-n•,rl'I J.i/,,•mli.wrirmr 111 th,· I\TO
(111st11Ull'h1r l111,·n1a11011alEn111111nic:s.l!l98).
:l!I. Examples or m;111ag<'d tradt' are till' ,·111phas1s si11n, 1h,· l!180s 11111h,· pan uf the EC
and l[H· LIS,,,, su-callt'cl \'ol11111ar\' Exporr R,·stramls (\'El~s) and thl' US <'IIIJlhas1s. parr1n1-
larh· 111 East ,\s1a all(( .Japan. 011 Vol11111ary lmpon Expa11smn (VIEsj. Bo1h \'ERs ancl VIEs
an· ·res11lls-une111<'cl' i11.,1r11mcn1.,characH·ris11i: or 111anag,·d trail<'. Set.· Frank Buelens, 'US
Traci<' Polin·: Frel' Tradt' or Faur Trad .. · i11 ~I. ,·;m l.,,..u,·11 and,\. \'enema (eds.), Sd,•rtiv,•
l:'11gt1J:f'lll1't1i. :\m,·1·1ran Fort'IKII Pn/i,-_rIii ti,,· T1tr11 •~rth,· (.",•11i11ry (Nelhl'rlaucls :\llalllll'
( '.unlllllSSlllll, l!l!lli).
-Ill. <J11011·cl i11 Ruht'rl D. Blackwill and Knslln :\rchil'k. / !S-l•:1m1Jw1111 U,,/rtiror1.11111rl
/:n111r,1111r
 Tl IF I a.Oll:\I.IS.-\TION C.-\s\lBI.I·:

lli11/,/ 'fru,li- (Task For.-l' 011 th,· F11t11n· of Tra11sa1la1111.- Rda11011s, C:111111cil 1111F1>n·1~11
Rda111111',.-\pril. I !1\IXl.
-11. lhid.
-I'.!. T,·s11111011\· lwli,n, th.- l-1011s,·I :11111n1111,·,· "" l1111,n1at11111;d R,·la11011s.Suhn,111111111,..- 011
l111nnat11u1al t·:~·oi1111111,· l'olin· and Trarll', Fl'dl'ral N,·ws Sl'rl'ln,. l IJ S"p1,·111lwr 1!1!17.
-I'.\. See l{ohl'rl l.c•\' and Pierre l'oret, 'Th,· Nt·\\· OEC[) !'\lt-111hl'rsand l.ih.-ralisa11011 . '/'11,·
01-:cn01,,,,.,..,,.,; 110. ~w,(:\pril/t\la\· 1!1!17).
-1-1.S,·c Wald,·11 [1,-llo, ·t-:a,1 .-b1a 011 1h.- En· ol th,· (;n·at Tra11sl,1r111;111011 //, ..,,,.,,. "/
J111,·n1111w111tl /'oliliml /:'n,1111111y, :1:'.i (.-\1111111111 l!l!JHJ.
-l:,. lhid. .
-Iii. l11s11111ll'ii,r l111,·r11a1w11al Eco1101111<·s:'R,·stn1c111n11g K11rl'a's Fi11a11.-ial S,·,·11,r f11r
Crl'at,·r ( :11111p,·111in·111·ss (:\!'EC \\'orkini-: l'ap,•r !Jli-1-l).
-17. /-'i111111nt1/ Tim,·,. '.!!IOrioher 1!1!17,p. 10.
·IH. LIN( :T.-\1I. \\,,,/,/ /111•,·.<1111r11l U,1m,·1.I <J•1;( L'N '.':,·wY11rl;aml l ;,·11na. I !l\17).
•l!J. S,-,. _I. :\ndn·w Sp111dler. Th,· /'11/ilin "' /,,1,·m,1111J111i/ C,-,-,Jil: /'m•111,·Fi1111111·,· 11111/J,,,,ng"
/',ilin· 111( ;,•m111111· 1111d.J11/1t111(Tiu· llrnoking., l11st111111011, l!JH-1).
:,0. This d,111111s made ll\' I. ;\I. lks1ler and C. Randall l-l,·11111111-: 111/),,l/11r l'11/ilin: l:\·,·/11111g,·
1/111,·l'sili1J11wl,i11g l '111i,·,l.'i/111,·,( l11s11111ll'
111 1/11· li,r l111er11a11011al l·:<·111101111.-s. I !IX•)). This 111s11-
lllll' ,s 1h,• 111a111 1hi11k-1a11kof \\'all Strl'ct li11a11nal i11,111111u,11,.
:"11.1nrt·rL·s1111g:ly.t·1·t11101111c !'11ah•t-rah 111,·nh·J11g: 11u111etary poli•·,·. ~11chas lhl'~t· t..·:...::a111plc~.
l<'IHI 111he 1g11111·ed 111th,· lit<·r,1111n.,,i111:lmli11,:111Richard [hlrl\\'111 s u1h,·r11·1s,· 1111pur1a111
hook. /'.(01/1111111' .'ilu/,·,·mfl. 11111 S11sa11SIJ'illl!{l', \\'llhont IISIII!{lhl' 1<·r111s1a1ecrar1. has ill11111111a1-
...c1a µ;rl'al d.-al in lwr 11..-11i11µ;s 1111politics a11<li111,·r11a1m11al1111111<·\·.
:1'.!.Tiu· l11s111u1,·li,r lu1er11alio11al Eco1101111n.
,,:l. ( :. Rauclall H,•1111111µ;. 'E111"P" s !\l1111<•1an·lf111011and 1h,· L;1111l'dS1,11,·s.' Fi11,·1g11 /'11/iq·,
110. I 0~ (Spn11µ; l!l!JliJ.
:1-L I :1111gra1,•ft,J 10 !\liclll'I Choss11clo\'sk\' for this pn·nsi· and 11s.-f11ln11ll·1·p1. S,·,· hi,
'Guerras li11a111·1er;is, l,·11111 Sur N11111,·ro. ·Ill (l )nnlll'r I !l!JH).
,,,,. Tlw spen1la111r's n>11111er-part\'hank can n1\·,·r us pos11irn1 h\· s111111ha11,·111isly 1aki11g0111
a fon,·;ml conlran 10 sell fra11cs li,r 1u1111ulsin a 1110111h's11111<·.
:,ti. S1.111t.-yFi,d1<·r. '( :ap11al .-\...-011111l.ih,·ralis:,11011 a11d th,· Roh· or 1h,· 1:--1r·pap,·r 111
Sl'llllllar un Asia and 1h,· 11\1F ( I !I S,·p1,·111her I !1!17).
:,7. Fn1111.Jack D. Schwag,·r, T/11·.\',w M111J1,·1 lri:rm/.1: l.'11m1,·n11/11111.1;1•i1h.-l11wrrm:."/i,/1 "/iwl,·r.\
(1-1.irper Cullins, l!l!l'.!).
:iH. 11\IF,'lknilop111e111., ancl l'rospl'ct., 111E111,·1}:111g l\lark,·1.,', lfor/,/ Fi1111111wl 011//1111/;(l:-.ll·-
\Va,hing-u111 DC. 7\o\',·mlll'r l!J!l7), p. :I'.\.
,,•J.lh11k for l111,·rna1i'o11al S,·11li-1m·111s,'( :,-1111·all'..1111;S11n·,·r of F11rel~ll J·::,;,·h;111!-{c- ,111<I
Dcm·,111ws !'\l,irkl't .-\1'11\'tll'',:\l:I\' I\J\lli.
liO. C:rn-11raacl Vrulijk, ·lll'l'l\'aUn· Effect, on l\l1111,·1an·Tra11s1111ss1011 . (\\'orl,ing- l'ap,·r of
1he l111erna1m11al ;\Jo11t·1.ir,· Fund. \\'I' /!17/ 1~I. I !1!17).
Ii I. · :\laha1hir. Son ,sand 1he C'.11rn·ncy 1\larke1~·. l·.'m1101111.1i, ~7 S,·p1<·111herI !1!17.
ti'.!. S,·,· lhl' Fi1111111ud Timn li,r 1h,· la,1 w,.,.k or i\la\' 1!1!17awl 1h,· lirs1 ''"" 1,·.-,·ks of_l11h·
l!l\li'.
ti'.1. S,·e. for ,•:-.;1111ple, J. Andrew Spmclll'r. ·17,,./'o/ilin 11//,,;,•,111J/11J1111/ C:mlit: /'111•1t1,· l-'i111111r,
11111/ J,i,r,•1g11l'11/i11·111(;,.,-1111111_1·
t111d.Jt1/Jf111 (Thl' Brooking l11s1111111011, l!JH-1).
==========6==========
The Politics and Econo1nics of
the Panic of '98

Thl' .\s1a11 t-r1s1slicgan 111Thailand at tht· start of.Juh· n1q7_ Tilt· 11cxr coun-
1n· 10 fall was l11clo11es1a.But the rcalh· cleust\'l' li11a11nal cnsis was that of
South Korea. It was the South Korl'all n-1s1s which l'nded the temporary sla-
blisat1011 or l11cltJ1H•s1aand which linally hn,ugl1t co111plc1e collapse there .
.-\ml rhe South J.:.orc;111l'l"isis was rcspo11sihll" li,r plu11g·111gtht' ll'hole rq~1011
m10 slump.
Thl' general pattl'rll or 1he lTISl'S 1s casilv sum111ansl'd. 1-ll'dgl' l'unds
allacked n11Tcnnt·s. c\·t·ntuall\' hrcakmg the Thai halll. thl'11 the l11clD11L"sia11
rupiah. Thl'se lwdgt· l'uml attacks lerl the US 1m1111alruncls and the Tn:1cl's
hanks as well as other li11a11c1al operators to pull their l't111ds otll or the
co11111nescoun·nwcl. .-\s the l'unds pu111·t·11out. c11rrc11nes collapsed runher
and 1hert' were l\\'o 1111111cdiateefTL"cts:lirsl. local hanks coulcl not co11r11111e
to roll t>\'lT 1he1r dul1;1r debts thn,ugh 11t·1,·hurrmv111g heclltse the 11'L'SIL'l"ll
111st1tu11011s Wl'n· 1111long·L-r le11di11g: and sccondl\', as cu1Tenut·s collapsed.
thl· size of the dollar cll'l>t 111 terms or local c111Tc11n· rl'sourccs leapL
upwards. This clnublt· blow then fed through to Ill(' rest or the linannal sys-
tems of the rountt'll'S aJ'li..:ctcd as local banl,s rcfust'd Ill'\\' cr('rlits Lu industnal
u,111pa111es, 1hreatc11111g them with 111s11ln:11ry.A nc10us downwards spiral
ensul'd threaten111g ;1 complete cnllapsl' or 1he linannal svstt·ms upon which
am· t:.1p11alist t·ron,,my dcpl'nrls for cro111m11r ann·11~·-
ll mil l hl' s11111111t·rul' 1997 Ihe East and South-East .-\s1a11statl'S had ma11-
;1gt·cl for a quartl'r ul' a cc11tu1T to ;ll'(ml hcmg l'lllangkcl 1n thl' lethal.
1111ersl'ctllll-{ steel wires or what might he railed 1hc 11,·111vo-yos or the
Dollar-Wall Strct:l Reg11ne: thl' u11-rt·11C)' yo-vu ur the clullar-yc11-mark
excha11g-c rate. thrm\'1111,.\' trade and 1m·es1mc11t rl'lalHlllS 1111t·1ra\· then the
llllil'r: ancl the li11a11n;1ln,-vos or hot mo1H·,· and shorl-ll'~·m loans whizz111g
111111 llll' Ji11a11nal nern· n·ntres or regions· eco11om1t·s and 1ht·11wl11pp111g
back out ag-a111.No µ;111·l-r11111e111 111lilt' rl'g1011 rouid do a11nl1111gabout the
s1,·111gsor the ,·c11-dollar exdiang-t· ra1c: the,· rouid 0111\·tn· to acUusl their
 104 TI-IE (;t.OBALIS:\T!ON C:\MBI.E

exchange raLe policv and domesLic macroeconom1c conclitums LO Lry Lo

. cope. BuL Lhose sLales wiuch had succumbed to Lhe pressures of Lhl' LIS
governmenL, the ll'v!Fand Lhe Wall Street insLiLuLionsto open Lhe1r capnai
accounts and domestic linanc1al secLors Losome extent were allowing l11e1r
economies and poputauons LO enter a monally dangerous trap: the mllows
of Lhe hot money and short-term loans arrived like manna from heaven.
because they seemed LO enable these sLaLesto evade the effects of ClllTl'llCV
ilunuations and thus to evade bard domesL1c acUustments throul-{h credits
from Lhe Ang-io-Amcncan financial ccnLres. But iLwas miL manna: IL was ball.
,vhcn d1e financial sectors of Lhe region b!l 111Lo IL Lhcy were hooked.
trapped in tile sights of Lhe US hedge runcls, silllng ducks for financial war-
fare. The hedge funds sLruck, Lhe lines or crediL were wrenched hack into
London and New York and economy after economy was dragged, wriLhi11g
like a wounded a111maLon to Lhe operaLing table of Lhe li'vlf and the US
Treasury.
Of course, not all the East Asian economics were dragged directlv 111to the
crisis. Those which hacl refused to bow to American pressure to dismantle
their capiLal account controls escaped the onsiauglll l)ecause Lhe hedge
funds could not hit them. The facLor thaL Lurned a state·s failure or 111acro-
econom1c ac~jusunenL mto a catasLrophe was the deg1·ee to which the Asian
development model had been breached br liberalisauon of Lile capital
account. Those cmmmes which had largely kept Lhe1r cap1t.1l controls were
proLecLed from the linancrni allacks wl11ch lcillowcd: Chma, Taiwan, Vietnam
and India. Those Lhat had liberalised in the kev areas found Lhe1r macro-
economic management failures exploited by devastating spccuiauve attacks.
And even Hong Kong, which could not have been said Lo have had senous
macroeconomic problems buL did have a liberalised capital account, was to
be subjected Lo sustamed, repeated hedge fund assaults li.ir more Lhan a
ycac
Despne this, as in Lhe pasL crises in oLher parts of the South in the I ~)80s.
Anglo-American ieaders and propaganda media were quick to poliucallv
expi01L the cns1s, making the intellectually illiteraLe chum Lhat failures to
manage exchange raLe volatiliues and co1~1uncturnl 11nancial seCLor insta-
bility proved the IJankrupLcy or the East Asian grnwth model and till·
umvcrsal validity or the Anglo-Saxon model of capiLalism. 1
As throughouL the h1sLory of Lile DWSR, the East Asian crisis was 10 he a
case of what nught be callecl Lhe teamwork between the spontaneous clnves
of the financial forces of Wall Street and the political will and mgenuny oJ'
·washington. As the cns1s spreacl across the region, Lhe US Treasury and Lhe
Federal Reser\'e were serene about !ls global consequences. Thev knew
from a wealth of pasL expenence that linanc1al biow-0111s Ill countnes of the
South prov1dcd a welcome boost l'or the US financml markets and through
them for the US domestic economy. Huge funds could be expected Loflood
11Ho the US linancial markets. cheapemng- the costs ol"crcdit there, boosting
tlw stock marl,ct and boosung domestic growth. And there would he a nch
harn·st 0L1ssets to he reaped Ill East Asia when these countries fell lO thctr
knees l)ernrt· the livlF.
Bm Rubin, Larn- Summers and Alan (.;reenspan made fom analyucal
errors. First thc1· !'ailed l"ully t.o grasp the fact that East and Somh-East r\sia
was no lt,ngcr_Just tlw South: ll was a dynamic a11d we1ghtv component of'
the woricl cco1wmv. A ckcp cnsis there would transform the economic
l'<Jllat1ons of those ec01H>m1es m1ts1dl' the tnad which supplied inputs for
thl' East and South-East Asian hnom. These commoditv producers would
see their export pnces slump. This fact in 11sclf ncccl not lla\'c aiarmed
Rubin. On the contrary, the prospect mav have dcliglucd him. Declining
reia11vc pnccs or commodities l"n>mthe South had been one or the keys to
the n011-111flau011a1·y Amencan boom.
But if Rubm was taking thts new of the likclv fall 111 commoditv prices, he
was guillv or Amencan-centrecl thinking and forgettmg anothe1· context
upon wlllch the commocliLv producers' railing export prices would impact:
1hc endemic structural iinanc1al fragilitv or these commodity producing
countries as a result of"the past tnumphs ort.he DWSR. Countnt·s like Russia
and Brazil mav have been turned succcssl"ullv by 1hc DWSR into a l10lle\'-pot
for \Vall S1rcet linanc1al operators but they were honey-pots prcctsel)'
because they were so much weakened IJ)' debt bunlens. A weakening of'
their and many other similar cou111.nes· traclc prospect~ as a resuit oJ'the East
As1a11cnsts could up them o\'cr the abvss as financial operators saw the
threat and llcd.
And the third prolJlcm tha1 Rubm did not rully grasp was that the huge
growth of'speculativc forces within the US linanciai system 11sell'could onlv
be sustamabic thniugh constant expansion. Like the p\Tanud funds or
Alban ta, such spccuiau,·c forces can sustain losses on helling wnh borrowed
moncv on the pan of some players oniy 1hrough the hulk or the others
hemg able to 1hrow more mone,· on to the table and to make fresh gains.
With multiple linanctal cnses uccurnng s1muhancously 111 man\' places, 1he
speculative forces on Wall Street could linrl tha1 the banks bankrolling them
would lose conlidcncc m cuntmued expansion, fear collapse and then mm·e
tu create it h,· refusing- further lending.
Analvucal failures of" these kinds were to lead Robert Rubm to approach
the .-\s1an cns1s nut_Just w1U1serenity but with excilement and enthusiasm. As
wt· shall see, the LIS Treasury was to new the cns1s as an h1s1onc opponunllv
which, if seized, could transform the r111urcof Amencan capllaiism, anchor-
mg 11sdommance into the twenty-first cenllll"\'. This was the fourth problem
that Ruhm failed to foresee: the problem of Rubm himself as an actor in the
crisis.
We will 1101rev1c\\' th<: details orthe course or the Easl Asian crisis.~ We will
1Oli Tl-IE CL< >B.-\1.IS.-\TION <:.-\\1111.1·'.

rocus only 011 the responses or tlw .Japanese and A111c1·ica11 governments to
the lT1s1sand 111particular 1111the stann.: or tla: US Trcasurv towards thl'
rlec1s1\·e1110111e11t
or the Easl Asian events: the South Korean linancial break-
down. We will then look at the stn1ctural reasons li:,r the tra11sli.1r111at1011
ol'
the As1a11cnsts mLo a generalised inter11auo11ai Ji11a11nal pamc 111 1~)98.
And we will couclude iw co11s1dcring wlwther the,· mav he a path away rrnn1
'globalisaw,n ·

As the Asian crisis spread across the rq~ion l'rom Thailand i11.)uh· a11d
August Im17,the most alkctcd states turned to other states for help. The US
governmenl refused to take any pos11n·e acllon to sLallilise ii11ancial s,·stcms
and cu1-rennes and kept the liVIF011 a leash. At the he1glu orthe That lTJs1s
111 August, the US government's response was to send a delegation to
Bangkok demanding l'urther liheralisatton or That markets to improve
access fo1· American capital.: 1 Japan theref"ore l'an:d a dec1s1-.·c test, tile
biggest political test IL had faced for, perhaps, fifty \'cars. It could take upon
itself the task or leading the reg1011 om of" cns1s, hut 111ciomg su 11.would
challenge the polittcal authonty ofthe Ev!F and the central strategic dnH· ol'
the US. But if the Japanese gm·ernment remained supine and let the
Clinton administration dictate e\'cnts and terms, the consequences for
.Japanese capitalism could he extremely gra\·e. Its linanc1ai system, alreadv in
senous dilficulties, could be dragged clown hv lls \'!:rr hea\'\' exposure in the
regm11 and the US would be likch· to exploit this weakness up to the hilt.
The .Japanese government altemptcd to steel lls will to inter\'cnc politt-
callv. It came forward with a proposal that 11. wouid manag-e an .-\sia11
consortmm. an Asian Monetary Fund (AtvlF) to stabilise affected countries.
This initiative drew strung support from g1wernments in the region.
Parucuiarly striking was the Chinese government's support f"or the plan, an
unmistakable sign that a rq;ional coalition between Japan and Cluna was a
distinct possibility. The That rescue package was the result of the work or the
Japanese g-overnment in putting together a coaliuo11. But at the last mDment
the Ev!F and the US entered the scene to put the1r trademarks on 11to prl'-
\'ent an open .Japanese challeng-c to 11\·IFg-lohal control. l\ut still t.he
.Japanese gowrnment advanced its .-\1\·IFproposal, suggcstmg that the 1"1111CI
could ha\'c SI 00 billion or lina11c1al resources. As one analyst expla111cd
'[US] Treasurv ol'linals accurdinglv saw the AMF as more than just a had
idea: they 1,ntcrpreted it as a threat to .--\menca's mJ111e11ce111Asia. Not sur-
pnsmgiv, Wash111gto11made considerable dforts to kill TDkn,· s proposal. ··1
In tl11s, the Clinton admi111stration was able to enlist t.lw support Df 1.he
\Vest E11rupea11governmetlls. who J0inec1 the campa1g-11to cxcr1 the maxi-
llllllll mllm·11n· 011 East and South-East :\s1a11 g-on:r11111e11tsto lllrn awa)'
rrom tlll'_)apa11ese proposal. In a11 1111cn·1e\\'wuh l.arn· S11111111crs of the US
Treasury, fosi1i11i101uil hnl/'s/orexplains: ·( :011ct·n1<.:dthat.Japan was prnpos111µ;
the 1rlca [or 1hc ;\i\lFI as a step toward hq4c.:mom· Ill 1he rcg-1lJ11,but unwill-
ing- 10 bring- such a sc11s1u,·e issue 111(0the <>()l'll,L1S and Europl'all Jinant:Jal
onicials worked 1iit· phones with Son th-East :\s1a11olfiuals. talking- clown the
idea and hoping- II wouid die qrnetlr ·:,
The later I11dones1a11 IMF deal did 111clude a substa1111.ll Amencan and
\-\'l'sl European 111roln.·111e111.. as a means or crnnhat111g- Lhc.JapalH:sc threat.
Bv Non·mlwr or lm)7. the will or the .Japalll'Sl' g-ovenlllll'lll LOoffer rhe
n:g-1011a path 0111 or thl' (T1s1swhich would c,·ade the stra1cg-K /.{Oalsof the
US /.{<>n:nllllt'llt was broken.
The rull st<llT or1lw drallla11c cliplomacv s11rrou11di1114 the failccl.Japa11esc
dt'.:marche has ,·ct to he roicl. 1' Bm_Japan suflc:rcd a st11111111114 plJliucai ddi.:at
mllicted by the US wi1h the support of1ht· EU. The basis for El 1 supporl for
the US TreaslllT throug-houl the crisis is also a ston· whose de1ails remain
obscure. but one with great s1g-nificann: liir 1he htt11n·.

The livlF's l11du11es1an packag-e did. fi,r a while. seem Lil work. In the Jirst
week of November J~)\li. ivlichcl Camdcssus fi:l1 co11licle11t c11oug-h to
declare that the (1\,JFhad succeeded in breaking 1he \'JC1011snrcles oflina11-
t:1al collapse in tlw reg1011.
But.111st al that mo111e1ll. the linannal problems 111South Korea became
critical and the Japanese fi11a11dal svstem was s1multa11coush· gnppeci bv
panic. This was thl' first reall\- cntical point 111the tra11s1t1011from a purch·
Eas1 :\s1a11 financial crisis to a world fi11a11nal panic Sou1h Korea·s cco110111,·
1s lar14cr than those ofThailaml. lndoncs1a and Maia\'s1a put toi4ether. The
evolt,11011 o!' the Korean cr1s1s 111Nm·cmbcr and Decemlwr l ml7 produced
the sl11pwreck or both thl' Indonesian and Thai economies and tng-g-cred
the transnnss1011 uf the cns1s to 1ht· linannal centres or the.: \Vest as well as
Russia and Latin ,\111erica.
But the n·ntral characters 1111he Kore;m drama of laLc 19~)7 were 1101.
s11nplr or 111a111lr 111ter11atll>llaland Korean hankers. The clc11oueme11t was
prorlun·rl bv Roher! Ruhm and I.arr~· Summers in the LIS Treasun·
Depar1mc11L. The,· haH· macll' no attempt w umreal the fact that tlwv ra11
tile IMF opcr;111011011 Korea.'Thcr dec1cled that the IMF sh!>11klhe usc.:d 1101
Ill 1hc ways it had operated 1111hc last lirty vears hut 111s1ead111tile new wavs
111wl11ch 11should operate in the twellly-firs1 n·1ll11r~·. For the L1S g-on·r11-
mc11l, Korea was g-omg to he a lirsl.
It 1s the lwlla\'lour or the r\111cnra11 gon'.l'llllle111 Ill the terms 11rcqrnrcd
 108 Tl-IE (:t.01\.-\I.IS.\TIO'.': (;.-\i\1111.1·'.

Lhe li\·IF to impose t1po11 South Knrc:a Lh,1L has caused the: 111os1umt.rm·ns,·
.imongsL those ,,,ho hacl forml·ct pan of what has been callee! the
· Washn 1gt<111 Cllnsensus ·
The reason for l11edebate alJotll Lile US g-m·ernment's role lies 111the fact
that Jls policv for dealing with the South Korean cns1s was 1101onlv lllll g-earecl
lO stabilising- the won and the Korean banking system: IL was 1Hll e\"en geared
to stabilising i111ernat1011ailinanc1ai mad;.cts. Instead IL made its gon:rnmg
ol~Jccuve a cin\'e ln u-ansform the 111tcrnaisoc1at rel a uons or prnd11cuo11w1thm
South Korea an(( to nsk the det1)('/llll.!;<>1'thc Korean cnsis ancl the m11/11111at11111
orinternallonal linanc1al parnc 111orrler 10 ad11e\'e 1ha1 transformauon.
In linanc1al crises like Lhat in Korea. the tracliuona\ task of the ll\·IF 1s
s1mullaneously 10 stabilise the excha11gc rate and LO lind a way lll' reassuring
mternational financial markl'ts about the solvenc1• of the Soul11 Korean
hanks. This duai oper.iuon will thc11 pro\'1clc lime <l\\nn~ whu:h domc~t\c
cconunuc acll\'ll\' can conlmuc thus providing a contcxt 111 which a restruc-
lllnng of tile banking system can take place.
Yet 111 the case of' Sotnh Korea, Lhe Ii'vlF programmc was not cles1g11cd to
restore mvestor conlidcnce 111 J.:orm at ,tll, nor 11·,1sIL des1~ned to rc\'J\'l'
activnv on the pan or Korea·s malll economic opcrawrs. IL was mstead a
domesuc transformat1011 programme tl1a1 would !llcvit,1biv 1mder111111e
investor conlicle111.:ein the 111st1L11t1ons orJ~orean c.1p1Lalism.
The siege of the South Korean currencv. the won. began 011 /-i
November, the ciav when HvIF Managmg Director Camdessus was explam-
rng that tl1e IJ\,lf package for lncioncs1a shouicl break the nc10us cvck or
econo1111c dcstal>ilisal!on 111 Asia. lktween 6 November and 17 November
the Korean government sought to clelend die won, before ,1bandorn11g- the
struggk on the latter elate and closmg the foreign curre,u:v market for
three clays. On 20 November the g1ll'ernmcnt asked the .Japanese govern-
ment lO persuade Japanese banks lO roll over their short-term lo,1ns to
Korea. But the Easl Asian cns1s was now plun~ing.Japanese linannal 111su-
tuttons, deeply engaged 111the regmn, mto crisis: one orJapan ·s lcn:r
biggest secunt1es houses. Yama1ch1, would collapse four days iatl"r. Sn the
.Japanese government was paraivsecl. The following cla\', 21 November. the
South Korean gol'ernment announced that JI was asking the ll'vJF for a
rescue package.
NegouatJons \l'llh the IMF Lhen clraggcct 011 for a full two \\'eeks. 011
IVlondar I Dccemt>cr the IJ\·IFand Korea h.icl still 1101 agreed a cleai: the,· were
clisagn:crng about the gTowth target !i.ir the following vea1· and al>out Lile
IMF's demand that twelve merchant banks sirnuid be dosecl. The follmring
clay US Fcclcral Rc.~cn'c Cha1rman :\liln Greenspan s,11ctthat the r\s1a11n1s1s
was likciy to accelcrate the move from iarge ammmL~ ol'gol'ernment-clirectecl
investment to a svstcm that encourages more pnvatl' see1or 1nvolvcl!len1:
this was a clear statement that the US authonues required a radical break
 Tiff l'.-\NIC OF '!18 109

w11h Korea s modd or capitalism. Finallv. 011-I Decernhcr, agreement between

So111h Kon:a and tile 11\·IF,Lotalling $Si billion. was ;urno1111t-ed.
St:nior omnab Ill the US Treasurv l.kpanmcnt were wl.'\I aware that the
11\·IF'sKorean progralllllll' was sonH:thing clilfrrent from the usual IMF oper-
a11011s: somctiwig- new . .-\s reportcc! hi' llJL· Fi11a11nal '/'i1111·.1tllc prog-rammc
was ·a strategy carehtlly crafted lw the US ancl tht: IMF that was mtcndecl lO
prnncl<: thl' hl11cpn111 rur what LIS ollic1als h;l\'c conlidenll\' cla1ml'd as a
'"1-{t:tllllllel\' '.![st et:ntun· responsl' lO the Jir.,t '.![st century linancial cns1s"'.~
Thc details of till' stratq.,ry wen.' workl'd out l)v Treasury Linder Sccn:tary
Larr,· Summns 111i\fanil.1 ancl l 1.STrcasurv of!ici,lls mana~cct the e:--tremdy
diniu11t ncgow1t1ons With tile Korean gover11mc11L rrom a s111tc w1thm thl'
s;1me lwt~·i 111Seoul as the Il\•IF delt:ga1101l. It seems that the IMF onic1als
wi1.h111the rq;1011 were reach· to settle on thl' has1s u!' more k·111elll terms \\'Ith
tile Korean gm·ernnwnt, lmt the\' wen· prevented from cluing so hv the US
Trl'asur\' orlic1,iis who had the backmg of Hv!F 1\fanag-ing Director, Michd
Camdessus.

Tiu• [!S's 'fo1,•11ty-Fint

Ct•u/111)' So/alum:
f/11•Sonal N,·latw11.1of
'fiwafi1r111111~ /.:u11•1111 Ca/11ta/i.,111

Thl' JivlF programme f<ir Kore;1 had 2 ma111parts:

I) Protccung the 111Lercstsorcreditors anci the slahilitv orthc 11JLer11atinnai

lina11cial s\'stc111.
'.!) Korean cconomit· 11ianagl·tlll'Ill and sonal transli.irmal1on.

I) /Jmil•r/111r;nwlilms a 11d1/11•stabilit_y(f t/11•

111hnwl1011al.Ji1u1111wl,IJ'Sfr111

The rentral elemt:nt 111this pan ohhc package was, of cutirse. the prm·1s1011
of hinds from (.;7 states ancl muJLilatcral nrganisauons LO western linanc1al
ms111111mnswhich were l'Xposecl to the Korean debt crunch. Formall\' these
fuucl~ were, of' conrse. acl\·aun:cl to the Korean go\'crmne111, hut on!\' 111
orcll'r for them to llow straight back mto the hands of'Kon·a·s pnvate cn·ci-
ilors. Thus, the westt·n1 icndcrs wh1eh had llooclt:d the Korean marl,ct with
loans and thl'll s11clrien1,· wnhclra\\'11 were to be n·warrlecl wllh what the
Fi11a11mdTi1111'.1\leading commt·111a1or c1llccl '\'ast bailouts or livlF mo11e\·· ~'
Yl't sums ach-a11ccd lw the G7 and multilateral oq~a111sat1011sdirl 1101cover
the full amounls of Kort·a·s short-term cll'ht obligat1011s and m11d1 or the
li\lF packa~e - Ji,r example, thl' monc\· u>mmlltecl by the LIS Trca;,111T-\\'as
not supposed to be used for such pa,·-hacks: It was bsL resorl. standbv mone~·-
Tlrn~. till· package em·1s,1ged that 1hc Korean g11\'ernmclll \\'<111ld1akl' 1mnw-
diatt· meas11rl's Lo p;enl'ratc domcst1c sou1-ces of par-hack f11nds. This new
I IO

funding was ln he generated by the Korean governrnt·nt sl1arplv r:11s111g

dnnwstic lllll'J°t:St ra1es and s1111t1ltaneouslvsharpiv 11gl1tc11111g do111cs11rfiscal
poliC\· tu Slfl'llg-Liit·n its ow11 li11a11c1alpos111011.It ho1d lo commit nsl'lr 10 mas-
sl\·elv 1ncrcas1ng domesllc 11llcrest rates whil<~simullant:ousl\' 11ghtt:11111g ils
li~c;tl polin·. Slwrt-lt·rm interest ralt:s ha<I to be raised lo ovn ~I per ccnl -
a real ra1e of' l!i pl'r cent - :mcl there was to be a tig-htl:11111g· of liscal polin
Ill' a huge I .:JpL'r CCl\l or c;op_..\ga111sl this h,Ki-grnund. thl' .-\11H.'rlC.II\
banks werl' pn:pannl-{ l!J come for\\'arrl \\'1th a nc11· 10;111to thl' 1'.Dre:111g-1J\'-
t·n1ment al J)l'llill rates or i111crcs1h11t pf s11fline11t s1zt· to n,n:r I IH' short.fall
111 the 1111er11allonal support package.
Thus the prulection nf western cn:clitors was to he achie,·cd through the
1ransf'orm.1t1u11 or tlw Kon:an linanual cns1s 111to what wouid hl' likl'I\' 10 hL·
a complete do111cst1clinanc1o1I breakdown within Korea llselL \\'ht'll clomcs-
llC financial cnses occur, the cco11omir lask of gon:r11me11ts 1s to pump
more 111011ev11llo lite hanking svste111and to iowl'r 111terl'Sl rates 111urricr to
1·estore the crcditwonhiness or the ha11ki11gsvstem a11d 111order lo reslimu-
latc the 111clus1nalsector so that I\ l011 can mailllalll us Cl'l'clit11·onh11H.·ss.Bui
the livlf pacbge 111\'olved bailing- out 111terna11011alcreditors i)y makmg- a
bad Korean domestic crisis catastrophic In 1he words ol' 1\fanm 'Woll' or tlw
Fi11a11nr1/Ti1111•.1.the livlF rkman<lcd a 'cia111ag-111glr tough squeeze 011 ero-
1w1111cactl\·1t,· Ir the illness 1~ debt clella11<111,a s1gnilica11t ecorn11111C
slowdow11 m11s1make the patien(s co11clium1 worse.·· The li\lF package was
'little more sncntilk than for a cloctor to bleed hts paut:111.~·111
The lf\IF pacl,agc in(leecl i11cluded fiuther rcquin:me11b 1ha1 wo11ld intell-
sifr the ciomt:suc collapse: thus. clesp11c a rievaluatH111agamst the dollar or:m
per cent, whll"h would a11tomaucalh- push up domcSLH' pnces suhstanttall\'.
111l1auo11was to he kept at !i per cent. In a vet f'unhcr squeeze, thl: Korean
hanks were required Lo switch rapidly to 111tt:n1auonal standards, so thev had
w build thetr c1p1Lal base and makt: had loan prm·1s1tms 111s1cariol' offcn11g
credit tu the 111dustriai sector. The re~ttlt ,,·as10 b1.:a severe nl·di1 sqticcn·. 11
i,!artm Woll summl'd up tins aspt.>c:lurtht· I ti.IF pr1>gramllll' as follows: 'Thl·
conclus1on: lwwever sick Korean companies and banks lll,I\' be 1ww. tlWI' will
soon be sicker.' This predictio11 pn,n.>c\ accurate. A Fi11a111·,,i/ Ti1111'J editonal
111 i'.lar Hl9H 11otcd that 'the pam lor llw East A.~1a11 cns,sj 1s pro\·111g worse
1ha11 many anucipatcd. The net:cl to rolllhat rcccssrnn looks likl' lwcommg
as urge11L as the prenous pnonty of n:ston11g ma1·ket confidence. Therl' 1s
no point in endors111g a cure that cuds up killing 1he paue111.' 1~

2) Sou11(1m11.1/i1rnw1w11 ru/11/u/llff,•ss 111,,a.rnn•s

a11tl.fim'1g11
The slump-generating clclllents in thl' f;'vlf package should not he seen
011lv as an internationally costiess \\'a\' of' squeezing dt:bt rl.'p.t~·111c11Ls
0111of'
Korea. Thev were cvidc111lvdesigned 10 create lhe nccessarv donwsuc fi-anw-
work or l'C1J11t1111w 11\Cl'.llLi\'esliir crn11ple1ely reorgarnsing- lhl' 111s11tuuo11sof
Korean capitalis111, dl's1rov111g wh:11 Rohen Wark has calll'cl Korea\ .-\sia11
Den·inpmt·nL \lorll'I. ,\ Fi,,,n1mi/ Ti111,·1 edi1onal n,plamcd llll' general goal
or 1hc pad:.agt·: 'For Korea this 111us1mark the end or an era of ding1s111c
thal contribuwd w ils L'Xtraordinarih· s11n-essl'ul rle,·l'lop111e11t. BuL this cns1s
has shrnn1 tiial such i11Lt-rn·nt1on1s111c;11111<11 he co111b1m:d wnh freedom LO
borrow ;1l>ruarl. Sincl' 1he latt(.'r r;111hard\\' hl' hahl'cl. Korl'a has till cho1n·:
I! must lilit..-,disl' s,·s11·111alK,tlh·.•1::
F package, lhl' ch.1l'lmls 1,·,
LI11cle1·I he IJ\-1 >1ild he turned i111011·ester11-sl\·lc
co111pa11u.:s, pLin11g short-term proli1s first. rdnng upu11 share 1sst1t'.Sand
largelv clqwnding upon 1ntl'rnal sanngs for thl'1r 11t·\1'11wcstn1c11Ls.Thus, as
lhl' Fi11m1 ,w/ Ti1111·s co111111t·n1ed: ·.-\ rt"due1io11 i11 Bank lending will rorce
I tlie chal'lwlj lo t11r11111c;1p1tal 111arh.,.:ts.sul~Jcct1ng them 10 111,·estor clisd-
plinl' as corporatt· Lransparencv i111pron·s ancl farnilv m1·11tTs \'leld nm1n,I.
Tl11s protl'ss will comt· w11h a l11gll cnsl .. · 1-1
Tlw .~q11tT1.t·\1'.is c:11t·l"111lv cr;tl"it-d 111b11 1he d1achuls \Tn· hard. Thus, II
111duckrl :i Sjll'Cilic ha11 1111 public 1,·od,s progra111111l·s. so111t·ll1111gwl11d1 Lhl·
Korean g0Ycn1111t:lll has tradit1011all~- 11st:d Lo ltl·lp 1hc d1al.'111Jls, mam· or
wluch havt· bet:n engaged i11g0Yer11me111-J'u11rledpublic \\'orks co11stn1c1.1011.
The dnn· .tl-(alllst 1\tc Korean Devdopmc111 i\lorll'I was rombmcd with
rl'quiremt·111s !i,r s11'l-cpmg Opl'll D1111rntl'asures allow111g thl' 1"111lcsL p11ss1-
l1ie access l(,r lim:1g11 c:1p11al. A marur li.:ature or Lill' I MF prng-r;u111ne was ilw
111sis1em'l' 011 faster a11d f'ulltT opt·11111g-or Korea s doors 1c, t·11tn· and exn bv
f'on-ig-11capH;ti both 111the ba11k111g.111clcorpor;11e sectors. SIHTilic;1lly. fi,r-
t·ign in\'eSIIIH'llL Ill rlolllt'SLIC lina11n,tl illSlllllllllllS and domt·S(ll' l'l(lllt\' \\'ere
to be lilwr:tli~l·d; cirn11t·suc 11wnt·v and bond 111arkl·ts were 1,1 l)l' 11pe1wd 10
foreign 111,·cstors. and rcslr1cL11111s011 foreign h11rro\\'111g ll\' clomestic n,r-
pnraLmns were Lil he liltccl. F, The ceiling 011 foreign owm·rship or shares 111
Korean cr1111p.1111t·swas to he raist'd rrom '.!(i to :i!I per ce11l as from l:i
Dt·n·mhL"r 19!17. .J:1pa11t·.w produns 1\'l'n' als11 10 lit' g1,T11 bigger access 10
Korean 111,1rkl·ts. (l'renously Jap.111t:Sl' cxpol"ls Lo 1.;.u.-ca had liec11 li11111ccl
IJt:GIUSl' or.Japans large tradl' surplus wnh KDrea.) llnclt'r lllc agrt't:lllL'III
$:>.:i billion was III ht: cll'li\'en.:rl LOh.1>rea the rullowing da1· and a h1nlwr S'.Ui
hi Ilion wo11lcl ht' clislrnrst·d 011 IH lkrt'l11her ass11111111g 1ha1 lht· firs, redew of'
Kort'a s progra111IIIL' of' internal ch;mgl's was sa11sL1c1or\'.

Thr Fai/111·,, 11///11·US ( ;1Jl'l'l'lllll1'11/\ / Jm 1,•Jiira 'J'.i,,·11/y-Fini(.',·11J11n So/11/1(111

The relit'! i11 111t1.T11:111011al li11a11nal markl·1s wht:11 aµ;rn:n1e111 was finally
a1111ou11ced he1wee11 the li\·IF amt 1he S11111hKorean gm·t..-11111t·ntlasted less
1.ha11 111·c11t\'-rollr hours. \·\'hen 1111t·nL1t11111aloperators an11allv read the
ag-recnw111. l11t•\· flt'd hurn Korea 111pa111c. so 1h.11 thl' followmg da\' lhl'
112 Tl-IE (a.on,\l.lS,\TION G.-\:'IIBI.E

cuumrr was plung-ed mto a downward spm. But tlus clici not surprise or
alarm LIie US Treasury. lncleecl, they mclicated when the package was
announcecl tha1. they were not expecting any quick reswration of' co11li-
dencc. For the next two weeks, as the Korean cns1s deepened as a resuit or
the Hvlf programme, Trcasurv ortiuals remameci unbending and confident
about the package.
On :'i December, the dav al'ter the IMF agreement, the won started piu11g--
ing ag-ain so that by 8 December ll had fallen about 1(-i per cent since '.~
December. The reason for the fall was very simple ;u-ithmetic: the li'vlFpack-
age did not cover Korea's shon-term debt serv1c111gand a new wave or
contag10n spread across the entire region. On JO December an li\-lF docu-
ment was published showmg that the Korean cieai involved closmg some or
Korea\ big cornmerc1ai banks ancl llus created new waves or panic. On i 1
December there were huge losses 111 stock markets across the region 11; and
the pa111cspread to Wall Street and Lo Latin America. On I 2 December the
Korean won rell lO 1,891 AO LO the dollar whereas it had been I, I 70 to the
dollar al the tune or the 11\iIFpackage nine days earlier. In short, the IMF
stabilisation pacl,age was no such thing: it rurther clestahilisecl the Korean
economy.
Yet the US government calmly indicated that it was not prepared lo
change tL'istance. Treasury Secretary Rubm stated that 1mplementmg the
IMF programme was 'the ahsolme key to , , re-establishmg confidence 111
the financtal market.' This agam was a new concept: in the past, till'
t1111101111n•1111mt of agn'1!1111•11t on a rescue package was supposed to stabilise an

economy m payments clilficulues: 11nplementauon came later. But Rubin

was say111gthat confidence and thus stability wmtkl be restored in Korea oniy
after a first wave of implementation of the transfonnauon programme.
Rubin's Treasury officiais and those orthe IMF said South Korea must carry
out the reforms before there could he any talk or new moner. The Ii'vlF
would release a further S5.6 billion by 8 .Januarv oniv ir Korea stuck lO tls
schedule of promised domesllc changes. 1i
But on Fnciay 12 Decemher, the Indonesian crisis acquired catastropl11c
proporLions as the rupiah fell I 1 per cent in a smgic day and lost 22 per cent
dunng the week (54 per cent dunng the year). 18 At the same time, signals
rrom Seoul suggested that South Korea was gomg to break wllh the ll\·IF deal
and simply default on its private sector's debts. And this threat ofa Korean
default 111 turn raised fears in Wall Street and London or a svstem1c cns1s 111
the international financial system.
It was only at this point that the US Treasurr Iinalh· uselr pa111ckeclanci
drew back from its '21st century solution'. On Monday 1:'i December the US
Treastu-y b'acktrackcci ancl lilt: IMF said that lls exe~utive board meeung
would consider that clay the speedy deliven' or funher moncv lo South
Korea. The IMF sa1cl 1t was responding to a request from the Korean
 gover11menL, h111Korean governme11L 0Hic1als said thev we1·e unaware of"any
such reguest having- been macle. l!l The '1-eguesl;. 111 ot.her words, seems t.o
have come from \Vall SLreel. The followmg dav Lhc won soared up 16 per
ccnL ag-amst Lhe dollar, the stock markel rose hr nearlv :i per cenl ancl equity
markets across the regmn also revived. On I 6 December, Lhe US Federal
Rcsen·e Open l'vla1·kelComm1uee shirted its own policy grndclines by failing
to raise mterest rates as US domesuc mdicaLors would h,1vc req111recl.And on
17 December, the .Japanese govcrnmelll gave a sl11nulus Lo Lhe Japanese
economv wiLh a Sl:i billion tax cul. The dollar f"ellsharplv iower agamsL Lhe
vcn, while sLOcl, markets across tht: Asian region shot up. And on 18
December Lhe IMF disbursed Lhe second tranche or S,15 billion out or its
loan package, despile Lhe failure of Somh Korea to li1lly compiv wllh Lhe
schedule or reforms in the origmaJ package.
Yet the cns1s was sill nol over. On Monday !!!! December after Moocly;s
raLing agency clowngracted Lhe foreign cu1Tenn· ceiling f"or Korean bonds
and cu1-rencv, Lhe won !'ell from Fnclay\ 1,550 LO Lhe dollar to 1,715. The
Tokyo and New York sLock marl,ets fell. On 2:1 December the World Bank
disbursed a sgbillion ioan to South Korea - its share or Liw ll'vlF-led resrne
package. By 2,1 December, US financial markets were gnppcd lw the fear
lhat Solllh Korea would still have to declare a debt. moratonum. The Hrilf
Slrl'lit.fo11rnaf reported Lhat the US government ·span or the li'vlF-led pack-
age - $5 billion, which was supposed Lo be a back-up s111n10 be used onlv as
a iast resort - might now be Lhrmvn mto the breach; it also repuned that US
banks were discussmg restrunurmg Lhe1r ioans Lo the South Korean pn,·;He
sector, prnnding debt relier. Later that day, the li'vlF. the LIS and twelve
other go\'ernments pledged to send a new tranche or SI O billion hut sa1cl
that for a Somh Korean recoverv 1l was crllical thal internaU<mal commer-
nal banks ag-ree a 'signilica11L' rescheduling for Korea11 l111annal
inslilllttons. The 11\.IFsaid it would he disbursmg a further $2 billion (from
its S2I billion total) lo South Kmea on '.W December and a htrther S2 bil-
lion on 8 January. The US and twelve 0lher OECD countries said they
would be sending $8 billion ( OU[ or lheir pieclgecl s2,1 billion) by earl,·
Januarv - this was monev pledged to be used univ as a last resort. Of this
total, $1.7 billion wouid come from the US, S:Lt1 billion rrom.Japa11.~ 0 US
Treasurv Secretarv Robert. Rubm said: 'This 1s a m:~jor world event . IL
seemed appropriate for the [GTI mduslnal cou11L1·iesand other 11at.1m1s
involved in the second line of defence 10 mm·c t hell' a1cl ellon forward.•
The · m:11or world event' he was refcrrmg to was not a Korean one h111a
threatened breakdown i11American linanc1al markets. unable to stand the
stram of lhe US Treasmfs politicai dcmarche on Korea.
The US Treasurv's climb down was, in fact, a st111mmg defeat. As the
Fi11r111oafTi1111's reporwd, US T1·easurv oflic1ais 'know thal the cnucal clen-
Slllll to add a11 exLra S 10 billion from the Ii'vlF, US, Japanese and other
114 Tl It-: ( ;J.01\.\I.ISATION C.-\~1111.F

govcn1111L'lll n:soun.:cs and lo l'llgagc the l>anJ.:.s111a cldJt rcschedulin~ exer-

cise is a sm111llng poliC\' n~versal that could have big 1lllplic1uo11s for I hl' wa\'
fmurc fi11an..:ial cnscs arc tackled ... 'The faCLis, the onic1ai Sl:ctor looked
a defauit lw Korea 111 the face, and blinked," s;ud 1\·lorns l:01dste111. a se111or
eco1101111~t w11ii the lnsutute rur l11ternaurn1al Eco11om1cs. ·~• Till' LiS
Treasun- 1hdf cb11nccl that Its dimh-dow11 wa, 110 such tll111g iiL'ClllSL' tile
extra 111011c,· ancl tile 111volvcmcnt of the US pn,·.ite banks III rcsrhccluling
Korl'.Jll Jo;111s \\'as cmnhmccl Willi htriher cnmli11011alitll'S llt'1llg 1111p1,,ed
on Korca for faster ancl deeper n:structurmg of its capitalist svstt·111. But
noboch· clst'. s;1w matters 111that wav.
The backtracking l>y1he US government did prc\"l'llt the Kore;111default.
But H did 1101 enrt the wider linancial palllr: l11clo11c~1awas ief"t w1Lll ;1 corn-
piete credit crunch and effrCLivcl\' a complete clcbult 1111llS debts. The
whole rq.{JOJl 1vas gallopmg 111Lo;1 clccp cleprcss1011 which 111 1llr11 woulcl
spread the effects of the Asian cns1s Lo other parts l>rthe 11•orld, parucitlarlv
commodity prodm:mg countncs like Russia which would lind world dl'111a11d
for their exports slumpmg and would thus face an exchange rate and li11a11-
c1al crisis of their own.
But the 1111ponalll pmnt about this ccntrai episode 1s the fact that tilt' l 1S
govcn11ncn1 J1111g/11 11111.w /1((11/C 111 th,· Jmlla/1• 111111-hl'l.1 w1/li f.:111w111 n11°
dcali11."1.·
1-m1tJ'awl 1/,,/J/ "·' "/mli11ml lnwr w runher us polin· ol~11.:ct11·es w1Lh111Korea.
And it was the Arncncan lina11cial market's leadi11g npcrators wl11ch l'X1.-rted
prcssurl' upon the US !{D\'cr11111entto stal)ilise the Korean eco1101111·.It was,
orcourse, emharrass111g for the US Trcasun· lo he s111111gclown wllh pn\'aLL'
bankers to agn:c the rescheduling- orprivate loa11~ to Korea. But for the US
and oLlwr western hanl,mg communnies, resdwduling the Korca11 dl'bt
with tile US Trcas11ry was a welcome relief.
As tht· shock.,· from the Ji11a11c1aicnsis workccl lhe1r wavs tllroug-h Lhc
Asian econom1cs, the HvlF's prcclicuons about the rcµ;1011's grmvth prospects
for 1998 turned out to be wildly out or !inc with realillcs. Deep slumps
gnppecl much of the area with the most appallin~ su!Tenng 1Je111gcxpen-
cnced 111lnclo11es1a. But the hopes of the US g-on~rnmcnL that it could rl'ap
substanuai IJc11cli1s for !Ls capt1als ll1 the region as a result of the t:r1s1s did
seem 10 be co111111g- true. The baulL· liir the lmun· character or Korl'a·s rl'la-
uons of productHlll as a whoic has conunuerl to rag-e a11cl 11 1s ll\' 110 means
clear ycl what the final outcomc ol'that struggle will he.
fiut already 111Dcccmi>er I ml7, American capt1ai was look111g-(i1nv-,1rrt to
making a l,il\ing 111 Korea. The N,w VorhTi1111•.1· ol.'.!.7 Decemlll'r n:ponl·d tha1
'Korean co111pa111csarc look111g ripe Lo forc1g-11 hurers.' The J.111 .-\11!}.i'/,•_1
Tilllt'S of'.!.5.Januarv 1m18 rcponed, ·us Compamcs sl'l' Fire Sale 111So111h
Korc.i.' 'fhl' (:/11rngo Trilm111' reported 011 11--_l.1n11:ir)' that 'Some US
Comparnes Jump 111lt> Asia w1t11 Both Feet', .-\Jl(l the ll'a// Sln•rf .J1mn,r,l
rcponed Cora Cola's purchases ol compa111es 111h.ore.1 :111clThailand 1111dl'r
 TIIE l'.\Nlt: t>F '\lH

1lie hcadlinL', '\VhilL' Some Co11111Thl'1r Losses 111 Asia. Coca-Cola"s

Ch,urman Si:i.:s OpportuniLies· (ti February). Tiu: ga111s 111terms of US
compa111cs he111g-able Lo Lake c011Lrol over Asian asscLs l1:1\·{been subsLan- 0

Lial. .-\s l-lirom11 Nonaka, secrcwry-general or _lapa11·s ruling Liberal

I>l 11H1na11cPan,·. put 1Lin Lhe st1111mcror 1m1:-i:'There 1s an 111\'asion ol"for~
0

orAsia
l'tgn cap1 ta!, l'Spl'nally L'S capital, tllldl·t 11".I\'. .-\ t\'()l' or c11l11n1saLiu11
has staned.'~~ D11n11g the lirsL livl' lllllllths or 19~JH.US compan1L'S had
ho11gh1 up tlouhll' the number of'.·\.~ian b11s1m·ss1·sth,11 1hcv had bo11gh1 in
;111\' pn:,·1011s n·;1r, spe11cling SHhillio11 111total. Sig11ilicantl\' the mam target
\\';1s thl' _lapa11cse fi11anual svsLem, rollowed bv So111h KmTa ,Ille! Thailand.
ThL' purchases 111South Korea have abo been targTll'cl cspl'ually 011 hank-
mg ;:11cifinance. SectffiLies Data, a US-based 1110111111r111g a~enn·. described
the surge 111asset purchases as an 'historic momeill . European companies,
especially those or the UK, German,· and Holland haYl' also lwcn \'l'IT acu,·e,
S()l'.llding- about S-1hillion. This rentralisatmn of Asi;in capital lil .-\tlanLic
hands was 1111e11sif'v111g as mrnnhs passl'cl. ,-\cconli11g 10 ( ;nld111an Sad1s, Lill'
pace wa~ 'cl'rt:11111~· pICking up· :!:I.-\.~ Paul h.rugman p0111Ll'd0111. the fan that
the US purchases of' business ha\'c twen spread across 111:1nysectors mclud-
mg those where Lile US companies couid not IH.' thought to haYe a
compellll\'l' ach·antage shows thaL Lhl' lire-sales an· thl' pr()(luc1 of weak-
nesSl'S prod11cl'd I)\' the linanciai cns1s. :!-I

Ftm11 ,\.\111111t/11· 11ir/n I IiJ1-/d

IL 1s wonh 111Hlcrli11111g- the pomt that Lhe h1g-L1S i11,·est111L·111 h,ml~s were far
frnm happv ll'llh the dri\'e hr R11b111and Sumnwrs (s11pported I)\' .-\Ian
Greenspan ,11till' Federal Reserve). \Vall SLreel's rlislikl' of' Rubm's aggres-
sive line had a simple cxplanauon: his heha\'iour had nl'atecl panic at the
n-rv heart or thl' 1111ernaLional li11anc1al s,·stcm, was dr;1gg111!4the lmlones1a11
political L'(·o11om,· 11110 olJlil'wn and was brmging- some 1111porta111spenila-
tors at the heart of Lhe srstem ciosl' to collapse. Thl' li11k hclWt'l'll the DWSR
and .-\s1a would Lttrn 011LLo be Lwo-wa\'.\-Vhile the cenl!T or 1he mternational
linanc1al S\'SLL'lllstabilised 111earlr I ~J~JH, this was 0111\'a tL·111porarr rl'lcase.
For tht: weight of' the EasL Asian growth centre 111t lie 1\'orlcl t·conom\· would
ensurl' that Lhc:n· 1,•oulrl be an mdirect boomerang dft·CI 011 Wall Streel Yla
1ill.' dkCls of' tlw .-\s1a11li11a11cial cns1s Dll titc product markl·ts of tht· world.
Tl11s was thl' li111;agL'thaL Lhe US Tn·.istir1· a11rl FL"rkT;1IResl'n·c railer! 10
fun:sLT . .-\.-;so of'tell 111 the: past the 1111t1,1I
d'fi.:tts ofliit· .-b1a11LTISISll'l'l"l' lil'll-
diual for the L 1S economy where tl1111gsmalll'rcrl musi: 111 the bond and
stock markc:ts. Flight fi11ann: from .-\s1a poun·cl 1111DNc1\' ),irk. luwer111g
bond \'1elcls anrl thus making- speculatmn 111shares 011 1lw strll:k markeL
mDn· ;1t1r,1cll\'L'1han e\·c:r.
I Hi Tl·IE (;t.OB,\l.lS.-\TION (;AXIIII.E

But Ill 1hc early months of" 1998 it did 111d<.'cdbecome dear that East and
South-East Asia were heading for a deep cc01w1111cdeprcsswn. And bccausl'
the n:H1011was the dynamic centre orthe 111ternauo11alprml11cll\T ecunom,·.
11s dcprcss10n quickly affcctecl L110scccunom1es produunH the kc\' colll-
nwdil\' mputs for till' wodd cconomv. such as oil. The collapse 111 oil a11cl
otlwr commodity prices was swift and 1Lwas soon rellectl·cl in !-{real rlinintl-
t1cs for oil-producmg stales like Venezuela ancl Canada and, of coursl'.
Russia. Between September I mJ7 and September 1998 the price or oil
dropped :rnper cent, that of wheat fell :-\9per cent, that or copper rell ~~ pn
cc111. The mam mclicator or commoditv ruwres pnces, the CRB-BndHl'
Futures Index, wl11ch covers scvetllt-cn con11nocli\tl'S. ldl I H per Cl'tt!
between September 1997 and September I \198. The m·erwlH:lming propDr-
tion uf t11eexports of so-called emergmg- markets arc commuclitv-basecl anrl
since most orthese emergmg markets were heavily mdebted and thus 1he1r
financial svsLcms and currencies wen: vulncrahic to sharp dctenoration.s in
thcll' current accounts, lhc.:crisis spread.~''
The Russian collapse was the nexl <lcc1s1vephase.: or the ,:_;ns1s
and tile lll'XI
big test for Lhe US T1·easurv. YcLagam ll puL Logcthcr an IMF package and
ycL aga111Lhis was maclcquate; 111 August 1998 Lhe roubll' collapsed. Thl' US
Treasury could have stepped in at Lhe last minute with some sort or emer-
gency rescue. Ir it hacl been able to unclersLand Lhe real siLuauon 11 was in il
woulcl certainly have done so. Bm Rub111 agam failed Lo grasp the realitY.
No\\· he looked at Russia llll'Ot1gh a speculator's eves. Russia ·s assets h;1cl
been a bonanza for six yc.:arsbut the economy had been a steadily worsl'11mg
disaster. sl1r111ki11g wllhout limits and now Lill)'and iargeh' irrelevant 111 Lill'
world economy. V1 1hy, he musl have reasoned, bother about Lhe rouble col-
lapse?
But he overlooked two facts. First, LIH~Russian elites werl' not rooted cap-
italists al all. And scconcllv. a quaner or a cenLury of tile Dollar-Wall Street
Rl'g1me hacl left much or the resL of th<: worlct with fragilc and vtdncrablc
financial svstcms. In JllSt about every Jina11c1al crisis smcc.: the start or the
I 980s, Lhc governments which were hn kit that thev could not risk repudi-
,tling thcu· debts for one very J'undamc111al reason: Lheir lina11c1al svsLcms
were only Lhc nerve centres of whole capitalisL economics with mulupk
links with the imcrnauonal economv. To ha,·c s1111plvrcpudiatecl debt would
havc.1copardised 1ntercsL~ across much or lhetr ecDnomtes hv llircat1:11111ga
penod of is0Ja11011.Russia was different. Economic lili: m the countrv hacl
been m tragic and unm 1c1-rupLcclclecline throughout the 1990s. Russia did
have a t.horoughiv 'modern' scL of in1en1auonaliscd linanc1al markets. ln11
their prices bore no relauon Lo actual ac1tv1ty in the economy. Thev wcrl'
pun:lv spccuiative mark.els Ill ow11crsl11plilies and the Russian banks were
the same: usdi.11 for sucking resources 111linanc1ai form mil of the Russ1,111
economy mlo the Anglo-American financial cenlre and othcrwtse cnHa~l'cl
111 pure specula1ion. The uni,· s1gnilicant link between Russia and world
product markcls was energy and sl!"ategic raw matenais.
Thus. when thc.Julv Ii\·lF plan 11.irRussia failt:d ,lllcl new western 1111H1cy
was
not forthu11111ng. the rouble was ready LO plt1tnlllL'l. This llllll' Soros did not
even need to e11lcr the forward mark.et 111 the rouble. I-le s1mph· had llJ opcu
his mout11 and sav thal the rouble would collapse and it diet. Bm what had nut
been expected was the response of the Russian govcr11111enLILs1111plvrepu-
diated its dcbL~ 011 the bonds it had issued to 1lllernatio11al speculators. ILdid
not seek. 1H.:gotiations, 1t did not beg for more help. It s11nply stated that
although western investors t11011gl1tthey had short-term go\'ernmt·nt bonds
al a n·rtam rate or in wrest. tiler were 1\'l'oll/f t11e,·now had long-dated bonds
al. a much lower r.ue ofimncst. Auel although western mvestors thought that
thcv had hedged their cu1Tencv risk (of the rouble collapsmg) auached to
their bond hoidings bv buv1ng dcrivati,·es from Russian hanks, they were
wrong again. The mone\' would not be J'onhcommg.
Since the )1..'lts111
go\'ernmt·nt rcprcsenwd a H-rY narrow !aver ol' specula-
tors whose mone,· was sale 111 the A11glo-Amencan lin;mcial t:cntrl', tl11swas
the rauonal coursl' of acuo11 l'or tile governnwnt. So narrow was the Iiseal
base or the Russian state - Ill other words, so weak were !ls roots 1n the real
lik or the Russian economy - that to hand over 11smeagre 1ax rl'sourccs to
western bond holders would h;1\'e been suictdal anvwav. And the prod union
links between Russia and the ,v,ffld economv werl' Lill\'.

Th,• R11.uu111
D1/aull mu/ ff,,, Fragility 1!fF,n11w111ir•.1·
Hh1hr•11,·rl
l~\'
Two /)t'/'Wil'J of' !hr•DH'.",'R

The Russian default was an enormous mternat1011al shock. because around

the world there were so mall\' economics whosl' public sectors and banking
s,·stems wen· rull or i11tcrnauo11al debt, built up over two dccacics ol" 111011c·-
tan· and lin,1nuai volatilil\· and crisis. Ancl tills debt was 110\,· 11u longer
locked into medium-term bank Joans as in the old Laun American cnsis or
the eariv 1980s. It now took the form of securities - 1)011dsand stocks- that
fitted in neath· w!Lh the interests of' US renuers .ind mlllual 1'1111cls,
enabling
them lO escape markets mstanth· h~·selling up.
The quc.,l1011 thev fan·<! al'tcr the Russian default was: sllould the\' sell
now? Therl' 1111ghtbe 110 c0111agmn l'rom Russia to Brazil, with Its large
public debt f1111cledby short-term bonds. Bm wha1 if there was a failure in
Brazil? Tlus would drag down the whole or Latin America and spread J'ur-
thel'. Thcrefo1-c, these spcculatiYe investors had even' mcentiYe lo behave
pruclentlv anrl wnhclraw their fnnds. And hr doing so thcv would, 111' course,
provoke the cr1s1sthat the\' wen· g11,1nling aga111s1.These k\ncls or tl1011ghIs
were suddeni\' tra11sl'onrn11gthe patterns uf secunt\' pnces all m·n tilt' world
118 Tl 11•:,;um.-\1.ISATION (;,\\1111.E

and this sudclt'n shift \\'as what st'ellls to lt;1\·e brought a central LI~ linancial
i11stitut10n, rhe so-called Long Tenn Capital i\.Janage111c11t(LTCM) hedge
fund LO its knees. It harl been beumg 011 what it had assttlllt:d to he a ont··
horse race: that as a mo11etarr u11mn ;1pproaclwd in January I \l~J9. Lhl'
Italian bo11ri market would com·erge with the German. But the Russian
default sucldenl\' moved the Italian bond market the other wa,· despite the
approacl1111g stan or the euro.
But the LTCi\l crist!; was an acodent waiting- to llappeu. r\11CIthe pressure
on Laun American lii1.111c1aisvstems was also an accident prepart:d h\' tlw
stead,· strcngthenmg orues across tile world's linannal markets 111LJ1eform
or hen money. The Lies or hot moue,· were themselves a rcllecLion of' the
basic fact that so much or the world ec01H1my had become too fr.1gile and
nsky ro1· the lrn1g-term COtnllllllllClll of h111cishr the re1111ers or the core
econonues. There was also a power relauonslup at work, of course.
Cover111ne111sdesperate to roll on:r their debts would take whateH·r thev
were offered bv Wall Street: ii' they wt:n: 11fferecihot mm1e\·, so be 11. BIil this
power relaLionsh1p was uselr an exp1·essio11 or fu11damc11tal economu.: weak-
ness and vulnerabilitr cmts1clc the core. \Vall Street would not hm·e Ileen so
powerl'ui, if these eco1101111eshad 11ol hl'cll so clependc11\. So we ,tn· dn\'\:ll
hack Lo the lmg1ns or this depc11dc:11cy ancl the,· lie: in Lhe fact that. the
growth paths or manv or the world's ec0110m1es 111the 191-iOs and earlr 1970s
had been broken by the nse or tile D\-VSR, plun)-\'lllg ec0110111ies111\0fflst:s
which iel't them wllh chronic weaknesses and vulnerabilitn·s.
And the same regunc: had Jed back to the Amen can cconomv itself. It had
been .ilJll' to 'bc:nelit' from the DWSR bv opc:ning up Laun .-\menca a11cl
strc:ngthenmg 11sexports to the reg1011. Bv 1998 about hair of US exports
were gomg to Laun America and Asia. This had been a handy escape route
for the America,, prociucu,·e senor fa1ced wllh the: competlll\'e challenge ol'
Japan and Wc:ster11 Europe. The D\.VSR had offered a war out f'n1111the:
hard, domcsuc task ofra1smg prochtctivitv len~ls and reorganising the li11!;.-
ages between savmgs and produc11,·e 1m·esu11ent 111(he US t·co11<11m·. And
the D\VSR had another 'henclic1al' ef'J'ect as well: ll offerecl paths to link rhe
ordinary American to a speculauve-renw:-r svstcm whosl: power stretched
ever deeper mto the eco1101111esor the: woricl. This was ren:aled wHh stark
clanty br the 1'-lcx1can u1s1s or I \l\M-95 as Ti1111• magazine cxplamed at the
lime: 'vVhat many Amenc.ms discoverecl last week was that for all the hcltw:I\'
rhetonc pitting Wall Street aga111st Mam Street. Wall Street l011g ago 111ter-
sectecl wah i\fatn Street. At risk 111[i\'1cxa:oj wen- nol onh· US l>a11ksa11cl
g1am im·cstmenL Jinns but muLual funds held by tens ofmil\io11s orlillk-gm·
111\'estorswho bet thetr saring-s on douhlc-digH yields 111 emcrgmg markets
like Mcx1e<~."This wasn't al)Ollt bailing out Wall Street" a co11gn·ss1unai
staff member said [ or the 1·cscue packageJ, "but about mu n1al ancl pcnswn
funds and that means average Amencans. "'~ti
 Ti1111• magazine was nghL about the E.1c1s,hut lhl' growth orpowcrl'ul spec-
ula11,·c fi,rccs wnh111 almost l'\'l'.r\' Sl'Ctor of the LIS econum,· was ~really
Sllllllllatl'cl Ii\' the cn>IUl.ll>llor the D\·\'SR . .-\net h,· I ~1!18the us l'Cllll<>lll\'\\\IS
111llatccl h\' ,·cry largl'. and sonally all-pcn·as1\'c spl'.Culat1,·c disturuons: the
stock exch,mge, despite the rails Ill El98, re111;1i11sthe central i111latcd
bubhll'.
The ,\merican llllll market has cor11111ucd,w11h a coupk ol notable 111tcr-
ruptHJ1Js, li,r lifll'cn \'l'ars a11clhas become ahsoluteiy Cl'IILral to Amcncan
7
capitalism. 111the last lif'tccn vcars cqunv prices ha\'c nsc11 1c111'olcl.:! 111the
l;1s1 three ,·ears the swck market has rre;11ccl llll)l'L' papl'r \\'L',tlth - 111the
sense or i11l1a1cclasset prices - than III the pre,·1011s three clccadcs.~H During
Lhts threc-vcar penocl, Uw cumulau,·e gain on the Standard and Poor\ :100
mdcx has been i 11 per cent.~!>This a11wu11ts to$'., trillion. Bv the spn11g or
1~)!17,the ,·aluc of U.S stocks Jinallv exceeded the LIS\ annual t·conumic
output of' about 58 trillion.: 111 .-\s Paul Kru~man put tl. these k-aps in share
prices could he .1ustilicd on!\· · if' the US cconom\' 1s pmsed to hegrn decades
or cxtraorclinan· grmnh' :ii The buhhll' had lwl'II nsmg 111the lwlls1t11-{
market 111mam· parts of the USA as well a11rl In· ( ktoher 1991-ithl'rl' \\'as l'l'l-
dcncc that it was about to burst.
The entire US L'l'lllllllllY 1s now locked 111tothe huhhle. As thl' dil'l·ctor or
US Eunm1111cs Rl'sl'arch a1 (;01dma11 Sachs pul 11:'The 1mporta11tT ol 1he
stock market 111 kcepmg this nrtuous nrclc [in tile LIS l'l'l>lllim,·] llll.tl'L
cannot be o\'crstatccl. •:I~ The hanking- s,·stems on i\-!ai11Street and Wall Street
;is \\'l'II ,ts thl' mutuai l'uncls and pcns1011 luncls arc all hitched to the huhhle.
And Sil too ban extraorclinaril\' w1(k n>11sttllll't1C\· of ordi11a1T :\111enca11s.
Personal llouscholcl debt rattos in the USA iia,·L· lll'\'l'r lwc11 ht!-{iil'r aml
large.: parts or the m1drlle classes have borrowed to 1m·cst in thl' bubble.
Dav1cl Levr ortlll'_jcromt· LL'\'\' Economics lns111111elll N1·1\' Yi>rkgwc.:sthe
followmg- picture or how an u11co11trolled expansion 111'licti1io11s crl'dit
mm1l'1· and or speculall\'c forces III the LIS stock 111arket wcrl· s11s1ain111gthe
US boom as orthe start or 1998. 111four or the last li\'l' vears. consumption
has 1-{I"O\l'll faster than pcrso11;1l inconu:. Tl11s has been a ke,: E1clor 111w1dcn-
lllg prolil 111,U',[{lllS. 111Hl\17 the per.,onal san11gs r.itl' 111!hl' L 1S 11·as at ::.Hper
cent, a liJ"tY-vearlow. A consumer horrowm!-{ hou111 hclpl'd spending out-
pacl' 111cot11L' m1os,but. hv 19~17lrnuseholrls f'acl'd record debt
Ill the 1111ci-t

and debt scn'lrl' burdens. Households arc carrn11g an u11prl'cl'dentnl 8:1

Cellls orcll'l>t li1r l'\'l'l'\' dnllar or a/frr-ta~ lllCOllll'. Credit card cleli11quc11n
rates arl' ho\'ern1g Hear Lhe prenous all-lime high and personal ba11kr11p1-
cies keep breaking records. 'Euphuna o\'cr stuck 111arket_gams has powered
t.he co11s11mpllon spree.· Co11sun11:rs h:n-c been spending 1101 011h· in
respollSl' tu ponf'oliu ga111sln11also 111a11uc1patio11 of h1tun· ga111s.'\!l'ver 111
the postwar period ha\'c cnnsunll'rs bt:en so 111l111t:ncl'd ll\' thl' stock
market.·
 Tl IE ( :t.<ll'..-\l.lS.-\TJ( lN {;:\,\!BI.E

Stock mark.ct speculau011 has also do11c its bit for what Pres1de11t ( :Iinton
uins1clers lO i)l' his g-reatest domesuc ;1elt1cvcment so l;ir: gl'tllng on top or
tile US hudget deficit. Cap11al gams 1ax rece1p1s to the Trl'asu1T are up
from S-14 billio11 111 199:'l ltl SI 00 billion for 1998: a dircrt 111dira1or or the
voiumes of speculati\'<.' trading 111 US sec unties markets.
l\ut by the encl of October l~l~l8 tlw signs ol'a mounung financial cns1s
wcrl' nmlt1plv111g. .-\ credit cr1111chh;1d already startccl 111till' l.1S fina11nai
s,·stl'llL lnst111111011s
111 debt were not ahl<'.to !incl casr access to Ill"\\' credit.. If'

the credit cr11nd1 were to spreacl to i\·la111Street. dema11cl 111lite US econ-

omy could collapse very swifUr. In short, the Amencan people are at the
ume of writing- at nsk ofhc111g swept inlO the vortex or a crash gc..·11cra1cdbv
the speculative boom which thcv had Imped s1g11alll-cla bellt'r ruture.
When the ,\nll'rican Central Bank. tbe Federal Rcsen·c Boan!. 1111cn·ened
111late September 1998 to save the Long Term Capua! Managl'mcnt Fund
(LTCtvl), 11 thn·w" beam or light mto the bl.tck hole at tile l1eart of'what has
u11nc to bl· calk<I globalisall<>n. F1:dcrai Reserve Board Cha1rn1a11 Alan
Greenspan was 1ssumg a simple, cicar set or messages: 1hat. s111ccthl' Fed
steps 111 only to tackle 'systemic nsk ; the safety of the entire Amcncan credit
svstem was apparently threatened by the behaviour or a s111gle,speculatin·
hedge li.mcl; that the international constcllauons of' linanciai markets rcvoh·-
1ng around their Amcncan Cl'Illrc werl' 111bet subordinated 111a n·111re or
spen1iators; that the welfare or literally billions of' pcopie, whosl' lin·lihoods
depend 111 unc wav or the other on the funct1onmg of' credit s,·stems. was
pntenuall\' _1copardised by a couple of Nol>el Pnze winners and a lt1rmlT
deputy chair111a11of' the Fed who hacl IH:c11engaged 111an oq,ry of' red.less
spcculat11111;titat the macrneconom1c policies of the rest of th<: worlci should
be shil'Led by lowenng mten:st rates to help bail out a Cavman Islands
company. Globalisation hacl come to tl11s.
And while we were absorbing this set of messages, Greenspan procecclt-d
to suppiv some more: he did not start 1110\'L'S to wind down anrl close LTCivl.
I-le ;tlso rc_1ectcclan offer from a btg llll((-wL'SLernspentlator. Warrl'n Buffi.:t.
LO take the prol>lcm oil his hands bv taking IL over. Instead Greenspan
brought all tilt· l>1ggestAmerican 11wcstt11e11L banks together to .101111ly run
LTctvl incleli111Lelv,creatmg the mother of all spccuiauve 111sutuuo11s.This
promptect the Chairman or the 1-lou~c or RcprcsenUll\·cs Ha11ki11~and
Financial Ser\'ln:s Commlllcc,.James Ll'ach, to remark: '\Vorking as a cartel.
those running LTCivl potenually comprise the most powerful linanctai foffe
in the histon of the world and could 1111l11e11cc the well-be111g or nation
states fc:ffgnod or !'or naught, g1uclecl hv profit mom·c, rather tlla11 national
mtercsL stanciarcls.': 1:1 Leach w.is nght. as we alreach' kJ\c1,· In- tht· autumn or
1998. A han'dhil of' Amcncan instituuons like LTCM had alrcaclv cicmo11-
s1rated their capac11v to r11gag1'111.fi1/1-.1mt,,
ji1u11wal wa1_F11'1' They
a1;m 11sl.Hr1/1's.
call plunge a state 111 to economic rum. lcavmg tens of millio11s or people
u11crlv dt·s111111l:. And as.Joseph Suglitz. cl11cr cc011om1st at tlw World Bank,
poi11tcri 0111.111,111,·smaller ccono1111es 111the world can be rumcd in thts way,
rcgarclkss or the11· so-called Tu11dame111als'. their h111dame111als arc nut as
fundamental as these hedge funds.
Most of Llw biggest or these speu1lativc orgarnsauons arc complc1l'ly
opaque ;111rl 1111reg11latccl because .-\l,111Grcensp,m ancl liS Treasnr~·
Secretat'\' Rohen Rubrn l,;iye wanted them kl'pt that 1,-.n·. Tlw; was
Greenspan ·s last message dunng tlw LTCi\-1cns1s; 11c cla1111cclthat such
hedge funds could not be rq~ula1ecl ht'lausc if' thcr were. tlH:v would onl\'
escape to pl.tee~ like the Cavmans! l11stcaci. he propnsecl to make 1/11•lflrKt'/.,·
or some or these orgamsaL1011s - the linancial svstcms or countries 111Llw
South - much more transparent. As a Fi11a11r1fll Ti1111•seditonai remarked,
this will snnplr make them cn:n more \'Ulnerablc to spcc11ia11ve attack.
l1 1s p;11nhil li,r 111a111s1lT,1111
t.:c1>11om1ststo face 1ius hllarn: rcalit\'. \Ve
know that if' a big hank at the bean 01'.1 li11;111cial system goes hust. it GUI pull
down otl\er h;1nks through 11s defaults 011 debts and IL GIii cause pa111r
amongst savers when the,· sec deposits 111the hank. he111g w1pl·d out. B111a
specubtive trader on secunt,es market.\ or fore1g·11 l'Xch,1111 ..:T markets 1s
surely so111cth111gqu11c di!Tcrcnt. These operators arc spcculaung Ill the
se11sc that thcr arc making prolits through hcttmg 011 pnn· 111m'elllc11ts111a
market or pnce dillcrc11ces between two markets. \Ve kno\\· ,hat such spel'-
ulall\T acll\'11\' is enclcmic 111stock markets, bond 111arkets and fore1g-11
exchange markets as well as 111 the sn-rallecl deriva11,·cs 111arl;.t.•1~ - markets 111
111s1ruments ·den\'cd' from these more basic markl'IS. B111we t.tkl· specula-
tion lo be thl' froth on thl· top or markets ,d11ch an· plavmg ,111
111dispens;1blc role as 'cap11al 111arl;.cts· wluch 11elp to e11s11rc that c.ipit,d
goes to the most prolitable sectors and piaccs. So if a spcculauve operator
he1.~wrong-Ir ancl goes under, this should neither affect the u11clcrln11g opcr-
,llions of these markets, which supposcdlv largel" reflect real trends 111
econom1es, nor shouid it have am·thmg· to do with till' banking s,·stem wi11ch
1s engaged 111 supplving uedit w gon'.rnments and tl1l' corpora le sector.
Yet Creenspan \ rescue or the L.TC\-1 ren:alcci ;1 diff«:re111 p1eu1re. 11 h;1s
wrned 0111 that top ,\menca11 ha11ks hare l>ee11p1>11ri11!-{ t·11•1rmous h>ans
mto speculau,·e hcd!-{c 1'11nc1s ancl do111g so while cla1111111g 11111 to be mtcr-
estcd in know111g anyt11111gabout the bets wiuch operators like the !]'CM
were engaged in 011 i11ter11at1011al linancial markets. i\·lore. the Federal
Reserve Boanl must l1ave known for 1·ears that lh1s had hen,mt· a t:e111ralk-a-
tun: or the act1V1lICS or the core lllS(llllllOIIS or the us banking system. _..\
one-line bill 111Congress co11iri l);\n· h;11rnecl such lc11cling h111 no mo\'l'
wha1cvcr was ma<ll· bv the US g-uven1menl to take sucli action. Thu~ 11'l'
come to some 111escapabk co11cl11s11111s: that for the.: leaders of Amcnca11
iinann· and or thc US stale, g1ga1111cspcc11lauon 011 mtcrnauonal linanual
markets was basically sak. Second. that II was extremeh- prnfiiahlc. Thirdly,
 TIIF Cl.01\,\I.IS:\Tl< lN <;_.\\IIIU:

LhaLll was a rauonal war to rclaLe Lo Lllese 111Lcr11a1111nal li11a11nal markets.

:\nd fourthlr. Lhat IL \\'.IS g-ood, 11\ SOlllC \\'ii\' or other. for thl' hl'alth ul'
American lms1ness.
These pn,pos1t1011s cuulcl be 111m1111;11ly true onh· if Lhc s111111111tsur
r\mencau finance eugagmg- 111 Lh1sspeuilauon could. 111 somt• way or other.
ng the markets. This al lirsL seems improbable. ILwould req111re so111cor all
or t.l1c f'ollow111gconcliuons: that Lhe\' had enormous market power. huge
mobilised funds LhaLcould dictate slwn-run prn.:e 111m·eme11ts111 these mar-
keL'i;but if thn were compeLmg against e;icll oLher Lller could c.1m.:cl out each
0Lhe1·'s auacks: so a second condition could he LhaLthe\' worked tol-{ether.
either by carvmg- up markcL'i llllo different spheres or hy co-opcrall\'elv e11tcr-
111g a given markeL; a Lhird possibic concliLion aiso existed: that the,· could
111cliv1cluallyor collecu,·eJy have accl'ss to 111s1cler111rormaL11111 ah1nn futurl'
events 011Lilese markets, 1111<,nnatmn that could enal>lc them lo wm.
In LTCM's case, all tlnee condiLious seem Lo have been meL. f"irsl. ll was
abie Lo mobilise really enormous SlllllS. IivlF studies had indicated Lhat
hedge funds couicl mobilise ioans amoununl,'; 10 twent,· limes their capi1;1L
But as we ha\'e seen, LTCi\·I could nrnbilise '.!T,OLimes 1L-;capllal oJ' S'.!.(j bil-
lion, 111oLhcr words $650 billion. This is e111H1ghLo shake pnces 111a11v
market. Secondly, LTCivl turns out Lo he 1l1e instrument of a cartel or LIS
mvcslment banks, of all <!/lh,· io/1 0111•.1, plus Liu: b1ggcst of lite European
banks, UBS, Sll co111peL1uo11was 110La s1g11ilican1 problem. And th1rdh-, 11
appears Lhat LTCivl had excellent chan11cis to 111s1der 1111"ormauo11.
Congressman Leach pointed ouL thaL [TCM had links with go,·en1me11ts.
hai\' s central bank has been a 1>1ginvestor 111 1:rCi\·l at the ,·en· llllle 1ha1 n
w;1splaymg the Italian bond marl,et! TlllS 1s a startling revclauon. Since thl'
actwns (and words) orLhe Bank or Italv c:.111 direct!\' tilt pnn~s 111 the Italian
bond market, co-operauon between the LICM and the Bank looks like a
w11111111g, though cnminal, comlnnaLion. But thaL was not all. An:ording Lo
an 1111crnai repon within Eurnpe·s largest hank, UBS, wrillcn 1111~19h.al that
tune no less than eight stale banks wen: strategic 111ves10rs·111 LTC:ivl. .\11rl
Lhe UBS report, a cupv of which was obtamcd hv Reuters, suggests there was
collus1011, lill" it explains Lhat ITCM's links wiLh these slate banl-s ga\'e 11 'a
w111dowLo sec the strucwral changes on:urnng in Llll'se markets to wh1d1
the strategic mvestors beiong.': 1-1 That 1s a politl' way or say111g1;rc:M had
enough msiclcr 111format1011Lo foretell Lhe future. Is IL anv ,,·cJ11ckr that
when UBS read Lhat report, it dcnded to ·gel a piece of Lile acu011 ';,
The final ingredient in LTCM's success was ns puhlic relat1011s manage-
ment. .Journalists, acadc1111cs or small-lime tra<krs. reared 011 11co-dass1c.ll
theories orhuw finanoal markets work, 1111ghtpress the followmg quesLion:
smce markets not traders set pnces, how can a specuiator like LT( :M be sure
to wm? And LICM's answer was, with the highest tech co1111rn1t-rsortwarc
designed by two Nohel Pnze-w11111ingnumber crunchers!
 Till' n.-alil\' was L11atit would take a lot llHll"l' than a pnwn failure at
LTCivl's compuH:r centre Lo put a sll>p lO lls wi1111111g run at tile G1s1110.
Bnnging dow11 the mother ol' all hedge funds would require action hy the
nH>ther and father or all· l'XO!-{Cn011s shocks'. the kind or shod .. or series of
shocks that hrt the world 111 1997-9.S. These shocks were 1101.actually, exoge-
nous to Lile system that prnclucecl operators like the ITCivl. They arose
from the evolutio11 or the 11111erclvnamrcs or what has come to he called
globalisation.

(;/o/J(lfi.mlw11 s i)ia/,•r/1m/ Twnl

The rc\'datH>n tha1 the summit or the LIS li11annal s,·stcm nms1sts or a
ha11clf11Ior spcc11lall\'l' hedge funds supplied wtth almost limllless credits h)'
the .-\merican mo11er-ccinre banKs 111dica1es that glohalisat10n has worked
w;elr out 111 a diaiecucal Lishron m·er the last quaner or a n·11111n. IL began
i11 the heach· davs or the Nixon ad1111rnstrathm as a liherauon or US LT0-
11omrc rna11agement frorn the constramts of s11horrli11;11111g thL· .-\mencan
ecrn10rnv to the global enH10my or the Bre11011\Voocls regime. I 111er11atH111al
li11anc1al liheralisauo11 did rncleed 111crease the Ie,·ernge or I lw American
state O\'l'r i11tcrnatio11al eco11om1e affairs. But tl11sexpa11dcct Ju1/ii1rnl.fi,•f't!o111
to 111a111pulall'the world ecorwm,· for US ecom1111Kach-a111agehas t·11ded lw
cleeplr distorting the US economv nself. mal,ing il far 111ore\'lllnl'rahlc than
cvl'r before Lo forces that IL cannot fulh· CDlllroi.
\Vash111gto11s rapacrt,· w manipula1e 1lw dollar pnn· and to l'Xploil Wall
Street ·s m1en1;nio11al Jina11ctai dommance enabled till· US ;111thont1L'Sto
a\'oid clomg what other stales l1a,·e had tu do: watch the hala11cl' or pa,·-
ments; adjust the domesuc cconomv LO ensure l11gh len·ls or clomes11c
sa\'111µ,-sa11cl 111vesu11ent: watch len·ls or public and pn,·aLL' 111dcbted11l'ss:
ensure an dTect1vc clomeslic wstc111 of" linancial mtcrmecliat1rn1 tn ensure
the strong rle\'elopment orthe dornesuc proclucu,·e Sl'cl!lr. The DWSR pru-
nckcl au escape ro11u· from all these task.~. Anrl as :1 rcs11i1. h\' all normal
varrist1cks or capnalisL 11auo11ai accounung the US t·u11w1m· l1as becrn11c
decplv distorted ancl uustablt': u11preccdc111edlv high ien·ls or public a11d
lllluseiwirl debt, a deep str11cwrai h;ilance or pa,·ml·111s delk11 and a hus1-
11cssn·clc depe11ctc111upon asset p1Kl' hubbies .
.-\ml to keep the US eco1wm1c show on the road. the ll1111ed States has
lwconw cieeplr dependent upon Wall Strl't'L linannal markt·ts' ahilitr t<1
111a1ntam huge 111wanl llows or li11a11ce from all Cl\'lT Lire world. If these
mward llows of funds were to come to a halt. or go mto n:v~rse, the structural
weaknesses or Lhe US ecrnwmy would he starkly re\'ealecl, with potentially ca1-
astroph1c consequences. 111the _Jargon, Wall Strcl'L is ;1 'liquiclitv-cln,·e11'
markl'L whose constant resupply or l'u11dsfrom abroad plugs till' hole or the
 Tl-IF (;(,01\.-\I.IS.-\TIClN (i-\\1111.F

L'S collllllllV\ low le\'cl of domcstK sa\'111gsand keeps the US donwsur hoo111
going.
This structural paucrn means tltal Amcnc111 govcr11111c111s han· ,Kq111n·d
a \"ll;1l llllC\'l.'.Sl 111 mainl.111)111~ illl IIHt•rn,llmllal p;1\lCl'l\ of IIIOlll'l.11"\" .1nd
Jin,mu;tl rclauons which is ex1rcmch· \'ola1ilt:. 1rns1able ancl crisis-pro111·.
i>l-ca11SL' 1t 1s these features or the 111Lernauon,il cconomu; svstem wl11d1
mamtillll the \'ast 1111lowsor funds mto New York. And IL 1s 111this ron1e:-.:1
thal we can scc the ll'a\' Ill which Lile big L1S hccl~c funds arc not an abcrra-
0011 hlll arc rather linancial mstnnuons 111 the (_riceplv distortcd).\menran
nauonai interest. E\'ery inLcrnat1onai acl ofhcrigc l"und financial warfare 111
any part or1hc world acts like a shot m the arm for the liguiclit,· or the US
linanc1al marke1s, rnaintarning clownwarcl pn:ssure 011 interest rates and
stoking the stock mark.ct boom.
This dialL-c11cal 1w1sLof globalisa1mn l1;1s1101been tht: prod11CLol" SlllllL'
planning unit 111 the Amcncan l"cdcral µ;ovcrnmt:11L. No c,·il ~roup or l11ll-
sp1rators sought to construct a systt:111111which the macnu:conomic health
or the US ccnnonw required munL·tan· and li11a11c1alchaos to be pcqwtuall\"
recn·.1tcd 111 the mwrnational cco1wmv. The wlwlc pattern 1s the n:sult ul"
a chain ol" hlunclenng gambles. 8111 the p.1111:rnrema1m. nonetheless. ;1
strullural one.
It is als1>, ultimately, an unsustamable one, iJ"Ji:ir no other rt:ason tha11
bec.msc the US economv clcpends not oniv upon constant!\' reproducecl
internauonal mnnctarv and linanc1al turbulence. IL also depends mcreas-
111~!\" upon expanding cconom1l gniwth. csp<:ctally Ill thc so-calll'd
'cmerµmg markets· of Latin America and Asia. The US pruclucLi\'e ccononff
1s t:\'t:r more open and ever more cicpenclt:nt upon macroeLonom1c den:1-
opmcnts 111these <.:conom,es. And thus do<.:s \Vashmgton (ind itself in a
vic1<n1sco11tradicuo11: the US domcsuc ec01101111· depends upon Wall Strn·t
wh1d1 depends upon chaollc mstabiliucs 111· cmcrg-ing market lina11u,d
systems; but at th<.:same L1n1<.: the US domcsw.: L'Cono,m• dept·11ds upun
gniwmg · emerg-1ng market; economics abll' IO absorb US products an<I gl'11-
crn1c h1g-h streams ofprolits for LIScomp,mtcs opcratmg- w11hin them.

Noi1•s

I. .-\11exn·p11011 to 1his 1r11c11lc111 and illitl'ra1c 1n111nph;1lis111which part,allv savl'd 111<·p111·

li.·ss11,11alho11onr or ,\11glo-.-\111enca11_J•.mn1alis111was 10 he found 111thl' !1<111,·st\·and 111111"al
nmrag,· nl" i\brtrn \\'olrs \,Tttll\g 111tlll' Fi1111111·111ITi111n allll 111111;111\·, 1h1111gh lllH all. 1111h,-
h111111r1,,I 'fim,·J·s ecliton;1b.
'..!.11111,r.:c: Robert \\'ail<- ancl Frauk \'em·ruso, 'Thl' .-\s1a11Crisis: The l·Iigl1 Dehl !\lodl'l n·r-
sus 1h,· \\';di SiJTet-Trcastll")'-llllF Compil·x'. N,w l.,_'/1l/,,,1,<r• '.!'.!8(lllarch_!.-\pril I fl\18); Rol>,·rt
\\'adc aucl Frauk \',·ncro,u. 'The Gathenng Slump ;111dthl' llaulc m·t'I" Capital Contrnls·, .\~.i•
l.,Jt //-,,,,,,. '.!'.II(St·p1e111ht·1·/Ck10her 1\1\IH); llrnn· C:11m1111-\,, 'Tiu· Kon·;111 C :nsis aud 1la· E11d
of "L,i.·" llt-n·lop111<·m . .\',7,, l.,:fiU,,,,.,,, '.!:11 ('iep1,·111h,·r·lk1nh,·r 1!1'18); S,·,· also \l-.old,·11
 THE l':\NIC: OF 'H8

(kilo. 'List .-\.,ia ll11 rh,· r,., ..r lhl' ( ;n-;11 Tr;1usf.,,-111;1tJllll .. //,1•1.-a•ol /,11,·r1111/1<111al /',,/iliml
l:rn11,J111_i-.:,::\ (0\1111111111 l'l~l~l- :\ .-.·n· lull ,·l1111111,l11gras 1>'l'il as a l.ir)ll' .111<I,·en· 11,<"1111
an:h1,·t· ul' olhc..-r 111at\'l'lal 011 1h,· <"l"l"ih c111 hc fnu11d al N. Ro11l11ni":, ,n.:h ~--•· at
h 11p://wwh·.stern.ny, 1.l·rl11:'-11n»11hin1.
:1. ~licha,-1 \'atikio11,. '1',1.-ili.- Dirnl1· , 1-in /:1111,-,11F,·u11m111r1/11•1,w(ti N11n·111lwr f !J!l7).
-1. R,·u· ,\hhach. 'Th,- .-h,.111 ,\lulll'lan· F11111l1'11>posi1l: ,\ C1s1· S111dr ,,r_J;1p;1111·,1·1i,-_t:11l11;1I
l.cad,-rship ,./11/11111J•;,-,,,11111111
/11.1111111,- ll,-,,,,,-1,
110. -17..\. I\J97.
:>.J11.1/1/11/11J1wl{11111•.1/i,r,lkr,-111h1-r l!l!li. quutecl 111Rou lk-.-;u:q11a. '\\'hith,·r 1111'_J;1p;111l',e
n11uk·I~ The ,\si,m en,nomu: n1s1s ;1111I1he co11111111a11onof CJJld \\'ar polirio 111 rln· l'acilic
Rim", U,_,,,,.,, o/lu11•n111/w1111//',,Jit1w/ /:, r,1111111y, :,::l ( :\ 11111mn I !l!lii).
Ii. But se,- llr11rl' C:11111111gs, 'TIii' l,11r,·an C:ns1s and dw E111J ,,f "(~11,·""D1·n·l11pm ... 11". S1·1·
also Walcl.-11 lll'llo, 'F.asi :\sia 011 lhl' En· ol"tlw Crl',ll Tra11sli,r111a11011",
7. Inrer\'n,wed 011 the UST\' prngr;unml' Nm•., /1111,r, R11hi11 was asked 111'.Jim l.chrl'r wh\'
he had hc1·11 working"' hard on the Korean 1;..1Fprogramme. Rubin rl'plil'cl: '.Jim.,\menca11
kadership h;1s hcl'II ahs11l111eh· n·111r;1I to rhis l'fli,n ... 1111r,d;t1_-sworld 1111·Unitecl S1a1t:s ts
n:allr th1.: unh· 1·011111n that ts m ;1 p11,1tion 10 pnn-irl,· rh,· kiud nf h·;ulnship 1h;11 "11c1·1h·d
lo dt.:al \\'llh 1,sucs ofthi~ 111a~111111dt· aud i111pon:uu:L' to our n,u11try.' ,\·',,,., J./,rur. 1:i_January
1\)98 (h11p://ww11·.pbs.11rg/111·w,)u1111 ).
8. Fi,111111-,,,/ Tim,·.,.2.Jauuan- l\l!lH, p. :\.
!I. i\lartlll \\'olr. ·s.11111·{ ))cl li\lF ;\lnlirn1L' , Fi11a111wlTim,·.,.• , lkn·111b1·r )!1117, fl· 18.
Ill. ""l"llll \\'ulf. 'S;lllil' ( )hi I.\IF i\l,·1liu11,·.
I l. Q1111ll·cl111 th1· Fm,1111·111/ 'J"im,·,.11 ;\l;I\· l 11!l8, JI· l\l.
12 .. ,\go11r SCIS Ill f11r .-\s1;i"' Fi1111111·1al 7 \1;11" I !J!lH, p. I !I,
'fi111,·.1,
I :I. 'Kon•a"s RL"scue·. Fi11111malTim,·.,.-I D,-,_.,.mhn l!l!l7, fl· 2:i.
].J. Fi1111u,w/'J'i111,·.1. -I lkn·ml>t·r l!l 1li, p. Ii.
I:>./.lartm \\'oil; 'Sa1111·Did J;\IF :lh·,linm·
lli. I-IK down :i.:>, i\lal.wsta ;_.J. I111lll11t·sia •I.Ii. Singapore 2.:\. l'hilipp111L·, -1.'l. Thaib11d •l.!t
per l'elll, a11cl there was a 111·11· w;1n· 11f pn·ssure ag,1111st 1111'l·)ll11g Kong dollar.
17. N. R1111hi111,'Chnm"l"h'Y 111" th,- ,\s1a11 Cns1s (stcrn.11y11 ... cl11/-11rn11hi111). fl· '.\l. This
Ul\'ol\'ccl lifting res1nc11ons 1111fon·1g11 111n,sl111L:111 and making 11, banking sr,1c111 1J111rc
an-u1111tahlt· lo 111arkl't liirn·s' .. -\11oil11·r k<·1·I\IF nuuli1i1111 was Ji,.- th,.· K11n·a11 g11\'en11111·111111
n1rtail p11hlil" spe11di11g - 111olhl'r ll'111rls puhlic w11rks prn1ecis, 111.. lildilornl or thl' 1'1111,1111<"-
11011nnnpa111es aro1111cl which 111a111· ol" Korea's ch;1l'hols an: lmilr.
18. The subst''(lll'III collapse 11!tit,- J11dones1a11 li11a11n,1I s1·s1,•111.li11lm,·,•cl hy tl11· .-ullap.sc or
till' Sukharto reg11111·. ,Ju,uhl Ill' ""I'll as an 11111111l·11<ll'cl l11·-procl11.-r 111"LIS pnlin· ,.,wards
Kon:;i at 1liis mm·.
l!l. N. R1111bi111.'Chro110l0:..;1· ol 111,·.-h1a11 C:r"1' (st1·r11.111·,1.nl11/-11rn11lii1111.
'20. Rohen Rubin exr,la1111,cl th;ll till· LIS n1111riht1111111would cnmtc fr.,11, a sp,·.-ial 1111111
ad1111111sten·cl hi' th<· US Treasury that clicl 11111rl'q111n· I :on:..;rr·s,1011;1)appro1·,1I.
'21. l-"i111111r111/ '/i"111n.2 _la11111,11•1· I !l()S, fl· :\.
'.!'.!.(111111edi11 lh<' Fiu1111,111ITi111n, '.!Jun,· J 111 >X.I'- I Ii.
'.!:I.Toll\· \\'alla·r. 'L'S 11111·,S:--h11ul" ,\,1a11 B11,111t·". Fi11,1111·111/ I:,.f1111<·J !l!J,S,
·Ji111,.·.,,
'.!-1.See l'a11I Kr11g111a11.'Fir,·-Sall' Fill' (h11p:_/_/ll'll'\\".SIL'l"ll.ll)'ll.L'cl11,-·-11r1111hi111l.
'.!:,.Sl'l· i\lichal'l ill. Phillips. 'l'h111g111g ( '.om 111,,clit\' l'nn:s Spn·ad T11r1111,il 111rh,· ( :J11lt;1I
Enmomr, 11;,11s1,.,.,·1_fm11·11a/, '.!i ,\11~11.,1I !J!J8.
'.!Ii. Ci11·d Ii\" ,\d:1111 J-lar1111·s. ·111,11t11t111nal J111·,-,111r, and 1h,· l~q11"'l11,·1w11 ur
Ne11lilll'ralisi11 , l/11,1m•o/ /11i,·n11Il1,,111,/ /'o/itiml 1:'.-,11wm1·. ;;: I (Spn11g I !l!l8).
27. Dand l.e•T• •l'rap 11:..;for a Soft l.a11di11g·. Fi 1u1111·1t1/ Ti111r:,,2 J,11111an· I \J!J8, fl· I 11.
28. Cerarcl Bake1·, ·1s This c;n,a1, or \\'hare', l·i"1111111·111/ ::i ~larch l!llJ8, p.2,,.
'/'i111,:1.
2\l. llarn- Ril<:y. ':\11 Diel Bull Thar \\'111t"I Die'. /·1m111n11/'/i"111,•.1, :\/.JJa1111an l!t!JS.
:HI. Rid1;ml \\';llcrs, '\\'here 1JH· ,\1011.-1·Is", Fin11111wlTi111n.'.l lkn·111'1t·1 PJ 1Ji.
:II. 1'a11l Krnf-:mau, 'l'it1· ,\);111 (;.-.-,-11,pan", Fit111i11mlTim,·.,.:1J1111e l!l!l~. p. 18.
:I'.!.\\'illiam Ducllel", 'From \'in 111111,10 Vinous. Fi1111111:wl Timrl, Ii ~la\' I !l1J8. I'- 18.
:1:1.Qu"ted 111(;;11·1h :\kxa1111<-r. 'lla11k ,\menca Jo111s J-1,·cl~1· F1111clC:is1L;1hi1·s , S1111d11_y
'J'i111r.1, 18 Ckrolll'r 19!18.
'.1-1.lhid.
============7============

Conclusions

The mam argurnelll Ill L111s essav has been that the central lea Lures or what
has come Lo be called glohalisaLion have their ongms III dclibcratc dcc1s1011s
or thc Nixo11 admm1strauo11 taken m order lo sccun: Lhc conlinuecl 1111cr-
national dominance of American capitalism. \<Vhilethe ongwal spur to the
creauon of thc D\\ISR was a perceived threat to US clon11nancL'f"rom Western
Europe ancl.J;1pan, the most malign conscq11t.:11ccsof this rcg,me haH· been
mllicted upon Lhe populations or the South and on those of' the former
Soviet Bloc. The,· have paid for the regime through appallin).\ linancial ancl
eco11om1c crises which hm·e had devastating- consL·q11e11cesror humlrL·<ls or
millions of people. Today IL is the turn or lens or millions or peopk- 1n
Indonesia who arc cxpenencing the clfrcts nl" this harbanc regm1e.
The D\VSR's disastrous economic conscf]ucnces for tlic m;\111r1t,·or
humatllLY have at the same ume been accompa111ed by asto111shmg poliucal
success. Everv li11anc1aland econom1c blow-out has been succcss('ullr blamed
upon 1L~v1clims and has been used LO clestror Lhe earlier den:lopme1H sLratc-
gies of counlnes plunged into cns1s. Whatever the weaknesses of earlier
strategies, wheLher m Laun America or 111Asia or Ill the former Eastern
Bloc, then- resul1s were at leasL less damag111g lll Lhc hcahh and welfare or the
111,\jOrtlYof their populations than 1s the case under the framL'\1'orks clcnsecl
by the US Treasury and transmlltcd throul-(11 the fi\-lFanci the World Bank.
At the same t1111e,what began as pan ora hallle h\' the Nixon admi111stra-
tion agarnst Its Ln;1clic'allies' has become 1ncrc;1smgiv a .1rnnt pn~JC<:lof
Atlanuc capitalism - the US and the EU - agarnst the rest or the world. We
have made no au empt lo 111vcsugate the u11derlrmg causes or the long stag-
nation m the ach·anu:cl capitalist ctnm1ncs, but ,1 gruwmg theme 111 1hc
1980s and l~l90s has been the formation of an Atlanuc coalit10n for a new
cinve somhwards, usmg tlH: D\VSR to rc-enl-(inee1· social S)'Stems 011ts1clethe
core m order to co-orcli11atc them with the 111ten·sts or Atlanuc cap11alism.

l'.!6
This campaign should not he seen as being driven by a smgll' comp11lsio11,
such as thl' scarcll for cheap lat)o11r ur thl' sl'an-h ror markets. IL 1s better
nc\\'ecl as an cxplrntation or power m·cr the 1nter11auo11al poliucal ccun-
0111\' ll\' tht: US aml tht: El.' i11 order In extract L'\-ery possible useful
ad\'autagc through rc-t:11g111ccn11gsoneucs 0Uls1clc the n>re; or, to p111mat-
tt:rs the other wav round, In expel as man~· problcllls as c.m lw expelled
011111·ards from the core soc1etK'S. Fin,111cialcr1sL'Sin the South. depe11de11c1es
on US and EU markets. 111t1entecl debt l>urdeus, mabiliucs to steer
economies 111the face or bell'iklermg changes in the international economic
cm·ll'onment - all tht:se fanors han· hl'en sl'.11.edup1>n I)\' the .-\tlanuc powers
as 111strumcn1s for ga111111g pos1uons 111the c11untrics n,nccnH.."d: for sc11.i11g
control or product markets. for bu~·ing local companv asscls t11 centralise
capnal 1111clcrAtlanuc control. for explrntmg huge pools or cheap labour
(shut out bv ever-stronger 1mm1gration llarricrs from ,u:ccss t11 core
econonucs), for taking effective control or linanc1al srstl'ms for spec11lauvc
purposes, gaming higher marginal nclds ror the 1wns1011run els of Lill' pop-
ulatmns or tile North and ror c11g-ag111gIll orgies or spcculat1<111 and
frcquen tlv corn1pt and crim111ai act l\'l llcs. i\-Iost or these act1,·11.tesarc pre-
sent er! ;ts the verr opposite: as te;1ch111g the suppusedly 1guorant and
111u,m1wte11tgovernments ol'thc Sn11th how to nm their affairs properlv, as
l1clping them to pav off debts, as supplpng them wllh a1cl through FDI etc.
The paLLern of_Jap,mesc cap11alist expa11s1ou has ht'en different m the
1980s and 1990s simply because.Japanese capllalism l1as been for mon: ge11-
ui11elr productive as a 11al!nnal capnalist system than the capnalisms or the
,\tbnuc w11rlcl. \Vhilc tlil' bulk or so-callee! Fure1gn Direct )11\'cstmc11t 111
Eastern Europe or 111the South IH' Atlanuc capitals has ht'l.'ll a matter or
taking over companies and markl't shares, _Japanese cap11alis111 ·s huge sur-
ph1sl.'s of ,·alUL' ha\·e been cha1111clled into the creation or IIL'11· pn,d11ctive
asst:ts 111 E:1st and South-East Asia and have heen compatible with ,·t:n· rapid
raws of' growth and sulJstantial mdustnal development 111 the regmn. The
rapacious mcrcantilism of so muci1 or Eli's trade polic~· Inwards till' S1>1llh
and towards East Central and Eastern Europe, a11CIthe rin,·t: or the US LO
compcnsatl' for compcllllVc Wl.'aktlL'sses 111lls prnrlucti\'e Sl'ctors tllnHtgh
taking- predaton· ach·,11JLageof irs mo1wtarv and linanual .~ector dom111a11ce,
has contrasted w1U1the.Japanese capacity to stimulate and red comfortable
wuh rap1cl growth III East and South-East .-\s1a. But the 1-cs11hor the com-
l)ltlt'd cln1a1111cgrowth of Ch111a and 1hc rl.'sl of thl' Eas1 and South-East
Asian region. m rciauve harmony ,,·nh.Japa11esc rap11alis111,has bct:n a pcr-
ce1vcd threat to the future clominancc ol" tht- US o\'er the world eco1mmv. a
thrl.'at-pcrcepuon full\' shan.'CI Ill' the West Europeans. The restdt \\"a.~;he
gamble or the Clinton acl111i111s1rauonc11lmi11a11ng111tlw so-called Asian
cnsis or 1997. The direct target nf that gamble was the un111tries or East
and So111h-East .-\s1a. But lls mdirccl hut 111<1re li111da111c111al rarg-et was 1he
 Tl-IE ( ;1.oB.-\1.lS,\TION C,\\11\I.E

possihiliLy ufan emergcnL regmnai bloc centred economicallv m.Japan but

potl'lltiallv mcluding China as well.
ThL"rc ts, as vet, no conclus1,·c endence tll.1t the Cli11to11acl1111111strnuo11
.1ctccl sLrawgxallv from 199:'i Lo use the cioll;ll' pnce nsc. pressurl' 10 dis-
mantle controls 011 the capllal account, mllows or hot 1110111:r and l111ann,t!
warfare IJ,• the US hedge funds to brmg countries m East and Somh-Easl
Asia to their knees. There is much c1rcumsta11uai ev1clence to suggest straH·-
g1c planning. But the question remains open. What is 1101111cloubt b Lhat
once the heclgc f'lmds had struck, the US Trcasurv la1111checla clrama1u·
assault agamst Lile socrai relaLions ofproducuon rn South Korea wnh the aun
orachrevmg a Gft,irhsrl1alf1111gof Korean assets and US rnpttalism.
But Lhe vcr)' success or that assauil was Loo much lex the sGuTecl tissue of
the poliucal economtes on the n:sl ol' the penphcry to sustain. Those
\\'l111nclsm11ictcci by earlier Lrnunphs of Lhe DWSR, 111 Russia and oLher parts
of Eastern Europe and in Laun America, had not heaicd s11lfo.:1entl\'lO wtth-
stand the sLrains from the EasL Asian cdsis and the resulung panic or '9H
revealed the heart of globalisauon LO be an extraordinary black hole of
rampant Wall Street speculauon. The G7 package of so-called n:forms or the
mternatwnal linanci,d system 1s 11t>th111g more than an allempt to keep Lhl'
whoie speculative show 011 the road.
It may be thought that the US governmelll and the European U11m11are
senously campa1g-11ing to dismantle all controls on capital accounts and to
compietelv open all economics to the complete freedom of mow·mcnt or all
forms of core cap11al at all tunes. II' they were ,lltempung to do thrs IL u,uld
only l)e described as lunacy. Their aims lla\'c been much more limw:d.
namely to g-ain tlw right Lo open up any economy as Lhey please and Lo use
mullilateral Lrcatics as a basis for lapng siege to an)' political ecrn101m· whose
government is at'l.cmpting to protect assets against capLu1T b,· powerful
ALlmlllCcapttalist groups. The .·\tJanuc powers ha\'c to balance theu- thtrs1 ((,r
control over markets and assets and pools of' labour against t11c1rneed to
p\·escrvc the stability or at least t11e,•iability orstates and polillcal economies
outs1clc the core.
There are ma11r 111the ALianuc \\'!>rid and elsewhere who would hopl'. li,r
the best of reasons, that Lhe poli11cal fragmentation ur the world 11110 a
Balkan1secl patchwm·k or states couid be O\'ercomc lw steps towards gcn-
t1111eworid government. This wouici, mdccd, he a desirable goal. But 11
wouid be a grave error to assume that Lhe current Ii'vlF/\VB structures are a
ge11t111JL' step m that di1·cction. Thl' reality 1s that thest'. struc:ture.~ are less
g-en111nely supranauonal 111 their functmning than the\' wen· under the
Brenon \Voods reg11ne and arc far less so than was en\'isaged ))V Kernes a11cl
Dexter V11hilc when Lhey ncgotrnlcd the Bretton Woncls regime rlurmg till'
war. What is ovcriuokcd by the proponents ordevclopmg these msututions
further along their current lines 1s the fact til.ll the pnnnpal obstacle tn the
c1msLructmn orgenuine organs orglobal go\'crnance lies in the most puw-
l'rl"ul stales tl11.:msclvcs. It 1s the\' who have the mosl LO iosc from such a
cit-l'L'lopment because at pn.:scnt 1hc,· nm1roJ these multilateral organisa-
uons for thl' purpose of furthering tlle1r own power and interests. And the
entire livlF /WB svstcm 1s dcs1gncd to shirt thc costs orthe powcr-plars of the
.-\llantic worlcl on to the bulk or huma111Ly,which Ii,·cs in thc South.
It 1s dispmtmg for ma1w to have to E1cc th<: prospect or r<:l\trnmg man-
agcrial auto111,mv to nauon stales III order to aclvance towards a morc
~emunelv unilied world. It might be thuughl possible to ennsage a coalition
or medium-sized states bemg formed to take dommance out or the hands of
the Unued States govcrnna:nt and orgamse a svstcm or global g-overnance
\\'h1ch 1s at icasl l)ascd upon a hn1adcr J;.m(I or oligarchic co-opcraLion
l>elwecn, sa,·. the largcsl twcnL\' countnes (laq;cst. that 1s, 111 populauon
terms). This niuici be seen as a genuine step forward. Blll simply to state it
1~ to sec how clistantlv utopian such a programme or reform currcnLly is,
clespiLe 1hc l;1cLthat L11cAtlanLic powcrs could still ha\'e the m1uau,·e wnhm
such a forum on most issues. Thcv arc addiclcd lO ma11llami11g tllctr grip on
the wodd economv and world politics, come what 111av.
Rclallons between the capitalist core and penphery have undcrgon<: extra-
ordinary Lransformations durmg the twentieth ccmun'. In manv ways the
oplm1al form or the rcialtonsh1p from the angle or core cco111im1eswas thaL
orthc European cmptrcs. with the Untish relatio11sl11pto India hl 111gthe par-
0

adigm. Thl'. mability or th<.:core states 10 handle their own mternal relauons
dunng th<: twentieth ccntu1·v produccd paradoxical results. The CDmbinauon
or two devas1a1111gEuropean wars anrt new, far more proclucu,·e ...\mcncan
prod11ct1011 teclrnolog-1cs gene1·ated ;1 new phase or postwar growth i11the
core. And tile nsing- ,..\mcncan capualism nccded to break up the European
empires ralhcr Lhan build a new exclusive empire or its own. Bm with the
l'l'turn or stagnation in the Atiantic eco1101111cs.ll has been th<: llmted States
\\'h1ch has felt llsclr to be Ill nccd of ,I runcttonal equ1vaicnt or Brllain\
111dia11Emptrc: a large s11111-cc of cheap mputs for US indusllT ;lllcl a Yitai ck-s-
1111auonfor e\'cr larger shares or US exports and local market comroi. and
one that would, in addit1011, pav for i1s own aclm1111strauon and, like 11111c-
tn·111h-ce11t11n India. pa\' a handsonw tribute to the 11npcnal power. All
these requtrcm<:nts ha1'l' been soughL IJ,· the LIS usmg Lill' DWSR and the
soCial engmccrm).{ acu,·H1es oJ' the li\·IF/WB d11nng the: I 980s and 1990s.
Japan Ill the 1980s and I9~)0s, like the US at the encl of the war, lias had no
need for such an impcnal svslcm: ll could have sustained continuing and
l'xp:mding growth in its l"C).{IOn or tht' world, sorting out n.1inor difliculties likc
a propcnv b11b1Jlcin Thailand, cwTenn· m1salig11mems etc. w11110ut s1gnili-
can1 clifficultv. Bm ll could have: done so onlv if the LIS had been so locked in
conflict. wuh the Ell as to have ]ct.Japan earn on wnhotll disruption.
The cleterminauon or successive US acl1111rnsu·ati1111s smn· the Iq7os Loput
 1:10 Tl-IE ( a .011.-\1.IS.\TION e ..\1'1111.1•:

Amenca first has ctenved from the rationai apprec1aLH111of tlie enormous
. pnvilq.~es and ilL'ndits which the top cap11alist power ga111sfrom iwmg 1111
top wllh111 an i1w.:r11auonal capnalist svstem. Hm the struggle li1r power
between capnalist states cm no ionge1- be a 1.ero-~um ga111l'. This 1s 11t>t
because tlw L1111tedStates needs a lwommg.Jap,111e~e 01 German L'to1101111·
for tl11.:prospent\· of the ..\111encan people . .-\111enca11lcackrs wolll<l Ile
happy lO ;1rn:p1 -.tDwer US grn\\'tll of, sar. I per Cl'Jl l plT v1:ar for li\'L·H·ar, 111
L'Xl'hange for.Japanese growth of'-1 per cent per Year l'or lin.- Years. rather
than ha1·e US growth at :1 per cent m exchange for.Jap.int•st: growth al :i per
cent. The real basis for mte1--cap!lalist co-opcrauon li1..·s111Lile 111creas111g- dil~
licuitv the leaders or all three pans ol' the tnad will ha1·e 111manag-mg ,111
1ncreas111gir 1111rulv world. This 1s the truth that h;1s be<:n tcmporarih·
eclipsed clL1n11~the lirst post-( :old War phase but n:111a111s hincia111c11tall'or
any sober p11li11calleaderslup.
As lius cssav has suggested, Lil<:United States and the other AtL11ll1c
powers seek to strengthen thetr gnp on other parts of' Lht· wodcl mamll' lw
capturing powerful social constituencies withm the political eco110111iescon-
cerned. Thl·rt· 1s a basts for such social linkages 111the renuer interests
among the do111111antsocial gn,ups m1ts1de the core. The n·rlurtu, ,ul ahwr-
<111111ol' ~uch 111tcres1shas been the class ol' prt·clatoP' 111onev-cap11,dis1sthat
was enabled, wnh !_{realhelp frDm tile wcsll'rn li11.111nalsector, to SL'll.l'co11-
trol or the Russ1;111state. But thrDughout the world, po\\'l:rrut rcnuer groups
can ellJC>Y great benefits from the ability to 1110\'eIi mets out of' the1r state 11110
Nl'II' York ur London ancl tl1t1s insuiatc themse11·es from souai breakdowns
and de1·elopme111s w11hm their own countnes. These monc,·-cap11alists can
also benefit from li\·IF/WB reg11ncs wl11ch entrench 1hc drn111n,111cL· 01·1oc1l
lin:mn:,I s1.·uors over political and economic !iii.· . .-\nd li,r re11uers II mauers
not m the slighteq 111hcther the1r royalues come from loci! busmess or frolll
transnat1011ai corporations: if"anvthlllg, the latter wo11ld b1: tile prdl'J'rccl
option.
The g)9()s has been a vcn- peculiar moment. During thts decade. IL
appeared that labour as a social force had va111shecl for good. !11LO tl11s
momenta1·y \'.icuum came what will, 111l'uture, lJe looked upon as a b11.arrc
111terna11011alsonal movement. the neo-liberal giohalisauon mon·mcllt.
was created rd, 111111" b\' the Amen call
i\·lany mav IJl'liC\'e that tilts mm·e1111:111
mass mcdi,1. But 1t was created al least as mucl1 by the \'c;1r11111g of tens or mil-
lions of'pcople 1.111·ougl10u1. the world to l10pe that someholl' 1he collapse of
Communism would lead to a bcner world. In pans of the world like E,1stn11
Europe. people s1111pl\'hacl to bl'lie,·e such a ti1111g111 order to cope ll'llh cog-
111t1,·edissonance. The result wa~ the mosl absurd 111fawaw111w11h di~l':1scd.
spen1i.t11n· 'inter11a11onal lin;111c1ai m.irJ.:.ets ;wrl 11·11hL'qtialll' ab,11nl
\·\'ashmg·ton c:onsens11s lH>Strums al)Dlll clc\'l'iopment through clellalH>ll
ieacling towarrls cieprcssmn. Whate\'er the oLttcnllll' of the Panu: or '98. Uus
1111ernational social mm•ement is mtellenuallv linrshcd. II is slm11king before
our eves 111tua narrow 1deolo1,,ryor rcnuers a11clspeculators. ThL'\' remain, of
courst:, t:Xtrt·mci\- pmvL·rl'ul. but 1Jw,· havt: lost thl' cap.Kil\' Lo present them-
sdn ...·s a., Lite lwaHTs of anr 111odcrrnsat1rn1 prog-rammc lc,r Ill(' planet.
III tile next pl1asc or de\'L'lopllll'lll the cncri,,'\· :111clc:la11of the re11L1erswill
ckcline ,111dlabour will heg-m to rq~am 1ts balance, despite the dfons orthe
World gank a11cl the lin;u1ual sectors or tlH' Wt·st tu suhordinale labour to
n·1111erm1e1-csh b\' clest1uy111gpllblic welfare pnmswn and introcluung tilt:
(.·uplw11us11ctll\' 11;1mecl'sunal sak·t,_.. net for the dt·sl'r\'lng clt:st11111eunder
pnrnte rull(l 111;u1agcmem. The long battle will bcgm to reb11ilcl ;1modicum
or public control o\'cr cconom1c lif'e and the social welfare or the mass of the
popula11uns 1>( the world.

/1 1'/11'/'/' 1111 .-\lt1•n111i1w?

The Dollar-W,dl Strecl Reg1111c has tcnclecl lO produce a lll'W Atlan11c

alliance, shown 111anmn for the first time in a really dramauc way during the
East As1a11cns1s. I II relation to strategies for orga11ismg- lhe worl<I economv
there has hee11 s111'lk1cnl common ground hl'L\\'cc11 thl' US. (;erman~·.
Bnw,11 aud llutd1 c1p11alis111sto design co111111011 prog1 a111111cs Ii 1r ach-a11n11g
llllll11al 111tcrcsts 111Lcrnat1onall\·. Yet the creaw111 or llw euru casts clouht 011
the polit1cd susta111ahilitY or ll11s:llliance. lnclcpc11clc11th-or thc 111Lent1onsof
EL1 learlers. the euro could unclermme till' capant,· or
the US to ma1111a111
the DWSR quite q111d.ly. The result or this clL'\'L'IDpme11L u,11irl be scnous
trallsallantu: s1r:1111s,s1ra111stJ1;11\\'ill Lenci to he all 1lll' grealn if till',.' occur
Ill a nmtexl ofirllcr11at10nal l'COllOllllCstagnalll>ll or \\'DrSl'.
On the ollll'r hall(!. the euro 1scomrng mto e:-.:1ste11ct:111 an cs1raordi11ary
poliucal and 1nst1111uo11al\'acuum. There 1s, for l:xample, 1101eH·11 an 111,,·1-
011s 111st1tut11,11alrnecha111sm for n11111111g the euro·s exchange rate policl'
towards the dollar. .-\nd the likelihood 0L11l\' gemunel\' dem1HT,1t1c leacle1·-
sh1p m·er the i:umomr or lhl' Europl·a11 Un1011 lool,s cxtrenH:h· remoll'.
s111n· to create one would require u1iarnmous agreemc111 from all lirteen EU
gm·er11men1.<;. II 1rn11ld appear, 11\deed, that there 1s a s1ron~ will to prevent
demm:rauc and accountable lt:a<krshtp from emerging. Ir su, this cs another
wa,· of' sa1'111g-
l11a1speculative and rcnuer m1erests 111 the lina11c1al s,·stems of
1lw Ell - the soci;tl grnups w11h Ille strongest links 10 their Centr:d Banks
.ind to thL· Eur(lpea11 ( :entral Bank - will exert prcdo111111a111 111lh1e11cl·a11d
will seek ;1 dosc alliance with the U111tc<lState~. There. 1s .t w1<1cspread
a~sumptm11 Ill \,\\·stl'rn Europe tl,;11somehow the European U111un 1s hound
towards tht' IMF/WB and the coumrics of
to ila\'e a mon: ·ri,·ilist·cl' a11.1111rte
illl' South Lh,lll llll' a1tu11de of :\nwncan aclm1111s1ra11ons.Yl'l c1·1de11u: !'or
llW, 1s ;iimosl 11np1Jssihll' 10 co11H· b,·. and at le.isl ,1s rar ;1s thl' g·e1H:ral
 Tl!E CI.OB:\l.lS.-\TION C:\1\IIH.E

approaches ol' Bnush. (_;crman and Dutch ~overnmcnts have l1ce11co11-

cernecl, their rccorcls m the 1980s ;rnd 1990s towarcls Nonh-Sou th
ccon,>mic issues ha\'l: often heen worse than that of US ~on:rnmenb. Ami in
trade policy. the European Unmn has had an 111e.:rc;1.~111gly strong emphasis
on nco-mercantilism, acl11cv111g mamacal proportions on occasion, partly, no
douht, because of the European C:omm1ss1on's desire to pron· its<:lfvaluable
to member states bv responding enlhus1astically to aimost a11'"call for pro-
1cc110111stmeasures - an aunuclc wim:h is very unclerstanclahlc smce the
Comm1ss10n as YCl iacks any cll:mocr.1uc creclenuals and 11111s1 lln1s con-
stantly prove !ls ,·aJue as an instrument Ill the main polin· area where ll
wtclcls power, that of' trade policy.
Nevertheless, the arnval in power or UH: German Social Dcmocrauc ~ll\'-
ermnent alongside the Socialists in France and the PDS 111Italy, may gi\'e
hope for a change of clirecllon in EU policv. It would the1·el"ore seem possi-
ble lo 11nagmc a change or oncntation at the icvci or the Council or
i\(i111sters. 11"~o. tl 1s not \"cry dil'ficull to propose measures whtc:l\ woulcl
J1elp to tackle many urthe malign ckvelopmenls which are ~roupr.:d under
the name of globalisauon.
A first step would be an end to the attempt to extend the power of the
dominant capualist powers over the conduct of economic and social policv
111other states throughout the wodci. The EU should s1mplv clccJarc that all
states should ha,•e the nglH to decide how they wish to manage their linan-
c1al systems, what co1urois they wish to have on their capnal accounts. what
righL, they w1.~hto prov1clc Ii.ff or deny to multinauonal comparncs, linancml
scn·1ces etc. and indeed what trade policies they wish lo pursue. The EU mav
wish to contmue to accept all the mternauonai obligauons II 11asentered
into with Lhe US in the WTO, the OECD etc., but ll would oppose auempts
to brigade other states into accepting these regimes and u wouid oppose
attempts to exclude states from the applicat10n of CATI prrnc1ples because
thcr did not wish lO subscribe Lo tl11~or Lhat liberalisalion programme.
Seconclh•, the EU shoulcl declare that lin;rncial irn,lllllllons lending 111tcrn.1-
t1onally must be supcrvisecl and protected hy then- home gon:rnmcnts, who
should bear the full cosL~of bailing them ont. The IMF will provide bridging
ioans to such governments tn help them bail out tlu.:ir banks. lu:clge funds
etc. bm thc1r tax-pavers must uiumatcly foot the bill. Thus, if US banks or
hcclge functs arc facmg collapse through a paymenL~ cns1s either at home or
al)road they must turn Lo then- clomesuc lcncle1· of last 1·csort for lie Ip. They
should no longer expect tile poor ol"!n(lonesrn or Brazil or Russia to foot the
bill. Th1rclly, lcncters must 1111ders1anclU1a1so,·erc1g11gm·crnmc111s llave the
ngln to unilater-ally repudiate debt. Thi.~ 1sa nsk that lenders 11111st l)11ilclinto
their calcul:1uons when lending funds a1,road. Fourthly, the EU must take
steps to iniua1e a new system of public EU insurance of loans lo other gov-
ernments whether made b\· EU, private or public financial inst1t11t1011s011
llw basis or EL' apprn\'al or Lhe purposes or t.hest' luaus. Such loan 111surancc
operaL11► ll'- sho11irl he Lr;insparent and rlemocraLw,11!\' acuJ111Hahle. All llthcr
prr\'alc le11cli11gacll\'itics ahroacl \1'011ldnot hc cm·cn·d a1 all m the e\·enl ul'
borrower cldauit. :\nd linally, the EU would 1,·111/iomri~y corll111ue LOpar11u-
pa1e m current IivlF/'vVB operauons bul onlv on the undcrsLanding that all
Ii'"lF/WB omclit1011alit1es woulcl he published and on Lhc llas1s Lhal an intl·r-
nallonal nmli.'rcnce was umvenerl to n·orgamse thl' 111Ll'n1a11011al monctan·
li11anc1al ~,~Lem 111line \\'llll reco11111H:11da1.1011s sucl1 as thnsl.'. suggested here.
Ir such lCk;1s 1,•cre not adopted bv the 11lher lll,1111powers. Lile El 1 shu11lcl
adopt a p11lic)· of inlernalional pi11ralism 111 the handling ol' intcrnauonal
econom1r 111,magcmt·nt. Those st:ttl'S which desll'ccl to conll1rne w1th111Lhc
li\lF fr;Pllc1,·nrk wonld he free to clo so. while other s1a1c.~m1glll prcfer Lo
opcraL<: 1,·1Lh111 the ELI frameworl~ . .-\Lt.he same llllll.'., 1hc F.U would seek to
11cgouate agreements with other co1111ln<.'.S esLal)lish11114rq~imes orlixecl b111
a(Hustabk cxchangl.'. r,ncs.
Propus;ils or d11s son should he n1111ll11H:cl wnh Lhc rl':1sscrllon ofa11 ELI
linann;tl ~~·stl'lll cc11lreci un IJank 111ten11edia111111 of lin;1nce. slrong public
regulatH111 anci a prcl'c1·cnce for public or co-operam·e sanng mslilllllum.
The lax s~·stems or member states should he aclapled to cnsurc t.he taxalio11
ol' llows or hot monc,· 1mo and out or the Ell ancl to ensure thal speculau,·c
trading 011 scc11nt1cs marl.;ets was pcnalised 1hrough taxauon. Tax ha\'c11s
should he abolished Lhrougho111 Lile EU and the EU shot1lcl work lo cr;1cli-
c;1tc thelll 1ntcrnatio11allv. One wa,· 111 which llus co11ici bl' donc would bl:
1hrough l'llSllrtllg that informa!Jt)Jl ;1h11utpersons or nimpan1es m,uni.unmg
fonds 111Tshon: arc made available 111the relc,·anl tax au1hontics wilhlll tllL'
EU and such persons or companies should be macle liallic li.,r the pavmelll
or laxes Oil these ru11ds Ill thcll' Ell COlllllr\' or Clllzc:.:nshtp.
For some such rerorm programme Lo be earned Lhrough wo11lclrequire a
vcn· substa1111al exercise ol'poliLic1I powcr over rl'nllcr and speculator mtL·r-
l:sts \\'i1h111thl' El! i1self. The spcc11lau1rs often LrYto da1m 1l1a1a reasseruo11
or p11blil· ro1llrol m·L·r mtl-rn·,1l1011alli11ancl' 1s 1cd1111callv1mpossibk hl·c,111Sl'
or 1eclm11l11~1caicl1ang-e. But Lhese cl.11ms have..'ron-l' 1)1\I\'Ill lhl' sensl' thal
111s technICallv 11npossible for sta11·s 10 prevent crimes. Tl11s 1s true: mosl or
Lhc work of the,1udinal svs1em 1s,·x posl facto: first t.lw cnme. then 1he inn·~-
ug-auon and prosen111on. It 1s 1hc same m the case ofpnvatL· m!erna11011al
li11a11ce.Rq{Uialors c1111101sLOp comparncs from swllrhmg funds around lhl·
world, lcgal11· or illegallv. Bul the,· must hc abic to li1HI out whal has been
happc11111g aftl'r the L·,·ent. ff the\' rannol do s11,Lhen this 1s because the top
managl'llJL·n1s or thl.'.compa111e~ CDlln-rnecl CIIHH ,1 thcmsL·l.,·es Iind 0111wh;ll
Lhc1r opera1m11al stall have been dmng wuh lill'ir lunds. Or course, 111a11-
agerial controls are ohen poor - wll11ess lbnngs a11cl mam· oLhcr similar
rlisaslers. Bul if managcmcnls can keep reconls of what their companies
ha,·e hel'n 11p to, 1hc11 stales c;111 k,•cp t.racJ:..111' what has lwen happenmg
 Tl IE CI.Ol\:\l.lS:\TION C.-\f\1111.E

through thl' usual reqwrcme11Ls for 'transparenc\'' Lhl'r can mspen 1hc
lx,oks. 01' course, Lhev can110L(I() so I 00 per cent: lht:rl' will ht: a gn·,1t deal
or frnmi and currup1io11 al till' very top ol"Lhe li11a11ci.tlsrstc111.But. st,llt's c.111
still excrnsc g-reat s\,•ar, if Ll1evha,·e the poliucal will Lo do so.
But the problem 01'111uslenng political will Lo n:-subordinatt.· 11H111e\·-deal-
111gcap11al to public policr goals for eco11omu.: clevelop111cnl liL·sal rout 111
the area orstrategics h,r ec()nomk 1-c,·1val.Wh,11gives Lhc pnvatt· li11a11c1;tl
Sl'Clor Jls sonal and poliucal dommance 1s al)l)n: all t·co11om1c stagnalll)ll.
Linder condiuons or stag-11auo11,g-ovcrnmcnts g-() 11110liscal cicfin1s and
public cll'ht mounts. This makes g-ovenrnients rlepemh:nt 11po11conditions
in honci marki:ts. The private Iinanciai operau,rs riemancl clellationan·
retrcnchmt:nt of public finances, thus deept:ning the cycle of stag-nation and
renller dependence. A strateh'T for re-unposing public order over t:co11om1c
and social tile thus clepends upon combining such measures wnh an en,-
nom1c growth strategy.
This bnngs us to a J"unciamenLal question which has been ddibe1·atelv
avo1ctcd throughout Lhis essay, namelv the causes or the long stagnation in
tilt: proclucuun svstems of the core over most or the last quaner or a cc11Lun·.
·we will 1101l)egrn a senous exploration of 1l1at issue here. But most ways or
expla11111114 the reasons for the long stagnation would tend Lo do Sll hv sug-
ges1111gthat tht:rL· l1as been slime son orsatura11011 or overprod11ct1011 cns1s
w11h111 the maclic eco11om1cs. Jr that is the case. then g1n·n lill' nght finan-
cial and monetan· ennronmenL. tht:rc should bt: Lht: possihilit\· for a
cl\'na1111cprocess of catch-up de,•eiopme1ll 111 the new regions opcnecl 11p to
cap11alis111in East Central and Eastern Europe. 111 other words li.1r these
tTonomies to plav the role of a catch-up growth n·ntrt: which had been
plaYl.'Clbv East and South-East Asia. If such a catch-up growth were to takc
plact:. 1l would !'wt resolve Lhe deeper l11storical prol)ll'ms or sLag11auu11,
but 1l w1111lcl substan llallv case them. During Lhe I~)~IDs.this pott:1111alitYin
East Ct:nLrai and Eastcn1 Europe has bct:n squandered bv the combined
efforts of the capitalisms on both sides or the Atlantic Lll engage 111shon-
Lerm predatory tacucs towanls the region. The Llntll.:d States llas hec11
obsessed with integrating- the region inLo its Dollar-Wall Street Reg-11nefor
i11Lernauo11a\ monetarv and linanc1ai ma111pulat1ons, wllhout Lht: slig-h1est
mten:sl 111Lhc establishment of favourable conditio11s for regional dc,·eiop-
me11l. i\·lean\\'hilc \·Vest Europt:an governments, 1111red111s1agnaLion all([
internal sonai and poliucal tensions, hm·e viewed 1he region hasicallr as ;1
source of problems and poliucal-econom1c threats: a source or prl'ssurcs for
the restructurmg- or i11dustnt:s 111 \·\lester11 Europe. a source rir p(lpulauon
n11~ration LhreaL~and a sourn: ofhudgetarv threals iL1 cm11Hn· likt: Poland
wcrl' to enter the European Limon. No serious 111tt:r11at1onalstr;nq,•y for Lill'
cco1111m1crcv1\'ai and for the economic de,·clopmenL of the region has been
aLLt:mptcd.
 The ohnous place lo beg-111the search for such a stratq.~!· is in Western
Europe amo11gst the parties of thl' suc1ai dcmocra11r Left. For fifteen years
European sonal de111ocracr has bel'.Il a puliucal tllllliLY, wuh 11sll'adcrships
111F.-ann·. Ital\'. Sp,un and Belgium sharing as 11111d1 111r11111111on in the lield
oJ'dirl-Cl li11a11n,d CtllTIIJHtoll as 111anyLh111gelse . .-\s !'or Blair s l.ahour kacl-
nsllqJ. ll 1s houg·lit :111d paid (iii·. But the 11t·11·Cer111an Finance ~li111stcr.
l.ali,111a1m:. 1s cen;llnlv dillcrcnl. Ht· 1s a dl'tl'l"lllllll'd European Kcynt'si,111
1\'lth a ~1ro11g will ;111cla poliucal follmvmg 111a pnlit1c,d cconomr that is
allsol111c.:h·central. This raises the possibility of.1 Ke1·ncs1an1sm 1101so 111uch
nulled 111tile Kt:vnes ofredi.~Lributing- incomt· w1tlrn1 a nauonal economy Lo
boost elfl'l'll\'l' ckma11ci - althoug-h such redisu·ilmtron would be a good
thin~~ m nsell - hut 111the Keynes oJ' ideas for oq..:,1111s111g the postwar inter-
na11011al l'COIH>lllYfor grnwth: the Kcvnes who soug-111Lu propose the kincl or
'linanu;ti 1·epression' and stalls\ development str;rtq.,r,· for the world. placing:
producm·e g-rowth 111 the saddle and orl-.(illllSlll!-,\' et1Lh;111as1afor the ren11cr-
a rnuclel that is now rathl'r h1zarrdy !IH>tt!-{htof liv marn· as an East ,\sia11
111\'l'.llll<>ll.
I tl1111kthat this 1s a theorellcal possibility. Just ;1s capnalisrn found a way
out, in the L'lld. from lite cns1s uJ' tile 19'.lDs and the war. a wa\' out thaL
offen:d a g-really 11np1·m·cd deal f'or a larg:e pan or huma1111~·.so I helil'\'t• IL
could. 1u pm1npi<.:, do so ag:;1111.Blll I dt>uht 1ha1 ll will, 1101heca11se of the
11allt1l' llf cap11alis111as such. b111because a s1>h11um w11uld require a lftlllft1l
n11/im/i1111 ;111dan 111tram,tgl'IH'l' of poli11cll \,·ill 11'111cliILis dil'linth to 1n1;1g:-
111eEuropl':tll social democran· <1sbeing c1p;1hll· oL
.-\ E11n1pc;m sonal clL·111ncrnllcanswer Lo thl' prl'Sl'l11 lT1s1s. IL'clhr thl' llL'II'
( ;l'l'lllan govt·n111H·nt. would have Lo lake \'l'l'\' bolcl :..ll'ps. wnh till' suppon of'
otlwr g:<>n'l'llllll'IIL~ like tlwse of France and Italy, (iir a pan-European strat-
CI-,"'for L'cu1w1111crevival. The kc\' LOsuch a stratcf,"' 11111stbc to tackle the
pavme11ts weaknesses and \'lilnerahility of the East Central and East
European cco11om1cs. This 1s where the curo could be usl'd as a powcrl'ul
ievcr. hackt·cl bv thl' linannal power of thl.'. E<:B. With 1l1e anwal or the
l'tll'o, thl' 111eml>er stales or Eurohmd will 110 longer h,1\'l' to wo1T\. alJ011t
tlll'rr cutTt:!ll account balance l>ccause Lher \\·1111t l1an· 011e. The)' should
thnel<>l'l.' become iess mcrcamilisL about tradl' issues. Seco11cllv, the curo will
gt\'L' se1g111orag-L'privileges to E11rola11clin the East. Till' laltn economies will
dc11,i111111atctheir trade. their accou11tmg-. 1he1r resl'rl'es 111l'Urus. Eurolancl
can hul' as 111tll'has tl want.~ m the East and just pa\' liir t•\·cn·1l1111g111 the cm-
re11n which thl·,· produce: l'Uros. Eurol.ind can do l'nr rile East \\'hat the LIS:\
did Ji,r_J;1pa11after the \\·;1r: open its mark(·t wicll'. _
Bm th;ll ,s 1w1 lhc 11111st1111p11r1an1 \\'a1· 111 wh1t·l1 tlrl' ('tll'II cnulcl hl· 11sl'c!.
The nt;d t;1sk 1s lirst to sl'<:t1rc the c111-rellnl'S 1>f'thl· !-:.1stagainst spent!atl\'l'
allack so stro11gll' that the,· c111 g:rea1.lycnlar14l' LiiL·rrnllTl'lll an:01ml ck·licns
11·11lw111worTll'S ahont 1111:sustalllallilitY or lhl'se dclinrs. This task of
 TI-IE (;(.OB,\I.IS,\TION (;,\1\IBI.E

securing Lheir n11-renc1cs 1s not a s1gnilicanL problem for Eurolancl 's Central
Bank because or Lhe enormous li11anc1al resources m its hands, now dwarl~
ing Ull\' hanks like the Bundesbank. The Bundesbank o!Tcrc<l g-uaralllccs of
unlimited very slwn-term suppon for the franc. The ECB can w1th t:asc
offer tht: same on]\' much more so to Lhc currencies or Lhc Eastt:rn region.
These goven1mcnts can then forget Lllcir worries ahoul hedge funds and
ignore the Ii'vIF.And even if Euroland clocs noL impose new capital conLrois,
IL should cerlamly urge East Central and East European govcrnmems Lo clo
so, so that \Vall Street can never ·short' Llleir currencies 111 the forward li.1r-
e1gn exchange markets again. The Euroland authonues could dcclare that
for a live-vcar pc noel Lhey arc a1m111gfor the states or East Ccn Lral and
Eastcrn Europe Lo run Lradc del1c1L~or IO per cent of th1:1r GDPs and Lhc
ECB will underwrite thc1r currencies whilc they arc domg so. Secondly-.
these economics should use their defic1Ls for infrastructurt: pn1jects ancl
mvesunent in fixed cap11al pn~1ccL-;ofthcir choice. They will have the result-
mg ddic1L-; fonclcci out or the current vcn- large trade surpluscs of' the EU
(or Euroiand).
This means large. scrums, very long-term credits or even grants (rundt'.d
through a 't,L",' in the EU current account surplus). They do not have to be
al non-mark.ct 'aid' rates although they could easily be. BuL Lhey must be
iong-term and big and should be handled by public authorities in Euroland.
Thc US and European mvesunent banks, speculators and rcnuers han:
alreadv had their sport in the Eastern region. h 1snow tune to ck'ar out their
Augean stables. Either large public uffenngs of long-term honcl~ 1ssm•clbv
the European Investment Bank or iong-term loans to the region offerccl h\'
Lhe same bank (actually a bank made up of Lhc states of the EU) should be
advanced.
These mcchanisms could al last begin a virtuous circle or productive mter-
acuon between the two l1aivcs or the co11t111cnt.The East could impon the
plant that 1t ncecls and expand its clumestic markets and cxpon~ West. ThL·
cxp,mding streams or income in the cast could provide tile effective dcmancl
for expanded imporL~ from the West. Speculative levers could subside across
the cominent and full cmpioymenl could return, aided no doubt lw
Lafontaine-style large lranslcrs or wealth back from capital Lo labour
through the L~L'\'.system. Ir big capitals 111 Europe still wish LO emigrate. let
them go. But where tu? From the biggest mtegraLmg market. Ill Lite world to
the shattered tissue oreconomics in the South being managed under 111tel-
icctually bankrupt ·c1evciopmcnl modeis' or rcnt1er cap1wlism, 'liberaLcd'
from the 'financ1ai repression· that scn·cd the capitalist world so well in the
days orthe Communist threat
If the 'new German sociai dcmocrauc govcrnmcnl 111Germany could
embark on a palh like that and iargch• pull 1l off, then Euroland could
bcgm I.O offer a wav out for othc1· parts of the world as well. Bm 1Lwould be
a bitter poliucal baule agamsl cnormoush· powerful linanoal i11tercsb which
ha\'l' thnved 011tlw OW.SR and \\'h 1cl1 han: the strong support ol' the US gov-
ernmcn t. It 1s a course that would wreck the mtcrnauo11al strategy or
American capnalism. challengrng its entire idcoloh'Y. IL would reqmre the
German social democrats to build a Jmlii1mf malitu111 across Eunipe and one
1hat could gcm1111clvfin: popular enthusiasm. And such a coaliuon would,
if 11ecessarv. have Lo he prepared Lo break the great taboo of tht· enure Cold
War period: IL would ha\·e to be prepared, if 11ecessarv, to mobilise public
t1p111io11 111 Europe aga111sl the .·\mcncan ,div, simply 111order I.O dclcnd the
strall'h'-Y against US disrupuon. Ami those who have followed the Bosnia
crisis closelv know how far the L'S 1s prepared LO go when high polillcal
stak•.:s arc lll\'olved. So do those who ha\·e rnllowccl the East Asian crisis
dose!\'.
Hut the maior 1mpcclimelll t.o s11cl1a strategy lies not \\'llhin the United
Slates or with the s1>n;ti power of renuer 111Lercsls.It lies Ill two other din~c-
11011s:first. Ill the deep 11a1w11alistsubordinauons or Lhe soc1,d democratic
panics or Europe themseln:s. A pian l'or Wcsl European rev1\'ai through a
Marshall-type plan for East Central anrl Eastern Europe wo11lclbe Yicwcd in
Pans (or London) as a pian Lo sll-cngthcn Germany raLhl'r L11anFrance or
the UK. Tlus wouid be the lirsl swmbling block. The second would he that
there is no clfrct1\·e msllllllional structure for accuallv pursumg such a plan:
there 1s no l'conom1c government for Euroiand, no responsiblL' dcmocrauc
le;1dcrsh1p for us111gthe curo as an mstn1ment or cconom1r rc\'1,·ai and no
c;1sy path to aclue\'ing appnipnatl' 111stitullrn1al mechanisms: ga111u1gthem
ll'OU!drcqu1rc a11ELI Intergovernmental Conference at which u11,1111m1tv was
achieved 1wt.1ust to supplement li1(· ivlaastricht Trean· Inn to suhscanuallv
modifr ll to make the ECB more like the Federal Resenc Board of the
U111tcclStates: an instnuuon with the explicll task of scrrn1g sonally useful
den·lopmcnt purposes. Such changes could be aclucvcd. But the record s11g-
gests that they will not be. The Blair gon:rnmcnl, !'or <>11e, \\'oulcl. on its past
n:corcl, wish to pia,· a wrccking role since Bl,ur l11msclr is a pass1on,He c11em~·
ufwhat he c.1lls tile ·tax and spend' European soctal model. On the other
hand, ll could lw arg11cd that Blair 1s not rcalh· attachccl to anv idea what-
l'\'cr, and might i>cwon m·er to such a pndect of rd«:>rm. Or altcrnauvcly the
111s11tutionalmechanisms could be dc\'cioped mformally through the com-
m1ttcc ol'Euroland finance mmistcrs from which the British government is
cu1-rc11ti\' cxdudcrl.
If then· is 11C1d'li:ctt\'C Europcall sonal ril'mocrattc rh;1ll~·ngL'to the gloh-
alisa11on drift. till' next phase or i1llt.T11;11m11al
poli11cs will be a turbulent and
ugh· one. Thl' lesson or the East ..\s1a11cns1s that will he cl1-.11vn 111 many
parts or the world is that the .-\tianllc powers arc prepared to 11sceconomic
st,llccrart to l)lock capitalist catcl1-up develop men I. The assumptio11 orthe
1990s chat artcr !he collapse or the Sunct Bloc the worid would u1111cunder
 THE i ;1.01\-\I.IS:\TIO:S: l ;_.\~11\I.E

American leadership \\'ill be shown to have Ileen a ndiculous ill11sm11.The

1990s were a unique mome11t when real g-lobal i11stllllllllllal reform for sus-
Lamahle de\'elopmcnt. l}ased upon global puliucal co-operation and
i11ten1ational instlluLton-huilding, couicl have been achie,·ecl under .-\1i.111t1C
leadersh1p. But that opporttlllll)' has been uuerh· squandered as so of"Lc11in
earlier moments or\'ICLor\',
Nothing demonstrates Lite.:\'apiditv orthe · new th111king-111oregraph1calh·
than the currclll cnchphrasc of' The Third W,l\.-. thts ts s1111pl\'a slipwa\' to
cnal)le European rntellectuais, whether liberal or soual democrallc, to ahan-
clon their social liberal 11r social clemocrallc ,·ahH:s, for the sake of
overcoming their cogrnuvc dissonance wllh an Amenca11ised Europe.
lnsofa1· as they abandon the struggle for egalitanan and cosmopolitan solu-
tions Lo 1111enia1.ional prnblcms, these banners will be taken up lw m11re
radical currents. Thcv will draw the conclusion that ~farx was right about
capt1alism being ulumatcl,· mcapablc oJ' pronding- a \'l,1ble framework for
sustainable human soctelY on this piancl.
======PART II=====

Politics i11 the

Globalisation Period
=========8=========

The Gulf War, Iraq and

Western Liberalism

The states or tile North At.iantic have, smce the davs or Palmerston, fre-
quently hoisted the Jlag ol' liberalism 011 their wav to war. But rarely since
l~H5 h,l\'l'. the pnnuples ofnght, law and_1usuce been invoked as strong-!~·as
Ill tht' c.111lo arms for Desen Storm. The pop11l;rnons orBnta111and Amen ca
were l'nco11ragecl to believe tllat hair a million troops and one i11111drecibil-
lion dollars were be111gcommitted to anirmauve act10n on hehaJr of the
rtl-{hls or the people of Kuwait and, 111deecl, 10 the inaugurauon or a new
glob:11 order oljustice.
111 1hl' first pan or this chapter. I tn· tn un1angk the dispara1e strands 1ha1
make up 1h1slanguage or rigl11s usecl lw west1.Tn leaders 10 v111clicateDesen
Storm. I 1hen bring together tile pnnciples orevalua11n11cleplovcd bv the
liberal current dominant 111Brit.on and the Un11ed Stales today - nghts-
baserl mclivicluali.rn1 - wilh an analvs1s or the (.;111rconllict. TlllS enables a11
cxplorauon of"the degn:e 10 wiuch go,ils all(l acuons rn the war c.111 be _j11s-
1ilierl in liberai terms, and reveals the severe limnations ora com•e11tu111al
rights-based approach. In the second part, I turn 10 the 'enemv· - Iraq - Ill
order to cxamme the evolution of this state, so many of whose people have
hcl'n killed lw the militarv forces and economic IJlockades 111' Bntain anrl the
US. and 10 challenge the most mlluenllal. liberal acco1111L of the dcvclop-
mcm ormodern Iraq and or its Ba·ath1st n:gmu.:.

Liberalism and the Inva.'>1011

of Kuwait

i\,Jost versions of Anglo-A111enca11liberai all(l nat11rai-ngh1s t)11nking emplov

a 1111iversaliststandard ofjudg-ement lO evaluate mlernaunnal poliucs. They
repudiate the normal!Yc stance DJ' the realists. who 111sist,Ill the wol'fls or
their postwar rlo\"en. Hans Mo1-g-a11thau,that the 11at10nal interest 1s 'the one
guiding star, one s1,111clarclortho11gl11.,onc rule of action· 111 such malll'rs. 1

1-11
 POI.ITICS 1:-;Tl IF CI.C>B.-\l.lS.-\TlllN PERIOD

Rights-based libt'rals readily acknowledge, or course, that much uf what

stall's - mduding I heir own - actually rlo IJears liule reialio11 lll I ht· professed
ttlcal. lm\cect mam· would agree Lhat the poliucal ruln1re th.ti shapes llH·
cxecuuves or these slates is far closer to Lhe norms or i\·lorga111ha11!11a11111
1he1r own, aiLhtHtgh they would deplore that fact..
Wi1h111 tilts setung, the leaders 111 both t11e U.S and UK sought tu
nwhilisL· liberal opm1m1 l'ollowrng the Iraqi m,·as1011 of KuwatL h\' appt·,d-
ing not stmplr to natio11;1I stale i11teresLs huL, alJm'C all. LO general
pn11ctples. While some opm1011-formers debaLerl Lhe issues III the la11g11age
ofutilitana111s111, adoptmg a u111versalist welfare cntcnon for asscssmg- tht·
costs and bcndits of altt:rnau,·e polinl's, the cio1mnant i.mg11age or puhlir
debate was that or ngllls,.1ust1ce and la1v.Tlus discourse was Lngg-ered pn-
marilv bv the usc the Bush adminisLrauon made or UN Secun11· Council
resoh111ons. These were imerpreLeci 111 an idiom that was Ill fan metaphor-
teal: the translcr or the discourse l11.n ser\'cs the domcst1c legal s,·stt·m
wtthm a liberal-democrallc state to the realm of world poli lies. In the pn-
cepuon of millions, i111en1auonal alTall"s became a clepolittused process of
crime and.1udic1,d pumshment. Thts s111gledisplacement tra11sfon11ed 1101
on!\' the wav people _1uclgt.'dthe polittcai backgrouncl lO the (;ult' war. but
abon~ all how thcy /J/'ff1'm1•tlit: name!\·, as a cnmmai act with .111ndicai con-
seguences. Thus the complex iiekis or rurce that constttutc global poli11cs
were magicall\' transformed mLO the image ora world enclosed wnl1in a
consu1ut1onal state order, run according- to the liberal theun· of law. The
metaphor passed ttselr off Jl<ll as a moral truth tJut as the explanation or
acu1al events.'.!
Firstlr, the surlicient ancl necessary cause orthe US attack on [rag was pre-
sented as the act or a \'illam: Sactclam 1-lussem, personil)•ing till' Baghdad
g<wernmcnl. This act ·•forced' the US to send half' a million troops aml ns
global arsenal m response, JIISl as a domestic cnme u·ig-gers the standarcl
procedures of police response. The Ang-in-American blockade and allack
was Lhus reduced LO the status ol'a dcpolittcised, p11rl'l\'judic1al anion. from
which anv polillcal motn·es. methocls 11r a1111s\\'llt1lcl be expunged, .JllSl as
they would in tile work of'a locai law-cn!i,rcemcnt agencr. Desert Storm was
to be as much a work or nature as the 1mpcrsonai, bli11cl.1us11ccor the law -
or, 111ck·ed,as a storm Ill the desert. Thus the actual course or e,·c111s\\'as
turned on Its llcacl: contrary to the .111clietallogK or the metaphor, the l 1S
adn11111stration 111fact clec1clecl it must ·prevail' over Iraq and tlwn:fim· cam-
paigned to cnminalise the Saddam Hussem regime. (just as the US first
decided to support the rq.;imes of Israel or Inctones1a ancl Ihm cnsured the
clecnmmalisal1011 or those cou1nril's; actions in occupymg or ;11rnexing.)
This process i;Hui\'ed anthropomorplusing the Iraq, state ancl !ls polil!cal-
adm1n1strative organisauon into a smgle person - Saddam Hussein,
cr11111nai.And the more his human realltrcs were e11brgcd, the more other
 Tl IF (;l 71.F \\":\I{ ·\\'D \\'l•:sn-:R:\!l.lllFR-\I.IS;1J

men and women III the ·cnmmal' stale were dehumanised. The armv orco11-
srnpts berame the nrnrder weapon. the lin'.s or millions of Iraqis the \'anous
limbs and resoun..:es or thelf leader. Hence the\' were Lur game; or else the}'
hecame collaleral, 111 the sense or standing along-side Lile cnminal -
bystanders in Lhl'.pulicc shoot-nut.:\
This ;11ilhropnmorphis111 c11,1hlcd the \\'t",l\'111(.\" ur ,I powerrul theme or
l1tu11a11-rtghtsabuse 1nLoLlw it.:galisLdiscourse. The \\',1r agamsl Iraq ht:camc
a campa1g-11 agamst a scnal killer and torturer, militarr actmn being pre-
senLcci as a mere conseq11e111.:L· or 1.he orig·mal ·cr11ne· the annexation of
KuwaiL Funhcrnwrt:, the war-making 11sl'lrcould be ponraved not as a tidal
wa\'e or poliucal \'loie11ce. killing tens, pnhaps h1111clreds,of thousands - a11
act unle,1shrng- thL· pass1011s or millions across the globe, and beanng-
unk1111w11and 1mpreclict.1illL· 1"ng-term poliucai cunsequem.:cs - bUL as a
tech111cal means or e11forc111gau end - 11amelr, the rule or la11·.
As a n1obilis111g 1deoio!,';,' for war, then, this metaphor was a l'urm1dable
cunstruc11on: an absoluLis<:d ·elllwr/or· - one the monstn,us cnmmaL Lhe
oLher Lhe ,·en· emlmclime11L ul"_jusuce. It proviclecl a Lhoroug-ll 1111eg-rauonor
tllcnn· and pracuce - uig-11111011. eval11au011 aud necessary ,1nu111. lncll'l'CI.
Lhc metaphor was t1, prm·e Ill some respects Loo 1:l"ficauous, too powerf"ui,
whe11 Lhe war e11clerlwiLh Lhc nw11sler cnminal st.ill in placl' and hutchenng
funher \'tct1ms on a larger scale - Sh1a rebl'ls Ill the Sot1th alHl Kurds Ill Lill'
Nonh. However, as an explanator\' theor" ur cn1eno11 of_juclgement I.ht:
metaphor could nut, of course, be taken scnouslv.· 1 World poliucs is not
enclosed \\'lthm a C1Jns11tuL1011al state order with a f"ullvl1edg-ed legal regime
,md la,1"-e11li>1-ceme11Lagenc\". Leg-al tlwught anfl pranire are no cl1Jt1l)la s1g-
uilicam ciement 1111111crnauonal alfalfs (valued espeually by small. sausliecl
powers). blll. mternauonal public law rema111s rather a hall~formed, per-
haps Olli\' embrvo111c. force. lndl'ccl, for some or the b1gg-es1 powers the
legal element is 0J"tc11 no more than the small change ur poliucs.
Funhermore, when powers like the US or UK go to war the,· du so for n·a-
sons or nat1011al interest, in pursuit or state oi~JeCll\·cs. r\s for the idea that
auacking a cnurnry 1s equal to e11J"nrc111g a law, the grl',llest or classical libe1~li
ngh1s-bascd philosopher.~. lmma1111el Kant, Jong ag1> t;111ght 11sLhal w;1r 1s
111llere11Ll\'anti-lawf•
.-\lthuugh 110 one could chum Lila! the lc:galist metaphor adequatelv
describes reality, sum(· may nt:vntheless m:1111Lam1haL UN backing for force
against Iraq prondes a ck111ocraLic poliucal leg111111at1onfor 1he \\'ar (as
opposed Lo a liberal, rig-hts-b,1secl JllSLilicaLH111).Alier all, has nm the l.eft
repeatedly used till' :rnthonty or tlw UN's Charter and resol_utio11s to auack
the U1111edStates ;1ml its allies 111othl'r conllicts - some still current - such
,1s Nicaragua, East Timur. Israel, South .-\fr1ca, (.;rl'!1acla, Panama? The fact
that 11011eor the li\'e permant:nt Securit\' ( :mmcil n1em!Jers ,·1:toecl military
ac11u11agamst Iraq was certain Iv ur great political s1g11ilicance. but this Etn
1-1-1 1'01.ITICS 11':Tl IE<;[ .OB,\I.IS,\TION l'ERH )I)

confers not the slightest rlnno1-r(l/1/' iegit11nacy upon the subsequent auack.
UN Sccuntv Council resoluuons embodv merclv a Hobbcsian, pos1uvis1
form of law as the command of the most powerful - nameiy, t11e will of tile
five permanent members who happened to be t11e ,·1ctors of 1~M!'Jplus a
small, circulating collection 1 ,rot11er states. Even the 'states· democracy' of
the UN General Assembiy was not n:llected in tilt: crucial resolutions or the
Security f.ouncil. lncleccl the enLll'l' thrust of tlicse re~oluuons, as mtcr-
prcted by the US ancl Britain - that there should be no cliploma11c
ncgouauons wnll lrag - contradicted the overwhdnung lll,(Joritv ol' lht·
General Assembly, who desired a negotiated soiuuon. And m any case, the
resolutions did not even iegalise the attack in the li.irmal pnicedural sense:
that woulcl ha\'e rcgu1recl a posn1,·e ,·ote by all live Secunlv Council mem-
bers, but 111 fact Chma abstamecl. Also the Ch;1rter requires panics 11> a
conflict Lo take sicps toward reconciliauon - m n1hcr words, 10 nq~Dllate:
prcc1seiy what the Amencans (and the British) resolutely rcfi.1secl to cto
throughout. And in the name or 'liberating Kuwait' the British and
Americans interpreted the final UN resoiuuon as lcgJL11msing anv and all
means - not exactly a liberal.1unsuc maxim.
Thus, any pnnnplccl poliucal stance on the war-dn\'c against Iraq cannot
l)e based upon acceptance or UN Security Council resoluuons. as the
embodiment or either jucliual or <iemocratic pnnc1ple. \Ve arc rt·gu1n:d,
tbc1·cfore, Lo make a poliucalJuclgcmer.t based upon our own unciersLanrl-
mg and prognosis. Such,1udgement cannot abdicate before UN decisions.

"fo,,1Tmdi11om of Right.1

Liberal theorv offers a number or disparate approaches LO the c\'aluauon of·

poliucai event.~. ranging from Lhe Hegel-inspirecl liberal idealism or Green,
Lhrough the h1storic1s111of Croce, to mili1arian \'iewpomts. But one per-
spective dominates all others at present m the US ancl, 111creas111gly, 111 the
UI(; namely, that or natural-nghL-;, or Kamian deonLOlog-1caltheory or ngh1s,
based on a ui11versal pnnc1plc of' JHSlicc rather Ll\.111welfare. But this
approach 111 fact conllates two 111compatible lradit1ons of poli11rnlth111killi.";
on intern;1t1011al relauons, tradil1ons that share a common source m lite dis-
course of u111versal rights: one, the old natural-rights tradition, wlllt:h
predates liberalism, not to mentmn democracy, and has its source in mcdi-
ac\'al dcbales and iL~highest e:-.:p1·ess10nin lhe mternauonal-rciatmns theon
or Grouus; ancl two, the moclern tradiuon orKantian liberalism. I will bnefl\'
examine these 111mrn.
Grotius, a Dutch Pro1estanL writ1111,; during the Th1nv 'iears War and .JUSl
pnor Lo the birth of the modern state system ( marked by the Trl'at\' or
Westphalia 111 16"18), was confront111g the problem of whether, ma i111heno
 Tl-IE (;Llf.F \\'AR ,\Nil \\'F.STERN 1.11\F.R,\LIS\l

Catholic European s,·stern, Protestant pnm:edoms had a right 111exist and to

impose· their religion upon their sul~JeCLs. To resoln: this problem he
1rrs1sted that ew·n· st;ue si1011idhe treated as ,1stl\T1-cig11111relation to other
slates. as wdl ;1stu tile Papacv and the Empire. I-k then argued lill' a law-gm·-
ernc<l relauon between these s11vere1gn entities. {;rot111s s thought
co1Ken1111g-dollll"Sllc poliucs ,vas, like most strong nghts-llwonsL<; of'the cla~·.
trenchantly authon1ana11, ins1st11114 upon the absolute power of the state
o\'er Its Citizens. He cldined lihenv as domm1on in maten;,I thmgs and
argued that man has a natural ng-lH to punish wrongs, cspcnally \\Tongs
agamst libenv (that 1s, propertv), and f'unher, that tlus nght or punishment
sl!ould he transfern:cl to the state. Grn1111salso 1ranslcrred thl· 1rn11onof lih-
erlv-as-p:·operty tu the state Ill i11ternallo11al alfairs, ,·iewtng the charaClcr or
st.tie llounrianes ,is tllat 1>1' a pn\'ate estatl'. Crotms w;1salso tile 1'111111cler ol'
th<..·modern idea of a nghts-hasecl legal -~ystem. His /n1rm/11,.t1011lo t/11·
.J11m/muli•1w' 1f J-lol/r1111/ (I (j'.W) was the lirst construction or a legal system
based 11pn11a conception or nghts. Ami his later })1'.f11n· /Mli laid the fo1111-
cbt1on stone ormodern theonl·s or '_just war· "
The Grouan view orilller-statc politics mav l)e hundreds ol'\'L'ars old, but
It 11t·venheless rcmams 1he official doctrine of' the 111tcrna11011al state
svstem t11ctav,thanks to ns 1mplcmentat11m after tlw Treat\' o[' \Vl'stph;dia
anrt LO the wav 111 wl11ch the 1111.ra-Europe,111pn11c1ple w;1s L'Xtl'11cledacross
the globr through 11npenal expansion. The cloctrme inn·s1s s11\'cre1g11states
with iq~1t1mate power w1th111the mternauonal system a11clgrants each stale
the right to total (ne~allYe) frcl'dom to clo what ii dcs1res, prn\"lclcd onh·
that ILdoes not ml'nngc upon the frel·doms of" other states tn do likewise.
Statcs arc thus the onlv morally reic\'ant actors in world poliucs. II follows
that ,1world pt>liucal orcler 1n wh,d1 l'.;KI\ st,llc s sO\'lTL'l~lll\' "'l"L'SJ)l'CLL·cl 1s
a bas1callv .1ust orclt:r. Thc US and thl' UK t>lliually suhscribt" to 1.l11sdor-
tnnc (wl1ilc unol'lic1allv frcguen1lv 11outmµ; ,t- the recl'nl LIS aclventures Ill
Grenada and Panama servmg as l'Xamplcs) altl11111ghll sho11lcl also lw said
that the concept ora ·superpower' tends to grant the US adcliuonal rights
commensurate with 11sextra 'responsibilittes·. The workl's diplomauc f'ra-
1cr11m· has a stro11g- prnkssmnal 11!lcrcst 111 Ille c11nt1m1e<I,·1talit\· or this
approach.
The cloctnne. then. g,n:s nsc lo thl' ronvenuonal tlwor\' or a just war
War 1s.1ust umkr the followmg conclit11111s:first. Wilen 1t ,s iaunchcd lw a
lcgitimatL· ()Ody- na,ncly a slate; secondlv, when that statc has a_1us1cause.
ancl m·er\\'helmmg-h· this means that thl' state nmcernl'd 1s clel'e11cli11gthe
prninpie ol' its tcrnlonal 111teg-ntv(in Crntian terms, its property) ag-a111s1
ag~rcss1on: thircllv, when the state has ·ng-ht intenllons· - 111 uthcr words.
when ll 1s not uslllg one \'1olat1011 or son:-rc1g11ty 111llrrlcr to pL"rpetr,llL'
another; and linallv. to l)e _Just, a war requires the use llf · t'orn:ct means _;
\·\'hat I have calll'd tht' 'legalist metaphor' draws n111rh or i1, power from
1-ltl l'OI.ITICS Ii': Tl IE(;(.( >B.-\l.lS.-\TION l'EIW ll>

tlus Grouan official cloctrinc orthe mviolahility of' states: from a cnme-ancl-
purnshment Vll'\I' of their relations, and from their collecll\'l' ng-ht to
cxcius1vc posscsswn or th<.:lklcl ori11t<.:rnauonai n:lat1Uns.
The prcclon11nam liberal sclwol of tlH>11g-httocl;n·, at least 1111hc .-\ng-lo-
Amencan world, derives from Kant. 8 Yet !(;mt\ thong-ht 011 111ter11atm11al
rdauons was constructed i11sharp polemic ag-amst C:rouan ideas. Kant qu1:s-
t1011edthe Crouan ethical basis or i11ter11a11011al law srnce IL could be used to
Jllstil)' acts l)y slates wh1d1 hacl at best a clubwus morai fo1111cla11on.He
pounecl out that no g-overnm<.:nt had cn:r l)<.:enpersuacled lO refra111 from
an acuon on account orsome rule or international iaw ha1111111g 1t. And, in
the 1vords of Parkinson, 'Kant was parucularly harcl 011 those who consJCl-
ereci . the ctoctnne or ''.just \\'ar" had anr beanng- 011 the ma111tc11,111cc ul
pean: or on the improvl:ment or in ternatll)nai rda1wns g<.:nl:ralk •'l
;vlodern Ka11w111s give overriding priorny not to 1hc nght.~ or states brn LO
the rights of incliv1cl11als.Thl:v formally smgle out one kcv mstanc<.: or good.
accord it absolute primacy, 111\'cstigate whl'thcr 1t 1s ,·1olatcd, and prescnp-
u,•cly wod, hff its r1:sutut1011, repucliat111g-thl: nollon that ti11s pnonty ng-i11
may be sacrilicecl for L11egreate1· welfare or all. The good in q11estwn 1s usu-
ally that or indiv1clual freedom, on the grounds that if indiv1d11als have
freedom they possess Lhc means orachieving all other goods. ThL' task or
poliucal analysis and acuon JS Lo work out tile k•;1st costl\' means for restor-
mg this overrJC!ing right Lofrecciom. But l111s, it must he stressed, JS frccdorn
for 111cliv1ctuals and not for the licuuous legal persons known as states. 10
There is, of course, a basis from which lib<.:rals rnav cil:rivc nghts for
states - namclv, through the collcnivc nghts or nauons to scll:ck·ll'rn1111a-
11011.But we shouid note that some an: lllH:asy about such colleun·e ng-hts.
ancl cspcc1ally about their clcnvauon from the noum1 or a collec11n: dcmo-
crauc will. For the ni,tlu Lo se11:c1etl:rm111auo111s. in rcalitv, a democrauc
rather than a liberai-individualist rigln. i\fr ;11111here 1s not IO l:xplore all the
nuances orthis [(;11nian ng-hts-baseci lib1:ralism, 1)111 to applv 11s111a111 pnn-
1.:1pleto the Gu Ir cns1s.

Tht'fm,a.1w11 and A11111·xa/11i11oj'K11wr11/

The 111vasionor Kuwah on ~ August was carried um wnh \'cry liuk mi Iitan
resistance or bloodshcd. lnnially thl: h·arp government said it woulcl begin
withctrawmg from Kuwan un 5 August, whit<.:ciemamling ncgouations. It
thl:11 r<.:mainecl, set up a prov1s1onal gon:nuncnt. and ;1lterccl course: al"l1.:r
tile 11npus1uon of a milital'\' blockacll: 1hrougii a LIN resolution, Iraq for-
mally annexed Kuwan as its n111ete<.:nthprovmcc.
The occupauon of the country by force was accompamed by consider-
able repression and suffenll/.{, tw no llll:ans only among thc m111or1t\·or tlw
 Tl-IE ( ;L 11.I' \\':\R A~D \\'ESTFR:--: 1.11\ER.·\LIS:\I

population lwlding Kuwaiti nr11cnship. Therl' occurred first the rnuncling

up and "tra11spona110n lO Iraqi pnson camps or thousands or soldiers and
police (esumates Yan· l>etweL'll sc,·cn and thirty thousa11cl). In aclcliuo11,
111a11vthousamts of" fore1g-n Wl>rl:.crs were ch:pDrtcd and cle1a111l'd in Iraq.
Thl'II 1hcre \\'as 1hl' use or torture ag-amst, ;mcl 011 occasions 1lw killing- or.
1l10sl' suspcut·cl of" ha,·mg l'ngagcd i 11 acls or armed resistance. I11 its report
or I ~l Dcccmhl'r I ~190,A11111cs1,· l11tcrnat1011ai L'Sl1111atedthese killings in the
hundn·ds. 11 111 acidiuon, some :mo,ooo Kuwa111s- a 111,(jonl\' ol" the ("()llll-
ln: s citizens - ldt 1111pellcclto Ike or lO remain mlls1cle the co111llrv, along
w1111large 11t11nl)t:rs of other pl'rma11e11t rcs1r1L-nts. It is 1101clear to what
dl'grce 1h1s e~ocius was caused lw f"car or 1he Iraqis nr lw frar or an
.-\mLTIC.lil attack. Kuwa1L1sleanng wouicl ha,·L· sufli:n:cl a s1g11ilic1111drop in
liYing standards. despite n:ce1nng 11rn11evfrom 1he gm·L·r11nw11l 111 exile.
Avcral-{e income 111 the countn· before the lll\'as1on was h1gl1cr than that Ill
1he Umterl Slates, wnh a standard orlivm!-{ cons1clerahlv beuer I l1an thal ol"
the Amcnca11 middle ciasscs, man\' c1t1zc11semploying scn,11lls and oht·n
not having lO work.
Co11clem11at1011uf"Iraqi aggress10n. vario11sl\' expressed, was 1ss11crlworlcl-
w1cle. This oppos1tio11 to tile 111\'as1011 and a1111l'x,111011 m 1he ma111conllated
two quite differeut principies: the nolation or states' righ1s and till' \'1olatio11
or people's riglus. Within a Grnuan, states' nghls perspccll\'L\ ,111ncxa1in11
1m·olveri what ,n· 1111ghtcall the killing or a son·rc1g11 stale - 1he grcalesl
11~i11stict:that coulcl be com milted with Ill tile terms of slates nghts lhl·t,n-,
and an act of state murder 11nprecede11tecl m postwar h1stur\'. 1'.uwa11. a
l"ullv-lledgecl nH:mber orthe U1111cd Nations, \\'as, elTectl\'el\', liqwdalerl. Ir
stales·· nghts arc sacrosanct, tl11swas a 11111qucivhemous crime.
There 1s 110 llt'er! to exam me the focwai details or 1hc l;111rcns1s 111 order
lo_Justil'I' Desen Storm w1th1n the terms of"states· ngllls doctrn1c. Iraq g;1ve
.111srrause. \Vhat 1s more. 1he allark 011 Iraq was i.iunrhed lw an alliann· or
legllimale state a111honues (hacked b\' UN SenmtY Council resol11u1111s- a
fact with 1H1i>l'anug on this 1iwor1''s g1mli11g pn11ciplcs). The nH111,·esor lht·
LIS-led coaliLH>ll were 'right' pro\'Jrlerl wt• accepl - as we shoulri - the tern-
porarr character or the occupatiou or southern Iraq IJ,· coali11011 troops:
onl\' the i11troci11rt1011or US lroops 11110Iraqi Kurdistan w1th<>111 lhe pnor
a11thons,1uon or lhl' Iraqi go\'L'rllllll'lll ral.~t's a rlo11b1 on·r US 1llll"lll1011s.
The l\ush acl1111111stratio11··s rl'fusal to march 011 Baghdad or w assist 111ili1ar-
ilv the uprisings Ill the South ur 111Kurdistan is a pius. not a m11u1s, 111 terms
ur the principles of states' nghts. Finallv. there 1s 1hc q11es1io.1 or 'correct
means". Ir such means arl' gu\'erued b\' 111terna11011alcrn1n·nt1011s emhoclr-
mg the rules of war. ther pose few problems of1ustilicalllm 10 the LIS -
ex1e11ding l'\'L'll to the t1.~cof napalm or thl' bo111lrn1g of civilian targets ir
such could Ill.' shown to be delilwrate polin· dens1011s h,· !lit' :111lhonllcs.
Those who oi~JlTt 10 the IISL' of certain means b\' the LIS 11s11alh·do so on the
1-18 1'01.ITIC:S IN Tl-IE(;!.( llt\l.lS,\TION J>ERH)I)

basis orprmnples oLher than those of states· rights - liir example, lwrnan
rights or human-welfare princ1pies.
IL 1s nevenhcless Lhe -case LllaLstates ngl11s doctnne ancl Its just war
corollarv have no has1s 111 liberal or democrauc theorv. Nothmg 111 liberai.
democratic or socialist polita:al philosophy gwes pnmac\' LO stale power or
s1a1e nghts as such. These philosophies arc, in fact. quJLe prepared to coun-
tenance the disappearance of' L111sor that state, 111cluding lls vwlenl
overthrow and the redrawmg or tcrritonal boundancs. Moreover, stales
have rarely acquired their supposcdlv sovereign rights anCI powers bv dcmo-
crauc means. The,· 1w,-c usually g-amecl them througll rccognnio11 iJ,, 0L11n
states and the granung of a seal at the Umted Natmns - a med1a111sm not
necessarily tied to the assertion or clemocratic poliL11.:alp1·inciple. Indeed, a
large proportion or exisung, icg1t1111atcstates assumed their form and nghts
through the direct impact of impenalism upon their region ancl subsequent
rccog111uon I)}' the dommanl impenal powers of the: ciav. Iraq is a case Ill
po111t,and so 1s Ku\\'all. The: peoples· rights and will in both cases played 110
pan, qrntc the contrarv. ln the case or Kuwan. sm•c:rc1gnty w;is aclucvc:<l,
abo\'e all, due to the strength or Bntish military power and polit1cal mllu-
cnce throughout the penod up to 1961 when mternauonal rccugmuon was
granted. Such n:coi;nition of state sovereignty 1s, m theory, a matter or inter-
national iaw, settled not by simple force but by legal title to terrnor\'. As ll
happens, Iraq had a very strong chum, 111 legal terms. LO the tcrrnon· of
Kuwau. I!! But such chums arc far from being deos1vc for liberal democrats
or socialists.
It is significant that nghts-l)ascd liberalism cloes not, in fact, speak with
one v01ce on the key quesuon of"Iraq's denial of 1·igh1s111Kuwait, althoug-h
thc1·c 1s a common stress on the mfringemcnt of individual liberucs bv the
Iraqi armed forces a1'icl police. (According to Amnesty's findings this
111fringement applied particularly lO the 1mpnscmment of former members
of thi: Kuwaui sectll"llY forces and Lo tlli: savage rcpre.~s,on against s11spcct1.:d
armed resisters or spies, with no respect accorded 10 the due process or law.
Expressions of c1v1c resistance - such as the refusal to use Iraqi number
plates on cars - were aiso pu111shcd. Kuwaitis llec11114111\'ariably suffered,
though thei1· welfare was probabiY not greatly affected. On the other hand,
Ille sufferings or lhc fleeing or deported non-Kuwa1u settled populatmn
were oflcn co11s1dcrablc.) Bul what about tile 111.JllStlccof the a1111exau011
i1selfr This did not actuallv mvol\'e a loss orc1v1cand poliucal ni;h1s for the
m,~joritv because. being dcbarrccl from holding uuzensh1p, they ha<I no
such rights u11Clerthe aJ-Sabah regime. Yet IL did mean loss orstatehood for
the minontv wnh Kuwalll citizenship. j\,Jany strands or indi\'idualist liheral-
1sm would be s'uspicwus orany collective claims to statehood - true, say, or
the Isaiah Berlin orTwo C:0110•/1/s,f /,i/,1'1'/y, ancl also of" the Bertrand Russell
or Political ldmls. 1:1 And a \-\1ilsoman notion or n.iuonal ng111s for all L'tlrn1c
 Tl-IE C;tll.F \\',\R .·\NI I WESTERN 1.IIIER,\l.lS\I 1-19

14rnups t:ntails st:rious difliculut:s dut: Lo Lhc probkm ol'Arab na11onal ick11-
111v.Mill, on 1he oLher hand, did sLrnnglv ddcnd nationai sdl~de1crnunallo11
on Lhc 1-{l'<llllldsof the nghL to poli11cal parunpallon. 1·1
The dt:ns1vc princtplc for mosL liberal ckmocrab here ts, surely, noL a lih-
cral principle ofjusLice or rrccclom hut a rlemocrauc one: t.hal orpopular
selfdeterm111ation. The pcopic of Kuwall were bnILall\' and llagralllly
(lcmcd the ng-lH to dendt: !'or li1e111sdvt:swlH.:Lhcr tiit:,· \\'tsht:d to be inLc-
graLccl 111Lo Iraq. No11t: of Lhe Iracp govcn1mc1ll·s subscqut:nt_1usLilicauons
for Lhe annexauon can m·t:rnde Lhis fact. Thal Lhe people or Kuwait had
been living under an attlllcrac'.' h;1s 1w beanng 011 1hc mallcr. Thus on
ckmocrauc pnnc1plcs alone the Iraqi g-o,·crnmc.:111 should hal'e l>t:e11
opposi:cL Bui democrauc pnnctplc. al icast on Mill's grounds or polittcal
participauon. regmrcs respect for Lhc 1-ights of all Llw scllled populaLHHl or
Kuwa1L, not JUSLLhe mmonty granted citize11slllp (g-1 p1.:1·relll) or the Lim·
propol"Ltoll wllll voung nghls unrl<.:r the al-Sahahs (-~omc 7 per (Till) - 1hal
1s, bdtJJT the aboliuon of such ngllls 111 Lile I ~180s.Ir tile Iraqis had organ-
1sccl a gcnumclr fr<.:ereferendum of all the p<.:opl<:,and Lius had produced
a vole 111 favour of fusion w1LhIraq, the altlludc of liberal dcmocrals miglll
have been very dilfrrcnl. Bul llw,· did no such Llllng, and there 1s l'H'I"\'
reason LO suppose Lhat 1he grcaL bulk nf Lhe SL'\Llcclpllpuiauon would. 111 any
case, have voled agamsL anncxauon. The lracp occupatiun of K11wa11therc-
fon· had Lo be opposed as a maucr or poliucal pnnctplc bv both liberal
clcmocrats and sonalis1s. The q111.:sLinnLlwn became a prog-rammallc one:
how Lo encl the occupallotL and what pos1L1,·c,11111s Lo aclvancl' 111lhl' strug-
gle for sell~dctcnrnnauou. But Lh1siast goal, as we hav<.:SLTl1,has a spenal
Lwist because or Kuwait's umgue character: Lhc fact thaL Lill' m;\Jnrilv 1s
clcmcd am· etvil rccognllmn. IL must sur<.:lvinclude what ,ve lake ror granted
Ill olher c;1st:s of sell~cicLcrmmaLion: 11amelv. Lill' ngh1 of all 11s sculed n:s1-
denls Lo full clllzcnshtp.
A rights-based libt:ralism, privileging indindual rrc<.:clom, lends to under-
pht,· other criucal politicai 1ssu1.:sra1sccl lw Lill' mvas1on. One of lhese was
who should umLrol and \\'ho slwuld bendi1 from Gulf oil. This wa.~central
nol oniy for western policv-makt'l's but also, ol'course, Ht tltl' polilJCs ol'Lhe
Arab world, ancl for libt:ral social cgaliLarians and the socialist I.crt.
Hundreds of billions of dollars wonh of' oil n·,•i:nm· was channdled hv Lhe
Kuwaill rHling families 11110western 1nvcsL111cnl- generatlllg suhstanual
_profits, parucularlv 111 Lhc UK and the US.-\. This mcolllL' could ha,·e ht:cn
used dircniv for economtc dcvdopmem in Lhc Arab worl<I, Lo Lransfr,rm the
lives of people 111 Amman, Damascus, the Nile D<.:ltaand,</ course, Iraq.
Another issue, closelr linked to Lhl' oil facLor. was thl' sonal s1n1cture of
Kuwan: lhal IL repn'.scnL<.:d, 111lilt: words of an ,nnhonwuve swch- of the
region. a form of' new slavery with a 'vic1011slv rcacuonar~' character'. 1''
or Lhc capual gcncra1cd from oil for investment abroarl, 90 per cent was
150 l'(Jl.lTI< '.S 1;,, Tl IE (;t.( ll\ALIS ..\TI< lN PERI< H l

concentraLed III tile hands of e1g-l1Lee11families. The ma1111ai \\'ork III the
Slale, and much of the manag-erial and profess1m1al work, was earned out b,·
11011-Kuw,u11s, c,peci,1lh· Palesu111ans who hacl sc:ulcd in K111,•;ul111l.irge n11111-
bc:rs smcc: LhL· 19:JOs. Yl'L such people, cle111ed c111zc:nsh1p her.111Sl" the,·
lacked a fa mil\' connccuo11 wHh Lill: Le1T1Lon·Lraceable tn the I ~J~Os.were
cnurelv Mthrnn ci,·1c ngllf.~. <lesplle fornung Lhe m:l]nnt,· nf the pupL1iauo11.
Sm:h 1ssla:S \\'olllcl h;1,·l· to l)e ll ;1decl off in some war against Lhe ll~JllSlltT~
uf the mvas1011. parucularl" 111 the colllexL orc,·alt1a11ng Ll1L'US-kd 111ilitan
auack 011 Iraq and 1ts crn1sequenccs. Iii \ct tl1t•,· were most.I\' 1g11on.:d 1n Litt:
mamstn.:am puhlic debate 011 thL· cns1s, although ont· .-\111enG111se11;11or
q110Led a remark in thL· N,w forh Ti111,•s t.llaL p11hilv encap!,ulatcd these con-
cerns, dt1l)l1111gKuwall ·an oil companv with a seal at t.he Unnecl N,1uons•. 1;

,-\rhin!/11g S,•lf/Jl'fl'r111111fllw11

\•Vewill now ex:tnune Lhc means that were available for cnding the occupa-
llon of Kuwan a~amst the vanbttck or liberal theories or
incliY1cl11:ilngh1s.
The main op111>nswnc: { 1) a negoua1ccl diplomattc sol1111on; (~) popular
resistance backi..:cl I)\' ex1ernal moral and material aid: (:~) 1radl' a11clot.lln
embargoes; (·l) militarv actmn. A ril-{hts-based approach could. m pnnnple.
suppon anv one of these opllons. BULIl could support opl11Hi (-1) 011 h· if this
coulrl be shown 10 be thl' snit- re.ilistic means for freung the JKDpie or
Ku,,':IIL. And e\'ell then this school wouici have 10 be cc111,·mcecl that tlw
mstrume11t chosen for war - Lile siate(s) wag111g-it -wouid 1101 ll.wlr proclun·
new poliucal oppression or 11~1ust1cern place or the oicl. ll1ilitana11 1lwons1s
might very well, on Lile basis or their faclllai analysis and prog-11os1s. wish to
ruk om opt1011 U) 011 the grounds thaL military liffce \\'ould 111ev11ahl\'
create greater suffcriu~ Lhan it would produce anv ga111 fiir the 1>cople or
Kuwa1L I will assl'ss each option 111 turn, in terms or both 11srealism and its
consequences.

diJ,/0111rJ/1r
1) ,-\ 111'go/1arnf .\/)l1111011

The doctrine I havl' called ·states' rights theory docs not neccssarilr li1vour
the diplomauc soluuon to ending an occupauon because, lw 111,·esung slaws
with t.lle cp1.1li11c,of pl."1sons, this clonnne mar ra,·m1r p11111~h111gan aggres-
sor state for 'killing· a 'brotlll'r·· slate. as 011c pu111shes a murclt·n-r. Such
p11mshment mav be retrib111n·e. or may he_Justiliecl on ~rou1Hls of cxamplL"
or deterrence. BuL this approach 1s at variance w11h all h11ma111st,·anet1t·s of
libi..:1·,llism,lcL Jlonc socialism, l"DrILaclopts a nihilist. or at least an ag11usuc.
atuLude towarcls the ngllls and welfare or real human he111gs, whether as
mdividuals or cnm11111111t1t:s.
 TIii-: <:t il.F 11'.-\R.-\Nil \\'l·:STEH!\' 1.1111-:R-\I
.IS,\I Eil

For ng-hts-hased liberals (and for u1ili1ana11s), a 11eg-otiated sul11turn must

he a prel't•rrec\ 111L'a11s, pro\'ld('d, or ro11rsl', 1ha1 s11rh a soh1111111 ts possible
and does 1101co111prom1se on the issue of' pn11nplt- - compktt· freedom
rrom ocn1patH111 h,r the people or Kuwait. TherL' m·n· 11eg-ou.1111,11s 1111me-
dia1ci\' ;1hcr the 1m·asw11: ,tnd the .Jorclaman g-o\"l'rnnwnt, ;1lu11g with the
PU> anrl .-\lgcna. h;1n· alwa,·s msiste<I that a 11eg1111;11ccl t'nd 10 tht· ocn1pa-
1H111or Kuwait ;1cceptablt- ll> Iraq 11";1spossihlt-. None of thest· t•;111\'
diplom;1uc efforts mack prog1-ess. All(( 11 1sntal to l'Stahlish wh,· 1101. There
seem to he two reasons: lirst, because \'arious .-\r:1h gm·tTllllll'.lllS prdern:d
10 st·t· lr.tf)I pmn:r clt·strc1\'ecl: seconcl, ;111d cr11n;1ll\'. ht·c111~t· tht· U1111t·d
States put t·1wrmo11s pressure upon King Fahd a11cl Pn·s1dc111 i\luh;iral:. to
pn·,·e111 arw n1:g1ll1atcd settic:ment.
Haghdad tht:11 proposed that 1111.: L1N should Wride tht' occupatH>II or
Kuwal! and 1he Israeli occupa11m1s w11h111lhl' samL' len11., of reftTl'llCt'.
This n:111ad,able proposai corrcspo11cls exact!\' to ,1 ngl1ts-1Jascd lilwral-
uni\'ersalist approach to probiems ol'poli11caijus11lT. It was not sugg('sliug
that notlung lw clone ahou1 Kuwall until thC' Palestm1a1is nght to sell~
de1cr111111auo11 was tackled: ralhl't·. 11 was a ctll IO rill' L'N to apply a
co111mo11pnnupk 10 both occupa11011s. Yel 11010111\· di<I li1e L1S acln11111s-
tratici11 hhmtl\' rL'.JLTltill' proposal, but II outiall'ed the 1dl'.i or diploma1k
1w.~11t1a11onallogl'llwr. upung- 111steacl l"ur Loi.II military hiorkacle a1HI sull-
st:q11cn1 all-out al\ack. Thrs rep11dia11011 ol" dip1<1111ac\.'dl·111uns1r;1ll'd that.
thl' .-\111crican (and Bnllsh) polic\'-lllaking t·.~t.ihlish1nl·111 \\';1s 1";1rfro111
allnwmg ns polillcal opcrat1011s. f'ollow111g thl' Iraq 1m·;1s1011.lO lw gm·-
l'rlll'd b\' liber;il. nghls-hast'd priunples. ILH! l'l'pl':llt·dh· calll'rl !"or
uegouauons. 1·~Thl· UN Chaner requires the111. Till' US lltll'lfr ruk<I 0111
an\' such diplomac,·. The war party Ill the US and UK cll·11011mTd 11t·goua-
11011sw11h Iraq as ·appl'asct11cn1·. bu1 1h1s analo)!;\' was rnappropriall'. Fnr
thl' nego11a t 1011s I ha I prod 11cl'cl l he ~·ltuud1 ,\gret'tlll'll t ope11 l'd
Czl'choslm·ak1a up J"ur German conquest.: IL w;1s a case or 11l:go11a1111g ror
(:crman ,•x/1011.Ho11. Tht: ncµ;o11auo11s O\'l'J' Ku\\'ait wouicl lia\'c been prl'-
usdv 011 the terms for lrarp illitltdmw,1/.
this \'ll'\\' is 1101crl'dibll' . .-\ftt'r
Sorlll' sar that Iraqi offl'r w;1.~ 111smn·rt·. 1>111
alL had the olll'r been 1ak1:11up, Baghdad wouid have pulkcl off a11 unpar-
;ilkted politrcal tnumph Ill the .-\rah World as thl' learlnship that had
ach1e,·l·II a gre;II political \'ic1on· for lilt' Pales11111;11p;-am pit- l'l•mpensatin11
h1r 1,·Hlidr;1wal li·1J111K1m·,11t.l11cleed. 11\\'as prl'c1sl'I\" 011 tllt'Sl' grounds that
rht· US rt.:1enecl a11~·ac11011on Palesune: Sadc1a111l-h1ssl'lll ll'ould ga111lrom
11. But this was a pnn· thl' L1S should ha\'l' hl'l'II prt'pan·d.to p;l\·. li>r 11sfail-
11n· tn support ,111st1lTli1r till' Palest1111ans (cir l\1T11t,· \'l'ars. Righ1~-h;1sed
Iiher.ti ism 1s not go,·er11cd 1w co11s1derat1rn1s or 1an1ctl ad\':1111:igefor a g1n·11
poli11ctl lt-adcrsl11p that adhnes lu liberal prn1nplt·s of_jw,llce. It Gill be
aq.{Ul'd 1hat the Iraqi state was rig-ht!\· clt-111cda1l\' ga111111 poliural status aftl'r
 l'OLITI( :s IN Tl-IE l;f .<>11:\1.IS:\TI<>N 1'1'.Rl()I)

us acuon 111Kuwait. IL is s11rd1· lrlll' lltal till' co11Ll'slli1r pos1uonal w1ods likl·
sl'.1111s
;me! poli11c1I prcstigl' in tlw h1er;1n:lw nl' s1;11l:~1s \ome1h111g lilwr;1b
sho11lcl rleplorc. Bul a p1·int:1plcd lilx-r.ilism <:onccrm·cl with _JUsUCl' for all
human bcmgs itas no mteresl Ill tailonng 11s polic\' to the apponionmenl of'
such goods lff tllcir wnhclrawal from 011c s1a1c or another. Thal enllre
approach 1s a relic ors1atcs· nglus thmkwg.
The view lhal auad.ing Iraq would hal'l' the salutorv elkct or detcrrmg
ruturc aggression 1s unconvmcing. The most ll would clo is dc111<>11slralc
that aggression without US approval docs 1101pay, for we have abundant el'I•
dcnc:c that aggression or a1111cxat1011 with LIS appro\'ai docs pav (i11the case
ol Lllc US - Panama, Grenada, and 111 1h.11of' its allies - ivJorocco. Israel.
Incloncsia, Turkcv ancl so on).
The Iraqi offer was cxlremclv cml>;1rrass111g-to Washmgwn IJecause the
US had l)Cl'll supporting 111111.~tm· for Palc~t1111ans.But a pnnctpkd, righ1s-
h.1sccl lilwr,\lis111r~1ects a11vrclall\'lS,lllllll 11!'lhc nglH to poli\lcal freedom.
That Saddam l-lusscm had proposccl a _1011ll solulloll to the quesuons ol
K11wa1lland Paiesunian oppression slwuicl, therefore, han: su·eng-thcm·d
the case for the Baghdad offer, rather than weakened 11.

2) 'J'hr n•sIsta11n.•111mw1111•11i
It m1g-ln be argued thal the US should be condemned for its failure lo
ncgollalc, but lha1, gwen this failure, we hacl no chrnce hut lo suppon till'
blockacle and/or all-om auack. This logic: assumcs the ex1slcnce of 0111'-
one kincl or l'orce m Lhe world: stale mili1an· force. But as the Viemam War
de111onstratecl, this 1s not the case. Pnpular-res1stance 1110\·ements an:
a11<nhcr, potenuallv very powcrl"uL agcncr for achienng nallonal freedom.
furthcrmnre. m aimost c,·en• concc1\'abk ms1ancc. tius agency 1s far prcl'er-
ab\e Ill elhic:al Lerms Lo the appalling dcstrn<:Ll\'ellL'SSof'sLale military force.
The 1mponanc:e, 111deeclthe primacy, or popular-rcs1srancc movements
for poliucal freedom is g1ve11especial cmpllasis by Joirn St11arl \\lill m hts
ilrt1t:ie '.\ Few \Vords on Non-l111er\'c11tm11·.11T1ltc11111 the s.ime 1•ear as '011
Libert\' p, foor i\·lill. popular resistance ti> achieve liberauon is superior to
l'Xternal military lllterYcntion nol on the u1ili1arian ground that the iatter
ma\' be llHffC costly or may not achicl'c poliucal freedom, but hecausc a
people must 'become free by their own efforts'. In l111s111sla11cewe find
t11at the opuun or external pressure and support for popular resistance
was s11nply cxciuded in line with stales· nghls 1cleolog)' - which cxprcssiy
precludes all agencies other than stales l'rom having a iegiumate role 111
international politics. There is thus a presumption 111 favour or state
;l(llOtl.
A pop11lar-rcs1smncc 1110\'cmcnLin Km1\lll did exist; ;111dil had the support
of' significant groups wllhm Iraq for a stru~g-lc for sell~dctcrminalinn. And
 Tl-IF. Cl'l.F \\".-\R .-\ND \\'FSTERN l.lnF.IUl.lS:'11

iL for once, sucit a 1110\'L'lllCl\lhacl bee11 µ;n·e11poliucal/moral suppon lrom

the \<\-'est,there 1s l'n·n- reason to expect L11:11 a powerful pDlillral l"on:e
could haw l1een built. (The Palesunran 111iijiuluagamst Israeli orcupauou 1s
;1 strik111gcase in pomt: clcsp1tt· 111ili1an·~11l~111gat1011,
killings, tonurl'. dett·n-
LJon w1tlw11t tnal. reprisal~ against ll\'ilia11s, and mass expuls1011. tht·
Palesti111a11resistance, w1lh a popul;1t1011 about the size or Kuwa11, hccame a
powerful poliucal force. Whal 1s more, 1t achieved this 111 the Leeth orper-
manent. f'cnicmus hostili1,· toward the 'terrorist' PLO from the world's most
powerful states, but also 111the face or lll,(jontv Isradi hatred or the move-
mcn t.) The Iraqi opposJllon n-:iec1cd both S:1ddam 1-lusscin·s fort"ibll"
a11ncxauo11 or Kuwall and the hombtng and invasion or their cot111tr~--In
March and April they showed that the,· had cons1derahle forces 111 Iraq. 111
the context ora commercial embaq.-\"o targeted on the li·aqi militarv and oil
mdustrv, this oppos1L10111.:oulcl, 111 con_1u11nion wnh Kuwa1L1resistanet· and
prcssun.: from the Aral> \\'oriel gennalh-. ha\'c gTeatl\' 111neascd the nq~o!l-
aung pn:ssurc 011 the Ba~hci.icl n:µ;1111e.
Hm,•c\'er, the K11wa1t1n:s1sl;m1.:c nm1·cmc111 woulcl ha,·c hacl to cu11fron1
two serious obstadcs. The firsl was the s()nat structure orKuwall 11nrlt-r till'
oid al-Sabah regime; l11e second was Kuwait's oil wealth. The 11c(-essJ11t·sor
popnbr l"l's1s1ancewouicl have J'orced 1hc mm·eme111 !() call on t.he pcnplt- of
Kuwall to _10111 a common struggle. Tl11s would not han: lwcn harcl v1s-;"1-us
the Pall:'st1111ans since thev too face occ11paL1011, but 1t would also ha\'l'
required a programme or civil ngllts and social jusuce fi,r all the sellkcl res-
idents of Kuwall- an end IO thl'. old helotn·. The res1s1ancc wo11lclalso have
had LOadvance: a bluepn111 for the rnwn: use of Kuwall1 uil revenues. 1\111for
from l>c111ga probiem, llus t'«Hlld han: been 1he1r poliurnl trump: the rnli-
rccting nfoil revenues away l"rom the .\nglo-r\mencan li11ancial nn-111h 111t11
cconom1c devciopment li,r the 1:11!In·.-\rab region, 111cl11dingIraq. 1:.)-,'YP'·
Jordan and Syria. This would, orco111·sl·.haw reduced - to plll II mild!\' - lhl'
en th us1asm of the Bush and i\·l,qor ;1C[1111111stra11011s (cir l IH· res1s1;111cc.
llllCloubtccllv pers11ading \hose \u:ci lo the al-Sabahs tn hn·;1k w11h !ht· llHll't•-
me11l, 1,•t1ilt:lhe Ku\\'a1t1 rulin1; families n·1m:d tn their rcs1dcuces ah111,1d:
b11Lsuch a programme ll'oulci ha\'e t--{Uar;11Hccd the ex1st111gliYmg s1a11darrls
of Kuwa1t1 citizens. IL 1s dl'ar. howe\'er. that 1!11spopular-res1s1a11u: strategy
would hm·c Ileen anathema lo 1he US and LIK gm·t'.r11me11ts, not to s1wak or
the Samii roval familr, threate11111g 11,u11clermi11e cv1:-r,·th111gthe West \\';IS
seeking to clefcncl III the region.

3) nnbargo u11rl111ifilr11J'
J·,'ro1101111r /,{odwrl,·

I ha,·e ar;.{UL'dthat a cliplomauc scnlemcnl fully sausfrmg nghts-hasecl lilwr,d

uiterta of'_j11sllcL'was perli:nlv possible. Some, howl'\'er. ma\' hold 1ha1 Iraqi
ol'fcrs ora 11q~oLJatcd SL'llk111e11t- lllllllt:cliatelv af"tcr the lll\'aSHlll a11d llil'll
 1'01.ITIC:S 1;-.;THE Cl.OB.-\l.lS.-\TION 1•1-:1uon

fo\lowmg anncxatmn - were extracted only under the coercive pressure or

l'mbargoes and hlock.ach:. This rn;\\' bt· true. Posst·ss1m1 ol" Kuwa111 oil Cl'r-
Lallll\' confcrrecl wealth and power lli.ll the Ba ath1st rq~1111l'w1>1dd han-
preh:rred LO re1am. r\ncl even though t.he regime 11selr hacl 1wl engaged 111
a iong mtcrnal propaganda campaign, cloubtless man,· Irarps had long
lielie,·ecl that K11\\'all shoulcl llciong tu Iraq - tllt·rel>,· aclcling· 11;1L1011alis11c
support to the case for a1111exaL1011.'let there ,~ no cxdus1,·H,· or opuons
bet,,•ccn embargoes, exphrator\' negotiations and support for the Kuwa111
popular-res1swnce movement and Iraqi oppos1uon. But the use of what has
come to be known tw the llianket term of ·sa11cuons requires careful
SCrtttlll\'.
First, we shoulct note the peculiar termmology. 'Sanctions· in 1lus context
simply mean measures to enforce a command: there 1.:an he military or
non-military t~-pes of s;1ncuons. Ho11•e,·er, wllh111 public cliscot1rse 111Bntai11
dur11114the Gull" cns1s a semantic slippage ot.:C\IIT<.:d:the word sa11n1ons'
came LO mean all measures short or direct militarr attack on Iraq - mclucl-
mg a full-scale blockade or the co1111t1·)'·There was undoubtedly some
st1·atcg1c .1ustilica11on for cot111tcrposmg ·sancuon~ · to war·: the anll-war
movement w1shecl to max11111se tht· coalition opposed to miliLar\' attack.
ngh1iy seeing the decisive task as prc\'l'llllon. Nc\'l-rtheless, IL 1s 1111.:11mbc111
on us to examine very carcfullv Lile \':1nous measures grouped 111Hkr the
heading of· UN sancuons , .111CI to register Lill' qualitall\'e difference between
various cmbargc,cs and a 111ilitarv blockade oJ' Iraq.
fwo kinds of embargo possessed a pl>Werful rat1D11ale: that 011 oil exports.
cicnrmg tile lraqi government the p11.~sibilitvor prnliung from Kuwa111llil and
fac111gIL with a sulJstanual cost for lls co11unued occupaurn1, am! that rn1 arms
supplies to lraci. Arguably there was a strong case for a total embargo 011 Jracp
exporn;. But all such 1i.u:as111'CS were c!ilfercnt ii\ kind frnm a full-scale block-
a(IC m two key respecLs. First. the blockade was a form Dfsiegc warfare against
the civilian populauon of Iraq amt Kuwait. Supplies of food ancl mcclicmes,
specifically excludccl from the earlier embargo, were 111terdiuecl IJ\' lhe block-
ade, an escalauon that was bound to hurt the civilian pop11lauo11 Ill a cowllr\'
so clq)l:ndent on tracle. Ancl sccondh·. the liiockaclc 111\'oi\'ccl, anrl icg-111-
maLed, the build-up of US military forces li.>ran all-out ,lltad ..
A.ncl what was tile purpose of such a hlockacle as an mstntment of pressure
on the lraqt government? If Amencau demo111s1ui-; or the 11a·a1i11s1swas
accurate, then this reg11rn.:ll';IS presumablr indilfercrll to the s11/frrn1g-s ol" irs
people. Assum111g- that tile rcg1111e diet seek and l"l'(Jlllrl' sollll' clegTel' or
popular consent- a more realisttc assumption - the blockade rema111eci a11
indiscriminate weapon likt·lv to harm the poor, the elderh· and 1hc 1111irm.
,\s an mtcn·c;1t1on wtthm Iraqi poliucs 11 w,is likL·h· lll draw puliuc,llv aw;irl'
Iraqis closer to the reg11nc, wJ11ch m turn n1ulcl - aml did - attack the blocl,-
adc .,s a sa\'age weapon agamst the most vuinerablc people.
 Tl 11·:CLT\.F \\'.-\I{ :\i\'ll \\'I-SIT.RN 1.11\Elt-\l.lS,\I

-Ii T/11·U.'-i-ll'd,1//ud;

Fn·11 an-onling lO dassKal just-war thcon thl' 1111possiliili1\'111'utlwr lllL'a11s-

pupuiar resistance, emharµ;oes. negouauons - did not produce adequate
grm111cls fur an a11ack nn lrag. Two funher co11di11nns were necessarv: the
;1Had. sii11uld n11lli1JL' 11sell' w those llll',LIIS 1111111111all\· lll'Cc~,:11... liu· the lib-
l'rat11111ul' Ktm·a11: and thl' ·inlenL11rns· or the attackers must not, 111 wr11,
en1ail 111_1us1ice. The US ad1111111strat1011 did seek 10 icgn11nah· Its war agamsL
Iraq 111such terms as thi: attack was bL·111glaunchL·cl. 01' course people \\'ere
ll'ell awan: that Ille .-\mencan state was la1111ch111gthe war for reasons other
than political pnnuplt:: US lllll'ITSls 1111he n:girn1 Wl're clin·rtly 11wol\'l:d
(interests often n::duccd sunply LO'oil'). But mam· WLTL'. iecl to assu11n: that
such interests diet not cnnllict wnh the LIS militan act111g as the instrument
u(jt1sl1Ce n:sp1111sihlc li>r admnn,a·n1ig tlH· m11111rnm1fDrrl' ,wrl'ssan· tn lih-
l'ratc K11wa11.
Once agam, however. we lind a te11sw11het\\'l'l'll stales· ngl11s thcorv and
liberal apprnadtl'S based upon the 11l\'1olabilitr ot· the person. The lim11cr
requ1res ol' gooct 1111ent1011slittk lllCll'l' than a renunn,111011 or tcrntonal
acqt11s11um. whilt· lls prohib1t1011 on llll·ans applies 011]\' lO 1he delihnate
slaughtn of no11-n1mb,11a111 nvilians. The latter. un the oll1er hand. has
great clirticulLv 111sguaring Its 111.JllllCIHJllagai11s1 nol,1t1m1 or the per,;on 111
do111L·s11rlil'e \vttlt the total rdaxatw11 ol tlus 111.1111H·tui11 111thl' L'Xlcrn;,I mil-
nar\' acunt.v of' states. No du11bt there ex1s1 supposed suiu11011s 10 this
problem hy ant1-conscq11e1111alist rights thconsts. lrnl such though! 1s now
iarg-i:l\' discrcditt.:d. Rigllts-hased thco11s1s who do n·cr>giusl' the lll'l'd to
take c1111sequc11n.:s mto accou111. 111us1,1us1ifrlilt· auack I>~·1111plic1u11glr,1q1
conscnpt soldiers m their governments un1ust ael ol'i11\'as1011.This St'l'lllS a
dirticult aq{UlllL'lll 10 sustalll. g-1,·en that the lracp suldil'rs were 1101\'ol1111lel'l'
prol'ess1011als - mdeed many nskc(I cka1h 1rn11g lO L'\';1de the dr,11'1.
(_·\ml'nc;111 and Hnush h>rrl'S, 011 the 01her h,111cl.did cu111pnse sokl\' prn-
fessmnal soldiers.) ~11
As lhl· war prog-n:ssNI ancl it became clear that morl' cks1ruct1011 was
bl'111g l\'J'1Jll,!.fhl than \1·,1~11L"n·ss;1P'li,r lilwra1111g Klll,',111.l'ffo11s \\'t'rc lllade
h\' militar\' public-relauons personnl'l 10.111stifr 1h1s excess()\· deplo\'111g the
concept ol' 'collateral' damage. Bui 111 1he war·s al'tcrmalh ll \\'as impossible
lll treat the L1S \1-;1reffort as h.t\'111.l{hct'11 g·m·ernL·d ll\' thl' 111L·a11s-r;111011ali1~•
of' lilwr:1L111gKt1wa1t: i! heca11w clear tha1 Ila· l'XL'l'SSdcstrlll tmn w.1s ul' a
qualitatl\·e. ra1lwr Lha11qua11111au,·e. nature.\\\· must n·111111Cl oursl'lves or
\\'hat 111 sum t.hl' miliLan· (:lfon ag;1111s1Iraq l'lllaikd: (a) .-\ total n1ili1an•
hlucbde. (h) Bo1nhing- nl' tlw crunal life-s11pp1>rt wsti:'.ms for the l·ntirc
populat11111 ol' '1·;1(} - warer a11d elll'l'g1· supplit's, Sl'll'agc .srs11•111s- ,ill of
which prmlun.:d what 1lw LIN's dcpt1t\· ~l'lTetan·-g-eneral calll'd ,1 'ne.ir apoc-
ah·puc ca1as1rophe for the people or Iraq· 111volV111gstar\'al1011 and
I !i<-i 1'01.ITICS IN THE (;J .<>11,\LIS.-\TION l'El{IC lll

1.:p1dcm1csDf killer diseases. (l) Dcstn1cuon of the Htal irngauon svsterns 011
which Iracp agnculttn-c clcpcncls. (cl) Bombmg of the countn·s 111dus1nal
and transponauon 111frastrucwn:, dn\'lng n, cllccuvciv. back mto a prl'-
111c1t1stnalera. (e) Rel'usai or Bag-hclad's offer to withdraw from Ku1ra11.
macle m-cr a week bcli,re the ground w,u· starter\ - an oiler wekomerl i)y
some European NATO states hut discountecl by the US. (I) Rqeclloll orthc
Soviet peace proposai, accepll:cl b\' thL· Iraqi gon:rnment, before llw grc,11nrl
1var was iaunchecl. (g) 'Collater,11' rL1111age:the killing of cn·ilians. 1wt 1>11J\·
111the Baghdad bunker but in the proximity of bridges and other 11011-111ili-
tarv 111stallations far to the north of the so-called Kuwaiu 'theatre or
operations;, (h) Use or weapons of' mass destrucuon 111 order to achieve
wholesale extenn111ation or the lrarp conscripts Ill the Kuwa1l1 theatre:
napalm, cluster hombs, and aboH.' all the 'l"uei-all' explosive' clubbed in Lile
US the 'poor man's nuclear w1:apnn· (i) The 'turkev shout· at thl' \latia
Pass and prnsecuuon or a war of annihilauon ag,1111stli.H-ces that srarn·lv
returned lire. It 1s simply bevoncl credibility that 'means' ortl11Ssort can llt'
,1ustificci \\'lthm .111)' form or nghts-l)ased libnalism as co111111e11suratewith
the end of freeing h,uwan.
There was also the 'liberation of Kuwan·. Onlv the n,11Towes1 (;rc,uan
,·1c11·,which interpreted 'lihl'lalloll as the rclllrn or
prupenv title lo rile
Emir and l11sfamilv, could present 1he defeat or Iraqi forces as a libt'r,nion
for tile people of Kuwait. The rnle or the al-Sabahs and some eighteen
satellite clans is dependent upon their supprcssmg democrauc, conslllll-
uonal reform. Kuwalll oppositiornsts seeking the return Lo a co11stin1t1011far
short or wcstern liberal democracr have been harassed, thrcatenL·cl, a11d
e1·cn sul~Jecteci to assassination aucmpts. And the liherat-democr,llK prin-
opie orCl\'il nglllS for non-E,\lW,llll rcsirlenL" has been rewctc<I Ill Ll\'lllll' or
a rq_;-ime or tl·1-ror, torture and 1;.illi11gs,directed especially against Ill('
Palesun1an communJLv. Accordin!{ 111 the PLO, iw m1cl-lV!arch, three weeks
after tile ceasefire, tll'o lnmclrecl ;md Jiftv Paiesti111a11sl1arl been killec\ Ill
Kuwall. The New York-baser! l\·liddle East Watch had by thl' l'lld or ;>,,Jareb
documented ol'er one thousanct cases ortorture, foJ'l\' resulung 111 cl1:,llh. Bl'
la1e Api-il, US g-m·crnml'nl liles recorded three llu11clrecl anrl fifLI'
Palestm1ans m1ssmg- - fcarl'd dead at the hanrls of the Kuwa111go\'ern-
ment.'.!1 These acuons were m•erwhelmmg-iy the work of the secuntv forces,
with the direct parl!cipation of members or the al-Sabah familr. An ep1-
dem1c or rape attacks on 11011-Kuwalli woml'n residents lieraldcci till'
reimpos1t10n ora 'helot state' rq{1111eorsevere soCJai opp1·ess1011.'.!'.! r\11d the
g-oven1me11t announced pians, ,;:n:n llefore II had returned w Kuwan. fur
Lhl' t:Xpuls,on or about hair a 111illiu11formed\' seulecl .-\ral) rl'~ldl'IILS nr
1
K111,•a1t,
ma111l5·Palest1111ans.:!: And all this was, of course, cmnbincd w11htht'
re-es1ablish111cn1 or lite grossiy 111l'qt1itabie circuit or oil capital from Km\'all
mto the Ang-lo-Amenran bankmg- svstc111.
 THE (;l 1l.F \\'.-\R .·\ND \l'ESTFRN l.fllFIUI IS~I 1:,7

Such 11·ere the direct c.:011st·quc11Ccsol· the US deus1on 10 operate through

the ;d-Sabahs in Kuwan. Their :um s111n: latc .-\ugusl I 990 was not the
rcstorauo11 or the conslitulto11al nrch:r. rar icss poliucal support for clemoc-
rac.:v,inti ratllcr rull political backing for tl11s dv11as11ca111ocracv. Not a word
\\'as SiJDken by the US admm1s1ra11on on hellalr of the poliucal righ1s of 11011-
Ku\\'allt n:s1rlc:nt.,. \Vhat 1s more. l 1S spcnal lim.:e, wen· mlliallv working mth
the K1111·,11us rn Lhetr sweeps through P.ilcs11n1a11 clistnc1., and wen: pn:se111
111 police slauons whil<: tnrtun: was bemg prac.:t1secl. ohe11, allegedly. qtllll'
111discrnnmatelv on young Palcsu111a11 me11. It was for these e11ds, then, that
the killing ancl clcstrucuon 111 Iraq was IO be _1ustified.

l.ilwml 1\Ja1 us \·1•1:rns Co"ls

.-11111·na111

I have bt·en preparer! sn far lo go alonl-{ \\'Ith the ;1ss11mp1.1on that tiw
A111enca11 (and British) stales mar 111 /m11nJ!l1· ita1·e C<111sututecl111stnt1lll'lll~
for 11nplcme11t1111-{ liberal pnnuple 111 the Guff n1s1s. The prt'.clo111ma11cc ul
realist moral precepts 111 Lile core CXL'Cllltvcs or these states has hl·t·n noted.
as has the evident fact that the aclmm1s1ratwns were straig-l1tfi1rwanlh· p11r-
st11n_i.:state 11nerests. Discussion or
their behavu>111· has, nevertheless, IJl'Ul
co11ti11t"clto the means or liberatmg the people or
Kuwait and has mert'lr
noted how their acuons ilan- (repcatcdlv) clcpanecl from prererred liberal
norms. aut measured agamst thl'Sl' slates actual conrlun 111 the war this ana-
ivucal ;rnrl evaluauve rramework s11nplv bH·.iks clown. It 1s thcrl"li,n·
necessan- to re-examme the facts ol' Desert Swrm and tr\' to analvse ll'hat 11s
resuhs ,av about the goals or the US-led opera 11011.
The central puzzle for many has lwen tile c.:oml)mation of two ell'ml'n 1s:
(I) A cln1·c toward war (;1s opposed to p11rsutt 0L11wguua1ecl sol11L1011)and
to a crushmg militarv Ytctorv, mclurling the wlmlesale rlcslrttc-
sul)sc.:q11e11LI\'
11011 or nvilian life-support svstt·ms and 111;1mten:111Ll'of the blockacll- alfrr
the l'tHI llf lwstiliucs. (~) Thl' fail11rl' or till' US to press home us milit;1n· ,·1r-
Lorr 10 the occupr1ng orllaghdacl and m·tTLhro1,· or the reg11nc or. once thl"
war ,,·a~ over, to support the re hellions m tile Sh1a South and in the Kurdish
Noni!. These eicments appear inconsistent: the destn1cuon or Iraq durn1~
the war suggests a dnvc IO topple the regime; behaviour arterwards suggests
support for it. The allack 011 lite c1,·ilian mfrastrucl ure seems gratuitous and
aimiess. Only throug-h a poliucal analysis or US 1111erests and goals can we
make sc11sc or this seeming 1nco11s1stencv.
Un11ed Stales n.,jecuon of ;1 1lt'go11ated soltttHHl arnl of the op110n or ec<J-
11u1111c sanct1u11s pius support for 1ht· f,mv;11t1 rcsrstanct· c.11111otlw deemt·d
an atude11L. Nor can LIS dis1111ssal or the Iraq, 11·1thdrawal offer ;111d the
Sorn ..:t peace proposai befon: the land war t1ega11.. \II were deliberate ;ins of
poliC\·. but with whaL oi~1ect1n:s m mmd? One or these can be expressl·d
 l'{ll .lTIC:S IN Tl II·: Cl.(ll\,\I.IS,\TION l'FRIOl l

crudely, and raLher m1sleadingfr, as Lhe 'oil facwr· - a long-1cnn sLrucll1ral

111LercsL;anCl Lile other has to do with giobal factors IHILdirectly reia1cct to
the Gull' or t\,tiddle East.

The 'oil_/rll'lor'
Since the iaLe I 97(b Lhe US has 111adeexplicll lls deLennmauon 10 cxen:isc
overall mllucnce 1111hc Gulf', laving clown the parametcrs li,r all politK,d
forces m the n:gm11 thrnugh the so-caller\ 'Carter Dounm.· Acconling lo
Zh1g111ewBrzezmski, the docmne·s archllecL, US mLeresLs wen: thrce-li,ld:
first, guardianship of the oil i11clus1ry'with all its political, economic and mil-
llary ramilicauons', secomt, l,eepmg the USSR out; and Lhtnl. prn1ecu11g-
'the moderate states 111 the rqi1011, which could Ile toppled ln· iocal
upheavals, as happened with Khomemi's asccn<lancy 111Iran This lalll'I"
threat 1s 'perhaps the.: mosL elusive, a11d yeL potenually the most dangerous·
LO US interests, whether the attack 'be from the lef"Lor from lsl:urnc funda-
mcnLalism ... As the Irnnian revoiuuon graphically dcmonstraLect, ll is ven·
diflicuit for \.Vestern policy-makers to deveiup all dlecti\'e response 011u·
new and powerful social, religious and political aLtitucles g.1111 widespn·,1d
acceptance, Lhe hold or a leader or government IJeg1ns to slip, and a cns1s
erupL~.' 2·1 These three interests form a h1era1·cl1r or US concerns: at the
apex 1s 'oil'; from tlus derives the comm1unc1ll LO the 'moderate·· reg111ws
and to excluding Lhe USSR.
Viewed as a pure I\' commercial mauer, oil 111teresL,could liLe;1sil\' wllh Lhe
liberal ol~Jective of rcmovmg Iraq from Kuwall ( Liierebr ensunng that Iraq
dicl not conLn1] too high a percentage of supph• and thus carrv too much
weight 111 the oil market). I-Iowe\'er, one nught wonder wh,, a simple shil'I of
ownersl11p would p1'0\'oke the US into sending llalfa million troops against
Iraq: after all, sellers or oil neecl buyers, and Lhe long-Lenn pnre of i'vliclclle
East oil is dictated b\' the pncc or substitutes, and thus has a limllcd range of
fluctuallon. 2'' But contrnl orivliddle East oil is ,·1LaiJi.1rLhe Amencans III t\\'o
other respects: fo·st, the double economic vaiue oroil n.'\'e1n1es, and second,
the tmportancc or oil control for US global poliucal pmwr.
Gulf oil provides a ,·ery large mtcrnational market fill" 1111pDnant sectors
of advanced capualist industry (consLrucLion, engineering, 111ili1arveq111p-
mcnL and so forth) and this 1s overwhclmmgl\' a slat,, market, since the
revenues arc m the hands orthe ruling dynasties. Therefi:Jl"e the power that
exercises a dnm111a11L poli/1ml inlluence upon lhe sheikhcioms Ill ellecl go\·•
crns the market.. Scconclly, oil 1-c,•cnues become great lakes or renttl·r
capital. the llow orwhich, mlluenced cnttcall\' lw poliucal facwrs. is vllal for
the enurc s'tructure or global Jinance-capuai and banking mLeresLs. And
Lh1rclly,oil money talks poliucs directly, through the uses to which iL 1s put.
This 1s the case, for mslancc. nl-{ht across Lhc world - espec1allv Lhe lsla1mr
 THE CU.F \\'.-\I{ .-\ND WESTERN I.IBER.-\I.ISM 159

wodd - with Saudi m011ev, which cements regime after reg11nc, from
Pakistan ro i\·lonicco. And the passages or that m011e\' are ulumatcly con-
trolled lw the power wl11ch dcf'c11ds tile Saudis - the USr\.
tr the reg11ne or Saclclam Hussein had co11trolled the !low of much of
that oil capital, dozens or countncs around the world would ha\'e had a
srmpie choice between two world polit1co-econom1c authonues: 011 one
s1dt'., the IivlF/WB, the 'oflioal', American-cont.rolled institution govern mg
the world economy; on the other side, Baghdad, the 11ndo11htedly unollicial
but eguallv enicac10us centre for capital and loans. And would this 11n·es1-
mcnt capital ha\'e (lowed as readilv through the Amencan banking system
and the CitY orLondon? \Vho can tell? One cenamt,· 1s that political linanc-
i11g lw a Ba'atlust regime would not comcide with the hmding or Islamic
theocratic or d\•nasllc currents. The same factors would applv to the Iraq1-
con1rolled market for western mdustrial product~. Directlv threatenmg LO
US tnLerests 111 such a scenario would be the impact 011 the dollar: for
Saddam l-lussc1111111ghthave prcli:rrcd to dc11on1111atehis capital 111marks
or \'en. As the world's biggest debtor, with its debt rlcnomlllated in dollars,
the US economv would cleariv be vulnerable if"a s1gnilicant proportio11 of
i\·liddle East oil revenues were switched lo a1101hcr cu1-re11c\'.For tht· Llnned
States to concede such poliucai power to Saddam was uml1111kablc.
And linally, the control nroil supplies to both.Japan ancl the countries of
Western Europe has alwavs served the US as a cr11cral poliucal ic\'er in rela-
nons with these states. Thev arc. af"ler all, nH>n: reliant upon ivliddlc East oil
than 1s the United States, and would undouhtedlv 111crease their mdcpcn-
dencc if their sources were not under the lauer·s ·prott·ction; but 1111dcrthat
01".1reg-m1e nm itselr dependent on the US.
These oil factors - the revenue ma1·ket, cap11al, and control or the ·allies·
supplies - make direct political suzeramtY oYer the region hY the Un11crl
States essenuai. To shore up Its own political pos1L1onIII the (;1111'a11dthat of
its client regimes like the Saudis II was necessarv ror the US to demonstrate
11ssupremacy en-er Iraq, to repudiate all diplomallc cliscussions and 11q.~ou-
a11011s,to ban .--\rah or \-Vest European regimes from n:sui\'lng the cnsis
peacefulh-, and linallv to dictate to Baghdad: either rlimh dmrn h11111iliat111gly
hcforc ,·our 1m·11populal.lon and the Arab world or we will crush ~-ou. A
negotiated end to the Iraqi ocrupat1011 would han· s11ggcs1crl US weakness.
The li:aturl's or thc Iraqi state that threatened US dom111ancc were quite
diHi:rc11t from those stressed by liberals - the dina10rsh1p. the cult. the
repression, torture and killing or oppos1uonists, tlw ust' or chemical
weapons ag-amst the Kurds in 1-lalal~ja 111 198H. The t lu·eat lay pnmarily in
the fact that it was not a sociallr weak and subaltern dictatorship 11eclto the
\.Vest through the nature or its ruling class, as was the case with both the
Shah a11d the Saudis. and mdeed till' Ei-,rvpuans. The rcn11cr/compraclor
character or such dictatorships anrl the social g-ulr bct\\'et'll thl'm and their
160 1'01.ITICS IN TI-IE CI.OB,\l.lSATION PERIOD

lower nmtdlt: classes makes them casilv controllabll' i)\' the Wcsl. Ba'ath1s1
Iraq, wnh 11sli:rocmus disc1pliucs over the gm·crnmg elite nselr, was diffcr-
clll: 1L sought to base Its power on the capacit\' to mobilise political!\· ils
clomesuc populat1011 behmd 1ransformau,·c goais. 1111likcany o!iier rq,:1mt·
Ill the Fertile Crescent. ILwas not. thcn:fore. dependent on western poll'l'rs
to lllallltalll llS llltcrnal SCCUl"lt\'.
The rcgunc·s mo1Jilis111gcapac1ues were demonstrated after the 1m•as1011
of Kuwait. Saddam Hussein was not cspcoally popular as an Arab leader, but
Baghdad's post-occupation calls for social justice ag-amst the reactionary
sheikhdoms and pitnocrats or the Gulr evokect a powerfui 1·esponsc. A
Professor at the Amcncan U111vers1Ly111 \Vashmg-LOn DC who toured tilt'
Middle Easr. af"ter l11e 1m·as10n orKuwail reports that Iraq raised 'the class
quesuon, the "haves" and "have nots" .. on a pan-Arab level as it never has
been raised iwfore [Sacldam] managed ID tap illlo tremendous resent-
ment, and this has 1111mensc medium and long--term implications. The
nauonai (]lll"Sllon remams to the fore, hut tile connccl1on w1l11the ciass
quest1011 ha.'>been maclc ... [EJven the press linanccd and controlled lw Llw
oil states Ill the region and 111 Europe [covered] thc fabulous oil-wealth or
111cli\'1duais:taies of corruption, gambling and squanctcnng. The corre-
sponding 11nprcss10111s that even ir corrupuon clocs occur on some scale 111
Iraq, the surplus has largciy been plowed into the counu·y for !ls de\'elop-
ment.•'.!ti Not that the Ba';uhist regunc was scck111g to stimuiate popuiar
movements tu overthrow the sheikhdoms. But it was threatenmg to pull
these regimes wahm its reg1011al sphere orinlluence as a means of insuring
them against subversion from below; none or these ruling groups, includinl-{
the Saudis. can reel safe in their own societies wllhout an outside protector.
Saddam l·Iusse111could no doubt have livccl qmte happily with tile sheikhs
and even tile Saudis i,'1place, hut only on his terms - a potenl1al challenge
to the established role or the US. It therefore follows that a crushing US mil-
Harv vicwry m·er Iraq, wllh no concession to negouatmn, was mtcndcd to
clcrnonstratc u11equ1,·ocally to all groups 111 the reg1011who ultimatciy con-
trolled their dcsu1w and who did not.

US gl11ba!J,111111·r
111/en•sts
This docs not explain, however, why the US admimstration repudiated both
the offer to withdraw from Kuwait ten days before tlu: ground war started
and the suhsequclll Soviet peace plan, in favour of bombmg Iraqi lc.Jrces 111
the Kuwa1t1 theatre and a ground campaign - a response in no wav
demanded hy the mtcrcsts set out above. To understand US aims we musl.
then, apprcc.1;1tc a further factor fuelling the Bush aclm1n1stration 's desire
for a cruslung militan v1c101-y:the need for a 'demonstra11011 war' Let us
note lWo repeated themes or Pres1c1<:111 Bush: the New \Vorld Order and the
 THE (;UI .F W:\R .-\ND WESTERN LIBER,\l.lSi\l 161

Vietnam syndrome. Both s1g-nalled g-iobal motivations for the war . .-\nd as far
as the Vietnam srnclrome was concerned, the US had In demonstrate that 1t
11·as1w lunger j11s1a nuclear super-stale with l'eet of clay when It came to
figlllmg a com•e11L1onaiwar agamsl an enemy in the South. It had Lo show
the will ancl the 111ili1ar\"capauLY 11111111',l!,ro1111tluJ w,•/1n1111 /hi' mr 10 prevail
;1gamsl a suhstanual com·enuu1rnl force. But to acl11e,·e 1h1s the LIS needed
to effect by air the liqlllclallon or Iraqi forces in amt around Kuw;ut, in
order Lo make the ground war sale for a largely unbloodccl US arm)', rebuilt
smcc the Vietnam de back. The otHcome, a triumph for all wmg-s of US co11-
ve11uo11al forces, was to make A.menca's ma111 power asset, its military
capactty, once agam centrai LO world poliucs.
The features of' the Iraqi rcgnne describecl above also partly explain why
so much military effort ll'as directed towards thc destruction oJ' nvilian lil'e-
suppon systems. To 11nclt.:r.~tanci this stratCh';' fully it 1s necessary to rons1cler
the 111tencleclpoliucal consequences: namciy, to make the Iraqi reg-inw that
l'llll'rgecl from the war uuerh· dl'J)t'llclent upon the US wllhm11 the need for
miliwry occupauon. The success or lilts policv wa.~ .soon apparent.
Throughout Iraq people ha,·e been suffenng mainutnuon. s1arvauo11 and
\"anous epidemics, mclucling choiera. To deal wILh the most scnous and
m·genl damage to its mfrastrucLure the Iraqi go\'ernmcnt has needed eqwp-
menL it docs noL possess. It has been unabie to export ancl IL lacks funds lo
purchase even 11ccessary food impons. In short, the only sphere m which it
has not been severciy cnppled is that of imernal miliLarv secuntv. This
dependence on a largely Amc1·ican-co11Lrolleci external c11vironmcnt wouid
nol have occurred without lhe clestrucuon or the framework of' nvilian lire.
\.Vhat, then, have been the ol~Jecti\'es or this subordinauon lll Amencan
power?
One purpose was spell Olli 111 the allied peace terms: the clestrucuon or
Iraq\ capacll\' to strike al Israel. But a second has l)t:en to clcstrov the
cl\'nanusm of the Ba athist reg-mw and hence the dmm.·suc source of i1s
mclependcnce from the US, Lherelll' rendering it as lll'holclen to the US as
the ruling groups 111thl' Gu Ir stales. The strategy, 111 sum. 11asbeen to guar-
antee the regime's subservience lo the US and \'Cl s11n11haneously LO
maintain Iraq as a collerem politicai force 111 the reg-ion. This bnngs us Lo
wllal 1s sccmmg-"Iy the most mcoherenL aspect or US polic\': did it want,
dunng and al"Lerthe war, lo ovcrlhrow the Baghdad regime, or to support it?
i'duch conrus1on about US policy here derives from a failure Lo clisting-msh
the: Ba'athist rcg11ne from its leader. The Uush admmistrauon has had one
kcv policy ol~jc:cLivc:10 achil'n· Saddam's downfall. The !,ffinal lrnq1 and
Arab understanding or Dcsc:n Storm must be brought 11110 line with US
mteresls in order LO pre\'enl an,· possible future Nasscnsa11011 agamsl
.-\mc:ncan action posmg a sern111s ch,1lleng-e 10 the US Ill the .-\rab world.
The US clcsperatciv needs a leader 111Iraq ll'lio. while obv10uslv not
 I'( )1.1"1"1(:s IN Tl-I!•: Cl.( lBAI .IS.\"11<lN PERIOD

s11pp11n111g11Jc1rilrtH>ll. n>11Jrlfiedan· S;1clcl;1ml-l11sst•111··s polin· ;m Jlll_JllSIJ•

Jiahlt· 1111s1akc,and Dill' clircell\' rcsponsihk tiir 1hc allack. \\'i1lw111 1he
rcmo\'al and di.scredi11ng- orSaddam bl' lm111l'l1·11w11/sArab polillt'.S 111a,·,·ct
polansc around the stance taken on Desert Storm. In acldi11011,tht· surcess-
l"ul rnanag-ement of dome.sue public op1111on III the \Vest req111rcs tile
disappearancc orthe 'i\lons1er orBagl1clad'
reg-unc w11h us l11111dredsor1hm1samls ol' sup-
\'t-t 10 dcstrny tllc Ba ;11l11s1
porters 111the state apparatus and sall'llitc oq,ean1sa1io11s1s q111te a1101hcr
niaLll:r. That would ha,·c 111cam hacking tile 0111\·popular!\' routed altt•ni;11l\·c
poli11c1l force Ill the .-\rah pan oftlw counLr\': tilt: Sh1a oppos111rn1. grnupecl
w11hm the Supreme Council or the Islamic Revoh1Lion, and 11Je Iraqi
( :ommu111st Party. The LIS supports neither orthese: and since the re hellion
m the south or Iraq, wlll(:h stance! on the dav or the ceasefire, 1,-as lcd lw
Islamlt' currents, the US sanctioned its supprcssrnn bv Il"aq1 secunt,· J'orccs.
Thl' reason for this lies, as Brzczmski sircssecl. Ill the fact tha1 tile .-\nwrrcan
aclmm1str;1L11mpt·rct·1n·cl Islamic limclame111alism to he a morlal thrt'at 10
thc Saudi n:gimc and therefore Lo US dom1nanCL' w11h111 Saudi ,\ral)l;i. Tins 1s
not a specifically Shia threat: the clanger lies. rather, 111the fact that Ille Saurli
regime 1s hcid 111power by !ls claim to lead ancl guard Islam. This cla11n had
been seriouslv undermined before this Gulf cnsis br the Iranian example, one
whose Islamic credentials arc more authenuc than the c\'ldentlv I"lllll'Il Saudi
dvnastY. and which 1s cer1a111ivmore popuiar and poliucallv pluralist. The
Saudis acceptance or halt':1 million US troops 11llo their c011111n·lt,1s shucked
lhe lsla1rnc f'undamc111alis1 current 111Saudi .-\ral>1;1Lua clcg-rel' not rq~1s1ered
IJ\' \\'L'Sl<.Tnpublic op1111on. An Islamic regime 111Baghdad - and one wllh
de1110crauc iq~iumauon 111tile country, g1\'t'Il the m,1J<ir11ananstatus or the
Shi,1 comnnmity- was not an acceptable prospect for the Bush adm1111stratio11.
Precisely the same facto1:s had led the US Loshun the united Iraqi oppos1110n:
Kmclish support for a Sh1a-lccl government 111 Baghdad would haw hl'ell a dis-
astrous polit1cai 0111con1cto the war for A111ern..:,111 rcgional irncrcsts.
The postllon III Kurdistan has hecn more slra,~htforwarrl for Washmµ;to11
since the link hcl\\'ct:n the Kurdish and Sh1a ieaclers wa.~ hrokl'll. The
Kurdish nationalists Dll tlwrr own cannol Lal,c power Ill Baghdad. Bul the
stro11gcr thcli' rcprcscn1a11011 within a formallv unified Iraqi stale, 1hc more
clcpt·ndcnt the Baghdad reg-ime 1son whoc\'cr controls the Kunis. There has
been a loug political associauon between the llS and the Barzarn. 1ribalist
wmg or the Kurdish IllCJ\'l..'Illl'llt.The CIA was cnclL-ntly gi\'mg co\'crt support
Lo Lhl' Kurdish jJl's/11111,,g,,
forces at Llle end ur the ,,·ar.'.!; On the othl·r h;n1cl.
Saddam Husscm s ag-rccmc11L wnh till' Kurdish leaders. Tal;1ha111 a11rl
Bar1an1, 1s a nc~auvc den:lopment for Lile L'S. Ir the agrccmcut 1s li11aliscd,
it could strengthen the \'l:rv rnlc1· thcv wish to topple. The Kurdish leaders
have an mccntivc to makc a deal wnh Sadclam uulcss thev are absoluteiv
com·111ccd or a long--tcrm US guarantee or li1l'rr powcr pos111m1.The ques-
11011at the t1n1t· or wnung 1s whcthl'r tlw US 1s reach· 111make that commll-
mc11t.- IIH'rl'h,· pr11ch1nng a de l'ano spliu111g or lr;1q. with K11rdis1an
'prolcCIL'd' I>\·T11d;.c\· and Lhl'rl' 01,·11111ili1an- forn·s (\\'hik 111ai11ta111111g th~:
de _Jure llllll\' or Iraq, Ll'h,11wn-sl\-lL-), or whether till· B11sh admi111s1rauu11
will draw bad. in the facl' or such a dangerous. open-ended comm1t111t•n1.
Not. one llS poliucal ol~Jl"Cl.l\'ehears ,Ill\' pos1Ll\'e rcl;nmu to liberal critena
oljusucc or freedom. The ,11111 or cll·1110nstr.iu11g .-\11u·rn.:;111 dum111alll:L"Ill the
(.;uJfwou/d be d.1.,sed as whrilll' 111~111st bl' ng-hts-bawrl 1heon. Thl' same 1rnuld
apply LO th~· auu of' asseru11g US ll'orld ll',1<lcrshrp through a dc111011strat1<111
war. PnHcl'l111g bracl aga111s1.tile .-\rah states and .1ga111s1the Palesu111ans'
ciaims 11\'er ;11111<:xed a11clocrup1ecl ll'ITllones cannot hcp1stilicd. The rhctorn.:
ol' huma1111aria111sm towants the Kurds hears IH> relation to Amcncan ol~Jl'C·
u,·l"s III the 111,nh or Iraq; ;incl the lind1p111 111' thl'ir polillcal stratq..,ry m the
region - prol<:c1111gthe Saudi regnnl' -1s a goal that 11t·n'.ssarilv entails Ille s11p-
prcss10n of lil)l'ral and rlc111oc-r;1t1cright.,.
Thl'n: 1s Dill\' one co11cl11s1on 10 be clr,1w11from tl11s a11al\'s1s - a HT\' clis-
qu1e1mg 011c fur nghts-haseci liberalism. II 1s that the elll:re fr,1111t·work
wnhm which lilJl'ral discD11rsl' situates till' .-\mcncan ;111;1ck011 Iraq rlol's \'10-
lcncc LOrl'ali1y: 11subsulll('S .-\llllT1c111 lwhanour 1111clcrthe catcgurv or an
111s1r11me11 L- albeit one among other possible mstn11m·ms - or liberal justice
followmg the 111\·as1011of K11wa11h\· Iraq. Yet American s1a1c pDwcr has iiecn
a11cl is hcmg 11sl'ri LOsupport and Lo l11rtlwr m_jusllcc ,Ill!! contint11J11-{r1ppres-
sio11 111 lhl' l'l'gion. We .tl'l' thus obligl'd to adopt ,1 r;1clically clilll'n-111
lramework lor a11al\'s111g Lill· <.:ult' t:r1s1s 1'10111that 1,·11h 11hKl1 \\'l' hega11: a
framework li,r e\'aluatmg the 11~1us11n·s ol' the Iraqi rq:i;1111l'.,lrn1 also li,r
e\'aluaung those oJ' the far mon: powerhd Llmted States and its allies. Those
who prl'Sl'lll the US war drive as a force f'or liberal \'alues and a 1110\'l' toward
res1m·a11011 ofjustice 1111lw (.;ull' arc cumplicll 111 1he 1·ar11ag-c amt ril'slruc-
llon 11Tot1glu hY Desert Storm w bu11rcss a rcg1011;d 1·eg1111cof oppn'.ss1<111
and eco11om11: exploi1at1011.

II Understanding Modern Ir:1q

\Ves1cr11 lihcr,·t1 public op1111on has souµ;l11 10 u11dcrs1a11d the 111oder11 Iraqi
state Lhrnuµ;h Olll' unerprl'tauon aho\'l' all others: that nlS,11111ral-Khalil in his
book '1111·H,tmhlir o/F('(/r ( 1989) and in a number or recent arudes.~H Althongh
Khalil's l)l)nk has l>t'L'n IISL'ri 10 ieg111111.111~e rhe \\·ar ;1g;1111s1Iraq. 11 \\';1sor
course 11IIL'lldeclIi ,r no such purposl'. hl'll 1g ;1senr 111s;111cli111purtan1 n:llccuon
on issues l\'l'll lievond till' fatl'or lr;1q: 11 1s 1hc work ol a hui11a11e ex-i\·larx1st
s1ckc11ed b~-lus expene11ccs ol' the Ba'ath anrl seeking ;1 lx:ller hnurl' liir lus
people. Articles 11Tlllen 111respollSL' to recent e\'e111s show Khalil to lla\'e been
shocked h\' thl' slaughtn perpetr,Hcd lw l 1S-lcd li.,rcc,. NL'.\'crthell'ss. Khalil's
 l'OI.ITICS IN Tl I I~ t;l.OIHI.IS:\TION PERIOD

stuclv 1sdeeply rooted in the tradition of classical Anglo-American liberalism.

Khalil organises his history of"modern !rag around two soc1opolitica·1 par-
adigms: one 1s the monarchist re~1111eof British umcs. and Lile other 1s
'tutalitanan' B;i"atJ11sm.clcscrihccl essentially as 'Stalirnsl Dl1 account of" its
poliL1cal str11ct11rcs.This mocicl 1s comhmccl wnh another: that ol 1rac!it11>n-
ali.m1versus muclcnu~auon anc\ nrncler1111y. V11ithm Lh1s cuncep1.11aifra111e,1•ork
Ju: construcL~ his patlws-lilh:d equauons on modern Iraq: a 11iodcr111s111g-
monarc11,· conmmtecl Lo u·a!1slurm111ga tracliuonalist society, IJLttinelfrcuve
because opposed lO state-forced change; and, subseqw.:ntlr. g-reat soo,11 u·ans-
formation by the Ba at111stn.:gum.: at the cost ol"bnual totalitana111s111.
In the followmg analvs1s of modern Iraq - 111 pan a cnuque ol' Khalil's
study, of its poliucal and ethical prcsuppos1uons and vaiue:111dgc111ents- I
use a broadly chronoiog1cal frame. The first secuon considers Lhc pcnocl or
monarch1cai rule: from the Bntish-11nposecl regime of Faisai I to the revo-
luuon of 1958. The second sccuon follows the post-revoiut1011ary narrative
from the first ciecacle ormilitarv rule, through Lhe eadv sLatc-buikling and
reformist pc nod or Ba ·athist rule m tile seventies, to the regime or Saclclam
Hussein, turnmg finally to an appraisal orthe disastrous war w1tl1 han and
the annexaLmn of Kuwait.

Th,•Mo11flrd1_)'
a11d !111pmwlD1•J1g11

Khalil present.~ a very h1vourabie evaluation of the Hashc1111te monarch\'

imposed on Ira(] br the Bnush at the start or the 19'.!0s. Faisal, he sa\"S,was
'prepared to do \'irtually anythmg m the effort to encourage ... [tlH.:Iraqis]
to change rhemseives and then society, except to use force· There 1s, how-
ever, a slippage here: 11,imcly,the implication that the monarci1y adhered to
the liberal pn11c1ple of rcstrictmg u,e use of force to the prntect1011 or indi-
v1clual, or at least tradiuonal, nghts, though su·1cLiyspcal,ing Khalil oniy
ciaims an absence of forced motf,,n11J111w11. Commitment to h1stoncaJ accu-
racy should have prompted h1111to acid that in fact excessive force was used
against the people.'.!<Jlrntially, to impose the rcg11ne on the people of
l'vlesopotam1a the Bnush inllicted 98,000 casualties,: 111gassing and bomh1ng
the iocai resistance mlD subonlinauon. Although he bore no direct respon-
sibility, fa,sal willingi\' acccptecl tl1e leadership or a state consln1L\cd in tl11s
way. !'\'lost historians agree that Faisal's rcg11ne, 1mponccl from J\lccca. h;icl
no significant consulllcncv or popular support, a net that, consegm:n th·.
throughout the 19'.!(h ancl 19:>0s,the monarchy was i:ngagccl with the Bnush
111lightrng one revolt after another.
Let us take ,L~ our source not some leftist anti-imperialist but the consen·a-
u,·e, anu-na11011alist Elie Kedoune. He wr11esthat 'The Nont1 as a whok had
10 be coerced h\' the Roval Air Force· mto subm1ss1on,: 11 a more or less
 THE (;Uf.F \1':\R .-\ND WESTERN 1.11\ERAI.IS~l

u11H111t1011s task: 'Bomlm1g- .. until the n:rv en_· orindependence alone .\uh-
cluecl tlwm [ till' Kunis]. •:I:! l II l ~J:11Lhe Kurdish leader Sheikh Mahmud
s1aned another rebl'llion. The Bnush decided that the Iraqi anm· itsdfshould
Lackie LJ11s so 1ha1111111g-ht he 'blooded' before indepenclencc. l·IDll'C\"er,their
aclJ<>IIwas tms11ccessh1l, SD1he RAF had Lo inten·cne_::::Tl11s pattern Dfn·,ult
and hombm~ was reprodure<I in the Slua South - r>ne rehelli<>n af'tcr ,mother
h;1n11g It> hL· p111clmrn d11nn14 thl' E)::!Os ;incl E1:m~.:11 For h1~ pan, J,;.l1,1lil
t·xtcnd~ l11ssup pun for Lill' rq~11m: pasL Faisal's ckath. throug-11 Lill' I ~)'.10~.u1d
bl'nlll<I. Kcdounl' records tile crmhmg- of protests a14a111stmilitan· conscnp-
1io11 as !;lie a~ 19:16: 'the killing, it seems, was 1mliscrn11111ate, and the oid
men, wrnnen and chiklren Wl.'.rethe vJCtims or machi11!.'.--gunn111~ and bombmg
from the au-·· and a rl.'.volt III l~J:',7 over agrnnan issues aud cu11scnp11on was
· put down w11l1 tile help or indisrrnrnnall.'. aenal hDmbmg· :1;, The rq,\'1me
responded 10 1h1s msurgcnn.· ll\' ti1rcihtr expelling- .Sl11arl'lig-io11s leacil.'.rs on
th!.'. grounds th,ll they were Pcrs1an.:1ti Th<: monan.:hv also introcluccd the
public hanging orpolillcal oppo11ents, the lirst chosen ll\' Nun es-.Sa1d hemg
th!.'.leader ol' Lill' long-estahlisllcd and popuiarly based CDmmurnst Pany. I·k
and others Wl'rc strung up 111a Baghdad square !'or allegedly conu11111ngpoliL-
1cal acll\'ll\' 1\'11ilt·sc:rvmg a Lhrl'l'-vear _jail sl.'.ntencL'. Kl.'.clot1nl' snmmarilv
charac1cr1.~c~ 1iw monardw as despotic. 11srecord '('till Df hlooctslwd, 1re;1sDn
and rapine . 'howL·\·cr pniful ILS end'. he remarks, ·we may know 111atll was
1mpliciL m 11sbq{llllllll!-{ :i, ,\ co11clus1on that renders Khalil's da1111!i1r the
,·irtues of' monarchKai rule SOllll'WhaLhollow, to sa,· the least.
Khalil dcn.:lops his a11alys1slw co11111e1·pos111g Iill' 11011011
or a modcr111s111g
Bnush-l·laslw1111te slate wnh tll,ll or a verv tracliuonal sonet\' - a world of
ancll'lll i\-lesDpt>L.11111.111 mslllullDns commanding deep popuiar auadunl'lll.
Now 1t is ccna111lr tht: case that the Bnush bmuglll modern ted111olog1cal cul-
lltrl.'. IO Iraq :111dthat the 1-lasllcmite regnne - to tile IITl!alloll ol tllc Bnusll -
spread some modern, pan-Arabic nationalist 1dcas, parucuiarly through the
efforts orpl.'.ople like I-Iusn in education. llut 10 make sens!.'. of the respectivl.'.
roks orthe Bnush and orthe Iraqi monarchy the,· controlled, 1t 1s necl.'.ssarr
to go beyond the s11nplil\'ing comraposiuon empion·ci bv Khalil ancl tn exam-
ine each 1.'.11.'.mi:nl 111 some dciail.
The thesis 1ha1 111e81·iush rcprcsentl.'.cl a clvna1111cmodcr111s1ng fi,rcc lit.\ a
ge11e1~1I dd-ence of 1hc progrcss1\"e aspect orBnush imperialism - an ;1q.,,ument
used, perhaps ng-lILJ\·.witll regard to, sav, India. Kl.'.cloune, tiir example, grl.'.atly
admirl.'.d Bnt1sh 1111pen;1Iadmm1strat1011. Khalil. fi>r IHs pan, extemis such
arlm1rauon 10 Bnush polin· 111 Iraq. wnung-: The Bnush mandate ancl Lhl' 1nsLi-
t11t11rns11 g;1,·c nsl' 10 111 lr;1q. werl' lhl' age111sof a 111oclern1sat10111ha1 did 110[
;mse g1~1duall\' •,r 111dige11ous11· as the olllcomc ot ;i p• 1p111a11111i
·s o\\'11re~uurcc-
fulncss and e11gagl.'.111entwith till' world. Tlw Bnush 111Iraq were ntocll'nmers
more than coio111sers, despite actmg out of sell~i11terest. ·:I:- Kedounc ~ JUclg-e-
mclll or the Bnush roie 111ivlesopotanua 1s different: ·When we cons1dl.'.r the
l(i6 1'01.JTICS IN THE CI.Ol\.-\1.lS,\TION l'EIW ll I

long cxpl'nl'nn· ol' Brnam in Lhc gon-n1111e111orEas1en1 co11111ncs,and Sl'I

hes1cle it the 1111serable polit.\' wl11d1 she hcs1owcci 011 the pop11la11011sol'
]'vlcsopo1am1a, \It' arc seized with nieli.tl wonder. It 1s as though India and
Empt had nc,·cr existed, as though Loni Cornwallis, l\·ltmro and l\k1calf",.Joh11
and Hc11n· L111·n·nce. ivlilner anci Cnmwr had a1Lc111ptcd111 \"ain 10 linng
onlcr,_1usun· and scn11'Jlyto the FasL. as though Burk1.·and :\lacaulav. Bcmh;1111
and _lames i\lill liac! nc.:n:r acicln.·ssL·cltheir mlelligl'lll'l' to the pr\lhll'IIIS ;11HI
prospects ororn:111aigun:r11me111. \\'c cu1 ne\'er et·asl' to man-cl how. 111tht·
1.:llCI. all this was discarded ... [in] Mesopotamia. •:l!I As li1r Khalil's ,·ic.:wthal till'
Bnush-formed elites were.: agents or 111oder111salio11, this 1s not shared iH' thl'
British themsc.:ln-s after the Second World War. A repon from Chancert· 111
Ba!-{hdarl to the Eastern Dc.:panmL·nt or the.: Fon:1g11 Ollin· 1>11)(i Juh· I ~1-11)
declares: · [l\') ith tile olcl gang 111prn\"er l111scountn· c111110thupt: to pnigrcs'.'>
,·en· far.'·lll Ir h\· · mucic.:rrnsauon Khalil means eco1101111C dnc.:lop1m:111.the h;1l-
ance-shect outside the oil industr~·, or course. was not 1111pn:ssi\'c.:. I 11 lw far tlil'
most imponam sector, agriculture, the.:Bnush achtl'.1·eclthe remarkable Jc;11 or
regn:ss1011: Iraq s product11·1ty cleclinecl from '.!7[) kg per acre 11119'.!0 to an
a,·erage or '.!,18kg per acre between I ~J:'j'.) and 19:JH." 11

To turn 1H1wfrom the activities o( the political rcg111H:to dianges 111 son-
ct\' 1111dertl1c mo11arcl11', Khalil cll·scribcs a thornughll' tradittonal world or
men. anctl'llt 111s11111t11>ns - like \·kn\' England bcr11rc the totalitarian
Tudors set to work. But this is a flagrant misrc.:prcsentauon, at least w1111
regard to the ma111mstitutions conccrnecl with th<: reprod11ctH111of dailv life
and the mamtenance or sue1al orcli::r. For these were brand new 111ccha-
n1sms - modern structures built m1 the ruins orOttrnnan soc1i::tv.
Economic and soual change under Ottoman rule.: had ht·en graduall\' ernrl-
mg tribal str11ct11res. Bnush polin 1in-1>ln:cla coi1.~r11,11s dfort to rl'\'l'r.,l' thi-,
trend. In the worcls ori.he .Act1111111str;1111111 Ri::pon of 1he Re\·enue Board 111
Baghdad for the pcnocl 22 l\·larch 10 :~ I December 191H: 'St·t1led agriculLlll"L'
and extended c11·ilisation have tended to disintegrate the 1rihe and to weal~c11
the inlluence orthe.:Sheikhs. To restore and cm11i1111cilll' power or the tribal
Sheikhs is not lhl' least mterc.:sung or the problems 1n la11cladm111istrauo11
\\'h1ch the Bagl1el.1dwibl'et presents.· The solmion chosen I)\"the lkit1sh was 111
creale an almost t·11t1rd1·new s1>naJs1n1n11n· bv dis1rilm1111ghngl' estates - thl'
ll1ggest III the 1-,(icidlcEast - to trib,il heads who clem1>11strall'd their poli11c1I
iovaltv to London. Thus, at a stroke. a 11ewruling ciass or gowrnllll'lll slwikhs
was established. In the words of M;qor Pulle)', reporting to 1he ci\·il cmnmis-
smner m Bag-hdacl on (i Aug-usl 19~0: 'i\-lanv or them \\'t•n· small men or 11t,
account until \\'l' 111;1dcthem powerful and nch.' The Cil'il C:omm1ss10m·r or
that 111nc, \Vilson. wrote.: later: 'The Shaikhs wen· 111mosl cast·s clin·nh· dept·11-
cll'nL on the c11·i'I,Hlrnmtstrallon for till' positions tht·1· hcl1L l'l'alisi11g that thc1r
pos1t1ons emailed corn:spm1ding 01Jli1.:auo11s,the\· co-operated acLin:11'w11h
the poliucal of!tn·rs.'· 1:! So much. then, li>r Khalil's image or an orga11K
 Tl IF (;l:I.F \\'.-\R A:'\'ll \\TSTFR:'\' 1.IIIER.-\I.IS:'\I l(i7

rdau01i.~hip he1wee11 11w sheikhs and ordi11a1T members or

lllt'1r I rihe or peas-
ants: 1.lwir real organic relat11111slup was w11h thl· British.
( )11 the basis of' 1h1s lll'W ia11dm,·11111g- class. the lkllish sought 10 reimpose
and s1n:11gthe11 tribal icll'111iucs and cli\'ls1011sat l'\'e1T le\'cl. Thev set up a new
iegal s,·stem, coclilicrl 1111l1c Trihai ( :rnwnal and C:i,·il Disp11tes Rl·g-ulatfon,
\\'luch re111a111ed111place u111il the n·,·oh1uo11111' l~l:,H. Also, r;nlu:r tha11 allow
1h:11hugbe:ir of' i11clinrl11,dis1liberalism. I Ill· st;\ll', 1,i possess l;Lx-lc,nng powers
and the rcsponsibilil\· I( ,r ad1111111s1rauona11d police. thl:sc Wl'rl· transrl:rred -
pnvaused - 11110the hands or the rww ruling class. Ami to cap II all, mecl1a-
111s111swere cs1ablished under which rile rural massl:s were tied 111
semr-serldom to the L'S!;11es.• 1:1 To repeal: all 1h1s was a new, modern 1mpcnal
111\'l·ntH,11.And. as lt11.1111shnws. as rhe mrn1,uri1,· ck-ca\'L·d 111rhe post\\'ar
\'ears, ll ~u·m·e to st1·l·11gh1en and l'urrher e1ure11d1 rrihal di,·1s1011s.·1·1
Tlrus we have a co111plt'x picture: tilt· nl'al1<111 or 111w li1u11clauo11al i11su1u-
11011sof' landownersl11p 111order lO n111111•(l\·i 11g-1.raditi on al a, 11horit\' relations,
n:s11!11ng 111ec011111111call\' and son all\' rq~ress1n· ronscq11c11ces. undertaken
for 1horo11ghh· 111odl'r111mpcnalis1 politicd purposes - 11:imel\', ro lTl'all' a
ruling- class dept:1Hl('11l 11po11Bnush rnilitan power ,lllci thcrdi,rc comm1ucd
to JJllf)l'J'lai in1ercsts 111lllt· rq~um.· 1=• This IISl' or
impcnai power to efkct
1.:x1e11~1n· social l'll!-{lllel·rn1g for 11arrm1· su-arq_~'ICl'llds 1s hen111d rhe compn·-
h1:11s1011ol' a libi:ul poliucal 1lwor\' like dial ol Khalil. hli11d .is 11 1s to till'
lllll'1Tebtc:cl11ess ol st;ne and class llllcrcsts, a11cl COIIWlll as II IS LO rt'dllCl'
complt:x h1storical process to a stn1gg-lc he1wee11 '1radition; and ·t1w modern .

/'(lr/ialllt'l//(lrl\'111 n111/ ( .'llt'ff/1111

Khalil st:cs onl\' ,·1rtu<.: 111rhl· Briuslr-1111posecl parliamc111an- s,·stcm 111Iraq.

( :011seque11th·, for h1111!Is aholi11011 in I ~l:1Kw;1sa lamentahk clc,·t:lopmt:nt. hi
Aga1ns1 rlw charge th;11 parliallll'lll was 111d'li:c111,d,he rll'darl's that. rn1 the
ct>ntrar\'. 'the Iraqi parliamc111 licli,re l~l-11 \\'as as10111sh111gh·\'ihrant as a
n!l'd1a111sm for drawi11g out i11clind11als from l11e1r comm1111111L·s;.· 11 l·k dm:s
not. howe\'er. spell ou1 what this vibrant nll'ch:u1ism \\'as. Nl'n·nhelcss. a
Bn11sh uHicial rqmrtt·rl ro l .rn1rlon 111I \J'.28011 1·xac1I\' lw,1· thl' .,\'Sll'lll worked:
the gu,l·r11111e11t"spnl\·11H·1al goHT11ors acl<·d as dectio11 ;1ge111Swith the task
or (!raw111g up lis1s 111'
1hose wllo had to he t·kt'Lt:d UJI{{ or
thnse who could do
the ciecung.' 1:-;The Report 011 11w Adm1111s1ra11011or Iraq for 1~1~8aclrrnLtcd
1ha1 elections a11d rcprL'sl·nrau,·e g-nven1ml·111 were a 11wckcry. Kcrlourie thus
ofli:rs Lilt' li,llowmg simple ,1udgeml·111 011 1lw ,·ihr;ml mccl1a111sm: · [ E]Ice11011s
10 thl' chamber ol' 11t.:p11lle.~ and appoml11H·111s to the st·11,i1t·,n-re an :1cldi-
1.u,11alwt·apon in lilt' hands of ti1t· ~111·ern111c111whcrcwrth rht· hl'ttl'r 10 control
thl· cu1111trv.'·1'·1
For Khalil. 1hc11. 1lw Kingdom of Iraq was parliamt•111ansn1111 politics pius
168 l'OI.ITICS IN Tl-IE CLOIHI.IS.-\TION PERIOD

Lracli11011alG1·1111•11ndw/i111 Lhc \'illage - Ill short, a world free oJ" Lhe rootless-

ness anct v10ience or moclern mass soc1ct,•. Herc 1s his 1dvll: ·111King- Faisal's
tune a peasant llacl his tribe. his reli~1011, lus sect, \us \·illa~e. and Im ;ill<'-
g1ance Lo Lhc sheik whose lands he Liilcd. His en ure worid was constn1cted
from these clements. ''' 11There is no mc11L1011 here or oppression, or the fan
that the peasants or the ~real estates were redun:d to liule more 1h,111 ch.n-
tels; the monopoly of coerc1n: force n.:s1cles a pnon w111l the state. Ancl
aithough Lhe landowners controlled stalt: aclmm1strat1011, the sui~1ecuo11 of
their peasants occurn:cl in the private sphere of cwil socit:ty and is thereforl'
of no cLhical s1g-nilica11ce 10 a liberal champion or individual fn.:cdom.
It is 1nstrucl1vc to cuuntcrpuse to Khalil's idyll the 111s1giu or a Bnush
military man. an RAF pilot who was husv r:011u·ih111mg Ill 1)1~ t>Wll wav 10 wha1
Khalil calls the.: pcasant"s enmc.: world'. In current pariancc tlus pilot 'had
,I_Job to do' 011 those pcasan t villages. Nt.:vcrtheless, he undi:rstoocl a g-oocl
cleal more abot1t tile life 1>1' orc\in-.iry lrarps tmdcr the monarc:hv Lhan Khalil.
He wn tes of Jraq m the 19'.'!0s:

Gm·en1me11t 1s not, as wuh 11s,,1 machme which ~rmds 0111 \a1~s ... It c111crs 11llo
the house here. It kn1Ms thal 1·011 h;l\'e lliur sons and 1ha1 one or them 1s a posl
ofl1ce oflic1al in l\·Iosul. It knows that you haw Turkish leanings. ancl that. a.~a nat-
ural consequence or sud1, you arc 1101to he 1r11s1cci.II knm,·s that 1·011 were friencb
with 1-larmc\ Khu\ufbeforc l11sexile. that 1·011 arc therefore prnbabh· scncling mfor-
mauon 10 Persia, ancl l11at II must on that accmml consider 111a fresh li!,\"lll what \'Oll
c\o wrth your d:11111 for watcr-ng-lus ag-ainst Muhamccl Dcrw1sh ... It 1s I his g-rossh·
personal clc1111:11tm the all-pervading aruv,ucs or government wiuch evokes from
the um:clucatccl pcopic th.II quality which we arc too apt to disnuss as 111s111ce1-rt1·.
but winch is, 111reality, nothing but the 111e1·itablc co111prom1se of arn· s1111plcman
chased by the bogey ofinsccurny. For an Eng-lishm;m with a dear co11sc1l·11cc1here
arc few occ;1.~1unswhen, 111focmg an acq11a111t,mn\ he rs temptt:d lo express \'ICll's
at vanancc wllll 111strue ones. Bm the lrarii before an oflic1al, ur e1·cn another of
Ins own kind. 1s in clo11b1.I-le 11111st prnpllratc, ancl speak fall' words. His pos,11011 1s
unslal))c. Thl'rc 1s no permanence. He knm,·s that the fact .is to whether 1hc ofli-
cial has a gouci or bad op1111011of lnrn will alkct his pnl'atc lirL' vrtalh·. l·k feds the
gruuucl sl1irti11g-bcnc;Hh his kcL It 1s the same wnh the officiai llunsdl' when
addressing his .~upcnor. I-le too kl'b the ground quaking benl'alh lum. feels hrs
conlidence welling out. I-le mar he sach·cl hcc:atrsc ius cncnm·s hare spoken ill of
him. There will lie 110 rcclrcss for 111m.no rehahili1au1111. unless he has 1111l11c11n· 111
high placcs.'ol

Herc, then, was a set-up that lackl'.d the tcchntcal soplusucauon or till'. latn
Ba'a th isl poliucal-policc appa1~11uscs, lmt which llacl snmi:t11ing- far more cost.-
dTccuvc: a .1·or·1nldictaLorsh1p over thi: mass or Iraqis ll\' a lamlowning class LhaL
directlr conu\>lkd Lhc1r entiri: means of survival, in addiwm to the govcr11-
ment machinery and local administratron. This powl'r was 'all-pervasive·.
i:vcn cntt·ring- their dwellings. And it was a world unregulatl.'d l>Vlaw: when·
 TIIE GLII.F \\':\RAND \\'ESTFiiN I.rnEit\l.lS111 169

those bl'lo\\' hitd 110 n:coursc to lcg·al rull· 10 challenge abuse.s ofpowl'r, even
1111mn-poli11cal spheres. But the riualilv or c:vcr)'(br social relationships,
111cludini,: that bc:lw1.:c:nrulers and ruled. is nowhere cons1clered b)' Khalil.
What 111,lltc:rsto him ts that dl(' 111on,11TIH'dispiaw:ri lolh' liberal ,·alues hr
rerusmg to 1mern:ne on the peasants; bc:halrbv al)olishmg the great estaLes.
Tins 1wrspc:ctivc: blinds hun to lhc burn mg sense or in.1ustice that rucllccl the
n:roit ag-;1111sl 1ile landlords aud 111emonan:hr Ill 1!11.: I 9:1S n.·,uh1t111n.

A1II-Hn}()/11t1011fllJ' L1j,h,•ml(/I

Khalil 1s not a n:;H:L1011a1yYet there 1s no escap111g his view that the re\'olu-
tto11 or l 958 wa., a disaster, or his 1clemilicat1011 or lhe source or that disasll'r:
the ell UT of lhe mass or Iraqis on IIJ the poli11cal stage, lmrs1111g-through the
111tegument of r111ing-cl.1ss power - or, Ill Khalil's gloss, '1he eruption or the
rn1clillen:ntia1l'd .,tructureil•ss m;1ss int1> poliucs' '•~ He clecl;1n:s that 'The
parlia111entarY form or go\'ernme11L was the 0111\' 111st1U1llo11almecha111s111
tllal might ha\'e prov1clecl a cotmt~·n·ailing measure lO the emergence of the
masses as ;i l«,n:e. •:,:i Thus Khalil betrars what other liberal 11·n1ers like
Kornhauser, usmg mass-society theory but seeking tu rema111 wnhin a liberal-
d,·morml,r frame orreference, prerer to obscure: name I\', a strong hias agams1
popular clemocracr ancl a clesirc for rnsutullons that will block, rragme11L
,mcl control popuiar poli11cal invoi\'ement.'' 1Whe11 Khalil speaks or the mass
llelllg 'structureless he should name tlu: real co11trolling structures over the
m.iss of people (;is oppusni to the parliament 111 which the people were not
1111·olw:cl);1lw lllSUltllions ol' lancllordism, shcikhl\· control uf cn·il ad1111111s-
tratmn. tribalist legal coe1-cion and so forth. Furthermore, lie should register
the absence 1>fany Slructures for 1nn,lving the pc:ople in Cl\'il life, far less for
channl'lling their energ1~·:.. 111tile public sphere - no 1nctus1H• ioc::11govern•
ment msutut1011s, 110 legal industnai-relauons organisations. no welfare-stale
or erl11c1tional i;1Cilit1cs. no CI\'ic. cullllr,d or le1s11re c.:entn:s. The 1111IY iarge
111hcnted ci\'lc 111sl1Lut1<111 wucl1111g the wlwle population was tile arniy.
v\'h;1t tl1e old regime""" hegucathecl w;1sa conl"usmg sci or poliucal irlen-
tllies. Emerg111g rrom an artilinal (Bnush) conslrucuon, ll followed that
post-revolution;1n· Iraq was a gl'opolillral concept 10 wl\l<:h people lelt no
at1ach111ent or lo\'alty. Khalil registers tlus fact 1ml fails to grasp lls s1g11ifi-
ca11ce: 'Iraqi natmnalism unclerstooci as ,1 sense or iclcntttY wnh a tl·1-ritona1
cn1.11\·known as Iraq do('s 11nt cxlsl. '"" This touches upon a ccmrai probll·m
for liberal politicai theory: a deep Iv cmlJeclclecl nuuon thaL the liherai slate,
;md thus anv sound slate. 1s held together by bw rather tfom bv deep poli11-
ra/ ide11lilicauo11 w1lh the nauonal stale as well as slr11cturcs ufsoc1.1l po\\'cr.
The onlv positive 1clenlilicauons that the Bntish and the monarchv mfused
111to <:\'l:rvda\' life were io\'alucs 10 clan, trihL' or sen. The ahcrnauves to this
170 l'l>l.lTICS I?\ Tl-IE i :I.OI\ \I.IS,\TIDi\: l'ERIOI l

hcq11cs1 \\'l'l"l-' loralues 10 rht· .\rah 11a1ion - liisren:d h\' rht· 111tellige111s1:1.
a11cl
laH:r poli11ralh· exprl'ssed IH· the Ba ath Pan,· - and cornmlln1e111 10 ro111-
111un1sm. f1>stcrcd br thl' Iracp Commu11ist Pan,· (IC:P). Stall's rh:11 lack
popubr ioYah\' find ll l'XllTm<.:I\' dilfirull !D 111stit111e w11l1111
1J1emsl'ln·s poli1-
icai rlins10n a11c\ oppus1111111.\Vitho111 ID\'allr ro lhl' whnk, such clinsHHi
1hrea1e11s lt) destroy the whole. a problem grearJ,· exacerbated when t·x1s111ig
loraltics along tribal, ctlrnic. religious ancl class lines arc as nwnacl and com-
plex as rlwr were 111Jr;1q. The problem was 11t11rhat the 111assl'S \\'ere
uncliffcren11ated ancl ;1111orplwns in !heir lovalt1t·s. hu1 qu11c the rc\'l'l"St'.
\·\'hile Lit<.'old ruling classes were cnpph:ci hr the re,·011111011,sut.-ccccli11g
militan· rq.{1mcs between 1Wi8 ancl l~Hi8 prn\'cd 111rnpahie or c;11T,·111g
through the pro).\'ra111mc of posiu,·e sonal tra11sl'ormauo11 dl'mandt·d, 111all
sides 111 the popular mo,·eme1ll: na111ely, thoni11gh~m11g land rcl'11rm.
nauonalisawm or the 1>il mdustrv, and planned eu111om1c de,·elopnll'nt,
\\'ltll llll' ;11111 or imprn\'llll,!; \Ill' lot or till' m;1ss or pcopk ;incl promo11ng
sou al j11st1tT a1id egal i 1ana11ism.

U1•1-;w1wf
L'1J1rjlirl.1

The h111d,1111eu1alrihs 111the stare ha,·e Ileen those 111v11ln11g thl' K11rclist1
North and the Sh1a South. Neither problem or
poliuc.11 mtegratlllll w:1s scn-
ousiy aclcirl'ssed by gm·ci·nmcnt.~ m tills pl'nod. The Kurdish question lll\'olved
a combmarion of ethnic, souai and tribal conflicts. The Kurds, compnsmg '.:!,~
per cent of Iraq's populauon, were splir between urban tT11Lres ,UHi ,·illag-es
spread through mou111amous rountr\'. n-rv much under lhl' co111rol ol land-
lord tdbal duels. From this latter secror came the kadcrslup or I he Kurdish
nauonalisl 111oveme1n', headed by i\·lulla i\·lustafa Barzani. a po1\·t-rful
Janrlow11er. This leaclersh1p, rhreatened hv Qasscm ·s land reform at llll' start
or the 1960s, and demanding nauo11;1J antononw !'or 1he Kurds - which
Qassem refusl'd - launchecl ,111uprising. Th1..·reg1111e,supported lw tllL' l1~up
C:0111rnu111st lo ,Tush the upnsmg- miliuril\'. hut the war cu111111-
l'anv, soltf,!;111
m·cl througlwut the l~J60s. wnh B~u-1.a111 ganung 1m11enal suppurr and 1r;1111111g
from the Shah or Iran and Israel.'''; The other, mort: moclen1. nauonalist
1110\'l'menr. hascd in the urban centres of' Iraqi Kurdistau an1ong thl' m1cldle
classes and intelligcm:;1;1, and under the k;1dl'rsh1p olTalab.1111.at first ref11sl'd
10 support lite Barz,1111n:n1lt. But c1·e11lllalll' II did so, \\'hik opening links wllii
the Ba'ath !'arty in till' hope 11fa better deal from Baghdad should 1h,· l;111cr
ovc:rthrow Qasscm.''' (The Ba',1th1sts did gain power fur a f't-w nw111lts in
1963, but the lightmg dra~gcd on until they returned to power 11119bH.)
The prohlcn1s or the nu~il communities ofsoutheni !rag at the llllK' or the
l 9fJH revolutum wen: pnnnpalh· rlwse of sonal oppn:ssio11. pm·t..-1,· and
backwardnl'ss. But 111aclditmn 1hcr li.·lt excluded from 11at11mal public lili.·
 Tl IE Cl 'l.F \\',\I{ .-\NI l \\TSTERN 1.11\ER.\I.IS;\I 171

through the clo1111na11n· of the S1111111s from the Ba~iiclad reg-1011. 111 1~6H
buth the. Ba'atll- Party ;lJlci the 111ucl1 strongl'r Co1111111m1stParty Wl're pre-
do11u11;m11\· Shra Ill u1111pnsll1111L a111l rhc latter 111 part1nilar u1mma11dcd
enornwus support ;1111011gtlw Sh1a pop11bt11>11. But tlw split between tlw ICP
and I hl' Ba ;1th nvl'r the 1ssl1L'oL\rah 11at1011a!1111it\'11n-oin:d ICP support for
rhc a1111-:\/asscrite Qassl'lll rcg11nc; 1\'liilc, (i,r 1t., pan. the nauo11ali,1 Ba'ath
soug!JL tile o\'erthrow or tha1 1-eg1111L' ;1I1d parunpated 111 blood~, repn:ss1m1
aga111s1 JCP ancmp1.,; to (1L'li:11d it a14a1nst thl' l~Hi'.l cnup. When the Ba°.1Lh
revrn·d. 11 had lost IIHKII of its Slua h.isc. !\kanll'hilc 1hc ( :111nm1m1,;t PanJ· -
on-rll'helmmgh· the m,11or poli11ral pa1w 111Iraq ;tl'tt-r till' I tl:18 ren>lutnm -
split. with till' mon· r;1dical 11·111g alll'llllJllllg a Che ( ;11n,1ra-st\'lc glll:rrilla war
aga111sl the mi Iitan· gon:r1111H:rH.~of Ba~hdad. n:rllred 111the nH-r ,·.illel's and
marshes of' t.hc Sh1a South.,-,:-; This atlt'mpl at 111st11TLTU011 was crushl'cl, and
Lill' ICl'"s stn·ngLh :tllHH1g-st tile Sl11;1was weakened .
.\ka11whik. one scC11tlll 111' lhc Sl11a dl'nc;d ll'adt-rsl11p. alarmed Ill posr-
19:lS seculans111 - 111parunilar. Lile strength or
at lll'ISUc ro111mu111s111am( Lile
dc.·t:li11111ghold or Islam a111Dngst Sh1:1s - sought to rL'\'l'J'SC lhl' udc I)\' b1111ch-
111ga 111m·c11w1lluflhc11cr;11K rcaL'1101111111lc late l!HiOs, ·al-Dawah (ls(amll'
Call). a clandesum· part\' a1dcd, al'ler the Ba··a1h came to power 111I ~l()l-•;,b~-
the Shal1 of' Iran, ;n1d one11tcd tow;1nls terror iactu·,_'>!'
Lacking· :t s1n111g. l'St.thlishcd ho111gctus1c.· tha1 n,ulrl control ;111d stl'c.-r
popular asp1rauuns, Iraq's ruling class possessed 011h· tile armed forccs as an
i11s1n1mc111 or poliul·al 1111egra11011. 13ut the ce11trih1gal forces wtth111 thl'
stall' thrcall'.lll'd the militan· llsclfw11h frag111c11ta11011.Such. then. \V<.:rcthl'
compound challenges Lu a11v attempt to mlegratL' thl' state poliucall\' after
IL'll \'cars ol' pos1-n·,·ol11111ma1T turmoil.

lkforc c.·xa1rn11111glil'c uoclcr tile lb atl11st rcg11lll' ll1at c1111e Lo power 111
1968, we should pondn Elie Kedouril' s prognosis l'ollowing the l~l:lS ren>-
l11t1011: ·1r:1ri under the monarchy !'.iced tll'o bare alternatn·L·s: e11lwr thl'
c1nu1tn· would llan· pl1111gecl mw chaos or 11s popuburn1 should i>ecmlll'
u111,·crsalh· 1Ile cliellts :ind depenrlt·11ts or an om111p1>te111bu I capnnnus and
1111s1.1hlcg11H'.n111ll'11t.-,(, llwse L\\'o a i1er11all\'l'S the 11n·nhroh· of the 111011:ir-
cl1,· has not adclec\ a thrrd." 1; 11 Th1..· ;L1111 of the lh a1l11s1 lcaclnsl11p was
prl'dsl'ly to find that Lh1nl altcr11au1·c: tu build a modern. stable. polita:ally
1111egr·aterl stale.

Ba .(l//11.1111
Ill ,,,,. ,1111/l~1:fim11
19711.,:-'·ila/1·-n11ifrli11.!!.·

Khalil is not blind l1>the sonal transformauon achlL'\Td b,~the Ba'ath Party
since Jls sl'izure or
pnwer 111 19(18. l·ll- ack1111wledgt·s that thl' reg1nll' clra-
111;111calh'muden11sl·cl Iraqi soc1e1v. led h\' lb drwe :1g;1111stilli1er;1n- a11rl fur
free cd11c1t1011 for all - a revolut11,11 that prndutTcl. according to Khalil
 1'01.1"1'1(:SIN Tl-IE Cl.01\Al.lS,\TIOX l'ERIOll

himself, one orthe best-eciucatecl 1111elligents1asIll t11eArab world. He also

creel its the regime with gi\'111gwomen the nght to careers and parucipation
in public life; thus by the end of Li1e1970s women formed '46 per celll or all
teachers, 29 per cent or all doctors. ·Ill per cent of all clenllsts ancl 70 per
cent of all phar111acists•,GI
Of even greater importance. howcvcr, was thc !'act that tl11s Ha ,II iust
rcg1111clinalh- c.11T1eclL11rough the land reform prom1sl'cl hv the revolullon.
utterly transfonmng the social condiuons of the peasant!'\'. It also crcatecl a
modern welfare state for the urban w01·king classes and poor. And 1t did
what other regirncs fcarecl to attempt: it wok on the oil compamcs ancl
nat1onalised them, tun11ng to the USSR for help. Tl11s was not the lirst
nationalisation of Arab oil, being prcccdecl by moves 111 Lib\'a and Algeria,
l)ul such act10n 111 I ~172, before the \'om Kippur war, was still a perilous
undertaking, strongly resisted Ill the \A/est until the French broke ranks.
Finally, the g<l\'ernmcnt iaunched an amh1uous programme or industnai
mvestmcnt and dcvdopment.
During the early 1970s the regime made a serious effort to mtegrate the
Kurdish Nonh by offering the most for-rcachmg settlement anv govern-
ment had proposed to !ls Kurdish population. Tiu: Ba'ath - unlike tlu:
Tmkish governmcm, for instance - had always recog111scd the K11rcisas a
separate nationality. Saddam Husscm proposed a Kurdish autonomous
1·eg10n with its own parliament as well as ministers in Baglldad, rccogmuon
of Kurdish as an official language, and Kurdish teaclung 111 schoois. Barza111
rejected tlus offer, wornccl by the renewed push fr>rland reform and, above
all, encouraged b\' the Shah or Iran (who, mncientallv, offen:d no such
nghL~ to his own Kurdish population) that he could gain a far beuer deal hv
wagmg war agamst the Ba'ath1st p;ovcrnmenl. In 1973, Kissingcr, preotTU-
p1cd by the task or iso'latmg Svria in the peace process, gave further
substantial assistance to the Kunis 111 order to bog down the Baghclacl
regnne m a costly war. The tactic workecl, costing the latter two billion dol-
lars a year un ti! Saddam 1-Jusscin persuaded the Shah to end tius ,ucl in 1975.
(One week afler the Shah had informed 111111orthis, Barzam offered uncon-
clittonal surrender and wenl into exile m the USA wl1ere he died.) Of
comsc, the Ba'ath could have easily satisfied the Kurds if it 11ad offcrl'd
1hcm full scll~cletcrmrnation and control orthe northern oil fields. But all
states 111 the modern world arc extremely grudging and ra11um1swhen scet·s-
s1on and vital economic interests arc at stake.
In the South, the Dawah denouncccl the Ba'ath1st government not
because tt was Sun111-dominated but IJec.1usc it was atheistic, because 11s
leader, Ivlichd A11aq. was a Chnsuan, and because IL was allied with the
Commu111st Paris and the USSR. 1i:! Thc Dawah h1lm111ated against such
issues as the secular Ba 'athis1s· tolerance oralcohui consumption, e\'c:n m
the hoiy cities or N,~jaf and Kerbala. The rq.~imc hn l>ack with savage
 Tl-IE Gllf .F WAR :\ND WESTERN l.IBER:\l.lS~I li3

repression combmed w11h ;1 m,!JOr programme of public spending on the

Shia shr1i1es ,uiH on social clevclopment. The policv seems Lo have had some
success until it was seemingly rhreatenl'Ci by the fsla1111cre,·olution Ill lra11Y:1
The rcgm1c's approach to the dilfo.:111L relauonsiup between Islam and sec-
nlansm was a 1-{ooddeal more soph1sucated in mailers of prmc1plc and
polic\' than that or mam· governments fanng similar problems: namely,
recogmuon of the cullllral centrality or Islam anrl or the requirements of
relig-1ous pracuu:, combmed wllh a resolute defence of the secular frame-
work or public life. Al ieast formally, the n:g1me sought to extend tolerance
to Lhl' sil-{nilicant Christian mmoritY.

C1111lm/l('(/ />urllnj)fJl/0/1 11ml R1.•jm'.n1011

The leadersi11p worked successfully to subordinate till' armed fr1rces to the

Ba'ath Party itselC thereby ending the role or the onic<:r corps as the sover-
eign state authority, Pnliucal decismn-making was conccntraLCd in the hands
or the part\· ancl its ieaclersh1p. Some liave v1ewccl the partv as mcreh· ,111
empty fa(ade behmd wlllch t11e poliucs or clan and tribe have prl'vailcd. It
is cenamly the case that clan lissures arc present wJthi11the Ba 'ath, as 111deed
they were w1th111the Communist Pany; these arc panlv an expression or the
currents that permeate the organisatmn, hut testifr also to the presence of
nepotJsm and nvain- such as 1s found 111anv ruling part\'. Ultimatcir such
factors must pose a threat to the party's own stalJilit\' and leg1umac\'. anrl an:,
therefore, a srmptom of crisis.
The Ba;,1Lh1stregime committed nsdf to the prmc1plc or popular scwer-
e1gnty and to a constituuonal. represemauve state, but declared that the
need for a state or emergcncv made the 111troduclllm or such a rlcnmnacy
1111possihll'. IL consequenth- vcstccl supreme aut11ontv 111 a Ren1luuo11arv
Command Council ( RCC) on the basis or a proviswnal constilllLJon: a body
able to rule bv decree and veto goven1ment dec1s1ons. After the civil war
wllh the Kurds in 197!1,thl' government urganisccl eiecti1111sancl established
,l parliame11l. But the emergency insLJt1111onsremainccl 111place, as did the
RCC. (\Ve 1111ghtnote that Egvpt has abo been ruled ll\' decree under a state
or emtT).{CllC\'more or less continuouslv smce before I ~lli7. though under
Sadat and M11llarak Islamic Sluma law has also been 111troduced. unlike 111
Iraq.) Although the panv had thus made ccrtam or rctainmg Jts absolmc
posmon or power, it had at t!Je same time made el'forl., lO mvol\'c other par-
ues. For much uf the l 9i0s, for example, the Co111n1trn1stl~anv was Ill Lllc
g-overnment; al vanous tunes the Talaha111 wmg- or Lhe Kurdish nallonalist
movement llas been Ill alliance wllh the regime.
At the ll'n:i of inslilllllon-building-, the Ba'ath created local councils with
eiected repn:sentativcs. Thl');e pnH'ecl to Ile a kev mstn1ml·nt. alcmg-wJLhthe
17-1 l'<>l.lTII :'-;1:--•
TIIE ( ;1.0Jt\l.J'-;_ \Tl! >X PERIi >Il

trade u111ons. ror dr;m•111g-people 11110publir life; a11otl1er has hl"l"ll till'
local miliuas. '\'ct. Ill these realms, too, the part\' l'.Xcrnsecl co1llrol. st·n·1-eh-
rcstricLi11g tlwir dcg-rct· or dlc.'.Cll\T political ,111to11m11\'.
TIIIS s1iJ1ing-pan,·
presence was espcc1allr e,·ident 111the polillcal police and repress1n· app;1-
raLL1s.,,·h1d1 threw ;1 blanket of surveillance un·r the c1111n·popuia11011. Tht·
lirst task orthe,c org:1111sauo11swas 10 crush thnsc lielicH'd to lw \\'111li11!.\
an1n:lv to on:rthrow till: reg1111c.l'vlcthorls J1;1n:m,·anahh· bt·t·11 brutal and
victims often nmrclerl'cl. For mstancc, those Com1m1111s1swho cont11111l·dthL·
guerrilla war in the South aflcr the Ba'ath G11ne LU power could 1101ex pen
to leave pnson alive. Since most. organ1s;1t1ons arc pt-rnwated wllh familv
and cian links. the brutality was ohcn direrled at rcla11,·es.
The seconcl 1ask of the n:pn.:ss1,·c appara111s was IO act as a tool of pnli11-
cal coerc1011 agamst other panics or 111m·e111c111s. Th11:-;,while seeking- 111
c~1ole thl.' C:omnn1111stPan,· leaders into ;1 u1111erifront and part1cipa11011 111
govcrnment, the rq.;1mc \\'ouicl applv pressure lw pcrsen11111g ;md SC!lllt"-
t11nes c\·en killing Communist militants al the basl· ur the partY. The I( :P.
lcg;1liserl lw the rcg11ne or Saddam 1-111ssc111. prohahlv suffered mon.: killing-s
from ns l1ands after I \lllH than IL had suffered 111the clecadl' I 9fJH lo I !lllH,
\\'Ith the exception or the pcnorl immccliatclv alh:r 196'.t

/Jrt'a/hi.mi 111 th,• 1 CJ80s:Saddam /-fll.n1•111

Bv the btc I 97lls. till' lb ath had a fonrndabk ad11c\'Clllt't1l or s1;1tl'-irnilding

behind them and hacl largeiv stabilised thl.' ncw 1nstllllll<lllal slruct111T. ,\s a
result or social rcforms, l.'galitanan polic11.'s and a thoro11ghg-oi11g mod-
crn1s111grlm•l.' - all helped greatly bv the m1rl-Sl'\"Cnllcs oil-price increases -
thcv l'ch strong enough to c;dl cicctio11s and cs1ablish a parliament. We can.
thl'refore, reasonably assume that the part\' li;1d ad1ie\'cd ;i clegnT or pop-
ular support despllc the ;1hse11ceorfrce part\· nimpetllHlll.
The p1nurc. orcourse, looks vcry dilfrrcnt toclav; and tlw rot set 111long
hcforl.' the US-Jeri attack oJ".)anuan- 19~1I. What \l'l'lll wrnng? The slwn
answer 1s the Iraq-Iran war. started hv lhc Ba ,1Lh1stgover11ml.'t1l. .-\s wl'II ;1.,
1nflicu11g-a clreadful toll Ill human s111Tcr111g on thc Iraqi peopic. 11 n·-
opcncd the udl war 11·Hhthe l-.urdish 11au,m;tlis1s and gcnl.'ratcd a 11111rc
brutal swic or politics - 011c that resuitccl. for example, 111Lhe Iraqi anm··s
gassing of civilians m Halal~p and the slaughter or thousands 11111H· Kurds
ahcr the war was o\'cr. At 1he encl of hostili11es the Iraqi statc was hca\'ih· 111
clcbt - a position worsc11L·d bv thc oil-pncc slump - and the reg-um· pre,· 111
the m;mneu~Tes ur the E.m1r ol' Kuwall. Cnndilmns th11s co11sp1red to m.1kt·
Iraq vulnerable u, a rc-opc11111gor tile deep fissures 111the st,nt· which liw
Ba;ath had spent the 1970s seeking Lo closc.
It is arguable that the tnggcr rnr tills disastrnus chain or c,·cnls 11';1sthe
 17:,
rl'placcmL'lll 1111\179 of' Bakr I)\' Saddam 1-lusst'.111as prcs1clc111. This move
was ·certaihl~· rcs1SLL'clwll hrn the Ba \nhisl lt':1dcrsh1p, though nothing is
known about 1he disagreeml:111. and Llwreforc whether or 1101the appoint~
llll'lll rcprcse1Jtl'<l a plllicy ll1r11 (perhaps doubtful, since experts ag-ree that
Sadd;11n I-li1.,sL·111 hacl bL'l'll the dnn11g forrl' nf' thl" I'l'l,!;lllll' thr1111gho1111.he
l!l7(b). 011c 11q,:·:111n·d'kct o/' tl11s cha11g-l' 111leadership 11':IS the rapid
gruwth 0L1 pl'rsor1.1li1v cull. Such cults 111entahl\' allt:r thl' dc..·us1011-maki11g
ml'chanisms of' a rq.{lllll', replacmg rollecuw part\' bodies wnh the ;nILl10r-
IL~·or one man. therch,· conrt:11tra1111g power 111absolull' fashion. As a
co11seque11cc, th<: rcg1mc·s polic~•-making c1pacIL1es ma\' ha\'l' been weak-
l'lled. altlwugh S:1clcla111l-lusse111\ ,·en s11n·1\';1]s111 ..mes1s a rcsllurn:rul11es~
;111dn1111111a11d that 1s L'\·1denn· 111 the n111trar\'. Norw11hsL111di11~this cle,·cl-
op111c..•1Jl,tl1c..·clcusio11 l<> wage..·war agamst lr.111w;1s 1101llll'l'L'h- tht: whun or
the pres1dern. h111appears to have had both pan,· and popular support. 1•·1 111
pmnt of' fact. the Wl·akncsscs in Ba'athism that led di rec th· tu the attack on
Iran were ils nationalisL 1dl'oiugY and pt:tl\'-bo11rgc01s roots, LKtors prL:scnl.
rrom 1hc s1;1n llf lhl' rq-{lll1e. nu nil!-{ thl' I ~)70s the\' did 11111 cnpple Its pro-
gTL:SSi\'e,111oden11s111gpro1en. thoug-h 11a111111alism will ccr1,1111l\'ha,·e helped
10 prevent a rlcmonallc sc1tlcml'nt with the Kurds. 1-lowcn·r. the changL· 111
c~ternai L"m·1ronnH.·11throu!-{ht ahulll b,· till' hlan11c rc\'oluu1111 focusL"d nc..·1,·
pressures up11n the 1',a'.uh1st pn!Jt'CL :n ns 111ost\'lilnerahlt- pornl.
The Ba ,1th Party 111 Iraq, likl' 1haL 111S\Tla. had 11s runts ncILher m the
urban cap11alis1 classes nor 111Ille imlusmai ,rnrl;.1ng- class .. but Ill the large
1111ddleclass or i11tl'llec1uals, stale emplo1·cc..·s. arllsans and small merchants
- \'en' 11npurta111 s1r;lla 111the Fertile Crl'scc111. On till' ,,·hok these g-roups
did not stand Ill an an1ago111stic relatHJ11sh1p to thl' working- dass. Fur this
n.:a.,011 Ba1a1111s /'11111'.JUStiliccl 111 1ncludi11g lill· Ba·:11h Pan,· ;llo11!-{ w11h the
( :01111n11ms1Pan,· ,11110111-{ the n·,·ol11uo11an- frirrt·s or 111oden1 Iraq. The split
hl'tWL'l'll these twu gro11ps 1111rlerQassL·111rtcnn·cl. as we s:1\\', l'n>111lhl'II' lack
11l'com111011gro1111rlon the 11a1H111al question. The ICP faikd lo support t.hc
national mo,·emc..·111's asp1rauo11 for immediatl' Ulllll' wnh Lhl' U n11ed Arab
Republic cmbranng S\Tia and Egypt. :incl this ensurl'cl lb a1lust leadership
111'the mm·l.'.lllL'lll. \i.·t 1he p,trLY's expt.:rH'lllT dunng 1lw I ~H'>Os 111ldthem that
;1 programrnc s1mpl\· c.illing f',ir unmcdi:11L· .\1;1h 11n11ywas msllllinent.. and
,ilsu lllat there c..·x1sa·clli1nn1<lahil' oh.,1aclc..-s111ach1enng a stahlt· 11nilica11011
or the Ar;1h stat L'S. The post-I ~lhH part\' llad 1101aba11do11ed the tau er as a
Jong-term ,11111,h111 ns pnont\' \\'as lirst to co11struc1 a pll\\'l'rlul. integrated
Iraqi state. Tl11s was, aho\'l' all. 1he pn~Jcct or Saddam 1-lussem, the Iraqi
part,··s g-e11er;1)Sl'Cl't"tarY.
The Ba·a1h1s1 pn,gr:unmc or nauonalis;11m11. l'L'OIJOlllll' fll'\'e]opmcnl a11d
t·s1ahlish111t·11t11L11,·ell;1n· stall' he11di1ccl hutii 1n,rker~ and 1l1L'1111ddlecbss ..
The..·scale 0L1ccn1111g oil re,·c11ucs undoubtcdlv made a cll'c1s1\'l' n111Lrilrnuo11
w tl1e success ol'thl' 11mden11sauon pr11g-rammc 111 l'd11c111011;1nd health. It
lifi 1'0I.ITICS IN Tl·IE ta.OB:\I.ISATION PERIOD

also helped to sustain a pauen1 orstale-dependent i11dusu·1alclevelopme111.

The Iraqi state was not portraved as a means of emancipatmn for the coun-
uf s working populauon, but as the resource and authority best able to
construct a strong Iraq, capable ofleading the Arab nauon. There 1s noth111g
unusual, of course, about such statlst politics: most of today's 1mpenalis1
powers welll through .1ust such a phase. Nevertheless, 111a reg-1011like the
Gutr, where the world's strongest supe1-power has important 111terests, this
pr~ject was fraught wnh great nsks.

R1•sjJ011s1• Irr1111a11
to /111• Hm10/11twn

In Iran, the Shah's drive Lo dommate the Gutr had produced a militan·
build-up and growmg hostility to Iraq. This had caused the Ba"ath to
develop lls own military strength in the 1970s, funded by lls oil revenues.
The subsequent fall or the Shah 111 the Islamic revolution transformed the
political equation in the reg1011and presented the Ba'athist leadership with
an irresistible temptation. The centre or that equation had been the pro-
tection orAmencan interests in Saudi Arabta and the Gulf. Iraq, shut out or
this security structure, had been on the defensive regionally and impelled to
concentrate upon lls domesuc programmes. The Iranian revoiuuon dicl
notJUSt remove America's regional policeman; ll created a state claiming
leadership or the Islamic woricl and therefore posed a mortal threat to the
Saudi order. Thus the opportunity arose for the Iraqi regime to become the
military linchpm or Amenca·s new security system in the Gulr. a roie which
the social weakness of Saudi Arabia prevented ll from pla)'mg. There also
existed, or course, a powerful domesuc mcenuve for the Ba'athists to inter-
vene militarily in ti1e region: for clearly the Islamic revolution posed a direct
threat because of the religious appeal or Shia Iran to the people of southern
Iraq. A military victory would serve dec1s1veiv to l>md Iraqi Shias into a
common political identity with the rest orIraq.
The Ba'athist leaclersl11p, poliucally sophisticated and keen to expiolt this
regional development, could also spot a further set or incentives. By becom-
mg the sword defending the mterests or the West in the Gull~ it would
escape the panah status given It during the 1970s, and thereby gam access
to the metropolitan centres or\Nestern capitalism: loans, new technologies.
111vestmentexpertise, training and so forth, as well as entry into the world of
legitimate inten1auonal diplomacy - somethmg soiely m the gift or the
Atlanuc states.
Only OJ~e question remained: would it work? The Americans assured
Baghdad that It would: that the Iraman armed forces were m chaos and a
quick war would presem Jew nsks. But this turned out to be nonsense. Eight
years or atrocious suffcnng were the result. By 1982 Saddam Hussem had
 THE C:VLF \\'.-\R .-\Nil WESTERN l.lllER,\I.ISM 177

realised Lhat l11splan for a quick v1ctorv had het·11 a dclus11111and he sought
w· exiric.1k his rq~1me from the wa1· throug-h a negOLiated seu!c.:ment.
However, the Iraman government made the removal of Saddam Hussein the
prcconclit1un for peace, which pro\'okcd 111 turn ;m ever nrnrc brutal Iraqi
military rcspunse ;1gainst the more powcrfol state. mcl11ding the llSl: or
poison gas 011 li·unt-line lrarnan troops. B\' thl' t1111ca nq;o11atecl peace was
in place, m 1988. 1t was abunclantlv clear that tht· dcos1011 to a11ack Iran had
11ccn a grave poliucal and militan· m1scaiculatio11. A million people had
died, oil wealth had been squ;111dercd, and the go\·en1me1n ha<I lost control
of Kurdistan. Eco11om1c rccm•cn· had the reconstr11cuon ol' :i damagL:d and
m·erb11rdencrl st;Hc ancl soci;il fabnr - not lO mention the rcp,11r of shat-
wrccl lives - would make tn:menclous clemancls of' the Ba-ath, and takl:
manr vears tu dlect. And the governme11t coulrl count ,m few allies within
Iraq. Efforts to rebuild links wnh the ICP were rqectecl and the regmte had
no political means of integraung the South clfrctivel\'. A policy of terror was
liually applied 10 mtegraLe thl' Kunis. The regtml'·s only asst·I was a power-
ful. baute-hanlened military machrne. Ne\·enhdess, the sc.1ie 111'this
modern Iraqi armr - very large for the Gulf reg1011- couid onl\' he nJ11s1d-
crcd a threat by surrounding- slates, and by L11c1rallies. Thus, il\' Lht: end or
the 19H0sall the mam historical forces both within allCIIHIL-.ideIraqi plllitics
were u111ung against the Ba'aLh. The stage was set for tile ca1astropJ1e or
1991.
As 1s usual after a war. the Arab people nl' Iraq demancled a Ill'\\' aud
heller deal 111! 9H~I.The rq{Illle did not llavl' t lw resources to prnncle such
a deal ancl tile al-Sabahs presented an 1cteal target-cum-sol1111011.Heavily 111
debt and hanl-J11t br the oil-pnce slump, the regime had been \'1ctim to the
Emir or Kuwait\ endeavours agamst OPEC quota and pritT decisions. It
therefore nsked a strike at the al-SabaJ1s and lll\',1de<I, 11nclo11btl'dlvhoping
that this wnllld be f'ollowecl I)\' a 11eguuated \\'.t\' out or its debt problems.
When till' LIS block.eel such negouauons all(( demanded a t111alpublic capit-
ulation. the reg11ne understuocl Lhat 1h1scould le.tel to Il.'i do111L·s11c
collapse.
It clcciclerl to stand. like Nasser in E)56. and clclcml lls digmtv as leader or
the Arab naLion aga111stLhe enormous militarv power of the West, no doubt
calculaung - correctlv as ll lllrnl'd out - that the US was still unabk to 1ur11
ll> Iran as lls surrog-atc power m the region ;Jllcl thus co11icl not risk the
break-up or Iraq.

lh1•1.,:/i
I.,·.uo11S_/r1r

I began this section with a polemICal c11g.1g-emc11twith Sam1r ,ii-Khalil. cr11-

1nsmg- Ill parucuiar the rcd11ctI\'t: ualllre of l11sconceptual f'rallll'\\'ork and
1he limllations this imposes 011 Ills analysis of modern Iraq a11d the Ba'athist
178 l'Ot.rrn:s IN THE Gl.011,\I.ISATION l'ERIOll

reg1mc - limna11ons al Ll1cheart or thc liberal LradiLion with111whirh hc

works. I hopc subscqucntiv LU havc shown 1hal Iraq s rcccnt h1s1orv, iwarmg
directly on the events that lecl to clcfcat 111two immcnsel\' damaging wars
that radically changcd the 1-{Copoliticalmap orthe Gulf rcgw11. was an 1111i-
nlleiy more complex narrative than Khalil allows. Notwithslanding this
cntic1sm, Re/mblir r!f'frarreprcsents an honest and important reflcct1011 on
Iraqi politics, a rellection unrestricted hr narrow stratq.\"IC concerns and
possess111g-greater 111s1glltthan 1l1eaucnuatcd arguments typical or mosl lib-
eral commentarv on the Gulf uisis. i\·lost significant!\' orall, Khalil's work
addresses questions or great import to thc Leh.
The central prohlcm is that thc Iraqi Ba'ath did earn· Lhrnugh a h111da-
mcntal social transrormauon, adopung ror 1h1s purpose an economic
programme: aimost 111dist1ng111shablefrom that or thc Marxist Left: narncly.
radical ianci rcform, nauonalisat1on of industry, thc cncouragcmcnt or
coopcrauve farmmg, and state-led economic development. Thc Baghdad
regime, what is more, stood for a secular public life wnho11t taking a neg-
ative sLance on Islam; ll e\'en f1irmally rccog111scd Lhe naLional idcnlltY or
the Kurds. Notwithstanding this progressiYis111, it has also been an
extremely repressive regimc, usmg poliucai police as ns mam mstn1111cnt
of conLrol. It finally imposed on Its people a misguided effort Lo hccomc
the nnpenalist guardian in Lhc Gulf, before leading thcm 111Lothe Kuwait
catasLrophc. The leacle1·s or Lhc h·aqi Commun1sL Party have responded to
this experience l)y calling the B,i'athist regime 'fascisL'. This. howcYcr.
docs link l>ttt expla111 the problems away. For Ba'athism was not a counLcr-
1·e,•0Jut10n agamst democracy and the labour mm·cme11t; n was an
alternauve to miliLary rule, and in its soc10econom1c polictes a kl"l-onented
regime with which the ol1ic1al Commu111st Party coopcratcd through most
of the l 970s. ·
Khalil, (cir his pan, has responded in another way: he sccs the Ba\1th as
the product of a ddicicm and dcgraclect Arab poliucal culture, and conse-
quentiy as a LOtalitanan movement analogous to Stalinism. His solution has
been to rqcct that model in favour or the thcorcllcai cuiture of Angio-
American Cold \.Var liberalism, and to denounce all goal-oncntccl activist
regnnes seeking to transform social conditions. His soluuon m short 1s:
liberal-clcmocnuic constitmionalism now, wha1cve1· lhc sonal correlates and
consequences. But this stance 1s not acceptable to the Left, emailing as it
does a cap1tuiat1011before social i1~jus1iccand the e\·asion or politu::al chrncc
and strategy. It dri\'es Khalil, ultimaLeiy, Lo Lhe belief that American militarv
strength could constitute a liberai rims ,·x 111ad1i11a - a wild illusion.
The Ba\nh came to power as a tmv organised part\', b\' war of"a military
coup. It' sought to sink popular roots through gn·aLly expanding th~
party, and was acutely aware or the need to ex ten cl the base or its poliLical
support, reaching om to the ICP for this purpose. Bm when the cx1c11rlcd
 TIii•: CL 1I.F \\'AR .·\ND \\'FSTF.Rx l.llfflt-\1.IS~I li9

state oJ' cmcrgenc\' cndl'd m the llll(I I ~)70s, the Ba· ath leadership, awash
,,;Hhhugi: oil prolits and awarl' uf' its wide popular support, turned increas-
i11gl\' to\\'arcis a de facto one-part\' clictatorshtp. eschewing the need ror
pluralist 111slimtio11-buildi11g.This was a l'atai 1.11rn,vet one easy to accom~
plish, not onh· because till' use of poliC\' apparatuses to car\'e up political
sp;1cc was ellortlessh· simple, but also because there was 110other political
model a\'ailahle. This 1s where Khalil's rcf"l·rcrn.'l' to Stalin ism is \'cry much
to the potnt. The part,· leadership. i11cludi11g-Aflaq and Saddam Hussein,
were not simplv corrupt adn:nturcrs. Indeed. the\' were passionately com-
111111edLO the Ba'athist cause; the\' also sought to m·e1-come the failings o!
the earlier Ba\1th and of"Nasser, and wet'l' lookmg- for models, not least in
Eastern Europe and 1n Cuba. for a wa\' forward. The\' found nothing there
to urge them agamst the course or one-party dictatorship. If' their middle-
class nationalism made the regional 11npenalis1 temptauon trres1stible,
the Stalin1s1 experience made their domeslir course equallv so. Their en,
tique of' Nasserism did not extend bevo11rl the need f'or a powerful
heg-emonic part,·. The lesson from Easlern Europe was that a one-party
c\ictatorshtp was assisLed, 111 ils f'ormatin· phase, IJV the dcplonnent ol
poliucal police.
The Lel't's answer 10 this Stalirnst expenencl' docs 1101constsl of pitting
society aga111st tile state: iL in\'ol\'es lmilding popular, pluralistic state 111su-
1111tonsw!lh so\'cn:1gn powers over the cxccuti\'e. The so\'l-re1g-1H\'or such
popular institutions must lie prensd\' Ill thcll' pluralism and he underwrit-
ten IJ\' a ban 011political nolcnn· as a mcLhorl oJ' resoinng disputes amongst
elected panics. This docs not preclu(Ie the ll'lll()Oran· concentration of
g-rcat powers \\'tth1n the exccuti,·c, including the nght to ruk'. lw decree; hut
11 cl<ics c111ail lhc ulumalc subordination of all parties and agcnncs to the
will or the elected asscmhl\'.
The political culture or twe11ticth-cc11llln' Iraq has hec11 shaped more by
Bntish-1mpcnalis1 social cng111eer111gthan bi· the people of that n111111rv.
excluded li.1rclecacles from the poli11cal s,·stem. The Ba ath1st pr<!feel has ils
dcn\'attnn more 111 the political traditions of the North. hoth 111 tL~natm11-
alis1 a11d in tL~sonalis1 \'alucs, and has 110Lh111g in commo11 ll'ith the poli11cal
culture or such Arab neighbours as Saudi Arabia or the Enurate of the al-
Sahahs. And tts cnucal weaknesses owe far more 10 the dcfic1cnc1cs of
Stali11is111and 10 the external tc111ptatH111sor the American-constructed
111cenltvc s,·stcm 111the Gulf than to the supposedly closed discursn·e Lllll-
\'crse or some pu1auve orgalllc 'Arab cullure This !alter ts. 111!'act,
nothing n1<1re 1ila11 ,11101her mnh1cai wcsLcn1 nms1ruct11111 useful for
explaining away the disastrous, dcstructl\'c conseq11e11ccs of'..\n~lo-Amcrican
militan· mten·enttn11 111 the Arab \\'orld - toda,·, as well as yesterday and
(llllHIITO\\'.
l80 1'01.lTIC>; 1;,..;
TIii-: i :I.Oll,\I.IS.·\TION 1'1-:RIOl
l

( .'011rfll.\l(/IJ

Desen Stonn was jusLiliecl before a liberal-ciemocrauc p11hlic in the West

111 the l,m~11a)!;eor rights. I-lowcvL'I', tll1s discourse 1s Olll' shared wtth an
older tradition of states· rights theorv, Ll1esubsta11ll\'e pnnnpics of which
differ radicall\' from, ancl mcleecl arc laq.{ely antago111suc to\\';1rds, those or
co1Hc111porarv liheralism. As a u111scquc11u.:, the sl1arcd ia11~u;1~l'rcadik
se1·ves lo obscure this ,11Hagu111smand Lill: disparaLe1wss of the two lradi-
lHms. Thl' applicauon oruni\'ersal ruh:s to eases, abstraction from co11Lext
and h1ston·. tile altt:mpt tn transform poliucal complex1ucs 11Hojurrdical
quesuons or crime and pu111sh1nent - sucll common modcs of 1h1111g-ht
and reprcsentauon can translate a domestJC liberalism 111 lo an ideolow·
l'or.1ustil\·mg st:tllst militarism abroad. Mon·m·er. the contl'lllPorarY l'l'\'IVal
or Kanuan poli11cal t!Jem·y, thc 1'11l1clcn·iopmcnt or w111ch has becn
achicn:cl 111till' work or Rawls, has not on the wlwie taken Hs u111n:rsalis1
m1ss10n seriously. Liberal _JUS!ICt: m the iattcr's work re111;11ns,111a thcu-
reucallv m1nmv1nc111g mannL'I, con!incd wllhrn n;1t111n.ii boundancs,
thereby icanng the lield or inLernationai politics to till' (;rotians, ir 1101
the realists.
In thc first part or this an1clc. I attempted to applv the principlcs or
rights-based lilwralism to the: Gulf cnsis tw emplcl\'lng the prnblc111-soln11g
approach that has charactcriseci most commen tan and discussion 1111.hc
\Vest. The problem was clclinccl s1111ply:hrn" to end the 111_1us11n· produced
by tht· Iraqi 1m•as10n of Km,-.111. And the issue explon·cl was whether the
rcsponsc - c11im111aung in Desert Storm - could be _1ustiliccl as thc 111stru-
ment of'liberal_lusticc. The condus1011 reached was 1.llattlm; responsc \\'as in
fact directerl 1owarcl u~iectives, and was thc expression of interests, that run
counter to liheral-dcmocrauc pnnc1ples - at the expense or the Iraqi and
Kuwaiti populauons. Thus the barl>anty of war was the pncc not ofjusuce
but. rather. of clcfc:nding oppressl\'e rcg1111esand thereh\' hillilling 1mpcr1al
design lll the Gu Ir and thc wider Arab world.
This .1uclgl'llll'l1t calls in quesuon the problcm-soh·mg- framework wllh
whtch \l'l' hq.!;.111. To establish the 111\'asmnof' Kuwan as tin· central prollicm.
and then to subsume the Briush and Amen can states under I Ile category of
possible 111str11111c11ts ofjusuce, is Lo presume that thc social ordcr disrupted
by tile 111vasio11 embodied a mimmal pn11c1pic ofjusticc. Yt·t 1111 such ordcr
die! cx1st prior tu the 11wasmn; 111steaclthere was oppression and inequity, 111
which the West - and, abovc all, thc USA- had a pnmary siake. It is there-
fore bchm·cn 11pon an\' liberal poliucs diat takes lls \·alues serimtslv to
1dc111ih·the wc.';tern powers as tlw central ohs1aclt: 111the p11rst111of' popular
111teres1s;11iddcmocrauc goals 111 the reg-1011.
This in turn raises fundamental q11esuo11sabout thc 1111er11a11011al ordcr
over wl11ch 1he wcstern powers preside. Throu~hmll this d1;1pter I have
 Tl IE (;l 11.F \\",\I{ ,\Nil \\'FSTERN l.lllEIUI.IS.\I

tT111c1sed the 1111rmalln'. s1cte of ll'h;IC I l1avc tenner! .~tail's· rrgllls· theor\'.
Th('.·togtfill\'l" aspect or th is t It con• presents us wtth a Wl ,rid or independent
11atio11-statcs that an· oniy related cxtcrnallv. S11d1_1uridiral sm·crc:ignty pre-
cludes the possibilitr that somt· states might penetrate the mtcrnal
cu.momu.· ,111<1 poliucal life or otlwrs. Tlus possihilitv, or what coulcl be called
·slates· rrgl11s imperialism·. would seem a contradict.ton 111lt.Tll!S wHhin till'
l'ra111ewc,rk or the tlleon·. Ne\'crthdcss, li,r lnmclreds or millions ol' people 111
the South 1111sscc11ano 1s all too real: the lcgai son'.retglll\' ol' the tr states stls
t·asilv w11h a s1Lu.1uon Ill which most euinom1c, sonal. and i11cleecl political,
rclallo11sh1ps Ill t.he1r daily livt"s are gonTnecl I)\' centres 1>1' power - '·prl\'atc'
and ·pulllic - located Ill the Nonh.';,,
Tbe Iraqi revoluuon or 1958 was m1pelled bv the: aspll'atton tu throw off
the vokc or sonai oppress11m constr11ctt·cl by the Bnush and their subalt.crn
collaburate11 s l'arlv 111the tWl'IJ1t1.:thn·11tw·v. :\11d tt lnl to tt1c pn(Jl'CI of till~
Ba all1 PanY LO Lra11s1i,rrn Iraq 1u10 a 111udern, secular, cgali1anan and co11-
sllt11t11>nalslate. In the riecarll'S since the collapse of IIH' E11ropl'a11 e111p1n·s
1h1s aspnallon has hccll shan·d b\' .1 \',ll'tl'I\' of poliucil mm·l"mt•nts in till'
South. The clil'licuit1l'.S or att:11u111g these goals do 1101h,· an\' llll'ans dert\'l'
m;1inly from the charac1cns11cs of' lcaclcrs like Saddam Hussc111. More hm-
damental obstacies mclucll' till" fissures ill thl' new ll'JTttonal eutitJt•s
hequcathecl lw the European po\\'l'rs. the exter11ai cc1111111111c ancl geopolit-
ical em·1ronmcnts designed 111till' North, the locai sonal structures and
crnnpradur reg-1ml's thev favour. and Llw ahsencl' of' tested al1cr11;1t1\'l'.Sto till'
c\'icknth· lla11kn1pt Stalin1s1 modcl ol' ric\'ciopmenL. .-\m· n1uque ut' tht·
ll,tllonalist and authontanan politics of the Ba'ath shoulcl show aw,lt'cness or
these overii1pp111g contexts.
The appeai or liberalism n:s1des, above all, 111its l'11lphas1s 11po11 tile
D\'ernding- 1mporta11ce orsuhorcli11aung- poliucai power to respect liir tht·
person amt for the nghts or the 111cliv1cl11aL Yl't 111so far as it singles out tlw
mclindual's rl"latHirI 10 the sut~· a.~ us pnmarr co11n..-11. liherali.~111 call rlis-
pl,I\' a dm1hlc blindness: towards the oppressin· rela11011sh1ps gm·er111ng lit{"
l'l'.tl. en·rvcla\' lives or till" m;tJDrllr: and towards the po1t·nt1ally progn·ss1n·
roll' or p11ptii,1r llHl\'L'lllents J'or r.idic;ll changt·. Df poli11c;il rorct' and ol
slate act1011 111modermsmg and 1ranst'or111111gpeopie s li\'n. Tl11s hlinrlnl'ss
1s exempliliecl hv thl' liberal perspecti\'e rrorn wh1rh Sam1r al-Khalil
ohst'rvcs tile h1storv t>f modern Ira<] . .-\nd it was expimtccl to the full lw the
western coaliuon wl11ch seized upon tlie dinat,,nal !,,nn of the Iraqi state
111 order to represent a dri\'e to secure imperial 111tcrcsts as a struggle
hetwc:en lihl'ral respect for pnsons ,tnd poli11cai 01)prcss1011. Thl' real
stakt·s 111 Desert S111ri11were \'~T\ rliffl'retll, as h;1s lwcrnne all tno {'\'lclc111lll
!ls aftermath.
 l'Ol.rrn :s 1:-.:Tl-IE Cl.01\,\1.IS,\TI( lN l'ERIOIJ

I. l-la1h \loq~•·111h,u1, Ju /Jr/i·rrr,·of 111,·.\',111,111111

/111,·1,·,1
\K1111pL l!l:1'.!). p. '..!·I'..!.
'.!. Lq1;1l lll<'laplwr, are, or coursl' ,·ummonll" 11sc·d 111poliural rlisc1111rsc,.\\'h,·11 a i-:on-n,-
mem performs an lll.JIISlln,, 1,·e fn:1Jlll'lllll' call it a 1:r111w: h1111his 1s 1101111e.i111lic.-rallr: 1n·
know Wl' are 11s111ga 111e1aphor. Thus, '" sa\' 1ha1 1he \\'es1'.s polirr '"' Third \\'oriel ill'ht 1s
·cnm111al" because II kacls w 111illi1111s ur clea1hs 111 thl' S11u1h 111<·,111s 11,, gnisslr 11111us1,politi-
callr ancl 1t1<m1III'wrong. \\'e do 11<11 IISl' till' wonl lit<·rallr a11<lonkr 1he arn·SI a11d 1·x,·cu111111
or i\lr Cumlcssus ancl till' otlwr oflir,als ur th,· J/o,JF;111cl\\'oriel B,111k.
:1. Th,· prr~JCCllllll or S;1Clda111J·l11ss<·111 as a 1111111s1rouscn111111al C1J11ldal,o rl's11h 111au
assumpuon 1ha1 1he US 111ili1ar\' 11·asan11allr 111,111g us.-d 011 IJL•halr or th.- Iraq, pl'opl,- aga111s1
HS go\'er11111e111.Th,· 110111111 that because 111:1111· Iraqis oppost· lhl·1r gm·,·n11m·111 1he1· will
thercliore condo111· the killi11g or 1110,1100of th1·1r ldlow n111111n-111,·11 a11cl the cll'strur111111of
1lwir social 111fra,1ruc11m: lies al th<' sollffl' ol th,· 111111011 that _111,11n·cl,·111,u1<ll'd that tl1t·
allies marrh on llilghclad. 01·erl"ok<:cl is lhl' fart 1ha1 1lu· 11q.;,111is1·dIraq, 11pp1"11nm (11"1 10
.~peak or 1he p11puli1111111 :is a whole) opposer! any a11ack 11po11lr.,q. 1ss11111g :i s1;11,·11w111 111this
effect at thcll" Damasn1s llll'e1111g or Den:mber I !!HO.
·I. ,\111u11gs1Its mosi v1guro11s upp111w111s would ul" n111rse Ill' 1he realis1 Righi, which cli,-
1111ss<:s (corrcctll') th,· 111111011 thal law 1s <10111111;1111 1111111er11ilt11,11al al"fairs l"rn1111h,· 111w11IulIP,'
sta11clp01111of imperialism. Th,·,· glory 111US a111I l\'1•.,1<,rnallil'cl tl11111111a11"11 11r 1he gl11lw.
msis1111g 1hal nothing, such as the cle1ails or this 11r 1ha1 legal n,n·nant, should ,·hall,·11gc.· 1hi,
pnmary ,·1r1ue. It 1s, 11e\'ertheless, 1111purtan1 that 1d111lcsall- n:1<·,:111111 uf the \'ah1<·s or thl' rl'al-
is1 Righl - clircctl\' co11111crpusecl, as 1her an:. io those or LIH,Leh - clul's no1 li·acl 10 a ,krnal
or 1he fac111al ln11h con1a111ecl in tlie1r current ,·11·11· or the wort.I. For, h11w coulcl 1he1· he mu
or lune ,,·11h world p11li1ic1l reali11es when the,r ,d111ol 11r 1ho11gl11has lu a gn•;II ,·x1t·111"'"~"
ml/in,: th,· 11111,·by w;iy or a <lu111111a1111g presl'11t:t· ,11K,· \\'orld \\"ar II in lit!' n,n· ,·xrc111n·,·s or
!he m11s1pm,·erful wesier11 states:-
:i. See \\'. B. Callie. /'hifosoj,h,-rs,if l'mn· 11111/ 11,,r; Kant, C/,111.1111•1t:. M11rx, b1g.-l.1 11111/ "fohltir
(Cambridge U1111·ers11,·Press, l!JiH). chapter'.!.
li. On 1he histon- or 11a111ral-ngh1s 1heones ,11111IIH· place or ( ;rotnis wnhiu 1l1<·1rcl<:n,lop-
ml·ni. se,: R. Tuck, N,1111m/Hi~/,1.,Tl11·rn·1r.,(C;1111hrirlg,· Umn,rsm· Pn·ss, l\li\l). ( >n l:TDl1u, s
role w1Lhi11!he his1Drl' ur i111er11;1111111;il-rcla11<111s 1he11n-. Sl"l" F l'arkinson, r,,,. /'hifo.\()j,hy o/
lu1,n111/11mal Ud11iw11.1(Sage, 19ii).
i. For au ac:co1mt 111'this lheory. sec Telford 'faylor, :J11s1ancl U1\111stWars', ~I. 1'1. \\'atkin.
eel., ll,11; ,\fomlity 11111/ th,· ,\lilitarr /'mji,,.111111 (Wes1,·1cw, l!li!l), pp. '.!·1:i-:\H. :\., '.llichad \\'alz<·r
p1llnts ou1, i\larx. 111 l11s First and Scc1111cl ,\cldn·ss.:s 11r 1h,· l111er11at11111al 1111tin·
Fr;111co-l'r11,s1a11 \\';1r of fHiO, "'"' 1he la11g11;1geor ,1a1es ngl11., a11d kgalis111. 111111he"·
addresses c.111no1, or course, he 11s.,clas lhe basis lill' an n:p11s11·11mof i\larx1s1 1he11rr 1>11war.
l\larx wns acung as 1he secre1an· 111" an lntl'rnauonal thl' kaclers of which 1111h,· UK wen·
lracle 111110111s1s who h\" 1111means accep1ccl ;,1arxisL 1ln,11rr - a ran \\"ahzer fails 11111w11111111.
See :-.1.\\'alzer,.J,m 11111/ U11111s/ ll,1n (\\'es1,·1ew, l!liH), pp. li-1-lili.
8. l'arucnlarl\" n,ihll- 111the .1u11r11al/'/1i/11"'/'/J_1· arr,/ /'11/1/ir.-I.J/i11n.
!J. Parki11s1Jn, /'l,i/owJ,lry o/fot,·m,1111,r,11/Hd11im11,. I'· li!I.
10. This IS the ,ww held 111osi clt-arh· by those ,ve mar dl'scribl' as 'global Rawlsians, lik,·
Pogge. U11111 ts s1riki11gl)" not 1he new held hr 1he greates1 ren\'l'r nr Ka1111an lih,·ralism 111
the co111e111porary A11glo-Saxo11 w11rld, .John Rawls [1i111sdf. Rawls\ ,·nun, tl1<·on-, l"or all 11,
se~11IuIj.; 11n1vcrs:1lb1 ,_;e1h"l'alit~·. ,,. 111[Kl, a tlJ4,.•ory pn·n11s-;vd upon the .JUSlu.:c:ol' t.:xIs111Ig-
1111ern;i11u11al rel.i11011s and 111h,· appli<,cl 01111·l\'1111111 a11 ,·x1,1111g S1a1,·. .-\, l\n;i11 lbrn-
pnmts rnn: 'Raids d,H·s han: a hner di.sc11ssiu11 of i111er11a11un;il r,·la11<111s,wliid1 hl' co11-
ce11·cs 1111h" sp1ri1 or a pun, !!Ith n·11111ry liheral lik .. (;l;ulslooe, 11111c\'en 111;1ki11gcunn,s-
sions 10 '.!01h ccn1111T ideas tu 1he ,·xte111 or c11chi11g up w11h \\'01H(nM \Vils1111. II. llarn.
'/1wl.i/,,.ml Th.-111:i- "f_/11.,Ju,·(Oxfi>nl ll111\'e1·sit)"l'rt:ss, l!ti:I), p. 1:\0. Th11s Rawl, 111ak,·s ,:1111•
ccss1011s IO slates' rights 1heory a11cl 1·,·c11lO the legalisl 111<·1apli11r.\Hllini-:: 'Tia· hasir pn11-
c1ple of 1he law' of 11a11ons 1s a pn11c1ple or ,·q11ali1r. l11d<·p,·11de111 pcopl.·s urgamsecl a.,
slates ha\'e cena111 r1111rla111e111al,·qua] ngllls. This pr11u:1ph· 1s a11al11go11, 111clw 1·q11al
nghts or c11ize11s III a const11111m11al reg11m•.' Rawl.,, .-1 T/u·urr ,,r_Ju.,im· ((hl"urd IJ111n·rs111·
Press, !!Ji'.!), p. :lill.
 Tl n: C;\ 11.F \\".-\R .-\ND \\"!·:STERN l.lllEIUI.IS\I

I I. S,·,· 11,e .·111111,·,tl1/./wrl "lraq_iKt1\\'a11 . lkc,·111h,.-r I !1!10. II "''" 1111p11"ihk lo n·rifr

~uch fig-11res: rh,: ·lr:up ~on:r11111t·1n st·alcd ull Kuwait fri1111 \\'l '.'-ltL"r1,
0
_1our11alists on du.·
gr11111ulsor 111ili1ar\' S<'Clll'III' 111 1h,· l;1n· of a11 1111111111,·ni
alli,,il allacl. .. Thus .-\11111esl\'rdied
upo11 1,·s1111111m· from 1wopl,· ll'ho had l,•r1 K11wa11.Thi., l,·d IO 111an:nran<es. n,11ahly rhe
alh·g;111un 1ha1 1hl' Iraqis hacl ,h·liln·ra1,·h· kilh-d hundr<"cls of hahi,·s hi' n·111ol'lng 1hcu-
1nn1h;1111rs. Tlus s111n·. n·p,·a1,·1III' 11st·d hi' l'n·s,cl<enl Bush 10 _j11s1ifr war prepara1inns.
111n1<·d0111 to lw l:1ls,·: 11 1,·a., s11ppli,·d hi' an :l).';1·111 or lhl' al-Sahah n·g111u·, 1h,· prel'inu,
rult:r..,nl K11w:111.
J ~. lra,1 ... 1,.-g;aJd;111n 10 l\.11\\';uld,:nn·d front 1lu· 1e1-r111n-y'.~nlll"graru,u nuu lht· pn,nun.·
11r 11:i,ra 1111<h·rthe ( >1111111,u, Ei11p1n·. The l >110111,111, 11t·n-r n·cogu,s.-cl lln11Sh pro1ec111111· or
l,111.-.111a11CI11t•11lwrdid 1h,· Iraqi nwnard1\' st·t up hi' 1h,· llrnish al'ler th,· dism,·111ber111e111or
1h,· E111p1n·. (Tia· llntish. 111nd,·111allr, 1hn:;11e11.-rl10 1ake the \\'ho!.- of l\asra pro1·111n· 0111of
Iraq nnl,·ss 1he lra'II g11l'l·r1111u-111 apprnH·cl lill' tr .. a11·l'ns11n11g dfrcu,·,· llr11ish control lll't•r
Iraq, as I la1111al\a1a111.-xpla111s 111Th,· ()/,I s,.,wl C/111.,,·., r1111//hr U11,11/111io1111r1· oflmq:
,\lm•,·1111·111.,
.-1 S111r/1· of' lr,111 11111/
.1 ()/,I /.1111,/.-,/ C11111m,·nwl("/11,.,., 11111/ o( it, C111111111111/\(\, /111·athi1i.111111/Fm·
0/Ji.-,·,.,(l'n11r<'lo11 U111n·rsi11· l'ress, 1\178), p. 18\1. The llntish als11 tl1n·;11,·11ed to lakl' 1l1t·
li.1111lish an·a ;11111\111,11I lltll .,r Iraq 1111lessKing Faisal !,.\l'anll·d lln1a111 n,n1rol or 1111·oil
1ht"1l·.I In l~l:iS lhl' K11,,·;u11 l.eg1-.,bun:c:01111cil 11nan111u1u!',h·app1n\·l'd ~, n•(llll"~Li(,r Ktl\\"a1(s
n·11lte~r~111u11,nth Iraq: Ill 1lu· l"ullow1ng-yl'ar 1)u· Bnci-.1, s11ppn·ssl"cl ;111;u·uu·d 11pnsin~ which
hacl thi, as 11sllhj"clll',·.
I::. Set: \-'. l-ldcl. S. \lo1r)!;enh.-ss.·r aud Th11111as Nagd. ,·,Is..l'hil11w/1ln. J/orality 1111rl
J,,1,.,-1111t11m11/ :lfp11n (0:--J'orcl lln1n·rsm· l'r,·ss. 1\17-1). This n,ll,·n,011. ,·1·uk-11tll' rles1~11ecl lo
pn·wnt 1h,· au1hon1a111·,· lilJ<•r;1I,·1,·11·1111k,•1· 1ss1w.,. as 111tl'rpr,·ll·d h1· 1lu· 1·di111rs.,f l'hifo.,of,hy
11111/ !'11/,/ir .-l.ff,11r.1.111cl11d,·, ;111 ar11ch- 11111h1s l1>pic: ·Tli,· l'n11r1pl1· 111'Na1w11al St:lf-
ll1·1n111111;111011' hi' S. Fn·nrh ;11111 A. (;111111a11.
1-1.Tiu· u\·t·n,··lu·l111111i~I~- d1Jlll111:u11 fon11 ol lli\lJ011;il n,11...;1·11111~11l·.,, 111 1lu- .-\rah ,,·orld
1hr1111gho1111he lw,·1111..ih c,:111t1n lia., hn·11 1ha1 111'pa11-,\rah 11at11111alis111. Tl1<· ,·x1s1,·11n· "r
aI1 .\rab 11atio11w~1sa lwlit.:f .,harl'd h)' a spectr11111ul op11unn stn·1du11~ hu111 Ki11g F;.11sal of
Iraq 1111he Cu1111111111is1 11111·111,IIHmal 1hrough11111 1he l!l'.!lls awl II 111d11dl'<I1h,· ,\rahisis 111
1h,· llntish Fllr<'tgn Oflin·. I lo\\'en·r. th,· l\rnish conn·rn for oil and for ~.-op111itical senm11·
(th,· rn111e to l1ulia) h-d tln:111 10 a11 al11111s1n111q11,·policr III tlw (;ulf' r .. g11111,11a11wlv,·s1ah-
lishi11g 11r f'nsi.-n11g stall's lia"·d upon 1rihal-dn1;1s11c 1clen111i,·s.K11wa111111der1h.- al-Sahalis is
a,.,._..111po111t.
1,,. Fn·d l-lallida\', :lmhi11 \l'itlw11t Sultan, (l',·11g11111.1~17-1 ), pp. ,J:\ 1•. J:\.J.
J IJ. Th;:-. 1r;ult.•-on \n1uld IJIII :-.1111plr he ht•J\\"t.TII SU4"HJl'('OflUlllll" nglit:-. ;uul l'l\'il-puli11Ld
ngl11,. l,1111111(" hl'ill',·e11 1111·t'l\'il-p11li1ical nght> or 1h,· llli!J11ri1yor l-i.111\';111 , s.·111.,,1popula-
111111 ;111CI1lw 11111uir11,·.I .ih,.ralis111. p:1r11c11larh· 111th11w f11r111sh11,1ih- t» thl' 1.•1111r,.- 111>11011
of n1ll,·n1n· 11a111rnalwill. w1111lcls11n·ly \\'L'l)!;h 1h,· n1·il-p11li1,ral nght, 11r 1111·111111-li.11wa111
St:111.-d p11p11law,11 or K11w,n1 1·,·n· lu:avill'. 11 " 1111,·res1111µ; t11 IIOll" th,11 th,· 111a1,ir\\'11rl; 11r
lilwral 1h.-11r\' or th,· lasl 11\'n <ll"cadl's, John Ra\\'ls s .-1 Thmrr ofJ111t1n·. s1111pll' drn·s 1w1
adrlrn, 1lu- 1ss11,·or 11111\'111cll-li11e a nvil-p11li11<·,d ,·01111111111i1,· . .-\s llnau llarr1· 11hS<"rv,·s:
'Tiu· odd 1lii11g ahout R;\\\'ls ~ 1re11t111c11t or 1l1t· q11t:~II011 how a pa1 11n1l.1r n11n11111111ty 1s 1n
lu· dc·fitu·cl f11r lhc..·p11rpu.,L·s ol"~•1heor!· 1d".)11s11n· I:-i 1h.1l ht' clot·" 11111di~rll!'-~It ... Ra\\"I.,;, ...
111a,·beli,·l'l' tha1 h,· ,-;111d11dgl' 1h,· 'llll·,1111n liuw th,· n111n111111111· is 1111..- rldim·d. 11111LI
:,;1.'l'lll!-. lo 111t..· 1hat 1lu:-.1s ;111 arhi1rar\' 1u11\'t:\\'liid1 c111II0I hl' rlc·h·rtdt·,I w11lu11 thc..-da:un·.
lbrn·. pp. l'..'H-'.!\I.
1'i. <,!1w1e,I l,1· Ralph Sch11,•11111.111. 'Iraq ;11icll,11wa11.:\ l-listor1· S11pp11·,w11". 1111111<:oµ;raph.
;,,:,.\\' \'ork, (kioh,-r 1!1!10.
IH. Th,· ,\111,·1K,III rc.:1•·ct11111 111\'11ln·cla classic rl'plac.-111L·111 111p11li1i,·;1Ipr111npl,· WIiii lt:!,.\al
1111·1~1pl11,r h~· 1ns1s1111g: 011 1h,· Hlt.•;t1hat two Sl~p:1ra11·cases' were 111\'oln·d.
I !I. _I. S. \lill. ·,\ Few \\'11rd, 011 N1111-l111ern·11111111·. J S. ~!ill. /Ji11,..-111111111,
11111/ /Ji.1m11n,·1,·11I.

Ill (\'i·w Yllrk IH7:I). pp. '..''.\H-li'.\.

~IJ. Till· ~u1l1•1.."ons1.·q111.·11t1ali:-.t
alJ~lllllclll - 1h~11 ,·ou slu111ld_judgc.· :111 :1ct11111w11l111111n:gard L(J
11' """"''111,·nr,·s - has hl'1·11lar).';l'II' rliscn·cli1,·d a111011glihl'ral l'lhical pliilos11ph<:rs nmcenu·cl
\\'llh puhlil' pulin-. S,..- Rolll·rt F.. <:011di11.l'hi/11111/,hrt1111/l'11hli1·/'11/i,1·.<l •1111·,·rst1\' ur Chicago
l'n·,,. l!IH:I). Rawls displa1·, ;111n11.-l1ar;u·1,·ns1u· 11Tllat11111 111clis1111ssmg,11111-co11s.:q11<·11t1.ilis111
111.-1T/11·11rr1>/J11J/11·,·.
 l'Ol.lTICS IN THE Cl.( llt\l.lS,\TION l'ERIOI>

'.!I. Sl'L' 1111'arud,· hr Ruh<"rl Block Ill 1lw /11d,j1t·11d,·111. '.!I \lan-h l!l!ll, p. IO; and lh<' ar11-
des hr Re,hen Fisk all!I Ruh<"rl Block 1111h,· /11,J,'{l,.,,d,·111. '.!i :\pril I !1!11, p. I. S,·,· also \li.-ha,·I
Si111mo11S111lh,· <;,r,m/i,11J. l!J April l!l:11. p. 11.
s,.,.
'.!'.!. rln· /Jh.1,·n,,·,: '.!H .-\pril 1!1!11.
'.!:I. Thl' Kuwa111 gm·t-rllfllL'III has s11bs,·q11t·n1ly rleclarl'd a n·ch1n1u11 ,n lhl' 1111111ht·rol
.-\rahs (111a111II'l'all'sl1111a11s) 11will L'X)ll'l. l'alt-s1111i,111sha\'<· ti,rn1ed a larg,· propur11011 of dw
managcnal aml professional 1111clclll'da.sse, 111Kuwa11, 111d1<·public as ,n·II as rlw pn,•aiL' s,·,··
lor. and th.,,· c:11111111 easil)· h,· rqila,.ed.
'.!-1. Zhig111,·w llrzl'l.lllski. ·.-\l"il-r rhL· ( :an,·r D11nrmc·: (;,."s1ra1qi;ic S1ak,·, a11cl T11rlml.-111
Crossn11-r,·111.s 111till' t;uw. 11. R. Si11debr and .J.E. l'c11·r.,1>11.!'els., <:11111,·11r1,·111., 111lh,· (:11//:
Amii, 1/,'if/lllllli and (;Jo/ml /111,.,-,·.,1., (Ru111lcclj.\1', l!lHH). pp.'.!, :1.
'.!:,. This 1s 1101 111deny illl" 1111p"r1ann: or s11ch l111c111a1mns fur clo111es11c111a1:r11,·co1101111c
111anage1m:11I 111\\'esll"n1 Europ,· or.Japan. ,\nd any pow,·r ahl,· lo crn11rol ,11d1 ll11n11a1m11,
can exert a ~•gnifi('allt 111lh1,·1u·t.: on, fur exa1nplL\ at1c111pcslo hanno111s~.- 1.·cuuo1111,·polinc.-~
or
a111011g ihl' 1111·111ht•rs ill<' EC Ill pr,·pan11g 1h,· \\'ii\" Inward, lll<llll'larY 11111011Ill \\'1·,1 .. .-11
Europr:. ·rh·1,nuatrol thus ~l\'l'~ pulitkitl ll'n·ragc· u\·cr utlh·r g,on·r11n1cnl!-I.
0

'.!(i. S,·,· ihl' 11111°1"\'tcll' w11h Samih Farsoun 111i\liddl,· l'.11.,1 U,tmrl. no. J(i8 (/;11111an--F,·hr11an·
l!l!ll), pp. :,-Ii.
'.!i. See (;,-orj.\t·.Joffr, M,11·.mm'/;,r/11_1·(:lla1· l!l!ll )_
'.!H. Samir al-Khalil, l/,j111hliro(frar (l-)111d1ins1111, I !180); S<·t·also his anick 111th<' N\lUI. I I
.-\pril I !l!l I (puhlishecl i11 l.ih,'mlu111_18 April I !l!l l).
~!l. Khalil, N\1rn. 11 ,\pril l!l!ll. Titer<' is ;u:111all)"a 1'11r1h,·r slippage: Kh;llil's hl'lll'-l<'ilrisur
sqiara11011 or the pl'rson ol' Faisal I from his poli1ical n:gnm·. and c1>11s,·11111·111 ,·1·as1011ol a
factual account or wha1 F,usal's n·g1111,· clicl, 111favour or a11 mq11rr1· 111111 wha1 F:11sal's sup-
posed perso11al i11di11:11ro11sa11cl 111011,·es ,,·,·rr:. 11111Khalil's rcacl.-rs c:011lclm,1 hl· <eXpt:ctecl 10
spol this a11<l\\'011lcl 1ak,· his remarks lo llll',111 1ha1 !he 111011ardw ,a" politi,·,,t r,:~'11111·, cl,·1·is1n"
h· co111rolh:d h)' thl' llrnish, had a pn,gr"'"'"e. 111ocler111s111g prol"n,
:\II. Fran 1-lazelton. 'lrac1 Ill l!Hi'.1'. 111 C,\RDlll. .'i111/rlr1111.1lr,ur U,·,•0/1111011 .,,. //,•rff/w11'
(1.onclon 1!18!1), p. :1.
'.II. Elie Kecloune, Tiu· C:h11lht1111 J-/m1.\r'\i•r.\/1111
1111,I0//r,·r ;\/i1/dl,·-l~·a.,t,·rn.'il111/i1·.1
(U1111·ns11,·
Press of Ne1,·Englancl). p. '.!:,Ii.
:I'.! Ibid, p. '.!:iH.
'.I'.\. Sl'e 1h.- clispa1ch from Sloan, lla:-;hcla,l. 11 .full<' El:11, 8!lllg.llll/ I :iO I. <p1111,·d 111
l,..-cl11uni:. U1111/ra111f-lm,.,,· \i·r.,11111. p. -1'.IK
'.1-1.l,edoun,·, C/111/1111111 l/1111.11·I i·r.111111,p. '..!:,O.
'.l:i. lhid .. Pl'· '.!1\i, '..!'.18.
:lli. lhicl .. p. '.!:iO.
'.Ii. Jhicl., p. '.!'.Ill.
:IH. Khalil. 1/,tmb/i,- 1,fl-i-111: p. I i-1.
'.l!l. 1',·,hmnt·. C/111//111111 1/1111.1,·1;-,-_,11111,p. '.!Ii~.
-JO. FO '.Ii I /:,!.!'.II :i/ E 7IJ-[:,. 1111111ed111W. It 1.e\\'ls, '/"Ir,· /Jnli.,h J:'111/J1rr· 111 th,· ,\lid,//,• 1,·1111
/9-/5-/')5{: .-Im/, X111101111li\l/1. '/'I,,· Umin/ .'i/111,·,11)1(//10.1i-11•111· /111J1,·1wli.1111
{ll.\lonl l 11111·er,111·
Press, I !)8-1). p. '.lO\l_
•II. :'II. S. Hasan, 'The R11h· of Foreign Trad<' 111thl' Ecouo111ic Dewlop11w111 111"Iraq.
1Hli•l-l91i,I: .-\ Surely 111 !lw c:row1h ofa lkpend,·111 En,11,11m·. 111 i\l. ,\. C:1111k,ed., St11din 111
tlw /c'n11w111,,- of//,,· ,\/jr/,/1,·/:"mtJr,11utl1t·Ui1,· rl{ hlam /11 //,,· J•,-,•_,,.,,t
/-li.11,.,-,. /Joy (Kl'I. I 'Jill), p. :F,'.!.
:\nd such SO(lUt..'l"UIIOIHH' n·g:rt'","ilOll JJI ;,1g-nn1ll11rL' clicl1\01 gt.·l\t'l'ilti.:, hy W.l~' ur cu111pc.:1lSilllllll,
a class of urb,111 ,·11trepn·m·1irs. The 1:urdlurcl.s. 1\'110 l\<'ll1'1,11lr lived in 1he n1w, .:11_10,·111g 111<"11
lll'.\1' wcahh. co11s1111wd i1 ra1ht:r 1ha11 im·esti·cl. all!I as 1\1.Farouk-Sluglett and l't·tcr Sh1gle11
l'Xpla,11, the,· plar,~cl an esscnualh· parasuic r11lt: 1111h,· c.:n,1111111y whill' hcan11g cl1Jw11hea\'ih·
011 1he p,·a,a1111-r- h 1s i111p11r1a111to slrcss 1hat thes,· 1.-mk-nc:u:s w,·n· 1h,· din·n n·sull ol"
lln1ish policl<'S ,lurm:-; 1lw 111ancla1e a11d 1h,11. 111acldi1io11, thl' p11lin,·s had h1·1·11,·bhoratc·d at
till: 111111· Ill 1>rcll'r lo prlllhllT 1his m·erall rl'~llh.· i\l. F.1muk-Sl11~l,·1L ancl I'. SJ11gh·11. /n1r1Si,m·
(KPI, I\IHi), p. '.l:L
/958: l-i11111//,1,11/11ri11111111Jirl,1111nhi/1
-I:!. India Ollin· LP & S IO/·li'.!'.!/ l!J'.!0/8/l;:10:,, <]ll<>teclin Faro11k-Sl11gle11 ancl Slugl.-11, p.
'.!ii. Fnr \\'ils1111 ·s \'tews, set· Sir.-\. Wilson, i\lr.rn/m/11111111 /<Ji 7-1 'J20: .-1 n,1.1/, nt /.r,yflfli,·1
(l.011clo11 l!l:11). p. !Hi, quotl·cl in Faro11k-Sl11gli·11 ancl Sh1j.\lt·1t. p. '.!ii.
 TIii-'. <:t 1r.r:\\'.-\I~ .-\i'lll \l't•:STFRN 1.11\ER.-\I.IS\I 185

-J:1. FO :171/:1-IOli/ 1:19'.!:\I. qu111.-cl 111Farouk-Slugi<'II and Sluglell, p. '.!ili. As the lauer
1·xpla111:·-'Jln· p•~lic.ynf hols1,·nni:: 1he JH>ll'l·rsor the shaiklis n,11111111ecl 1linu1ghlllll 1hc 111ao-
cl,11,· anrl 1lln11an-h\' Jll'nod.,, ,111d laq,:,· la111lownershrp lwca111e IIH· sonal has,· of 1l11·
rq;-1111<· . . 111Ill<' pro1·111n·, 1>1'l,111and .-\111.lfa... ,n11n· of illl' laq,:1·,1 pnl'a11· ,·si.11,·.,m 1lw
:'l(iclclll' L1s1 came IO h,· li1t·,11,·cl,111os11\·,n·all'il ill' 1hc ,1rob· of a (l<'ll 1><·111·.-1·11 Ell!', a11il
l!l'.!:1 This prlll:l'ss n·,11hecl 1111h.- [i,n11a11on of l'll11n111111s p1wa1,· ,.,,,11.,,.- (lhid., p. :11).
In dw co11111n·as a whol.-. c1gl11llll'lll'rs hl'icl H:1!',,000acre,, - ahoul !Oi,000 an,·s per pcrsu11.
In I\J:,H '.!,-JHO.i11cli1·icl11als 1>11"111·cl :,:, p,·r n·111 of"all la11d.
-1-LSc-,.·1l;11a111. Tlr,· Old S11n11/U11,1.11" .-1/m•,·m,·u/s
11111/ rh,· l/,,,0/111111111,rr r,/ h111J,pp. i:1-1 '.!H.
-1:,. .-b 1111111·pn•n,t• 11:11111 ,, of 1hc>1' 1111...-,·sls.;11>1i-i111p,·nali,1 ;1111h1>r., 1i:11d111sin·ss oil; Ill h-
ers po111110 1he s1ra1.-g1c d,111gers or l,·anng ;\Josul a11d J,irknk 11111"r llntish cu111n,I. S,·,·
\lana11 K,:111.Oil awl J;mJm·,·./Jrili.1/r/',,Ii,-:,·a111/,\lr-wjml11111u111 Oil JIJ00-1 11211,(!1lac111illa11,1!17(i).
i:spenall\' ch. H; and. 011 lhe stralei,:11: di111e11siun.Jnhn llan,·1n. /111111n1. /::i:::,Jilau,/ /Ir,· ,\/i,1,1/,·
/:'a.1/.l111/1m11l l'o/i,~· a111/llr,•.·\fi,rn111lhof\liti; f'J/8-/'122 (i\larn,illan. l!JKI ).1·s1wnalh- ch. !I.
-lli. S,·,· Kli;dil, N\1W, 11 .-\pril l!l!ll.
-Ji. Khaiil. J.'1Jn11,/i,· 11/hm. p. I li'.I.
-IH. lli,pa1ch hy Randolph. :!I !ll;w l!l'.!H. H!IOµ;.O:\_:!I, q1101,·cl lw K,·do111w. /.'/111//,11111 //111111·
l·l·nw11.p. -1'.~H.
-1!1.Ki,cloune, Cl111//w111 1-Jm,.1,·lin111u, I'· -1:\H:st:<' also llatatu, '/1,,. ()/,/Sona/ 011nn 1111,/ 1/r,•
U,,m/11i11111111_r ,\fo1,,·111miI 11flmq. pp. 10'.!-·I.
50. Khalil. NYRII. 11 .-\pril l!l!JI.
:ii..-\. D. :ll:1cll1111ald.l:uf,ltm/,·, J:'xi/,·(R111·lll'S1e1;l!>:lli), pp. :i-1-!',fi. l~<"d1111r11· s ,·,·u.-;,111,11 ur
tht: a111111d,·111'tht: Iraqi stah· under tl11· lln1ish 1uwanls lht· pup11la111111 .,f llral c1111111n,, .ill
too fa111ili;11· li'o111alli,·d tn:a1111,·11tor Iraq 1ucla1·:'ITJhey m:re 1h.- go1·n11111<·11t 11111.,,·x:ih,·d
and lm111111lesspower, lhe others w,·n: th.- snhjl'l'IS who 11111st h,· prostrall' 11111l><:die11n·.The
texts or pn,..Ja111a11011sto 1he tribes III f<'n1h an· charani,nstu· and n·1·,·ali11µ;:Th,· i,:u1er11-
111cnI ch·s1n·!--111spare you. conu· 1lu~n.-furt·wllh all spt.'l'd 1u tlu: uflin·., 1Jf 1lu· µ;on·nu111·111
~111d riUl·r rour oh, ..cl;t'U{"L"; olh<.·n\'IS(' lhL' gun•nUUl'lll will puu, ....h ~·uu, a1ul \"UIJJ'S will 1w 1)11·
n·sprnrsihilitl'.· <:/1111/wm H,11111· l,·r.11<111.p. '.!Iii.
!','.!.Kh;ilil. U,tml,tir offr111·. p. '.!·II.
:,,\. Jhid .• p. '.!:,-1.
:H. IL is 1101cil'ar from 1h,· hook whl'thn Khalil is himsl'lfawan: of tl11·,.,urn·, or 111:is,-,on-
el)' theorr Ill till' politics 11fIll<' Eurup.-:111 nn1111er-n·1·11lut11>11 agarrisl d,·111u1T;JC\':11a111,·h·. IIH'
,,.,-ai11gsof (;u,ta,· lt· l\ou ~u1dol"C:11h0Jit·a,u~-Jilu:raJ n1rporalJ ...,u h'oJn Jiu· d.n·s uf Pio No11u
10 tl11, clt-nn1-l;1snsls of th,· l!J'.!Os.as \\'ell ;is ·ans1ona111· liberals' 111'ilw n1u111,·r-n·,·ul11111111
such as Ortci,:a y (;ass,·t. Ul1i111atl.'h the s111,r,·1·sgo had; to Burk,· and <I,- Maistn·. A 1-bss11-
0

t:01lll"lllJ)urar1· stall'llll'.lll 11flhese r.-:u:111111an- posi1io11s 1s to he 1<1111ul i11l.eunanl Schapiro's

"/i1iali1t1111111nm, whiL"hltasn · • &l goocl \\'urcl 10 s~1y Ji,r cle111tu-r,u.::y anti set·, Na1.1:-,111 as 1>11t.· , ,r ii~
011tn111H·,.
:,!i. Khalil. R,/111l1/i,of/-;•,11;p. I '.!O.
!',Ii. br:,l'l had startl'cl s11pport111g th,· l1;1r,a111lt-a,h-rship 1111111·1~1:,11,.11;11n111i-; Kuni, 111
sahutag<' 11·ch111q11esall a haw 11ear Ra111lt-h. Rafal'I Eira11, la, .. r lsr;1<:li ( :hid .,r S1al°J, ..n,11
p:rrcl a da1uil'sl111<·1·1siltu l\;11,ani's forn:s 111K11rclista11.lly 1lw 111111 I!lliOs lsr;u•l had h,·ui11H'
om· uf Lian.an i's 111a111 props. This a11cl 1>tlll'r cli:1ails \\'t·n· n:n·al<·cl hr \h-11;11:lu:111 lkgm 011
th<: lsra,·li 1101111·S,·n·11·,·. '.!!l Sq11t·111h,·r l!lHO (BBC Su111111arr of \\'uric! Bro:ulr;ists.
:\1l·:/1i;,:li, J ( lnt,lwr I !IHO,n1c<I i11l'ainck .'-i,·;iil', .·11111/,
l.011111111l!l/i/i, I'· '.!·Ul
!',7. 011 1his a11clolln·r '"Jl<"l'IS of the lahn111thi11,· poli1><·sor K11rdisi:111.\\Tlll<'II hu111 ;i pu,1-
111111 S\'lllJMlhellc IO lh<' lr;iqr C:I' aml hostile towards 1h,· Ila ath. s,•,· 1'1·1<·rSh1gl,·u. 'Tl1<·
Kunis', 111C::\RDRI. S,11/tla111\ Jmq (l.oml1111 I\IH!J).
:,H. Mam· or 1h,· 111ili1a111., fr11111this w111:-;
or the part1· ,11hs.·q1u·utll' .l"111i,d 1h,· 1';1les11111a11
111m·,·111,·111 111Jorcla11, 1·s1l<'nalh· the l'DFI.I'. 011 1he hi,111r\' 111'1h,· lr:up ( :1111111111111,1 i':1r1,·.
c11dutliug us rool."i u1 du· ShCa Suurh, .,t·c B:11~1t11\111u11u111t·1u;il
~\'ork. '.Flt,·(J/,I Sonni (.'/11H1·,
mu/ th,· 11,,,,dulwnarr ,\Jm,,·111,·111_,11/hwJ,
:,9. Se.- Dilip 1-liro. "J'/11· & K,·g:><1l'a11I. l!IH!I), 1'· '.!·I. 011 1h,· Hit-ulo-
I for (R1111tf("(li,:e
/.1111t•'.1/
1,:)' or thl' Sl11a CIIITl'lll. Sl'l" th,·\'(.')'\' 111ror111a111·l·.Jrl1t'l,· hr J·la1111a l\;ilalll: 'lraq·s
Undl'ri,:ro1111clShi'it,· ~101·,·111,·111.,: Charan,·nstrcs, Cuis,·s a11rl l'ro.,pen, . .-\lit/,i/,·l·.'111i/1111n111/
(:\1111111111 l!IHJ).
186 I'<JI.IT!< ~'i IN TIIE c;(,Clll:\I .IS,\TION l'ERIOD

liO. Ketlo11nt·. 01111/111111 1;-,-,,,,,,./1.'!!ill.

J1,,11_11•
ti I. Khalil, NYRB. I I :\pril l!l!J I.
Ii'.!.Hirn, J.,mg,,1 llill', p. '!-1.
G:l. lhicl.
ti-I. Irwt, acrcpl l'hnche ~larr·s accuu111 111her l'hapl<"r 11111h,· Iran-Iraq war 1n I'. ~brr. '/11,·
,\lorl,·m Hi.ft on· of fm1J(\\'esl\'I<:\\' I !)8:i).
li:i. For an ill;1s1ra111l11 or how 1hcs.· 111t,cha11is111sop<:ra1e 111 n·l;,11011s lwnn·,·11 1h,· \\ l'Slcn1
0

powers ancl Ea,1cn1 Europe 111da\', set" 1',·1,·r l;ow,111. '\\'<,-1n11 Enlllomic lliplo111.in- anti th,·
New E;isll'l"II l·:urope. ,\',w l,:fi 1/,,,uw (H'! (1111\·/,\11g"'1 l!l!llll.
=========9=========

The Theory and Practice of Neo-

Liberalism for Eastern Europe

Eastern Europl'·s market for policy ideas, suddenly opened 111 19H9, was
swif"Lh·cap1urccl hv an Anglo-Anwncan produn w11h a liberal brand naml',
This policv cg111vale11t DI fast food swiftly L'l"l'ctl'cl barriers to 01la:r nl'w
l'1llrants and cstahlishccl a ,·1n11al monopol\' on polic,· ad\'lCl'. 111 most 1arget
stales 111 the rcg-1011.\Vhile sonw tTll1cs ,·1c11·ll .is ha\'lng as much u1n1H.·ct1on
wnh West European liberalism as a Big ii.lac wnh hcouf bourg-1~11011.1t has
made up for ,uw ddiCll'IIL\' ,·alt1t· b,· superb ad\'er11s111gand
111 n11trit11111al
aggress1,·c salesmanship.
The public launch 11·,1sh.rndli:d bv the ,~·rn1,r11111.1"ion l '.hh .Januarv I mio
wllh a long arnclc lw Prolt.·ssorJcffrc\' Sachs or1-lar\'arrl. Under the s1gnili-
ra111 Lille or 'Whal IS Lo be Dorn:?'. Sachs \\'J'Otl' in lhl' St\'lt- ora 1.ernn or
cll'collccuv1satiun aga1 nst all Ihe assoncd 1'-lenslll•\'Isms or hall~nll:asures. \'t'.L
Ilw arlick- 1s worth re-reading for n remmcls us of the status of' ilu· debate
111Lowhich Sachs was 1nttTn.:11111g.It 1,·as about how the 1.\'cst should seek Lo
rt·shape the lire of the i:1111rcEast European rq.pon. ( >nlv t>IH'aspen of the
clchale and of Sachs's policr concerned the scq11c11et' or clomesllc changes
to be required or govi:rnmcnts 111the \'anous 111clindual stales. Indeed,
Sachs's programme was about crea1111g an 111tcrna1io11al t'll\'ll'U11111entin
whICh Lill' domestic aspect of l11s policy ,,,oulrl become the oniY rauonal
course for any g-ovcrnnwnt to pursue.
S,1rhs·s proposals wert' c111h11s1asucallvsuppurtt'd hv ho1h Anwncan and
Hnllsh polin·-m.ikl·rs and the\' ha\'e become l1011st'lmkl names 111Eastern
Europe: e\'ery R11ss1a11schoolchild learns about thl' ·:i Za1s1as Such popu-
lans,11io11 1s also widespread 111 western u111n·rs1t1L·swhere the policr 1s
boiled down (0 an ahstracLI\' lllll\'Crsal toolkit ror _DIY CllllSLl'UCIIOII or
market cco1101111es0111or Co111mu111sm:an 1111me11sch-anracll\'l' format ror
u111\'lTS1t,·teaching .. ·\t the same time, Sachs's ideas ha\'l' rcce1ved the very
highest accolades from till' :\11glo-Saxon acaclt·1111cworld. Thl' Har\'ard
Prolt.-ssor ga\'e a f;1111t111sst'ncs or lectures on h,s paradigm al I.SE, Tht:Sl'.

IH7
188 1'01.ITH:S IN Tl-IE c:U>ll.-\1.IS.-\TION l'ERll>I>

were subscquellli\' publisiu:cl ll\· ivIIT. He is w1del\· creditl'd with l"o1111di11g-

a m:w disnpline, The Eco11om1c Thcorr or the Transiuon. Since Han·ard·
a11cll.SE prokssors would IHI\' it and cn:11 scll 1t. le11· polin· mtdkctuals 111
the clt-J't-;11eciEast coulcl have the scll~conficlenu ..· w cln11bt 11s Sl"ll'lllific
cn:dent1als. 1
In truth. Sachs has new-r presented lus policy as either a toolk.11 or ,1s a
lll'\1' thcon-. But like all ril-{oru11s politr his dot:s um1a1n a morl' or kss
expliul 111oclel or the heha\'lollr or n:ll·\·anl actor~ and or !Ill' \\';\\'S Ill
whKh till"\' 1\'ill rn1cract Ill ~1ven cunt<.:xts, facecl with ~11·c11 constr,1111ts and
lllCl"lllJl'l'\.
Wl' will first try lo clarif\· what Sachs\ poliC\· model h.is actualh· hecn. We
will tlll.'n try lO examm<.: the ext<.:lll Lo \\'h1Cl1the mam n:le\'ant actors 1den-
tili<.:dIll the moclci have heha\'ecl in the wav Lhe Lh<.:orrpreclictecl. And in th<.:
lil-{htol"t11aLexpenencc we will auempt tu clraw som<.:0111clus1011sahou1 thl'
real rdauo11sl11p hl·twccn w<.:stcrn policv ,md the ideas propa~atl·cl lw Sachs
and his followers ancl sug-g-esLan aiternall\'C model for understanding what
has happened.
Sachs·s policy has had vanous names: shock treaLmcnt. radical Economic
Reforlll, Llig Bang-, the ':l Za1sias' or Shock Thcrapv (ST). Sachs himsclr h;1s
noL h1..·enhappy wnh a11v or these names hut has co111e to accept the lallL'r
and \l'l" will l"ollow i11m 111LIHs.

I Shock Therapy

S;tcl1s s 1110rlclhas the charactcnsttc problc111-solv111g· form falllili;1r 111polic1·

,lllalysis: ll savs, if"vm1want Lo achieve omcome A. 1hen \'Oil must get actnr ;{
LO proclun: output Y,which will then 1111cracL with ns en1·1ronmc11t 111such a
way as to ach1c1·e mllcomc A. The model makes assump1.1ons about the
be11anour and mouvauons or the rclc\'ant actors, abou1 how 1l1c1·will
respond to g-ivcn negat1\'e or positive 111centives and al,nul Lhc c0111cxt 111
which the,· act. We l'\'aiuatl' Lhe lllocicl br .1ml~mg whether ll rcall\' will
ach1en· ontcomc A ancl, if so, whether ll will ach1c\'e IL al ll"asl cosl.
Sachs fi1rm11latccl his modei to solw one big probll·111: how should Lill'
entire ex-( :ommumsl rq.{1011of Eastern Europe and the LISSR be rcorg-an-
iscci 111order to achiev1:, tn Sachs\ words, ·a rccm·cn· or human freedom
a11cia clemncrat1callv lmsed nse m liYing standards· :!
.-\ Yl'rY broad spec\n1rn of opimun, at least Ill 1ill' \-\'e:-.t,\\'nulc\ accept 1h1s
problem-ddi111t1011 amt desired omcome. Yet 111.1m·would he susp1nlJt1S or
a ccmccrtecl. wcsLl'rn-clirecLcd pian for rcg-1011al social ellf{llll'l'rtng to
acl11e\'l' tlus outcome. Raiph Dahrenclorf expressed L\\'o worries on ilus
score. !-le arl-{llt:rl that 'till" countries orEast-Central Europe han· noL shed
their CwnmunisL svstcm 1n order In embrace the cap11alist srstem - wii:111•\'L-r
 NF.0-1.IIIEIUI.IS,\I FOR E.-\STEl{N El 1ROl'E

that 1s. . !Lm\' creecl has won ... ii 1s the idea that Wl' are all embarked on
a _ii)11rfi1:,·111L11 an 1111certa111ruwre and ha,·e to work i>\' tnal and error
w1tl1111111su111tm11s which makl' ll possible Lo bring about d1a11~e without
1>i1111dsill'CI.
•:I nalm.:nciorrs r~jell!Oll or till' wlwil- idea 111'a \\'l'St...'1'11system is
an 1mpliecl \\'ar11111g- aga111s1social eng111c<.T111g to ad1te\'l' a l11ru:d clecollo;:c-
ll\'ISatHm. Sachs dekncls sud1 grand pla1111111H 1111the gro1111d~1ha1 the world
1s go\'cr11ecl b\' svstl'lllS (Communism a11cl capitalism) whosl' ma111 struc-
tural f't·al\lrl's or soc1occ,111om1c and pmH'I rl'lat1onsh1ps arl' perkctly
1111rll'rs1;111cLthll': ho\\'l'\'l:r ,·;1nahll' 111det;1il thL·,· lll'H•rtlll'll'ss h,I\T, so 1.0
spl'ak. till' saml' baste gc11c11c codes.
But Dahn-11clod"s second concern 1s the pnmac\' orrl'specung the ex1st-
m~ tiss11l' of srn:1ai institutions and tn strl'ngthen sonal inst1111t1011alisationby
mtroduu11,l{ openness: the free drculauo11 of ideas and the building or con-
sensus through debate, negouat1011 and compromise. This :1pproach would
place the de\'elopmelll ofa iq~al -~late and poliucal liberalism ahon: schemes
for systemic change: the latter slloulc\ g-n,w out of the · opl't1 souel\' or 'ci\'il
souetv' Sachs re_1ects this, saymg thal if the states or tin: rl'gion adopted
Dahrendorf"s approach 'nf open expenmentaLH>JI, I cluulit that the trans-
formauon \\'m1icl he possihll' al all, at least w1tho11l cos11'· and dangerous
\\Tong lllrtls 1
Thus, wl1;11m1glit be callecl Sachs·s 111\'l'rtl'ci Le111111s111 1s 111on· 1h:111a
matter ol' style: It relates 10 the enure melhodoloh'y or Ins 111ocll'I: lie •~ ;1
strong belie\'er that hl' - or at ieast the \Vesl - can plan 1n sitch a way as tu
enal>k the peoples of the a·gum to anml cos th- \\Tong turits ;111dhl' s1m11lta-
neousl\· helic\·es that Iert to their own collet:Ll\l' l'fforl.~ tile~· would Lake \\'1'011g
turns or 111dceclm1g-ht not opt for his goals al ;1Jl.Thl' corollap· ol tiles!' news
1s that the polic1· he advocates will entail a Sl'(ttlt:nct· or en·111s 111which 111st1-
tt1l1011;1Jco11soliclatio11 ancl democratic stabilisauon IJnng up the rear.

I) Palh m11f Out/mt al a H1-g//111all.1111•/

Sachs"s pulin· has had as its ol~1ect not 111div1dual stall's hut thl' cntirl'
post-Commumst region oJ' Easten1 Europe. He ac\\'ancecl l11s ideas in linl'
with the \'ll'\\'s of the American and Bnush go\'en1111c111sas to how tt> trans-
form Eastern Europl'. as a regwn. And he Cllllllterposl'd his regional g-oals
with an ahcrnau,·L· solution which do\'etailecl wllh till' French goH·rnmL·nt\
go;:11eral apprnacl1. \Ve ,,·ill s11111m,11'1sc
1hc n:g1011al polic" \\'luch Sachs
opposed hel<,H· tur11111gtn Ills alternative:

I) Encour.igmg tile former C1\-IE.-\rq~wn. 111cl11cli11g

thl' USSR, to rl'm;1in
li11keel 1.:co1wm1call\'.
!.?) l.ea,·m~ IIH' l·vol1111on of souoeco11om1c forrcs 111l":ll'h 1·01111tn·lo the
190 l'OI.ITl(:s l?-sTIIE (;J,( >Ml .lS:\TI< i;,; !'ERi( ll l

interpiay of forces withm the country concl'rned, w1tlw11111s111g \\'l'Stcrn

pressure Lo impose a particular S\'Sten1.
3) .i\·Iaking the emphasis orwestern poliC\' that oreCllllOllllC l'L'\'l\';ll Ill thl'
region as a whole, us111g,fnr exampk. a regumai cll'n:lopmcnt ha11k l<1r
that purpose.
•I) Rl:1ecung a pespL'CLl\'cof hr111g111gsome ex-Communist co1111tncs 111lo
the EC in the shon or medium term. Instead, ofkn11g a p,111-Europe.111
Confcclerauon embrac111g both the EC and the Easl. 111clucli11gtill'
USSR.

The alternative, Amenca11 approach, ol'wlw.:h Sachs was a pass1011ate ach'O-

c.1te, involved:

l) Breaking 11pthe Comecon n:g1011 and above all, breal;.ing East Central
European counmes from the l'SSR.
2) /\·laking- a root and br,1nch switch to ;1parucular l'orm nf c1pualis1 ms11-
tuuonal structure 111 c;1ch state a precondition li1r normalis11ig n:latH>ll!>
with that state.
3) Therefore imposmg a l111i:>-and-spokesstructure 011 die rdauo11sl11p
between l11c \Vest and East Central Europe,'' wnii each targ<.:t sl,ll<.:111
the n:gm11 relating- lO thL· r11l1cn,pnnupall\' via lls rel,1tmllsh1p 1n1h the
western hub.
4) Starung the process of reg10nai transformation Ill the states with the
most poliucally sympathellc governments a11clthen usmg both negatwc
and pos1ttve incenti\'es to extend the required mix of clomcsllc policies
across the region as a whole.
5) The c11un: process would he carnecl forward hr the c,1p;1c11rand will or
wcs1en1 states to' pro\'lcie, 111 thl: 11ia111 via their muitilateral orga111s,1-
uo11s. the nccessar\' pos111ve IIKentin:s li.>rco-opcrall\·c gm·cr11111e111s
and constram L'i for u11<.:o•nperau1·egm·en1mcn 1s.
Ci) The revival ol' econo1111c acll\'lly m co-opL'rative target states \\'ould take
the form or trade-Ice! gmwl11 din·necl wwarci \Vl'stcrn F.uropl', com-
pensaung for Comenm s collapse.
7) Co-operauvc states would ga111 full access LO the market or the EC
(parlly through radically changing some or its kc1· 1nstituuonal pil-
lars, such as its tracle regime and Common Agncullllral Policv). vcn·
suhstanuai economic ass1s1ancc and eventllal mcmlJcrsl11p ul' a gn:,lllv
enlarged EC.

Sachs's 1990 anicic outli11ecl this ent11T ;1pproach with cogenc1·. He da1111nl
that keepmg ihe Comccon re~1011 wgethcr ll'OU!d be s11h-11p11mal:till· 'East
European common marl,t·t 1h;11some su~gest as a precursnr to 111tq.\T:tl11111
wnh tlH: \-\'l'st would s1mpl\' he a poor mans club' I-fr Ihl'rl'li1t(· tlr~l·rl 11s
 :'IE<J-1.IBERAI.IS~I FOR E:\STFR:-- El1ROPF 191

hn:ak-11p and 111 clTL'cl 1he stan or a cornpl·ti1ivl' race IJ\' East European
start·', io"pn·"j)arc 1hemsl'lves for clin·n e111n· 1tl11> the \Vest European markel.
ScnH1clh·. Ill' n'.JL'CLL'd11uxecl ur hvhnd forms or sonoL·co1101111c sys1cm 011
rhc grn1111cls 1hat Markel Socialis111 had pron·cl 10 he unworkable: the East
Eurupl';lll states 'must rqcct ideas about a '1h1nl war . ' and ·go
stra1gli1 liir a ll'L'SIL'rn-s1yle market t·conolll\'
0
I-IL'urged radical reform 111
,;

1hc H: It> at-colllllHicbte an export surge from 1;11gl'l states a11clcalled liir an
llllPI t'Ll'cil-11ted dL"grl'e or ru11di11g- !"or t"o-op1:rali\'e Sl:t(l'S from WL'SIL'l"II
so11rc1·~-cspenallv l"rom Cennanv.
Sach.~ was able LO point out 1ha1 !us model was alrcadv being applied h~·
two s1a1t·s m the reg1011. m I q9o: Yugoslavia and Poland: ,1s Sachs, who had
hcl'll aclns111g the \'ugosla\' g-o\'crnme11L 111EIWI and had then 1ra11sfr·1-red 10
Poland. L·xpla111ed: 'Poland will hnng in the lirs1 rompn.:he11s1\·e markct-on-
e11tecl reforms m Eastern Europe. \'11gosl;1na will undertake a simil;ir
progr;1 Ill lllL'.·,
The _\11wnca11 approach as ar11cula1l'cl lw S,1d1s was. ol' courst·. aclopll'd I)\'
Lhl' (:7_s Its kc,· l'll'n1e11t - thl' fra,!{llll'l\la11on of 1hc Collll'C()II n-g1<m ;111d its
repbn·1t1l'11l IJVlmh-,mrl-spuke reiatHnls h<.:IWl'l'II1sol,11t·d eastern states a11d
LIH· West. has subsequent!\' been larg-eiv nalur,disecl Ill wcs1ern public and
ac:tdl'1111r discourse. Debate about ST h:1s thcrl'lw been rl'duccd lo cos1-lwn-
di1 ;11uln1s ol' whether 1lie spokes slHH1lcl .ircepl \\'eStl'rll ronrli11011alitv or
allcmpt .ill 1solauon1st policv. or LI'\' some possible halhva\' house he1wet·11
the two.
Thl' frag-mcntauon of tile Comecon rq;wn ma\' seem as 11a1ural as. sav,
the hos1ilil\' or S(·rhs. Croats anrl Bos111an i\lusli111s Ill the l~l~IOsor tin· hos-
tilit\' nf"tht· F1·e11ch towards the C:crrnans 111IIH' late l9·l0s. Bui 10 believe 1hal
is 1u 1µ;11orl' 1ile capacny of the \Ves1 10 shape 0111cumes. Tlus capacm· was
usl'rl h\" the LIS to hr11114 France and (:ermany together. As Richard
1-lulbrnoke. 1he .-\nwdcan Ass1s1;1111 Sccre1arv 0J"S1a1t· for Europl'all .-\!fairs,
h;p; ren·11tl\' po1111c<ltllll. tlus c.1p;1n1,· was not used 111\'ugoslana and !Ill'
rl's11l1 \\'as, 111l11s \'1e11·.'the greatest collen11·c scu1nt,· failure or till' \\'est
SIIHT tltt· I ~l'.Hls'" And western 111llt1l'IICl'was usl'd lO encourage thl' fr.1g-
mclllallo11 ol" the Cnmccon region 111I ~190-~II. Sachs was pan of 1hal erli1rt
or t·11co11ragerncn1 and he ,1ustilil·s 1he break-up 1101011 Ihe grou11ds 1ha1 ll
\\'as bm111d w happc11. h11L011 Lhe growuls d1:1t II l\'as dl's1rahk from ;111 eeti-
1mm1c po1111 of \'ll'II'. The policr did IHll oppose a slide towards nauonal
aulardiv: 11 encouraged a ronditHlll ol' nallonal autarchv from which 11
hopl'<t 1ha1 agreeing western terms li1r huh-and-spoke 1111egr,1110nwo1ilcl
ap1w;11 1101oniv the best but e,·cn thl' nni\' rat,"'ial cx11. .
Thus. ,II o1 n·g1onal lel'd, the palh 1,1\·1hro11g·h 1lw gradual al>surpuon or the
stall's nmn:rnl'cl 11llo the westen1 lTOIHHll\'. 111su111t11111alised 111 lhl' \'anous
11111ltila1l·r;iloq.:·,1111sat1011sand cspenallv the t-:l'. The l'lld prod11e1 l\'otilcl he
a 1111ilic111,H1111'Europe in a s111gk (rel'or111nl) Eli marke1. Tlus w1111ld
 POI.ITICS IN TI-IE GI.Olt\l.lSATION PERIOD

generate. 011 a rq~1onai scale, the desired outcome of prosperous capitalist

dcmocracv.

If ST's pr<\Jected outcome m each state is dcmocraucally-based increased

linng standards and freedom, the output or Sachs's policy is msutuuonai. 111
Sacl1s has often namccl ll as a 'market ec,J11omv' or 'capllalism' Yet closer
exam111auon rc\'eals that specific state-111sllLLllionai forms are the central
output goais nr ST at 1lw level or a smglc cmmll'Y, not c1p1talism as such. l-ll'
puts m,1Lters as follows: '.-\1 the base of all of 1h1s transform,11io11 [is] .. , thl'
idea . that the post-Commumst world ha\'e the potential 10 g-n1w more
rapidlv than the clcvciop[cd] 11 world ancl thcrcbv Lo narrow the gap 111
livmg standards, if thcv t1armonisc their economic msutuuons and .10111
their ccom1m1cs to the ~lobal econon11c srs1cm.' I'.!
E\'en on the occasions when Sachs sars his g-oal is simply· capttalism'. 1:1we
disco\'cr that he means the vcry parucular 111stituuonal matnx which
cxcludcs most capHalisms throughout history from qualifr111g as capitalist at
all.
Sachs tells us that 'the mam precepts of cap11alism [arc] open trade. cur-
rencv com·cnibility, and the private sector as the engme of gTmrth.' 1·1 Br t.l11s
strange formula, ·western Europe was not obev111gcapitalist prl'ccpts before
1958 (no convertibility) ancl the USA was not following cap11alist precept!i Ill
the i11ghi\' protected mterwar period. These are thus the precepts not of
capi1alism but orSachs, ancl two out of'h1s three precept~ could in theory he
applied without a capitalist economy at all: they arc to do with the l'.Xlcrnal
economic rciattons iii' states.
His dcs1recl output 1s f'unher re\'caled tn· the six 'core n:forms' that hl'
tells us must he ach1cn:rl: ' (I) open rntcrnauonal track: ('.!) currencv con-
\'ertibilitr; (") pnYate ownerslup as the mam engme of economic growth;
(,J) corporate ownerslup as the dommant organisationai l'orm for large
ente1·pnses; (5) openness to frireign 1m·estmcnt; and (li) membership ofkc\'
international economic 111stitutions, mcluding the EvlF, thl' 'Norlcl Hank.
and thl' CATT . .' 1" Thus, four of his six planl,s (numbers I.'.!, :i and 6) an:
about c11angmg a target s1atl'·s exLL·rnal poliuco-eco11om1c rclauons and
one (1111mhcr4) is about a parucuiar form or capitalist ownership: the form
wluch cnal)ies compaml:S to he bought ,11lCIsold easily. Only number '.1
rd'ers to what would normallr be meant I>\' capitalism. In short, the output
orSachs s model is a verv specilic polittcal economy: a state as open as It 1s
possible for ii. to be to the forces of internauonai economic operators: a stale
w1th a globalised instituuonal structure, Lilrou~h which till'. resources or
wliat he calls 'the global mamstrcam l'COllolll\' can llow
 Nl·:O-IJIIE!Ul.19,1 FUR L\STERN HlROl'E

IL1s 1h1soutput wl11ch lavs the basis for the desired outcome: 'In effect, by
n:10111111g th~- rest. or the global l'CD110mv,the\· [ i.t·. the cotmtnes concerned]
arc ahlc 10 import some orthe prosperity from Llw rest of the world. ll.~ually
through the 1mponauon ornew Lcchnolog11.:s.organ1sallonal paucrns and
fi11a11n· lti Or agam, when the target staLt·s arc 'opencd wide to llltcrna-
11onal trade· a11cl Lt> 111Lcr11auonal capital, the\' will gam 'the new
1ccl111ologws. managcnai talcnL, org;1msatio11al methods and linancial cap-
11aineeded w m·c1-co111ethe dismal economtc kgacv of the past -.JOyears·. ti
( :rca1111gthe free trade rq.\'unc and the ng-JH 111stitut1011aiand economic
comliuons to attract fi.irctgn direct lll\'cstmcnt (fDI) arc the core omput
goals for generating the cicstrcd outcrnnc: prosperous cap11alist dcmocra-
etcs. Together, the\· will produce the crtinc11c1cs for growth.
Sachs s thcml' has l)L'Cll rcpcatcd urclcsslv I)\' American diplomats and the
ortinals orthe lntcrnauonal Finanoal lnstituuons. As the US Ambassador to
1-1ungan- put Jt: •I haw often been askccl wll\' there 1sn'ta new ivlarshall Plan
to help ( :l'ntral ancl Eas1ern Europe. Well, there is - It ts here - and It 1s
called prt\·ate forl·tgn 111vestmenl Fon·1gn 111vest111l·n1creates Jobs,
enhances prociuctint\', generates cu,nomtc growth, and raises the sta11darcl
or linng. It bnngs new tcchnolo:-,11·,new management tcch1119ucs, ncw mar-
kets, new products, and better ways or doing husmess.' 18
Anothcr ST cnthus1ast,.Joh11 I .lonl, has bccn pan1cularl\' cr111c1lof thosl'
(on the l.cl'L) who fail to grasp the link between ST ancl the rcalitv or global
capital. .-\II states must create opcn 111stituuons that can lap into the huge,
mobile capital resources 111 the wodcl economy: 'The world in which choices
are mark a hundred tm1cs a clav as to which economy millions or billions of
dollars arc 1m·estcd 111.the world 111 which com11111diucssuch as cars and
computers and piancs are pul together 111 one local.Ion from pans made 111
a 1housanci; the worlct in which nvcrs or data flow to and frn across "borclcrs"
hcadnl.\' mformation that a wilderness or KGBs couicl not analyse, or even
rapture - tha, ts the world inr.o which the Russian rerormcrs had to struggle
to 111serttl1ctr countrv.' 1!'
Failure to adapt to the rcalitv ofg-iolJalisation will lead, m Liovcl's view, to
disaster. 'The Woricl.' he savs 'would not tolerate a '"special" Russia ir spc-
dalness meant an unconvcnihll' cu1-rcncv, an unreformed inclustnal
structure a11rla hostile 111\'l'Sllllctlldi mall" , .. •~o
The 1·1s1onor tappmg 11110th<: resources or global capitalism to mod-
cn11se the economy was a powcrrul mouve for Eastern supporters orST, as
Yt:g-orCaidar illustratt·rl in an mtcrvicw wnh thl' 1~·nJ1101111.fl111early I 99~._JHSL
alh-r Ile had taken ch,irgc orthe Russian l'CononH'.
Wlwn the /:'rn111J1111J/ asked 111m whether the Russian people would accept
the likclr 'cconomtc shocks' or ·an cxtraordinarih· cliniculL Lrans1tion·, he
seemed unaware that Lhc1· were referring to the slump which ius policy
would cause and 1ho11g-htthat thl' shock would he the floocl or FD! that
19-1 1'0I.ITICS IN Tl IE CJ.011.-\1.IS.-\TIO~ l'ERIOl 1

wu11id e11g11Ir Russia. He 1heref'o1·e n:sp111Hlcd bv savmg: '11 1s hard to f"el·I

threalene!I hv a possihilit,· rhal, sa\", Gcrmam· or France will buy up 1he
c11lire nH1llt1T .. We arc aiso diffcrcmfro111 East Eurnpeans. We don'1 han:
so much xenophobia. The social and poliucal prohiems connccred with
l"ore1g111111·L·s1111e111 are easier here th,111. li1r 111stance. 111Pob11d. which 1s
pn:ocn1p1ecl ,,.llh 11srei;ll1011sh1p w11h (;er111a11\". Thal 1swll\· I rhmk 1ha1 our
ope11111g;111cl m1egratio11 llll<> the western world 1s a i11stonral a11d sonopo·
li1ical chance for the West and for Russia also.'
But Lill· really i11gc111ousaspect or Sachs·s wod;. has been die \\";n·111which
he has_1ustilied the s11drle11open mg- or t,H"get eco1101111es10 global rapnal as
1lw 11c1.:essan·lirst sleps 111gm·ernnw11L polic\" l"or what \\"l' would 11ormalll'
thmk oJ' ;1s cq)llafism. He _1ustilies a sudden sw11ch 10 l"n·l· 1r;Hlc; earl\" nm-
,·enihilit,· 1s.1ustilied as a means to anchor world prices rn 1hc domesuc
context and as a springboard to cco1101111crcv1,·al 1hn111gh tr.ale: and FD! is
indispensable for pnvausauon and restructuring. All western a111.lwn11L·s
han:.1011u:d Sachs m msisung 011 these aspects or his pol in·. The role orFD!
1s parucularlr sLrcsscd. Thus Lhe_10111l sludy br 1he Ji\,!F. lhc World Bank. 1he
OECD and 1he EBRD oJ"the SoneL econ om,·. carded out a1 1hc behest or1lw
(;7 in 19~!0-91, prnntecl 0111that l"orc1gn din:c1 1m•estnH.·11twould he· crucial
Ill the transiuon' '.!I The OECD concurs Ill 11smv11stuct,, that IL1s 'crucial to
Lhe process or tra11siLion 1.0a market cconomv' ,'.!'.! It also adds 1hat. 'the pn-
vatisaurn1 prnccss must cxtcns1veiv rel\' on FDJ'_'.!::c:rcating- the 111st1tt1l1011al
conclitiom for FDI is thus IH>l 011lv tlw omega of ST: II 1s the alpha as \\'ell.

It is prccisl'I\' bei:ausc· Sachs s g-oal is an 111sL111ll1011al

orckr radirally open lo
g-lobal {·ap11alist forces that the central aclors 111ST an: gon·r11men1s . .-\s
Sachs l:xplams, ·marl,l·ts spnn~ up as s1>011;1s cc111ral pla11111nghuream;r;1ts
vacate the liclcl'. '.!-I But to achieve the ng-111kmd or cap11alis1 market ms111.11-
tions rcq111rcs the susta111ed applicaLion or political ancl sonal c11g-111L'l'1"111g-
bv gon:rrn11e11ts in the taq.{cLslates and in Lhc \-Vest (the latte1· opcraung i11
the 111ai11 thrnug-h their muitilateral insmuuons). Thcjomt ;1ctu111or eastern
and wcstcn1 l40\'ernmcnLS 1s 11ccclcd lu lrn.:ecl the nght lm111clof cap11alis1
pdvatc sector and to auracl the mtcrest of"wes1er11 giobal capual.
Sachs 111s1sts011 the n·nLralitv or western governments: ·success 111till'
economic 1ransl"ormauo11 will depend not onl\' on 1he East. but qu11e r1111-
clamentallv on the WesL as well''.!,, I-le cndll'ssl\' lis1s thL' \Vest's power
resourcl's:~,; the capacnv lo open or closl' thL'II"markets lo Easl European
products: to ~lcncle 011 debt, on ~ranl aid, on loans, and 011 the 1erms for
loans fiir polit1cal as Wl'll as ec1mo1111cpurposes, on tecl1110log"\"1ransf"c1·s,011
n11Tcnc,· support etc.: lo rleciclc on entry or exdusmn from 111Lernatio11al
 :--iHl-1.IIIER,\I.IS;\I F<ll{ E.-\STFR:'s J-:l,I{( >PE

111sl1tt11io11s.10 :illm,· eastern workl'rs 10 ll<1w ll"eslwards . .-\11lht·s(· gwe west-

l:rn g<i'v(.-rnn1ents lrl'mendous baq~a111111g-power_:.!,
The po\,·er pnli1u.:al clement 111his pulin· is rra11kly ack1111wlcdged by
Sachs: 'the problem or n·J"nrm 1s mostlv poliucal rather than social or C\'CII
eco110111ic' :.!HThe 1;1sk 1s tu change an t·11ure social/insllllll1011:tl order ancl
power and conlliu will Ill: absolut<:lv n:n1ral to the proCt'.SS.
This centrali1,· ol"wt•sfl'nl power ha~ pro\'lik(•d sharp clt·hatt· ;1mong-st ST
supporlt·1·s on..- Ille pnTIS\' an1ndat1011 01"11q.~;111reand posrm·e 111eentrves,
a cleba1e large\\· n·rnn:cl 011 diffi..·nng apprl'ua11011s or
lhl' 111011\·auonal fac-
tors gm·er11111g the lil'11a\'lot1r or Easl European go\'er11mc11ts. S<1me sav the
0111'· efft:Cll\"l' 111ce111ivesart' negall\'e, l'xclus1011arv 011es.:.!!1 Sachs lumsell"
disal-{recs, 111s1s11ngthat onn· a govcr11111c111has publicly committed itselrto
ST and la1111ched the prnl-{ramme, 11will have the will to follow through lrnl
11Jadequate mea11s .. -\1 1l11sprnm the West must prnnde large f11nrls to help
the g1n·1.:r11me111with lTOJH>llllC and politKal cr1s1s rn.111.1gl·nw11t. ST thus
requires that wcstlTll g11\'lT11mcnts will pr<mdc grants li,r targL't stall's' for-
eign exchange rl'sern·s. 111011cvfor soual :-.t·cunt,· pan11c11ts. ·c'.a11ccllauo11 ol'
most or the debt owed to \Yestcrn gon:r111ne111s and banks'. lo11g-tt·rm rievel-
opmcn t linance fur which 'Cralll aid 1s again neec\ecl. So too is !"rec
mm·e111c1ll orlabour westwards. They must also throw upt·11 tht•ff markets to
the I•:ast. Failure h\' western gm·ernments to delin·r at this po111t. savs Sachs,
\1·ill lead to cnrnmalitY. political cxtrcn11sm. CIYil unrest. hypninlla11011,
cap11al flight, and, 111liIL' worst c;1ses, nvil ll'ar· :w Thus li,r S.1rhs. 1111ccST is
launched 111a t.1rgct cou111ry, lhe \\'es1 qu1ckh· has effcntn· po\\'L'r on..- the
fate or the target st.1tc's populaum1.
Yet there 1s Olll' large gap 111ST i11 1l11s.1rca. Lengthy discuss1011 or the
nght mix or carrots and sticks lo ensure compliance b\' eastern g0Yt-r11-
111c111ssns hcsidc an almost complete silence 011 thl' carrots and sucks to
make wes1er11 gm·en1111e111s' beha1·m11r also comp!\'.
There are two pPssible explana111>11s f"pr this silence. One 1n111ld he that
thl' end pruduu ol"ST in the East would lmng such largl' tTnnun11c ga111 for
1wstcrn lllll:rl·sts that 11C1 sucks are IIL'L'ded to l:nsun· the West oilers gc11cr-
ous ass1st:111n·. \'et Sachs does not. argue tl11s: he remains silent 011 the direct
eco11om1c hencli1s 10 the West or his pulicr. Instead he has suggestecl that
western gmTn1111en1s can he dnn·11 111tire hv political nlcals e\'l'll when thev
entail so111e en11w1111c cusl. Thus 111I !l!lO he suggestl'cl that E(: l-{ll\'l'r11111e111s
would encl the (:1i111111011 .--\gncultural Policy because or the dream of a
11111tcd Eurnpl·: 'The l·T will _111s1 han· 1,i accept that frl'l' trade 111Polish
hams 1s a pnn· IO he p.11cl for lin11g 111 a 1111Hl'ci aud d,·1110<-rat1c Europe.'
.-\11d he cxpl.i111s wi11· the Cer111a11 g11Ycn1111c11t111paruc11lar will be 111oti-
\'atecl to transrer HT'' larl-{l' s11111s10 Eastern Europe: 11 will hl' liectusc of
America's ca11ccllauon or FR(; dcht 111I !l:'i:t an art which laid the basis for
(:crman\''s 'spectarular economK n·c11\'t•1T' ::i But\\'\' should probably not
1% 1'01.ITICS IN Tl-IE l;um.\l.lS.\TION PERlUl)

take these remarks at face ,·,ilue. Sachs 1s more plausibly 1mply111ghere that
•lhe EU and Germany will respond in the wavs reqtured bv his policv because
Ame1-ica will erlccllvelv exert the required pressure upon them to do so. In
other words, for Sachs, the USA will play the role assigned to ll 111hegc-
mo111cstability theory: 111 its own hegemomc 111terests, it will force Lill' West
European states to be true to their own long-term 111terest III aclw.:v111ga
gtol)a\ised world economy.
As l~tr as economic operators arc conccrnect, Lile same patt1..·r11emerges:
the need for rather brutal coercion of state cnte1-prise managcments and
employees m the East while we can expect large flows or monev ancl tech-
nology mto the target economy from western TNCs once the nght kind of
msutuuonal framework 1s 111 place. The mournuonal factors in the behav-
totir of western TN Cs arc left unexplored.

4) Tlw fotrrlor//i11gWlll'tds1!{tJi,,Narw11alPoli<)'(~yrk

ST has been popuiansecl b)' Sachs, the Il'vlF and others as the threc ·-tsa-
tions', now familiar tu every schoolcllild in Eastern Europe: liberalisauon,
stabilisauon, pnvatisauon. More recentiy a fourth, linai step has been added:
111stitutionalisauon. But this is to express ST as a linear set of steps by a
singic actor - the target state's government. Irwc ;u-c to recast the poliC\· as
a moctel orinteracuon oractors with each other and with their environment
we get the followmg .~equcnce:

I) Thc liberalising/stabilismg shoe!,.

2) The international shock.
3) Privatisation a1i'clFOi.
-I) Trade-led growth.
5) Political/institutionai consolidation and growth.

V11c will exammc each of thesc mterlod.ing wheels m turn.

1) TIii' do11wst11·
{ibemfi.Hll!{/slabilis111g
slwch

The domesuc shock ol' ST is a double one: first, the sudden libcralisation of
pnces and slashing of' state subsidies, couplcci with the impos1uon orwage
controls and second, a \'Crv ught monetary ,111clcredit squeeze.
Sachs follows 11co-class1caiorthodoxy 111v1ew111gthe sudclen 1111pos1uo11
ol'
clccontrollecl pnccs, cumbmecl with wage controls, as bcm){ a creauvc
process to proncic a more allocau,,cly eflinent distribution of prodt1ct1on
factors than was pronclcd by Commumsm. Thus the pncc libcralisation
shock is a stimulant to growth, not a deprcssant. The credit squeeze and
 :'-IE0-1.IBER:\I.IS/.I FOR !•:.\STERN EUROPE 197

ug-ht mo11c1ar\' poliq· docs ha\T a dcprcss,mt dlt·ct, b11t 11 1sdcsigrn..-d al)c>Vc
,di lll·l'.HSurc-1ha1 l'tllcrpnscs arc li,rced tu n·slruclltrc h\' la\'111guff workers
rather than lm1-row111)!; tlll'.lr wa\' out ol' diniculllcs.
:\11 1111crcsung-feature or the polic\' cn:le is the /'act that the libcralisa-
lHlll/sLabilisaLion shock 1s Lo occur before the dc\'elopmcnt of enhcr a
domL·suc group or mo11ev-cap1Lalists - people who have accumulated large
q11a111iticsor monc,· to be used as cap11al - 1>1"a domcsuc S\'SLcmof linancial
m.irkcts. Tints slate en1crpnscs will 1101be able LOrespond to the .~hock by
u1111h1111ug ·c1m,·ns11.1111.(or1hc worl;. fi,rcl' wllh horro1,·111gfor i11n:stmcnt 111
11c1,·plant. All their restructuring d"fi,ns will thcreli:,re be concentrated
upon one prorluc11ou factor: labour and Its price.
Allhough Sachs says litllc about this there rs thus a central sonal dimen-
sion 10 the liberalis.illlm shock: a sudden. dramauc weakening orthe sonal
power or the mciustnal workmg class: the end of stale suhsrclics while wages
;ire controlled involves a la1·gc fall in living standards; price clccontrol decp-
l'llS 1h1s fall anci the stan or uncmplo,•menl co11solida1es the shirt Ill 1hc
en Lire balance of soual power.

2) n11,
s/10d1lllil'rll(/il(JJ/{J/ '"'W''stall'
i11l1',!!,T{Jfl(}IIo/I111'

Simuh,111eous wllh the domestic shock, tiwre should be 1he rloullie acuo11 to
Ill' 1he ccononw 11110 the giobal econom,· through two steps: thl' radical lih-
nalis,111m1 or trade and the makin14 or the curTencv convertible. The kev
_1ustilica1.1011or LllL' trade liberalisauon 1s 10 ensure compcllllon l'rom wes1crn
co111p.111iesIll drnnesuc product markl'LS Lo prevent local oligopolies from
r,usmg their pnces exccss1vclv. Sachs calls tl11shis 'greatest conccplllal break-
through· :t! Trade libcralisauon mvol\'es ending quotas and hanng ven· low
tariffs: a fret: trade rq,\'ime. And hv making the n11Tcncy con\'ertihle for
1racle purposes the link between local e111erpnscs and 1hc worid econom,·
will he consolidated.
These.: changes would go hand 111 hand wrth the fragme1uat11m or llw
Cu1111:cor1rcg1011.whrch would ha\'l: a lcmporary depressiH' l'ITt:cl 1ml would
raprdl\' he m·er-comc as western Europe opened tis markc1s ,llld the IFis
helped t1i stabilise I he local cur-renucs .

.,I Pr111a/1sa/1011,fl)/ a11d rrs/rnd11n11K

:\11 absnlu1eh· l)asrc comp1111e111of ST 1s the tr.insrer Df state l'IILerpnses

111t11pn\'all' hands. Yc1 currouslv c1wugh. ll11s 1s the 1ss11l:011 which Sachs
has been most \'ague. or onlv one 111111g 1s he com•111cecl: tha1 ha11di11g-
c111erpnses over tu lhe pcopie who work m them as managers or workers
would he absoluteh· wrong. But c,·cn 1H1this issue Ile changes his mind as
to whv 11wouid he wnmg. In hrs book 011 Poland he savs at one point 1.ha1
198 1'01.ITICS IN Tl-IE ( ;1,011,\LJS:\TION !'ERICJI I

handing m1·11crship over Lo managers and workers would he ·s1t·ali11g· ·'·'

Al oll1l·r umcs Ill· has said LhaL handing ownership lo the workers 'puts
workers al excessive nsk'. pn.:-sumahh· because the,· would lwar hill
respo11sihilil\' for Lhc cnlcrprise.:H Al other limes, lw savs it would pul the
enterprise al risk from the workers because the,· wouicl pa,· themst'l\'L·s too
much 111stearl or i 11\'esting. :i,, 1-1
is clinching argume111, howt·1·er, 1s t iia 1
worker-owned compames would not be trusted by capital markets. But tl11s
univ begs Lhe qucstwn as LO 1l1c form or the ba11k111gwstcm III the target
CC>ll II l n·.

In his 19~)0 article, 'Whal is to he Done?'. Sachs urged that 'the !inns
shouid he sold for cash', through aucuons,: 1ii with a hoard ol'western lin,111-
ciai ad\'lsers and legal experts checking 011 the deais. He Sl'cmcrl 1111awan·or
the cLi11caldiriiculucs wllh Lh1sproposal: LhaLLhose 111 the target stale 11·11h
Lhe cash lO buy a steel mill wouid be very few 111 number and w11houLques-
uon former or current crooks at the head ori\fafia pvramtds.
I-le later dropped this idea on the gnnmds that II would he loo slow a
process. And mslcad or soil'lng the prolJlem or where the mo11cv-cap11al
would come from to huv the cutcrpnscs, he wrappl·d the process up 111a
mystery: I 0-'.W per cent or 1hc shares would go Lo the workers, 'another frac-
uon · or uwncrslup rights would go to households. Thcr would noL gcL lhl'
en1crpnse shares but would 1-{l'ttmll tn1s1s 111 'im'cs1mc111 ru11ds'. These pn-
vate 'investment Funds in turn would own the shares or the 111dus1nal
cntcrpnscs·. appoml Lhc di rec tu rs and monllor performa11cc.: 1; Therl'
would be lcn to twcnLYsuch funds. He assures us thal LTlllnsm 011 Lhc lines
that l'oreigners would end up nmnmg Lile Funds and 1hcll" entcrprtsl's ts
false, but he docs not explain how or why it is false. Nor does he address the
fan thaL ST rcqmres pnvatisa111m m the m1ds1 or recession and 1ha1 lhl'rc-
fore Lile assets will gu al \'cry iow pnccs.
Another m,qor 1ss11ets whether Lhc slate enterprises should he l'l'.Struc-
Lurcd 1·1aa state mdusu·ial policv before thcv arc p.-iva1ised ur \\'hether thl'1·
shnuJcl l)e sold LO Lhc pnva1c sector lirsl ancl reslrucwred by the 11cw pn-
vate owner. Sachs tackles Llus bv saymg thal the target stall'. will Jacl, the
expertise to do 11. while his nebulous 1m·cs1mcnt f'unds will h,1n· such
experusc. Tlus will be the case prcsumabiv because the 1mTsL111enI funds
will be private and onlv 1he salaried emplovecs of' 1hc pril'atc sector poss1:ss
what it lakes.

·/} Tmc/1•-li·tlKrowlh
As wllh ll\·lf Structural Acljustmclll Programmes. the target cco11omr's cn1-
11um1erccol'crv 1s destl-{lll'd to develop above all 1hn,ugh Lra<k-kd growth.
rather 1ha11 a stn>nl-{ domcsllc recoven' . .-\ large 11ml' or impur1s will be
needed to retool industncs and dvnamic export gro\\'th will follow.
 NEO-l.lIH-:K\l.lS'.\I FOR 1-:,\STERN EPROl'F

5Jl,olillml/insl1i11iw11al m11.rnlidalw11
It ll;{s.i1ee11~vidch· understood and accepted h\' the s11pponers or ST that
t.hc cousolidat.iou of a denwcrauc n·g1ml' brings up the rear or t.he ST
process as its linal 0111comt·. The other s1clc of tlus com is 1ha1 during the
process of ST the rule is poliucai cnsis 111anagemen1 by the ex,xuth·c,
bl1111tiug and hlock111g popular pn·ssures for a halt Lo or re\'ersal or ST.

Il A Balance Sheet of Shock Therapy in Practice

Sachs has righth· cla1111eclthat most gm·l·n1mc11L~m post-Communist Eastern

Europe ha\'c to some degree tnecl to lock tht·msclves 111Lo the
hub-and-spokes strunurt'.s of ST and han.: tried to cornhmt· the clemands of
the luternallonal Financial lnsllllltll>ns and the EC/EU with the often con-
llic11ng c\0111est1cpressun:s upon them. Some l-{OH'J"J1mcntsha\'e drifted.
wnhoul an\' coherent polic\', and Olli\' a \'lT\" f'ew. like tlw Romanian 1-{0\'-
ernmenl, ha\'c conscious(\' soug-ht a cliffcrent road Lo a diffcrenl form or
capitalism.
We will argue live mam charl-{l'S ag-a111s1the pol in·:

I) That. !ls macro iJ1st.n11ne111sor reg-wnal fragmentauon and domcsuc

shock chanl-{c ban: been immensch· costh- Ill the short and 11H.:di11m
term.
~) ST's free trade-led policr for economic n·,wal was largelr misco11-
ce1verl.
'.~) Its m1rro polines fr,r sustained eco11on11c rt·\·1,·al ha\'e also tended lll
weaken rather than strengthen longer-term rt:\'l\'al.
-1) The practICe or ST OJI the pan oJ' western anors has sharplr diverged
from the thcon· 111that they ha\'l' damaged the East European states.
!'>) In terms ol"its own cntena of success ST has been a failure.

We will also sug-gest that the clements 0L111 alternall\'c strategv co111,11nerl
111the posit.ions or hot h I he Corbache,· µ;m·t-r11mc11t 1n I ~l90 and the
French proposals a1 that 11mc wo11lcl han· bccn far less costlv and woukl
ha\'t' offered litr better prospects !'or the li1t11re: kccplllg- the Comcco11
reg-wn 111111edin its m,·11 reform pro_1ect. dcn~lop111g JICW trade and pa~•-
mcnt arra11g-cme11Ls!'or that region, aJld rcmo\'lll!,!; Cold \Var trade harriers
l!J East-West trade, while lettlllg each g-ovcrirn1e111 mm·t: forward cxperi-
mentally at its 1i\\·n pace. The ,,·cstern powers had the ca pant,· to structure
such an alrcrnat1,·e. but the dominant western powers had no mtcrcst Ill
pursuing 11.
200 1'01.ITICS IN THE Gl.Oll:\l.lS.-\TION PERIOD

1) T/11•JJ011/J/t,JJ1•/m•s.ml/'Slwch

The 1mplcmemauon ol'ST has brought a sa\'age double depressi\'e shock to

the entire region. Part of tins has been the result or the ST model's 111s1s-
tence on breaking up the Comecon area, rather than mamta111111gregional
trade and production linkages through a customs union and new payment
arra11gcmems. And pan of the shock has come from the 1111pleme11taL1011 of
the first clements or the ST Domestic Policy Cycle.
Every serious commentator on the region knows about these effects.
When Sachs lirst published his ST programme m January 1990 111 the
that magazmc had already explai11ed to lls readers what the pro-
lfro11111111st,
_Jected effect of ST wouid be m Poland: it said that ofliciallv the governmelll
forecast 400,000 _1ol)less, but unoflicially ·economists expect up to '.1 mil-
lion'. :isThe actual outcome was, in fact, in many respects worse, as Table 9.1
illustrates. In Russia, after six months or ST m I 992, real incomes were
reduced to 40 per cent or then- 1991 levels and producuon was plummetmg.
The OECD's study of the depression p111po1111s four causal factors, all
den\'mg from-ST. It says that the 'stabilisauon' aspect, especially the credit
squeeze via credit ceilings, 'was 1dentiliecl as the important eiement con-
tributing LO the recession, especially at the bcgmning or the reform
process··. :,,iI l says the fragmen tau on or the Com econ region's trade hacl a
disastrous impact on mclustnal outplll: 'According to some calcuiauons,
this volume effect alone can explain most or the fall m output in Hungary
and the ii.lrmer CSFR and about one third of the clec:line 111Poland. '·111I I aisu
stressecl that key institmional vacuums, as pomtecl out by critics or ST, such
as the absence of a linanciai system, meant that 'all countnes suffered from
an inadequate suppiy-s1cle response', in other words a downward spiral into
protracted depre'ss1011.
Sachs has responded by first or all attempung to distance h1msclf and Ills
policies from the fragmentauon or the Comecon rq\'1on and then biaming
the slump on that fragmentation. He has cianned that 'the decline in mdus-
Lnai prnclucuon in 1991, and to some extent Ill 1990, was the 1·esuit of the
collapse or trade with the former Soviet U111on, not the result or economic
reforms in Poland'. ·11 But he actively champ1011ecl that collapse m fa vow· or
a hub-and-spoke linkage wllh the EC. He must have been fully aware also
that the JivlF was resoluteiy opposed to preventing such a collapse through
a paymenL~ union for the region. And he must surely also have been aware
of Lile fact that his fragmentation policy would be consoliclatcci through
reg10nal bloc arrangements for cuttmg East Centrai Europe off from pro-
duction linkages wllh the USSR. As in the case or NAITA, the EC would
consolicHll.c this bloc through rules orongm arrangements, se\'ermg their
production linkages with countnes to the East. The Assoc1auon Ag-recmcnts
between the EC and the East Central European countries, which Sachs has
 NE0-1.IIIER-\I .IS~I FOR l•:.-\STERN u;iml'E '.!OJ

commcnch:d, dcn>Lc between one (iflh and one quarter of Lhc1r entire text
to •this topic'~
Sachs· s scconcl line of dcfe11cl' has been 111cl,11111 that Communism was to
ilia me for 1hc slump.• 1:1 He sa\'.~th;11 there \\'ere crises 111 a number of thi:se
L-co11rnmcsbefore ST started. TlllS 1s true. But tllc OECD swci\'. s charge is
that ST made a bad s1111auo11catastrophic: Comulka, a ddt·1ulc1- of the
IMF. calc11iatcs that the a\'crag·c rail or GDP cl11n11gwhat he calls the con-
1rac11on phase of' the transition was about -HIper cc11L-1-1 Tl11s fig-tire signals
a dl'\'aslaLJ11g rcaliL\' in human suffering for most people Ill the region.
En:11111l~l~IXoniy one countn· 1111hc enurc reg1011hacl rcllll'llccl lO us 198~)
kH:l of GDP pn capital. 'frt for Sachs. such issues arc a detail 1101worthy or
scn111 1s analysis.
tried to JllStifr Sachs s view in the case or Russia hv making
The J•:m1101111.1/
thl' bold cl.um that Comm1m1s111caused LOO much supply fo1·demand lc\'els
aml loo much ckmand for s11pph· Jcn:ls! 'The tr;1nsi1ion from the r,11io111ng
of' central plan11111gLo the allocau011 of goods lw the markcl was bound lo
require such a sharp fall 111 real wages: queues. in cffecL rdkct excess
demand causccl hy pnces that arc too low in rclau011 to wages. •-1:,And hm·111g
cxplamecl that goods had been too much in demand, IL went on to explain
that goods hart also been Lou much in s11pp1,·:not cno11g11pL'oplc wanted
them! The 1-:o,·er11111c11t, it satcl, sl10uld 1101pro\'ldc credits tu cnlerpnscs.
because to do so ·will hum· the producuon ol' 1111wa111ed gouds •lti

Table 9.1 Indicators of Slump

Nm/(;/)/'

198!1 1990 1991 1992 1!193 1994

l'oland O.'.! -I I.Ii
_,__
- <)
1.0 -I 5
1-ltmgan· -0.'.! --U -10.'.! -:i.O
_,,
t:SFR ,j_:, -0,-1 -1:i.!1 -0.:i
I :,cch Rep. -7 (I .,
"
Sl<J\·;1kia -7 -1

ll/(/11.\ll'lt1I Jmul11rlrn11

1989 1990 1!191 19!)2 1993 1994

l'oland -0.:i -~-1.~ -i],I) :t~) :,.ti NJ:\
I-lung.in· -1.0 -!).'.! -'.!I .:1 -!l.7 -I N/:\
(:SFR O.'i ..-
-.,.:1 -'.!-1.'i -HJ..!
Czech Rep. -)0.(i" -:J3 ()
Slo\'akia -i-1 -(0.(i -1

..\,rhi;,. ru1. '.! { l!HJ'.~):Europt:;111

l·I. Sd1mwdi11g. ·From Pbn lo ,1;1rkL·t', \\~·//,11,r/.\rh,1jlli.-l1n
So1111·t~..,:
ltu1k rm· lteco11 ...11·111·11011and f)t"\'l'lup11u-11c.
'/inuut;o,, N,Jmrt ( 1~1q.1
t.
 l'Cll.lTICS IN Tl IE la.01\,\1.ISATION l'ERIOI J

There rs one argume111 that some. like Com11lka. han· sought 10 mo11111for
the \'icw that the ST slump s11npl\' rewaled 1lw wasll' 11mll·r C:om11111111s111.
This arg11ment hq~tns bv savmg- tha1 lw measuring- the input., and outputs ol'
some East European enterprises at world pnces. till'\' were anualh· suh1ran-
111g-val11efrom mputs. So the i111roclucLio11of world prices woulcl drin: tlwsl'
sectors to the wall: hence thl' ST slump, 1hough tnggered bv pnce lilwralisa-
tion. was caused by the ecunomic 11-ra1.ionali1vor Commu111s111.
For 1.h1s to lla\'c lweil 1he cause ol' the slump, the !"alls m procl11rtu111
would ha\'e occurred in the value-subtracting sectors. Yet the produnu111
Hills were across the hoard and in the I-Iungarran case we lind 1ha1 senors
identiliecl lw Hare ;md Hughes as the most. eHincnL wen: 111 mam· cases htt
harder tlmn the big \·,due subtracwrs, as Tal)le 9.'..?i11dicates.· 17 Jndcecl, Hare
and Hughes 1dc1nilierl alcoholic hc\·erages as one the biggest ,·aluc suh- or
tracLors. \'Cl II was the 0111\·sector Lo c11111inueto grow clunng the slump!

Table !).2 The Relationship Between Falls in Output :md Industrial

Competitiveness 111Hungary, 1987-Hl!II (I !187 = JOO)

lr,rl11s/n· C:0111pe111n·1· 1'1:rce111agl'

,-a11ki11g·~ 0111p111
ra11:i

Fur, shoes ·1s1 '..!nd :ill.8

Clothing :irh :llh '..!~l.!l
l'recJSJOll lllStl"lllllCllts l'..!1h ,\rd -1-1.'..!
Elec1rical e11gim·1·n11g l!'llh H1h -I~.:\
Ruhher '.!'.In! 12th :\9.~
Building m;111·rials (i1h I-Ith '.\(i.-1
Fo,,d industn- 2nd last '..!mlla.~t I I .!l
:\11 ind11s1ri1·s :t\ '..!9.-1

~Oil's:
I) llR(: ~ ll11111,·s11c
lfrso11n·,· C11s1S.
!.!) C:omp,·t1li\'e11t•.ssranking as 111t~asun·clhy ,·ah1L·aclch·d al ,\·orlil pnn·." 1i-!-i!->labour rn!-iband dq1n·-
na11011as a perc,·mag,· uflrnrld pnn· hi' 111d11s1n·.
'.I) The p,·rre111ag,· bll i110111p111111 t!IDI fr11111l!llli h·r,·ls.
S1111n-,·s: .J.1:. l\rada, I. Si11gh a11d .-\. '11,ruk. Tir111s .-\l111:11 :111<1Fin 11,,\drifl: I l1111!-\:..-i;111h1<h1S111·
a11d
tlu- En11101n1cTrm1s1tiu11', l:'tl\l,·1·11 Euro/Jr'ttllt·:rn11om1n.(lanuary-Fl"hruary. l~l~H). ~11ulC. I l11gh1·!-i
;,uni P. l·lare. '( :01111u·111in·1wss and huh1s1nal Rl'.-tr11c111n11g
1
111{ :1.t·rhoslo\'akia.H1111g:uv:uul f>11l;11ur.
f:'ronomy, ·"Pl'Ciall'41iritut.111,. '.! ( I ~)!11
( .'omuit\\llJII 4,f th,· l·:11,opn111( .i,mmllJ1tli,·.,: 1~·u10J1n111 J.

In am· case, I.hrs arg-unwnl rs theoreticallv muclcllccl . .-\s Sch1111cdi11ghas

pomtccl out; 18 prtCl' liberalisation is about altering relam·e pnccs and t.hlls
falls 111some sectors would be compensatcd bv nscs Ill others whosl· prnrl-
ucts would 'at Lhe same lime leap upwards 111rclall\'e value . .\nd the o\'crall
\'alue or
output should rcmam till: samc or nearlv the same as before, on
one condiuon: that factrn· pnccs reallv did mm-e lkxibh- 111line wllh relattve
 NEO-l.11\ER,\I.IS\I FOR !•:.\STERN El'l{Ol'E

pnces 011 the world 111arke1.The shirt Lo world-rdatin· prices would then
from a 110-changc outp111 le\'eI·1!1 Lo a surge or growth as the
qwrkl:i' 1l'lu\;l..,.
suppnsedlv mon• allucativelv cffinent distributio11 or factors III the world
market was reflcctl'd 111a redistribution of fan ors 111the ecrnwmv.
Some l;\·IF eco11om1sls sew:cl on the 1ss11cor f'acwr pncc Jkxibility in
1~19'.Z, claiming 1ha1 Lhc depression was caused ll\· the foilure Lu mtrocluce
\\'orld prices rully for lal)()ur. The\' thus said \\'ages had not sunk low enough
and l'ast enough. l11short, the depression was caused 1101hr ST hill lw the
failure to 1mplemc11t 11 l'ull,· 011 the wages front.
Sachs could hardly aclopt tl11sargu111l'lll s111rt'.11 would 1mplY tlmL ST has
not been t.ricd. parundarlv as wages ha\'e ptcked up a bn III most co1111trie;
smce 19!1'.Z. But 111 anr casl'. II is 1111sustamable. Real wages Ill Poland ldl '.l:Hi
per cent from t.hc beg11111111g or 1990 10 the end or 199'.Z.In CzechosloYakta
111 the sa1m· penml thev fell '.ZI .:i per Cl'tll and in I-lt111gan·by 1-1per cent. In
all cases the Eilis were iieav1cs1 1111he crucial first phase or the depression.
The 1,·m111m11slnoted that af'ter six months or ST 111 Russia, real wages had
dropped Lo only ,l() per cent or l heir m·erage for I ~191."•0 B,· am· standards
these ligures show extraonlinarv dmrnwanl llcxihilitv. As Sclmneding com-
ments, 'In a Ln\'ial sense. all econu1111ccnses can he related lo a (lownward
rig-idity of' real wag-es 111a neodassical framework. The negall\'l' impan or all
possible disturbances m1 the prolitabilit\' or proclunuin Cl)lticl always be
cmnpensatt:d bra run her cledine III t.hc real wage .'',1
:\t the domesuc ien:I these slumps \\Tre, 111 fac1, the clireel nH1st·qucncc or
two aspens or the ST shock: the collapse of d]ixll\'e demand - emphasiser!
stro11giy IJ\' Kor11a1- and the credit nu11d1 to impose a hard budget co11-
stra11ll upon enterprises. This credit crunch was exacerbated b\' the absence
or any ,·iable co-ordi11ati11g mechanism f'or rcdeplonng factors of prociuc-
uon: the old pla1111mg mechanism was dcstn,~•erl and a cap11alist
mechanism - ,·iabk linannal markets and a lina11nal s,·stcm - did not exist.
\·\'ha! co11n:n1s us here is 1w1 tile co11u1111ingdebate as to till' relative
\1'c1g-lnor the t,1·0 fan ors, ln11simply the undeniable E,n that the depress10n
was a core f'eature or the ('1111rc ST programme. ST supporters han·
advanced a host of other argumen l.~ to _111stifrthe depression d'Ji..·ct or the
model. The,· have claimed 1ha1 Comnnmist industnai goods were worthless;
that there was a 11ecd for a g-rowt11111scrnces: that the goods wcrt· Ill> longer
'nercssan··
The worthless' arg11111e111 has been ntcl'IY cxpn·ssed hr (;ano11 .-\sh with
his remark that n.:t11r11111g the region 10 cap11alism 1slike transformmg a fish
soup hack 11110the aq11an11m from wl11ch IL was made.'•~ But tl11saq~t111H:1H
seems lo be based mort'. 011 a1111-Comm1111is111 1ha11 hard enclenre. \Vhat
t.he enclcllcl' shows is that when 1he EC lowered its Cold War ba1..-1ers 111
I9~10-~II to 11npnrts from the \'isq~rad co1111tnes, the laller's exports surged
as follows: takmg 1~)89as 100, Poland's exports to the EC: rose 10 208.2 in
20-1 1'01.ITICS IN TI IE (;J.OB:\LIS.-\TION l'FRI<>D

cmrelll LIS clollars 111 1992. Cl.l:chosiovakia·s_111mpecl 111 2!'0,

and Hungan ..s
to I 7H.li.These g-ams were nut conli11ccl Lo tradit1t111;IIexport sectors (wiuch
were m anr case more diversified than typical m1cldle-111comc count.rl'
exports), but applied nght across the board. As Richard Portes says: "The
explosive grrn,·th or Centrai and East European cxpnns to I ht.: \Vest in
I 990-92 docs co11clusivcly refute those who claimed that these coll!Hrics
couldn't compete - that quality was unacceptable, markcti11!-\ was poor and
SO on.•','.I
The argument that the scrvJCe sector was unclcrdcvclopcd is us1.:d by
Sachs LO suggest that a drasLic 1·cclucLion 111 i11dustnal output was necessarv.
But this neither explains the sltnnp 111 mclustnal output - the industnai
slump was not caused I)\' workers Jlooding into new service mclustnes! - nor
or rt·q111ri11gan
dues ll.Jl!Stil\· 1t: the ser\'lce sector ca11 grow without c.:.111s1ng
output clec.:linc 111 mdustn.
Tht: key .iustilicallon 1s 111r.1t:1one that 1s 11st1.11lynol stated bh111th- ancl
publiclv: namely that there was no need for Lh1smclusLnai output 111the EasL
smcc \o\'estt.:rn Europe s c:conomy was aireadr sawralt.:d \\'llh ovcrproducll, 111
111 one sector afler anothe1: In other words, East European indust1·)· stuocl in
lhe same reiauon towards ,vestcrn Europe as the European airbus 111rlt1s1ry
slands in rel.1L10n Lo Boemg: 1L1s worse than unnccessar\': II is a <.:11mpet1ll\'e
nwsance.

Thi· f-/111111111
Costs 1ftlw S/11111/1

The human costs of the ST clnve f'or rapid dccollecLI\'lsauon arc: probahlv
not yet on a par \\'1th lhose or
the orig-mai postwar collecll\ 1sau11n ol"Eastern
0

Eurnpe, if the political repression or the iate I 9-tos 1s taken into ,Kcount;
and, of course, anv comparisons wnh the USSR 111 the 19,ms wouJcl be
absurd. Nc\'crtheless. the pnce paid for ST in human tt:rms h,1s been colos-
sai.
According- to UNICEF, the excess monalit\' Ill Russia. Ukra111c, Bulgaria,
1-Jungan· and Polancl between l9H~l and 199,\ was SOO,OIJ0_,..•· 1 Tlw, (igurc
mcludes excess deaths 111the USSR bcfcffe Lile stan of' ST in.Januar\' 1992.
l'vlichaei Ellman g1\·es the figure for excess deaths 111 Russia alon<: 111that year
as 82,000 ancl says there were 'sul)stantially more' such clt.:aths 111 1993.~'' The
crude death r,1tc 111 Russia rose from I IA m 1991 to (,(A Ill 199,1 and 16.2
111 the first quaner or 1994.'' 1;
UNICEF explams that the trans1t1011 has g-cnerated the health cns1s in
three ways: b\· inffcasmg lhe lc:\·cls of stress-reiatccl heart and c1rc11latorv dis-
eases - the;c vaned from g2-So per cent m acco1111t111gfor the nst.: m clcaths
in the region as a whole; by proclucmg dietary dclic1ennes, and hv caus111g-
soc1opsycholog-icai tcns10ns wiuch have sharply increased murder and
 NFU-1.IIIFR:\I.ISl\l FOR (-:.-\STERNEl'ROl'I-:

stundc rates. It co111111l'.11ls lhat the East Eurupcan health cnM~ 'has no l11s-
tor1cll· (JrC:Cl'Clcnls. ,-,;
In R11ss1a the 11u111htTor m11rch.:rs rosl' lw -I':!.per cent 1111~19':!. and a fur-
ther ':!.7per <Till Ill 19~!,\.''HBetween I 98~Jand 199 I ho1111c1clcs111Hungary
11u:reasecl hr -I'.\ pl:r cent. In 199'.1the s111crde rate had 111crcased from lls
I mN le\'l'l by I :t', per cenl 111Poland. h\' 130 pt·r cent in Rnmama and bv I :'.1,\
per Cl'nt Ill Russia.'•!•
The problem of poverty and mai11utnuo11 has become very sc1·ious Ill
man,· countries. A stucly m R11ss1a by Gosknmstal and the \•Vorld Bank
defined the pu\'crtv line as tile mcome needed LO m;11111a1nrood consump-
tion s11JTinc111 10 ma111talll a normal bocly weight at an a,·crag-c level or
ani\'llY - :111;mslcrc ctl'finllion iw westnn slandards. TIH.:stuch· showed that
rn I 1l!l':!.:,7 per Cl'J11 of tilt· Russian populallllll fell helm,· 1his line. while the
Jig11rl' ror chilclrL'II u11ch-r lihcen was a l1orril)'mg -Hi--17 pn tTnl. .-\ s111d,·
car1wcl out h\' CARE ancl tht' LIS Cemre liir Discast' ( :Dntrol 11119\l'.! found
that 1111 a\'crag-e Russian pensions were below what the \·\\,rid Bank csu-
matL·cl 10 he Lile m1111111al11utntio11al support lc\'cl for a person li\'111g
alont·.'; 11 Using UNIC:EF's clcfimtion or mild malnutnL1<>11 (lt·ss than ~,300
calont•s) 1hc pe1-cent.1g-c l>f Poland's populatmn suffr·nng sud1 malnutntion
wa.~ 11cgligihlc III l~l.'!~Jhut had reached 17.9 per cent 111 19\J'.!.
Ir we clcline the poverty lint: as -10 per celll or the an.·rage wage m 1989
and the t:xtremc pm·cn,· line as ~-I per ccn tor the 1989 a,·nage wage, then
hy I \J92 those Ill extreme poverty amounted to he tween 15 per cent and 26
per cent in Poianci, Bulgana, Romarna, Russia, Ukra111c and Albania; those
111 p11\'erty wen· an extra '.!8 to '.\8 per ct:nl. Lilc-threatemng diseases have
111creascd sharp I~-111Russia. Typhmd ancl paratypho1cl mcrt·ast'ci l ;) per cent
111I ~192a11CI {i(j per tTtll Ill I 99'.1;diplnhena increased I 09 pt'I' n·1H 111 I ~19'.!
ancl 2\lO pt'r ct:nL the followmg year. Deaths from llli)t•rc11los1s 111crcast:cl 15
per n:nL Ill I 9~l':!..1; 1

2) 'Ou· f-'aifun• o/t/11·Shor/i Tlll'm/Jy 'Jim/,• N,'.!!.·1111r

\\'hat Sachs callL"d 111~ conceptual l)rcakthro11gll or

thrnw111g targ-t:1
cco1w1111L'Sopen to an almost complett'l\' free trade rcg11ne w;1s.JllStilicd in
the first place Lo actcln·ss the probicm of oligopolies m the East responding
to pncL' liberalisauon hv ra1smg prices while rcdunng output. Bm ll was also
dt"stgned Lo prepare Llw way for tradc-lccl recovery. These goals neatly clovc-
1ailcd w11h the uhimale go;tl of' creatmg open door ccmHHll\L'S m the rcgam
li,r Lr,1ck ancl Jin- FDl. .-\s H tunwd out. -~tale cnll'rprrses 11•e1·cnoL lhc mam
culprits III ra1smg prices. The mosL aggress1\·e price mcn.·ascs wt:re Ill tl1t' ser-
\'ice see101· and \\'l'l'l' earned out by pri\'alc cntcrpdst"s.';~
Bui 1n ,Ill\" c,tst' the dew that the Viseg-rad eco1101111t·s \\'t·re heavilv
 l'< >IJ'J]( :, Ii\: Tl t F ( ;I.( mAI.IS,\Tl< >;-..'
l'FIW >Il

mon11polis('d S<.:{.'lllS to I)(' lithe. Thl'rt' was 110L,of' rr111rsl', pl'rkn co111pcu-
tion, 1>111 thl'\' wc:rl' n111ghll' as n10nopolisl'cl as lhl' free markt·1 111llll' L1S:\,
according to till' li11di11g-s of c\licc: Amsden and lil'r colk.iglll'S. Fxe11
Czcchoslo,·al-1.1, partKulariv s111gll'clom as 11101mpolised. has had little more
collt'l'lltr;1t1<111 Lha11 Lhl' US,\. Thus 111 19~)0 thc: largest I 0() C1.t-ch11slovak
comp;1111es acco1111ted for ~fl per rl'Ilt ofi11d11stnal cmpl11\'llH'11t while Ill till'
US the !ig11rl' was '2,i.8 pu n·n1. rd In Poland, the deµ;ree of cu11cen1ral1<>11
was on a par \\'Ith the US.\. ,\nd gi\'en the fact that small t·c0110m1t·s. far
more track-dependent than the USA. coulcl be ex1wc1t·rl to haH· l11gher
levels of co11ccnlration in key sec:to1·s, Amsden ·s vie,,· is LhaL Lhl' real pn ,hlem
for much or 11Hl11stn· 111 thl' reg1011 was t1><1much fr;1g11H·nt:111011.rather
tha11 too littic.
Amsdl'n c..·tal. 1:1kt· ~tTlt>rs when.: East Cl'ntr;il Etrropl·an t'l"1>1Jo1111t·s
ha\'l' had gn,1,·1h pott·1111al :md cle111011stratcs thl' 11\'t•rfrag11w111atH>11 pr11b-
lems. In dt·1t.:rgl'11ts. HO per re111 or
li1l' markl'I 1s controlled b,· two
co111pa11ies 111 the UK a11d In· three in c.;erma11\'. But 111P11b11cl thl'rt' wert'
se\'cll, 1w11c llig- c111111gh li1r scale cf'licicnc,·. (11 cruck stn·I u11qJ11L
Czechoslm·ai.:.1a ranked fourteenth and Poland sc\'l'llll'l'lllh 111tit{.' world.
vet the l)lgi,{L'SIC1.echoslo\'ak stcl'I producer (VSZ Kosicc) r:111kt·d w11,·
th1rt1l'th a1HI the biggest Pnlish cnterpnsc (I-I111a Katu11·1rt·) ranked onh·
th1rtv-scco11rl 111sw.:. UNIDO rcponecl 111 l~l91 1ha1 the stl'l'I 111d11stnt·s of
1.he region gencrallv faced tlw problem or
1111clersi1.cclpla11ts. The s;11m·
fragmcntauo11 problem has existed in machmc wols and 111pulp a11d
paper.';.,
Sachs ts well a\\'.tre of this, saving- that 'the giant firms Ill Poland are s111all
players 111 the Eur11pean markcL'.'i', There arc also lots 11falter11atiH· wa\'s or
prcvt·1H111g monop1>I\' pnn· nses w1Ll1011tthrow111g open thl' cloor ('llllrt'il' 10
imports - mo,1 oh\'1oush· through regulaLorv lmclie,. B111 ht' 1gnon·s s11ch
possibili I ll'S.
The trade regimes established in 1!!90-91 m the \lisegr;1rl rq4H1n an· pn·-
scntccl hv Sachs as lw111g 011 IIH: \Yest European model. 8111 the,· ll'l'H.' l'l.'!T
different: quotas wcre aholisltcd, other Non-Tariff l\:11T1t'l's\\'t'l't' 11ol ,·stah-
lishecl. :11111-d11111pi11g 111strume11ls anct safeguard llhlrllllll'llls ,,·,..-t· 1101
creall'cl, export promot1011 ms1n111w111swl're 1rnt set 111 pbrc. lnstt·acl ;1 ont·-
club trade H'gtmc consisting of'verr low tariff-; w:1s 1111rr1cl1tcl'CI.';,;
Thc 1·esult \fas a predictahlL' export bonanza 11110 the rq{l•Jll bv Wcsl
European c:ompa1ues wh,ch, as Giles l\-lerrHt or the Philip i\·lorns lnst1111tL'
warned 1111991, · could do 1rreparnbie harm' _,ii The assault 011 domestic pro-
ducers was especiallv devastaung Ill the consumer goods sectors. lkt11·t-e11
1989 and \ 9~)I consumer guods imports into I-lung-an· near!~· rloublcd and
Ill Pol;mcL Ill thl' first c1~h1 I\Hll\lhs or
1991 ;1ione. tht.:\' l'llSl' rr11111 18.'..!per
cent LO,1l.h per n·111 of total imports. The track ligun·, of' 1ht· 1:1rgl'I co1111-
tnes do 1101nr:cessarilv accurately rl'llect e,·e111s. Tillis while ( :1.echosloral,
~l:HtstKs slto1,· a 1ttl'l'1' ':! plT l'l'ltt g:rowth 1111111pons fro111 Fra11< ..T 111I ~J() I. the
Frc11ch'fig-11re\ sltllw a nsl' of' 180 per Cl'lll. During: tltl· l~J\Hls, the tradi-
tm11al EL' cklint 111tr.tdl' with the reg:1<rn turucd 1111ua surplus. Svstemauc
studies hal'l' not hl'l'll published \'l't on till' extent to \\'hiclt these western
ex pons in\'t1l\'l·ri 1he d11rnp111g:of' products i11 1hc Easl. Bui there is ample
anenlot,1I l'\'1de11n: Ill' 1h1s.•;.~
Thl' overall \'aluc ul'imports to \'isl'grad cuu111rics ruse 111thl' first hair of'
I !1\1:\hv 7 per cent as compared will! the c, 11Tcspomli11g: JHT111din 199'2.This
was the lug:hcst import stll'g:e SllllT thl' 1111cl-l~IHOs. Imports to 1-Iungary
111creascd ))\' 1; per rcn1. 10 the Czech and Slm·ak Republics h,· 18-'2::!per cent
and 10 Poland bl' '27 pl'r cent.
This l':,port hll11,1111a1,·as 1he rcs11l1 or 1111>rl'1ha11 lll,trkl·I h>n-es. It was
s1rong11· s11hsuli:-.1·1lb~ 1n·.~1t·rn g:orcn1mc111s through 1·-.:p1>r1rn·di1., ;111dcredit
g11ara111n:s 10 lht'tr 01\'11 nqmn111g: linus. These s11ppons ll'nc pn·senlt'fl as
,,r
.-\id Ii ,r I he 1;irg:e1c1H1111nt's 1he export dnH·. l 1irleed. arr, 1rcli11g111S,1l'11snr-
walh- all western :\id to Russia has been 111 such c:-;pon subsidies. The,· e11.1hk
e-.:p11rll'rs tu 111,tla:nsk-frt-e bn:akthroughs 11110Larg:c1 111arkc1s whik k-an11g
the c"11ntr\' cn11cenlt'rl lmrdt:ncd with ex1ra rlcb1. .-\1111npuna11l di1lll'IIS1on of'
till.~ l'ffon has been altt·rnpts b,· \Vest European statl'S to .~l'l/l' till' markets Ill
the Forllll'I' .So,wt L111m11p11.:not1sh· s11pplil·d hi· East ( :c111t~tlEttnipl'. A11Lho111·
Solo111oll, li,rmer l'res1cle111 of'thc New \,irk Federal Rnc1 ,·,·. calnila11:rl that
m.:stl'rn export credits were e11ahli11g ahout S-1 billion of' East C:l'.lll.ral
European expon trade to the USSR reg:11m to he din'.rted to western suppli-
crs.1i~1
,..\ part1cularl\' rl;1111agi11g:rli111e11sio11or thesl' polin1·, 1'11rPoland ;111d
1-lung;ir,· has hl'l'II their 11npact on .1g:rin1J111rc. At :i tlllH' \\'hl'n the !Fis
were clemanding- ,111enrl to agnculu1rai s11hs1dit·s Ill I l1e \'iscgr;1rl co111llnl·s.
thl' lircak-11p of c11ll1-cun· farms and \'l'I'~· laq~e wage rcr\11c111111shnngmg
1:tlling: liiocl cl1•111;1111I.the full force or ln:a\'ih- suhs1clis1·c1 EL 1 .1gnn1itmal
exports was dumped 111 tht· Visegrad markets. Tlil· EL''s so-c;1llt-d h11ma111-
1ano1n food ;11d prngra11111w for l'olaml 111 I !lH~J-~Jllhad prt:parcrl the way IJy
cle ..1;1liilis1ng dc111a11clumrli11011s for pe;1sa111 suppliers. Tht· n·s11[1 has been
1h;11 11w 11tos1 tlll!Hll't,1111 pn,·ate ht1sn1L·ss g:roup 111 thl' reg-11111.when
C:011111111111s111 l'11<kd. the l'olish peasantn·, has lit'co111c ii1l' 11111~1powerful
sonal group 111111cc11u11tn· opposi:.:d 111ST and to lilt' Fll.
t\·lca11whilc. ;1s far as eastern target states were co11ccr11ccl, cf'fort.~ on their
pan to engage Ill direct t'xpon promotion were ha1111ecl i)y the \Vorld
Banl,.' 11 BY I ~l~lI the Visegrarl govcrnllll'llls wt:rc 11ncler 1nrn11111ngpressure
to n·,·crSL' their open cloor polin·, and 1n g:l'neral. tariffs .incl import sur-
chargt·s \\'l'JT 11np11sl·ci. In Poland l'restrll'lll l.tTlt \\';tl1·,a p11blich· :tccusccl
Wl'SllTlltTS of 1n·111g 111n1111 Polish 11HlustrY.71
208 POI.ITICS IN THE< a.OBAI.IS,\TION l'ERIOI>

Cm11/111!; "111r/11•/,-\rn·n lo t/11.•

[:'[i

The noL1011or trade-led rc\'1val orcourse meant an export surge to Lhc EU.
The Lvlf shock cleprcssion combmcd with c11rn:11q• dc\'aiuatmn \\'as
dcs1g11cd, as in Laun American Struclllral :\(\justment PrngT,m1111cs.w t11r11
the target states towards trade-led recoYcncs. Sachs s model therefore laid
cardinal importance on the swifl dismantling of the powerful traclc harriers
biocking eastern exporLs Lo tile EU. The issue or EU market access was
mcorporaLcd 11110 11<.:g-otiations011 so-calkct Europe Agreements wllh the
East Ccntr;1l European and Baltic states ;md on Panncrsh1p ancl C:o-opcra-
tion Al-{rccrnents with the other, former So\'lct Republics. The h;1sic
cxchangc mvolvcd the supposed granting or access tu 1hc EU's goods mar-
keL~II\ exchange for opc11111gIJoth ).\"OOCls markets and lixecl ass(.·t 111:irkcts111
tile co11111ryconcerned to Wl"st Europe,111 compames.
The resulL~ of the negotiations with the Viscg1·ad cuuntnes were stro11giv
asymmemcal in the EU's favour,i'.! although the EU pn·sentcd them as as~1m-
metncal III the target states' favour, by focusing only on tariffs rather than
NTBs. While they reclucecl 1ariffs on most ncms tile EU did not s1g-nilic;111tlv
reduce IL'> Non-Tariff 13a1Ticrs (NTBs) on the g-oods that mallcrcci to the
Viscgracl econmmcs. At tile same ume, the Vise~racl economics were
regmrecl Log-ct nci of their NTBs IJ\' the GATT ancl the OECD. The E.U built
mto Lhe Agreements a baucry or protection rnstrumenLs - 110tablv
anti-dump111g and safeguard 111slrumcnL~which did not conform to GAIT
rules, 7 :1 while the Visegracl economics iargcly lacked such 111stn1111c11L-;. At
the same t11ne, the EU preserved its nght lO use th1..·Cold \·Var proteu 1011
mstrumcnl.<; agamst State Trading Countries against the A-;sociatcrl states -
a ciausc which docs not n:qwre comparison of domcsuc and export prices.
ancl g1\·cs protcct1<.m1st measures a free hancL
Given the slump. tile credit crunch and im·c~L111entcollapse 111 the
Visegrad cuuntncs. their export effi.)rt would ha\'l' to be concentrated Ill
then- tradiuonal cxporL sectors, with low capnai-ouLput ratios. To appreciate
how asymmetrical the Europe Ag-recmenL,; were, we must therefore focus on
the treatment of those sectors.
\.ViL111,u1 cxcepuon the\' faced sc,·l"rc: pro1<.:ct1nms1barriers from the El 1
under the Europe Agreements. The CAP was not modi lied s1g11ilicantlv and
the bulk or agnculturai cxpons from Poland and Hungary - gram. live-
stock ancl dairy products -wa.~ 111 core CAP sccLOrs. Chemicals conunui:rt w
I)<.:sul~j<.:ctto State Trading Country anu-ct11mpmg measures; textiles ancl
apparel were sui~Ject lO a form of managed trade which would he vcrv dam-
aging to ti)c Viscgrad tcxLilc mclustry, steel faced rcsu·1c\.Jvcprice agreement.,;
and anu-clt1111ping-111strumcnts, and other si:ctors like Polish cars were sul>-
Ject to so-called Voiuntarv Export Restra1111s(i.e. guo1as).
 NF.O-l.lllEIULISM FOR L,\STl·.RN EUROPE

Table 93 Sectors of Export Strength in Early 1990s

. ·, ....,
S,·ctor c:,,,111tn·
w,th F,/J/lrl Stn·11~t/1

I. Foocl/a~r1r11lt11n· l'olanci. 1-lungan·

'' Tn.:tiles/dutlnng l'ol;md, 1-111111-prs. CSFR
'.\. 1nm ;111cl ,tl"l"i 1'111,,nd,J·lt1n!-:;1n·.CSFI{
-1. Chenucals 1-lungan·
."i. C:oai l'o\;111cl
Ci. Fuel csrn
Sc,11n:e: C \laslrop:1Sq11a a11d \'. Rcolli. "lnclusrrial C:11111111·11·,
Pro1erl101u,1n ,\·uh Rl-.o;JH"rt 10 l•:,1~1t·r11 l-:1J1Ppl": Till' lmp;,n 11i l)H·
.-h,uL·1a11ou:\;.:-n.·t·111t·•u,
Con.-111,k(I ,n1l1 tJu.· EC uu du· Exp111•~ of
Pubnd, C'.1l·1·h11,l11\";.1tia
and l·h1u;,:~u·,·.TJ,4· 1\(,,/d 1:(-wwmy, 17:~ t 1~1~1-1).

The track: aspec1s of the Europe Agn.:ernents came mto liirce on an

mtenm basts 111 March 1992. Bv the seco11<l half or the vcar. East Central
Eurnpean exports to tile EU were Ill decline and clurn1g- J9~U these e:--ports
slumped in an alarmmg wav. In the Jirst half nr 199'.\ the comhnwd vaim· of
export.-; from all till' East Central ancl East European u1unt1ws lell hv I'.\ per
cent III dollar terms as comparecl witil the lirst hall" oJ' I 99~. The clecli11e
affcucd exports to the \,\fest, to transiuonal economics and tu LDCs. This
reversed the earlier panern ol' a co111Hcr-batanc111g-of declines 10 the Ci\·IEA
area with nses to the ELJ.7·1The over:111result was a track clclicn orso111e S7.~
l)i!linn m the first half of 199:1, compared Wl!h a deficit ofS 1.:i billion in the
same periocl m llJq2.
Althoug-h the Czech Republic's trade cle!iut wo1·sl·nccl as 11s11np11rtsgre"·
bv '.!I per cent, 1b exporL-; l-{rcwhv l ,\percent. Bycontrast Polish exports !ell
I)\' 7 per cent and Hung:man exports !di br over'.!'.) per n·nt. The fall 111
I-lunganan exports was especially stronl-{ Ill mclustrial co11s11mer goods
(down :rnper cent). 111 l"oocistulh (clown 17 per cent) :mcl 111 agricultural
procluus (down fj~J pcr cent)."' The dollar ,,aim: of exports of dothlllg, 1cx-
tilcs and footwear clcclinccl by 48 pcr celll 111 Hungary. In tnlll all(l stcei
procl11cts, l·hmgarian exports cleclineci hv '.!O pct· cent. Thus tracli11011:Il
exporl sectors were losmg their p<1s111onhut new man11factunng cxporb
have not cmergccl: among the l"cwexcept1011s was car proclunion 111 l'olancl.
The UN Economic C:omm1ssto11 for Europe conciudcd: 'Until new invcsl-
menL-; arc made on a large scale, prospects for sus1a111ablc export growth an·
slim. ,71;
These very bad 1rarie results for Polancl ;mcl 1-lungary in 1lw l"irsl haJror
I 9q:~ arc no doul)t parth· exp lamed lw till' ELI recess1011 and cspec1ally
that 111Germanv. where imports from Eastern Europe as a wholt· went
down b\' 10 per cent 111the first h;ilf or I ~l!n. But the westn11 recession
 l'OI.ITICS IN Tl IE t;J.oll.-\l.lS.-\TION 1'1·:Imm

cannot f>c the c11t11-canswer. hecausl' Polisii exports had alr<.:ach·drnppcc!

substanually 111199~. ll'llen the C.:cr111a11cc1,11011n·was IHIL ,·ct 111 rcccssio11.
The UN EC:EB11/ld111stressed that 111I mnand H)9g EU 1111portin~ coun-
tries resorted more frequently Lo the use of anLHlt1mping- and s;1kg-uard
actions agamsL ECE 11npons. During 199'.!, France, Gcrma11y ancl Ital~·
imposed new quotas on steel imports from the reg1011 and the EU uselr
nnpose<i anLi-dumpmg duties 011 Visegrad steel prnduus. ;; follow111g-an
outim:ak of foot ancl 111m1th discase 1n Ital\" allq~edlv dt:rl\'Jng from illegal
Croauan cattle imports. the EU bannecl all caulc imports rrnm the enure
East Central European region (some of wiiose cou11tnes ha,·e 11ot had 111c1-
den Ls or tile disease smce at lc;1st tile early 1970s). TIHS h:d to threats uf
retaliatory measures mllil the ban was dropped. Hungar\''s ma111 meat
expon to the EU - pork - was totally banned on .in indeli111tc basis follow-
m.g an 111ddt·11Lorsw111cfcver.
It should, m this co111ext, be stressed _JllSI how much was at stake for tlIC
EU in !ls Lracle rclauons wrlh ECE. Even 111the must se11s1m·csector~, a totai
liberalisation or imports would hm·e produced a decline 111 the El! scclOr·s
omput of oniy 2 to -1 per cent (agriculture and apparel). The most highly
protectiomst sectors 111 the EC were thcn:f'nre not mortally threatened.
A final aspect or Lhe EU's markt·t access policv has been \'l'n' important:
Lile role or its rules or ongm clauses m the EurDpe Agn:cments, wllrch
impose the huh-and-spoke palten1 on economic linkages betwet·n economic
operators in the target states and the EC/Ell. The,· du so Iw 1Jloo:.:l;.i11g the
re-export Lo Lil<.' EC of pruclucts partly produced outs1clc 1he target stall'.
(w1Jethe1· in a nc1ghbuunng Visegraci state or in the fSU). For most mdus-
trial products (e.g. those sul~1ect to Arme~ II in the EC-CSFR Agreement).
the Europe r\grecmenL protocols gwe a rule 111the form or a threshokl
expressed in terms o'fvaluc-adcled to the proclucL-; 111 the Assuciatcd countr\':
11nported inputs should not represent more than -10 ur 50 per cent or till'
value or the proclucuon. Th11s the Agn·t·mcnts 1mpos1.: a l1>c,1Iro11te111
reqwrcmenL of GOper cent. Although this lhreslwld 1s the 111a111 lorm or
rule, two olhcr sets or clcli111uons arc aisn applied to some products:

a) producls ong111aung 111an Assocratecl co1111try arc those whollv

obtain eel 111 that coun trv.
b) products onginatmg m an Associated countr\' can be chose ·obtained
m the Assouated country ll1 the m;111ufocturc of \\'llll'll products (1101
wholly ohtamed in U1e countr)' anct not obtamed Ill the ELI) arv used'.
prov1dcd thac the said produces ha,·c underg-onL· ·surticit·in working or
processmg' The h.1s1cdelirnlllm of ·suflic1ell! working' !111·1l11spurpose
is a cl1ange in customs headings at the four-dig-IL levei or the
Harmomscd System, differing from that 111 whicl1 all the non-
ong111au11g malenab an· classified. These l,111ds or arrangt:ments
 NEO-l.lllE!t-\1.IS~I F( lH EASTERN El:I{( >l'E 211

l'lllhracl' thl'sl' cu11wm1es 111a nmdiuon of track depc11cle11cy wwards

1hc'El.I. l11ck111gthe cle,•1:lopme11t of the clins1011 or bbo11r in the target
s1,11e 11Ho EU req111rl'me11ts.

The tra~tr result or these politicu-en11H1m1e 111tcrac1io11s has been that the
dnmcs\lc deprl'ssiH' shocks pnliccd lw the IMF and dcsignccl 10 lay the has1s
ror ,111expon-Iccl 1-c,wal have largch· led these countries up a blind alley,
prolonglllg the dcpn·ssirnL For the ong111s of Lhe renval. insofar a.~ iL has
coml', han_• hcc11 !eel nnl lw rore1g11 u·.idc b111lw clomesuc n>11.~umpuo11_;s
}i,1 ti,,, Jmfin,•., r,( tlw /Fis hav,· {J1'1'1111w1whl'l111111glydili·,·1,·dai 1n/11r111g do1111•s/1r
d1'1//II/I{/ fJrt'S.\//f/'S, sirIm/mIg IJ//1 111/lalmll, lmt!l'l"/11{!; 71'(1g1•s{(/1(/ ,.,,rf11n11J!:
goVl'r/1·
111ml dl'jinl.1 lhmuglt s/lt'11di11grni1.

Fismt Cn.m 111ufIMF l'olin

Tiu: ST slump plungecl mosL i-:o,·ernmc11L~ 1111.hc rq~1<l11111lu a deep lisc.11

cns1s. This 1s a normal br-prnduct or slump, thou'-\°h 111ack far worse hr the
fact 1hat ST did not pnoriuse a transformauon or 1ax svslcms and a st1·e11g-Lh-
or
en111g- admmistraLl\'l' apparaluses. Thus a fall in mdustnal production
wluch appn1.1d1cs fl() per Cl'llt for the rcg1011 ,ts a whole. ctunng- llw slump
m concli11un, whl're 111 most e<Hllllrll'S lhc tax svsLem was alrnosl l'.Xclus1,·eh·
rocuwrl on lin.- mrnnver or indus1nal enll'rpnses, w;1s bound to create ;1
severe liscal cns1s. Si11ce, ag,1111.ST duwngrackd thl' 1111port,t11lTofhuildin!-{
a capitalist li11a11ciaisystem, gm·L·rnml'lllS could 11<1trum! their deliclls iw
borrowing 011 clomcsuc honcl markets. Thus deficit spl'nding- wouid di rec th·
fuel 111llauon.
As with LIH" slump. Sachs Ines Lo avoid 1·csponsihilit,· fi1r these fiscal crisl'.s:
he savs there 11·,1.,a nearlv gencr.ilisl'd Jiscal ca1as1roplw 111 tile rl'g1on
hl'fore ST \nth 'huge budget ddiu1s _i!I !11fact d1t· C1.t·choslovak govcrn-
111c11t had a sligl11 surplus 111 1990 and 11>c1ll mto ddin1 onlv 111 the lirst Lll'o
n-ars of ST. The J-l1111gana11 buctgc1 followed 1he s,lllll' p,11t1·n1from a slight
surplus in I ~1~10 to ddicits Ill the 1'1llowmg yt·ars. Poland did haw a scnous
stale budget dclicll 111 Hl89, of-Ii. I per ccnl, hm the rlt:lkn shot up higher
than <.:nT to 7 per cent i11 l~l~ll and l.i.S pn cc1ll 111 l~HI~ as a result of.ST.
Fiscti mforn1aw1n liir Russia is not a\"ailabk- IJefore I ~J~I'.!. hut Caiclar's first
year 11r ST il'ft the budget clclic11 :tl 18 per CCIII l)r CDP. ,.'.\nd 1lwse ST
dcfints onurrect rksplle the sl,1st1111gol" state price s11bs1dies.
Tlw ST riscal u1s1s presents a ch111cc: eahn LU opt _ror 1111lat1011an·
runrling or the clelitit. or w g-am \H·stern hmds 111plug the hole 111the
ddiut, or t11 111ass11·civcut had. 1111gcwcrnmcnt spt·11di11g. The IMF has
S\l'l'.lltlousiv pressurised governments to take the last course. It has justi-
fied this bv 1he argument 1h;1t the on•niding pnontv orpolin is 1lw need
 1'01.J"rH:S IN THE (a.UIHI.IS,\TION l'ERIOll

to cnmbal 1nllation. This has been the policv or the IMF clurmg- lhe h1s-
toncally almost unprcccdenlcd slump that has devastated the lives or
hundreds or millions or people during- the last. live vears. Insofar as the
polin· has been followed bv target g-m-er11me11ts ll has cleepe11ed tht"
slump and caused long-term clamag-e to the sociai and aclm1111strat1n· as
well as economic mfrastrunurc or the rcgwn.
There has, however, l>een one m,~1or exception Lo lh1s rule, an except1<m
which goes far to explain the cou11t1fs beg-innmgs or a return to some
g-rowth: that exception 1s Poland .. Here alone has the li'v!Fsupported reallY
m,\1or western linanual support, 111 the form of a ca11ccllat10n or hair or
Polancl\ clcht Loboth pul>lic and prmlle cn:rlitors. Tl11s has transrormecl the
li11anc1al position or tlH: government and has also created the basis r,,r
stronger conliclence Ill the future on the part of pnrntc rapitai. (I-lung-an
has had heavier per capita debt.~ and has not defaulted, unlike Poiand,
Bulgaria and Russia; yet it has not even gamed debt relil:f. much iess for-
gin:11ess. ) 80 But even Ill Poland, recoven· has still been undnmined b\' Ille
li\lF's <l1we in the early l9~10s Lo make the light agamst mllauon thnHl).';11
go\'crnmenl spending- cuts the centrepiece of policy. Its catchphrase has
been that there 1s 110 trade-off between Ji11anc1ai stabilisa11011 anci growth.
But 111 an Eastern Europe whose recovery has had to be domesuc-con-
sumption-led the causality has llowecl in a diametrically opposlle direction
from the IMF's policy: wllhout growth there cnuid be no linancial stabilisa-
tion. Pv!F policy li>r linanc1al stabilisatmn tenclecl to det:pen recession and
tlrns further destabilised finances.
Gomulka has tncd to explam this slump-deepenmg policy hv the rau
that the ll'vIF's mission is supposedly the worlcl-w1cle light ag-amst ml1auon. 81
111other words, econonuc recovery in the region is not pan of the lrvlF's_1oll.
Tim does not cxpiam why the 11\·IFwas opposed to plugging clcJicns by
Polish-style debt reclucuon or the recent i\·lex1can-stvlc transfer or macro-
econom1c support l"und.~.Gomulka. VL'ryn111ch an 11\IF 111s1rle1· on 11sEast
European operations, explains the IMF's thmking on tlus. He 1sworth quot-
ing at length: 'The impact or foreign assistance can be substanual, even
vllal, only on a few occasions, especially when ll ts 111 the lc,rm of g-rants and
cleht rcclucuons. However, large grants, if not linked to performance, reduce
the financial discipline of local economic agenL~, and mar have an 11npact
011 trans1uo11 economies similar Lo tl1at of a soft IH1clgetconst.ra111Lon state
enterprises . Most or tl1ese economies arc already heaYily indebtecl, ,111ci
Li11sg-1\'csthem Iiuic room for cuntractmg new debt. Ar.tr more important
foreign impact may come from the mllow of\-Vcstern private mvestment anrl
know-how. However, internal reform efforts rather than external linanc1al
assistance seem needed for this inflow to taJ;.e placc.' 8 ~
Gomulka, though slighth' evasive, docs acknowicclge that del>t reclucllons
and grants can make a v1tai impact. Ilut his basic poml lwlics his own carlil'r
 NJ-:l)-1.JBEIUI.IS:1.1FOR F..-\STERN ELIROl'F.

s11ggeslmn that the IMF was simplv lixaLed 011 mllauo11: lu:lping go\'ern-
men'ts i-ide the slump would not put sunicil.'.IH pressure on them 10 push
through lo the end thl.'. mslitulional cngml.'.ering to gam FDI, and llllS FDI
would bl'. the real ll'vcr or recoverr.
The meanmg or this 1s dear: the I i\·IF was using the slump as an mstr11-
me11l for rap,rl social eng111eenllf{ at a nucro ievel lo create the desired goal
or a stale open to FD!. The ll\-IF's domestic 11eo-libcral agenda could ha\'e
been dispiacecl debt cancellation or macroeco11om1c gra111s.Sachs lumsdr
has nicely summarised tile resulting policy 111the case or Russia: 'the sums
[translerrecl from western public bodies] have been derisory .. Virtually all
western "aid" has come in the form or export credits to Russian enterprises,
wnb short periods or repayment, rather than in the form or grants and
limg-tenn loans w the Russian budget ... O\'crall support from western gm·-
er11111e11ts ror tile Russian buclg-cl, ,·1tallv needed for stabifoauon, has hel'll
essenuallv nil. In 199·1, there was essentially a complete collapse [orJ
111ternauonai assistance rrom governments on hehall'or Russian refonn'_H:1
Sachs has not supponed this polin•. His ST mocld presupposes massn·e
del)l cancellations and grants for macroecono1111c assistance as well as liir
more political purposes. He predicts the catastrophic consL·q11ences in many
pans or the regwn from western failure to clelinT this aspect or the polin·.
(:ven warning orcivil war. Yet he: docs nm acknowkclgc: the obvious nm,1-
lary: that his ST model was built 011 sancl as regards his assumptions aboul
the driving forces within western governments and !Fis. His ex post auempts
Lo shift blame on LO people like Gomulka, fix th111kinp;like 'bureaucrats'
pre-occupied by w;1ste, cannot absolve him of 'hure;n1natic' llllcllectual.
errors Ill not graspmg the politicai clnws governing llll' western powers
and the IFls tiler control.

3) Shodr Tl11•ra/Jy\Alirm-Polirtt·s_fiJrH1•s/rurl11rn1~

At the ievel or 1111cro-economic n:strm:turmg, the ST nwdei and the JFls

han· shared a common approach. The restrucwnng should not he earned
uut llv govcn11ne1H 1mlustrial polincs. It should l>t· 1ert to · market signals'
and 'market forces"· ancl especially to western market forces entering
through FDI. The task ortarget governments 1s s11nplv to depress wages, to
impose hard-budget constraints upon state cntcrpnses and to pnvause /'or
cash. Market signals and forces will do the rest. Public senor 111terventio11-
1sm would cert.imh· be necess:u-y. bm it would take Ll!e !"<inn or1hc \,Vorld
Bank and tile IMF exenmg- the nen:ssan· leveragt: to ensure this approach
was l"ullowed.
214 1'01.ITICS Ii, Tl-IE Cl.011,\I.IS,\TIC JN l'ERJOI)

T/11•Pn111r11J
o(Marh,·t l-11ff1•.\·

IL is now generally n:cog111sccl that till' m,irkl'l Sl){llals orslump nmclit1011s

were thoroughh' clistonccl amt could gin· no g111ctance as Lo wlrn:h c111cr-
prises could survive and prosper 111 normal market condiuons. R. \'in1rn\'a's
study or the C:SFR co111irms t111s:she shows that there was a sign ilicalll
downward restructurmg 'toward sunple energy and 111atcrial-dcmanding
production processes. which are becommg much more ad\'a11tagco11s 10
export, especially clue to the rapid deYaluauon.' 8 ·1 Vintrova co111111e1lls:
'\Vhilc cenam eco11om1sts characterise the current economic dccli1u: as a
"curative" strunural cns1s, thcv an: unfonunate!\· very far from lhe 1ruth.
Domestic demancl was l)l)W greatly distonerl bv tile swil'L dcdine 111 liH:
population•s real mcome: 'ifwe were Lo respond LO market sumuli al the
moment, IL wouicl l)c necessary to shut clown e,·en mrlustnes w1Lh a
promismg demand'.~,,
Brada sums up the Hungarian experience llY po111tmg out that the ··c1ra-
mauc losses orouqmt mean, as a maner orfact, the guasi-disappearanc:c or
whole 111dustnes. To give JUSLone example: 111 the consumer electron1es
fide!, the two m,uc>rdomesuc players 011 the market had lO declarl'
bankruptcy m 1991 ancl 199'.L' l11 mm a11clst.eel lll,~jor produn·rs were
· coming very close 10 disappearing from I ht· market" _iii;
Collapsed markets and the ST credit crunch mean!. that enterpnscs
faced a desperate liqu1dity crisis. The resuiL was an investment collapse fur-
ther undenrnnmg efficiency. In the CSFR 111vestme11tacu,·1ty dropped 29
per cent 111 the first three quarters of 1991. There was a capital famme for
modern1sauon. Vintrova comments: 'No nWJtlr investment has yet heg-un
111 this direction, and the necessarv climat.c l'or il will not exist 111 Ille
immediate fu1ure.:. r\11 upsurge 11111l\'estme111.would oniy be scen 111thl'
monopolised 1>ra11ches or the raw matcnals and energ-y compiex. · The
investment goods mdustn• 'begms a sell~sustammg recessionarv spiral.
ganiing speed as IL goes on. This is hardly a c:urative restn1ctun11g of pro-
duction.'8; Bract.1 explains that 111 Hungary this investment collapse led LO
a dramatic undercapitalisauon of many inclustnal firms. The share or
gross fixed investmelll 111 GDP ldL m 1-lungary, from ~8.8 per cent in
1980 to 17.8 per cent in 1990. Another fac:wr stressed In· Bracla was the
desperate struggle for marl,et share hr slate enterprises, suhordinaunf!; all
other goals Lo that prronty. Managers urloss-makmg mdustnt·s also used
up the firm's asset$ Ll>cover cun-cnt. iosscs and keep tile compam· g-01ng at
any pnce. 8 H
In a normal western cap11alisLeconomy sucll a catastrophic slump would
lead Lo crisis management bv the government. During the comparall\'ely
ve1·y mmor recess1011 in western Europe in the 1990s, t.he German. Italian
and French governments prov1cieci massive targctecl subsidies 10 parucular
 NFI J.J .IBER,\I.IS7'1 F<>R F.-\STER:--1El 1RCll'E

111dusLnes and e111L-rpnscs. l11 addi111111,credit nmdiuo11s would be eased

and t-he 'hudp;et would go hcavilv 111Lod1·lic11.The governments or Poland,
l·Iu11garv and elsewhere therefore wrnecl towards au mdustrial policy which
would lll\'olvc helping state enterprises to restrucllll'e.
Bui Lhe !Fis opposecl such efforts. Thus while Ill a cm1111rylike Lhe Fede1·al
Republic oJ' Cennam· gm·ernme11t subsidies to ind11stn· are 11,·n :~ per cenL
ur<;np, the IMF and \VB l1ave campa1g1wcl ngorouslv and d'kctt\'cly agacmt
sucli subsidies m Lile Viscgracl countnes. They dropped fro111:1.'iper cent or
CDP Lo ~--1per cc11L111 I·Iungan IJ\' El~)( while in Poland they were reduced
10 a men: ~.-1 per celll of budget expendiwres by 1991 and 111
C1.echoslo\'akia to~ per cenL orGDP in the same year. 8 !1 These results were
achieved by Lhreate11111gto wllllhoicl li\·IF or \VB loans.
The \-\'B has also bloekcd g11vcr11111e11ts from rc.~1r11nun11g-s1;11e-m1'11L·d
L'lllt-rpnses before pnvattsmg them. Sacl1s has claimed that tl11swas unreal-
1sL1l·because gtl\'en1m1:nts lacked the resources 111 personnel l.u do this. But
the \VB took 110 chances and banned them from applvmg whaL resorn-ccs
thcv had. It explamecl Lhat ·such phvs1cal restruclllnng 1s best clone bv pn-
\'atc ow11ers.'!111 IL therefore required the Ii11annal capantll'S or Polancl's
l11dustnal Devclop111c111Agc11c,· ht: prohibited. The \.\'B's agrecmenL wrth
the Polish gonTllllll'lll on this malllT cxplarns: 'I I>.-\·s l'x1st111gli11,111nal
porifolio will be transferred to linannal mslltu1ions. Loans L11enLerpnses
will be sold or Lransferrccl to linannal enuues capable or managmg credit
nsks ... IDA\ equll\· mvestments m enLerprises will he transferred LO equ1tv
holding- enLitics. such as 111clepe11de11tcompanies, pnvate l"unds, privausa-
tum funds or primll' cqutty holding compa111es. It was cunlirmecl dunng
negotiatmns [between tile \,VBand the Polish Gcwer11me11LJthat Lransler of
I D:\'s lina11nai ponfolio will be compll'tecl b,·Jw1c '.10th. 19~1'.2.·•11
The WB stance was the same 1111-lungarv. The i\·lDF gon..-11melll had
decrclecl Lo pursue an mclustrtal polin· Lhruugh Lhc Mirnstn- for lndustrv 111
tlie typtcai Wl'.SLEuropean manner. The fact that the MDF had made this a
centrepiece of'its elecuo11 program111e 111g)9() did not weaken the poliucal
will of' the World Bank. It would not alloll' It. MaLters wen: rcsol\'ccl in I 99~
111the following \\·a,·: 'The government 1sco111m11tedI to the \Vllrlcl Bank] to
rl'ducmg- the ro!t· or Uw mmisuT Ior Trade and I 11d11stryI 1111he L'co1101111·
rap1cllv, and the rcstructunng, re\'ltalisauo11 ancl gm·ertlllll'tll of the bulk or
mdustrial cnterpnscs is to be lert to market l'orcl's. •!1~
Thl: World Bank has s1milarlv sought to emasculate national de\'elop-
llte11Lbanks, so central not 11111\· 111\Vester11 Europe whl're the European
lnH:stmelll Bank pia,·s that role but also III Ch11m and m,~nv other parts or
till' ,,·t1rlcl. The Polish gm·ernmcnl establishl'd a Polish Devl'lopmenL Bank
11119~10to icnd hmds to enterpnses 1111a long-term basis. The \VB 11ncr-
ve11ecland ruled th:1t this boclv must limit such lending- to 15 1wr cent ol" its
capt1al. The resL or its lending- should be onlv LO cnmmcru,tl banks.! 1:1 111
 l'OIJTICS IN Tl-IE C;[.011,\l.lS,\TION PERIOD

Romania lhc WB's a{Uustmcnl loan has l)ccn made condiuonai 11p1111
Romam,t"s govcrnmenl pn\'atising Lhe Ro111anian Development Bank aml a
second stale bank.'1-1
Another lie Id oreconomic policy where western public i)Oclics have hl'l'll
decisive has heen 111 seek.inµ; to end significant subsidies w ag-nculLUre 111
tarµ;et co1111Lnes.The 1111p;1ct of this 111 the lr.t{h.: field \\'as noted aho\'l'.
The significance or 1h1scampaign to ensure lhat the hlturc struclllre ur
the econonw should be determmed by market. forces rn.:eds to be under-
lined. Since most or these countries iackecl pri\'ale cap11alis1s wnh till'
financial resources to buv large enterpnscs, these dcc1s10ns were Lo l)l·
largely transl'erred Lo li.,rc1µ;11capitai. As wt· have seen, all the IFis knew 1111s
and s1ressed how central foreign capital would be 111pn\'attsauon.
Yet this liire1gn cap11al would co111eO\'l'l'Whelnungtv from western Europe.
a reg-1011alrcadv saturated with overproducuon and facmg- h1s1oncallv high
levels or structural unempioyment, fiscal st.ram and social tensions. Am·
insen1011 of East European companies mto West European product 111arkels
would lhcrel'orc provoke \Vest Europe;m resistance since 1l would prmlucl'
an unclt·sirable need for structurai a{\justmcnl 111 the EU. At the same Lune.
EU compames were dn\'111gLo capture ex-Soviet markets from their prenous
suppliers 111Eastern Europe. In short there was not a single 'West European
productive sector that would welcome strong exporting 111high rnlue-aclcled
products 1,vEast Central European counu·1es. Yet the plannmg, ab 1111110. or
the new 11\clusmai (and agricultural) forces 111 the East was tu be lef't largelr
lO western operators.
This 1s IHJl a debate about the gains to be made i11technolug1eal transli.·r
or other areas from FDI. Such gains can without doubt he important, but
oniy on condiuo11 that there arc strong national infrastrucwres and policies
for controlling, directing and absorbing such transJ'cr .is 1s the case 111 till'
West. Yet what was being fought for w.-s for t11e comrolling and directing- to
be largelv left LO western ac1ors.

4) Hhli'/'11Gmwrn111n1/ S11/J.wlil'sjiJrHhtnu !'11rdws1'oJEast 1':11rn/wa11

A.u1'/s

\·Vestcrn public l)oclie.s have puslled for the s1,·if'topen mg of state assets 111
the East IO FDI and li.>rl'ull nµ;hts for fon.:1gn comparnes to partic1pall· 111
privat1sa11011Y'1 Eastern governments which failed to take such mcasurl's
could not expect the western mstitution.s, especially the !l'vlF and the EU.
to case exclusmnary embargoes on their participatmn 1n the western
product or capital ma.-k.ets. Thus, the IfVIF and WB loans to Romania werl'
h\ockecl bec.{nsc its pnvausation scheme limned part1c1pauo11 hy fort·1~n
mvestors. Western politicai pressure was used to gain the only two maior
deals concludecl between Roma111a and western muhinauonals.9 1; Equalh·
 NE0-1.ll~E.R.-\l.lS~I FOR !•:..-\STERNEl!ROPE

1111por1ant has been ll'vlF pressure for governments to sell state assets,
mcluding tht'. public utiliucs, to western compamcs m order lo reduce
Jiscai delicits.
Such western pressure on the ;1sst·1suppiv side has bt't'll combmecl w11hwest-
ern state subsidies at all stages m the process of pnvausmg- Lo western
multmauonal comparnes. In East Central Europe, the EU has larg-d\' l"undecl
the state pnvausation agencies, 1t has set up uniL~ 111 the target state's rele\·ant
m1111su-ics amt sta.llcd them w1t11EU nauonals on the EU payroll, it has paid for
the s1udies lw western accou111ancy firms and 11wcsunent banks of the inclus-
tdes or target slates and it has gi\'en sul)s1dies for the actual purchase of assets
IJ\' EU firms. thus g1v111g tlwm an edge ove1·compeutive !mis. The ma111111stru-
ment of this effort has been the PHARE Progr;.1mme."' \Vhile other lcmns or
Aict l"uncls rl'latecl Lo the region take the form or loans, PHARE. the great
bulk ofwimse funds go to \•VestEuropean compames, lakes the limn ofgranls.
This programme was clec1decl upon 1111989 and came mto opera11011 at
the start ol"January 1990YHIts name 1s an acronvm for 'Polamt, l·lungarv:
Assistanct.: liir Rcstrunurmg Econo1111cs•_!l!I PHARE has been sul~JeU to a tor-
rent. or cnuusm largciy l>ecause thl'. EU has sm1g-ht to diss111111la1l'lls
purpose. The EU has presentl'cl it as both a partnership with target govern-
ments - rec1p1ent-driven - and as a means of transrernng funds l'ur people
111 the East. \-\'hen it was set up, ILs main pnorllles were said to he transl<.T·
nng funds and other forms or ;ud to assist agncuhure, em•ironmc11tal
protection. tlw res1ructunng of' industry and small businesses and cduca-
tionai clevelupmenl. Since PHARE l1as not 111 fan been about 1hcsl· 1h1ng-s
the cnl!usm has been inentablc.

Table 9.-1 PHARE and other Western

GrnntAid 1 to CEEC
/Millions of Ecu)

CEEC:S 1'1-1,\RE Total (;'.!·I

J;·ar ( .'011111111/l'il Cm11/.1·

1990 500 171 !)[j()

I !J!JI 77:> '.!83.9 Ll20

l!J!J'.! 1.015.:i ~1;t1.9 I, l'.!O
I!nl'.l J ,O·lll -1-1'.Ui l.l'.!0
19!J-I s:\:> -1!1'.!~
l!l!J:i~ 770

Notes: I) Excluding ddll n:d11c1io11. (;!!-I Mra111sC'Oll\'l·H•:cl rn;lll $ lo

Fn, :11 Sl=0.8 Ern. '.!) l'ro1l'ned in Et: btulf;<'I.
SotHn·s: LIN Ero11umu: ( '.01111n1ss111n for Europt": Fnn101111(· Bullelln
fur E11rnp,·. ml. -1:, ( l!l!l:IJ. p. !l-1:iml EC: C111l11111""'"·
:11ul EC lnulg,·t
fur l!l!/.1, Of/iriu/.f,.,..-11,,/
of th,· /:11111/11·,111 (i F.-h, 11:,rv
<.i,11111111111/in t!l!HI.
218 !'Ol.!TI<:s IN THE<;(_( lll.-\l.lS.-\TION !'FRI< >ll

PHARE policy-mal,1ng- powers arc 1101shared llctwec11 the C:ommu1111v

and the rec1p1ent country's guvernnw111: the\· lie exdus1velv with the
Community, although Lile rcgulauon setting up PHARE docs say ·accou111
should be tal,en, 111/cralia, of the prefen:nccs and wishes expressed h,· the
rec1p1cnt cmmu·ies conccrned'. 101 J The EU Comm1sswn has claimed that thl'

target governments do. nevertheless. controi 1mpleme111auon, c1ung 1lw

fact that PHARE units an: 111 all the recipient countries n:lcvant ministries.
and PHARE money 1s m iarge pan disbursed br thest: unus. But according
to the EU's Coun orAuditors the purpose or tlus clecentralisatmn 1s not to
give controi to the target governments' ollicials s111ce'almost none· or the
leading personnel in these management unus arc nauonals of the rt:cip1cnt
counu·1es: they arc from western Europe. appointed b,· EU bodies and ll'ork
under the supervision or the Comm1ss1011 and or EC/EU Delt:ga11011s.1111
The real effect or this administrauvc cleccntralisauon has bt:en to make IL
impossible even for the Court of Auditors to trace how PHARE n1011t:\'has
actually been spent, since the Commiss1011 has gwcn ad\'a11ccs to these 111a11-
agement units in the rec1p1c11tcountncs and has been 1111ahleto suppl\· the
Coun w11hinformatwn 011how this 111011ev has been spent. Thus, aithDugh
the Conn's reporL~ can be taken LO bt: the most rt:liable sour ct: 011 PHARE..
it aiso 1s Ill the dark about much of the programme.
Thus, one orthe l)lggest eariy PHARE pn11ects was 50 111illio11 l:cu li>r pes-
ticides for Polancl. The .-\uditors were unabic to trace where this actualll'
wem though the Conn dicl establish that some at least was re-exported to the
EU. ID'.!Also 111 the a~nculturai lidd, at the stan or I mm"pn1Jcct was st;1rted
to supply loans fr,r pnvate farmers in Poland and Hungary, but two ve;1rs
iater nu loans had bt:cn g-ranted. The Polish fund was, in 1990, quilt: large -
160 million ecu. Bm as hue as.January I mt~the Comm1ss1on was still unable
to give tile Court infonnauon about lilt: fund's acunucs t:n·n though n had
pron11scd a first report on 1l would ht: published m I 991. 1t1::Tht: sanw pat-
tern applit:d LO another big PHARE pn1Jt:t'l: LDpro\'1de IDall faciliues liir
small and medium-s1wcl tmsincsscs Ill Poland and 1-Iuugary. But at the encl
of the second year of this pn1jecL no actual loans haci het:11 pa1cl to SIVIEs 111
ell her country. JO-I
The c111ef'of' the EU Commission's staff of' cconom,c ach·isers on Eastt:rit
Europe has cxplamecl whv he th111ksgiving rcc1p1cnt gm·t:nlllH.'lllS a role 111
PHARE would have bct:n a bad 1cka b\' cla1mmg: 'tvp1callv II takes much
longer for the n:cip1cnts to spccil)· thell' priorities than 11would for the
donors to impose theirs; demancl-lccl a1ci is pront: to exploitation hv rt:111-
scekers and hence may not be cost-el'lccuve· io,,
These news arc not shared by the EU's Auditors nor confirmt:d lw lhc
facLS. Thtls Pones seems to assume that rent-seeking 1s an E.ast Europt:all
rather than a West European problem. In one of the biggest PHARE pn!1ects,
Temp11s, for exchanges 111higher education. East European renL-secking was
 NECJ-UBEIUI.IS:-.1 FOR !·'..·\STERN El!ROl'E '11!I

deait with 11\'.m the words or the EU Auditors, ensuring that there was 'prac-
tii'alh- iru -111\'olvement or the cd11cat11mal authon11es or the reup1enl
cuuntn· w,; On the other hand IL seemed to fa\'our wcswrn rent-seeking: it
handed the 11nplementatio11 of Tempus to a p1wate oq~anisauon, the
Eurnpcan Cu-operation Fund (EC :F), wh1rh has i1selr been dl·,·oted to 1hc
h11s1ness or educt11011al exchanges and has been h1clclin/-( for Tempus
excl1ang-e money.
Portes's readiness to raise the issue or deJav 1s also curious. Thus li·om the
sran oJ' PI-L-\RE III I ~nJO, rhc goH'rnmcnls of Poiand. 1-Jungan·, Bulgaria,
Czcchoslo\'al;.1a and Ille GDR had made cnnronmcntal 1111pron:ment mea-
sures a priontv. The EC Comm1ss1011 a/-(n:ed. But Ill Poland, af'tcr thn:e full
\'car.~ or th<: gm·(Tnnwnt ·s making tl11ssector a pnorm·, the Commission had
carl'led thruul-\h 11<1 s1n/-(ll' pilot 1m•es1111c111 pn1_flTI thar would directly
improve ennronmental condiuons. The Hun/-(artan go\'crnmenl had pro-
dllcccl proposals l'or some '.WOpnoriLy pn~1ccts !'or tackling l'nnronmental
problems, but the Cu111m1ss1011 did not sl'lt-ct a single one nr tlwsc, while It
did fund tile cons1ruct1011 of a 11·ildlih.:park and l'\'Cll supplied a central
mana/-(cmcnt buildin14 !'or it. 1117 Pn!jects- rc/-(arded as urgc ..ll bv recipient
slates, such as the co11struct1011 nr sewage p11rilicatm11 plants Ill h1ghh· pol-
it11cd areas such as 1hc Black .Sea. the Baiuc. \\'arsall' ,md Northern B11dapcst
were n,:jectecl by the Commisstllll. Jmi
l11.Januar~· 199-1, the European Parliamcnl cr111nsed the (:omm1ss1011\
bck oracuon on cnvin111me111al iss11es and 11.,fail11n· 10 back renprent gm·-
cn1111t~1nprupusais s11ch as Llwsc l'or Lhc Da11ulw Bas111, Black Sl'.a and the
Bai tic Sea. It criunscrl the fact that Pl·IARJ::runrls were used 011Jy for studies
and it urg-ed the Commission Lu use iocal constiltants more o!'lcn for
PH.-\RE. lfl!I
Yet w1t11111 ,Ill ST framework, most or these cnunsms can be disnussed,
prnnrlecl the purposl' or programmes like PHARE are rlevc>Leclto aiding
prtYa11satio11,md FDI. Since w1th111the franwwork orST FD[ is crucial 10 pri-
,·ausa11011. moderrnsalHJII and grmnh. 11'l'Stcn1 go,·t·rnnie11ts would b(:
Jllstilied 111 !wiping 111 these tasks. And much or PHARE has bec11 /-\eared
()l'l'.Ctselv towards that. There was a great cical or n-1ucism of the f"ae1that
PH.-\RE was dt·vo1eci 111the c;ll"h' vears ma1nlv to studies or the target
eco11nmies b,· wes1er11 consulta111s. The fau that 111Poland the 0111~· prnduct
or the so-called loans for farmers pn!ject was a s1ml\' of co-operau,-e hank-
mg caused some ndicule for telling Poles \\'hat the\' alrcacl\' knew. 110But for
FDI lhl' t;1sl;.was tHll so much transli:rn11g- 1n·s1t·r11 mforr11auon East as
tra11slcrrinl,{ easll'rn 111fon11at1011\-\'est. ,-\ studv like thal may have been
valuable for, sm·, Credit Ag-ricole Ill encouragmg it 11; trv 10 take over agn-
cultural b,rnking 111 Pola11d. Or again. some fort\' studies by western
co11suita11ts or Polish 111dustncs were earned nttt durmg 1990 and HlU l.
These kinds of swclit'.s were earned out m their h1111circclsacross Lhe rcgton
 l'Ol.rrrc:s IN THE (;I.OB:\LISATION l'ERJOI)

and Lransferrecl vasL quanuues or l'Conomic informaLion weslwards. The

charge was made repcaLecllv Lhat East European consulLants were lll'\'l'r
used and should ha,·c been. Yet IL 1s surely noL obvious LhaLsuch eastern
consultants wouici have Known the kinds or profitable opporumities that
western mulunauonals would have been al'Ler in Lhe region. And even if
Lhcv did have an mkling or this, Llwr might not have been svmpatheuc. The
Slovak m1111stryor pnvausmion criticised these PHARE comulLancies on ils
mdustnes for not corresponding Lo Its specific needs. 111 BuL Lhis criuc1sm
again would be beside Lhe pnmL from an ST perspecLive smce the spccilic
needs Lo be met. wnuid be those or potenLial wcsLcrn m,·estors. And tlle1r
needs depended upon their global straLegics, not on what, from an ST
point or ,·1cw,were narrowiv national pcrspecuves.
From this newpomt, the onlv cnt1c1sm or such swdies would ha,·e been
ii' they were used not to runher western FD! buL to undermine East
European cmerpriscs that posed a competiLivc threat 111 western marl-.ets.
But because or PHARE's lack of' transparency 11.1s dilfo:uil LO gain infor-
m:uion on tills fronl. One such case became a scandal: the Comm1ss1rn1's
spending of just under 950,000 ccu on a swcly of' how lO restructure the
Czechoslovak iron and steci mdusLnes. 11'.! The sum was not even mclmied
in the programme for PHARE aid to Czechoslovakia. This was one of' a
mun Iler or such con tracts for amounts orbetween 800,000 and 950,000 ccu
not directly covered by any parucular programme. Studies or this son were
very obviously or great poliucal scnsiuvit.y when the Commumtv was
cngagcct 111 protection mcastu-cs agamst a competitive threat from the
Czechoslovakian steel industry. 1i:i
The Commission has, m fact, mcreasingly sought to moll\'atc PHARE as a
support programme for FD! rather Lhan pretending 1t 1sabout 1.ranslcrnng
funds mto the hands or East Europeans. In the words or A. Mayhew, Lhc
Director or the Commission's Di1·ccl0rate General for Externai Reiauons:
'The countries orCentral-Eastern Europe have criticised the (PHARE] pro-
gr,immc for providing LOO much tcchnicai ass1sLa11cc,Loo ma11v studies. if
you want ... we are now trying Lo move much more into lhe area of i11ves1-
ment all(! away rrom studies which do not lead Lo any investment.' 11·1
PHARE has also been l11cprincipal funder of the Pnvausation Agcnncs
set up as government bodies m Eastcn1 Europc. 11'' The PHARE commit-
ments here have been detailed and thorough: thus 1n Poland and
Hungary they have mcludecl paying for official cars and official C(]t11p-
mcnt and, 111 the Hungarian case, for a financial adv1scr. 111i The fact that
largct governments do not always appreciate this Aid produces ncliculc on
the pan or supponers or ST. As was the case with !ls attitude lowarcls
western cxporL credil 'aid', the Polish g-overnmcnt 111 199,t rcruscd Lo
touch an EU g-rant fund dcs1gncd to match the amounL ormoncv 1m•csted
bv EU cnmpa111es in privaused Polish companies. Under the lltie "Looking
 NE0-1.IHEIUI.ISill FOR E:\STEltN EUROPE

at gif"Lhorses·. the Ero11om1st

poured scorn on this 1"('.Jectionof 'free money'
b,··a.go,•t~n1me1H ·runmng a budget deficit of more than :i;i!\bn'. For the
F.ro11011wtthe advantage of giving the EU company a rent that could
enable ll to beat a Polisl1 (or American) compeutor was evidently t.oo
obvious to warrant JUStification. 11i

Table 9.5 PHARE Programmes by Sector (Millions of Ecu)

1990
c;1 /11'1"
1992
C: /Jt'r
,,~ j)('I'
/'l'//1 t'l'III /'I'll/

:\gT11:/RuralDevelopment I,Hi.O 27.•1 27,UI i 1.9 W7 18.S

Econon11c Res Ir/ l'ri,'/
finance ii'.!.:\ 22.(i -1-15.'.! 22.\l Iii-I.Ii 18.5
En\'lronmenl 10'.Ui 20.(i ,,-o-
_/Cl.:) 11.9 59.8 (i.7
Human Resources' 1 1Hl.8 7.-1 ·188.,1 21.,\ 221UI !!fi.:'>
l11fras1r11cture l,Hl.2 6.1 21.:> 2.·l
Humanitanan aid (i(i.:> l:l.-1 ;\-l0.7 i-1.9 202.1 ~2.7
1\'1isccllane<>11s -12.9 8.li 252.1 11.0 -Iii.~) :>.'.I
Total ·IH7 100 2.2!)().,\ 100 888.8 100

Notes: J) (::.:. ( :0111nHlllll'lllS. ~) f' • Parn)l'lllS. :nThis f()\"t~n, t·clucat11111 and lr~llll111g. llw .,onal Sl'l'lor

a11d puhlic adm1111s1ra11011.

Smnn•: EC Conn of.-\11di1urs'R.:pons.

5) TIii' Th('(Jryand Pmrftt't' 1fFJ)J

It is no exag-gerauon to say that FDI has been offered Lo the peoples orthe
region as a deus ex machma bringing a unn·ersal panacea for all their ills.
FOi was presented both I)\' ST theorists and tile western multilateral msu-
llllions as both the key means for restructuring state entcrpnses in the East
and as the lever for brmgmg dvnam1c growth and prosperity lO the target
coumry. The first of these chums risks beconung nrcular: FD! was to be the
key means or pnvatisauon because western condiuonality and presstll'l'
wouid be geared to ensunng it was the onlv allowable means. The real argu-
ment 1s that FOi is the best, the opumal means or l'l'.Structunng-, because ll
transfers technology III a whole range or wavs and can thus dramatically
upgrade enterpnse performance 111 the cruc1ai higher vaiue-added and
technology mtensive sectors. The second claim is more quantitative: it is that
FOi will he the lever or growth and prnspernv because of thL· sheer quanti-
tative scale of the capnal mllows winch some cou11tnes· can attracl.
Both these claims can, 111 certain conditions, be true. It is strikin).\' that the
first claun 1s advanced by ST supporters as uncondiuonallv true: FDI is
blumly presentecl as the royal road towards tedmolog-ICal upgradin~. as if
 POLITICS IN THE l;J.OII.-\I.IS:\TION PERIOD

these economies were almost prc-i11clustrial. The second chum, 011 the other
hand, docs have an imponalll qualilicawm auachccl to n: that FOi will flow
111 freely oniy if the target cou11try provides the correct 111st1Luuo11al
li·;une-
work and policy framework lO attract FOi: failure LO produce the insutuuonai
structure open to g-Iobai capnal will mean that FDI will not flow 111.
\Ve Lillis have a number orparucular hypotheses:

I) That Lht: KC\' vanabie al'iccting tht: size of FOi flows 1s till' 1argel slates
insutul1onal and policy framework.
2) That FOi is a growth motor capable of generating nauonal prospcntv.
3) That FOi will modernise producuon systems, 111other words that ll will
be pruclucuon seeking and il will upgrade technological potcntml.
..J) That wnhout such Jlows, the Lransiuon Lo a mmkrn ecouomv capablt:
ol' competmg in the new world or1-{iobalisedcapitalism will ht: rlillicuJt,
if not impossible.

These proposiuons arc unfonunawiv ellhcr false, or grossly one-s1dcd.

I) lnslituiunrnl and poliiyjiw11ewod1sand F/)1.flows

Urnvcrsal experience suggests that an IMF-approved i11slltul1011,tland policv
framework docs not 111 nself gencrait: substanual llo\\'s of FDI. UNCTAD's
very Lhorougl) work on U11ssul~ject clues not !real instituuonai Ill' policy
orthodoxy as a signilicanl factor, as Table I0.6 shows. Indeed, the factors
which would attract really large FDI Jlows arc pn'.c1selv the factors \\'h1ch the
ST cxpcncncc or <lcprcssion-led trnnsl'ormaurni m a fragml'nted regum,1l
context would 11ncl1:rmmt:.

Table 9.6 Host Cow1try Economic Factors Stimulating FDI

I. I·losl country ecu1101111c

!.!,n1w1h, espenalh· µ;rm,·th 0111s1npp1ill{
population growih.
2. Size orthe clomesuc market.
'.l. Degrees of regional intcg-1~1t1011.
4. High profit rates.
!i. l·Iigh skilled-1011· cost iabum.
6. lmprol'ed i11fras1n1c111re.
7. Exchange rates.
Source: l'NCl'.·\D: \lbrltf /11w1tm,·11t
11,tmrt, l !1!1·1(C:.,n,·1·a arnl N,·w \i,rk. I !1!1-lL

This general cxpt:nt:nct: of FD! has been amp!\' proved in the case of Lill'
enure Ea'st Central and East European regiou. The whole region has
attracted very small llows of FDI, wllhotll macroeconomic s1gnilicance. A11d
as Lile structural transformation deepened m both the Czech Republic and
 NEO-LIBER.-\l.lS~I FOR E.-\STEl{N EUROPE

1-Iun~ary Ill 199'.l FDI acn1allv !di msteaci or growing. On the other hand
Chnia, which has not al all followed IMF prL'scnpuons and has failed ln do
such allegedly v11ai thmgs as ciarifring propcnv ng-hts and guaranteeing
contracts, has allracted massive amounts of FDI. I11 1992 alone China
attracted more FDI than the whole orthe Sm·1et Bloc attracted between 1989
ancl I !nl:l. The followmg year Ch ma's inilmr of FD! cloubiecl over the previ-
(HIS \'l'ar~

Table 9.7 FOi Flows into the Visegrad Countries, 1990-93

(net inflows in millions of US dollars)

I <Jf)O IC)()I I <J<J2 /()CJ]

CSFR I ~l~l 59,1 10:d

Czech Rqrnhlic mm 561
SIOl';tk Republic 71 I 00
Poland HH i 17 '.28,1 850
1-lungan· o--
'
~) / 1-l:i\) l-171 l'.!00
i'.·le111orand11m11e111s:
Clrnia I I .JOO 25.\)()(J
.-\II East Europe & NIS I \l89-~1'.l 11,000

Su11rce: I)(; fur En,1101111c and Fi11;111nal.-\ffa1rs. Co1n1u1ss1011 of the EC. 1:·11ro/Jt't111 /:'nmm11_-.,·.
S11ppl,·m1·111.-\, 110. :I (\l:,r.-h l9!J.IJ. a111l.!i,r China. u;,..:(:r_.\l), \liir/d /.,,.,·,tm,·111
U,jmrt. (C;,.,11e1.ia11d
'.':,·w \i,rk. J!J!H). p. 1:1.

Ch ma's mslltlllional stn1cture 1s, or course, exactly the kind or"ti11rdway'

market socialism that Sachs Sl'l out to discredit back 111 1990. And interna-
tional experience lea,·cs li11Jc doubt tllat ir the Comecon reg11.m had
rema111ed 11Hegrated, if the ST slump had been avmded and if an adequate
trade protecuon regime had been m place, FDI in the reg-ion would, by now,
have hl'en scverai tunes higher rhan iL has been.

2) J-1)/ wit! gnm•lh: iii,· rnu.m/ t!in-r/1011

The Gllisai relationship between FD! and g-rowth rum 111 the oppnsne direc-
lloll f'rom the propaganda or.ST supporters. The precunrlition for FDI on a
iarge scaic 1s domesuc economIC growth. nol the 111 htT w,1yrounct.
There are, orcourse, other kinds of inter11a11011allinannal llows that do
nol ctepencl upon growth: the vast spcculauve llows orhot 11w11e~·engaged
in G\SlllO capitalism. This IS undoubtedly the most ch·namic aspen or the
luose lahel 'giohalisa11011·, ancl II can dovetail fH:rfectlv wnh broken-down
eco1101111eswh1ch arc open LO specuiau,·e flows. The deht-iaden govern-
ments of' such eco110mies, desperate for new l'unding, GIil he clnven to hund
 POLITICS IN THE GLOlt\l.lS.-\TION l'ERl<lll

issues with \'cry high mten:st rates and \'l:'ry short redemption rates. S11cl1
economies c.m be extrcmdv allracuvc for global finance. Their n:ry shaki-
ness involves offering higll yields Lo US pension funds and hig-h-rolling-
im•cstme1n banks. These operaLors have been making their presence: kit 1ll
lite Visq~racl countries. 111I ~l9'.~the Polish stock m;irk<.:tsoared H:11folcLI11
Januarr I \19-1the l~nm()J//1.11, hclievmg tiw surge to n:llect economic hmcia-
mentals, ck-voted an ediwnal to what II called the "breatlHaking· stock
market boom ancl added: 'Tlus expansion 1s no one-day wonclcr: IL reflects
118
a fundamental and remarkahlv rapid chan_l\"C.• But the rise was 1w1 so
rapid as the crash of the following month, when wes1cn1 hanks walked awa,·
from the market with some $~:)0 million of speculau\'!: profits.

3) Fl)! as 111adu•im/J/um or /1•rh11{)fog1ml

11/Jb'7Wli11g~
The ST Y1s1onor FD! bnngmg new, moclern technoiu)..,~' 11110 prorlucuon
processes m East European economH.:s presupposes tha1 FD! 1s ma1nlv pro-
cluctmn seeking. Yel tius has not been true. Emptncal studies or FD! 111 the
former Soviet Bloc have confirmed the prevmusiy known causes of large
flows: in former Commu111st counLries FDI is pnncipallv 'market seeking I I\I
SLatisLical analvsis by the OECD Secretariat has confirmed this for East
Central and Eastern Europe. 1~0
The bulk of the !low into the Visegracl countries has gone imo food. c1g-
areues, chocolate, soft dnnks and alcohol sectors, consumer durables and
cars as well as into the scn•ice sector. 1'.!1 Dcspne the overall collapse 111 pur-
chasmg power. Lhere has been a rapid soc1ai differentiation producing a new
market among what Anthonv Robinson has called 'the growing class or
new-rich traders, entrepreneurs and prolessionai people' . 1'.!~ FD! Ill the
manufacturing sector has overwhcimmgly meant one or Lwobig deals 111 tile
host country's car mclustry. ivlcll"ethan hair of Poland's and Czechoslovakia's
mdustnal FDI went mto a smgle car inclustrv prc~1ccL:\/W's Skoda pn11en Ill
dlC Czech Republic, and Fiat ·s FSi'vlprn1en 111 Poland. l'.!:I

-I) fl)! and C:l'fh n1g1111n111g:

a.Jlag~hi/J?
The car mclustry is, of course, important, and new investment has taken
place m l111ssector. But the Skoda expenence illustrates some painfi.11 real-
1ues. First. progress in ST was irrelevant 10 \1\-\''s ~,nwai. Five months after
the fall of Comnmnism and before anv ST or any kind hacl bee11 la11ncl11:cl.
Citroen, G1\,(,Renault and Voivo were clamouring for Skoda. VW woii the
bid by promising DM7. I billion of new 111vestmcnl and bv prom1s1ng lo
nuse producw,n to 450,000 cars pe1·ycar hv the year '.WOO.It aiso agreed that
a new cngme plant for Skoda wouid be builr m Bohemia. Another ke,·
attracuon of the deal was that VW would use Czech suppliers. VW also
 NEO-LIIIERAI.IS~I FOR E,\STl-:RN ELIROl'E

Table !l_S Sectoral Distribuuon of Joml Ventures al End of 1992

..._ (per cent distribution)

S,·rt,,, C:Sr:N /-/1111wny l'vfruul

l'nn1;1r\' '.Ul i.:i -1.:l

A)-;l"IC., r,lfl'Slr\', fisi1111g :i.:-, I.:> ,J.()
Other 0.-1 0.:1
SeCtl11clan· :l'.!.O -16.0 7.1.(i
Tl'.-l1110loi.,'Y1111cnsl\·,· l:"1.i l93 19.0
Other iii.,\ '.!(i.7 :15.(i
Tcr11arv CH.I !"l~.;l '.!I.'.!
Tr;uk 19.7 l:,.H .>._
i) "}

l-101cls. n:stauranls ~-1 0.9 '.\.'.!

H11s111css-rel;J1cdsn\'JCcs l!l.7 '.!0.(i r,.~
l nfrastn1ct tll'l" 1-l.l I''')
,),_ 7.li
Other X.~ '.!.O Ul

Sourn·: l.'N ECE. quou·tl in 1'.JH11ddc.·,·a11cl1~.\;_ Chaun. nr Erl.\i um/ C,·11tml

Th,·l~rowmun 1fl.'l111u;:,,·
Lu,11/Ji•
{~an llil'µ;o. I ~l~);H.

ple(lgcd to re tam Skoda ·s '.21.000 workers. This was a serious package for su))-
stan ual tcclmoiogical upg-racling anrl for really s1gnilican1 lcchnoiogicai
1.ra11skr: not a mere b1cl to capmre Skocia ·s cx1sung market. In return the
Czech government g-ave VW trade protecuon. ensuring n a monopolv pos1-
t11rn Ill thl' Czechoslovak market (as well as a lwo-vear tax llolida~· and tile
writmg--oll of Skoda·s debts). The WB's a1'111iate,the International Finance
Corporation. wl11ch 1s supposed to oflcr low-111teres1 loans to Thll'ci \ \lorld 1

enll'rpriscs, also stcppccl 111with a swcetent:r for \'Win the form orcl1eap
nH>lle\'.
But· 111 I ~19,1-9·1 VW 1·encgccl on 11.~ prom1ses. 1~-1 Its investment plan was
reduced from Di\17.1 l)illion to half orthat: DM:U\ billion. There would be
no Czech cngme piant. and no commitment to -l!>0,000 cars l>v the vcar
'.ZOIHI.Emplovces have bt:en cut 10 15,000 and more rcclunclanc1cs will
follow. Ancl VvV turnccl incrcas111gl\' to usmg- 11.-; West German pans suppliers
rather than Czecl1 subs1dianes, l>nng-ing more than lil'teen such firms 111 to
n:placc their Czech rompet11<>rs.
v\'hcn companH..·s arc unable to compete 111 world markets. such cw.backs
can l)e necessary. Bm the mteresung lesson of"Skocla 1s that IL could compete
prolil.llJh·. ,,·h1ch 11sCcrman parent rould 1101. As the 1~·m1101111.\"/'s s11hs1dian,
B11.H111'ssCn1/ml l~11rn/1t:,explains, '111 I ~J9J Skuda was VW's star perfr>rmer, the
oniv prolit;1ble opcrauon at a tune when the concern· was racking up
worl<l-w1clelosses of' Dl'vl'.2.:1billion. \IW President Ferdinand Piech described
Skoda as the ..loveliest daughter" ol"the company, adding that 1t was the only
div1s1011capable of' un(lercultln~Japanese competit1011. •I~,,
 I'<>I.ITU :s IN THE C;I.( >B:\I.IS:\TJO:-.' l'ERJ< >D

Nevertheicss lhc str,Hcgir llCl·ds orvwtook pren.:dcnn· on·r those orthe

l :zl'rh l'C011omy ,IIHI ill November 199:t VW rlec1rlccl 10 share thl' p,1111 ·
faced bv \'\,\' Gcn11a1I\' \\'llh SkCJda. The Czed1 PmnL' \·li111stl'r 'has !rlcd tc1
put ;i poslll\'C sp111· un these n.:suhs bv saving that Skoda did be1H:li1 from
management exper11se. But the Economy i\·li111stt:rDlouh\' 1s 'h:ss s.111g11111l''
and states: 'Let's hope that nothlllg more like this happl·11s Ill tile future.• l'.!ii
The Skoda experience or the ncgati\·e cxten1aliucs from mscrting lead
sectors of a target counllYs produnion apparatus into the r111en1auo11al
stratq.,'-Yof a western TNC is 110Lunir1ue. CKD Praha, the 1ntcrnatio11alh·
famous heaw enginel.Tlll!-{ group al the heart of Czech rndustrv, produces
tr,1ms, iocomoti\'es. compressors, diesel engmcs, clec1ncal gencrawrs,
motors and Lransf'ormers. It has produced al)o\lt one th1nl ol" the world's
trams and although 11 \\'a.~de.tit a <lc\·as1au11gblrn\' iw tlw collapse of !hl'
Comcron region, -10 per cclll ot" its saies still gu 10 exports ancl half of lhl'Sl'
slill go Lo the former Sm·1ct U111011.CKD managemclll clcctcll'cl to enter a
joint vcnttm: between 11s tram-making subs1diarv, CKD Tau·a and
Da11111<:r-Bcnz'ssubs1diarv, AEG in 1993. But II has now broKen oil the
co-opcrat1011. The CKD spokesperson. Vaclav Brom, explamc<l wh\' to the
Fill(111twlTi11w.1~'i\fa11~•li1re1gn companies came to the Czech Republic w11h
one aim: to take part ll1 our compamcs, to control the business, cancel
R&D and transfer research work Lo themselves and use us as cheap labour.
We will nc\'er agree with such atllludcs. ,,vc arc readv to co-op1.•r;11ewnh west-
ern partners, but under errual cumlitions.' 1~7
l\fanv other examples or such tcclrnoiogicalh· pn:claton dlons can he
found amongst h1g-h profile wcstcrn comp,m1e.,. Thus Cc11cral Eleclric,
aflcr buymg Tungsralll in 1-lungarv, closed lhe lauc1· s procluct1011 of vacuum
cqwpmclll, electronic components, lloppv disk ancl magncllc tape products,
all of which wcn: considered profitable br Tu11gsram's managcmenl. Thc
Hungarian cement llldustry was bought bv forl'1g11 owners who thcn prc-
vcnlecl their Hungarian afliliatcs from exportlllg; ancl an Austrian steel
producer bought a lll,(Jor Hungarian steel plant onl\' 111order Lu dose it
clown and capture ns cx-Sm·1et marKet for the Austrian pan·n I cmnpan\'. 1'.!~
Such cxpl'nenccs al)()lllld across the rq:;1011.

5) Small Flow /mi /,m!ft C:atd,

or
While the Hows FDI l'unds 111lo the 1·cg10n have so far been vcr\' small, the
numbers orstale emcrprtscs bought through FD! has hec11 \'en· bq.{c. The
m·crwhchmng bulk of privausauDns or medium and large firms 111both
Hungary and Poland ha,•e gone to foreign buyers 1'.!ti and the pn\'ate in\'cst-
mcnt funds ninnmg large and medium Jinns t11 the Czl'ch Republic are
(10111111.iled by western capnal. Yet this 1s not the whole ston· as for as FD! 1s
nHH'l'l'llecl. Ir the FDI llnws to the rcgmn ha\'c heL'n small. !hl' assets thev
 ~•H >-l.lllER--\I.ISM FOR !•:..\STER;-; El ;i:1 >l'E

ha\'e been able Lil hrn· haH· hven ven cxtensi,T. In 1.he rase or Hungary and
Pola11rL,111 part1c11l;1r, \\'l'Stern companies ha\'e L1r,:.?;L"ly hl'l'll able to take
1l1l'll pick or thl' aSSl'I~ the,· \\'ISII tn ac(Ju1re ;111d the,· ha\'l' boug-ln ,·cry
extens1,·l·ly. By the l'llcl ol' I !l!l'.i, some :'l:"1,000L'lltnpnses l!acl hel'.ll acqwrcd
by wesll:rn compa111L·s. In telecoms. power gcllL'Lll1on cqu1p111cnl, chenu-
cals, gl;1ss. cement and ph;1r111.in·utirals. the m1cl-\\'l'Stcrn m11ltinauo11als
han: fought cach other to ga111control ol' stratq~ic ~cctors at mm1mal cusl
and without shon-1er111 plam; for significant new il\\'t'.stment hut wnh a \'lcW
to strcngthemng then· glollal power in till' long- term.
:\,·erage purchast· pncl's h,wt' hl'l'll minn11;tl. as UNCTAD has
notin:ci. 1::o In terms or the averag-e an1111111ts of 111011e\'111 111\'L"stcci
fort'.1g11
equm· capllal, wtiile dt•\'L'lll(Jl'Cl countnes an·raged SI H million and de\'l:l-
op111g cou1llrr allilia1cs ;n·l·ragerl S-1 million. the ( :entral ancl East
European cou111n· a,Tr.ige h;1s been 011)\' S'.!ll0,1100. l·luu~arv, \\'l11ch
attracled most FDI 111till' earl\· I 990s, garnc<I uvcr '.'>I lllillion 111 oniy ·I p~:r
cent or FDI pniJLTts. 1:11 Tlus has been an ahs11lu1clv prerlictahie result or
ST that some warnccl ahouL at the star! or till' process. Ir\'011 plungl" the
rL"g-1011rnw r.hc rnost SC\'l'l'l' clt-pn·s.,11111l;.11ow11a1nwherl' 111 peacL·t1111e
smce tht: Second Worlcl \,\'ar. if' you s1multancu11slv llriug c11tcrpnscs to
tecirn1cal bankrup1n 1hrnugh collapsed domestic markets and a fierce
credi1 squeeze, :md il'\'()11 ban g0Ycrnml'11ts from n·stn1ctunng compa111es
bclillT sdling- them off then \'Oil c.111 c11s11n· 1'1;11\\'l'Sll'l'll purchasers can
hm· them for next to 11othmg.

\ i-n11s1-.'rnllfll/llf'
( :/11hrili.rn111111 X11ln11l(/!is111
(

John Lluvd has sought to clL-l'c11dthe ST moclci and to repudiate the l;.111cls
of' cn11c1sm or FDI as ;1 pa11an:a suggested above ll\' rlainJ111g that such cn1-
1cism 1s l1asecl upon eco11t11111c11at1<111ali:m1. I-le goes 011 to expla111 that
insofar as there is a new world order it derives •frum tlie death not or cum-
munism hut of' l'l'()llOllllC 11at1011alism •l:t'.! He 11111s tll'/.{l'S us to f'orget
;1hcnn 11at11malism anci ;ll'n·pt the worlcl ol'wha1 lw r;dls .~lob,ilisL"d prncl11c-
tlllll. B\' ll11s he 11n·a11sglnh;tl comp;1111L"sthat proclun· JMrts 111 io1s of
diifrrcnt countrtes ;111(1assl'llll>le them 111 \'anou~ plan·s. !·le then tnes lO
ndicull' .Iona than StL·<.·kor the ( ;,umlir111i>t:ctuse 111Steele s imponant book,
/:'trnl(I/ U11u1a, 1h1s glohali.,e<I world ·ex1s1.~uuh· Slll't·ir;dlr. iLll ;ill'.
Llowl 1s herl' muddling- two \'Cl'\' clilfcrcnt plts•11omena: g-lohaliscd /m1-
d11rlrn11,111 the sensl' orlarge TNCs producing throug-lmut the woricl with
an 111tegra1ecl internal clins1011 ol'laho11r span11111g·manr co111Hncs, J:i:: and
globai /m1d111'1uwrl:1'1.,.Pmr/111'11011 is g-loballr llltl'gr:ned w11h111compa111cs
oniv in a limit.eel senor or the world eco110111,·,tl1<111ghan important utll'.
It part1alh· exists 111 rars and 111 l'lcclro11ics. though t"\Tll 111South-East
 POI.ITICS IN TH[ Cl.011-\I.IS,\TION PERIOD

Asia, ou- p1·od11c110n has not been 111tcr11at1011alised (whik l'lcctrona:s

has). Oms1dc these sectors, giobalised production 1s marg-mai. Further.
research on such producuon suggests that it. has not been a growmg rca-
tt1re of economic reiauuns. The best 111clicator or the J{l"OW!h or global
produumn 1s the gn)\\'lh DI' intra-firm trade (IFT) srnn· by dclinll1011 1Jic
!i.>rmer requm:s ]FT. )'cl 1he OECD's research on IF'T demonstrates \11;11,
contra1·y to Uovcl's icleolug:I' or globalisauon, IFT ciot:s not seem lo l!;tl'l'
g-n1wn clunng the 1980s. The OECO's research on IFT sl10ws lhat. al kasL
for US and Japanese TNCs, IFT stagnated clunng the 1980s. l:1-1And <.:V(:11if
IL had been growmg. Lloyd's case that nauonalism was pla\'ed ottt wot1lcl
require him lO demonstrate monopolisauon and 11t:arh· 111surmo1111tahk
ban-iers LO entrv on a global scale to suggest that nauonalisl ccononHc
ambtuons were utopian.
On the other hand, what docs exist across most sectors are 1111:rt'(IS/llg(\'
globaliJ,,tf/nod11t't111arlwts. Yet to paraphrase Lioyd, 'these exist only spectral!\'
if at all' 111 111swnung, for ir he had understood their existence he would
have noucccl the feverish rise of economic nationalism, most espcdallr 111
the USA, the EU and.Japan, which has become much more tntense follow-
mg the demise of Communism. Every dav. the Fillfllltl(I/ Tim,·s prnv1dcs us
with new e,•1clencc of this. In the context of g-lobal product markets. cac11
slate seeks to conccn\r;11e capual m 11smam sectors of' strength m orcler to
gam s11rlioen1 ~calc and power Lo light fo1· giol)ai market .~hare. The 1;1s!-of
the stale 1s 10 fig-ht on behalf' of its own (clomcs1icallv monopolisl!c) plan:rs
111 their ruthless dril'e Lo capture markets and/ or carve up the g-lobc wllhm
Llwir cancb.
In line wllh this dnve, tile IJ1g western players mo,·mg 111Lo Eastern Europe
have typical!\' 1ned to require governments there Lo prn\'1de them with
monopolisuc control of the lncai market. \IW requi1·cd monopoly-protecung
tariff-; on Czech car imporL<;before mvcsling 111 Skoda. Hunslet, the Bnush
rolling-stock maker, demanded similar monopoly rights when ll bought
Ganz in Budapest. General i\·lotors rcqull'ed the nght to import its cars
cltny-frec mto Poland as a condiuon for invesung Ill f-SO 111 \Varsaw, while
1·cqumng l11gh tariBs on non-Gl'vl cars. 1:1:; In Hungary, Suzuki has obtamccl
trade protection for 11scars and Samsung has clone the samc for 11sTVsY 11i
For Lhe TNC:s, ~Iobalisation and national autarciw for Lhell' larget sector fit
pcdcctly together.
A spccilic European f'calllre orthese ckvclopmcnts has bccn lhl' ;11\cmpts
or the EU Commi.~sion to prnmote its own statc-builcli11g cllons at an El·
level l)y clemonsLraung Jls capacity lo def'end thc base and strengthen thl'
outreach orEU-based mulu11at1011als.And in the East European context this
has emailed hclpmg them to acquire dom111ancc m their ,11\'ll sectors 111 the
East.
 NE0-1.IIIERALIS~I FOR F:\STERN ELIROl'E

Tlw lni1•m1·/1m1 o(l'ublir and Pml(//1' \\htl'rn O/Jl'l"fll,rms

There 1s ;111u11co111m· co111c1dc11ce111tlH: wa,· 111wl11ch the l~IF/WB acLinncs

ha\'e combined with those of the more predator\' TNCs tD weaken the capac-
11.\' or East European slates to bargam efkctivclv with, ;mcl be able to absorb
f'nr 11;1t1onai aclYan1age. beneli1s from FDI while mimm1s1ng- the possible
damage. Not onlv h,1~ the \VB npposed a n;111011;1) m1crc>eco111>111ic stratq.,"·
111,·oh·111g taq~ctecl 111dwanal policr and expon pro11wuo11. It has sought to
weal,e11 the most ck1m:11tarv forms orcnsis managcmclll 111dustnal policy
such as arc 11or111,tlpracllce in the \Vest 111 mmor recessions, whe11 large
swathes orimponant cmnpanics arc put into ·i111ens1,·e care· I>~•the banks.
Instead. the WB f1as urged Draco111a11 bankr11ptn la\\'s ;111d a11 ,1ssel-slnp•
pmg, labuur-shedding approach to rcstructun11g. IL has 1ake11 lls lead from
the signals or collapsed markets and reciu1n:d acuun as follows: 'Typically,
the rcstructunng pl;111swill involve closmg- loss-making producLion units,
carnng out non-essl'nllai acunues, di\'l'St111g nt111-proclucl1,·c or
111ulcr-utilised assets and shedding excess labour.· 1::,
Both thl' Ii'vlF and \VB have shown not tile slig-hLcsLcu11u.:rn for protecL-
mg the cducauonal inli·astrucLurcs and public R&D bnctgl'ts as wdl as other
i11frastr11ct11n:s for ensuring- a future capacit\' to at)sorb and diffusl' Ill'\\'
tccirnolog1es thro11ghn11t the eu>num,·. Year after n·,ir 111.:alth ;uni cd11callon
spc11ding 111 the Visq~racl coulllnes has bcl·n reducccl. i:is 111Slm·akia. for
example, 111 1~19:) l·ducauon spending was reduced IH' '.l() per cent. In
l-l1111gar"111LIH: sprtng- or 199:'i, Lile JivIFreciuircci the government to chargl'
li.:cs for higher ecluc111un as a condition fo1-pro\'1ding- nt•\\' 11,ans. i:;ii
.-\ga111sttl11s hackgrouncl we ha,·c seen catastrophK clcclirn:s 111H&I> hucl-
gets acro~s the rcg1011.

Carclinal goals or ST have been, according to Sachs, tiw .icl11c,·ement of'

democrac\' and freedom. Although Sachs lrnnself has not emphasised the
building or·civil souew', this has been a constant theme or ST supporters.
Yet thcsl' go,ils ha,·e been treated as ends anci not mc;111~.. -\s ends. the,·
have hcl'll discursl\"el\' ,·ery 11npona11t l)ecause the\' havl' hr.:L'll used as core
.JllSLific.111011s orthe means orST.
1-lowe\'er the liberal pr111ciple that ends shouici g·on:rn nwans l1as been
oper;111on,1llv rt.:Jel"ll'cl wllhlll ST in faniur of ;1 more 'dialc:c.:11cal' approach:
fill' t·x1st111g.mual. legal ;111(1 political i11s111uuo11sare likch· ·10 be 1-es1st;in1to
ST. hlll ST is Lill' 0111'· (or best) pal11 to Lruly dc11wcra11c, lq{,tl and c1\'il in~u-
t utirn1s, thcrefon: ll'l: must negate the existill!-{ 111st1tt1ll<lllSfrom abm•t: a11d
m1ts1cle Ill onkr 10 rl'alise !Ill' tn1e clemocrac,· an<I l"l\'il soc1ctY.
 POLITICS IN TIIF CI.OIHI.ISATION l'ERIOll

Tl11s has been the substance or much western co11cliuonalit\' clipluman. II

has been applied also in the 1'1mding efforts for vanous pro-1n-sltT11 poli11r,il
panics in Eastern Eun>pc.:. paruu1Jarl\' sooal democra11c panics. But 11has
bccn at till' vcrv !wart of lhl' whole operational prior111t·s of ST: to s11bonli-
11att· the will of elec1ora1cs and p,1rliaments to thl' rn·crncling pnono· or
rapid s1·s1cm1ctransl"onna11m1 lo c1p11,dism and the do11•11gTadi11g of l'o11st1-
t11uonal cl(·1·dupme11t. social ,111<1 pc ilitical consensus-buildi11g. a11rl n·sp('Ct
for 1111111111,ilet.:011om1ca11clsonal soliclant\'.
lnsounancc on those issues. as S,Khs has more or less acknuwledgccl. led
to catastrophe m Yug-osiana. The 1e11smns of ST plawcl a central role u1 the
destrucuon of"Czc.:choslovakia (whose pnp11lauo11s were.:clc111eda \'ote <>11 tile.:
issue). But these features or the clrive have been most cv1dt•n I m I he polirv
Lowarcls R11ss1aand the Former Sm·iet Union.

TIii' Civil m11Itl11·<:m,111111/

111tllt' N,w Cu/ntoli,1 (.'l11,,

The \Vc.:sthas url-{ed thaL those who 111,111agecJ lo acc11111ulatc 111011e1·-cap11al

uncler Communism shoul<l form the core or the 11ew domcsuc cap11alis1
dass. These people ha\'l' hc.:1..·11 m,1111lrillegai currencv speculators and black
marketeers as well as corrupt me,nbers ofs1ate admin1stra1io11s, l.'spenallr 111
the impon-expon scctors. Sud1 people have shown e111rcprenl.'t1nal spm1,
albeit ur a crnn111al kind. l.ord J-lo\\'l.', appointed adnser ll> the Ukra1111a11
goven1menl 1n 1991, was C]lllll' frank on 1h1s poll!l. 1-k urged the 11<:l'dfor
the cien·lopment ofwha1 he calll'rl 'bandit capnalism· in Ukramc.: and drew
a l;.1vmirable parallel wnh the gre;11 rnblwr barons or Arnencan cap11alism m
the.: nineteenth cenwrv. 1·111Thl' gm·erning consideration \\'as to s\\'iftlr
acqull"e a C.!pllalis't class with strong- entrepreneunal and prnpri(·tan·
rnslln(·t.~. 111bandit or mafia capHalism there was a soi 11111111.
This ,l:,pen or 1ves1en1 polie1· has ol"ten been 11n:rlo11kecl. perhap~
bec.n1M.' ST supporters ha,·e urged act1011 to reduce.: lc.:,·cis urcnm111;ditv 111
the Eas1. Yet tile policr has l>el.'n l;111hfullv reflected 1111hc pages ul the
J:'m1101111.l'f.h has argued that Ill the c:.ise of Russia, thl' Con11m1111s1s han: ha<I
an interest m exag-gcraung the extent or cnme and that 111 all\" t·ase 1he
enurc Sm·1et pn~1ect had been crnrnnai. IL has urged that the crnnmal busi-
nessmen 'whose methods of operat10n hover uncasih· hl'twecn those.: of .-\I
Capone and those of the early American robber barons 11t-ed to lw
encouraged 10 go legitimate.: To achieve this, ll argul.'s, the Russian g:111·-
ernment has to 'show that ll Js willing to protect proper!\' rights ... Sec11nd,
thl' gm·er11111ent has to reduce 11s1111erf"erence 111the econonw ... Till'. g"1·-
ernment Cl>Ulclbe deregulaung and liberalising the l'C1>no1111· 11111Ch rastn
than IL 1s f.h>lll/{-•1·11
The s11pponers or ST thus turn the idea orbuilding a c1,·il societ1· 1111hc.:
 NEll-1.IIIER-\I.IS~I FOH J•:.-\STER:>:
El 1ROl'E

Easl Ullo the ~1mplc 11011011of l'11ding sl.ttl' 1mcrren:11ce, slate l'u11ding and
star-c·.contHil. Sonl'l\' 11seems would he ri,·il 11nlv ii" there was no poliucal
111terl'en·m't'. The respect Ji,r popular sm·l·n·1.L\'1Hy,the b11ilrli11g of links
bet\\'l'l'll p11blir policr anrl ,·01er prefrrenn·s. 1ir responding pDsiuvcly to
l'Xprc.,.,11,ns 11Jp11hlic pn111.:.~1 or .,trikt· :1n11m I)\' {k.,pt·ralt' emplo\'lTS, forms
110 pan of l111spre 1gTammc. Su·, 111gpublic protest ag.1111stJi.ir11h .,j' pnvatisa•
unn fan,11n:cl 111 t.lle \Vesl or aga111s1 111t-reas111glv1111pnpular examples oF
predator\' western bt1\'·0L1ls arc to he ignored.
The Polish sonohig1st \Vlodzim1er1. \-\'esolcmski has captured the ST sup•
porters hoslilitv lo democr.i11r will fonnat1011 ,,·hen writing- orLhl' stance ol'
the new. pos1•l qH~l elites 111 Poland: ·thC' um·01red ;1ssumptirn1 1hat peopk
had to he demobilised 111 urrkr 10 open the wa\' l<>recrn1on11c reforms: i11
parallel. the irnsmess of poliucs should he lel'I lo pnlitina11s and the eml'rg•
111gcl:1ss or htg cap11alis1s. This \\'as - ;111rlstill 1:-.- the posllHlll or le,1clers or
neo•liberal J)l'rsuas10n as well as or mall\' 111Jlm·11ualyn1rnalisls.' 1·1~
With the l'icL'lio11111011c co1111tl".',1ftcr ;111111lwrol'g-m·ernnH:nt., IL'clhr 1he
former ( :llllllllltnist par111:,. 1,ns1ili1,· to1,·.irds tla· l'lltTls ot' cit·mon,111c poli•
urs III Lill' rq~1011 ltas lwn11t1l' most explicit a111t111g- :some ()I tlil' .-\tlll'rtc.111
supportl'rs ot' ST, as cxpressccl 111\'arious ,ll'llclt·, 111Fort'1g11 .-ljjr1n:1.011e such
piece clcd.m:cl that western cl'liffts to tit wan t lie cll·,·elop111c11tol' ng-h Hrn1g-
11,ll1onalism in 1he region wen: a m1stakl': ·111( :cntral Europe the grl'all'St
danger to ricmocracr and stahilit,· does 1w1 - and nen'.r did - Cllllll' frum the
Hew or olri llal!onalist nght. Thl' danger comes frum the old k-1'1.frDm rem-
11,mLs nt' the Co1111111m1stpar11<'S Former Comn1t1111s1 pal'lll'S hold
polillcal and economic mrnwpolics which will take years lo lrn,.,en; 11111il
the'.' do. politics will not become "norinal" in ;iny western Sl'llSl' 111Central
Eu rope or e lscwhere , .' 1-i::
This st'll!>l' 1haL electorai 1·enlie1s 1n E1\'li11r0J'1he post·Comrnu11ist p,11'11es
shouirl not lw ,1nTplecl 1001: ;1 mllrc act1,·1s1 l'orrn 111an cx1r;u,rdin,tr\' pH·cc
111tl1e same ,1<n1r11,1f li1· ,\licllad lµ;nat1dl. l-ll' dn.:larl's tlt;11 ·.-\II tlH· post•
( :orn111u111s1reg-1111esare 110111111:ill\' dl'1t10cr,111c hut III practl('l' Lltl' il'\'lTS or
power ha,·t· u,;uall\' rcmamecl i11the hands ut' 1h~:old 11omenkla1ura. · 111a11~·
case. he expla111s, · formal clemocran· 1s 11ul enoug-h. I ncieerl. demi ,crac\'
will deg-e11era tl' 11110authuntanan populism' 1111 it·ss new 111eas11n•sarc takt'II
hv Lill' \Vest. lg11.11Jeff1he11 g-oes on to spdl out how till' Wes1 must develop
what ht· calls a ·cl\·il soc1c1,· strall·g-~· for the rcg-lllll. This should be a set of
prugrammt·s administere(I ll\' the western stall's w1t11i11the post·Co111mu111sL
stall's IO fund the mass media. opposi11011 parties, Lhl' cm1rts . .1udinar~' and
p11liu:. The strateh':', he savs. ·s1arts wnh tilt'. Sl'arch for pan11crs ou1s1cle the
state, the ie;icli11g-parues and thl' iH1rc.111cran· J.J.I •
Such ci,111emp1 for the 'form;,] cle11111cran or l·iectoral result~ ;incl such
crucil- propo.q),; for h11rt·a11crauc 11H<.·rf<:n:nn: m (ht' .,ono-poliucil or
lili..·
thl' rq.{t<>II II\· 11·t·s11:rnstales cuulcl nnl\' 1111 l11t-r u11derm111c 1he already
 POI.IT!< :s IN Tl-IE. (;t.UB.-\LI.S.-\TION \'ERi< ll l

stramecl poliues enH::q..;-mgIll tlu: regmn. The pos1-Commu111st parties lla\'e

won suppon from electorates bcca11sc, allhough thcmscl\'es commllted 10
further pn,·aus,1t1011, llH:V are seen as seeking to rdrnild the shaucn:<I sonal
fabric lw ma1ntam111g some 111111imai sonal commHments and lw offering
some p1·otecuon to state entcrpnses which face poliucal discnmmatton
under ,Yorlcl B,111ktutciagL". These parties han: also managecl to maintain a
co111mtmtc.1t1,·e111teracuon wllh iarge soCJal groups 1~n(ired or aha11donecl.
as V1'eslowskipomL~ out, l,v the nco-libcral elites.

Consi1t11tw11(1/i/_1•
l~·r.1·11.1·Sflod1 Th1·mJ1_r
111 R11.1".11"

The most din:ct and brutal test of the n.·Jauonsh1p between liberal prmc1plc
ancl ST occ111Tt·d in Russia m EHJ3. The Yeltsrn government cicnn:d rts
authority from parliamentary elections 111 1990, during the Gorbachc,·
pcno<l. The Russian Parliament ciectecl at that 11111c had then itself eiectl'cl
Yeitsm as Russian president ancl m the aut11nrn ol' 1991 ll voted h11n emer-
gencr powe1·s l'or a vear m ureter lo give him a free hal1(l with economic
transfonnauon. Bv the autumn ol" I 99~. Will\ real wages down to -10 pn
cent of their levels as of the start or.January 1992, the m;~JonLy111 Parliament
began to swm~ agamst the Ga1clar economic reforms. Br the spring of' I 99g
Yeits111was on a collision course with the clepuu...:s.
.Jonarhan Steele's important l)ool;. on the Gorbache,· and Yehsm years
has carcrully analrsccl the constitutionai and clemocrauc dimensions or
these cvcnts. 1•Vi Steele reminds us that the clec1s1\'e shirt towards liberal
dcmocracr ancl a iegal state took place unclcr Gorlntchev, who mall!,{Urated
an 111ci<:pendentpress, the dismantling or the censored press and KGB con-
trois, and l'ree clectfons. Steele reminds us that the leaders ol' the Russian
Parliament hacl not star\L"CIom as opponen 1s of \-elL~rn.R111.~koiindeed bad
been a central fig-tire 111 Yeltsin ·s nse, not icast 111August 1991. The swmg or
op111ion amon!{st the deputies 111 tile Parliament was all 100 easily explicabie
m the context of 1he ca1astroph1c c:onsequcnces of Gaidar·s ST pro~rammc
dunng- 1992.
From 1he spnng or I ~l~J'.1 Ydts111embarl;.cd upon a dnvc to llout lhe con-
stituuon 111 order to crush his erstwhile supporters Wllhm the Russian
Parliament. The Parliament;s powers were not, in fact, very extensive.
Unlike tile French parliament the Ru.~-~ianone could >ll>t,·otc on the gm·-
crnment's programme or pass a vote of no conlidcm:e m the prune m1111ster.
And unlike the US Senate, the Parliament could not approve 111div1duai
mm1stcrs. On the other hand, the R11ss1anPresident did not have the power
w dissolve Parliament anrl the l.rller dicl have substantral power III bud-
getary mailers - like the US Congress.
Faced wJLh oppnsJL1on to his economic pro!{rammc frnm the Parliament
 NE0-1.11\ER.-\I.ISi\l FOR F.-\STERN H;ROl'l·:

Yt:lts1n ckucled lo flout the Co11sutullot1 l>r announcmg the dissolution of

the Parlia111~111.an ael expresslv prohibJLl'd 111the Co11suu1t1011. \<\'hen the
i\·IPs sought to n·s1st this 11nnmstHul1onal act In· occupnng tht· Parliament
building, Yehsm n:spondecl h\' sw-rounding and cuu111g off the building
and tl11S led to the ill:1uclgeci but constituuonallv lq,\"itimate effort by the
l\1rli;rnw111 lO stnp Yl'itsm or pl)wer. \'clt.~111respnndcci tn thL" march on a
radio stauun wnh ;1 militan· assault 011 the Parliament lluilcling, the arrest
or Parliament·s leaders, ancl the closmg clown or Russia\ supreme court,
wh1rll had pruptTIY opposed his attempt lO \'111'ia1ethe Cot1srrtt1!1on. Vc!Lsin
also 1111posedrcnsorsl1ip and closed clown hostile IH'\\'spapers. MPs who had
panie1p,1tcd in the occup,1uo11 of the Parliament building werl' thrown out
of thl'll" !lats \\'lllllll thn-e davs or Yeits111·sYiCLOn'.
\Vestcn1 governments anci ST supporters backect Yeltsm ·s llouLing of the
Co11s1111111on. The lc.:aders or Parli.1n11:1Hwere branrtcd 11\'John Lloycl ,rncl
others as the Old Guarcl. dcsp11e the fau that none had such good cn·dc11-
llals J'or that tilie as ex-CPSU Politburo member Yeitsin. Lioyd savs thal
'\'ellsrn was faced wnh the.: aht'rnauve ol slllTl'll<lcnng· lO the Oki Guard or
breachi11g lhi: Constill!tron. · This is propagandisuc: till' Parliamenl had 1ml
hl'en ask111gYcits111LO surrender. The\' had 1Jce11opposing his ST policy. If
Lloyd was more honest he would admit that the choice was l>ctween pursn-
llll-{ ST 01· respecung the Consuu1uon. And that is whv Llovcl 1s. as he sa\'S,
·g1.1d that \i:ils111 won' 11''
All this was, 111anv case, an ,•,y/w.11 jr1do rauonalisauon (Ill Lhe pan of
Llovci. At the start of I ~nti he had classed as the sole political achievement
or J !)()'.:! Ille COlllll)lll'rl hinruonmgor thl' parliame1H-gn\'erllme11L-prcwle11L
comhmauon. I-Ii~ list ornine daugers l"ur Russia rlunng- 19\l'.1made 1111 men-
tion of a threat from Lhe Parliament and one of his list of !i,·e hopes Ii ,r the
\'car ahead was for a 'consoliclation or democrallc msuttnions· I-Ii
.-\f1cr '\i.:lts111'sautumn 199'.\ coup the Em110111/.\I declared Lhat one should
not he surprised thal a Russian like \i:lts111 would ignore nll1stll11tw11al pro-
pne11es. Al"ter all, IL explamecl, 'Russi., bemg Russia t11c hope that ·a rree
111;1rket democrarv' could be t.:stalJlishecl there by consent was probably
,iil\'av., absurd' In .,hon, WL' 111 thL· WL'st shnuld 1101 eXpl'cl Ycltslll LO
iwha,·c bv our stanclanls. 1.1" The E,mw1111st'st·ditor did, howe\'er, expect
that !us reatlers would have forgnue11 the Ero11(11111s{sown past editorials.
We co11id thus be rdic.:d upon to assume that the 11uuung of the
C1111.-t11tll10t1 was '\t:ltsin s idea rather than a western one. \'e1, a full liYe
11H1111hs hel'ore \'dtsm made his 11111,•c. al least one 1111luenua1 \1·esler11,·rnce
was urging the path or ille!-{ali1y:the \'u1ce was the l~m1101111.1·1 llselL In Hs l
i\fa\' I ~19,~editorial II ratsecl the question or whl"thcr Ytltsm shouid con-
L1tl11t·a war of:111,-,11011 wuh !11.,oppont.:nts Ill Parliament. It arknowkdged
that dumg so 'h.1s powerfui atu·actm11s. For one thmg-, ll ,~ legal Yet
to continue trench warrare would be a nustake I-le should abolish
 1'()1.f"J"I(:s IN Tl II·: l;[J)l\:\l.lS,\TIO\: l'ERIOI)

parliament. 1111roduce a new co11stitmio11 . .tll(J call l'll'nions.· .-\her all. lhl'
Const1tlltJ1>11 hart 'hl'comc a weapon 1hat Parliaml'nl cxplo1ts rn1icalh· 111
111
l)locl, rel"orm · 1· This YJC\\' was hacked lw an ,1<-comp,1m·1ng art tcle \\'h1d1
expl;1111L·d: 'i'vlr. \i:lts111·s dih:mma 1s tl1al, 10 co11l1111n·wllll eco11orn1r
reform. IH' has got to gel net or the prl'scnt parliament. winch 1s block1ng
l11m at even· turn.· t,,o
Bv far the must astonishing aspect or the enurc expt:nence or ST on:r the
iast live \·cars 1s tht: extra,irdin.11·\· resiliencl' ol rtenwcra11c cornmitmen1
thr1111gholll the t.·nt1n: cx-Com11n1111stregion. The populauons or I he rq,:1011
hm·e nol onlv suffered atrocious hardships l>ut have t:leclt:d go\'crnnwnL~ on
politicai platforms that ha\'e subscquent..lv been hlockt:d. 111 Hungarv. Poland
and S]m·akia, h)' westt:rn p1·cssure.
Auempls at ultra-nauonalist barklashes lff 1he Chnsti,111 Nationals 111
Pulancl, the Rcp11hlica11s m the ( :Zech Republic. the Slovak Nauonalist ParlY
01· Lill' C:zmka hreak-awav from the MDF ha,·e all been rcpucliatecl hr the cier•
wrates or the rcgam. In general. ll1e extreme Right has bct·n far weaker
electoralll' 111 Eas1crn Europe clunng the 1990s than III wcsrerrt F11rnpe._j11sl
as the Far Right h,1s ){a111edfar more support 111\\'t·st Gt:rm;im· than 111List
Gernianr. tht: shuwmg for the Far Rigln has been g-realcr 111 Austria, llah·.
Francl' :111clBclg-n1111 1ha11in the gn'.al bulk or Eas1ern Europe. Instead. voters
have turned b;ick lo the one political currelll 111 tlw region that has recet\Trl
110 support whatC\'l'r from the West: the ex-( :,nnmunist soc1alis1 parties.
These ha\·e acluevl'd \"ictoncs 111 Poland, I-lu11garr. Bulg-,ma. l.ithua111a,
Es10111a.l.1kra111eand have become unporlant also 111 the fonm:r CDR.
In tills context, East European democrats must wonder wlw lgnauclls m
the West propose western financial inten•emrn11 against authontanan pop-
ulist currents 111Eas1ern Europe, mstead or
spending some or that mone\·
tackling tile a11t1-s1aust'(civil soc1et~·?} militias 111 the l'.S or fascisrn 111 wes1cr11
Europe. Similar n·111cal smiles are bcmg raise£! iD 1lw rq~1on about 1he El 1's
wo1-r1eri 1ns1stencc lhal the EasL Central Europc,111 states sellle all then
elh111c and territorial problems and polenual disputes hr 111ternat1011allr
b111di11gtreaty 011ct: ,111clfor all as a pn:condit1<111 !"or 111m·111g towards poss1-
bie llll'l!ll1crsh1p of the EU. Wlw, the,· wondt'r, arc western rensHllllSL claims
exrlmled~ \-Vhv 1g-nore the re\·1sm111slciaims h\" the Italian government 011
Slo\'erna, clauns which led haiv lO block an EU .-\ssociatio11 .-\grceme111 with
Slo\'Clllcl bemg negotiated 111 199-!? Whv ignore German chums on the
Czech Republic over the Sudetenland? Why ignore Greek dai111s in rclauon
to i\facedo11ia? Unlike the East Central European problems which arc all
puten11al rlisp11Lcs, LJ1csc cl.11111sbv EU members on their l"as1en1 11e1gh-
bours have all been active issues. Anet this le;1vcs aside the question or
double standai·cls for the two halves of Europe: no pressure !'or urgent treatr
resoiuuon 1s being applied to Britain\ C...:ihrallar clisp11IL'with Spam. or its
Northern Ireland dispute wnh Eirt:.
 NE0-1.11\Llt\l.lS'.\I FOR (·~\STERN 1-:t'llOl'E

ST supporters have n·rt:i1ni\' bcl'll i)()Lh disman·d and c1iibarrassl·rl bv

1l1t· ,·1ct11ncs· t-11' Ihe ex-( :r>11lll1t1111st
pal'I rt·s III the n:g1on. ThtT han· also.
rathn ncldlv, bt'L'II surpnscci that tl111sl' deciar111g- themscln:s Liberals,
uow 111t·xtricahi\' 1clc11tilil'cl w11h ST. haH· been 1111the rctrcaL Ill most
COlllllrll'S. 1-'d

h:1 clcsplle the n:silit·11ct· ol lllc clt·111ocra11cpr11cl'ss 111 Ltst<:rll Europe,

the message or the clt:ctoral ,·11·wncs of Lill.:ex-Co111nn1111slpar111.:spro\'lcics
au tmpnrtall! challenge to thl' West. IL ts a warning that the ciecwralcs ul' 1.lw
region rqcct Lilt' dri,·e J'nr ST ;is impkmc11tcd b\' the western powl'rs o\'l'I'
t.he last (i\'l.' Vl'ars. Voters 111 the region were m111.1II\'pn:pared to trust \\'l'Sl-
crn policy and tis locai s11ppnncrs. Bw ,,•flh the possible exn:puo11 or tile
Czech R1:p11blic. their ,·icws h;n-c cllangecl. II' tlw West is 1101 prepared w
al1e1· 11sstance towards the region under t·x-Cornm11111s1go,·en1ml'nts. ,·,11ers
mav Wl'II turn 1ow;1rds mnrc Cll·sptTall' re111editis.

Ill Conclusions

1-lowen:r ti was 11ttrodt1ccd ctpllalism 1\'as bound 111roml' as a llll ol'a slwd;,
to the peoples ol"Easter11 Europe. lll11s1011sabout c1p11alism \\'l'f"t•n:r\' w1dc-
spreaci. \Vorkers did 1101re:tlisl' tl1a1 11m,ulcl c11t:1ila radical rlrnp 111tht·1r
liv111gs1a11dards. a great 111Lc11~ilicauo11of' thl' \\'ork process amt chro11K
i11sccunty, as well as destit11t11111for a m111ontv. There 1s a clanger or blam111g
ST for capitalism as such.
There were also w1clcspreacl illusions aho111 what kincl ol'cap11alism was on
1hc 111arl,et from thl' \Vest. i\l;un· East European 111tellcn11als. long disillu-
s1011ecl with rlialec11cs, walltl'd Swedish-style social clemocrauc c1p11:11ism,
11ot apprenatmg that ii thl' ( :0111mm11st11•orklallancloned slate soualism 1'11r
pos1-w.ir social rle1111,cra11rcqm.ilism. 1h.11vcn· cl10in· wo11lcl rlL'strm l°Jil·
possihilil\' or rc:tlismg 11: 11·1tho111( :ulllllllllllSlll 11 \\'Ollld hl' 1:1kt·11olr till'
111c111t.It couicl alsu he s:ud that ol"lin:li oprnmn. al il'ast 111Ille \'isq~rad
states, contiuued. cksp1tc mo1111u11g popular oppos111011 111Poland and
1-lungar\'. to he n:soh11cl\' u11111111ttedlo thl' ST course and th:11 1l11swas 11ot
0111\'clue to westl'r11 strunural power and pressurl'.
While t.hts is both u-m· and 1mporta111, 1t 1s also 1111por1an1111SLT why tlus
commitment lw these post-Cu1111m1rns1 elites has been so strong. In the
Visegracl states 1he idea 11frapid, svs1em;11ic change has been discurs1n·l\'
packaged as a qu1cl, ·c11tr\' 11110Europe' 111this 1'11,·111 It has Ileen tile leg-111-
matm~ discourse for the tr:111sl'ormauu11 towards c.1pnalism as such. It has
been the wa\' for leg1um1s111g pt'l\'at1sa11on. uncmplonnt·11L. socr:ii difkren-
uation and the llllj)ll\'l'l'IShllll'lll or 1:irg(' sections or the p11pt1blHlll. ThtlSl'
who ha\'t' qucsuo11l'cl this disuiurse ha,·(· hel'n marked as ()pp1111c11tsol tlw
1ra11stl1on 10 eap11:ilism as such. Thus lt1 ha,·e ah,11Hlo11t·rlthl· Sl'I ol'westl'l'll
 1'01.lTl(:S lNTHEC;(.()IIAl.lS,\Tll)N l'F.Rl<)I)

policies and concliuons entailt:d In' ST would have requirerl an alternative

means of le~1L1111alm!{ Lill' social transformation.
Yet al the same t11111:.the cl.11111LJ1a1this pressun: frllm tht.: .~O\'lTnnw1lls of
the \lisegract rq,~rnn pn'.n:nted the western powers from pursuing- am· 01hcr
policy than ST c;1111wthe taken senousiy. The western alliance had at le.1st
as much collei.:uve capao1,· 10 shape the li1t11n· or Eastcrn Europe 111Lill'
carh· l~l90s as the Americans had 111 Wcstcrn Europe 111tile late 19-rns. An
orn:ntauon towards a genu111ciy pan-European pn~1eu based upon n:1a111111g-
Lhc reg1onal lint;.s of the eastern pan or the c011t111ent for a long- tra11s1-
t.1011alpenocl and mm·111g-towards a pan-European con[ccleralton br111~111~
the two halves together would have been both ,•1able ancl far less n>stlv for
the peoples orEastern Europe. It was not collecuvclr advanced bv Lile west-
ern powers because 1t did not serve their cco11om1c and poliucal 111Lerests.

Evalurrimg tlw 011tm1111•rJfSho/"hTlu·mpy

The costs of ST have been farm excess of what was, from an cnmo1111c pmnt
ofv1ew, ncccssarr- The most damaging cost and at the same time most fun-
damental feature or ST was the dec1s1011LO encourage the fragme111atmn or
the Cnmecon rcgmn and Lo rep"l.1cc it with a hub-ancl-spoke 111tcracuo11
between 1solatecl. sha11crccJ economies and ~•ganucalll' powerhiJ western
forces. From this, all else followed.
ST supponers tend Lo ignore tl11s govern111g featurc or the policv a11cl
1m·1te us to compare domesuc naLtonal policy crclcs of tile fragrnellls. On
L111s basis, using growth rates as the kev cnlenon, Potancl seems to emerge
best and [-lung.tr)', amongst the East Central European coumnes, worst. \•Ve
arc supposed Lo conclude that ST= Poland = Success.
This is a specious line of argument. ILassumes that I-lungar~· did11 t follow
ST while Polancl did. In reality both liberalised prices, reduced wages, freed
trade. Ilolh got stuck over privausation. Yet two very iarge differences
between them stancl out: Poland's debt, uniqueiv, was hatvccl; [·lunga1Ys was
not even significantly resct1eclulecl: Hungarv attracted al)ont half of lilt•
enure region ·s rDI, Poland [arecl much worse. The only conclus1ons we
can draw arc that debt cancellation may be very imponanl from a macro-
economic po11n of \'iew, while FDI may be irrelevant or worse . ..-\.~for 1he
vibranc~• orthe pnrnte sector in Poland, llus rests uneasilv 11t:xtto l11ecoun-
try's t:Xport pcrfonnance, 60 per cent orwiuch was bemg achiC\'l'(l 111 l 9~l-1
by 1L~ much cliscnn11natecl agamsl state enterprises.
A more rcle\'allt and more stark contrast woulcl he bctwel'll both
Hungarv, the Czech Republic anct Poland 011 the one side ancl Romama on
the other. The Roma111,111 case may be taken as a paradigm of'.111,1ltcr11auvc,
nauonal capitalist stratq,,,y of u,msformauon counterposcd 10 the ST cvcle of
 Nl•:O-l.lllER:\1.ISl-1 FOR EASTERN EUROPE 237

·open111g to glnb;1lism Tlw Illiescu regime rqt:ctt:cl a sweeping libcralisa-

uo11 of pi'ic:cs, ;1r01dcd bankruptcies and large lav-o!Ts or workers, sought to
mamtain the big 111dustn;1JL'ntt:rpnscs and directed its pr1\'at1sat1011efforts
towards mana.'-:emcnt and worker bur-outs, iargclv cxciucling frire1gn capnal.
The g"(J\·cn1111e11t was also c;111!1<1t1s
about liberalismg Its trade reg11111.:. .-\s a
result or tiw.,c polincs 1L11-;1s largely n:buffcd liv the !Fis.
Romania m111allvsulfrn'.cl l'rom au1tc mtcrnal 1c11s1onsas a result of the
l'onn or tile tr:111s11io11 f'rum the Ccaucescu rcgurn.:. It also s111Tcrccifrom a11
acute llard c.:u1n·11cvshunagc. Ncvcnhelcss, like PoL111cl.the Rom,1111;111
economv n·tun1ed Ill growl11 111 1993 with a I per cent nsc 111GDP. grew bv
'.t4 per cent 111I ~l~l-1and is pn~1ecterl to 14row by m01-c than -I per cent 111
I 9~1:1.1"~ Tl,e Japanese Fin annal .Scnxcs group, Nomura. maclc the l'ollow-
111g- comparat1,·L· _p1dgcment un the Romani.111 eco110111,··~ 199-1
performance: 'Rumania, little nouccd by the West, clclivcrcd last rear proh-
ably 111emost 11npress1,·c pl·rfonna11cc 111 Eastern Europl'.' ,,-,:i
This rlm:s not mean that the Romanian cxpenencc should he L"rccterl as
some son orsupcnor strategy to that orPolancl. Since 1989 the Ro111a111an
people ha\'c probalJiy suffered more than the Poles. It docs suggest two
possible linl's 1if inresugation: lirst, Rumania had no s1gnilical\l foreign debt
and this makes 11similar to Poland wllh us debt reducuons; and second. thl'
ST opt·n111g to global forces 1s at the vcrv least 110panacea if recent growt11
rcuirrls arc the st an clan\ ol' .1udgemcnt: Romania has n:v1vecl L1r more
.~1n,11glvthan 1,·irte-open l·l1111gan nr the Czccl1 Rcpul)lic.
\ct attempts to hail tl11sor that couutry as a success 011 llw basis olu11Tclll
growth tables are a (;,1cilcway to _1ucigctht: outcome of ST. 1=•·1 The real test 1s
the 011e prnposccl I)\' Sacl1s: will ST prov1clc higher living standards than
those ll'l11d1 prc\'ailerl 111 I ~189,as well as dt:mocracv and l'recdo111? We do
not, uf' course, know, Yt:l. llut what \\'c can do 1swork out what would lie nee•
essary in order to achieve such iugher livmg- standards.
ll\·lF calculat1011s arc that even 111 the nwsl promising countrr uf the
rq.{1011,Pobnd, livmg standarcls ll'ill 11ol n:lllr11 lO their 19,'{9icvcls u11til th<-'
vear ~(I IO at the earliest. Rollo ancl Stern have calculatccl that for lh<-·region
as a wirnlc to return to its I ~)88 levels orGDP per caplla bv th<.:vt:ar ~000 ll
would need grow1h rates or IO per cent per annum each year hct\\'l'l'll 1994
and ':!1100.Bv this me;1surc. un present trends, most ol' the rq~1n11will nol
rcga111 1988 liv111gstandards I))' '.WIll. And even with such growth rall'S Rollo
and Stern rnll' out thl' possibility that the Visegrad statl'S co11lcl return to
tht:1r Hl88 rlcvclopme111 r·,111king(tlle1r posllmn relarn·L· to other st;Ht·s) by
thl' \'t·ar '.!010 ;1s1111realisllc 111the best case, ll would t.tl-e more than IWL'nt,·
\'ears. They have caln1latecl t11e rates or growlh that would l)e needed 111
orrln that th<' CSFR .111dl-!1111garyrl',1Ch Spa111sh icvcls rifCDP per head by
~OIO and 111;11PolaJJcl re,11:11Greek lcvl'ls l)\' the same Year. Tlus woulcl
1-cq111rL· ca1cl1-up grnwtli ol 10 per cent pc1· annum lr111111~19-1to~()()() -
 POI.ITICS IN THE Cl.OB.-\I.IS.-\TION PERIOD

rough!\' the rate of growth or the Asian NICs a11d somewhat lower 1ha11
China's growth rate Ill the HlH0s a11d 1990s. The,· then assume 6 per cc11t
gnnvth per a1111u111 between 200 I and 2005 and growth rates of-l.5 per n·11t
from 200(-i lO 20 I 0. 1"'' These growth targets lhc11 pronclc export gn>wth tar-
gets, on U1cassumption that domestic demand will rcmam dcpressccl ill till'
Viscgrad states during most or the next twcntv years. The,· assume a growth
i11exports of almost twice the cxpcctccl 6 per cent annual rate or gTm,·th of"
world trade: m other worcls, a growth of exports or about 12 per n·111 per
vcar. Such export g-rowth would ha\'c Lo be 111goods sectors w11hlow cap11al-
ou1put ratios - i.e. sectors that do 11ot rcqwre large 11cwcap11al in\'estments.
Given the countnes' debt probiems a11cllikch· rcpavnH.'.111arrangements,
the resulting balance or payments gap that would have LO he filled IH' all
mllmv of western cap1tai is nnrcalis11call\' iarge. This means 'exports will be
1·cq111red lo generate even l11ghcr volumes of foreign excll.ingl' than
assumed allovc. Thus if capital markets pius a1clcannot meet the challe11gc,
goods markets will need to be opcn.' 1'' 1;
These arc immensely ciepressmg calcuiations. Thev implv that e\'cn for a
country growing like Poland for the foreseeable rmurc, Lhc popuiauun will
have LO wan for the best part or Lwcnly years snnplv to return LO their living
slandards under a Commumst system that had been in a long cnsis. And Li11s
makes unrcalisuc assumpuons that the West European economics will 1101
ctller Lhctr next recession in 1997 or l 998, that globai c.1smo capitalism will
not expiode, that shocks of olller kinds and busmess cvcles will not hJL
Poland. This 1s about as bad as when capitalism was last Ill Polancl, IJctwccn
the wars, and Lhe economy did nol grow o\'crall at all between 191'.1 all(l
1939. It ts a stark contrast with what Sachs likes to call 'the forty ruinous
years of Cummumsm', when the livmg standards of the Polish people were
trans!i.mncci for the better. r\s for the countries still without growth after live
vcars, like 1-Iungarv, not Lo speak of' Bulgaria or countnes further E.1s1,the
prospect is far worse.
Or course, c\'ellls may turn out \'cry cliffcre111:these cornnncs ma\' embark
upon the kind or growth path that we have seen in Chma or South Korea.
But the ct1llrc weight of western pressure has been geared to prc,·c111i11gthe
region from followmg the strategics pursued in those counlnl'.S. As 10 the
fate of democracv ancl freedom - Sachs's other cntcna or successful 0111-
comc - It wouicl probablv be unwise to speculate, l'.Ven ifwc could be pretlv
certain that if the EU countries were sul~jccted to the suffcnngs li\'ed
through Ill Eastern Europe. democrac,· couici hardlv he expectl·d III s1ir,·i,·e.
 NE0-1.llffR\I.IS~I FOR EASTERN EUROl'F.

"fowrm/.1· o(\lhtl'l'II
r111.-\11fll\'i1mf "/111'{)/'_l' !Jdlfw1011r

Sachs·s model displavs unexpected asvmmcLnt:s. He gets most of the eco-

11011\lcswrong but is rather strong- on the ,rays or usmg political power to
cngmcer sonal changt'. m the East: and his unckrstanding- orhow to handle
East European pnliucs sits alongs1de a woeful failure or the model to get the
beha\'1our of western actors nght.
On the eco1111m1cside the model produn:d a slump which Sachs did not
preclicl. a chronic liscil cns1s that Sachs cla1mcd he was there to ovc1-con11.:;
a11 miual expun performance that. demonstrated compeuu,·e potential in
slate c1llcrpnst:s Sachs believed LO be hopeless, a11 import bonanza that
cl,:mag-ecl the cco11um1cs instead of' spurnng- rccoverv; an 1m·est111t'.11t col-
iapsc instead oLm 111,·esunent surge, a dm11t'.st1cco11sumptio11-led recovery
mstcad or expor1-lcd growth; a tncklc or FDI instead of a 11uod. Yet the
Eco1101mcs Professor's s,·stem of' constramls and 111cen1iyesf'or easwrn gm·-
en1mcn1s to draw tht'.11111110 ST a11d to manipulate their policv wstems was
a remarkable success, at ieast ror the initial stag-cs or the programme. But
western actors refused all the roles Sachs assig1H.·d1hem except those im-ol\'-
lllg the impos1uo11 or constraints and prt'.SStll'c - wnh one s1g11ilicant
cxccpuon which the model g-1,·csus no resources to explam: I.he Polish debt
ca11cella11on. Otherwise, debt cancellauon was off the menu, macroeco-
11omic g-rants were off, radical opc11111g- or the EU market was off: on the
other hand westcr11 stale subsidies for exports were 111,arbitrary protcc-
uon1st actmns were 111,s11bs1dics for FDI bY tl!l'ir own firms were in. Sachs
seems ge11umely perplexed and upset hv all this. In an an1cle this year he
complams that '1101.011lythe Russian economv bu1 also Russ1a11democracv
llas been put recklcssl\' at nsk lw westcr11 neglect.' 1'' 7 He calls US policv
towanls Russia the greatest J'orc1g11polic,· disaster for decades.
Sachs·s diagnosis or this 1s that the G7 suffer from m1ellcnual problems:
the\' lack vision, or_ more crucllv, thcv are plam stupid. l.ike a co11ductor in
front of a11amalcur orchestra, Sachs has bec11 r;11s1ng-his baton repeatedh·
111from ortilt' G7 vet when he brmgs 1l dmrn the,· c01Hm ually h11.the wro11g-
11otc. It docs not seem lO occur tu Sachs that thcv ma,· be plav1ng reasonably
well, IJIII.to a difTt.•rent score, or a 11t1mber of difTcn·111scores.
Tq·ing- to read these scores requires an anaivucal approach wl11ch rt;Jccts
Llw belief' or Sachs 01· Ig1ia1.iell 1ha1 the western powers are dn,·c11 b~·
(:ocl-likc 1dcals and accepts that thev arc human, all too human and gm·-
er11ed hv a will Lo power. Sachs's ST g-oal or ··giubaliscd' open cloor states Ill
Eas1ern Europe docs 111deed then ser\'e thel!' 1111crl'.Stsbecause 1l enables
thl·1r economic operators to penetrate the re~1011 dlonlesslv with the!J'
products and 1heir cap11al, while the macn1t·co110mic consequences or this
opc11111~are policerl hv their [Fis. lk1110crat1c poliues can also serve these
g-oals since 1he,· are more permeable 1ha11ma11,·othl'r lill'ms of' stalt'. and can
 l'OLrnc:s IN TI-IE CI.OB,\LISATION PERIOD

msutuuonalisc values hannomsmg them with the \-Vest.lnsof'i1r as the results

orpursuing these ol~Jcctivcs arc prospcntv for all, so much the better: but
this 1s a l>onus, not the bouom line.
At the same tune, these regime goals shared by Sachs ancl western g,l\'-
crnments have not been the exclusive goals or western powers 111 Eastern
Europe m the 1990s. Another central prcoccupauon of the EC g-overn-
menL~ has been the way 111 which the intcrnauonai division oflabour is LO be
reorgamsed in Europe as a whole. The USA has also been preoccupied wnh
these problems from ics own angle or interests and m aclcliuon ll has been
trymg to reorgamse the political balance or power across the entire conti-
nent.
It is also fascmaung to note the failure ol'Sachs to understand the roles or
the IMF. He accuses Jts onicials ol'bcing stup1cl bureaucrats for E.1ilingtu dis-
burse adequate limds to target funds 11exiblyenough, bm the l!VlFcan only
be as 11exible as the leading powers within IL allow - and, as the Mexican crisis
orthe winte1· or 1994-95 showed, the Amencan government can encourage
it to be cxtraorclinarv llexible when perceived vital intercsL~ arc at stake.
Further, the task or the f[\,ff is above all that of guarding what intcgnty there
is in the global financial and currency systems, rather than proclucmg sus-
tainable growth 111cnsts-riclden pcnphcnes. In the immensely stra111ed and
unstable mternational linanctal condiuons or the 1990s, the mccnll\'C systems
open to the IMF have been overwhelmingly ncgauve ones. For Sachs to
expect :;wecp111gdebt relief for Eastern Europe when the main western
powers arc usmg the debt burdens of scores or states througlwut the world
as thcll' mam mstrument for mamtammg a semblance or discipline and hier-
archy m international affairs 1svery nai\'e. The \'c1·ysuccesses or Saeli 'sown
prqjcct for globalisccl capllalism could hardly have been achieved in Laun
America wllhom'those debt burdens acung as powerli.d negative mcenuvcs.
Sachs's plan, as outlined in January 1990, corresponded closely to
Amcncan thmking on Europe at that time. The Bush aclmm1stration leared
that the collapse of Communism in Eastern Europe could lead to (he devel-
opment or structures across the whoic continent in the cconom1<.: and
sccunty fields, embracing both Moscow and the EU and leading to the mar-
gmalisation or US power 111 Europe as NATO w1tl1erecl.This was exacliv tile
vision which President Miucrrand hacl unveiled LO the \\'nrid 111his New
Year\ E\·e address two weeks before Sachs's aruclc was published: a
European confcdernuon from the Atlantic to the Urals. Such a scheme
would have enabled the French to have kept the East Central Europeans at
arm's length while pursuing iL-;plans for strengthcn111g the EU. It would also
appeal to Chancel101· Kohl, overwhcimingly prcoccup1ed with ensunng a
strong r~lationship wllh Moscow as he struggled fr>r German unilicauon.
The Deutsche Bank president had aireacly omlincd an amb1t1011splan for
rebuilding the East as a unified rcgmn, a plan which cou1cl have brought
 NEO-l.lBEIUI.IS1'-I FOR EASTERN El 11UWE 2-11

great synergies between Russian anrl (;erman economic strength. President

Miuerrand hart capped this with his own scheme for the process Lo be
planned hv a French-Jed EBRO.
Sachs's plan doYCt.1iled nicely wnl1 L11epolillco-economic policy ol~jectives
of the Bush adm1111stnwon. These mcluded the follow111g: to break what.
came Lo be known as the Viseg-rad states from ['Vloscowand require a shock
1rans1L1onto capitalism there: 10 contmue to exclude the USSR from a reor-
ganised Europe and to work instead !'or the ahsorpuon or East Cemral
Europe 11110the western sphere; to pressurise German\' mto liintmg- the bill
for the rapid transformation of East Central Europe, as Sachs explicitly
caller! for, wl1ile an li\·IF-led restruc1un11g- programme would create exporL-
ing t.1ge1·scompeung on the basis of cheap labour cost~, which would blast
a hole in the EU's CAP, would dissol\'e the EU's trade regime, would lead to
a n:location of producuon from Gcrmam· eastwards, would therebv exert
pressure LO reconstn1cL the EU's 111sllll1Uonalorder :tiong American lines as
a mn11malist safety-net m~o-liberal zone. Every smgle one of these elements
was in the Sachs Plan, though more cielicatelv put. It was a plan which aiso
liucd perfectly wilh Lhmkmg m London.
The Bush acimmistration\ scheme woulcl make NATO necessarv 10 con-
solidate the ahsorpuon or East Central Europe and thus assure US
leadership. The likelihood of EU resistance to the LIS assault 011its CAP and
trade reg11ne would make the US the champ1011 or the economic in1ercs1s of
the heit orstates between Germany and Russia. In 1h1sc011Lext, Poland was
the geopoliucal kev anct it aisu had a new elite stronglv nncntccl towards US
nco-liheral vaiues all(l allie to draw on a long-standing htncl of Polish senu-
ment sympathetic to Amcnca. The cancellation or Polish debt, amongst
other things, becomes explicabie oniv Ill this poli11cal context.
The French governmem was unable to GllT\' the day aga111st\Nashmgton
because the Bush admm1stration ·s policy offered :1dequate scope for German
111Le1-csts.l11 parllcular. the anchormg- or the Visegrad co1111tnes to Llw
German econom,· was a prime goal of Bonn and once the anangemellls with
iVJoscow for German unification were consolidated, the (;crman govern-
ment ceased Lo pursue Its earlier mtcrest 111 new pan-European franwworks.
Thus smce 19~10,the EU has accepted the Fragnientatmn of the Comecon
reg-ion,. blll it has not accepted the other parts or the package. Through 11s
rules or origm package It llas 1hrown a nng around the new Associated states.
to give a pnvilcged role for capilal based withm the EU. It has defended the
integrity of Lile CAP all(J it.~trndc protccuon regime and has worked to ensure
that the new division orlallour 111the East will be cn~irel\' g-overned by West
European econmmc operators and t.11e1rmtcrests: the combination of a Lough
u·acie policy and strong supporls for the export chwe and for West European
FD! have ensured tilts. And IL has resisted an\" hostages to fortune 111 the
form orumctabied commnments Lo the enl ry orthl' Viseg-rad ecmwm1es.
 POLITICS IN THE (;1.0H,\I.IS,\TION l't-:RIOJl

From llll' E.U's pomt ol"vu:w, the polio· has bt·c.:n a remarkabk success. so
far. Poland, the Czech Republic and 1-lungaf\' are firm I\· locked into Ell asccn-
or
clancy. The rc.:st the rq.{1rn1still, gn·cn Rt1ss1,111 wcakncss, has 11u\\'hcn..· dse to
go. It is true that the Viscg-rad states arc 111a \\'eakn conditmn lc,r <..111cri11!-{
the 0

EU dian the\' wen; 111I ~l89 and c1mlr! hm·c been if their rq.{ton had nut been
shauen:cl. But their accession to the Ell is not a pnonty l'\'Cn for c;cnnanl':
whac counL~ 1s ti1e1r bemg lirmir witi11n the sphere ol"EU dom11tance.
The task now for thi: USA 1s LOensure that till: Eli's new Llst Centrai
European sphere 1s brought Jinnlv undcr o\'crall U.S lcadcrsh1p. This goal 1s
lo \Jc ach1c,•ctl tl\n,ugh N.-\TO's eastward i:xp.insnm.
Sachs's ,·1s1on 1s stuck in a one-sided preoccupation with reg1111eg-oals, prc-
occuptcd with 1111portant, hut parual, 1sSlll'S like m!huon. buc\get clcliclls
and so forth. It cloes not occur Lt> him, for example, LOask the quc.:suon as to
what impact billions ordollars-worth orµ;ra111sJill" liscai stabilb;1tion would
have 011 Russia's milicarr capabilities. Russian stahilisauon 1s important. h111
so LOO,from an American pomt ofv1ew, is scaling clown Russian power.
\\'hat n:ma111s livmg \1'1Ll1111Sachs's plan 1s11s 1deolog1cal and srn1bolic role.
The idea that economic nauonalism ts dead a11clthat we Ji,·c 111 a cosnwpoli-
tan glohalisccl planet 1s vcn· pnwerl'nl and c\·en mspmng . .-\nci the n,1urn1 th.it
growth in Poiand has been prnduccd b\' the Poics puwng 11,1uonalism IJehind
them and going thc American wa\' 1s politicallv hclpli1l. B\tl II re111a111s an tele-
ology in which thc real clnvmg forces 111 the world an:. to paraphrase I.Joni,
'present onlv spectr-allv if at all'. To grasp those clnvmg fore L'S we would need
to amend Lloyd's remarl, about the new world order brmgmg tlH.: death of
cconom1c nauonalism. A better fonnuiauon 1111ght be that 111Eastern Eumpc,
the death or
Communism haci Ice! the West to ln' to st.imp out eco11om1e
or
nauonalism m J;,n·mll" iL~own nauonai and cl>llectin.: 1meresL~ Ill the region.
But this cloes not so much sug-g-est a new era 011 the g-lohe as somc\11111~rather
olcl Eislmmed wl11ch, m the clavs of Con1111u111sm.usell to bc c.1Ilcrl 1mpt:nal-
1s111.

No1,•.1·

l. lt ,lwulcl be ,aid. hull'en:r. 1ha1 l'n,lesso1 AlitT .-\111,11"11 111'l\llT. 1ogc1hcr w11h .Jac,·k
Kod1a11ow1cz of \\'arsm,· a11d l.a11cc ·1;1\'lor of 1he Nell' School. han· prol'icil'cl a clamag111g
challenge lo 1l11sco11,~·11s11,wnh then- ltook Th,· .\lwl:.-1 ,\C.,,·1, <h ,\l111r/, (ll·,1n·;,n\ L1111wis11,·
Press. Hlll·l). clr.,w111g u11 EasL :\s1a11cxper reuce tu challL·11g,· ST unhoclox1·.
~ . .Jellrcr .Sachs, U11d,·1:1lll11di11;;Slwrh '/111•mj1y (Social \larkct Fou11cla111111, l\)!1-1). p. '.!:,.
:1. Ralph Dahrs·11clorf. 11,:fl••rflllll1111 /JI /;urn/w ((:lr.n1n & \\'i11d11s, 1\1\10).
ti,,· /i,,,,.J11/ll111
•1.Jd'!i-q· Sarh.,./'o/,md\_/11111/11111/11•,\larlrd /:"mm1111y (illlT l'rcss, 1\19:1), p. -J.
:i . .-\nu:ncan polin· 111l(l\10-!l'.! u111\111ucd 10 fan1ur th,· u1:111111·n:11H:1· nf a \losn11r-n·mn·d
CCtlllllllllC space Ill the So\'11-'Irc~IOII t'XC<epl for 111<· Llaltrc lfrpuhlics.
(i. _jt,ffn:1·Sa.-11,, 'What 1.,tohe Done?' /:tmH1111111, I '.l_/:uwarr I 9<JO.
i. Ibid. p. 'l:",. Sa(hs 1101c:d that the \'ugosla\' outn,111,· would diffrr rrom l'ola11cl"s li,r
Yng-oslavia would ma1nta1n, Ill large 111~•;is1irc.IIS sclf~m,1nag-e111,·11t approach lo corporal<'
~o,·~n,·.u,('~.
 NE0-1.IIU-:lt\USM FOR !•:.\STER:-/ El.'llOl'E

H. Fraru:o-( ;,•rrna11 prupo,ab lo kn·p rlw l'SSR ;ual Ea,1en1 Europl· li11~,-rl na a free trade
regin,.:- 11·,:i'~rqcn,·d; Fr .. 11.-t, ickas l"or ;m EIIRD which would engag,· 111larg,: public urli-a-
.,,nu 111n· prPJn·ts ,-ruhranrrg 111<·L;SSR ;urd L,.sr.. rrr Eurnp,· t-'L"re 1·111asn1l;1tl'(l. :\111I the
Fre11d1 lllltllllL of a p;111-E11n,pca11 c1111li:cll'r;111u11,·111l11·;ll·111g hmh thl' EC: arrcl the wlurle of
rh,· Fast 1,·as r,·pudiatnl. l'ol;111d, and li1r a slrurr whik \'11g11sla\"la, hec1111c tire flagships ,if
rln· ahcnratl\<" appn,;u Jr.
!J. Richard J·lolhn,o~,-. ',\111enca. a Europ.,;111 l'o\\'t·r·'. /-i,1,·1~11.-\Jfi1in(\brdr-.-\pril l~I\J:1). p.
-111.
JI)_.\ l°()JJ1JUUII \'U]g~1ns;J1Jpl) ur ST, llllH'h J;J\"Ollrl'll h,· the Fro1101111.\I. IU\"t>ln·s 11u11\dliJ1.~ nut•
p111 aml 011tn1111<·aud s11·11rl1i11g(>l'111111sr11011sl\' he111·e,·11 1111· Ill'<> as eadr s1111sf<rr e\'alu:1ti11g
ST. Tlirs prupaga11dis11,· n1lgans;111011 rs .-x,·rnplili,·cl 111 rts s11n·,·1· ,,r E:,st E11r11p,:;1n
cc.:oru,111u..•.,; vf:t Den·,uJwr l~'P·J.p. ~'.>.
11. Sachs rs pnuted hl're a, wn1i11,: '1h,· d,·1·,·lnp111g 1,·odd" hllt this 11111stbe ;1 rn1spnt11: the
,·0111,·~1 sho\\', Ill' llll":OIIS the 11,·l',·lop,·d \\'orld. S,·,· l'rul,·r.,tmu/i11~S/1111-/1T/1,•1-,1/1_r, p. I:>.
I':!. 11,i,I.. p. I:,.
I :I. Sachs 11,.,s 1he d11111 1h;11 his 1-:oal is c1p1t;rlis111 as such 10 da1111 1hat Ir,· rs P"litically m,u-
lral a, he11n·t·11 all \';rnetws of rapnalism, \\'lll'lll<'r S\\'l'ilish, So111h Kon·alt ur Chilean. Yi:1 his
,p,..-ili,·, rd't11,· ,od, rwuu·alit,·.
J-I..Jelrn·1· S;rchs, '( :11nsoli<l;t1u1g Cap11alis111 . /'111,·1_i,,.,, /'u/ir-:;, \Ji; (Sprong I \19:,).
I:,. lhid. Though alwa\'S b·,·pm)l; lhl' 1111111h,·rsix. S;,d1,·, lisl differs fr11111thl' abon, 111his
Sona! "ark,·t Fm111<(a11011p;t111phl,·1 l '11d,·nr11111fi11;: .\'l,,,r/,'/"1111<1/1r. (;i\"("11 Iii<" 11:1111euf thl'
li>urnl,111011 f11r which he \\'a, lfflling, lw :isnm·ll' ,1dds 1111rod1u:111ga sr,nal s:rkty net ;,- his
sixth core rd11n11. rlws clropp111i; rlrc pcr1111ahou1 1m·,·t111g the uu,mlwrship cnr.-na ol' thl'
11111l1il;m•ral 111,111111, .. 11,. 11111Ire ll<"l<"l'ilwh•" 111ak,•s ckar tin· 1111pcrn.111n· nl' j,1111111gtlu,se
org;u11sa11011s Jll the pamphl,-1.
lli. Sachs. /'11/1111ti'.1.Jrrnr/1, p. :1.
Ii. Sachs. "\\"hat rs tu he Dorl<";·
IH. Spel't:h h1· .-\mh:rssador lln11;1lcl Hli11k1·11at rlw Cullq.:111111 1\111\:rp,·st, Iii \larclr l(l!l:1
(:'lli111n> US E111hassr, ll11dap,-s1).
I\J. J1h11 l.111nl, "l·lo\\' 111:-.lakt· a ":11tet , /.111,t/1111 //,~,,,.,,. u//J,11,/:,. ( IJ1h Nowmlll·r ( 9\1·1.
~O. folru l.l1,y1l. '1·111\1'It> :'11;,k,· a ~larkt·1·.
~I .. S,·,· u:--:1·TAD,lliu1d /111•,•J/111.-111 u,1nmI l)'J-/. "/i·1111.\ll(I/WIIIII (.'111Jimrii10111, Fr11/1/11r1111·111 ,11ul
th,· I 1;11/./1/11,·,,I l 11111<"d~.1111111,.I !J!l-ll. p. !IS.
~:.!.C)F.CD. ,,,,,·~rfl1tugJ:.m,·1:t:"'!-! En,,wuu,·.,IHif>rl1,·lul,TJ11t11nirnf 'J'uuliugs,·,t,·111
.\1111/i,·1 (CJECD.
I !l!l-1). Th,· ;11111alOECJ) li,nu11la1t1J11 lt.-n· 1' 1111,·r,•s1111,:.It p111.,11.,s1;111,nu·111111the p:1ss11"<'
ur
1·01n·. s;mug: ·The n111trih11u, ,11 im,·anl lill'l'lg11 rlin•n 1111·es1111,·11t (FDI) 1, co11s1cl,·n·tl lTll-
1·\~1\10 thl~ prn<"L'.~~ ol' transuiou tu~, nt~ll'k~l e(otuuuy. [1 1h11~ a\·,ucl~ sa\'lnµ; who con~icll·rs 11
111hl' n11nal. h,11 \\'<' ;on· l.-1'1t11 11tl'l'r 1lr;11llil' OECD ,1.,dl' heli,·n·s 11ti, 10 b,· rh,- cas,·.
~,L (hicl. Th" OE< :1I d11.-"1 l cxpl;r111 1lw force 111'lhl' 11111sthen· exn·pr 10 s;11· 1hat li11c1g11
n11111,;1111es will he n·111r;rl "i11 rl'str11n11rr11g tin· sl,llt••11\\"ll('cl i11d11s11ws. This. ;1, \\'t• han· see11.
1., h<·t:ur.sc· tlrl· "'orl1] 11:urk 111 l'ol;1111J ;u,d l J1111gan \\'1111ld 11111:rllow ludustn 1111111.str1<·s
IO
n·slnu:u,n· hd,,re pnl'attsa1u,11.
'.2-1.S;,chs. /'u/1111rl\/11111p.p. XIII.
lhid .. I'· i.
'.2:"1.
'.21i.Tlruuglr he c111·11J11sl\' cl11\\'11plal'S thc111 111l.'11d,·ni1111di11g lk ;rlso e,d,cws
Sh11d:'/111·111J,_1·.
puhlil· clisnrs,urn of 1h,· ta,·t11·, nr
n111cli1io11ali11·d,:,pllc 1h,· fan 1ha1 1lri, 11111st11;11•,· h,-.,11pan
of lij!-i d~,ily \\'od~iug d1l'C Ill i11~ co11sulc;u1c~·\rork ur llu· rq.~rou.
'.2i. John Uorcl al,u n·n,gurses th,· pow, ... or
rh,- G7 sr:01,·s l,r11 he r:ula·r p1>111po11slyrails
th,,111 "rlw w11rld' anti pron·,-ds Ill talk aho111 whal 'illl' mrrl,I' will 11r will 11111t11l1·r:11c.Sn, his
'Huw 111;\l;,kL· :r 1\lark,·1 .
p. \:Ill.
':!H.Saclrs. A,/11111/'.1.f11111/1,
'.2\1.St:1111sL111· Cn11111lka has larg ...ly ,lrhsU'iln·d 10 1hi, 1·1,·1,·.p,11111111~ 111111hat \\'1•si.-r11 macro-
enn101nlt" support "r ,h..:ht n·chu:t1<111 would t.·Iu.:our;1~c 11Hfr1,l'1pli11L" ;'1IH>U~ Ll1 ~l:I ~1.,\l·rn-
meub srnrilar 10th<" ,111'1h11dget c1111stra1111se11JC11'l•dby sia1e cuterpnsL·, llll(lt,r C:,111111111111,m.
'.lll.,lt·Jlre1· Sachs. 'lkr1111d l~l'L'll011\\"oods: .-\ ~,·11· I October 19\l-l, p. 28.
lll11l'pn111 • /-:rn11111111.11.
'.\I. Sach,, '\\'lt:11 "11111<,!1011,·;·
:l':!. Sa.-hs, /'11/111r,/\.frr111/i, p. -Iii.
 1101.rrn :s IN Tl·IF (;l.01\.-\!.IS.-\TION PERIi )I)

:1:1.Sa.-11,, /'11/a,11/\/11111(1,
p. :l'.!.
:1-l. 11,· do,·.,11 i ,·xpl:11111hi, ,dl'a ol" risk. Sl't' '\\'har 1s 10 In· Dou,-;·. p. :!Ii.
:1,,. S;irhs. }'11/a11il\)11111J,. p. :ti.
:Hi. Sachs. '\\'hal 1, 10 Ill' 1>1111,·,·.p. :!Ii.
:1,.Sachs. 1'11/m111'.1)11m/1, p. /s\l.
:18. 'Biis lla111-:,lliis ,\dvl'11l11n·. Lrmwm1.11.:!:I lkn·,nhn !•J~!J.
l\lu1/:,·1 I·.',mwm,.·.\.
1~·111,·11,..rrnK
'.\9. ( >Et ;t); /11iq..,.,-,u,11g
·W. lhicl.
·I I .J,·lfrl'I' Sad rs. 'lkply to_Ja11.-\dam'. /'.n1111111ur., 11/l'fo1111111g. nil. '.!Ii ( 19!J:\l.
·I:!. Set· l'atnck .\. ,\less.:din. 'Th,· ..\ssoua11011 .-\i.:n·e111L·llh U,·t\\·,·,·11 th.- EC a11,l C:,·111ral
Europ,·: Trade l.iher;1lisa11011 ,., C1111.,11t11111111al Failnre:'' 111 J Fl,•m111111µ; anrl J ~I. C. Rllllo
(<-els.). '/'1arl,•.l'fl_l111,·11H am/ .-ldj1rn11101//11 C.·111mlmu/ /'.m1,·r11/·:urnp,· (lllL\ & FllllD, l\1~1:!).
-1:1.Tia· /:'rn11rJ111/\I ha, followl'cl snit, cl;111111111-: that 1d1il,· :111th,· pu,t·Co1111111mist 1•ro11111111,·,
snffi:n·d dl'cp n·cess11ms ... ~luch or this h:ll"dship was, hmn,,·l'r, llu· l<"µ;an-or { :L11111n1111is111 ,
failun·. 11<Hthe pn,dun of cap11.rlb111's arrr\'al.' '.l December l\1!1-1.p. :!-1. :S:o ,111,· ha,, ol
n,11rse, Sll!-\f.:•:Sll'lithat thl' ,Jump ll'a, Cll1't'd h,· ·,·;rp11alis111, ann;1l'. (hh,·1, nutialh so111-:h1
10 elem· thl' e,;1s1cnn, or sl11111pson Lia, gro1111cls1ha1 the s1aL1'L1calinrlicators w1·n· wrong.
•1·1.C:omnlka. ·n,,·/J1;•1/r,11 ll',1111/., 111ul1/1,·'/iww1i1111,p. :!:I.
/1a///11/11111.1
•l:1. fm11111111.,1, I:, ,\11g11s1l q!J:?, pp. 1-l '.!. ,\ R11ss1;111 rl'aclini-: ,ndt cxplanaumis n111lil lw t,11-
i-:11·c11 for wo11der111µ;if thl' J,;,-0,1111111.11 was snnply clnn-11 h1· hat reel of 1 ht· R11ssr;111 el'<11Hllll)'.
-Iii. !hid.
-17. Thetr stnch· ,,·.isfor thl-' E11n,p1·a1t Co1111111ss1011.SL'<· l;. llui-:lw, an,l I'. Han·,
'C:11111pe11111·e111,ss ancl lncluslnal lkstruc1111·111g III l:1cchosl111·akia, l·l1111gan and l'olanrl'. 111
C't11111111.1.11m1 rfth,· /:'11roJ1,·1111
(.'1111111111111/i,•J:
J:1w,f1,·11111-:n11wmr, Spc·c,al Edition, 110. :!, I !l!II.
-l.'-1.~I\' di,nrss11,11 hert• d1 :l\,·s lw.wily ,,11 l-l11l~c1 Sd111111•cli111,\, 'fr11m l'l;m 10 !\brl.-1: 1"111·
Nat11rc or th,· Tr:111sfor111al1L111 Cns1s;, 111 11·,,t111,n1.11-/111/ilt.-l11•.1 .-lrr/11,, (Journal or lhl' F.iel
lnst1111ll' of\\'11rlcl Eco11on11cs), ml. l:!!J (199'.I).
-1\1. I han, slight!\' tekscopc•d Sd11111cdi11;:lu·r~·- ;1l"l1idi11~,111111· 111t;111n·, 111 bi, ;1q;11111<·111
th:11 an· 1101n·lc\·:1111to rhis di,n,ss1011.
:iO. frww1111.1i.8 Aug11s1 I mi~. p. (i8.
:1I. Sd11111<·di11~. · Frolll l'la11 (o ;,.1;t,-kl'i"",11.:.!'.!:i.
:>:!. l111,·n·1< w11h Timolh\' Garl1>ll Ash, 'J'/11·(h-/tml /,11,·nw/1111111/ 1/n,,,.,,, (\\'iutl'r
0
\\' Issue
l!l!J.l),p.:i. . .
:1'.I. C:. Ra11dall llcu11111g cl ;ii. (t:cls.J. l/,•1•11•11,_r:; 1/i,· /•:urn/"'''" l!11111t1 (ln,t1111t,· (111
ll11i,rnat1u11al E,u1H11111cs,,\pril l!J!l-1). p. Ii::.
:•·I.UNICEF, /:nm,m11,·.1 111'Jim1.11/11J11 S111dfr.,.l/,•)!/111111{ ,\/0111/1Jr111gU,·fwri. l<J'J.I. Cri.11.1111
:\ lorir1/ity. H, 11//h,111,tN111i1ti1111 ( I!l!J-1J.
:i:1. '.1-lidtad Ellman. 'Thl' h1nt:a"· 111Lk;11h and Dis,·asl' ,111el<,1"l,.a1aS1r11ika"'; t.,1111/,ridg,·
.Jo11 ma{ of J:'m111111111:<,no. IH ( I!l!J-1), p. '.1-19.
!iii. !hid.
:i'i. llNICEI'. /•:ru11111111n 111'/i11nm11mStwlin. Jl· li:\.
:,H.Ellman, "The Jncn,ase 111llt-a1h and Di,eas .. ·. p- '.l-l!l.
:i!I. L1NICEF. f:'m1111111u.> 111'/imrnlit111 S111din,p. :i:1.
liO. lbicl.
Iii. lhid.
Ii'.!. :\licl' Amsdeu cl al., T/11·,\l<,r/;,•f ,\/rd, //, ,\/,11d1: U,·.,r,·11d111rng t/11·Frnw111111·1 ,,, /-."u\J,-n1
l:11111/11· /l·Jansml. I !1!1-1),p. IN.
li:I. Ibid .. p. Hli.
(i-1. St'l' ihicl .• pp. 0·1-!l:,.
Ii:>.Sachs. p,,J11111/\.f11111J,. p. :,0.
lili. Th.is ,s one oJ" 1111111er111rs ex:1111pks ,,-hen! .Sachs s clanu lO lw 1111n1cl11c111g ,.-,·s1,•r11
1us11111uonal11111rlelsapplies only to l\"l'S!l'rll 11ll'olog1c;1l models li,r ml1<"rs r,nlu·r 1ha11 !<1 ll'l'sl-
"rn pr;u:11cc.
!i'i. c;ii.,, ~lc·1;n11,/:',111,,,-,,/:"11rnp,· 1n11/th,· l'SSU: '/711·(.'lwll,·11g,·of Fr,•,·,/11m (Koga11 l'ai.:•·· l!J!ll ).
p. I I I.
Ii~. The pre,..,lll wnler hou.t.:hl a )'l,ilips shun-wan- 1~1clio,.-n~tmµ; S7:i chll\· frl'l' .11 \'ie1111:1
atrpon for S 1-1in F.i,·,·!
 NE0-1.11\Elt-\l.lS:11 FOR EASTERN EUROPE

li'l. Cited hi' (;ill-, :lkrnll, /:·1ni1•m /:11ro/w. p. 111.

70. ~'i,:,· ,\.41sckn. n,,.,\1,11-/:,·1 ,H,-,·1, It., ,\111I.-lr. Tlw OECD ,upporn·cl the ,·s1:iblish111<·111 ol"
t"\f"""' cn·di1 uis111;111n·:111dliu:mn11g. na [·.,pllt"I { :r,·di1 :\gi:111ws (EC:\s), pn,,.i<IL"<Ith,·_,.IH>11ld
f11l111\\" th,· OECIJ ..\rrang,·111<·111011 C11id1·li1u·s for tHliciall\" S11pp1111,•dExpnrl C:n·clit. Th"
OE('.I) explamed that 'Thi, 1rn11lclp111 1h,·111nu an ,·1111al1i,01111gw11h OH'.11 co11m1ws amt
1lwn·l'ure IJPI di.--;1un1r:.ull·. B1111h1!,Is 1;,ls,·,I11L·L· \';111011, 111~!1ur WL'Sh.·1 n n,u111ru-!'tdu11·1,tu·k lo
1h,·,e g111tldi11cs. lh ID!l-1 \~11"11111s Fast Europ,·;111 n1111111wsh:ul sci up EC.'\s h111,the OECD
c·xpl:1111slan,111call\'. 1hcy han· nnt l1n·11 abl,· lo work lwca11,,· '1"1111cli11g has lwen n·sll"lcled'.
( >H'.I), J,,1,gmi1111;h11,·rg1111;,\/111}:l'I/-."111111m11n 1111111h,·/111,·m11lim111I "/",mlrng.'i\'\i,•111(I ll-:{'.I), 1•1~11).
71. ( '.itl'cl 1J1·.Ja11.-\dam, 'The Tr:111,111011 1n ;1 ,\larkel l-:n111,11m·111l'ola111I'. l.,111d11i1~~•-_lm1nwt
/J//:11111111111n, I H, ( I !1\l-1)p. Ii I '.I.
7'..!. For ·., 1hon,11i-:h a11;llv,i,; or 1h,· F.11rop,·;111.-\~1·,·,·nw111' 1r,1<!t:;1spc·n,. '<'<· l'a1nd, ,\.
,\lcs.,erli11. "The .-\ssona111111.\gn·,·11n·111., l1t·11r,·,·11 rlw EC:;111,J ( :,•111r;dE11111p,·.
i'.\. S,·,· ~ll'sscrlin 11111111,,il>icl.
7-1. l'N Fr111101111t· ( :,1111111.ssu,n fo1· L-:11r11p,·. F.-1111111111.-
H11/kl111 \·ol. -1.'i( I !)!I'.\I, p. {i'.l.
jiu· J·."1m1/1,·.
/;°). L1 l~J!•:',,1lu.:~Tar ilf1t·r lhL· !\~n·\.'llH'III r;une In1I, forn·. l·l1111gar\"
s food .u1cl a~nrultur-
al export, lo th,· E(: dn,ppc-cl '.!:--\per cc 111. l'ola11d 's dn,pp,·cl I'.! per eel II. See ( lECD,
:l1,'1Hl/lt11ml/'o/im·.,. Mmh,·i.\ ,1111/'})ml,-_ Jl,11111, .. w:r11111/011//011/: / IJIJ.f (01·:cn. 1!1(1-1 l.
iii. lbicl. p. Ii!!.
77. C:_ ~(;1s1ropas1Jlla a11cl \'. Rulli. ·Jrid11s1nal Co11111n,,,· l'ro1t·1·1w111.rn1w11h /{n(llTI h>
E:is1,·n1 E11n1pt:: Ill<.' Im pan or lh<· .-\ssonatu,n :\µ;r,·,·mc-111' ( :ond111ll'cl milt lhl' EC 1111tlw
E~port.s 11!1'11land, { :,c-cho,]m·akia :incl 1-lung:irr··. n,.. 1l'm/d J:um11111_1·, Ii:'.! ( 111'1-1).
7H. Stalllslaw t:01111111-a,'11wllld/011 lfoo,h h11I11111w11,l/l1tl 1/t,- 'fi"IIJ111!1011.p. 11.
7!1. Sad", l ·'11tll"I ,111111/i11;:.,Jwfi: ·n,.rnf,_1·p. '.!Ii.
Hfl. :\1 11111· p111111 IXIF ullirials puhlidy raised thl' ,·:isc- ror r,·li.-f rur Hu11g:1n·, whos,· 1li-h1,
111l""'rapn;, 1en11s ha\'l' hl"t'II hil{h1·1 than l'Dla11cl\. 11111 th,· ( ;7 has 1;,k.-111111·,1<·111111 011 1his.
HI. Thou,-:h this 1, IHl\\"h,·n·. or l"lllll"Sl', 111<·11ll01ll'd a, IIS mi,,11111Ill 11, .-han,·r.
H'..!.Cu11111lka,"/"l11· /fr,-11011 l\i11uh /ll,1,rulw11. p. '..!,,.
H:\. Sad1,. <:,m.1nlid111111g ( :11p1111/i.1111. pp. till-Ii I.
1-H.S•·•· R. \'i111ru\·a, "Th,· (;cm·1~1I R,·,·,·s,11111a11d Tlrl' S1111C111ral .-\d;rp1a11011Cn,". /cl/.11
l-:1m1/1rt111 l·.ru110111<n, :II:'.\ (Sprnll-\ l\l!t:\).
H:,.Ibid .. p. H!I.
Hli.J C. llr,ub, I. Siugh a11d .-\. ·1;,rok. 'Fir111.,.-\lloal ,md Fir111s.-\drill: l·J1111gana11luduslrr
:111dI he h 111101111, ·1·1.111s11
i, 111 ·• l:"ll.l/,·rn /:11m/1m11l'."iw11w111:,.(_!;11111an-h·I1r11an-. I !l!l-1).
Hi. \'i111ro'""· 'Th,· l;<,11e1:ii Rvn·ss1<111'.
HH. Br,11la vi ,ii., ')'inn, .-\lloa1 ;11ul Finm .-\drih' .
•'i\1 . .-\111,den <Clal.. Tlr,· ,\/111/:rl ,l/,·,·111/.1 ,\/,11,/1, p. I I Ci.
(Ill. (,!LH,1,·clll\' :\liL"L" :\msih-11, ibid .• p. 11 i. 1111hi, .-:is,· lilt" \\'11 was rl1•;1Ji11g w11h H1111~arr.
\l I. Qllllll'd ibicl., p. 117.
'I:!. Q1101.-clihid., p. 11!1.
\I:\. Q11t>1,·dihitl .. p. I'.! I.
l/-1. VirgJ111a !llarsh. 'Co11,olida11,>11and lkforrn·. 111Fi11:111nalTi1111·sS11n·,·1· of R11111:u11a.
1-;·111111011/ Timn. ~~• ~la_,.l~H•:r.p. :t-•.
~~!>.For a llsehd s111n1nar\' uf \\'L"'."'llt·rn g11\t"fllllll'.H1S sl~Ull"t"\ lU) tla·:-.e ISS\1l'S, Sl'l' ( H-:cn.
lni.-gntimg /:111,·1i..'1111;
,\lt,r/wt /:"m11111111n mio th,· /11i,·nul/11,11al'Jl·atli11gSnt,·w (OE( :J), I \l!l-1).
!Iii. S,-,. \'irg1111:i :llar.,h, 'l'n\';111,:111011:.-\ C:,11nplica1l'rl l'r11gra1111111·'111Fi11;111n:ilTi11Jl·s
Sur\',:y HI°l{,nn~uu~\. Fi11u11 ..11tf Tim,·.,.~:, ~lay I~1q:1.p. :~-1.
!17. For a hllll'r :11,alrsis 11rho1h l•HARE :11111 T:\t:IS, svl" l'c·Jer (;owau. · l.o, l'roµ;r:11nas ell'
an,cla l'H.-\RE \" T.-\CIS dt" la Unum E11rup1•a' 111U,1J1.1ia,I,- lcm111,111m(~l:11lri,I). 1111.7'.IH,
( 1--,·lirnarr I!IW• i.
!IS. Sl't' 1'1-1.-\RElh·g11la111111 Nn. :l!IOli/H!I, 0/linul /1111nwll.'.li:1. '.!'.\ llc•n·111l"·1 l!lH!l :111clthe
a11a,11cli11gRc·g11la111111 No. '..!@8/\IIJ, 0/jina/ f,;,;,w,i"i.'..!:17, '..!I Sep1,·111hcr l!l!IO.
•1•1.B11lµ;;1rr;1.{ '.1<·«·Jw.,lrn·;tl;ia.\"11g"'J;nu ;111<1Fa,1 r;,.,..11,1111· 1n·re 111.-Jud,·tl 111Pl J\RL 111
Sq>tc,111h,·1 I !)90. 1-:astl;l'n11:1m· ce:1>l"cltu ill" a par11npa111 :11"1t·rC.-r111:111 1111ilicalH111. l'I IARE
a,d 10 Y11goslal'1a was s11spc11cl,·d 111 l\l!ll (1ho11gh l111111;11111ana11 aul co11111111t,d10
l\u,111a-Hnn·g-11n11a a11cl111~l;11:..clo111a).Alh:1111aand 1he l\.1hi1· Slalo )DIIH'cl1ln· prngra111111,·
al th,· encl 11f1!1!11(W<' t:,1111H·ilJfr:-:11la1H111 l.'.\ 0,i, ~H ll1·n.·111hl'r
:S:o. '.i81111/!ll, O/lii"1t1I.J,1111·,111/
 f'Ot.rnc:s IN THE (;1.()11.-\l.lS,\TIO:\' l'EIW >fl

1~1\1\); Slon·m:1_1onH·cl in :\11g11,1 l!l\J:! (,,·e C1>1111cilRegul:111011 No. :!:\:H !I'.!. U//imd/.,1tr11,,/
l.:!'.!i. I I ,\11g11,1 I\l!I'.!).
I Oil. ,\rucft: :1. paragraph'.! orthe l'l·t\lU: Rq.:11la11011.
IOI. St:i, the ('.011n oi'.\11clitrn,' Rl'porc 111the· Offir111/.frnrrn11/11/t/i,•J·:11111J1,·,1111:um11111111t1,·1.
l:1
D,,c1:111ber l\111'.!,p. '.!i'I.
10'.!. Co11n of .-\11cli1ors; .-\111111all{i,pon for l!l!)IJ, Ul/im,I.J,,11mal. J:; lkn,mlll'r l\1!11, p.
177. l'll·\RE pc·s1icidc :11cl Lo ,\ll1:i111a "·a, ded:ir<'cl lw Ill<' Eurcop,·:111 l'arli:1111.-111111 \l;ird1
1!1~1-110 h:l\"c' 111v11lved1lu; expon of 1ox11· wa,11·. Tiu· l';irlia111t·111 cdlt,cl 1111llh" aid lo he
11nmecliatcl)' w1dulraw11 and :Lsk till" Co111111issw11IO make a repun lo II 11111'1-1:\REa1LI :,s a
who!,• and espeualh· 011 l'J·lr\RJ•: agnn1h11ral assis1,111ci,. Sn· 1hi, pr"':l'edi11g, of 1hi: E11r11p,·a11
the Hu//,·1111oj ,i.,, l-:urufw,111<:""'"'"'"'.\",
l'.irli:1111t'lll, I I :-.brch l!l!l-1 :111<1 ::-t\1<1-1.1'.1di.m11·111
also \\"allled lo k11011"whelhL·1· 1he Co1111111ssu,11hacl ,·.-riJj.,c) 1.-lw1her ,\lha111a hacl 11<:i-cl,·cl
agrod1,·n11cals.
10:l. lhicl.
10-1.1:011r1 .,f .-\11cli101, Ri,purl 1111I \l!I I, Uj/in11/.f111m111/, I:-, lkn:111her I !l!l:!. p. :! I 1>-17.
111:,. Pones 111C:. Randall l·lc1m111g ,·1 al. (eds.). //,Ht'IIII{ th,· /:"11m/1m11 l'11w11(l11s111t11<· li,r
l1111:r11a111111al 1-:.:0110111,,·,
. .-\pril l!l'l-1).
1(Hi. ,\mli1ors' Re poi 1, Offin11/_j111111111/ ( ::IO!I, I Ii No\"ellllwr I \l!l:\, I'· I \11.
I07. Cnun of:\uclitor, Repor1 on l!l!l:!. O/Ji1wl.Jo11n1t1l,Iii Non,111l1<·r l!J!l:l. p. l.'l:i.
108. lhicl.
10\J. l'arliam<'lll acloplt:d a n·,11hm1111on tlw,e 1S\11,·,on 18 Ja1111ary 1'111-1.Sv,· O!Ji.-wl
Jo11m11/Clil, I ·I Fchn1;u·r I !HH and 1he li11/ll'ii11of t/11·J·:11m/1m11 /.!111""·I /'.!-1 \J!J-1.
I JO. Court 01".·\udi1or, Repnn on 1!1!11.Offi,w/.ftJw·,wl. l:i lh-n·mber 1\l!l'.!. p. '.!Iii.
111. lhicl .. p. :!18.
11'.!. l'r<\)<:t:ls for li,ss than I 111i1liu111·c11 GIil .m,icl lht: full d1:ara11n, pron·dun·s :incl the
sluclv had not been ask,·cl for hy the Czechoslm·ak a111honties. lllll 1his ,weir ll'as canwcl 0111
wtth.unl il lini1ncing a~rt-·t·111cni\\"Hh lht.· Iec1pwI11 go\·ern11u:IH, ,,·1thu111 ;u·l\' pnur n,r111n1t-
me111 of funds and ll'llho11l an ai-:n:i:cl progr:1111111,·.
I 1:1. lhicl., p. '.!I:>.
I \.I.,\. \layhew, ':\".:-sn11:111 nl" th, l'l·L\RE l'n,gra11111u.· frn111 th.- C:111111111Sstll11·, l'n1111 or
View' 111Europl'an Cuurl of Auditors. C,,-"/,,.m11t111 wt//, th,· C1>11111r"--' o/ (.',·11/m/ {//I(/ /:·,1.1kn,
f11mp,· - .-t.rn·.1.\/11,•11/ofl·11111111wl :I/II (Com1111ssm11 nf th.: Eun,pc,a11 ColllllHIIHIH·.,. El!J-1). p. l-18.
11:,. The US ~m·en1111t:11\ ha., also, howL",·er, pla\'L:ll a rill<.:: II L'11lerg,·d that 1lw l 1S wa, pav-
mg a salary of 01·cr Si0,000 a year to the lwacl or th<· i-:m·,·n1111e111agcnn- cleali11g \\"llh pnva11-
satwn 1111-lun!-\af\·,m aclditinn 10 his regular salar\". l\1111hi., arrang,·m,·111 IL-r111111.11ed 11"11,·n1t
hc-camc- puhlii: ,111dthe pcrs1111 u111ccrm·cl lost his_1oh.
I Hi. 111 HIH-180per ce1ll of tlw Polish 1'1·i,,111sallllll ,\gene,· s oper:11111g c1p11al was l1111decl
hi' EU g1,lllls. See ihe J:·m11,m11J/, Ii Scp1,·111h<"r I !l~l-1.
117. J:·.-mw111111, 17 Sep1,·111hcr l!J'H, p. ,17.
l lH. Ei·1rw1111n1. 8.Ja1111:on· l !l!J.l. p. 18.
I l!J. On this pomt for ciel'elop111g co111111wsse,,: LIN( ~J',\ll: \\'orld l11n·s11m·111lkpon. l'l\1-1
(l 11111ed:-:auom, 1q!J•l). p. '.!O.
l:!O. 'The 111.iy>rlll~ji,t·m·c for FD! 111C,·111ral ancl Lisll'l"II Eunipe 1ras ""marl;i·1s'"' tJECI)
Working l'api,1· No. •1'.I:i\larke1 .-\ccess-FDJ_ITracle Linkages 111Easlern Eump,· (Pans. 111!1-1),
p. :i.
l:!l. Ur the s1111>111er nf )!I!)'.!, 111fL:Lailing .. sunit• n111c1,·111,!1or\\'l'ster11 Jin11s hacl nw,·,·il i1110
Lhe region. 111Hungary the)' had hr then captured :!O per celll llf 1l11,re1:1il markl'I. S<'l"_flll111
Thornhill. 'E. E11rnpe E11uci,s th<: lluld', /-"i111111na/ Tim,·,, 1\1 Oc1oher l!l'I'.!. fl· :I.
\'.!~ . .-\111hom· Hrih·1m1,11,'.-\11.\1n.-,0111,· "Lisk', /·111111"-,,,/ "/"imn. I :IJa1111an· l!l!J:!.
l:!'.l. UNG[-\1), m,r/d /111•1•.1"1111r11t U,twrt. l!I\J-J, p. lllll.
1'.!-1. This 111("11nnati1111on .Skocla 1s drawn fro111 lh-an C:alhn·ath. ·Toi.:,·1h,•r F11n·,·cr:-·
/l11u111·.nC,·,11m/ /:urn/tt• (i\bn:h 19!>:1), pp. i-lll.
l'.!5. lhid.
l'.!Ci.Jhicl., p. H.
l'.!i. l-.'\·111Dun,·. 'Shod, ofilH' Fre" /.larkc·1', Fi,,,1111wl Ti111,·1.:!_11111,·l!l'F,. fl.1\.
l'.!8. S"e UNCJ".-\D. 11;,,1,1 /11t11·.1/111r/// //,111111, 1!)9-1, fl· lllli.
l '.!!J.or tlw s1:,;1y-fin· corpora1m1is pn,·;111.,L·clll\" 1h1: i\li111s1n· or l'n\';111sa111>11 111l'uland h,· I
 NEO-UBERAI.ISM FOR !•:,\STERN F.UROl'E

June.: 1~1~1:Lonl~· llllll'h'l'll \rt'IT huughl hr Puli~h co11c.:c.·ri1s. Scc.· f'rivflfl.\tlllott in /'nlr1,rd
(·lnliir111a11on C.:nln· at tlw ;>.linistri- of 1'1wa11sal11>11.J11111· l!l!l:I).
1:Hl. L',Cl':\ll. lli,r/,/ J,,,,,·,1111,•11/J/1•/111n.J!l!l-1, I'- JOLi.
J :ll. ( i ',·CJ':\!), tJ i11M/111·,·,11111·11( N,f'/1/1, l !IY-1( ll1111,·d ~;!IJCIII,. J !l!l•ll. !'· ll/11.
J:I:!. I.Joni. 'l-!111,·10 ;,.1;1kea ;>.1;,rkl'.t
1:1:1.lhi,i.
l'.\-1. llH'.ll Tr;ul,· l'olin b"""'• /,1r,11-Fin11T1111/,·10l'.C:D. l';,n,, 1!1!1:\). The 1111lyn:li;ihl-,
data u11 ll·T. an-11rdiug 10 ti!<' OEC:I l. applr 10 1h,· l 'S ;111cl_l;1pa11.
J:1:i. Richan! l'ark.:r, •C1in1onon11cs fur the East', for,,ig11l'11li1")',110.\1-1(Spring I\Hl-1)p. tiO.
l!Hi. l 11111l'd Na11orts l11cl11sin;1Jlkn·h1p111t·n1 (lq~anisa1H111, /11tlri,lr1·l).,,,1,,p1111·11t <;lo/ml
U,·Jmrl,l!J~J:!/~J:~ (\'il'llllil).
l:l',. \\'orlcl Bani; l!n1:1 E11t<'rpnse aml Fi11a11nal S,·nor ,h!j11sl111<"111 l.ua11 10 Poland, ')llot,
..cl i11,\11isdl'11. T/11·.l/11r/,,·1 M,·d., ,,_ ,\lair/,, I'· 1:!-1.
l:IX. Exn:pl 1111h,· I :1<·d1 lll'p11hlit. wh,·n· :4ovl'r1111H:t11 lwalth sp1·11tlini.;rml' ,n l!l!I:\ ·,1s;1
rt·suh 1>I i1s <ll·n..,u1111u pn\\lllSe health 1n~urance. Fur an L'111hust;1s1n·~1r11de ciu lhl' pri\"alisa~
uon s,·,· thl' /,r,11J111111,1. '.!H~la\" l!J!J.I, p. -IX.
l'.\!J. l'nnw '.\li11"u,r Horn ;ippl'al,·cl p1wa1t·h· 111( :hann·ll, 11·, Kuhl ;11HI \'ranu,h to support
hi111111 n·s1s1111gthrs n·q111n,111t·11t.b111tlH·,· n,sp11mll-c! hv clt·111ancling that hl' holh· 1mpknu:11t
II.
i ,111.Such cll11n·pt.s ,n-n- ;1bo ra111111ali,nl hi· lll "das,1c,tl w,·lforc ,.,•,11101111,1,
0
who ar,:11,·cl
1ha1 bandit cap11alis111w;1s P•ll'l'l11 1>pt1111al
on 1111·gr1>1111ds1ha1 thl' poli11calh· ra,11111.:n,,ilban-
cli1 cap11alis1s wonld gam whill' noh111h· ,·l.,t: ,n,1rld lose .,11we n11lllltl\" els,· 11\\·111·d
a111·thing
~lll\"\\'ily.
i-11. t-:"""'""''·
'l_lul\- l!t!J-1, pp. '.!I-'.!'.!.
i-1:!. \\'. Wi:solowski, 'Tl11, Na111n, of S11nal Ti,·s a11cl lhl' F11111n,Ill l'llstnJ1111111n11st S1>uc1v:
1'0(;11111.-\fter Solidanti-" i11.John .-\. l·l;,11. eel.. t:i,,il S111·11•ty. T/11·,,n-. l/i.1i11rr. (.'11111/111n.""'·
H :;unlu ul~t· liu1v..:n;11v Prt·-...... I ~)q:J).
i-1'.l. .-\11ne .-\ppkha11111. ·Thi' F;iJJ and Jiis,· ur 1h.- C1111111111n"h:(;\ll,ss \\'hos R,11111111).!;
( :.. 111rall•:nrope·. l-r1r,·1g11 .·\fji1m i:l:G (No,·ember-lkce111h1.'I 1!l!l-1). pp. i-1 :l.
I -1-1.~lichael lgn,,11l'll. '011 Ci,·il StHWLv". fomg11 .·\fji1in ( \l.in-h-:\pril I !IH:i).
I -F,. l1111a1h;111 S1,·,·h-. F1,-,,,,,J l,'11""' (Fal>,·r. l!l!l-ll.
1-lli.. lhid. Th<: /:',·,1111111,w\\',lS 1111,re IH>111.:st, s1:1LJ1Jg1ha1 ii \.:list11 had 11ot .:u11fro111<·dlhe
l'arlia111<·111'li11k w1111lclha,·l· rl'mamerl or his ... ;1hilin· I<> prl'SS 011 w11h 1l1t· n·fur111s Russia
m·,.'lls ... ' s.,,.thl' /·:rn11ll11111·i. !l Oc111hn l!l!I:\, p. I:,.
i-17. I.Ion!. '\i.:h,111 s k.11· ur1.inng- D:111g,·11,11,Jr.Fin111111,,I ltm,·,. ,-,_j,11,11:11..-l!l!l:1.
'I ( luohl'r I !1!1:1,p. I 0,.
1-Jft /•:rn11ll1111.11,
I :-.Ia,·.
i-J9. /-:r,11111111111. I !l!l:\, I'· I ·I.
l:1tl. lbi,l.. I'· -11.
I;, I. Th,· /:',-,m,r1w.,1 had 1111:ig11u:cl th:u the S11cl111d-.r lilwr:11' 1.-.iulclw111111l'ob11d's l!J!I:\ d,•,·.
11011,/sn· 1h,· Fm11,n11w, _111111· :, l!l!l!I. p. -1:ll. II pn,clictl'd thal 1he "i'l""11iu11 111Es11>111a would
1101,,.. ahlt- u, ,,11,·si11111 what II s.nr ;is tl1t· 1rn1111ph;1111h· su,·rc•S<fnl pulinl's or ii, ST g11wr11111e111
(Sl't' tlu- 1-:,·011m111", 111 N11n:111lll,rl!l!J.J. I'· :i-1). \t·t ,his g11n·1111111·11t w;" able 111111arshal 1111h· :,
pi:r """' 11r1lte nu•· 111,\fan:h l!l!J:i clct111His. h pn·din<:cl 1ha1 1lw I /1111gana11"'"n11,11s ..-..uld h,·
;1cont,·.,t lil'll,·-,,·11tl.s fan,11mn 1111l1t·\c,1111glk1111Kr~llsa11d thl' Fre,· I kmon~11>. \t,1 tlw \;,n11g
Dc11111natsad,i,·n·d i11sig11ili1·;1111, ,-.,uh., a111l1he S11nalis1s ad,-rl'n:cl a1111,·"rall lll,1J11r11y.
I!',:!. \'irg111ia \L,rsh aud K,·,·111Dlllll', •t;11exp,·,·1,·cl llq~n-,· or Stahilit,··. Vi1111111wl'fi111,·1. '.!:,
i\Jay J~•~1;,, p. :tL
I:,:\. <_,l1101l-d ihi<I.
1:,-1. En·n 11111n· fadlt- ;in· 1h1· alll'.l1l[>b hi' 1h.- l·:11,11111111.,1 Ill hold lip \'anous East Eur11pt'a11
t·co11onucs as ht·111~ .s1J111Hlt·r 1h:111 \\'t•stc:1"11 Ulll'S 011 lht· has1s of tht· size ld. 1he1r lu1d~t'l
dl"lint>'
l:1:1. .J. \I. ( :. Rollo and .J. Stern. '( ;,11w1h a11d Tracll' l'ru,1n·rts )or C:c111r:ila11d Ea,Ll'rtl
E11r11p"".·n,,•lli11-/r/F:m11,11ny I:,: :i ( I !lfl'.!J. Tht·ir 1·.tlr11lauo11ssh""' 1ha1 ·f!;row1h ov.-r 1111·whole
l!IHH-'.!lllll p,·ni11l i., 111,likl'ir, ew111111d,·r lhl' op11111rst1<· _-,·,·11;1rw.111lt-;111lo a 111a1uri111pnl\·e-
,11~111u, the n·~au,·L \i\'111g:"11-\Ul\ant~ uf E,,sle~ u 1-:Hn,pl'
l:ili. lhid.
l:i'i. Sa.-hs, 'Cll11s11licla1111i-:Cap1talis111 , p. (ill.
=======10=======

Neo-Liberalism and Civil Society

Across Easl Centrai Europe 111 the late 1980s, young intellecwais were s11u11g-
rlown al their desks to write cssavs on civil society. In 19~)I Ill the So\'ict
Umon, desks were being cleared l'or the same pw-pose: Lowin a Soros sciwi-
arshtp to the \·Vest by showmg where you stood on ch·il society. Alu mm came
li.ir a diet or semmars 111 places like Oxrord to learn about our wo11derrui
mstiwuons (although, naturallr, one wouldn't brag-). The entire experi-
ence was a refreshing one fr>r all c0111.:er11ed.Not least for the teachers.
Al"LeralL these students seemed to believe in it all, at a tune when mam· or
the iccLUrers were not at all sure what Lo thmk, boml)arctecl as the,· were hv
the stl'ident assaults on their libc1·ai values, on mstilllltons or ch·il societ\' like
their own liberal universities, the BBC, the lugher civil senice with 11sethic
of public service, the locai authorities, the serious press, the welfare sernces,
the teachers, the health service, and trnde uniomsm, Governmelll lw dis-
cu.ss1m1was ndicttled as the talk shop or the chatten11g classes. In short the
vcrv tclea or the liberal democratic state was u11cler assault. And the attack
was being waged with all the most sophisticaLed techniques or mass sugges-
tion, not ieast by savagmg liberalism in the ianguage of liberalism itself.
The authontanan populists were iaymg mto nvil society in the colours or so-
callecl neo-liberalism.

Libl'l"fl{s \'1•1:rns
N1•0-fibaals

For decades western liberals had seen a strong civil society as an 111teg-rai
clement w1thin the state actmg as a countervailing- force to the power of"a
secrettve stale executive and 1.0 market forces in Lhe determrnatuin of
public pl>licy. Civil society mvolved a network of assoc1auons and mstitu-
tions, many or them supported by public funds, whtch exerted democratic
pressures, calling both state executive bodies and big husmess to accoun L.

~-18
 NEO-I.IBER,\I.ISM AND CIVIi.SOCiETY

And civil socict,· was undcrpmned by a strong welfare slate, provicl

,thrnug-h Hs education svstcm, public health sys1ems, public housmg
01her iocai sernces a mmimum basis f'or citizenship. The role of civil s
ctr was a poliucal one w1th111the liberal democratic view of" the stalt:
cnsurc that public policv was g-on:rncd by wide discusswn and public p
sure hv the c1uzc11s duough a mvnad or civil associalions and instiuui1
Civil som•t_ywas 111i1xmllo illl' slat,• as a law-gmwrnl'(/ lib1'.m/ d1•111ocn1t)',
w
bemg- alwavs m tension wi1h 1hc slate executive allCt with 'thc unacccpt,
race or ca p!Lalism.
In the 1970s, tile attack was rather crude: the crv wc111up that the s
was too weak because of dcmocrauc on:rioad. All the pressures from ,
societ,· (then called special intcrcsls) wcre making western count
·ungovernable' In the EIHOsthe targe1 and the ann remamed the same,
the discursive tactics chang-ecl 180 per cent. Nen-liheralism was born
'the 111cliv1clual'was bemg crushed by a rapacious stale. The crusade
launched againsl '1he sta1e· 10 free the mdindual. the economy and U1
Tom Cobblev.
Tracliuonai liberal suspicion of the slate eXl'ctllh·c has been replaced by
tilitv towards the welfare stale. The threat now came from the lnlancl Rever
hehmcl which stood the sinistc1· forces of local governrm:lll soCJal sen
depanmenL~. teachers and the fat cats in the Direct Labour Department
the trade u111011barons amongst the cleaners 111 the health service. Lihl
were Loki to stop WOJT}'lllgabom c1,·illiberucs anct rail\' around Losharpen
sword of the state against the miners. Those who ot~rectccl were clubbed
chaLLcring classes, the consensus mongers or worse.
The nco-libcrais also took up the language or ci\'il society to tum the
eral concept 011 lls heacl. lnsteacl or hemg a network or associations
institutions !"or 111\'lg-ilaungstate e:xccuu,·es ancl market forces and an
lating collective interests and concerns, il was to become a 1111xwrcor
b11s111css chantabic foundations and self~lu:lp inslitu1io11s for the clescn
poor on one s1cle; and archipelagos or unaccoun1able quangos for ma1
mg a depoliticised, privatised. publicly pass1,·e 111cli\'ldualconsumer on
other. The mstllullons ol' Lhrs neo-liberal ci\'il society are abo\'e all thcr
ensure that the populauon stops pnonusmg the public welfare, stops 11
mg for collecti,·c solmions Lo societv's problems. In the name or fret
socrety (or Ull' ·incli,·rclual') from the (welfare) slate. the social engineer
neo-liberalism have been attcmptmg 10 free tile srate cxecuuve from so
responsibilities and from accountability to ciYil socict\'.
Pmv1:1·ancl polic\' can be the prescn·e or a sLrl'ngthencd pnvatc nen,
of"incrcasmglv 1nccstuous linl,ag-es between executive oflic1als and lllg I:
ness people and media barons. to whicl1 members or parliament doll tl
caps 111 the hope ora 'consul Lann·' corllracl.
250 I'<ll .lTIC :s IN Tl 11•:<;I.( >ft\! .IS.-\TIO:'-; l'ERIOll

.·\ Civil Som•/_yjiir1:",1.11,·n,

J•:11m/1r

The Soros scholars and Lhe1r less fonunale aspiranL colle;1gues in Eas1ern
Europe would have gathered liule or noth111g of such pamful debalt:s from
the tranquil prose of one of the most prom11H:nt proponents of a u\'il son-
cu· for EasLcrn Europe 111the l ~l80s, TimoLlw Gar1n11 r\sh. Tht: clashl's
between the liberals and the neo-liberal sonal engineers were surelv mmor
differences when we \\'ere faced wllh a monstrous Commu111s1 1oi;ili1an,\l\-
1sm in the East. An\' form of c1,·il sonet\' was surcl,· better than th;n.
In Lhe wntmgs of (;anon Ash on East Central Europe in 1he I ~!80s, devel-
opmen L~ 111 the East were indeed inll·rpretccl as bemg driven lw the clash
between 'totalitanamsm', seekmg, in Ash's wonis, 'to rule over an atrnrnsecl
society' and a civil society wiuch embuclicd the idea of 'social scll~orgamsa-
tion' in the fr,rm of networks orautono11HH1s suual groups and mo,·en1e11ts
wiuch togethcr would form. as r\sh puts IL a strong civil souetv. nci1 111
nucrmedialc lavl'rs orfree and frank .1ssociauo11' ' Thcsc themes Wl'l'l' ckn:1-
oped by Canon .-\sll m his earlier book. 'J'hl' Ui,,s o/ .-\dvrmty, and were 111
turn clenvecl from the wriungs of Adam l\-lidrnik. Of course, the paradig111
orsuch social sell~orga111sau011was Soliclarnosc 111 Poland, especially 1L~ 111Lei-
lectual networks.
But w1LhLhe disappearance or 'Co1111nu111sL totalitarianism the discussion
about civil soc1et1· 111 the East has become altogether more complicatccl,
not to say dclic.nc. r\11(1Lile nco-liberal soual engmeers have set w work m·L·r
there. ivlc;inwhile, b,11:k rn Oxfurcl. (.;;1non .-\.,h·!,ellorl.~ han: been s1reni-:1h-
eneci by a new aclcliuon at St. Antony's - Michael lgna11dT. We will u-,·to
trace how these ideas on civil soc1eLy 11ave c\'olvcd.

C'ir,i/Som'/_\'Mar/1 I: h1/in.1/rud1m· o(Lilwra( D1•111oc1m)'

111I ~l90 Ralph D.1hrenctorr produced a shon book 011the Lransli.1r111a11011s 111
[astern E.urupe Ill I 9H9: !11ili•i:1w11.1 t!lt th,· R,1.10(11/1011111J;;1trn/n'~was a l:11rl\·
Uassical westcrn liberal statement on what civil soc1etv should mean for
post-Communist s1>c1elles.Interestmglv, c;anon Asll endorsecl Dahrl'nrlod"s
bool, as a classic.
Dahrcndorr sees the civil society as a network of institutions and reiauon-
ships mtegral to the liberai state, wh1cll he prefers to call, following- Karl
Poppe1; the Opt:n So<.:ictv.He thus t:ndorscs Lhe ideas or g0Yern11a:11t lw
open discuss1u11. mcrc111c11talpolicv maki11g-111wh1cl1each step Ji1rw,11·dis tilt'.
output of negouauon between execuuve and c1\'il assuc1at1011s. The ng-lH
policy 1s the polin· endorsecl by the hulk ol" the pluralisuc n\"il 111sut11L1ons.
These collcct1v1L1cs,wnh their vaned and disune11ve cultmes, 011tlooks and
mtercsts will he strengthened throug-h bcmg- rncludccl in the open disr11ss1011.
 NEO-I.IIIFR.-\I.IS~I .-\ND Cl\'11.SOCIF.TY

His pn>pos;tls are close to those of l-labcn11as liir trvmg- 10 ach1cn: an u11dis-
1iwted -Comm11111c;1L1,·c public space. And lht'.Y n•s1a1c Charles Lindblom 's
classic rn:w or best policy as the polic\" or 'muddling through· via the impact
of a hos I of special groups and omiooks upon 1111ualideas, altering and even
'distoru11g· pure concept~ to lil these into the particularities of a complex
soc1et~•wl11ch arc bevond the grasp or a smgk 'srn.:111ilic-rational' bram.
Dahre11clorr thereforl' n:puclia1es the temptauons offered by the 11co-lib-
eral Social Eng-meers: the planners wtth l11e1rsystems .. -\s he puts it: 'The
co11111rn:sor East-Central Europe have not shed their co111111u111st system in
order to embrace the cap1talist svstem - whate\"er that 1s. They have shed a
dosed svs1em 111order to crL·ate an open soc1etv.' There 1s no 'correct path',
_jus1experiment and tnal and error lw a larg-l.'.and diverse 111ter-sul~jective
civil soc1etv.
:\nrl D,iiu·cndorr 1s p;1rt1c11iarly worried that the leaders of the new
Eastl.'.l"ll Europe will he sole\ a second-hand western mocid or how the~'
should eng11H.Tr their new slates. "The cu111111011 lang11age we speak wday 1s
not the language or the West, now adopted b\" thl..' East. It 1s an 11unns1cally
utm'ersal language which belongs to nobody 111 paruc.:ular and therefore tn
C\"ervboclv .. If anv creed has won in the events of last vear, 111sthe 1cleathat
we are all embarked on a .J<>llrncy 11110an uncertain l'uture and have lo
work b~- tnal and error withm institutions wh1c.:hmake it possible 10 hnng
about cha11ge without bloodshcc\.·

Tht' Nl'IJ--Lib!'ralRipmir'

En'.11the busiest ol' the neo-liberal planners could not let tl11spass. Despite
a gruelling schccluic which had mnilveci working over Yugoslana·s li.:ckral
government m 1989, then son111g out Poland before tackling the biggest
ht·an- e11g111t·enni ..uoh or all in Russia in 199~. .Jeffn.·v Sachs llew m to LSE to
rcplv .
.-\s Sachs puts 1t: · I cons1cler Professor DahrenclorJ' 10 he mistaken 111his
\'iew tha1 Eastern Europe diet nm shed the commw11st svstem to adopt cap-
italism. 111mr view that 1s prl:ctseiv what thcr h,1\'l' done, and all of 1he1r
actions are directed towards this purpose ... II" instead the philosophy were
one or open expen111entat1011. I doubt that the transfonnauon would be pos-
sible at all. al least withom costh· and dangerous wrong turns. •:I Sachs was nu
cr111c.He pass1onateiv hclicH·d m his shock tlierap,·. Nor docs Sachs neccs-
sarih· l'ndorse 1he l'ull nl'o-liberal programml' for erna~cuia1mg civil soneues
111 the \-\'es1- though he 1s no friend of the ll'ell"are state. The pomt 1s that
Sachs 1s a proli.:ss1onal soual l"ngmcer and Ill c11gmeen11g- thmgs must be
done methodicallv - first Olll' thmg then another. And the civil society pan
or the machinerv has IO be lilted 111at the end, 1101 ,ll the beginning: lirst a
 1'01.JTICS IN TIii·: Cl.01\.-\l.lSATION PERIOD

cap!lalist labour market (ancl uncmplovment): then wiLh pn\'at1sa11on a

hourg-coiste (capitalists); then (wnh foreign direct im·estmetll ancl a11export
boom) economic growth; and then, hut only then can tl1ere he instlluttonal
stabilisation - 1.e. a stable liber;d democracy aml civil societ\'. \-\'hat. ,·011
m,n· ;1sk, tJC!espeopie m·er in the meanumc? Sachs h;1s two ans\\·ers: lirst, 11..'t
us n:rlt1ce the meantime to an absoiute llllllim111n hv sweepmg aside every
obstacle ancl resistance to gelling UH: capnalist system established. r\nd sec-
ond I\', put western money m to bolster the supporters or capnalism ancl bu\'
off oppnnents or unclermme them.

Ch,il Som'I)' Mad; 2: B11ildi11gr,J\Jiddlt·Cla.u

In Ills more recent wriung, Timotllv Garton Ash has engaged in a concep-
tual slippage. He woblJics awav from Dahrenclorr in the direclton or Sachs.
Ash clauns to be agamst Sachs-st vie tc:h:oioh'Y·He sa,·s ·we don't know what
the transition is to and he argues that those who pretend to know, · end up,
often quite crudely. awarding place marks in the race LD clemocran·: "The
Czechs arc in the lead, Poland is lag-gmg slightlv, Likramc 1s bringing up the
rear. '"· 1
But there seems lO be an e,·as1on l1erc. The neo-lihcrai t~·kolog1s1s do no\
mah· absolute preclicuons about the futtll"e. The\' know that ther facc enc-
mies who could derail the11· plans and LUrn the ol~Jccls of thc1r plannmg 111
other directions. \Vhat the planners do have is cnreria or assessment as 10
the progTess10n nr regression in the countnes concerned. And so. mcleed,
do liberals like Dahrcnciorf: his cnll'na must be the consoliclaltoll or open
socu.:ues with strong uvil networks checking execuun: power anrl t11llra111-
mellecl market forces.
Anet so, it turns out m the same arucie, docs Asl1. 01· rather Ash g-1,·esus
two, rather different benchmarks - one ,·ague and one very clear. The lirsr
om: 1s not onlv vague IHIL evas1vc. He declares that thosc socicLtes in which
civil soc,etv was developed ancl there were cknwn1s ora m1clclh: class ;111cl;1
market economy ha\'e made clramatlcally beuer progress' while others Ill thc
former USSR arc brmglllg up the rear. Yet tius 1srathe1· opaque: after all. the
Czech Republic could scarcciv be said to have had clemcnls of a market
economy in Ash's sensc before 1989. IL is also not clear what Sachs 1sreler-
rmg to in suggesung that Russia, sav, hacl a smaller 1111cidk class -
presumably mtclligents1a ts m some sense rdcrrecl to - proponionateh·
than, say Poland or Czechoslo\'ak1a. And the reference lo ci\'il soc1cl\" is
unspccilieci.
Yi:t. later Ill the same piece, Ash adopts a different and altogether clearer
concepunn of the criterion for Jt1clgmg success. He states: the souai
dimension or tr;ms1t10111s a nq~lenecl th1rcl dinwnsmn [between economtc
 NE0-1.I BER-\I.IS~I :\Nil Cl\ 'IL SOC:IETY

and poliucal dimenswns], and lhal 1s 0I"le11where Lhe differences beLwee11

success and failure are LO he sougln .. .' Bul now the social dimensiqn is no
ionger Lhe ncl\\'orks orCI\'il so<.:1etv,but somet11111galLogeLhcr more solid: a
c1p1talist class, a bourgeo1s1e. As he pll!s n: 'There is real U-tllh Ill Lhc ivlarxist
lahei for liberal democracy: "bo11rge01s dcmucracy" ·
This 1s exanh· Sachs's pomt: lirsl we mus1 cng111eer a hourge01sie, then
the msutuuo11al frills of c1\'il society etc. can l)c added. Ash docs not say this.
He clues not endorse Lile use of the slate cxecult\'e lo forge this bourgeoisie
011 the anvil of shock Lherap\'. 8111he endorses Sac Its ·s sequcn<.:c: first a cap-
italist dass. 1hen Liu: rest.

thl' llht
Civil Sont!ly Madi 3: Ad11111mt,·n•t!Jim11

The delicac\' al\Cl good Lastt: wnh which Ash pteks his way round Lhese issues
co111ras1swllh the 1anlcssness or Micimcl lgnaueff. as he tncs s111111lLaueously
LO wn:stk wilh Ute concepl or Civil society whik locking horns w11h 1hc new
reg11nes in Easwrn Europe.
lgnaueff, wnLing 111 For1'1g11 :\jfa1rs," bcg111s with the cotlH"rHional idea
Lhat. as he had put It Ill I 989. 'in l·Iunl-{arv. Poland. Roma111a. East C,;crmany,
Czechos\ornkia and the Halucs CJ\'il socict\' tn11mphed o\'er tile s1a1c· He
lhl'll takes us 1hrough soml' pages 011 Lhl' L111:oryor n\'il souctv hcforl'
returnmg to Eastern Europe w discover 1hat e\'crvthmg has chang:ed. 'All or
the posL-C:ommumst regimes arc nommallv ckmocrauc, hut m pracuce 1he
tc,·ers or power ha\'e 11suallv rcmamed in the hands or I he nld nomct1-
klatura.' How the tnumph he hails al the start ol' till' aruclt: lttrlll'cl oul to he
illusory we (lo not icarn: 1hL"re1s not a scrap 0L111alvsis orthe actual fa1e Pl'
crvil sonely in the rcgwn between 1989 and I 1195.
But Ignatiell proposes the f'ollowmg lines or l'orn: as his soluunn: a
strong state cxecuuve ;1hle to use force to coerce order, and prevent the
sou al beast from esc.1pmg Its c.1g:e. He declares that · i11nsihll' hands arc
no sullsllLlltl' l'or the magistrates swurd'. At the same llllll' hl' reassures 11s
th,1L Ill Eastern Europe 011ts1dc Yugoslav,a 'slate s1rue1m-es remain s11rti-
ne11Llv rob11s1 to con tam ethnic conllict'', Ne\'ertheless danger still looms
throughottl the soc1eucs or tht: region III the form or auLl10ntana11 pop-
ulism. And tht: sworcl or the state exccutivt: will not be c11<n1g-llto slay thrs
soual monster.
It 1s at this po1111 Lliat J1411a1ielffi11dsa practical use for till' ro11cep1 ol'n\·il
sonctv. CiYil socretr will he i11,1ectecl111to the reg:10~1as a \l't:apon a14ainst
autiwntarian populism. Together with Lhe sword or the mag1s1rate, ci\'il
society will p,Kih· the popuiat11111.This 1s what lgnaticff calls hrs civil society
strategy. It 111e,111s an effort 10 change the l)ehav1onr of pop11launns 111 tlw
Eas1 throu14l1 b11rea11crallc l'llgineenng br \1'l'Slt-r11adm1111s1r;t11\'t• agencies.
25-1 1'01.ITICS IN THE CLUII \l.lS:\TION l'ERIUIJ

Ignalieff elahorales ,ls follows: ·This n1ca11s ru11ding 111depc11clc:11t mcdi;1:

ma1111a111ingucs not s1mpl\' \\'llh gon.TllllH.'lllS and rcg1111cs!Jut w1th their
oppos1uuns; providing ;mt ancl assistance to strengthenmg Lill' kcv 111st1tu-
lions or civil .mciely, lhe cu11ns,.1udic1an· and police: rlevciopi11g cl1antablc
and voluntan- assoc1auons so lhal lhe popuia11011 ceases to look Lo 1he
slalc and beg111s to look to lls own stH'll~ths \Ve 11111st,hc savs, start
'\,·1th t11e se.in:h for p,1rt11ers outside tile stale. tllc lc:acliu!!; panics. and till'
l)ureaucracv·
lgmnierl's n:marl, hc1·e that the popuiation should be encouraged 1101to
look lO the state hut to IL:-; ow11slrengtll,, mav alarm sm11e readers. It coulcl
sound like an aud1or1tanan populist call to arms aga111st th<.:mag,strat<.: ancl
his sword. But 1h1s 1s to n11s1111<lerst,mri lgna1tefl's lll'o-libcral CDdt'. It me.1ns
soc1etr should not seek public snluuons to their probiems Lhr11uµ;h th<.:
democratic slate: they shouid solve Lhc1r prohiems pn\'aLC!v h\' tlleir own
effort,;.
His civil soc1clv crucially mvolves 't11e refusal lo pn\'ilcgc public goals
over private ones, [ancl] the 111s1stence 1hat libcrtv c111onlv han.- a negall\·e
rather than a posillve content'. In other words, lgnatierl's c1dl society 1s a
strong network for tur11111gthe populatHlll awa\' from 111vol\'cl\le11t111dcmo-
crauc politics towards finding us own snluuons. prcfcrablv pnvatcir. while
mtcrpreung 11.sown freedom as frcedo111 from 111terlcrencc lw the dcmoc-
raw.: stat<.:.

Thi· ,-\11(1/y11wl\i1n111111

These bcwilclenng discursive shirts on the theme of' civil society cvmc<.: 1wo
su·ikmg charactcnsltcs. 801h Canon A.~h and lisnaticll display a pundiu.:cl
weanness in L11c1rattituclcs towarcls the current slluauon 111Eastern Europe.
And secondlr, neither or them provides a scrap of analvsis or ac1ual cine
assoc1at1ons and what llas llappcnccl Lo tllcm s111C<.: their supposed triumph
over 'the stale 111 I 989.
Their posture of civil exasperation with Lile region <.:olllrasts wnh the bull-
ish sausfaction or Professor .Jclfrev Sachs. I-le 1s, on Llw whole, cxlremcl\'
pleased with 111sefforts at Shoe!- Therapv smce 198~1.In a recent clde11ce "r
his record 1; he notes Lhat most or Lhe states Ill the rqs1011 hav<.:taken his med-
icine. He does mention that Ukra111c w.is 1wing111~up the rear, hut smcc lie
wrote hrs pampl1let, L'kramc 100 has .101ned the conve\'01'-beit. Sachs 1s
plcasecl becaus<." the counlnes orthe rcg-1011have made strides wwarcls thl'
cap1t.11ist markel, have: created a capualist iahour markct wllil suhstant1,d
pools of t1111.·mplD)'l11ent,have prrvaLJsed a great deal of ind11stp· ;111dha,·L·
tackled budget cleficns (in other words, cut welfare, hc,tlth and edncauonal
spending). Sachs docs not waste his l11lle on analvs1s of' the 111sutut1011al
 NEO-I.IIIER.-\I.IS~I .-\NJ) Cl\'ll. SOCIETY

Lissucs of UYil assouau1ms 11i these cmmtncs o\'er Lhc lasL live years. These
arc t,'iskslcir L11efuwrc.

Tit,• Falt' uf Ueal E.,1Ji111g C:ir,ilSorlt'/11•J

tr Llicrc 1s DIil' countrv wht·rc civil soc1cLv could h;1,·c heel\ saicl to have
e111crgccl 111 EasL Cc111rai Emopc Ill tilt: 1980s Jl ,,·as s111-clyin Poland. wilh
the nsc or .Suliclarnosc in 1980-81. \Vc mav kavc aside 111 Lh1s conti:XL
wlit·Lher Lhe e,·e1Hs of I q::;q m Poland were a 1n11111phfor civil society' u,·er
the statc. But withouL ()llesuon, the leaders or the new govt:rnmcnt of
i'\·lazow1ccki c1me Lo puwer 011 the basis of their sourn: 111Soliclarnosc, the
basuon or indepcncll'n l u\'il networks Ill Poland.
\;\'hat then J1appt'11cd was g-ovcrncd lw Shock Therap,·, dnven by the coll-
cepuons wJ11ch.Jeffrc\' Sachs has popularised. The L\·lf and four succ:cssl\'e
1411\'L•rnmc111sclaimmg allcg1;111cc to tile Suliclarnost 1radi111m dron: this
shock treaunenl holllL'. Thi..· networks of souctaJ 111terests were not con-
s11ltccl and wert: not drawn 11110processes of i11Ler-111stilllt10nal harga111111g,
cu11scns11s-tmilcling an<t cumprom1se. They WL'n.: r.iilroaclcd.
The lirst group to proll'st \\'L're t.he mainstay or Poland's pn\'ale sector:
the pnvatc peasantn'. B\' thl' sumn1<:'r or 1990 the\' were aii·cach· ha\'ing to
takt· to the streets 111 ;i \'am attempt to defcnrl 1hc11 1nswuu1ms and llllt'J'-
L'Slsaga111s1 the cln\'c for Shoe I;. Tlll'rapv. But tile ccntr;il conllin wil1ch has
dnn:11 Polish poliucs has been that bet\\'CL'II the 1ncl11stnal c01T of
Suliclarnosc and tilt· 11r.:u-lilJL"rais 111 till' 1-{0\'LTllllll"lll. bacl;.cd iw the
l11ter11ational financial l11st1LL1t1011s. The svnclicalist wmg or Soliclarnosc
wanted to maintain ancl strengthen tl1e c:ontrnl or state enterpnscs hv
1he1r scir-m.in,1gcme11t l)oc\ies. This was re\'erscd and powL·r was ren:n-
Lr;disL'.d 111to the h.incls of state agencies. The S\'ndicalists \vantecl
pn\'atisation to rnvoln· the tr;1nsfcr or enterprises to emplo\'ees. This wa.,
t'l'Jl:ctecl. Thl' go\'ernmr.:nt 11np1>sec\harcl w.1gc conuots 1111the state st·nor
and rcfusi:d to encl 111cm. Wage controls l\'Ct-c 1101 applied lo the prl\·atc
scct<Jr. State cnt.crpnses faced hcan· taxes 111 order 10 give prl\·ate
n1n1p.i111es tax breaks. These measures dn,·e11 1lnD11gh hv Woricl Hank
co11diunnaliLv were classic efforts a1 soual cnglllccring: to generate
clcmancls amo11gst workers 111state cntcrpnscs for pnvausa11011 on the
gO\'lTtlllll'll l ·s terms.
ThL· efforts to create a rlL"mobilisecl, clepoliucisecl. apalhcuc socictv 111
Pola11d were to some extent successful. Parucrp,tt1on rates 11\ elec11ons
(\n1ppl'cl c\ra111.1tH:·,1ll\', ;1s thcv diet ;i"lso in l·l11ng;1n·. Ekcto1~1l p;11"1tf.:1pa111111m
allt:gL·dlv l>ad,warci L!l;ra1ne w;1s much ll1ghcr. "·'tat the same tm1c poliucal
tl1111k111g began to e\'oh·e wnlrnt the syndicalist con: orSoliclantY and within
till' dcctor;tlt·s. In till' s11111111t·rDI' 19~1'.1111 Pob11cl. Soliclanty 11111,·ccl ag;1111st
 1'01.ITI( :s IN Tl IE GLOB.\I .IS.-\TION l'ERIOll

Lhc very govcrnmcnL 1Lhaci spawned and li.1n11ed an allia11cc wi1t1 Lhc l'X·
Commun isl SoualisL Panv and its alliccl Pcasanl Pan,·. This allianrl' brought
the g-m·ernmcnL clown. The cknoratc 111 Poiand also mm·t·d. 1,·1Lh1·01en,
t11r11111g to the fiirmcr Cu111rnu111st.~ and Pcasanl Pan,· allies Lo gwL· 1he111a
maiorny in Parliament. These panics, pllrlravcci as Lile 1ot.ili1anan appara-
llls l11aL,111Ash ·s ,·1cw, aspired lO aL01111scthe populauo11, had 111 fact been
the only parues wnh real son.ti links 111 terms of' sig-nilica111 11u111hcrsof'
;u.:111·csuppt>rlcrs 111 localiucs.
This Lrend has been a w1clcspread one \\'llh111 the rc~1on: il has applied 111
Lithuama, l·lung-ary, Slovenia, Bulgaria, Ukrame and Eswma as well as in
Polan cl. The same trend has bcl:n witnessed in Russia. Whcn l~aic\ar s Shock
Thcrapv was mLrndun:cl lw \'c!Ls111al Lill' start of' 199~. Lhc m,~1onLr i11
Parli.1menL had gr;mLecl 'frltsm special exLraorclinan powers Lo Lr\' radicai
eco1101111(' rerorm. The consequences of' the Shock Therapy turned
ParliamenL agamst Lhe programme. Jnsteacl of recognising thal this shifl 111
ParliamenL's alutllde rel1eclecl a shil't 111Russian scJCICll' thal slwulcl he
respcued, the En11w1111.11 ( I ~fav l 99:\) ttr~ccl Yelts111 ln hrL•al;. \\'llll the
Const1tt1Lio11al Law gover111ng the country, Lhc legal framework wl11ch hacl
enabled Yelts111l111nselJ'to be elcned leader. Five mmnhs later \'eltsm Look
the /:'m1101111.1·/'s
advice, LO wide applause from 111anv alleged supporLers of'
civil society anci liberal values 111the West. (Sec the adn11r;1bly disp,1ssro11alc
acn>1111L or thc Russian cns1s or 1993 111.JonaLhan Stccle's book, /:'il'rna/
R11s.1·u1.1994.) The resuiL was a surge ol'suppon not onlv f'or Lhe Communist
party tnll also for l'asosm 111the Den:mbcr 199'.~dccuons.
In the facL or Lhese swmgs l)ack lO Lhe former C:011111111111sL parut·s 111the
reg1or1, Ganon Ash, m /u /:'11ro/w.\ NH1111·. has clcdared: 'I confess quill' f'ranklY
that I 11nd 1t lll>t onh· clistastdul but ;1bo pun.ling.· A key to 1l11~ puzzle
could perhaps fa: in an aspccL of these socieues 111 the I ~)90s thaL nenhcr
G,u-ton Ash nor Ignaueff have cleemed s1gnilicanl enough Lo cvcn 1ne11uon
111 lhcir wnl111g-s on lhe fate ol' nvil soc1t:L\' 11\ the rq~mn: Lhe lra~l·ch· whu:h
e,·crwlay lile has become for ve1-v large parts orthese soc1cues.
There has IJecn a catasLroph1c nsc 111 poveny ancl rnalnuLnLion 111 m;111y
counLnes. A sn1dv in Russia bv Goskomstal and the \Vorirl Bani- defined tlw
pon:nv line as the income nccclcd Lo ma1111am fooci cunsumpLion sulfident
to ma111La111 a normal body weight al an ,\\·eragi.: lcvci ol' acttnLy- an ,n1sti:1'l'
dci111rt1011b\' western stamlards. The stucir showed thaL 111 l~l9~. :17 per (e111
of the Russian pnpulat1on foll below this line. while Lhc li!,{t1refor t:hildre11
under liftcen was a horrif)'ing 46-,17 per cenl. A smdv earned ouL h1· CARE
and the US Ce11Lrc for Disc.1st: Control 111199~ l'ounrl that 011 a,·l-rag-c
Russian penswns were l>clow wh;ll the World Bank cst1111a1crlto be the 111111-
imal nuu.1Ucmai snpporL le\'ci li.>ra person livinl-{ alone. Using UNIC:EF's
dclinttion the proporuou of Poland's population suff<:Ting such rnalnuLn-
tion was ncgligihk Ill 1989 but hac\ rcachcc\ 17.9 per ccnL 111 Hl~I'.!.Similar
 NEl l-l.lBEll\l.lS/11 .-\Nll l WII. SOCIETY

probiems. as well as problems of health, housing and life expectancy can be

fon11d in other countrit·s 111" Eastern E11ropc. It 1s frankh· clist;1su:f"ullo 1·carl
wcslcr11 cliscusshll\s ,1h1n1lll\c prc1\1le111s <1f'sc1ciet11.:s
111Eastern Europi.: which
ignore these problems.
Yet 111s agamst this background that we can assess the proposals for the
!"mun· from IgnatH.:ff. \•\'c might expect lrnn Lo make some suggestions as to
how ccrn1c11111essl\,1W:rccl I)\· Lin: West· s shock tl1crap\' po lie\' could be
helped. Sureh· iVlichael lgnallcll, so 11H1\'eclin the 1980s hy thc ·power of the
powerless m Eastern Europe might he moved b\' the plight of the povenr·
stncke11 there now.
The a11swer seems to IJc that wc.1ust don ·t know 1,·hat either his or Canon
.--\sh\ re,u:110111111µ;h1 he because if llH.:\'haw 110ucecl the eastern slump, the
po\'ei-tv. ,ind the tattered sociai tissue ieft Ill their wake, they make no rcl"e1·-
ence lo 1t. Instead lgnatieff leaves \'ague the exact source or tile future
11H.·nan.:he wishes us l.o iaunch a pn:venll\T strikt· agamsl.
Mich,1cl lgnaueff's pn11ect 1s for wcsLern hurca11crac1es Lo disburse funds
111support or Lhe v,tlues he holds dear, not leasl the ,·alue of 'tllc rdusal to
privilege public !-{<>als over pn\'ate ones··. He chums aiso lO value above all
negative freedom from state lllterkrenc:e, \'et wnh the obnous qualilication
tha1 s11ch state 111terlcrence ts OK Ill Eastern Europe pronctect ll comes
from western states (i,llowing his ·civil sonctv stratq.,~··
Some m,I\' be mclincd to smile al the crudelr lrnrea11nauc forms ofthmk-
ing rlispbvecl here b,· Ignaueff. The prnfessmnal soc1ai engrncers like Sachs
do um go in for s11ch old-fash1011ecl ach111111su·au,·cmell10cls. Thev creall'
stn1ct11red social frameworks lllto whicl1 mcenuvcs .incl sancuuns are built Ill
such a wa\' that rational incliv1cluals \\'ill be more or less IJm111clto beh.t\'C 111
tile Correct \·\'av. You clon 't take a state enterpnse manager and give imn a
ha11d-011L;11or clo \'Oil grve h1111any orclers at all. You _111stchange 11Hercs1
rates, impose credit ceilings nn banks ancl aiter the tax svstem to the point
\\'here the manager would he mad not lo sad, some workers. lgnaucfl"s
utea of limcling fr1ell(ls Ill the media 1s rather crude.
Yet there ,s ;1111n· remark rn his text: Lllat note th,ll all the postt:omm11111st
slates· still bcml-{ controlled b\' the nomenldatura. This 1s r11bb1s11.But whaL
does he mcan hv the 11ome11klatur;1? The term used to mean the permanent
officials in the upper laver or ruling Cornm11111slParties. \-Vhat does hl' mean
lw it 11m1·~ We clll not know. Bt11 he couid mean the oflirials or the ex-
C:m11mu111slParues now m gm·ernmcnt 111so manv East European cm111tnes.
.-\ncl Ll11s1-{ll"l"S l11sstatement au ugly unclenone. For l\e uses tile rl'mark Lo
sa\' that cle111c1cran·there 1s onlv formal. B\' tl11s Ile rpeans 1t dol·sn't really
exist. And that 1dl'a ran be 11se(I to .111s1ifrwestern gm·ernment., lloutmg
m1n1mally twilised standards or bch;1nour 111the rq~1011. Is lgnatidTsecking
to open a wmclow tu co\"erl acuon agamst the Socialist Parties 111 the East? ls
his Iisl or targets - the media, the opposition. the courts. the _1udiciary and
 1'01.ITICS IN THE (Vll\.-\l.lS,\TION PERIOD

police - a .signal for exportmg to [;1sten1 Europe thl' 111;11111als on the desks
rn discreet offices in Laun ,-\mcncan capitals accolllllllHl,ll1ng 1lw s1;111on
chiefs or the CIA? The mca11111g1s 1rncicar. It should have hl't'II darilied.
The European Union and the rest or the western alliance 1s, 111 fact, taking
orert action on these matters: 11ot.111st br lgnaui:Irs funding- ag-c11ts.but also
throug-h thi: Pact for Stability. Tlus puts pressure on the states or the n·gm11
to sign binding internationai icgai trealtes renouncing chums lO do w11h
etllnte minorities or terntonal disputes and granung adeq11atl' rigllls to
1he1r minoriues. Yet there 1sa curious oversight Ill all this. Disputes 111n1iY111g
the me miler stall:s of the EU arc excludl·cl from this treat,·-mat;.ing process.
Yet if\\"(.'look more closcl\', most or the ,ICll\'C claims or this sort at present Ill
Europe are claims mvolvmg E.U members with da1111s ag;1111st1"11r111cr
Com1111m1s1countries: Gt-rm,m,· 11as an active cla11n agamst the C1.ech
Republic over the Sudctcn Germans. Italy has blocked .--\ssociauon
Agreement negotiauons between the EU and Sloverna becausl' 11s guvcr11-
111e111 in I 99°1 revived claims ag,1111sLthat country. Greece 1s mal,ing chums
agamst Albarna and against Maccdoma; NATO troops ;u-e butchcnng Kurds
in Turkey. There is also, or course, the acll\'C dispute between Spain ancl the
UK over Gibraltar, the unresolved dispute mvoinng both territonai cia1ms
and minorities between the UK ;met lrciand etc.
ignaucllworrics about authontanan populist possibiliucs 111 East ( :l'ntral
Europe. But what about acwalit1es 111\Vestcrn Europe: the neo-f:tsc1sts 111
Italy, the Freedom Party's rise Ill Austria, the 15 per ce11t for the FN 111
France? None of the \liscgracl cm11Hnes nor Ukraine as It allq.{t'cllv br111gsup
the rear ha\'e had anything like these votes for the Far Right. In lhesc mat-
ters moctcsty ancl attention tu f"arts 1s sun~ly desirabic.

Tlw Pa.u111g1Hr11111!11/
of Modular Afo11

lgnaudT points to the fact that Wl' 111 \Vestcn1 Europe ha,·e had a blessccl
creature whom he calls 'mocluiar man', after Ernest Gellner. 111dincluals
wnh bolted-on auacllments or a vanetv of kinds, many of them tra11s1l'Illand
dnven lw profane energies ratlwr than br fundamentalist 1cleolog1es. This 1s
sureiv true. But frir how long and why? lgnauefT suggesls that lhis 1s a clclin-
lllg l"eature of capllalism or al least western capitalism. He lalks about '1hc
gem us or capllalist civil soc1ctv Yet surely m European terms modular 111a11
1s largely a postwar product. It ,\·as hardly a clomma11t lcatun: or inter-1rar
Eurnpe. It is not a lcature of capHalism but ora panicular cap11alism for a
bner pc1·iod or t.llllc. The panicuianty was the postwar boom, the welfare
stale and 'a civil society which clid reallv operate to some degree as
Dahrendorr would wish: liberal corp<.mllist 11egot1atw11swith authuntau,·e
c1\'1Cassociations. And there was another factoi-: the \Vest's upper classes
 NE0-1.IBEIC\l.lS~I .\Nil CIVIi. SOCIETY

Wl'rc on tllell" hest bl'ltanmir am! labour iw11di1ed 111 comparison with its
p,,st-.' --..
:\re \\'l'. 111the West, still in 1h1sag-c of 'modular man· or IL 1s passmg:- The
boom lias ended. With the end ur
the Soviet Bloc. the upper classes no
longer have a spur Lo selJ~clisupline . .-\ml 1he ideological fuel prm1clcd for
the parues of the Riglll 111an11-Co111111unism neccls LO be replaced. If
Bn1a111"s nght, the new diesel fi1cl on wluch we arc to choke 1s nauonalist
dc111agng-y. Ami as ror the brand of liberalism \\'h1ch cc111e11ted 111ternal
peace Ill the ,vest, the social liberalism of the social demucrauc state. it
seems an expcns1\·e luxury or the ( :old ,-var. as Penna11t Rea. the l-.'m111J1111.1fs
ediwr prn111ed olll: the pc11,d taxatin11 t111 \\'h1ch ll was based, he 111li>r111ed
11s.was an 1111pon from i\farx1s111li>l"Cl'ciupon the rich b\' thL' Culd War.
Ig-11,ll1el'J'sproposals ha\"l' one g-rea I 1111:n t: hr divert mg- our at tell I toll LO
nil forces that may anse 111 the E.1st, he makes us J"eci how lud,\' we arc here
111 the West. Bm how iong will \\'l' bl' luckv wnh the nco-libcr.ils and their
propagandists like Michael lgnaueff in the ascendant? :\ world economy
Iaq.;elv om orc011Lrol and a hollowed-out civil societ\' Ill the West makes the
liberal democratic orders future look 111crcasingiv fragile. Twice 111 the last
ccnuir,· the western powers have plunged tile world 111to misen·. \Vho will
orlcr us a scholarship compcu11011 for a liuk· trip abroad 011 how to stnp it
happL't1111ga third tune round?

I. Ti1111>1h1·t;ar1011 .-\sh. Ju l:'11roj1,•_, (f 011;,1ha11 ( :ap<", I 9!J:;J p. '.!8'.!.

.\'r1111,·
'.!. Ralph Dahn:11clorl". l/,jlr.-Jm11.1011th,· J/,,,11/111w11 111t·:11m/1,· (Challo 1-:\\'i11cl11.,.I !l!>IIJ.
:\._J,.-lfreySachs./'11la111/'.i_f11111/11111/11• (~IIT l'rl'ss. l!l!J'.I).
;\/,11/;,·/1,·.-,11111111,r
-1. ln1<:n·1<'\\' wuh Ti111u1hr (;ar1011 Ash. Ox/uni /11/,:mm11mal l/r"'"'' (\\'illl!'r l!l!J.i).
:i .. \lichad l~11alll'ff, '011 Ci,·il Sorn:ll··. 1-i,,-,·1g11.·l)Ji11n(:'llarcl1/,\pril 1!19:,J.
ti.J,·llre1· Sachs. U11t/1·nla11tli111;Sluu·I. T/11·m/1y(S1>nal :'llarkl'I Fo111ul.1111111. I !J!l-1).
========11========

The Post-Communist
Parties in the East

One or the most unexpecLed features or contemporary European poliucs 1s

the continued strength or the post-Communist parues. In the five coun-
1.ries of East Centrni Europe 1 the formerly ruling Communist panics
emerged from the eiecuons m I 989-90 as the dominant parties of the Left.
In six of these Iirst elections they gained the largest vote or any pany.
Subsequentiy, in Poland and Hungaq•, these parties were to become l11c
most popular nauonal parues. And seven years after the beginning or the
transition to capitalism, the ex-Commumst parucs remam the dominant
parues of the Left in all the countries of the region except one (t11e Czech
Repul,lic) _:!
These former ruling Commumst panics had swiftly repudiated the polit-
ical system or the Soviet Bloc: especially the consutuuonal pnnc1ple or ·the
leading role or the Communist Party', whJCh in pracuce meant a poliucal
monopoly for the Commumsts and thetr allies.: 1 All changed their names to
'socialist' or 'social democrauc' parties except the Czechoslovak
CommumsL~. who kept thetr name, and the Romaman Communists, who
organised themselves in a 'National Salvation Front··, before rechnstcnmg
themseives as Social DemocraL~ in 199~t These transformation decisions m
some cases led to spliL-;wllh minorllies attempting to maintain the old part\'
or with mmonues w1shmg to go further than the m,~J<mLY and form cxplic-
niy pro-capitalist sociai democratic parties." 1
Attempts were also made after 1989 to establish new Social Den10crauc
parues hostile to the pnst-Comm11111sts.These parues were initiallv encour-
aged by the Socialist Internauonal, notably in the case orthe Czechusiovak
and Hunganan Soc1ai Democrats and later in the case of the Polish Ll111011
of Labour. Others wtth some degree of what might be called social liberal-
1sm,_Jomcd wllh free market liberals 111 the centre, notabiy in the I-Iunga1·ian
Free DcmocraL~ and the Polish Dcmocrauc Unton. \'et wnh the excepuon of
the Social Democrats in the Czech Republic, all these parties, lmt.h SoCtal

260
 Tl-IE POST-C:0:'11:'llliNIST PARTIES IN THE !'-'\ST 261

Table 11.1 The share of I.hevote lo Ea~t and Central Europe 1989-96 {posl•
Cm1ununists, 111clcpendentsocial democrats and liberal parties, lirst three elections)

ll1111gu1:i- Mardi fCJ'JO .f 11111•

1 IJ'J-1

HSI' 10.9 it\

l·ISDI' :Ui 0.1
HS\\'I' 1t7 ...~)
:)._
AF[) '..!1.-1 l~U,

,.;,,·: I-ISi': l·l1111J.:ana11

Sonalisi l'an,·: 1-!Sl)f': l-11111,;arianSona! D,•111ocraur Pan,·; HS\\'P: l·l11111;aria11
S11nalisi \\'11rkNs' l'arll'. lar,·r n·nanwcl l·l11111;ana11\\'11rkers' Parr,·: AFD: ,\llia11tT of' Fn:.· Dc11111crn1,.

/J11fgr11w .Ju11,·I <J<J/J Orir,lwr I 'JlJI 199·1

lJ,•r,•111/wr

BSI' '17.1 :l:\.i -1,1.:i

SIW 0.1

/.;,,•: I\SI': 1\1111-:an:111

St>nali,1 l'ar11·: Sill': Sona! D1·111ocra1u·l'ar11·.

l'oland .J1111,·
/ 989 (ktolwr 1 CJ')/ S,•1111•111/it'r
1993

SL.I) 11.0 l'..!.O '..!0.-1

Dem. Unum !')-··)
<' 10.(i
I.ah. Solic\/UL '..!.i i.:-)

1\,1'.SI .ll: lknrt>rralll' l.,·h ,\lliann:, feel hi' thL"Snnal lk111ono11s of the Polish Republic (SDPR); 1km.
l.'111011:lkrnorrauc h11011. la1<·r called rhe Fn·l'rl11111l"111011;Lah. Solid.!( 'I.: l.aho11r Solidanll' whit-h
h(·('~tllll' llll' U,uon ur l..1hour.

flo111a11111 May 199/J 1992

S1ptr111b,·r

NSF (i7 ':27.:")

SIW l.i

rhl' l'an,- of Sona! lkn11"-ra1, 111'Ro111ar11a;Sill':

/,;-,: '.':SF: '.'<:11ron.dSall':11io11 Frunr, l:11,·r n•11:1111,·cl
Social De111orr;111c P.tn~·-

(.':,·rh Nl'fi J1111,·

/')')() /11111• /992 }11111·
/ 996

Cl' l~t:1 1-J.:l ](J.:l

SDI' .f.1 7.7 2(i_.f
 1'01.ITICS IN TIil-: (;l.()ll:\l.lS,\TI( J:\! l'ERIOll

S/m,nl.i" .Ju11,·I <JCJ(J .Ju111· I</<)(,

Cl' /!'DI. 1:1.H l ·l.·l Io.· I

SDI' i.(1 (i.l
:\WS

Kn·: Cl'/l'l>L: Co11111111111st 1';11-n-.la11.-r n·11:1111erlth,· Part,· or th.- lk1111Jn.111<·Ld1 (I'll!.) ahl'r '"
r11s11,11 wllh th,· S1Jnal Ih·111orra1..- l'ar11· (SIW); .-\\\'S: thl' .-\ssonallllll or \\'11rk,·r, 111'Slm·aki:1. :I l.l'h
splil•llff fro111 ill<' ( :11111111111,"1
l'art1· ah,·r n, rusion w11h the Sill',

Marrh 199/J

l'DS lti.'.l
SPD '.!l.H

I.,;, l'DS: l'anr ur tlu· lklllllCI al 11:Sunalist,; Sl'D: Sonal D1•11llJrtSlllr l'a, 11·11r( ;,-rm:1111'.

Democrauc and liberal, arc less successful tllan tile parties of 1Jw former
Communists.
This chapter will allempl Lo explore the policl' dvnam1cs or 1he trans-
fr>rmed C:ommumsl parues by cxammmg thn:e wp1cs: lirst, the possihie
reasons for the ex-Co111111ums1s·current strength; thl'n the general cm·1-
ronmcnt 111which the cx-Commu111st parucs ha,·c found tllL'mselvcs 1111hc
first hair of the 1990s: ancl linally, the wa\'s 111 wh1c11the panv ieacft'rsl11ps
have sought to respond LO this cnvirunnH~lll \v11h policies which will
strengthen - or ,11 least not weaken - t11ctr bases of support.
:-\Jtcr looking gl'ncrally al the evolution or the Lcrt throughoul Lhc
region, we will 'then attempt Lo exammc more cioscly the politics or Lhc
four mam post-Communist socialist panics: the Sociai Democrats of the
Polish Republic (SDPR), which 1s the mam successor party of du: Polish
'Communists' (the Polish UniLcd Workers Partv); the I-lungaria11 Socialist
Pany (I-ISP), whH:h 1s the main successor pan,· or the I-Iu11gana11
'Communists· (llH: Hunganan Socialist Workers Panr): the Bulg-;1r1a11
Socialist Panv (BSP), tile successor or 1hc l\11lgana11 C,11111m1111s1 P,1ny:
and the Party of Sona I Democracy of Romania (PSDR), the mam suu-t·s-
sor party, via the rn1uai National Salvau1111 Front, to the R11marna11
Cnmmurnst Pan,·.

I S~urces of Comparative Strength of the Post-Communist Socialisl<;

There arc widely cli\'crg-ing opmions as to wh\' the post-Communist sonal-

1sts have become so strong-. Some hold that thcsl' panics, al least in the
Visegracl n1u11lncs. were more or less ll'lpcd oul in the so-callL~d
Revolut-iu11s or 19:-;q and lhal tlwir res111-r,x11011·1s the result or protest
voles agamst 1hc parnfui costs or 1r;111s11w11
10 capitalism combined with
moods ol' nostalgia for the sccunl\' or the ( :ommumst pasl.'' The 1mplica-
LI011 of' sucl1 a \'IC\\' 1s that the post-Conrn111mst prolesl vole ma~· fade in thi:

future. Al tlH'. oilwr extreme, some anai\'SIS argue that the post-ConunuuisL~
arc stron!.{ because the basic structures of the oid Comm11111st states
t11roughout UH: rq.{IOll ha\'c been changed only supcrfic1ally. 1; The impli-
cation of tl11s vie\\' is that unicss there 1s more dg-t,rous western poliucal
intcr\'e1111011, aULhor1tana11 pos1-Comm11111st n·g1mes will he consolid,11ecl
through most or lilt' region.
Both these opposl'd dews share the li>llu11·111g 11"1dclyhdcl assumptions:
that the ruling- ( :0111111umstparut·s had 11egligihle popular suppon 111 thc last
phase or ColllllllllllSll1; that tht: substanL·e or the collapst: or 1~)89 \\';IS a
revoll by the ·people. nr Cl\'il societv· as a more or kss homog-eneous group
ag-amst Lhe (Co11i11nm1st) Stale; and thal lhesc socieues wert: not s1gnili-
ca1nlv polansed between left-wing- and right-wmg te11de11cies.i Such
ass11111puons were. or courst:, a product or the dommant paradig-m 1n the
lielcl or Sov1t:t studit:s: totalitarian tht:OI'Y, \'1cwmg- Commumsm as a state-
repressive svste111 or manag-enal control w11ho11t soe10poliucal roots. The
mitial but ephemeral appear.met: or a11u-C111111numstcoalitions calling
thcmsdves Ct\·1c fronts or various kinds 111sonic co1111tnes seemed to g11"e
substance to these preconceptions. The collapsl' of 1~lX~Iwas t 1111sprl'co11-
ct:1Yed as a popular a11t1-s1;1t1stren1!11111>1ianri analvs1s or lhe poliucs 1>f
tht: regmn was tlwn largely ass1milate<I t11 a supposerll\' gennal lil'lcl or
transitions from dictatorship. The 1111Ualelectoral strength or tht: pos1-
Com1m1msts was \'1t:wecl as ephemeral and there was an expectauon th;tt the
poliucal forces that had been linked lO the prcnous reg-11nes would smk
w11ho11tt:lectornl tract: as thev did in, for exam pk, Southern Europe Ill lhL'
1970s.
The subsequent l'kctoral e\'ldencc or co11um1ecl ex-Cummumst strength
thus leads those clc1ern111wd to suck lo the paradiµ;m to\\'ards the \'tc11·that
the 'ren1ltt110I1 · or ·u\'il sont:t\' must havt: been superlinal:
0
C:rn11111u111st
stallsm has bet:n alite to Slir\'l\'c the 'rc\'olu11011 throughmn most ul' the
reg-1011.Others ha,·e stressed conting<.:nt (and tints pnhaps tcmporan) fac-
Lors bdunct the re\'l\'al: backlash pnlll'Sls ag-a111sttlw hopcf'ully 1emporarv
hardships of Shock Tht:rapY, nostaigK proLL"SI\'otes liir lhe old security. or
the inilial nghL1st rt:_Jecuon b\· \'olers or the 11on-Commu111s1 Social
Dt:mocrats aftt:r 19H9.
Blll there 1s a simpler solution Ill this puzzll' produced lw the prt:co11cep-
uo11s or totalitarian theorv: ll 1s that the sonalist consu1uenc,· inclined to
suppnn lhe Co1111m111istshas bet:n l;url\' su·,111g. th1H1gh i11 tht: Visq;rad
rountrit:s mmonlanan. throughout both 1lw I ~JHOsand the 1990s.
 l'Ol.rrrc:s IN Tl-IE (;l.Oll:\I.IS:\TION l'ERIO])

Tfu, Ig11orNl Sonafi.1·;l~ll'l'lomt,·

Opinion surveys during the 1980s 111the Viscgrad c0111nnes and the GDR
showccl tl1al s1gnilicalll minonucs or the popuiauon supported the ruling
parties. Even in Poland after the unposiuon or maruai iaw, polls m I 98-1
showed that 25 per Cl'Ilt supponed the Communist Party leaclersh1p, 25 per
cent were hostile to IL and 50 per cent either had no opmions or did 1101
wish to express them. 8 Funhermore, the 25 per cent support111g the panv
tended to hoid socialist sooal vaiues, pan1c11i.u-tregalitanal\lsm and support
for nationalised propertv, while those hostile tended lO he a11t1-<.:galitanan
and in favour of the free market: Polish society was thus politically polarised
on a Left-Right basis, with the PUWP supporters occupying the Left. The
same poll evidence shows llli\jorities or the population supportmg various
cenu-.11aspecL~ orthe social principles of state sodalism.
Similar evidence is available for neighbouring countnes. From I 98fJ, com-
petitive elections were taking piace 111Hungary, and these demonstrate that
as late as 1989, the Hungarian Commu111sts were g-a111ing30 per cent or
more or the vote 9 and such votes were indicative of support for iert-wmg
political and social values.
Polling 111 the GDR tells a similar swry. Polls conducted there between 20
November and 27 Novemher, I 989, showed the SEO as hav111gthe largesl
percentage or support or any pany - 31 per cent. 10 In C:zechosiovak1a,
polling in December 1989 showed m,~Jorny support not onlv for sooalised
property but for central plannmg. 11
A h1rther very 11npor1anl lea tu re or political developmenL, m the late 1980s
and early 1990s has been the survival of the official unions of the state soc1ai-
isl period as the dom111ant u·acle union conli:derauons durmg lhe lra11s1uon
to capHalism. 1~ :fhey did so despne concerted efforts 011 the parl of govern-
ment, of the Right and or western bodies like the ICFTU and the AFL-CIO to
weaken them. In Hungary, the main trade tm1on cenu·e, i'vISZOSZ,reiamed
some 3 million or iL~4.5 million 1988 membership Ill 19~)I. 1:1The Polish ofli-
c1al umons, OPZZ, emerged w1lh '1.5 million members in comparison wi1h
Solidantv's 2.'.1 million members. The same pattern emerged 111
Czecl10siovakia where the 011ic1alJi:derauon, CSKOS, predommateci. 1•1 In
Bulgaria the ol1ic1ai umons faced the most serious challeng-e with the emer-
gence or an m1ually strong new union centre, Poclkrepa. But tlus challenge
aiso, later, faded. After rising from about '.\50,000 at the end or 1990 to over
600,000 at the end or 1991. Podkrepa s membership declined to about
225,000 bv the stan or 199'.t The old oflic1al federation's membership also
declinccl, from 3 million at the encl or I 9~10LO 25 million al tile end of I ~J\ll
and only 1.6 million al the end or 1992, but 11.~ dominance w1tl1111the trade
umon lield was mamtamed. In Romarna, the orlicial unions also remained the
su-ongest althougll they fragmemed inlo competin!-{ centres in the earlv I 990s.
 TIIE J>os·1~0l~l~IUNIST l'Alff!ES IN Tl-IE E.-\ST

The ortic1al unions or the Commun 1st penocl thus turn om not lU have
been nicre transm1ss10n belt.s for a ·w1alitaria11' state without a sig11ilicaul
social base; there was a substantial trade union consutuencv remami11g in
these org·,1111sauonsto be won by parues orthe Lef"tif"they were prepared to
onent IDwards 11. 1''
Ir, then, there was a core socialist eiec1oratc or '.:!5per celll or more at the
time or the rq~ime s collapse, the su-m1g showmg or these panics during the
lirs1 pan <>I"the 1990s as the su·ougest parties on the Left 1sscarcely surpnsmg.
Indeed, the puzzle is why these parues did 1101 do much heuer in the first post-
1989 elections than they did - whv their rntes were lower in the GDR and the
\'isegrad zone than polling e,·1cle11cefrom the 1980s would ha\'e su!4ges1ed.
One expiana11011 could be that erstwhile Commu111st supporiers were tem-
porarilv swept up in the wave or enthusiasm for a tra11s1tulll to capitalism in
1989-90 and switched thcll' support 10 the parucs or the free-market Right.
This docs seem to have been an important factor in the CDR elecuons of
n-larch I mlO.Polling m earlv 1990 showed over 60 per cen1 of' tile GDR elec-
torate hokling social dcmocrauc or soC1alis1.poliucal and social opinions and
yet Kohl's campaign promises swung a ()lg m,1jorilY for the Ri!,!;IHprecisely Ill
the lracliuonai sociai democratic Saxon strongholds, lcavmg 1hc post-
Commumst PDS with onl\' l 1-i.'.\per cent and tile SPD wJLhonlv 21.8 per cenl.
On the face or it the same effect seems to have operated elsewhere. In
Im)() and 1991, opm10n polls showed large m,11<mlles 111 favour or so-called
'market economies' in Poland. Hungary, Czechosiovaba ancl Bulgana, wi1h
a m,~Jont.v 1he other way onl\' in Romama. Tlus suppon had dropped mas-
s1vciy bv Hl9-l ( except in Romania where there was a reverse trend)_ lei
But this endence or enthusiasm l<)r tile market among large pans or the
electorate docs no1 cxpiain why the still large mmtmues hostile to the 111tro-
d11cu011 of' the capitalist market did not f"ullv turn out for the
pos1-Communis1s. The reality is that there were large munbcrs of' absten-
tions. Indeed. these were so iarl-{e tlla1 man\' or those who toici pollsters
the,· favoured a market econom,· must have dec1cled 1101to ,•otc. In the
1989 Polish dcctions. less than 50 per ccn1 or the electorate voted for
Soliclaritv: the turn-out m this 11rst compelll.ivc election was low, wnh high
levels orabsten11011s. In 1991. when the first full Parliamentary elections in
Poland were held, total turn-out was ,13 per cent. In the 199'.\ Parliamentary
elections both the turn-out (5'.:!per cclll) and the vote for the SDPR went up
substant1allv and detailed analvsis has shown tha1 1h1scorrelat1011 was central
10 the SDPR's success. 17 Panics or the centre and right 111 Hungary also
failed 10 gai11 support from o\'cr 50 per cent orthe cle~toraLL' in a low turn-
out and the pan,· calling fairly explicitly for free market cap11alism, the
Alliance or Free Democrats, gained oniy 21 per ccn t of those who \'Otecl. In
Czechoslovakia, the Civic Fon11n did not campaign 011 a free market pro-
gramme m the 1990 elections.
 l'Ol.lTI< :s IN Tl IE Cl.01\:\l.lS,\TI( JN !'ERi< JI)

A 111on..·likcl\' cxplanauon 1s LhaL Lhc post-Cmnn1L1111stpanics' suppon

ll't'IIL clown Ill 198~)-90 bccausc Lhcff earlier supportL'rs 111 large 11u111hc1-s
decided not to 1•0Lcat all. This cxplanauon is remlim:c<l Ill' thl' facL that the
posL-CommunisL panics that gamed the smallest l>l'ITL'lllage or tile ,·otc
were Lhose of"Poiancl and Hungary- thc Lwocou11Lnes 1d1cn· electoral par-
uupauon was lowest. In I-Iu11garv, 0111\'08 per cent or the l'IL'noraH· turned
out and the ligun.· was roughlv the same Ill Polanrl - hardly. bv Llw wav. a
sign or a popular rcn>iulion for rn:t·dom agamsL 'Totalitana111sm The
high abstentwn raLc Ill Polancl and I-Iung,11"\"suggL'sts another puzzle: why
was ll that 111thc onlv two countncs where tilt· ruling Comrnuntsl Panv
icaclcrshtps took autonomous decisions (in fl'hr11arv 1989) to lllO\T
towards pluralist dcmocrauc political systems, ;111dwhcrc thev had been
campaigning for years for 'markcL reform', did tlw Comrnurnsts perform
worst or all thc Communist parties Ill the rq-\"IO!l?Ir the grcaL ISSllt' or these
clccLions was freedom (and the free market) ag-ainsl t.otaliLarianism, whv
did Lhese two panics perform worse than Lhe LWoparties Lhat rcs1sLcd
democrauc chang-e and the market - the East Gcrma11 and Czcchosio\'ak
part11:s?1~
This pomts to lhe possibility that Lhc poor pcrfonnauce or the Polish
and 1-lunganan parties had nuthmg to do with frl·t:dom n·rsus totalitarm11-
1sm, lnll was linked Lo another reature that dist111g-u1sl1t:dtheSl' two parties
from the Czechosio\"ak and East German parues: the fan that their part\'
leadership~ had for some years been ,·i)-\"orousi\'promoting polincs wiuch
Lemlecl to contradict the socially egalitarian 1deDiogics ofthc1r parties, poli-
ues or increasing markeusauon and rncrcasmg soual cliffercnua1ic111, with
IIHTeasm)-\"lY negau,·c effects on those sections of the pop11buon in whosc
name thev ruled: policies which were not bclll).{ prDmotcd br tile
C:zcchoslo\'ak· and EasL German parties whose cco11om1cs were more suc-
cessful under centralised p1anning. 1!l
E\'lclcnce from the results gained hy smaller parucs m till· Hungarian
clccliuns tends to con!irm tills view Lhat the 1-ISP's low \'Ole was paniv the
result or its pro-markel oncntalion. While the I-ISP gained 10.9 per cent or
the vote a furthe1- 8.8 per cent ofwites went Lo small panics, 111a111lv further
to thc l.ef't on the issue of markeusauon. The I-ISWP gamed '.t7 per ccm, but
more s1g11ilicanl 1s Lhe fact LhaLa group ol'Agncultural Technicians stood 011
the smgk issue or opposmg the break-up oragnculwral cu-operatm:s and
ga111c<I'.t~ per cenL of"the vote; linallv, some local poliucal leaders from the
1-1S\VPdavs stood separatelv from the I-ISP as a network or local leaders and
g-amecl I.~) per cent.
Research on all th<:sc issues still lll'CCls lo he u11denakc11. \\'hat h,1,;
l)ccn 'offen:ci here: 1s nothing more th,m a set or hypotheses based upon
somt' em pineal pomters. But IL would n:r1a111h· expl,1111the rather general
rev1\'al of the fortunes of these parties as tht' 1~)90s prog-rcssed: their ic\'els
 TIIE l'OSH:0111~lllNIST PARTIES (j,; Tl-IE J•:.-\ST

of support wen: rcturnmg to the Lrencl of'tlH: 1980s. r\11rl t hev did so despite
sm.:m111us efTons bl' ,11ll1-C:OJ1111n1111s1 parucs and the media to clelcgitimisc
them. IL wo11id also suggest another concluswn: tl1at a s1g11ifica11Lminority
of' dectoralL'S ma,· hal'e helcl social \'alucs Lo Lhe lef't oft he posL-Communist
p,trtl' 1cadersl11ps and mav inrlLTd still do so.

Table 11.2 Communist P:irly Trnnsforma!ions

Oltl Xum,· I !air o/ (:!,,,,,~,-

Polish ll11m·cl Workns Sona I Democrats 111'the

Polish Rqmhlic
l-l11ngaria11S1>cialist Workers Sep!. 1!189 I-I1111gana11
Socialist l'any
Bulgarian C1>11111111111s1 .-\pril 1990 Bulg;1r1;111
Socialist l'anr
Y11goslaYLl'aguc of' ( :0111n11111is1s Fl'h. I \!\JO-
Pan,· hroke up
Allia111a11\\'orkl'rs .J1111c19\ll :\lha111a11 S11c1alis1 l'art,·
Romanian Co11111111111sl Jan. l!)!JO Nat1011;1l Sah·;tt1011 Front
Nauonal Sal\·;1111111 Front ,l11lr !\)!I:\ Pan,· of Ru111a111a11 SI)
Socialist U1111r ((;[)R) Fch. 1\190 Pan,· of lkmorratll' Len
Slo\'ak Crn111111111is1 1\)\)1) l'an,· of Dc111ocr;111c LL'l'I
i\(011(\'llCgTo lmll D1·111on;1t1C l'.irt\· 111'Sodalis1s

i\ka11while lll what, 111a bro.id scnse. lll,l\' be cilkcl Lhl' Balkans, the post-
Com11111n1sts tended to cmeq{e from till' Jirst electHJllS as tile strongcsL-
parlles. This occ111Tcd in Romania. Bulgana, St·rl11a. i\lontencgrn. and latt·r
,-\lba111;1.~11 These m1ual sucn:sses were not JJH>lllL'lllarv: these panics
re1a111ecl strong suppon even if thl'.\' were, Ill Bui~an,1 ,llHI .-\lhania. subsc-
qucntl\' 111go 111LO opposition.

Tl//' Fat,• of //11•No11-C:011111111111si

Soc,(I/ J),,111u1Ta/il'Pari11's

Some h;in· suggested t.l1at Lhc pnnctpal cause post-Communist or strcngLh in

Lhc Viscgracl zo11c lav m mistakes 011 the part ol' thl.' independent sonal
dt:lllO(T,llS.:!I
In most 01· the n,111llrtes of 1he rcg-m11 1Hm-C:011un11111s1 soc1alis1s created
new Social lk-n10crauc parties. hacked initialll- liv tlw Sonalis1 l11tn11at1011al.
111Pola11cl aftl'r some false starts Lhe 111,1111 such gpn1p L'llll'rgcd from
Solirlantv ,111ctwas callect llH' Linton of' Labour.~~ 111C:zcchoslm·akia a Social
Democratic Part\' was re-cslahlishe(I. This then di1·Hted 111to a Czech and a
Shl\'ak pan,·, resp<xm·clv the CSSD ancl thi: SDSS. 111l-lu11gan· a s11nilar pany,
the 1-Iunganan Social Democratic Party, was fornie(I. Tlw Slo\'elle Soda!
 1'0I.ITI( :s IN Tl 11·:Cl.< 111.-\I.IS.·\TION PERI( >ll

Denwcrauc Panv also cmcrgccl ancl similar small parties were crt'all'cl 111
Bulgana, Albama and Romama.
All these parties swffllv gamccl politJCal support from Lhe SI. The ( ;nman
ancl A11stnan parties were parucularly acuve 111 ensunng linannal support
for these groups as were the fn'.nch SonalisL'.!:IJt was not um1sual !"oralmost
the cnurc funds or L11cscpanics w be s11pplicci from the West.:!·I
'\ct except in two cases - the Czech Republic and Sloverna - as well, of
course, as 111 unified Germany- these parties l;_lileciLo compete successliillv
with the post-C:ommurnsts for leadership of"the Left. They gamed between
0.1 and 7.5 per cent of the votes. In most cases thcv failed 1111scrabl\·.The
reason for this is not obvious: standard accounts or popuiar re\'l>htllon
agamst Communism would lead us to expect the opposite.
Some have suggested the Social Democrats failed because their names
were tainted by their h1stoncai ancl 1cll'olog1cal links with Comm11111s111.:!:,
This would exphun why they dicl11't get votes from the nght-wmg electorate,
bm it docs 1101 expla111 thear faihtrc with the icft-wmg sen1011 or I l1e t:lcc-
torate. Others have suggested an J11stonco-culllaral cxplanauon: lhat social
democracy was histoncallv 1mponant oniv m mter-war Czechoslo\'akia and
therefore there was no cultural 1racliuo11 elsewherc.!! 1i This may lw true or
pans of the Balkans but it ignores the dominance of t111st.racliuon 011 till'
Left in both inter-war Poland and Hungary. It also excludes the possibility
that contemporary poliucal acuv1tv can play an important roie 111 the con-
temporary politics or the region.
A more stra1ghtfonvard explanauon 1s that these parties failed because
they made no serious appeai to the socialist section of' the electorate we
identified above. Many orthese parties simpl)' stressed the free market pro-
gramme which the \Vest European Social Dcmocrnllc parties were aq~u111g
for wllhin the·region in the earlv 1990s. The western sooalist panv leader-
ships tended, so to speak. to put na11011before partv in external policv
to\\'ards the East and to 1ns1stupon support for a thoroughgoing free market
transformation combined wllh a strong anu-Commurnsm 1n East Ct:ntral
Europe. Arguing l'or pulincs that cntailect first dismantling thl' egalitanan
and welfare arrangements to builcl cap11,1lis111 so that one couicl later con-
struct welfare capitalism seemed dismgenuous. These policies wtpl·<I inn
Lhc Social Democrats in the Balkan zone allCI in Hungarr.!!i
In Poland, on the other haml, Lal)our Soliclanty, which later became the
Union of Labour (UL), emerged as a left-wing opposition to mamstream
Soliciantv's nco-liberal Balccrow1cz Plan (for Shock Therapy). It raised 1·eal
issues of concern to working-ciass pcopk agamst Solidarity-ongmatmg gov-
ernments. It also broke with the Catlwlic connectwns ol'Solidarity and the
Demdcratic Urnon, v1gorousl)' championing abonion nghts 111 199'.~while
the neo-liberals 111 the Democrauc UnHm sought to appease the Church
hierarchy on the issue. As a result orthis acuvit>', UL gamed a genuine base
 TIii·: I'<1s·1:cc1;o.l\lLINIST l'AlfflES IN THE EAST

on the Leh 1111lw l 9~l:~t·ll'ct1011s,polling 7.,\ per cent. A1 the same ume, this
kh.ist t>1'rrinlat1011
l\'as n>mbmed wnh anu-Commumsm. Thl' Cerman Sm:ial
DemolT,llic leaclersh1p suppnrll"fl UL financially in the hope that the nrgan-
isauon could be usecl 10 split the Polish e:x-Cornmu111sts. A prominenl
pos1-Co111nu111islintelleclllal. L11nentow1cz, \\'as drawn m·er LO the pany and
effons were made to open a split wtth111 the post-Commurnsts between
Cz~·moszcw1cz ancl Miller by prcsentin!-{ the latter as an unreconstructed
C:omnHm1s1. However, these tactics failed and 111s1eaclUL iLsell'was split in
the 19~)5Pres1denual ciecuons, as Lamcntowicz was expelled for supportmg
post-Commun1s1 leader Kwas111l'wski'scancliclacy while other ieaders ol' the
LIL campaigned on behalf or Democratic UnHm candidate Jacek Kuro11.
The result was that the Ul.'s own candidate rcce1vecl negligible suppon.
But non-Communist Suc1al Lkm(l(;rats did succl'ed in otJL--clistancmg 1he
post-Communists 111two countnes 111the rq~ion: the Czech Republic and
Slm·enia. Tht· Slm·e11e ci\'nam1cs w<..Te!{O\'erned bv thc hrcak-up or
Yugoslavia. While the Yugosla,· Lc.igue orComnmmsts was the b1gg-l'stparty
m the April 19~)0Slovene elecllons, us support e\'aporatecl Ill the Slowne
dnve Lo seccde from Yugosla\'1a: the Slo\'ene Social Dcmocrats became the
dominant Left party on the basts or a strong na1wnalisl appcal.
The really s1g11ificantexcepuon to the paucrn outlined above 1s Lhc ( :zech
case, and it tends to confirm lllc c:xplanauon offered above for Lhc failures
of social democracv elsewhere in the region. In the Czech Republic the
Soctal Democrats miually gained only-1.l per cell I of the \'Ote in.June 1990
(agams1 the Commumst Party's I ,~.0 per cent). In the June 199'.!clecuons
the Soctal Democrats' votc rnsc to 7.7 per cent (while the Commumst Pany's ·
vote also rose to 1-L'.1pn cent). B11t Ill thc 19~16elccuons the Soual
Democrats dcos1veiy cstablislwd themsei\'es as tht'. dommant panv 011 the
Left, ga111mg-'.!6.,J,J pcr cent or lite ,·ote against thc Czech Co111mu111s1s·
l(J.:1'.1per CCIII.
The th rec crucial factors III thts transformation were: Lill' cleos1011 orLhl.'
C:ommurns1 P,1nv not 10 seek to occupv Lill.'cctHn·-lert ground by trans-
fonrnng 11sclr i1110a soc1,tlist part\'; tile dectstoll bv the .Sona! Dcmocra1s to
make a lertist appeai to llw elec1ora1e; and the capanl\' or !Ill' S0C1al
Democrats to es1ablish ,tscno11s track· u111on base. Financial suppon from
tht· \\'csl or course helpecl: 111cparty was funded from top 10 l)oUom from
the \Vest. But without the other Eictors. the mone\' woulcl havl' been useless.
The decli11c III support or thc Czech Communist.~ was not only the result
of their contiuucd adhesion LO the Communist tradition: 111cleed,after 1990
1hc1r support actuallv rose ancl 111 iocal elections thev gamccl almost 18 per
cent or the votl' - the i11ghcsl \'ote of any Commumst Partv in cominental
Europe m the early 1990s. Bill 111199'.1the Communist Part,· was 1wc11br
mternal conllict, which turnl·d the party mwards and 11wolved hmh the
c:xpulston ofa nco-Stalinist group ancl the clcfection ufg-roups 011thc party's
 1'01.ITIC:S IN TIIL t ;1.011-\1.IS,\TIOi'\ l'ERIOl 1

Rig-ht. The m;qori1y forces 111 1l1e panv were al tlw same time 1111ablelo
de\'elop a coherent strat(:gic 1dcnllLYfor the part\'_'.:?:-;
At Lhl' same tune the Czech Socral Democrats were able to prest•IJL lhem-
sclvcs as a serious groupmg tu the Left or the lll'o-liberais. III I he lirst plan·
thev recnlltl'cl till' tTOIHlllltst Komarek. Klaus's boss heforc thL' \'cln·r
Rc\'oluuon, wbo becarnL' a hrn1sehold name 1hrouglto11t the co11111n·111
I ~J~IObecause or his eco11on11c reform 1c\eas aga111s1the ( :ommu111s1s a11cl
\1'ho LiH:11cntic1seci Klaus's neo-liheral eco11omtc idcolog•· 111a dctaikd.
well-informed 1\'a\·,offering lus own aiternall\·e er1111omtc stratq.,'Y. This w;1-..
umque Ill the region: tlw best-known 11011-Communist c.:ro110m1cexpert.
with 11np1.·ccabll'political crcdcntuls, offen11g ;m aut110n1a11n· ;1her11atin· ltl
11c11-liberalism.
The second 11nportant achievement or the Social Democrats was their
ahility Lo develop rnll11e11ccwnh tile former ol'liual trade u111011n111lerler.1-
L1011. (:SKOS, thrntt!,{h ii strong Social D1.·mucrat11.:represc11Lat1011 011 11s
lt'aclersh1p. These links were nt> doubt strengthen eel h\' the ass1s1a11cegiven
to CSKOS by thl' Germ.in 0GB. These advantag1.•s were consolidated \\'hell
Zeman took un·r the leaclcrsiup of the panv and swung Jls polic,· mon· to
the Lcf't.
A f"unher factor in the Czech case, reinli>rcmg- all the otiH'rs, \\'a~ llll(louh1-
edh· the cotmln"s geopoliucal ancl i;eocconom1l· em 1ronnn·111. \Vedgl'd
0

between Vienna ;md Berlin, the Czech Republic has receiyecl \'Cl"\' strong sig-
nals from the c.;erman government that IL heads the queue for rutl
ll)tegra11011inw \Vest European structures. And i1s highly skilled work force
,111dadvanced eng-meenng- tradi11ons combine wnh us _l{eograph1cal locatmn
lO ort<:r lls populauon the hope oL, suhsta11ual nse 111 livmg standards Ill 1111.:
future .. -\II these circumstances combme Lo g1\'e pnde ofpbn: to a lcf't-wing
politics wl11ch 1s pragmaucally focused upon specific quantitative problems
facing working-class people such as the Social Democrats offer.
8ut !l 1s also wonh noung that the iargc increase 111 the ,·me or Ille Czech
Sonal DcmocraL~ 111the I 99fl elections was 1101pnndpall\' as a result of
taking n,tes l'rnm the C;,.ech Communist Pan\'. fl w;1s 11111d1 mon· 1h(' res11l1
nl' w11111111g hack from centrist parties that larg-c pan of tile C1.ech socialist
constituency who had been drawn towards the centnsts or who ha<I
ahs1a11wd 111 the I 990 and I 99~ dcclmns.~'•

II The Environments Confronting the Post-Communist Socialists

The most basic crn-ironmental probiem for the four parties we will discuss
has been the terrible economic slump that hit their eco11omics ;1l the stan
ol'the I ~)90s,connected to the collapse of Comecon trade and pan11C11lsnet-
works, 1he break-up of the l 1SSR. the debt b11rclens and li11;111c1al
crises of
 Tl IF. 1•os·1~(:( J,\I\JU:--:1sT l'Alffll•:s I:\ Tl IF E,\ST 271

thr.: rcg-m11. a11ci thr.: sl11rnp-dt·epen111g dr.:mands or 1.hr.: l11tr.:rna1io11al

Fina11ci;ll lnsutu11011s (!Fb) rdll'c1111g the goals or western g-1n·cn1mc:11t:di.H'
1lw n:g-wn.
The L'co11om1c t-r1s1s llas hc:en most severe a11<1protracted in Bulgaria,
which had n:I"' s1rnng cco111>1111C thl' USSR and had to <lefaull on
li11k~11·1111
its 1·en· heavy deh1 repavmc:11Ls. The countrv n•m;uns 111a pn,limnd dcpres-
sull1. The Hunganan economy has been rccm·crmg from the slump very
slowlv ancl 11s debt problems arc scvcre. Both the Polish and Romanian
CCClll<lllllL'S haw· !lt.'cll grow1ng SIIKC J mi:-t
\Vithm 1l11sgl'lll:l'.11 C:OIHL'Xl. till: st;1tcs or till' region raced 11\0l'L'or lt·ss
sc1·cn: resource cr1scs 111the form or chronic ;md acute fiscal problems and
del~t rcp;1vme111 clillicultics and kw oppnnu11111c~ for tackling t!Jcsc problems
through borro11·111gon p1wate capnal marke1s .11home or abrnacl. Roma111a
had paid off its l111t·1g11 debt in the 191-lOs,but faced acute shonages of hard
nllTL'lln' as wcll as huclget clilficulllL'S. Poland 1,·;1s111rn1ud\'g11·e11a laq..\c pack-
;1ge oJ nel>t f'nrg-1,·L·nL·ss a11d, romtmH:cl ,1·1th tT1>1101111c grow11J. 1h1s has givl'n
thc parucs or tl1e Lel't in g11,-er111nc11tsumc ru()m for 111a1111cunc.But both
Bulgaria and Hungary havc (;icecl more or less ctinunual li11a11e1alcnsts.:m
Sol11LJ011sto many of' these problems could h;1w been farilitalt'.rl ii' the EU
had ope11ecl !ls m:1rke1s w1di:lr fur lllt· reg-,011 s exports. p;ll'IK11lari)· the
exports of its mure ach·;mct·d mclustnal senors. 1\1111hc gonTnme111s ol' the
EL' had no economic 111ten:st m taking such a stcp agamst a background or
l011g-tcrm stag11:1uo11 and saturatcd domestic markets w1thlll the EU com-
bi11cd w11h i11gl1 icl'cls ur u11employ111e11t. At till' same lllllt', the cc.:01101111C
a11clthe statc li11a11c1alcriscs gan· the wcstcn1 powers a qunc cxtraurrlinar~·-
de~rce of k1·eragc m·cr the g·o1·t•n1ments of' Lill' rq.?;1011:thev ccHtld clcn\' µ;01·-
t·n1ml..'.11tsaccess to li11ancc a11cithL"\' Cllltld dl'n\' 1hem a track subsu11llt' for
Comt·co11 stmph· hr ma1111a111111g the Coid \·\'ar embarg<>l's usccl ll\' the EC
against thc Soviet Bloc.
This leverage was placed 111the sernce ol".111o:ln.'.meir amh1um1s \1'(•Sll'.rtl
c1111p:11g11 l'or tl111ro11ghgo111gson:ii cng111een11g w11h111thl' n·g1011 Lo cs!ah-
lish a 11ew social regime: the rt·placc111e11t of' regimes of strong sonal and
cco11om1c pro1en11m m these n.iuntnes with n:g1mes wHh less social protec-
11011tllan. sar, the LIKand w1tll a g-lob;ilised' i11su1111io11ai l;1n· to till' outside
world. 111other words an cXLITlllL'f'orm of' open door for products and capi-
tal, including 1101.slinrt-term moJIL'\' llows. These rL"gm1egoals were gwcn the
lahcl mad,L·t t't'u110111,·· hut wt•n· 1n rcalit1· ge;1rt·cl 1mv;1nls ensunnµ; that
tbl'Sl' eCl>llollllt'S occ11p1ccl s11b1>rdin;1te pbcl'S Ill thl' pro1n1ecl ne11·
European 1111t:rna110nal cli\'ls1ll11 or labour. Tht· g11~cll'li11eswerl' mainly
dc1wt:d from US tactics smce the I 9H0s for reorga111s1ng mternational eco-
nonuc rclauons 111wars that 111ax1mallv favmtrl'd their own capllals. The
Sm·tcl tTISIS a11cl lllL' Cllilapw Ill' thl' stall' suualist l'l').!;illlL':O. l'llOrmouslr
eniiann:rl tlus cln\'e lw disorrt·111111gall(( clisor;.r1n1s111gthe I .eh 011 ;1 global
 1'01.ITICS IN Tl-IE c.a.On:\l.lS:\TION l'ER[O()

scale. In such condiuons, the USA, backed hv the maiu 'v\lesLEuropean states
(though wnh a partial and hall~hearteci auempt at resistance bv the Frel1ch
government) i'clL able lo attempt to impose this programme on the East
Central European states 111 the midst or then- cns1s. The campaign 1111ually
sharply exacerbated the economic 1.:r1s1s. Urns strengthening liirt.her western
leverage.
ILwas an agenda that offered very handsome 1·ewarclsto those wnh111the
region with access to capual or with tile possibility of partnership with west-
ern capital; but ll tended to make losers or the m,~jonty or the pop11lauo11
and to 1mm1seratc significant minorities. These laucr two groups were. of
course, the natural constituencies of the socialist parues. From the point ol'
view of US strategy therefore, the post-Commumst parties were bound to be
a potenuai obstacle and vigorous efforts were to be made to weaken them.
But these global regime goals promoted especially by the US and the !Fis
were potentially modified by the geopolitical interests of the mam Wt:sL
European states. From the start or the transition to capnalism, the Visegrad
countries could hope LO enjor some gcopoliucal advantages over their
neighbom·s to the East and South: the1r lncauon 011 Germanv's eastern
periphery meant that the German government was interested m drawmg
them firmly under German inlluencc (mamiy through EU mechanisms).
This oikrcd the hope that for Germany a modicum of stability 111 these
countries would be essential and coulct override the general regime goais.
Slovenia and Croaua aiso hoped Logain from German lixe1gn policy by sep-
aratmg from Yugoslavia, but for Croal!a these gams were postponed by the
war. Poland could also exploit lls great geopoliucaJ importance for the USA.
As far as Romania and Buigana were concerned, thcr imtiall\• lacked
much geopolitical 111terest for the western alliance and durmg 1990 the
latter took an especially Lough line towards them. But tile development or
the Yugoslav war (as well as the resurgence of Grct:k-Turkish rivalry) has
given Bulgaria an mcreased poliucai salience and Lhe western powers were
Losoften their stance towards 1t in what might be called the field of symbolic
poliucs. Romania, on the other hand, has remamecl to a large degree in
mternauonal polillcal limbo, despite some efforts by France to sponsor it.
Against these backgrounds, the domestic political agenda was more about
'stale refouncling than abolll what 1111glnbe called ·normal poliucs' The
issues were: wirnt kind or social principles for the new state and economy;
what kind or institutional su·ucture for both economy and state; what ltmcl
of constitution, poliucal system etc. .Bm above all, what kind of ciass struc-
ture and what composmon orthe new, emergent capnalisL ciass.
In this complicated environment all parties were seeking Lo !incl ways or
enhancing thell" own legitimacy and authorny, principally through gammg
amhoritative approval from the \\lest. Herc, the most 11nportant source of
support for panics to the Lcft-ol:centre was the Socialist Intcrnatmnal, but
 TI-IE J>os·1~co~Il\lLINJST PARTIES IN Tl-IE I·:.-\ST

during Lhe lirsL live wars of LlH.' LransiLion only Lhe I-ISP could gain minimal
recognit1011 from LhaLquaner I)\' bcmg g-ran ted observer sLallls 111I \}9'.2.On
Lhe other hancl, Lile e\'olution nr the PC! 111 ltaiy was a powerful indirect
source or inspiraLion l'or manv 11ncllccn1als from Lill"cx-Cmnm11111sLpanics,
as it Lransli.mnccl itself in 1989 illlo Lhc PDS and soughL full inLegraLiun in Lo
Lhc SocialisL lmcrnaLJonal.
These environmental condiuon1-; were Lhus exLremelv dil1iculL for any
governmcnL 111Lile cou1nries concernecl and 11ea1·-caLasLrophicfor govern~
menls of the Left. In a cliffcrcnl 111Lernalional cnnronmcnl Lheir behaviour
would undoubLcdlv have l)een verv different and ll 1s not casv Lo disLin-
g111sh Lhe endogenous policv 1mpuises wllh1n these parlles from Lhe
exogenous en\'l!"onmenLal constralllL'i, or mcleed posllive exLernal dikLaL'i,111
analvsmg thell" (){:hanour, espcciallv while 111 government. But we will
allcmpl Ln do so below.

III The Policy Orientations of the Post-Communists

\Ve will Lry to exammc some aspects or the poliucs or Lhe posL-CommumsL
panics in Poland, Hung-arr, Romama and Bulgaria. Three of Lhese panies
have had a conLinuitv or name and sLn1cLures since earlv 1990: Lhl' Social
Democrats of the Polish Republic (Lile SDPR). Lhe l-Iunga1·i,111Socialist Party
(I-ISP), and Lile Bulganan Social isl Panv (BSP). But Lhe Romanian paucrn
or organisational evoluunn has been verv different.
The Roma111an poliucai Lrnns1uon was carried Lhrough lw a combmatum-
of polenuallv raclicallv opposed forces: popular upns1ng agamst the
Ceausescu dictawrsh1p and palace coup bv ( :causcscu 's form1clable praeto-
nan guard. Polillcai lcaclcrsh1p was seized b)' the pro-Sov1eL w111gor the
Commu111sl Panv under llicscu. Tlus group Lhen succcssl'tilly stabilised a
new reg11ne iw snuulLaneousl\' hannmg the C:ommu111st Pany and Lra11sl"cr-
r111g Lhc Commu111st pany's forces mlo a new Nauonal Sal\'alloll Frunl
(NSF). In I 99~ Lhe NSF spliL mw Lwo scparale mm·cn1e11ls, one lt.'cl bv
lliescu; Lile other, lw his former Prnne i\·IimsLer, Petre Roman.: 1~ The lliesru
group Lhen, in 199'.~.formed a Partv of Social Democrac,· orRomania a11d
da1111cd to support Lhc Socialisl lnternauonal. Meanwhill' another group.
led hv Verclet, established a SonalisL Labour Panv, cla1111mgallegiance LO Lhc
tracliuons uf Romaman Comm11111sn1.The llicscu group remainecl the do111-
ina11Lpanv 111all elccuons up Lo the a11Lumn or 1991-i.
Today, 111 all four cot111tncs, Lhc posL-CommunisLs c!am1 allegiance Lo Lhe
Social isl lmcrnauonai, declare suppon for Lhe pnnciples or the Council of
Europe 011 human and uvil rights, ancl defend Lhe notion of a 'market
cconomr· and pluralisL liberal clemocraLic prinnpics. They all also declare
Lheir goal to be CVl'.lltuai membership or Lhc European Unum. \ct Lhcsc
274 POLITICS IN Tl 11·:CLlrn.-\l.lS,\Tll>;-,.; PERIOD

deciaralOI'\' cornm1tmen1s Lell 11s liLLic,md obsrure the s11bstanu;il differ-

ences IJcLwccn Lhesc parues.

/Ji//i·m1n·s 011,\y.1·11'11111·
( :/u111p,1·

From an insutmionai poim orv1ew, al'Lcr tile politrcal collapse orthe si11g-le-
pany reg11nc, the states ul' the rcg1011 cuulcl be described as li>rrns or .rnrnd
clcmocracy 111 the strict sense of cornbi11111gsocialised propeny forms wllh
poliucal dcmocracv. The programmaLic µ;oais orLhcse parlll'S thus had a spe-
cial character: the quesuon was to a great degree the extent to wlm:h the
parues were prepared Lil dismamle the cx1stmg i11suLutio11sm Lhe direcuo11
or capualism: how much sysLemic rcLrcat from socialised property and polit-
ical direction oreconoma: lire.
The decisions on th1s basic programmatic issue depended ven large!\'
upon two _1udgemenL'-: the new international cmHext orLhe1r country; anct
the opuons opcn to Lhem in their own sooeL1es in the new era.
The Polish and Hungarian leadership!; .1uclgcd that their counu-.es wen:
gomg to be absorbed into the West Europcan spherc and their panics llacl
to acccpL the fate of bcmg on Llw Lcft \\'lthm a c.1p1talist and western-on-
ented country. In the Polish case the uutgorng PUWP leader Rakowski
clcarlv spelt out the consequencc of this context for Lhe pany's frnurc roie
in a senes of speeches 111 the alltumn or 1989: the new parly shouid become
the dommant centre-le Ii. force 111 Polish polit1cs, C<ntnter-balanc111g a ccnlr~:-
right party/ 1 at Lhe same time. it should accept a new economic svstcm,
based llpon market Ji.,rccs. In Hungary, acceptance of a transiuon bot.h lo
pluralist democracy and Lo cap11alism was u111vers,tlwnhm the top kaclersh1p
from the amumn of 1989.:1•1
For the Romaman and Bulgarian leaclerships, the international coi~1unc-
tun: 111 19S~l-l 99 I was far less casv to rcacl. There was the possibility still tlwt
the Gorbachev cffr>rt at sorn1list renewal in the USSR m1g-lll succcecl; and
there was liulc 111dicat1011or a sLrong westcrn dnve to mtcgrate thl'ir rou11-
u-1esinto the \Vest European capitalist arrangements. l11Romama. Prcs,dcnt
Iliescu therefore i111t1allywagc1·ccl on the success orCorbachcY, was ready to
enter a security pact with Lhc USSR, clesp1tc strong- western opposnion, and
laid down the goaL~or the NSF as being t110sc of ivlarket StJcialism: the co11-
tinuauon ora non-capnalist ccunomy, rc:1ect111gthe 1·cg1111e proµ;rammc or
the WesL.
But with 1hc SovieL collapse ;1t the cud or l \HI I. this pcrspccllvc of
Romani,p1 clcvciopmcnt w1th111a Sov1et-ccntrcd g-copoliucal and econo1111c
space aiso collapsed. Thc crstwhile Prnne 1'vli111stcr, Roman, respn11ded 111
1992 by splinmg from Lhc NSF (now called the Dl'mocraur NSF) and crell-
ing a new NSF ready LO embark upon a tra11siLion to capualism an<I 111crg-i11g
 Tl-IE l'OS"l~<:( l\lilll'NIST l'.-\lfflES IN TIIE L\ST ':!.75

w11h a grnllp calling 11sdf thl' Democrauc Party. Th£' t'ollowing Year, Ilicscu
alsci 'Shif'tL'tl g-rot11Hl with lilL' 1ra11sli1r111auu11of his NSF mtu the Pany of
Sona! Dl'mocrals of Romania, onentecl towards the m1roduc110n orcapital~
or
1s111.ln11 .i strongh- 11auo11alcapi1alist rather than ·globaliserl' YarieLy.This
rt·111,u11ecla strong theme 111the poliucs of Lhl' Rom,1111,111 Sonal Democrats.
The ,1mlgemenL on the i11ler11at1nnal comext was mosl dirticult for Lhe
Buig,man Suciali.,1 Part\' leadership. Its interllationai ec011om1c links were
o\'erwhclm111gh· 1,·nll Lhc USSR. but II was. 1111likt:the Ro111an1.111 gcwern-
ment. at lilt' intersecuon of two pc>tenuall\' expiosive crises that the US
gcl\·cn1111e111has been strongly focused upon and 111\'oived with: that in
Yugusla\'1a and till' nYaln· bctwc:en Creecc .incl T11rke1·. So lh<.: cou11L1fs
future geoeco1101111c and political loca1wn w.is obscure. At the same time
Bulgana \\'as 1'..1cmga despernte debt cns1s with western creditors. The BSP
kaciL-rsh1p souglH Lo main 1,1111 some cll'llll'lll or .1mh1guIL~·in as stam:c on
srsLl'.lllic goais, favouring pnvausat1011 and 'markl't reli1rm·· in general public
statements. hut 1101bemg enthusiastic Ill p1·ae11ce. The e!Tons or the party
lt·acll-rsh1ps gl·neralh· secm lo have hecn clin.:cted wwards prcser\'1ng a pow-
L'I'l"ui state sector and co-uperati\'l'S m agnculturl' and towards res1stmg
western pressure lo · g-lohalise' the ccom1111y, stresslllg the Illl ponance of
111a1111ai11111g na111111alco11trol over capital assets.

l'rrrl_)' (hgo111.mlm11al 'froll.\fi1rn10/i1111

The SDPR, the I-ISP and the BSP were all formed al congresses of the
former Commurnst parues and open debates were held 011 Ilw new 1deo-
log-1cal and poliucal parameters ol' the 111.·1,·
panics. New orga111sauonal
arrangements were aiso iaicl down and regular party cong-rcsses ha\·e subse-
'Jlll'lltiy lwc:n heir!, wnh reai debates and l'VI<ll'lll differences wnh111 the
parllcs. But the Roman1a11 pallcrn was ven· cliHere111.
The J'ormauon ur the Romanian National Salvatiun Front (NSF) 111di-
ra1eri Lhl' prnrounct amhtvalence of the new political order e11wrg111gout or
the comb111<.:drcvoll from llclow and palace coup from ahon·. The llicsn1
leadership group saw 11stask as to olfe1· a poliw:al idcu111,· which could some-
how be acceptccl I)\' hoth these Ill prinnple ,11uagon1suc fi_irces, hl'IICl' the
forrnallon o/' 1hc an10rph1111s NSF. The .mh.,equelll formal ion or the PSDR
was also nut tlw result oran organic prncess orpoli11cal difkre1111a11on w11hm
the NSF. It was, rather, an m11iativc from llicsn1's govcrnmetll. The congress
th;1t fo11ndecl the nl'\\' part\' clid 1101aclopl sharplv delim:cI poli11c;il prinnplcs
a11rl the Ill'.\\' narnc was dec1clccl aji,•rthe congress. from a hove. As a resuh. the
PSDR has to some extent had the character oJ' a loosely clelined 1-{nlllj) or
supporters of PresHIL'tll Iliescu h1msl'lf'. \-\'hilt· there h,t\'l' been c\'icle111cli\'1-
su,ns Wlth111 the PSDR these cliffi.'.re11ces arl' not clc;1ri,· relll'cted 111 open
 POLITICS IN Tl-IE (:t.Olt\l.lS:\TION PERIOD

debates ;n Pan\' congresses. As a result Lile PSDR resembles what might ht·
callc<I a l.l'ader Panr, lending- to substitute the Je;1clcr s will for strong-Iv
dcli11cd programmauc parameters.
The aba11do11mt·n1 of the pn11C1ple of 'the leading rnlt· or the Pany·
l'lltailed ais1i the soc111log1caiseparation or tile l'x-( :rn111m11us1Parties li'rnn
the large managerial lan:rs of the old n.:g11rn.:- l)olh state oflinals a1ul t·co-
11om1Cmanagers. Tlus process ororgarnsauonal diffi:n:11uau011 was 111ass1n:
and swif'l 111 both Polan cl and Hungary Ill I 989-~l0 ancl was underwn11t·11 lw
till' SDPR a11ciHSP gomg- illlo opposition. Their pan\' oq4,1111sauoi1slwcanw
\\'esL<.Tll-SL\'kparues devoted to electoral poliucal actt\'it\'.
The process or differentiation differed in the otlier t\\'o co1111Lnes.where
the cx-Com1mm1sts remained in power al'tc:r the lirst elecuons. As a n:suh,
the NSF a11clthe BSP continued to exerctse large powers of slate patronage
and rema111ed a focus for the pursull of manageriai lllll:rcsls. This has s11b-
seg11e11tlvmarked the evoluuon orthe BS!\ some ol' whose members have
s11n11lta1wo11siybeen linked to powerful business groups (both state a11d
pnvate). Nevertheless, the BSP's organisationai transformation mto ;111
a111011omous orga111sauon for poliucal communicat1on and cleliherallon
dc,·elopnt 1111,reor less along the lines orthe parues Ill the Visq.~racl coun-
mes, especiallv once IL too wc11t mlo opposition 111I 991.
111tl11sJielcl the Roma111an case was umgue. 111so1111.: rcspccls the collapse
or the part\'-slate comp!t.-x of the Ceausescu rcg11ne !eh a stale ditc 111place
without any real pan,· formauon at all ancl the process or pos1-Comu1urnsl
par11·-formauon was lloth slow and kcl from the slate pres1cle11cvof lliescu.
The i11g-hl\'elitist onic,al 1dcoioh'}' put forward In· NSF's lirst 1clnilog1s1,
Brucan, rcllected this soc1opoliucal reality. In t11e first phase 1h1s r11\i11g-
gro11p sou~lll to max11mse its political llexibilitv lw prov1cli11g-the m1111m11111
poli11cal <ldinitfon lO the NSF, and the PSDR was s1111ilarlyclelinecl s1rongh-
from ahm·e tw the state pres1dcncv. The houndanes between stale and parl\'
acuvlly were therefore not l"tillvdrawn, making the Romanian scene in the
eariv 1990s somewhat sunilar 10 the Kind or· party of power' that operated in
pans or the CIS after the collapse of Lile USSR. Even when the ·sonal
Democrall<:·· party was created, ll had little mternal life ol'its own. Thus the
panv appeared more as an appenclag-e of the elite centre Ill the stale lcad-
e1·slnp than ;1s a more or icss autonomous colkct1n· poliucal ac1or.
Ncvvrthekss, as 1hc com pell live partv s,·stcm has C\'llh'l'cl, the PSDR has had
tu cldine Its political references and 01·ga111sa11onalstructures mon· dear!\'.

Po/iliml
JJ011u•s111· Clnnmg,•J 11nd /J11ri\' Pnlit')'

The vanous posl-Com11nm1sl parties ha,·e delined themselves throug-h over-

lapp,nf.\ poliucal polarisations and cleavages at a nauonal kn·I clun11g the
 THE l'OS'J~CO:\l:\ILINIST l'.-\RTIES IN THE E:\ST

I !)90s. In 1.hrl'c or the four coun tnes the 1mpac1.oJ' these polansauons 011 the
panv wstem have been LOproduce dins1011s on J.ert-Right lines, but m
Roma111a 1l11sspl'nrum has been blurred lw the impact of nationalism.

j j (.'vll/11111//1.\'III llf'/'Jl/.1' (llt/1-(.°0lll/111/lll.\'JJI

The l1rs1 g-rcat polansauon Ill all li.1111· countncs was that bctwcc11
C:0111mu111smand a11t1-Communism .. -\t a11 electoral lcn:l. the allli-
C:omn111mstappeal or the lirst phase or the trans1uo11 has largely played iL~dJ'
0111 tn all four c11unu-1cs as ll has been 0Yeria1d In· other polartsauons.
Nevertiwlcss, tlus clea\'ag-e remams at deeper su·ucllll'ai h:vcls a very impor-
tant one 111all four countries because it still dincles each cou11try's
soc1opoliticai elites and because ol'thc uncertain futures ol'thesc cornllncs.
In all the cuun tnes concerned, the parues arc 1dentiliable by rcfcrc11cc to
the ong-ms or these leading- members: those from the former Communist
establishment and those not. In all the countries also, a basic feature or 1.hc
last liYc ,·cars has been the construcuon ancl lcg1umauon oJ' new capnalist
classes ancl this process has been m larg-c measure a 111a1terol"poliucal deci-
sions, connected to privatisations (rather than s1mpl\' a ·spontaneous·
acn1111ulat10n or pnvatc capnai wnhm a separate ecrnwmlt' sphere). Thus
the possibilitv exists of the part\' cleavage also rdlce1111g-a sonal cle,l\·agc at
elite le\'cl. ll"th1s does emerge as a significant fissure, ll ma\' 111akl'thl" e111cr-
gence oJ' elite const·nsus 011 what might l)e called nauonai straLe).,'Yhcr1111d
part\' clearagc:; nwa: dil'licult.
Allied 10 this 1s 11\e prolJlem of construcu11g- a111dcologK,il co11st·11sl1s on
11auo11aland state h1stoncal dcvclopmem. In all these countries a \'ast gull'
remains 111this sphere: on the Rig·lu, amongst an11-Co1111m1111st parucs, the
penocl or state socialism 1s presented as one or c11sia\·t·mc11t,while tlw 111ter-
war y<.·arsor tlw Pilsudski regune m Poland, the 1-Ionh,· rq~1me m 1-lungan
and ol' 111011archism and dictatorship in Romania and Bulgaria are pre-
sented as phases ornauonai authenuntv. for the post-( :ommu111st panics,
011 the other hand, the penod orstate socialism had positive, de,·elop111e11-
tal features. not least 111 ending the lcganes or inter-war amhontanamsm
and f"asnsm.
One hndge across this gulf could have been co11s1r11cted by strong
l'u1ure-one11ted centrist formations of poliucal liberalism. without tracli-
t1011sued lo mtt·r-war regimes or to Lile stale sonalist pl'nod. This possibility
c1111.:rgerlIll l-h1ngan· with the willingness of the .-\lliancc ol'frL'L' Democrats
to cross the anu-Co111111u111st dinde and enter a coaliuo11 with tlw HSP. In
Poland. on the other hand, the polil!cal lilwrais lia,·c so far n·111.11nt·dallkcl
\\'1th the a1111-Com1mm1st Right, which dr;l\\'s OJI the traditions of Catholic
and nauonalist rqect1011 of all Polish historr s111n_.19-1-1.Similar cleaYagcs
appl\' 1n Bulg-ana.
278 1'01.ITICS IN THE Gl.011:\1.IS:\TION PERIOD

In Romama, on lhc othl'r hancl, boLll the cx-C:01111m1n1st camp a1Hl tile
anu-Commumst camp contain both rclcoiogical temk-11c1es. The ultra-
nationalist panics which were allied with the PSDR have promoted themes
ancl svmbois re1111111sc1.:nt
of the Iron Cuarcl and or lilt.: .-\11to11escudinator-
sh1p, while the antr-Comrnu111st camp has contamccl strong 111011,1rcl11s1
clements. Ancl ()l)LJ1 lil,cral ,111rJ soualis1 themes ;1n· promoted 1n both
camps.
Bul 111 general, the future of this cleavage will be dec1dccl by the mterna-
uonal and economic future of" lhese co1111tnes as mucl1 as ll\' endogenous
poliucal changes.

2) N1'0-li/m"(lfi.rn1Vl'/"sussonal f1rol1•r1w11
The second great polansatron has been between supporters of" 11eo-liberai
'Economic Reform' ancl opponents of llus pla11i>rm. This clea\'age appeared
first 111Hungary, ancl cut across tile first cleavage bv plan11g both the ~-IDF
on Lile Right ancl the I-ISP Ill opposition Lo the Free Democrats and tile
Young Democrats. In Pohmd the cleavage opcnect through the impact of t11e
Baicerow1cz plan ancl as ll \,·orkecl llself Lhrough, It both fri1g111e111cd the
anu-Commumst front and enabled the SDPR to take the leadership or a
broadening coalition or interests and parucs. The same basic pattern
appe,u-ed in Hungary \\"llcrc the supporters or neo-liberalism became
minoritarian as Ils economic and social consequences strengthened the
HSP. In Bulgaria the neo-liberal cleavage remamccl superficial because the
UDF did not coherently dclcnci this poliucai stance aml 111Romania the
advocates or neo-liberalism remamecl weak.
But a much more cliflicult issue is to cleline the kind ol' socrueconomic
alternative 10 neu-liberalism which the post-Commu111st Sucralists arc seek-
ing to promote. The source or ti11sanalvucal probh:m anscs iargclv from tile
cxu·cmc pracllcal constra11Hs upon these parties m power ;mcl thence from
clctennirnng whL·re the boundary lies between external cons1rarn1 anci
autonomous poliucal will on the part or these parues.
The SDPR, HSP ancl BSP all formed strong alliances, while Ill opposition,
with the mam trade un1011 conlcclerations. In the Polish c;1sc the SDPR
formed a Democratic Left Alliance wllh the OPZZ ancl as a result smne se,·-
cnty OPZZ candidates were elcctccl to parliament Ill 199'.1.The I-ISP placed
Sandor Nab')', the head orthe trade union confederation, number two on 11.~
national party list, beiow panv leactcr Horn. Similar links were l'Stablished in
Bulgaria. In Romarna, dozens orsmall trade u111onconfcder,1uons sprang
up in 1990 (according LO some, wrth deliberate encomagemcm from the
governn\em), but shortly after the formauon of the PSDR m tlie spnng- or
I ~19'.l,the main successor group from tlic Ceausescu era 111crgcclwnh olh<.'r
large groups to form a new, ctomrnant trade 1111mnro11f'edcr:1tm11.PSDR
 TI-IE pos·1:co~1illl'NIST l'.\lfflES IN THE 1-~-\ST

leaders ,,·elcomed Ll11sdevelopmenl. wluch hroug-ht some orclcr llllO indus-

trial rela11u11s haq;-aining-_:i,,
Then:li1re. we Glll speak 0L1 g-crn:ral 1rc11d liir the post-C:ommu111sL par-
lies Lo seek lO 111ciuclethe trade u111011confeclerat1011s as impona111 panncrs
m 11,llH>nalp11lit1cal lilc w11h 111flt1L'11re 011 g-overnmenL policr-makin1-;.

At the samt: ume, there havt: been ronflius bt:Lwee11 the partit:s Ill g-1w-
t-r1m1e11t and Lhe trade urnons, espenally m·i:r wag-cs policies and welfare
issues and in no case have the pan1es l)l't:11 prepared 1.0 allow the trade
1m1on leadership dominant mfluenct: m·t:r the mallers or co11cer11to labour.
111both Poland and Hu11g-ary, the Socialist Pan1es have {cit the need to
n~assure the Imcrnational Fi11a11ciallnstituuons and the finannal markets in
the formation or their g-ovcrnments. Thl· I-ISP clicl this bv fornung a coali-
uon \\'llh the Free Democrats desp11e hanng- a m;\JOntv 111Lhc 1-Iung-anan
J>,1rlia111e11L.At the same ti1111:,ll resern:cl Lill' Finance JVli11istryfor 11sown
p,uw. 111Poiancl the SDPR appo111Lecla 11m1-panv academic, Knloclko, who
had been a crnic or the Balcennvicz plan hut who was an orthodox cha111-
p1011orlow mllatmn and iow bllClg-cLddiuts. as Fi11,11KL'tvlirnstcr.
There han.· been constant te11s1ons between Lill' linance rn1n1s1ers am!
l>llwr government depanments O\"l'l" keY aspects of economic and sonal
p11licv. wnh the finance mmisLers !-{enerallv rellccu11g- Lhe pressures or the
l11ter11a11011alFinancial Insu111uo11s ,md the Jinanoal markets. The 1yp1cal
pattern has been f'o1·the Finance iVlirnstnes to win on specific issues, while
the President (in Poland) and the Prune ivli11is1cr (in l-l1111g-an·)have s1g--
11allcd their clissatisf"acuon wllh the general approach or the Finance
Mi111s1rv.
In Poland a long bauie wok place hetlVL't'.11 Finance i'vli111sterKolodko and
Labour i\li111ster Leszek Miller m·er ,1111ss11eor g-rcal importance 111Lhr:
nHmLn·, pl'llSlllllS. J\•liller foug-ht li>r pensions 111crcases to he ucd lo ;n·er,tg-e
wages, while Koiodko wanted them 111clcxcd ICI the eosl or lin11g-. With
:vtiller·s n:mm·al from Lill' Mi11istrY of Labour. Koiodko wm1. At thl' sami:
lllllL'. President Kwasniewski cra1c1secl his own g-m·ernment li.>rtoo n·s11x11,·e
an alllttHk towards public spcmling- and the SDPR reorg-arnsed m1111stricstn
create a supcr-minisLrv or Econom1cs ,1·uhm which linanre would be only
Olll' componenl.
The SDPR Lhus combmecl dclencc orthe ldl'a ora welfarl' state with 11111-
\'ersai henclits, with an orthodox stress on linandal stnng-encv. It was able lo
combine these two elements because of the strong g-ro\\"lh 111 the Polish
eco11rnm· and the earlier clehl forg1\'e11css wh1eh Poland \\'Oil under neo-lih-
nal g-on:rnmcnLs. Kolokclo sought Lo offer. mstead 0Lq111ck 11nprovclllL'IWi
111 \\-elE1re spending-, a long-er-1er111pnsplTll\"L' or huun.· prosperity for Polish
vott.:rs iw proclucmg- a mccliu111-1erm cco1101111cplan wllh mclicauvc targ-eLs
li,r ker l'C1111om1c111clicatnrsand spe11cling taq.{L'tso\·l'r the follm1·111gyears.: 17
.-\t tlH' same llmt· 1l ended the sharp disrn111111a1io11 ;1ga111ststall' t·ntcrpnsL'S
 POLITICS IN THE c;I.Oll,\I.IS:\TION l'ERIOD

des1g-ncd 10 favour the private sector and sought to stre11g1hen stall' enler-
pnses 1hrough prunding them with a more favourable ieg-1siau,·eframework ...
It also commiued itself to 1mprm•mg-Poiand's trade and cconom1c links w11h
coumries l'unher East as well as with the West.
The I-ISPg-overnmenl, on the other hand, was constanth· under Sll'!.{l' from
1-Iungary·s acute financial strams, reflectmg both 11sJack of debt forgwencss
and the ven- slug-gish economic recoven' l'rom the cleep si11mp or the earl\·
1990s. These problems were elfrcuvely used hv the !Fis and the mam players
on the linannai markers connected 10 Hungary Lo aggressiveh· undenrnne
the 1-ISP's credibilitv as a defender ora sociai libcrai welfare slate. It should,
however, be said, that the !Fis had allies within pans or the 1-ISP's ieadership.
The cnsis began in early 1995 when Prime ivlinister I-lorn accepted the
n:s1g11auon or the ueo-liberal Finance .Minister Bekesi ratht:r than acccck to
his demands to sell off state hotel chams cheapir LO western buvers. The )Fis
responded to Bekesi's resignation by making two dramatic demands: lirsl,
that Hungary's public utilities be privatised into mamly western hands; and
secondly, demanding fce-paymg eiemcnls be introduced to both health
care and education, as well as cuts 111old age and disability pensions. TlllS
i\-lcxican-sLYlemiliucs pnvatisation bonanza was a umque development for
the region, offering a large, cont111uous stream or profits ror western
m,·estors;: 18 and the welfare cuts package was designed in such a wav as to
break brutally with the ,•;dues championed by the I-ISP. Prnnc i\·linister
I-lorn made a direct appeai to Chancellors Kohl and Vranitsh (orAusma)
ror 1hell' mtervention against the package but was rebuffed.
There followed a senes or resignations from the government. co111bi11cd
with a senes orsupreme court rulings that various aspects or the package
were unconstitutional. As larg-c protests and strikes mvolvmg empiovces m
eclucatmn and health cominued mto November 199:1, the Free Democrat
Mimster of Education felt bound to resign over the changed education
policv.
The political dimension of the package was fairiv transparent: either Lile
I-ISP woulcl swmg dec1si\'el)' lo the Right, losmg crcdibilitv, or its governmem
wouid he engulreci by a financial cns1s as western (paruculariv Amcncan)
funds pulled out of Budapest and the !Fis withdrew snpporl. The expcc1a-
uon Ill western financial circles and amongst Amencan policr-makers \\'as
that 011e wav or the other, the I-ISP would be structurally weakened, unicss
it replaced Horn with a neo-liheral as ieader. But the panv memberslup con-
tmuccl to support the leadership while being strongiv opposed 10 1he
policies forced upon it. At the same time, the government souglH to rebuild
understanding with the trade urnons by offering substa11uai wage lllcreases
and bv i·a1sing the minimum wag-e.:1\1
For different reasons, neither Roma11ia\ nor Bulgana\ governmellls
were m1uallv susceptible LO the kind of prcssme which faced the I-ISP 111
 TI-IE J>os·i:corn,JLINJST l'.-\RTll•:s IN THE E.:\ST 281

1-lungarr. In Romania, the absence or a debt burden coupled with the gov-
ernme1rt-'s uglll control over the domesuc financial system g-avc the IFls
and western linanc1al multinauonais liUlc market ic\'crage, while the strong
domestic nauonalist consensus 111Romania meant that t.he 1deological link-
age wnh domestic neo-liberalism was \'err weak. The Romanian
g-on:rnme11t's search for access lo western financial markets therefore pro-
duced li\·IF packages focused mainly upon purely financial retrenchment
rather than sonai cnginecring.' 111The PSDR's p1wal!sauon programme was
geared towards pass111g the owncrslltp or the bulk or enterprises into
Roma111a11hands rather than offering large scope for foreign buyers. The
party was commtttcd to preserving a welfare slate and lO building a policy
dialogt1t'. wllh the trade unions on wages and sonal issues.
I11 Bulgana, as the economic cns1s m the country steadily deepened
dming the 1990s, cns1s management dominated domesuc policy-making.
The economv 1s burdened by \'crv heaw debt reparments 111 conditions or
co111.111umg domestic clepressnm. Out ora GDP of.just over $IO billion, west-
ern creditors were expecung LO rece1,·c SI .27 billion 111l 99fl and $1.7 billion
111 I 997. The I Fis viewed these huge repavmenL~ strams as a means or per-
suading the BSP government LO sell the most valuable of the country's
t·nteqJriscs lo western buyers, thus procludng a short-term 111JeCLHm ol'hard
currency tu pa\' weswrn hanks (while mcurrmg long-term dividend obliga-
t1<ms to western share-holders). Therefore, when, 111 I 9911. it became clear
thal Bulgaria would once agam he unable to contmue to service 11sdebts,
the IMF ref'usecl to provide assistance until the g-overnment had al{reed
both lO selling assets lll l'oreig-n im·estors and 10 closmg down non-prol~ ·
itahle stale enterprises, making at least 40,000 workers redundant. The
Bulgarian g-overnmcnt's own programme or mass privausauon ,•1adomestic
,·oucher sales was no ionger enough for the !Fls.' 11
One factor which mar have been of' concern lO western policy-makers was
the fact that up to 199(1the Bulgarian private sector was dommatcci bv a l'cw
conglomerates, built Jarf{eh· by former oflicials of' the Commun isl rq~ime,
with links to both the main puliucai parues and III many cases also w11h
strong links wnh powerful Russian busmcss g-roups.' 1'.! This pattern of' power
de,·eloped in parallci w11.hmcrcasingl\' close links agam bemg established
between Bulgaria and Russia not onl\· m the important eneq,':' seCLor but
aiso 111the liclcl of militarv pn1curement.
The deadlock between the li\·IF and the BSP guvernment 111 early I 99fi pro-
duced a c11rre11cvcollapse 011 11ncrnat1011al mo11e,· markets ancl l111sIll turn
g-eneratecl rapid clomesuc mflat1t111.The BSP g-m·en11ncn1 then felt com-
pelled to comply wnh IMF clemands 111lhe summer of 1996. But at this very
mome11t, the IMF wughcnecl its demands, suspending its financial support
and cicma11di11g-Bulgaria impose a Currencv Board. The countn·s financial
cns1s rap1dlr n1<mnted, producing lt·rriblc social hardship, popular protests
 I'( ll.lTI< :s IN THE< ;1.<lll.-\l.lS.-\TION l'FRIC ll l

and th1..·fall or tile l\SP t-1;0\'l'.l"llllWlll. ThL· most like!~· 1..·xpianalltlll or lhl'SC
e,·cnt.~ lies 111LTSrq.{lonai slrateg~·: the Dav11>11 Agreement meant that poli11-
cal s1.ihilil\' 111Bulgana became· !es~ important; nH·,111\\'hile 1hc Russian
go\'ernnwnt was c:1llin~ liir a senmt,· pan wllh Buigana m response lo NAT<)
enlarg-emenl. ThL'sc den:Iopments made lhc BSI' an u11acn-p1ablc goH·n1-
111enl li,r \·Vashingtrn>.

3) N11l11mrdi.1111
11I•r.ms/~11rn/i1°r1111.rn1

Both thl' SDPR and the I-ISP have n·mamL'rl strongir nlcnlilicrl with an ,111L1-
nat1onalist, Eurupcanrst and 1tllertlat1011alist onerll,111011. l11 Poland,
nationalist anu-Europea111sm has hcL'll o,·crwhelm111gir a phc11omc11011 or
the Right and rl has di1·1rled lhe Soliclaritv poli11cal camp. But the iwstilit,· 111"
lhe SDPR's allv, the PSL, to lhe European Union's external agT1c11hural
policies has llll"IIL'clII towards a motT nationalisl en J1lll111icpolicv. For I ht:
SDPR, unlike the Demm:rallr L!nmn, Eumpeamsm ll;1s not been linked Ill
.~upport for ne1,-liheral socineco11om1c nostrums b111]);1., r;11her mc,1n1 ;1
clek11ce or clemonat1<.:, secular and nvil nghls aga111st :-.c11oplioi)1a anrl
Chnsllan Nalionalist authorilanan1sm. But the SDPR's stance has also
1m'oivecl the pnonly ur integration in to western mstnuuons.
Followmg the SDPR's elecloral success in 1~19:1lhen· were a11cmp1s bv
poliuuans on the Ri~ht to cl.um lhat tilt.: SDPR was not full\" comm111eci 111
memberslup or thc EU and NATO. \\';tlt:sa·s Fore1g11 Mi111stl'r Olechm,·ski
cla1111eclconcerns on that score to be tht.: n:aso11 ror l11s n ..·s1gnauo11 111
Jam1,1n· 199:i. bul such charges cut little 1ct.:either in Poland or ahroacl. n
Kwas111ewski's eleclion as Prestclent, which gave lhe SDPR l"ull control O\'t'.r
fon:1g11 policv liir the lirsl lime, brought no s1g11ilicant shirt on these core
issues. The pnorttv or western 111Legrauon commandccl ,di other concerns.
Ne\'l'nlwlcss. there have IJeen rlillncnn:s or concern. \·\'hilt· Kwas111e11·sl;.i
has been as vigorous ;1s Walesa 111pni111ot1ng-Polish NATO mcmhersl 11p
s11H:c:lwn,mmg- Pn.:stdcnL, the SDRP anc\ PSL lcadersh1p~ 111,uallvan:L'ptL'd
the possible enlargement of NATO without being ge1111111c e111hus1as1sfor 11.
Both panies would have prel"errecl a greater emphasis 11pon the rle\·elop-
me11t or pan-European collecLive sccurily strucwres .. -\11cl 111acccptmg
NATO L·11larg-e1m:ntlhev have sought to stress lhat thev art· t.1ll.:.i11g ;1bo111.t
nc11·,reliirmed N.-\TO. Tlwv, like 111a11\· oLhcrs across th1..·c1111u11c11tof",·an·-
111g-poliucal persuasion. doubt the w1sclo111or elTecun:h· l'Xducling- Russia
l"ro111tlw polittcs or Europe;111 Secunt\" wluch a NATO e11laq~e111e11lcould
mean. Al lhe same lime Lhe Polish Ll'ft will not oppose enlargement ii" ii
appear~ to be the seulcd will or the ma111NATO powers. 11
In rcbuons with the EU, the SDPR c1111u1111ecl lhe slress b1CIrlow11hr Ii 1rnwr
Fnrc1g11 Mirnster .Skub1szewsl;.i 111desmng- Polish me111bcrsb1p ora strnnglv
111stitu11011aliserl,politiral E.U, r~iecung lhe loose frcl' 1n.1rkct COIKl'pts or
 Till-: l'OSH:cl:\l.\ll'NIST l',\lfflES IN TIU: J•:.-\ST

13nush prn,·e11ance. 1.-,:viore g-e11t-rall,·,tlw leaders of thl' Polish Lt:ft sh art: the
w1d,.:spread n·rnns111 amongst Polish policy 111akt·r.~about the comlun of EU
policy l1>\\';1rclsPob11rl ciH:r Lht: i:i~t eight rt:ars, but this n·111osm does 1101in the
slightest 1\'eaken then· resoln- ro make the a1La1mnent of" full EU membership
the countr\''s lll't"rnding pnonLY.
In 1-lungan· morl' than 111an\' other or thl' l<1ur countries. Lht: cleavage
bct\\'L'L'll nauonalism and Et1rnpca111sm has lw(:11 1,I· n:111ral policv s1g11ili-
c111ce. hl'causc of ns bearing 11po11 donH·suc pan,· alig-11111ellls and also
or
IJl'l',lllSl' its fon:1g11 policr 11nporwm:c.
Till' H1111gana11S1>c1alist Part\" has taken a 111orc or lt:ss 1de1111cal~lance 011
Ille hro,HI 1cicolog-1cal 1ss11es as the SDPR ;md tl11s clem·agL' be1wccn
Europc.i111sm and 11auonalism acquired increasing saliL"11cem the r1111-upto
the 199·1 l'iections because 1>1"ns connect1011 \\'ilh central aspects of
I-lu11g,111a11foreign pnlicv: the rl'cog-ml.1011 or l-l1111gan·s borders and the
st,llKl' ol p;1rlll'S on the n~IHs nr I-h111gana11 111111\11'1l\es 11111c1:,.:iibo11n11g
states. The gm·enrn1g coalit1m1 11p co l~I\H took a sm,ngl\' 11allon.ilis1 stance
on tilt'sc ISSllcs wl11ch 111rlt1ded ;111umlertrnit· orirn·clenllsm whik the I-ISP
and the Europcan1st camp repudiated !Ills approach. The erstwhik lll'o-lih-
l'ral calllp of th<.: f.rce DL'lllocrats and \'01111g Ik11wcrals 11JCn·as111gly
polansed (Ill this 1ss111.: as the 11,1t11i11alistthl'me bt-caml" more pro11111H'llt 111
the laucr partv. The agrceml'nl, 011 1h1s 1ssl!L', on the other hand. het\\'een
the Fret· Democrats and the I-ISP. was an 1111pona11LL"lement in l'11abfi11g
thest· parues 10 work together sub~l'C]t1e111ll·.111cm11ras1 wllh PoL111d where
thl' Dnrn,crauc ll11m11 s an11-Comnn1msm ;11HI comm11nu.:111 to 1JL•o-liht:ral-
1sm lt-d JI to make ccmcess1011s 10 the partiu1lanst Riglll.
The foreign polie1· dime11s1011s or this clea1·agL' l1a1·e been far morl' pro-
1w11ncecl than thost: 111 Poland . .-\ 1r1a11gll' or issues has clomi11a1t:d rore1g11
pulic\' clcbat1.:: llllq~ralJoll llllll ll'l"Slern JllS(JtUtll>IIS, llllt'l"Slalc relaLHIIIS with
1-hmgan· s neighbours and dcft-11ce of the 1111ercsts of 1-ltmganan m11wrnics
fiv111g111 11e1ghhouri11g stales. Left and Right ha,·t: difkn.:d on each 111' these
issues and the1· han· also clilh:rl'cl on div st'(]IICl!rc of pnonm·s 111tackling
Lhl.'.111. 1c;

The :\IDF and ns coalilllm partners, till' Srnallholdcrs a11cl the Chnsuau
Democnlls. tender!, in o11icl', to presenl the task of del'cndi11g- Hungarian
mmonlll'S abroad as an histonc m1ss1011. lrupronng rclauons wnh 11c1gh-
bo11r111g-s1;nes - Slovakia, Ro111a111aa11d St:rbra - wht'rc those 11111wnut·s li\'l'
has becn madt: condiuo11al upon those stares 1111prrn·mg the pos1uo11 of
n1111cmues . .-\nd I-Iun14,tr1au 1111l'g-r;111011 111to N.-\TO and the EU has some-
limes appc;irecl to he .tn 111strulllL'nl. for r11nlH·n11g 1hc.1111ssio11tow:irds the
111i11ont1L'S.
The I-ISP has sot1g-h1 10 ren.·rsc this sequence or pnonllcs: the 1111ssHlllhas
been 1111eg-rat11111 w1L11111the EU. Sellli11g disputes wllh 1-hmgari's neigh-
bours has been a llLTessary llrst task on the r11ad to \\'esltTII 111tq{r,11io11.
 1'01.ITIC:S 1:--;TIIE c.a.OB.-\1.IS:\TION l'ERl<)I)

And protc:ctllll-{ the nghts of 1-Iunganan minonLics m Lhosc: neighbo11rmg

slates has bl'en viewed as bemg strengthened rather tl1an wc:akenccl by
achieving friendly J·ciauons w1Lhthc: ne1ghbounng states: 17
The MDF-lcd coalition consistently n.jecLed Lhe idea or new treaues be111g·
signed with SlnrnJ;.ia and Romania repudiating any change in those coun-
tries· borders wllh Hungarv. They cited the existing Hclsmki Final Act as
suHic1ent border 1-{Uarantee, 1gnonng tile fact that the Final .-\rt 1s not a
legally IJmdinl-{mternauonai Ln:,ll\'.They also frequl'nLlv ga,·e Lhe 11nprcss1011
orharbounng 1rredcnLisL hopes. notably through the i'v!DFprune m1111sters
insistence that the\' were the leaders of all Hungarians outside as well as
inside Hungary's existing borders. The I-ISP noL only accepLc:cl the 1clea of
treaty-based border guarnntees for 11e1ghbounng states, lrnt pledged to seek
an h1stonc scLLlcment wnh these nc1ghlmurs. The HSP-.-\FD g-o\'crnment
moved swiftly Loachieve such treaties after coming in Lo office.
The I-ISP accused Lile Right of seeking to promote lls own 1deoln1,, 1y withm

the Hungarian mmonty mo\'cments m Slovakia ancl Rrnnama, rather than

seeking to achieve adequate guarantees of their right,; fro111neighbouring
governments. The Right accused thi: I-ISP in turn or bemg ready lo put
mter-sLatc relations above the intcrcsL-; of the mmonucs, cnmg the fact that
the HSP pledged oniy to consult m111c,rnyorganisations o\'cr the proposed
trcaucs rather than g1\'e them an effective veto ewer them.
Finally, thi: !-ISP criticised the MDF coaliuon for trymg to use !ls western
links for narrow nauonai acl\'antage o\'er neighbouring states. Thus, it sug·-
gesti:cl that tl1i: Righrs enthusiasm ii.>rswift emry mto NATO was governL'd
by the IH>pe that, in the event thaL Slovakia and Ro111an1awere not mle-
grated into NATO, Hungary could use JL<; position withm the oq.{,U11sauonto
strengthen its leverage agamsL these states. By contrast, the HSP has so11ght
to argue that an); NATO expansion should be preceded by a longer phase of
IJroacl NATO co-operation with all the countries of the region.
On Lhe general issue of NATO enlargement eastwarcl, tl1e 1-lunganan
SocialisL<;,like the Polish SocialisL<;,ha\'e not been enthusiasts. There is little
doubt thaL they would ha\'e fanmn:cl other kinds of security arrangeme111.<;m
East Central Europe, arrangements more inclus1,·e of Russia (ancl Ukrame).
But they han: silenced their douln!I. The Hungarian Prnne l'vlinister Horn
did, however, ms1st upon ,·isiting Moscow to discuss and expiam ius onen1a-
t1on towards NATO memberslup and to seek Russian acquiescence. Ancl
unlike other parties, the I-ISP pieclgi:cl Lllat ll will put Hungarv's NATO
memberslup (as well as its EU membership) to a rderenctum.
The HSP leadership has also becn far from entlrns1as11c al1out the EU\
own policies 111 Lrade and other lieids. But Llus, or course, onl\' strengthens
their dcienninauon to enter tile walls or the Union. I-ISP leaders also hope
that strengthening links with the EU will enable the country to lessen us
vulnerability lO the leverage or the International Financial l11st1tuuo11s.And
 THE l'(lS
0

rcow,1L 1NIST l'.-\RTIES (;\ Tl IE (·>\ST

both llw SI .I) and the HSP han· some hopt·s that cl1t·r may be abk lo use
lhl'.ir'lints \,·1th El 1 sonal clernrn.:rallc pan1es Lo ac:h1t'\"e some leverage or
1hc1r own 111dclt·11t-e of tlw1r domesuc social goals.
111 B11lg-;ma, Lill' BSP has also incrcasmgly adopted a Europcanist and
11111,·crsalist stance 111 the general 1dcolog1eal field, artcr mitially lwin~
tainted w11h plavmg upon a11u-Turkish scn11111e1ll. and for much of the
1~l~Hls11.has been allied wllh l11e large I\' Turkish tiurd pan,-. On the orher
h;u1d. the LIDF has bccnnw mo1T pronouncccl!Y nallnnalisl, with Far Right
elc111t·111s11111sranks support111g 1rreclcnllst hopes 1ll relaL1011Lo Maccdo111a.
But 111tlit· lie lei or li1re1g11policy, Bulganan trends on El 1 and NATO mcm-
hersl11p differ frolll thDse Ill the \iisegracl cmmtnes. While Bulgaria has
_111111ed1hc Pan11ersh1p for Peace ancl approves Its own mcluswn in NATO,
for the BSP leadership this support 1s purclr to a\'01d Bulgarian cxclus10n in
the t'\'l'llt or broad NATO enlargement eastwards occurnng. And EU mcm-
lwrsh1p. alo11g-w1111ELI-Bulgana11 rela11rn1s generall\', has liull' actuality i<,r
cllhn the BSP or li>r Bulganan policy-makers gem•r;1llr 111the current co11-
tt·xt. The West's trade embargo agamsL Yu~oslana hampered the
de,·clop111c11t of EU-Bulg,man trade and Bulgana remains a Jong wm· from
lie mg on the thn·shold of' EU 111<:mbcrship. There has been a great deal of
n·st·nt111en1 amongst political elites m the co1111tn· at the lack or pnorny
g1H'n br the EU to Bulgana SlllCl' 1989: 18
Roni,1111an politics has undergone a m,1jor llllllall<>n 1111h1s area. l111uallr.
Pres1cle111Ilicscu and L111: state exen1t1n· stressed stn>ngl\· 11a11011alistthemes
while the oppos111on held up the banner of Europcarnsm and u111vcrsalism.
TlicrL' 1s e,·1de11ce that the stall' cxecuu,·e encouraged the clcvclopmcnt of
uhra-11;1twnalis1 panics 011 the Far Right and lliescu \\"as prepared to form a
goH-r11111gcoaliuo11 w1Lhthem (as well as with tile 11auo11alist Sonalis1 Labour
J>.1rt\'). This clomeslIC dimension ,,·as linkccl to t·,·1dent 1rrcclenus1 Ll'IHlt'nnes
IJ!l thl' parr or the Roma111;111go,·ernmc111 111 the earh· I mHJs: 111 particular
l'fforts lo re-111corporate i\-lolclm·a 11110Romama. and a rerusal to accept till'
lq;i11111ac\'of Nonh l\ukonna s c011tmuecl 111corpl1rauo11 ll'1th111Ukrai11c.
Jli111from the sprmg or I ~l~I:>. llic.~cu s orientatwn .,w11dieri 111an incn·as-
i11glv Europeamst dirccuo11. a lirst s1g-11of this being thl' formation of till'
l'SDR nsell'. Romama's acceptance 111tothe Council of Europe Ill November
I !J~l:lseem eel ID s1reng·1l!l'n tl11s turn: 1! The government
1
g-an: up Its earlier
atte111p1s 10 rc-a1111ex \loiclo\'a. l11Oeloher 199:J the PS()R broke 11s allianc:t·
wrth thl' extreme Right (;1•eater Romania 1';1rt,· and dun11g a ,·1s11 to
\\'ashm).!;t< 111 I liesn1 calll·d thl' lt:ack'r of this party .111clthe ieaclcr uf a1101hcr
allil'd Far Right partv 'Roma111a·s Zhmno\'skit·s '•11 lfand 111 hand with tl11s
was lliesn1 s pos1uvc resp,,nsc 10 the election or the I-ISP 1n 1-lungar~· Ill
I !J!I-J,exprL·ssL·ct 111 his desire to sell le disputes with H ungan over mmonty
and terntonai issues. through an "h1stonc reconciliauon' treat\' between
1Ill' two c:01111 tnes.
 1'01 .ITICS I:\ Tl IE< a.Ollc\l.lS,\TIOi'\ l'EltlC ll I

In die li>rL'1gnpolicy lield. thl' turn bv lliescu m I 9~1:1was l'q11all\' marked.

The PSDR g-m•crnmelll dccian.:cl lllL'mbership or the EL1and NATO ICl hc''ir.s
'strategic g-oal' and worked v1goruuslv, though m vam. to 1n· lO ensure that
Romama was allowed to enter NATO at tile same time as am· Viscg-rad co11n-
trics.0'1 The gnn:rnment cv1cle1lll\' had two serious rears: lirs1. that 1he lirsl
eniaq_{lllelll of NATO miglll also hl' the last, \\'llh lill' rl'sult that Roma111a
would he kft Ill a secunt\' \"(lid th;Jt Russia would seek to !ill ;ind that would in
turn pull the CClllllll"\' away from bl'lllf.\"able to_jo111the Ell; Sl'C111Hlh·,
the gm·-
crnmcnt karcd that Roma111a's l'Xcl11s1onfrom N:\TO"s first enlargemcnl :11
the same ume as l·lungary was 111cludcd, coulcl generate a Ill'\\' and perhaps
scrums detcnoration or rclauons with Hungary over Tra11s\'l\'a111a wlrn:h coukl
also make Romanian cntrv mto NATO and the EU much more clinicuh.

-I) Sn11lnnI111111•1:rnsCh11n-h

This cleavage has been espenallv 1mpol"lant in Pnland. In predom111,1111h·

orthodox Romania and Bulgan,1, the involvement or the Church m sen1!.tr
and politu.:al affairs has not l>cl·Jl a m,~jor issue orco111ent1011between par-
ties. while 111 I-Iu11gary diY1sions over the role or the Catholic church ha\'e
g-encrally been subsumed under nthcr cleavages.
But i11Poland, Catholicism versus scculansm has bel'll a m,!1or political
issue a11clthl' SDPR has, to!,.\"etherw11h the Limon of Labour. champ1mll'cl
sccuia,· nghts. The Polish Catholic lm:rardw sought to ga111s11ppon 1101 011lv
frum the Ri!,.\"lllbut frum the liberal centre Ill till' form or the Dcmocr;1IK
Um on f.\"0n:rnmcnl orSuchocka for an anu-abort1011 law 111199'.l. This wa~
opposed l)oth by the Union of Labour and the Sodal Democrats. and the
new Social Dcmocrauc go\'ernment re\'ersed the law soon after It entered
office in I q9'.l. 'rhc pres1clc11llal elections or I 99!) brought the ISSIIC or Sl'CU·
lansm lo tile fore again as the Church h1crarchy threw Jls weight hehmci
\Valcs.1 In· calling upon Poles to l"l.]l'Cl the 'neo-paga11' Soual Democratll'
candidate K\\'as111ewsk1.The Soual Dl'mocrats also 1ndic1ll'cl th.1t the
Cum:onbt between Poiand and the Vaucan. drawn up beforl' lhcY rallll'
into onice, had macle too man\' co1H.:css10nsto the Church. For 1mportan1
secuons of' the Polish 111tclligc111s1a and urban populatHJJts, this dcl"cm:e of
scculansm and libcrai nghts is a strong recnmme11rl.1tion liir the SDPR.
g-1vcn the Church hierarchy's record not onlv 011 the issue of a11t1-Sc111111s111
but also 111promoting authontanan \'alucs and 11ltra-co11scr\';11in·,·1ews 011
important aspects nrsocial polic\'.

5) Dom,•s11r1·/111111'111111oni_v
HJ;hls

In Poland. these issues ha\'c not scnousiy divided the ma111panics - there has
been a broad consensus on the stance towanls both the western tc1T1loncs
 Tl IE l'OSHJ >~I\IL 1NIST l'.-\lfflFS 1:,.,:TIIF F:\ST

and tbc German minont,· . .-\pari !'rum some remarks by the Pnmatt·,
C1rrlinaf-(;]emp. a11u-Scm11is111ha.~ ht'cn conlinccl to the Far Riglu. fri11ge in
the 1990s.
111J-Iu11g-an· the mam issue or m11H>r1t,· rights has concerned racism
aga111st ,!-,'yps1csancl Romanies. TIH·tr cause has been taken up scnously only
hv thl' parttt's ur the Left. not 11111\·the I-ISP hm also the small i\farxist
1-lunganan Socialist \Voi-1,ers !'an,·.
111B11lg-,ma thl' Ct\'il ng-J11sor the Turkish m11writ\' wcrt' ;1 lll,\1or issue i11
the last ph;1se or the Com11H1111strcg-1mc as the Bulgarian { :ommunist Party
lcadersl11p suug-h1 10 holster 11s support h~-c11courag-111ganti-Turkish sellli-
ment. But despne accusations ag-amst the BSP that lls leaclcrslup was also
piavlllg upon such scnumcnt m Em!, 1hc Turkish minorny party has kit
more co1111i1rtahle allving wnh the BSP than w11h the LIDF on the Right. The
plight or the 1-,•ypsiesand Ro111,11m·s1saiso vcr\' dif'Jicult 111Bulg,ma but II has
1101 been takc11 up senousl\' I)\· the 111a111 panics. The same prohkm e:-.ists in
eVl'll llWrl' :ICllle li.1rm in Rt>lll.lllla.
The most poliucallv mome11tot1s 1ssuL·111this riclcl a11111ngthe four cou11-
lnes 1s that ur Roma111a;s Hu11gana11 11111HJ1"llV. Thts ,s also au extremely
complicated probiem over \\'h1cll political parusansh1p has often entered
western treatments and on which 111111-expertsshould bl' \'l'I'\' c;1uuo11s when
allempt111g to make Jt1Clgcml'lllS. Antagonism between the two millio11-
stro11g 1-lunganan 1111110rit,· 111 Tra11sylva111a a11d Ro111a111a11puliuc:al
1110\'l'lllt:nts has deep roots, g-olllg hack to tlw cl,n·s or thl' .-\11stro-1-1u11g-;1r1a11
Empire when thl' I-lunganan la11dow1iers 111Tra11s,·h·arn;1 treated the suhwrt
Romanian population there mon: or less like personal chattels. Durmg the
war, the (;erman gm·cr11111e111Jianded Transvlva111a back to 1-lonh,·'s
1-iungarv.
The contemporan· leaclership or the I-l1111gana11 m1110ritv ts strongly
nationalist and con tams nght-w1ng irredentist trends wnl1111tl.
On the other hand, in Ro111.1111a the NSF and the PSDR ha\'c g-1\·en sup-
port and e11u>11ragemc11t to Far Right 11atto11alist allil's up 111I 9~l-l, while the
faller han· 1aken stnclcnth· ;ulli-I-!1111ganan st,1111-esn·1rn111sce1l1of fascis111.'·•~
At till' samL" llllll' the PSDR so11gh1 to present llselfas a re1nnst force 011
the issul'. while dai111111g- with ~ome _Jttsucc. that 1ncdt·11 list poliucal trends
w11h111thl' H1111ganan minontY W<:re bcmg encouraged ))\' the MDF-lcrl
coaliuon in Budapest. It argued that uncc tile l-lu11g;1nan gon:rnnwnt l'ully
guaranteed Romama's existing- horckrs 111 a binding treat,·. te11s1011sbetween
the I-I1111gana11llllllorit,· anfl tht· Ru111a111a11 state could hl' quickly resolved.
Mea11while. llil'snt 111cludt·ri tltc extrnnc nationalist .Part,· or Romanian
Na11011al L1111tv ll'cl b,· Che()rglw F11111ar.!ht· i\·la,·or oH :11q.111tht.: g·ovcrn111g
coalit11111."•:;
One or thL' ma111 llash-p()1111shas hL'en 011 the issul' of educationai nghts
li1r the 1-Iungan,m 111111on1y_ Thl' mai11 part.\' ur thL' l-lt111garia11m1110nty. the
288 1'01.ITICS IN Tl-IE GI .clll.-\1 .IS.-\TION PERIOD

Hung.man Democrauc: Fedt:-rauon of Romama (1-IDFRl. has clalllH:d lhat

Hungarian eclucaLJonai rights have been n:stnnecl 111 comparison with the
Ceausescu pl'nod, i:speciallv. In -Parliament, despite vig-rn·m1sl11hl)\'llll-{In·
the 1-IDFR, ll was unabk to get either nwst of the liberal oppostt1011 or Petre
Roman\ Social Democrat~ to support 11.~ amendments to the Act ancl despllc
promises from lliescu to iook J'avourablv on the amendments 0111\·some
thirty of l11sparn·s deputies supported them. At the same t1111cthe OSCE's
Commissioner for ~,tinontics' Rights declared that there was nothrng wrong
with the new iaw. OU1cr issues, particular!,· o\'er culLL1raisvmlJOls 111tile cit,· or
1
Ch~j. h,l\'e brought sharp conllins wllh the 1-llmganan 111111on1,·."•·
The mam issue raised by the Council uf Europe lias been the reh1sal or
the Roma111a11government Lo grant collecuve autonomous poliucal nghts tu
the Hunganans. Bm with the decuon or the I-ISP government 111lludapcst
m 1994, substantial progress was macle Ill combining a Jinn Hungarian
guarantee of Romama's border wnh a satisfactory set or auwnonw arrange-
ments for the Hungarian minority. At the same ume, the tcns1011s on this
issue arc too deep-rooted to be cxpcctccl to disappear c\'cn al'tcr the ratifi-
cation or suc:h a treat,· and thcv may l>c exacerbated by the nauunalist nght
11\ both cmmtncs.

Co11tl11.Ho11s

Both the SDRP and the I-ISP have u·,msrormcd thcmseivcs mtu western-
style social demucrauc parucs and can he seen as bulwa1·ks or the democratic
integration or thc1r poliues. The PSDR has evoived from auLhontanan and
oligarch1c: ung111s buttressed by a stnclent nauonalism in the direcunn or a
westcrn-stylc social dcmocrauc partv. The BSP has also evoivecl as an ,1111.hen-
uc socialist pany commuted to democratic cic\'clopmelll, 1hough locked
into a clespera1e economic cnsis and an unstabk political s1t11atio11111 the
midst or terribic 1mmiscration or large parL~ orthe popuiauon.
Yet in no casc 1s the li.nurc orthese panics secure. In Poland, a Christian
Nationalist Right with deep reserves of'anti-Soc1alis1.aml10rnananism remains
a potenually powerful force ifit can umte, while the liberai centre 1sweak and
tends to ally wnh the Catholic: Right against the SDPR. A deep elite cleavage
thus remains. In 1-Iung-ary the populist Far Rigt1t ts todav Lhc most d\'11am1c
poliucal force and the IFI intcr\'cnuon, ul.ilismg the cc1mom1c lT1s1smllented
by the I-ISP. has ch:cpl\' div1dccl the forces of tile Left, threaternng to desta-
bilise the g-o\'ernmcnt. In Bulgaria the pruspect or a breakdown of the
political order cannot be excluded. Paractoxically, economic gn,wth ancl the
wide b,ise orpopular support for a gradual transf'ormatmn towards a wcstcrn-
oncntcd nationai capitalism seems to offer the most secure prospects for the
development ora c:entre Left in a faidy stabie political context, now that the
 THE l'OSTC0:-.11\ll 1NIST l'.-\RTIES I~ TIIE ['...\ST

Far Right 11aLionalis1s art· weakened, at lt·ast for the nmmenl. But the test of
grn•ei'11mcmal aiternancl' has vet to occur aml must he an 1mponalll om:.
g1,·e11 the amhontarian Orlj4lllS orthe PSDR.
Bui all these issues will be profound Iv mflucnceci h\' the course or policy on
the pan of the EU and other western insutuuons. Much or the mstability in
the rc~1on O\'er the iast sc\'cn years is a direct consequence or the substance
or western policy. Ir 1h1s policv tn:nd continues, the c\'olutio11 or \Vest
European stvic liberal denwcracics, which rest 1·en• largclv on the: cxistc11n:
of a strong Lc:f't ancl lahour tllO\'L'llH.:llt, will prohablv he called into 9ues11t111.
h would ;1ppear th.it .in i11!111enu;1i group 111thl' .--\mc:ncan polil'v c\(·h,IIL'S
on the rc:g1011 wouid prefer ll if the post-Com111t1111s1 parucs wc:n: dcsta-
hilisL"d, v1c:w111g-them as the ma111 obstacic: 10 thl' consolidauon of 11·ha1
rlcmocracv should in thcll" \'Je11· he abou1. The\' rcg-arcl thl'. authontanan
populist Rig-ht in the n:g-1011 as far less threatening 10 thl'ir concep11011 of
rlemocrac,·."" Tlw source orthese .1uclgemen1s sc1:111s Lo be the new conn:p-
t1011 of clemncracv now be111g promotccl w1th111 US forc1g11 policv: one that
is concenwd to promote a kind or polyarclw 111 wl11ch 1he link llel\\'l'l'.11
popular opinion a11cl polin· formauon slwuicl l)e cnureiy bn>Kc11 and
111dcecl where Lhl' whole c.:oncc:pt10n or
1lw slalt' scr\'lng colll'cti\'e goals 1s
,·iewl'cl as a throwback to 1h1: age oJ' European l'ollcu1,•1s111 since the French
(as well as the Russian) a·,·ol11uo11. This concep11011 mav be sen•1n'.ahle for
consolidating g-iobalised pc:npl1eral p0Jyarch1cs 111 Mexico bm llu:1· hal'l'
nothmg lo do with m·ercommg- the dins1ri:~1 _orEurope.

Not1•s ,_

l. l~y Fas! c .. n1r;1l E11n1pt• \\'t• llll'an 1'11la1ul.1·i',1;\g;1n·. (:)'.[·t"hnslo\'akia,·1~ .. 111:ini;;;;i1:•1

B11l!-(an;1. \\'i1h lhl' hreak-11p 111"C1ech11sl1J,·.ikia1hey, or r11111"st·. h('{",Jllll' s1:--.
'.!. lt1 fnm or 1he111(Poland. l·l11ngary, Bulgana and Ro111a111ai1h,-,. han· lwen lh<"le;11li11g
pan1<·, al a nallonal ll'\'l'I clurn1g 1h,· l!l!lO,.
:L This 11101wpoli,a11011or lhl' poli1ical arena hacl, 111fac1 h ... ·11brokl'n III l·Inni-:an· smn·
1he 1111cl-l!ll'lOs and had 11<11 been 1111alin l'oland s111n·the I !l;";Os.
·I. The 1110,1s1gnilicam of 1h,· l.l'ft spli1s \\'as 111l·l1111garr.whn<" a 11111111rm· 111a1111a1necl thl'
I I1111gan,lllSunalisi \\'orkt:rs' l'an,· a11cls11bseq11e11tlvgamecl -1.i pt:r n·11t 1111he lirsi ,·lt·c-
11011,:111l'ola11cl, a group left 111' li,rmer (:clansk party leacl,·r Fiszbat"h crealed a11 111depe11-
1k11t group, c1111si<len11g 1h;111h,· new pos1-Co11111111111s1 111.11urH,· h:l<t 1101s111"line111lr traus-
li1n11,·d tlwll" party. Then· ,n-n· later splits 10 1h,· Right from th,· ( :z...-h Co1111m1111sis :,11{1111
the l.t:11 f"r11111 1he Slol"ak Co11111111111S1> l\'hl'11 th,· latt,·r 1r.111,li11111t·d 1h,·111"·l\"t·s,1111!191. 111111
1l1el'ani· ol" 1h,· De11111nalll"l.<"11.
,, . .-\ "'PhiS11C.lll'.clfon11 111" 11lisl"ll'\,· 1, ;11lva11n·cl1111h,· nM·lul an,rl<- Ill"Alison :11.Lhranti
J11h11;\;aglt:, 'Res11rr,·t"IH111oJ 1he S11t·c:essor l'artll'S and J),·11111na11sa11u11 111East C,·111ral
I•:uropl''. (.,,,11m111mlan,/ l'ml-C:11111m11111.,1 S/11,/it-.,,'..?8:·I ( l!l!l:i).
Ii. This new 1s p1u11w1tcdesp,·nally 111p11hlica11011sof th,· L:s ( :uu11cil 11rFore1g11Rda1iu11s.
S, .., tlw arnd,·s br :\1111,·Appld,aum a11cl~lichael lgnauer i11 l!l!Hi issut', 111" l·i1mg11 .-l//i1in. ,\
11111rt: sophi.slrcalt'cl arg111111,111 n11111111g along similar lines 1s i'111111rl 111( :harlt's C:a11,'The
'.\lii,tgl' 11!'Dt·mocr:1<-Y, '/im1.11ii.,11.'..?'..?:llan:h I!l!l(i.
-;_.\ g11ll(I,·xample of"this did101<11111sa11011 1s( ;,-11rgeSchoplli11. 'Ohs1acl1·s 10 Lilwralis111111
290 l'Ol.lTIC:S IN TI-IE (;J.OB:\I.IS.-\TION l'ERlOD

l'os1-Co11111n1111s1 l'oli1ics·, 111l•:m1H11ro/Jt't/J/Politi.-., 11111/.'iow·/r, :·,: I (Wimer 1!1!11).

8. Lena Kolarska-Bohinska, · iihth of the iilarkel, lfrali11· uf Refon11 ·. 111S. Cu11111lkaand .-\.
l'olo11sk)', Poli.,!, l'111mfox1·.> (Routl~dge, I !I!)]). · •·-.··
9. Bill l.0111;,x, 'l·lungarr\ i11Stl'phc11 ·Whitl'licld (<'<I.), Th,· N,w lm/1/11/1111111/ .-\,,-i,i1,·,-111"'
ri(
1:·as1,·m /:uro/Jt' (Si. iilani11's Press, l!l!l:I).
10. Die11.:r Scgcrt. 'The Sl'D 1111he Volkskammer i11 l!J!IIJ: :\ New Party III Sl'arch or a
Poliucal l'rolile·. 111Michael Waller, Bruno Copp1<'1<,rs and C:hns l.kschlluw,·r (,.d,.). Sona/
/J,·11111m11y l:"t1m/11·(Frank Cass, l!lfl-1).
III Po.11-Ct111111111111s/
11. Sharun \\'olchik, (.':,·d10.,lm!llili11111 Tm11.11iirm(l'inll'r, l!J!ll) and .James I'. iilcl;n•gor.
'\'aluc Stn1ctures 111a Dc1·clopcd Soc1alis1 Systl'm: llll' Case of Czechoslol'akia', Cri111/111m/11•1·
Poli lie,, 2:l: 2 ( 1991).
12. Sc" the special 1ssu,· of the .Jo11nwl oi C111111111111H1S/11tli1·.1.'l'art1t•s. Tradl' Unions and
Society 111Eas1-Ce111ralbirope•, !I: ·I (lkcc111her l!l\l'.l).
1'.l. Sec Ruth :\. Bamlzak, 'The Role or Labour III l'os1-Soe1alist l·ln11gary. 111the l/,-.,11wo(
U,uliml />oliliml l-:Ct>11r>m1·. 28: 2 (lune l!l!J-1).
i•i. For a 1·aluahlc a11ah·sis of the Czceh trade 11111u11s,,.,, • .-\11na l'ulkrt, 'From
Acq111csce11cclo ,\ssn11011? ·1'ra<le Un1on1s111111thl' Czech Republic )!l8!110 (!)!):,', papcr pre-
sented to 2nd Cunkrt·11cc ortlu, E11n>Jll'a11Sllc1o)og1cal :\ssona11011. B11d;1pc,s1,.-\ugusl l!l!l:>.
I:,.See Michael \Valier el al. for discussion or cle1·.-lop111ents1n the tradc unions.
Hi. In I!l!H the perce111agcs or clertoratcs who said that thl')' had pre1·1011slysupported lhl'
market ccono1111· hut 110w rt:1cc1ccl 11were as follows: 21 per ccnl III Poland; 28 per ccnl 111
1)11.:Czech Republic; 2!) Jll'r ce111 i11 S)ol'akia; '.12 Jll'.r n,111 111I-111ngary. and -17 p<'r ce111 111
Bulgana. Sec European Co1111111ssm11: Eun,baromctcr Sur\'e)', I \l!H.
Ii. \\'ack- ct ;ii. stress that 1hc higher 111rn-out ·was pcrhaps the 1110.sL 1111pona111political
reason for the stroug cmergcncc or the Jen III I!l!l'.l'. Sec l.arn· I.. Wade cl al., 'Scan:hing for
Voting l'allcrns i11 l'os1-Co111111u111s1 l'ola11cl's St:JIII Elen1011s', (.'011111111111.,11111,I!'11.,t-(.'1111111111111.1
St11tlit-.1, 28: ·I ( I 9!15).
18. The Polish and 1-lunganan parties did worsc than the l'DS and 1hc Czechoslo\'ak
Co111111u11ists; rcspccti\'cly 10.9 per 1:cn1 and 12 per n,111 as agamst lti per cent for 1he l'DS
and t-1 per ccnl for 1hc Cwchns)ol'ak Co111111u111s1s.
l!l. :\ l"urther factor 111l'ola11cl mar h.i\'l, hcen the l;u:t or the paru.il character or tlu, J11m·
l!lfl!l election: the electorate scl,mecl to h,t\'c a chancc tn pro1c.s1 agamst thl' l'U\\'I' gon·r11-
111cntwithout fac111fl'thc possibili1y of that gm·L·n1111c111 hcmg n,111,l\''-'<l.
20. In iil;u:eclo111a thc Cum11111ms1swere the largest pany lm1 wen· not ahl,· IO li,rm the
go\'erlllllCIII.
21. Alison f\lahr aml.John Naglc, 'Rcs11rn,c11011of thc Sun:cssor l'an1es'.
22. On the 11011'.Co111111t1111st Polish Left groups see Nowa 1.cmca, 'The Ex-Soliclarny l.d1'.
J.11/m11rl-i11·11.> 011Eas/,·rn E11m/w,110. 52 (,\1111111111 )!l!J:i).
2'.l. Sec Ulf Li11clstro111,'East E11rnpe,111Sonal Democracr: Rchom tn hl' RcJ<'Cl<'<I".111a1111-
scnpl, U111wrs11vor Bcq.;cn, Nm·e111hcr l!J!JO.
2,1. The Socialist lntcrna11011al itself docs 1101 dircctl)' supply lina11nal support. Thl'
Czechoslovak SoCJal Dc111ocra1s 111,·xile were aln·ady members of the SI. TIH' l·l1111gana11s
were maclc mcmhers 111l!l!lO hut wcrc later c1.,111n1ed10 ohsern,r status.
2.'i. See, for cxamplc, Michad Waller, '\Vi11n.,rs a11cl I.users 111the Earll· l'ost-Co11111111111s1
ElccllllllS 111East-Central Europe', m \Vallcr cl al., op. nt.
2G. Sec, for example, Lisi Kauer, 'Sona) Democracv 111Eastern Europt:. l.a/i//111·/•i11·11.1 011
E11.1i1·rn J-:1m1fw,no. 50 (Spnng 19!15).
2i. In l·lungar\' the Soctal Democratic Party s nile declined fn,111:I per CL'111 111l!l!)O 10111st
under J per cent Ill l!l9·1 despite hcmg acccptecl as a 111e111her of 1111,Socialist l1111,n1a11011al.
~H. Scc M . .-\. Vach11clol'a, 'DinslllllS 111th,· C1.cch Comm11111s1Pan,· UFE/UI. ll,·.1,·11rth
R1t111r/J,2: '.Ii, Septcmhcr l!l!J'.l. ·
~!l. See Adam Novak. 'llig Boost for Sunal De111onan-·. 111flll1'nt11/w111tlFi,w/1111111. 1111.280
(September l!l!lli).
'.10.Discussw11 of 1hesc 1ssncs 1s co111a111edin chapter !I.
'.II. On the earl)' dcwlopmelll of the NSF sccc Tum Gallagher, 'Romania: The Disp111"cl
Elect1011 of l\l!JO', 1'11rli11111,·11111r,· .-\Jji11rs,
-1-1: I (la1111arr l!J!ll) and ;\lark .-\l111u11d,'Romania
smcc the Rc\'<ih111011',(;1/fl1'ntl//1'11/mu/ Of11m.11/i1111 (Ja1111ar1'I !1!11).
 Tl II•: Pos·r;CO,\l~IUNIST l':\RTIES IN TIIE E:\ST

:l'.!. l'l'tr,· Roman ·s 1),•111ona11C l'an,·-Na1w11;1l Sal\'allnll Fro111 has nm,· s,:1 up an d.cuural
allia11c,· ,~111,the s111allSonal lk111on:11u· 1':11"1\" or Hrn11:1111a. Tilt· :\llia111·1·1s ,·all<'d Liu,Soci.il
Dl·tn1>tTa1u· lin11,n.
:\:\.."i,·,-,l<>r1:xa111pk, :llin·1.,·sla\\' Rak1>wski, ·our :\c-11011,ar<' Di:fou:d h)' thl' \\"i•]]lwi11i,:of
J',.],11ul'. a sp<'ed1 011 1,·Ie,·iswn. I :l Seplcmbl'r I !18!1,n·pr1111,·d in ( .'1111/1•111/mrm:i-
l'ofa11,I, 11<1.I 0
( l!l8\II,
:t-1.Sec l.11d11"ikKrasucki, ·011 tlw l·lnn,011 - till' I Ith l'an1· Cuni,:ress,· Contm,J,mmJ /'o/rmtl,
11<1.!I, ( 1118!1).This ar11cle. repnruni-: prepara11011s for 1hi: last l'U\\'I' Co11gn•ss, spells 0111 1ha1
111<:l'U\\'I' ll'adc:rship an:epl"cl thi: 111e,·11ahili1yof a 1rans11i1111u, c:1p11alis111.
:\:,. Sl'1' Dan ltl11t·sc11,'Rnm:1111a\ Tr:11l1· U111011sU1111l". //1-1:/Ul. J/,..,mrd, u,1,urh, '.!: !!8 (July
l!l!I:\).
:lli. In l·l1111gan· l'n1111· \li111,1,·r l lor11 proposl'd S,1111lor Nagr :" 111d11s1rylllllllSll'r hlll this
was lilod;l'cl h\' thl' Fn·,· lk111ocrar, 111lhl' gm·,·rnnn:111 a, lll'mg fi11a11nallr dl'slaliili,ing.
:\'i'. St·,· ~li1d1dl ( lr,·11st,·111. 'The F.,il11rn ol" Neo-1.ih,·r:il Sorial l'olin III Cl'11tral Europi.:'.
·1i,t1t\1lio11, ~H .J111ll' 1~)~Hi.
;\.~. S,·,· Jell Fn,,·111a11, · J l1111gan:111U1ili1,· l'nl':llisa11011 /\Ion·, F11r\\'ard', '/iw1.11iir,11. :i :>.la)'
l!l!lli.
:HI. S1·'-' i'.sofia Szilag\'1, ·c1uJ1m1m11·atu>11 Br .. akdrn,·11 B,·1w,•(•111h,· Co,·cn1ml.'nl and 1111:
l'ulilit-', 1iw1.11/iti11. '.!'.!.\larch )!)!Hi.
.JO. Thl' (.\IF did 111sis111po11 the up,·nrni-: of a .stuck mark<'!. h111 !he resull was a stock
.:xcha11gl' ll'llh tll"el\'l' <Jlllllecl co111p,1111t•s.onll' Olll' of 1d1ich was h1lh· p1w:11i:. Sl't: lom·,cu,
'l{o11t;n11a·s S1a11d-lly .-\i-:n.'l·m,·11t", 1/H:'/IU.//,•.11·mr/,11,tmn, :1: 18 (Ii ~la,· I !l!l-1).
-11. /llirhal'l \\'nan, 'Rt·11,·11·"cl En,nomu· Cns,s \la1· E11cl F11111-Dragi-:111gR,·1'11rms',
Fu11H1tim1, :?~\:\u~ust 19~1li.
-I'.!. Sn, I-.:jdl F.11gdlirda, '1\111:-:anau l'rn,·t·r (;a111t·, (;in· \\'al' 111(;ru1,·111g C11111p,·t11io11·.
T,011utio11, !!li.fanuary l99t).
-1:1.The real ongn1s of Olel'howski's n·s1g11a11on Sl.'l"lll l1> hal'l' la111ma l'harg<' In· !ht: Sl.ll
1h:i1 h,· was an111g ilk-gall\' b\' rn111hini11i-:his post as Fort:1g11 \li>11Sl<'r \\'llh a 1'11IIsalan :1s 1ln·
di,·1·cwr or a pn1·,11,· hank. a rh:irg,· upheld hi' the l'oli,h n,11r1., _111sthl'l'on· Oll'd1011'ski
reM~llt·cl.
-1·1.S,·,, Jan II. cit- \\\·nlenthal. 'Polish For<'1g11 Polin· ,\J"ter 1h,· El,·ctums. UFl:'/l/1. l/,•_,,.,,,-,.1,
U,1111rh,'.!:·II ( I:> Octolwr l!l!l'.I).
-I:•.,\n 1111portan1 moll\'<' hL'r<· 1s conn·1·11s O\'('I" Polish-C.; .. .-111an n·lat,"ns . .-\s 111clica1t·d 11i
the I !1!111Polish-German Tr,·:111·, thL' Polish gol't:l"llllll'lll will 1akt• a nwrl' n:lax,·cl :1m111d,·
tc>\\'anls '" 11·,·sler11tt•JTll<ll"ll'S ouh· ahi:r l'ola11cl's full i11l<·gr:11J1111 11110:1 strong El 1.
-Iii. Sn· .-\ll'r<'d :\. Ri,1,d1, 'l-lu111-:ana11 l'art1l's' Fon·1g11-l'ulin· El,·cl11ral l'l:111<,rm,. I/NJ///.
l/n.-,11,-I,//1•/mrl.1,'.l: 19 { 1:; :'\l:11·19!l-lj.
-Ii. S,· .. ,\lfrl'd :\. lfr1,.-l1. 'Thl' Nt•\\' l·hmganan {;.,n·rnn11·111 , Forl'1gn Polin· I/Fl·."//11.
Un,·11,-,-I, u,11/Jr/1, :1: :17 ('.!Ii :\11g11s1I 11~1-I).
-18. Se,· Kjl'll E111-:elhrekl, 'Sotllhi.:ast E11rop,·a11 S1a1,·s S1·1·I:.Eq11al Trl':tl111l·111 UH:"//U.
Rl'.l.-111rl,11,tmri,,'.I: I'.! ( 19\J.I).
-l!l. S,·,· lla11 lo11cscu, 'R"ma111a .-\cl111111t,cl to ch,, Council 111'Europe' IU·1c//U. //1·.1,·11rl'lt
1/1/totls, '.!: -1-1(:> Non·111lll.-r l!Hl'.1).
:ill. 011 1he ,·,11q>t·rat1n· di,pull' ll'hich follo\\'L'd tht•si· r,·marks, si·1· 111irhael Shalir.
·,\11a101111·of a l'n·-Elt·ct1n11 1'11li11c:dDh·m-cl.'", '/iw1.111io11, '.!IiJ;11111an·,I !l!lli.
:>I. St·,· fl:111l011t'scu, ·1 l:1111111,·rn,g011 NATO's Door· 'fi11,,,11;,,,,,!I Aug11s1 l\l!Hi.
:1'.!. 011 th<' Ro111:u11a1111a1111nalis1parla,s h,H·kgn11u1<I. "''-' Tom (;aJlagh<:r, 'Ell-ctoral
llrc·ak1hro11gh i'nr R"m:1111;111Na1w11ali,1,·, HH:///1. //n,·,11·,-I, U1·/mr11, I: ·I:, ( 1'.\ ;,.;.,l'L·111her
l!l!l'.!J.
YI. Ahl'r ill<' 1!19'.! parliam,·111an· .:l,·t:1rn11s, thl' NSF lack<·cl a 111:!J•ll"II\" 11111,,· l'arli:1111.:111
a11il i1111iallr sough, a grand n,ali11,u1, lmt ll'lw11 1111ahll' to aclii,·,·1· ag,..,,·111,·111w11h the a11u-
C"111m11111s1 opposuinn, fi,rmcrl a rualition with 11hra-nau"11ali,b. •
!',-1.Sc:l' :'\lich:id Shalir, 'E1h111c Ti:m1on R1111sHigh 111Roma111a·, 1/11,liofr,·,· F11mp1'/U111iio
{.if,,·rty 1/1•\l'ttrrhRtywrfa, '.\: :I'.! (,\ugust I !f!J,J).
:>:•. Sl't' .\lichacl lgnaudl oil th,· supposcdh· cnpplecl dem11nac\' that results from 1he co11-
111111<·il slrenglh of th,· pose-( :11m11111111sls and :\1111,·Appldi:111111 S :1rg11m1:111 as lo whr till: pop•
11lis1Riisht should lw look,·cl up"" more (;l\'1111rahly1h;1111lu· l'"'1-Comn111111s1.,.
=======12=======

The Enlargement of
NATO and the EU

The encl or the Cold \Var 1s Itself now com mg to an c:ncl as Europe c:11 tcrs a
new phase marked by the rccli\'ision or the continent. This is the real sig-
uilicance or the NATO cnlargemcm and the likely significance or the next
moves or the EU in the long saga or what 1scalled EU eastward cnlaq.~cmcnl.
This may seem a perverse new or the process that was launched bv the
NATO l\fadncl Summit in July 1997 and by the EU Commission\ Agenda
2000 documents. Af"Ler alL the contmcnt has aireaclv been dinded
between those 111s1dethe EU ancl NATO smce I ~!89, and those 011ts1dc.
And arc not the decisions or 1997 going IO produce a less di\'ided, more
111clus1vcrcsuit?
As far as NATO 1sconcerned this will be true onlv 111 an antiunellcai and
not a political sense, because the main political meaning or the NATO
enlargement lies not in Poland's inclusion, but above all in Russia's exclu-
s10n from a clctenrnned cffon to consolidate NATO as Europe's mam
poli ucal msu tuuon.
In the case or the EU, the break between the hopes or I 98~) a11CIthe
emcrgmg realiues has been more graduai, but the result 1s turnmg out to
be the same: the European polillcal economy 1s bemg frag-mcmcd once
agam, 111ways that are different in character from those which cx1stecl
during the Cold \,Var but which, for a number or countries, arc likelv Lo be
.1ust as deep.
At the same umc:, the two parallel processes or new di\'ls1ons - the 011e
involving NATO and lhe other involnng the EU - must each be seen 111the
colllext or the other, the impact or each feeding IJack on the other.
\•Vewill attempt, bneJly, to anaiyse the charactc:r, causes and consequences
orthe ~lllCl'!-{ellt divJSIOllS.
 TI-IE ENL:\R<a•:~IENT OF NATO .-\Nil THE El 1

I NATO's Expansion and the Exclusion of Russia

T/11•Lilwml o/ 1989-91
U11mn:rn/iJIPro1111S1'

The populations or the former So\'1et Bloc were assured after l mmthat
once they became marl,et economies and dcnwcranes the divisiou or
Europe would he o\'ercome and they wo11ld be mcluded in 'the \\'est' and in
'Europe'. NATO onicials touring the formc1· USSR and East Central Europe
assured audiences that European peace and sccuntv were now 'indi\'isiblc'
and that all Europeans were now · in the same boat'. Provided all the stat.cs
hecame 'market economies' and 'democracies· ever\'body would be
included. With the threat or Commurnsm aml or the USSR gone, Europe
would, 111 Pres1dc11t Bush's words, become ·whole and free' in a s,·stcm of
collecuvc securnv w1Uwut alliances agamst enemies.
rvlore than rhetoric was involved: the OSCE was strcngthl·nl·cl as a pan-
European secunt,· forum, rl'.cog111sed as a UN rq,\'l<>nal oq;anisation and
gwen roil'.s 111 reducmg- conllict ,md promoting the peacel'ul seulemc.:111of
disputes. A strong, pan-European conventional arms comrol treat\', the CFE,
was approved, limiting force strengths. Ami the adm1uedh· umatisfoctory
NPT was rl:-l'.1Hlorsed wnh a supposed commiunent on the part or the
nuclear powers to move towards deeper disarmament. All these steps were
pan of a wider framework for what couicl be described as a liberal vismn for
building a new lrn1d or security orcler in Europe. based upon g-cnu111ecol-
lecu,·e Sl:ctmtv rather than a power politics 1walrv such as existed during the
Cold War and in the 19:lOs.
These possibilities seemed all the more realisalJk because t:ennanv had
a poliucai cuitun: ven• diflcn:m from the more militarisL and nationalist tra-
diuons of some other western slates (such as France and Bntam): strong
constlluencies in the Federal Republic desired a multilaterai civilian model
or European develop1rn.:11t.
NATO's first moves towards the CEECs 111the 1990s sc.:cmecllo confirm this
commitment to pan-European sccunty: the North Atlantic Co-operation
Council, followed lw the Pannc.:rsh1p for Peace were. in principle. all-inclusive
bodic.:s for Eurasia as a whole.
The seeds or this liberal orcler Wt'.re supposed to he contained within the
womb or Llle NATO alliance llself': the NATO powers cla1111edthat their
alliancl'. was based not upon power politics but p1·ec1selr on what C<Hllempo-
rary liberal schools of thought about mternauonal relations claim: the
111ternal democrauc systems and the shared liberal and. democrauc \'alues of
the western states. Jr this was the case, then there was even· reason In hope
that the transformation of the former Sonet Bloc llllo liberal democracies
would generate a s11nilar harmom· orshared values across the whole orthe
continent. thus making real collccuve secuntv based on common observance
 l'Ol.lTIC:S IN THE (:t.OB:\l.lS,\TION l'ERI01)

of shared norms and ruies a rcaliLy. Such were Lhc declarawrv pnnnples of
the NATO powers dunng- Lhe 1990s. And, 111deccl,such are tl1eir declared
principles Loday.
Of course, peace and securiLY depend upon more 1ha11 the cles1gn of
secunty and poliucal msutuuons. Thev resL on economic and social pre-
condiuons: withouL prosperity and/or economic dc\'c"iopmenl, such \'aJues
and instituLions can come under stram, if 110Lcollapse. This was Lhe p01n t at
wluch Lhe roic of the EU and Lile other institutions of the West's political
economy raised great hopes in Central and Eastern Europe. As 111 the case
of western Europe alter the war, the CEECs now hope<! that they would be
offered a deveiopmcnL-onentcci mseruon 111the mternauonal div1sio11of
labour and that the hnter would soon be anchored in their accession to the
EC/EU. And even if this EU did not stretch as far eastwanb as Russia
(despite.John ivh~1or\ declared aim of including Russia) a 1-eg1111c of free
u-.1de would link the EU to a prosperous CIS. The EU, c0111m1ttcclprcnsclv
tu European unity and having aiways recog-rnsed that Europe mcluded
Budapest and Solia even if it was 11ncerta111about Kiev and i'vloscow. would
adapt to accommodate the CEECs.
Agamst tlllS background, the CEECs have spent the last ctecacle trans-
forming themselves into market economies and libe1·al clemocranes. Tociav
both private capitalism ancl liberal democracy 1s the norm - though not u111-
versal - across the former Soviet Bloc reg10n. The transformation to
capitalism has been extremeiy costly 111 economic, social and health terms.
But the peoples of the region have largely accepted these pnvauons Jiff
one overnding reason: the goal or entering the club of\Vesl European-style
prospenty, democracy and peace offered to them tw the Jeade1·s or the west-
ern alliance. Of course, neither the capitalism nor the democracy that have
emerged arc perfect from the standpoint of libc1·al norms. But that onlv
makes these CEE states snnilar to Lheir far from perfect cou11terpans 111 the
West. The main Lhing is that they have passed the test set !'or them by the
'West European states: l11cyhave been accepted into the Council of Europe.
They arc on target.
But now the goalposts are being mo\'cci.

NATO E11/a1'/f/1//1'11I

In 1994 the US admmistration indicated it was 111favom of NATO's eastward

cniargement. It then retreated somewhat, gmng no elate and promoting the
Partnership for Peace as pcdrnps even an alternauvc. But in I 996, afler the
Russian Pn!s1denual clccuons were out orthe way, Washington lifted enlarge-
ment to the top or NATO's agenda ancl the process or enlarg'ing NATO
began at the Madrid Summit in.July 1997 in order to be completed b~• 19~J9.
 Tl-IE ENI..-\RCEi\!ENT OF N.-\T() AND Tl IF. Ell

The form or the Amenc.111 campaign for enlaq~ement 1s lllteresung

becai.i•sc'or it!,; complete lack of' credibiliL\'. We are led to believe I hat picking
su11ahlc entrants to NATO has notiung LO do wllh geopolitics hut is rather
about which stales or the region have achieved high enough standards of
de11101.:rac,·and markeL economv to he worthy, Thus, dunng Secretary
c.;e11eral Solana ;s tour or the CEECs 111 l 99fr The secretary general will be
making iL clear that no decisions have been taken vet and LhaLeach appli-
c.1111will be _Judged on mdividual merll,; a Nato oflic1al infrmncd us. 'But it
is clear that some countries are more ready to .J<>inthan others and, obn-
ouslv, thcv will be the first to join.' Although Nato has not vet specified
formal cntcna for admitting members from the former Warsaw Pact, 'it is 110
secret t!1a1.co11ntnes.1udgccl to have made the most progress m democratic
and economic rerorms will he favoured . , ' 1
This is a brnve attempt 10 pretend that NATO is a norm-based collecti\·e
secuntv hndy preoccupied abo\'e all by democratic concerns, rather than the
strategtc interests of its mam states. But nohoclv can scnouslv believe that. In
reality e,·eryonc knows the main lines or Lh<:divismn which 1s planned. Only
the details on Lhe exact boundaries an: in doubt. The American-German-
ied western alliance will be movmg mw Poiand, the Czech Republic and
1-Iungan· through incorporating- these countries w1Lh111 NATO. :\t the same
lime, the Balkans and the former Soviet llnion arc Lo be cxcludccl.
Of course, the exact modalities of Polish membership arc not vet dear.'.!
But these are essenLiallr 111s1g11ificantdetails. Thev do 1101 touch Lhc mam
issues: namely LhaLPoland will be integrated into NATO's militan· capanty
and Russia will be left outside.
The lirsL consequence ts an me\'itable and lll,(jor poliucal blow to Russia
which will tend almost ccrtamly 10 he as permanent as the oid rli\'lsmn of
Europe was. Russia will be excluder! from signilica111 legitimate political
influence over the m,!1m·political issues in the affairs of Central and \Veslcrn
Europe wl1encver the western powers want II to he exciuded. Discussion and
denswn-making will take place firsL within NATO and 0111\' afterwards will
R11ss1abe consulted - or noL - as the case ma,· be. This 1s bound Lo be as
unacceptable to an\' Russian go\'en1me11t as It wouicl be 1<>any Bnush gm·-
ernmcnt ii" the UK was placed in a similar silllation lw a security alliance
stretch mg from ( :al.us 10 the U rais. It s1mplv makes a mod,ery of the nouon
ur respecting Russia ·s interests as an 1111porta11lEuropean power - neH:r
mind a Great Power.
But enlargement 11110 Polancl c.1111101 lw assunwcl to be of purely poliucal
significance. Even if Poland were not formally IIILegratcd lllto the NATO
command and even if there were 110 permanent stationing- or either nuclear
weapons 01· 11011-PolishNATO Lroops on Polish tern tor~·, Lile military sLraLe-
gJC baiance or force profoundh' changes for Russia as a result of Polish
membership. because NATO acqmres the abilit,· to build the mfrastruct.ures
 POI .rrn :s IN Tl-IE (;1,()(\.-\l.lS,\TION l'El{IO[)

and co-ordin;11uin mech;1111sms to dcplm· l"orn· m1 Poland's horrlt-rs w11h

L'l,ramc n·r\· r:1p1cllr 111a cns1s. ,\s a result, lhc U11ll<.'dStates ;111d(;<:n11am·
;1cq1111TtlH· abilit\' lo USL' .I rar lllllFl" pc,Lt'llt form c,("CllL'l"CI\'(.' dipl11111;1n
agarnst Russia. in the cn:1JL that Russian anrl US m terests dash 111 t Ill' 1011t~s
around Russia's l)orcters. This ag,11111s 111here11t111 a11r expans1011 of NATO
mto J'c,land. Soothing words about strategic panncrsh1ps, cons11ltat1011.ctr.
twtwcen the US/NATO and Russia will not cli.~pose or this fact.
In this connection ll 1s 1mponant to n:u>.~111sethe transli:,rma11on or the
IJaiancc or military pown that has occurn ..-d since I ~)89. Todav N.-\TO h;1s
tlln.·t· t11nes the mi Iitan strength or R11ss1a(//Id 1111' n'.1'/ <!/'
th,· <:JSm111bi1lf'II.
\Vith Poiand and the other CEECsJ01111ng, NATO's factor of pred111n111a11tT
will he four to one. This 1s also imponatll \\'IH:n cons1der111g lhe rhetoric
rrrnn \Varsaw or from tile Republican Riglu 111the Urnted States about till'
conunued 'Russian threat'. such lang-uagc.: as an explanation for NATO
t•xpans1on 1s.1ust not credible.
Thus Polish 1111.:mbershipof NATO will al)solutel\' 111e,·itablv repDlansl'
Europc:an poliucs. Those who sav Russia sho11iri wekome this enl;1rgl'nwnl
l)l"cause NATO 1s pun:lr clcfens1n: and 1hn:;1tcns 111>hodyarc ellher 1g-1wr:1111
1>lin1ern;llional poli11cs or mcndarJt>11.~.because thcr 11 ..pwre the sunple Lin
that Russia will face a mighty nuclear-armed military alliance 011 11s 11\\'n
border (of the Kalinmgrad tnangle), an alliance whose ieading powers arc
already cng-aged in a vigorous competition 1,•nh Russia for mlluencl.' m·er lls
As1a11eneq.,')'-and-m111crals underbelly and over Ukrnme.
Russia will, therefore, mcvnablv do what ll can under anv icaclcrsh1p to
undermine this state of alfa1rs. or course .. some argue that Russia will have
h> come to realise that It must accept the new rc,1lit1cs, give up its ambll1ons
to bl' a Creal Power III European politics anci acrept that what counts now
I'.', :-.trength as a capllalist eco110mr. Along this line or argument, NATO
..:xpunsron aclltalll' h<.:tps Russia by making lier face these facts. But tlt1:-.1:-.
llsell'just the language or i\tr1d1l/mli1il; an<I acl~nm\'it.-df{csthat NATO l'11l;ugl'-
llll'llL is a ch:lilll:ratc assertion of power ag,1111s1Russia dcs1gnecl to makl' !ls
elites sober up and face defeat. It 1s ;iiso a clis111gc1111ous argumelll bcca11sl'
the riuest for economic strength cannot lw divorced from the (]IIL'SLli ,r
poliuc:aJ mlluencc, above all in Russia's Glsc. where a close rclallonslup
with Ukraine ;incl thl' Caspian and As1;1n Republics cm brmg 1lw m·11·
Russian capitals verv handsome rewards.
Ag-amst lh1s background. we can prl'dict an effort hr Russian gon:rn-
mcnts to combat NATO's expanswn mto Poland. This response.: 1111ghtt;1kt·
a Yanety or forms and m1g-ht devciop at a \'anetv or paces orer thl' next
decades. Russia could threaten Poland l)y stulling Kalinmgrnd or Belarns
with tacuc'al nuclear weapons? it could repudiate the CFE: scrap Its START
co1111111t111l'nts;· 1 engage 111 wrecking tacuc:s 111 tJ1e UN; turn the Baltic states
into hostages; turn nast,· 011 the Black Sea Fleet: turn Its base 011 thl' Dnl·str
 Tl IE FNL\IH;!•:i\lENT OF N.-\TO :\ND THE El'

111toa Lhn·at to t\·lolclo,·a: c111hark upon a llHH"l' acU\"ISIpolicv to rlt:stabilise

Llkrnrnc <)1-· s1.:l'k to l'Xpand 11s1111l1tt·nn· 111Lhe Balkam. N1111t·111'this ma~·
Sl'no11slv Lhrea1t·n thl' sccttl'IL\' ol' \YL"stern Eurnpt· and 11 might cn:n
strcnglhcn the nll'H'JJtl~· Yl'J'\' ragg·t·rl cohesion orthc .-\tla1111calliance and
US leadership 111 \\'l'Sll'rn Europe. Bm it could cause misery for hundreds ol'
millions or 1woplc 111Eastern Europe and the formc1· Son et Urno11.
Par11cularh· dangt·rous will be thc 011set or intense Aml·nc.111-Russian
rt\'alrv with111 Ukraine. Russia llas powerful levers for pursuing Ll11sstntg!;lc,
not least 1ts t·conom1c lcn:rage m·cr till' Ukra1111an economy. 11s links within
UkraineS poliucal elites and Lhe cnsts of' Ukrame's armed forrcs and slalt:
adm1111strnlio11(not to speak uf its appalling general econon11c crisis). AL 1.hc
samc Lime. Amcncan hopcs that it has a strong- base or poliucal support in
Ukraine mar pro\'l' unf'ounrlcd and a rll'ep i111ernal cr1s1s w11h111tha1 coun-
tr\' could ensuc .
.-\long- the borcll'rs lll·twee11 Lhose dc.:linneiv m and Lho-.,.:dL'li1111el\'out.
then- lies a gn·v 1.1>11t• 111'stales which 111avor rn~\\- 11ot lw 111d11cll'<I.The
French go\·crnnwnt ll'ot1ld like Rum,ulla 1n, whill' othtT \\'L'Sll-rn gm·en1-
111cntsdisagree. Thl' (.;c.:rman go\'(:l'lllllL'llL wonicl favour SlmT111;1s 1nclus1un:
others (notably 111 lt;1ly) arc far less emh11s1astic. Sl0Yak1a ts another g-re\'
ZOIIC country. The stal(•s lcl'L ()[I[ will becomc a licl<I or polit1c;tl l'l\',drr
between Russia ancl the Wt:st and, 111the Balkans, beLWl'CII T11rke1· and
G1·cece. Indeed. there arc cl car s1g-nsthat such riYalrv 1salrcacl\' unrll'rwa,· 111
Bu lg-aria.
In any cast·. the result., of thts cxpans1011 c;111onlv be IO tllcrt·.ise 111st·curu,·
1'01·the t:xclucll'CI states by ti lung- till' loc:d balance oJ' forces ,1gamst Slo\'akia.
Romania, and Bulgaria. The tt·11dcnn will he for thc l'.Xcludcd 111 l'<'ar a Ill'\\'
local assen1vencss l'rom the 11lduclecl and Lo clt:\'ote more of' L11e1rt·xt rt·mcl\'
mcag-rc 1·esou1'Ccs to militarv budgets. Thus aircadv m·crsUTIChnl hudgc.·rs
and povcrty-stnck1:11 populauons will lie..·s1ra111cdeven 1'11nl11.·r.
Ir Romama" il-l'l olll of NATO \\'hilt" l-l1111gar\'ts 111dltded. tltc.· potl'llllal
for conflict lil·tw1.·e11Ro111a111aalld I·(1111µ;;1rv o\'cr Tr;11l~\·J\·a111a
\\'ill 1nc.:n:asl'.
dt'sp11c the trL'al\' hl'll\'t'l'll lcft-w111ggm'L'l'lllllt:nls in holh n111llll'IL'Sreg11l;11-
111g-their relattDllS on this 1ss11t:.Both thc Romanian and thl' l·l1111µ;ana11
Right arc far from rcn,ncilcrl w11it Lhc trcaty 111 placc. Thc samt· pall('l'll
could occur between I-hmg,11'\' and Slo\'akia ii' the Iaucr is cxdudccl from
N:\TO. On the other hand. if' Romania 1s included 111 NATO. the polcnual
f'or 11Tcdcntist pn(1t·ns oil the pan of a Romanian gm'lT11ment to\\'ards
both ivloldova ;u1rl Ukra111c (over North Bukho\'Jna) 111a\' crcatc.· a 11cwzont·
or tcns1on. A forl'lastc ol' such h1111n·possible n\'alrics w;1s gn·c11 111the latl'
autumn I ~)96.when Boris \t:ltsm s1114gL'SLt:d l11at an alliance with Bulgaria
n11ght he built: 1111.~ exaccrbatcd poliucti tensions wHhm thal 1:•1l111LrY Ill ways
that couicl onlv runhcr deepen the political (ancl lina11n;il) t-r1s1s thnc.
The manoeuvres w1t11111 Bul~ana ll'lTt' directly stimulatt·cl b1· thl' plans liir
298 POLITICS IN THE (:I.011,\I.IS,\TION PERIOD

NATO enlargemelll. The wlwlt: area or the Southern Balkans Illa\" be

pushecl l)ad. lllto the role or becoming a cockpit for power rivaincs as a
result or the NATO expansion.
or course, western policy-makers arc rully alen to these dangers. This is
why they arc trying Lo insist that NATO's expans1011 has 1wlhmg- whatever to
do wllh US power poliucs and state mtcrcsts, bm 1s prccisciv a conti11uauon
or the liberai, collective security pn~1ect: once a state has proved iLsell' to be
a consolidated democracy IL will be awarded NATO 111crnl)ersh1p1rrespect1Ye
of geopoliucs or geostralegy. In other worcls, those excluded mmt be per-
suaded that their exclus10n 1s I.he result or failing-s by their g-overnments Lo
come up LO western swndards or freedom, democracy and liberal nghts.
Insofar as this message is convmcing Lo the electorates or the excluclecl
coun tnes, the division or Europe will not pose Loo serious a cl1allt:ng-e l.o
European stability and secm·ity, at ieast 111 the short term. Local voters will
blame thci1· own state elites rather than the western powers for their exclu-
sion from I.he western club or rich states. The politicians who have heen
demanding sacrifice alter sacrifice 111 order Lo, enter Europe' will not be dis-
credited and will be able Lo call for one more big round or sauilicc to
ensure eventual entry mto the promised \Vest.
But this public relations exercise carnes linic weight Ill a regton close to
one or NATO's Lhree or four must unponam states - Turkey - which is cur-
rently engaged 111 a war agamst the Kurds and systematically uses torture
agamst 1L-;own population. They, therefore, like the Russians, ask them-
selves what 1s really gomg on 111 vVasi11ngton: whaL 1s the real reason - as
opposed to the news management absurdiues - for the new division or
Europe?

1!fNXFO\ l:\jJ{JIIS/lJII
Tfu, C:r111s1!s

\Ve can be sure that NATO's cxpansmn has nothmg Lo do wnh particular
current tensions, conllicts or threats 111 the CEEC:s todav. Ir potential Russian
threaL-; had been the mouve, NATO woulcl not be elllering Poland, it would
be openmg Its doors to the Baltic states. Yet prec1sciy because Russia wouicl
have the capacity to occupy the Ba1ucs, NATO wishes to steer clear orthem!
At the same ume, hv entering Poland, NATO actually increases the msecu-
rity of the Balucs.
The conclus1on 1s 111cscapablc, lhal the lirst and main basis for the mm·e
mto Poiancl 1s not a Russian threat bu/ R11.uu1's i:111-r1'11/ 1•xtn•1111•
wralw1·ss.
Because or the caiastrophic social and economic collapse 111s1dcRussia and
the fact that its state has, for the momem, been captured by a clan or gang-
ster capitalists around the West's protege Boris \'<:ltsin, the Russian state 1s 111
no position at present to resist the cnlaq~cment. This Russian weakness will
 TI-IE ENL\RCEMENT OF N.-\TO :\ND Tl II·: Ell 299

aimost cenamlv be temporar\'. We must assume the Russian economy and

s1aH.'-\,•ill '1·cv1ve. It could easilv grow Len-fold stronger in resource terms
than IL is today. NATO 1s thus expl01Ulll-{a wmdow of' opponunny' that will
1101stay open li.>r verv long. It 1s a case, therefore. nr establishmg a fail
(lffo111/,liagainst Russia swiftlv.
The analol-{~'wllh Germanv's (;Ile af'ter the First World War 1s all too obvi-
ous. The new onler then was based upon a temporarilv weak Germany and
when German\' re\'iYed it worl,ed to undermme the Versailles order. After
t.he Second \-Vorld War. the institutions or Western Europe were J)Uilt by the
US pn.:c1seh· 111 order to pro\'lde a framework for the revi,·al of the strength
of' the def'cated power (or at least or its western pan). This time round the
def'cated power is to be excluded just like the Weimar Republic 111 the 1920s.
In uther words, N,\TO's expansion into Poland has little 01· notlung to do
with strenl-{thenmg Europe\ peace, security and stability. It 1s a piece of
opponun1sm, an adventure, gambling with Europe's future security for the
sake or something other than security.
The f'ashmnablc answer amongst \.Yest European diplomats as to what
1h1s smncthmg-other-than-secunty actually is tends Lo he a l'arianl on
Disraeli's remark about the causes ol"the Bnush Empire: ll was done in a lit
or cullccuve absence or mind on the part or the AmlTic,m admimstrauon:
Clinton st11mblcd mto IL without much thought in l11SDetroit speech in
October;'' or he was aher the Polish vote 111 the m1d-\Vest: nr whatever. but
the ma111thing is that once Clinton has publicl\' comm1ued himself' toll, we
arc lumbered wllh 1t and must make the best of it.
These k111clsof explanauons cannot he takl'n seriouslv, not least because
they express unwarr,ulled contempt for the Amencan policy-making system.
\Vhatever the weakness or dec:ision-makmg 111 the US cxl·cuuve, no
American p1·es1cient would he allowed to gamble with Europe's f"111ureli.>r
the sake nf' thl' Chicago vote.
Since the e11laq-{eme11L dec1s1011reshapl'.S Europe\ future we must assume
that the US ong111sof the policy clen,·e from comidcrations 011an equ1vaiclll
level: namclv, c:011s1derauo11sabout securmg the United Stall's; ru1ure as the
dominant world power after the Scl\'lcl Bloc collapsl'..
Irwc approach the search for causes at this level we c.111engage in 'back-
ward mapping, from the consequences oJ'NATO expa11s10n llllll Poland for
:\menca's power position in Europe, to the likelv nwtwes ror that dens1on.
Four mam f"catu1·esoLm cxpla11auon stand out:

I) Nor111-ba.1nl
rolll'rlnw wrnnty

lh asscning NATO power 111 wavs that weaken Russia, the USA 1s asserung
its monocratic dominance m European poliucs, pn'.nselv to def"eat cleci-
sivelv European pressures f'or a norm-based, 111ci11s11·e
collcct11•e secunty
'.IOO l'OLrncs IN THE ( ;u lll.-\l.lS ..\TION PERIOIJ

order 111 Europe. To appreoatc tlus, we must clis1.1ngu1shllct\1Tcn quill' di(~

J'crcnl senses of the 1w11on of norm-based collecth·c senmtv. ,.\ gc1111111eh·
111clus1vccollecu,·e sccuritr order inrolves three core eiemcnts:

(a) a collective d1•ns1011-111afli11g

.l)'J/1•111 on polit:v and on opera11ons, based

upon clear rules.

(b) dear rules on unacceptable state behavtour and on modes or collecuve
acL1011against stales which break the rules.
(c) dear mechanisms for_10111taction Lo enforce the rules.

Both the Bush aIHI Clinton admmistrations have consisll'ntlv opposed such
concepuons for the obvmus reason that the\' would undermme 11ssmglc-
power rlonunance over decisions and operauons wnhm NATO. To
strengthen the OSCE towards playmg these roles would have reduced LIS
power to that or being only /m11111s pari·s m European affairs: it would
111/1•r
ha\'e remamed the most mlluenual power because or its militarv capacll\', 11s
militarv mfrastructures 111 Europe, its leadership or the worlcl ecrn10mr, the
strength of' its l\·INCs and its capacity, assisted bv 11sgreat media strengths, to
dominate the mternauonal agenda. But during the Cold War, the US had
been more than first among equals: it had clommated ancl controlled Lill'
ll1gll pnlitH.:s of \A,'estern Europe. A European collcct1ve sccurit\' reg-ime
would have required the US to have accepted a loss or direct instituLim1al
comroi, through NATO, of' the destiny or Europe.
Worse, under a collective security order, the \,\'est European states could
have clerelopecl their own security 1clenutv 1ndependently or the USA. The
WEU could have replaced NATO as the primary locus of stratcg-1c pnlicv-
making and as the primarv nexus or military fr,rces amongst West European
states. NATO could', al best, have become a meeung piace only between two
centres or slratq,'')' and two orgamsauons or force - one American, one \Vest
European. And the \·Vest Europeans could have msisted that US acu011s 111
Europe conform strictly Lo rules laid down 111 a stn'.ngthened OSCE and in
other such collective securi Ly fora.
And ir Russia had been mciuded, there wo11lcl have been three power
poies w11h111pan-European secunt\' - the USA, a uniJy111gwestern Europe
(around France and Germanv) and Russia - raising the distinct possibilit\' of
the LIS.-\Jin ding 11sclf as one agamst two.
With the expansion or the Ell into the Visegrad Countnes, this kind or
marginalisation couici have starecl the USA. in the face. Ker poliucal issues
involving Russia, Central Europe and the EU could have been discussed first
between EU powers and Russia, since NATO wouid not he 1m'oh·ed with
Russia or C'.e1~tralEurope. At the same tune, if Russia had been drawn lllto
NATO, the issue or the USA's monocratic power over dec1s10n-mak111g ancl
operational command wlllllll NATO could not have been avmcled.
 TI-IE ENL\RCE:'IIENT OF N:\TO :\ND TIIE EU

In such circumstances, gwen EU expa11s10n llltn Visegrad, the US faced a

potttnlrnll\""''t'.r\' real loss or control-power ii' NATO stayed as it was without.
expansion. And by expansion, the LISA assures the continuallon orits 1110110-
crauc 111st1Lt1t1onai pos1uo11: no separate West European security policy or
operational frameworks.
The USA conceals these issues b\· usmg the language orcollective security
;111cluL1 'West European 1clcnuty· in quuc cliffi:rent senses. Br 'collective' it
means somethmg arithmetic - a collection of states (under its command);
by 'norm-based' it means that /ht USA can be relied upon io d,•ridematters on
the IJas1sordemocrauc, liberal, human nghts etc. norms; 1.e. it will not: be
houncl bv anv such norms. And as for the 'Europi:an identity',
111.i-/1i11/1011a/(1·
this can mean a transatlantic division or labour: the troops will he European
and the command will be American (as well as the mfrastructures).

2) G1•r111a11y
and R11.uu1

Bevoncl these mauers or current msutuuonal cles1g11for Europe's securnv

order, Lhere are deeper qut'.sl!ons ofgeopoliucal stratq,,ry mlO thi: Lwentv-lirsl
century for the LISA. As the NSC: document leaked Ill early I mi~mark
clear, the American government 1s preoccup1erl b,· 11slong-term pos1t1on 111
Eurasia, wiuch 111 wrn governs us capac11.y to cxcrusc 'world leadership'
The great danger here for the USA is Lhat German~• becomes thi: hege-
momc power 111 western and Centrai Europe anrl Uien establishes a
condom1n1um wllh Russia over the hulk or thi: Eurasian landmass. To pn·-
vent that happenmg, US poliucal ascenrlancv 111the te1Tllo1T between
Gi:rmany and Russia becomes pivotal. Via NATO expansion mto Poland (as
well as via US companies ac[Jrnnng a strong- presence m Poia11cl), US rnllu-
e11ce 111 that kev countrv can be secured.

]) T/11•Drang Nach Kie,·

For Ami:ncan policv pla1111crs, Polancl 1s only one part or the necessary
geopolitical w<.'clgebetween Germany and Russia. In manv wavs, Ukramc 1s
an even more 1mp11na11t pnzi:. A comb111ecl Polish-Ukraiman corridor
under US leadi:rship would dccisivelv split ·Europe' rrom Russia. exclude
Russia abo from the Balkans. go a long war towards sen1nng the Black Sea
for the USA. link up wuh Ami:nca·s Turkish bas11011,and pro,·ide a verr
important hast: for the 'Great Game' for the energy and mmeral resources
orthe Caspian and Lhe Asian Republics of the former US~m..
Of course, to movi: NATO mto Ukrame wclay would cause an explos1,,e
confrontauon with ivloscow. For this reason, US policy towards Ukrame
under President Clinton has been marked by co11s1dcrabie s11lHle1y.
Following Bush's notorious 'Chicken Kie,·· speech Ill tilt' Ukram1an
 1'01.ITIC:S IN Tl-IE ( ;1.oB:\I.IS:\TION PERI<>D

capital 111 19H1, when he attackecl 'unrealisuc nationalism al a tm1e when

the US was worried about the consequences of' .Soviet collapse, Clinton
JOllleci a partncrslup w11hMoscow to ensure that Kie\' became 11on-nuclear.
\Vhat was not noticed hv Russian politiuans was that if Ukra111l·llad decided
to mamtam 11snuclear status, 1t coulcl ha\'e rlonc s1, 111the medium term
only i>Y means of rel)l(ilding its secuntY reiationslup w1l11l\·loscow. Tims.
Ukrame·s abandonment of nuclear weapons freed 11. from such f'uture
clepenclence.
v\lith Kiev's agreement lO become 11011-nuclear, the US goven1mcnl has
combined a syml)O]i<:emphasis on lls special relattonsh1p wnh i'vloscow wllll
an energcuc mtensi!icauon of' its rciauons wnh Ukrame. Kie\' is now the
renpn.'tll of the third largest amount of US a1cl. \Vasll1ngwn has been ng-
orouslv seeking to strengthen Ukrame's mass media 111tegnt)' ancl to
strengthen military co-operatton under the umbrella of the Partnership for
Peace, notably through.1omt exercises ancl through strengthcnrng military
co-operation wllh Poland. The IJ'vlF has been um1sually llexibie m ns
approach to Ukraine s soc1ucco11om1c problems.
Washmgton 110wfeels conficlent that ll has a strong policy unclerstanding
with the Ukraiman gm·cr11mcnt wherebv the ]alter 111s1s1s to 1\·loscow 011 tis
nglu w co-operate with the West through the Pan11ersl11p for Peace (1°-11')
and on !ls freedom from anv security pact with ivloscow. After mitially
cxp1·csslllg strong rescr\'ations about NATO's expans1011 1nlo Pola11cl an<l
stressing 11s own ·nL·utralist' poslllre, Kie\' has evolved towards support111g
NATO expansion while saymg n has 111i mten:st mjommg NATO; and at the
end or Hl96, President I~uchma wenL further, mdicating that 111,1 very distant
fi.nurc Ukraine might 11selfeventually seek to become a NATO member.
011cc NATO elllers Poland, 1l will have the capanty lo pn~1cct 11s mllu-
ence across the border mto Ukraine in such a way as to ensure that Ukraine
could withstand any Russian pressure to enter a securtlY pan \\'llh Moscow.
In the event ofa cnsts between Kiev and Moscow, NATO couirl olfc1· mass1\'c
assistance to Ukraine. Ancl 111 the meant11ne, \'la 1•-11•,co-operauon and assis-
tance can be steadily rncreasecl. \·Vithuut NATO cxpans1on, all this wouicl be
much more clinicult.
Tl11s mouve for NATO cxpans10n mLO Poland, as a means orpn~1ectmg
US inlluencc illlo Ukraine, was signalled hi' Polish Pres1de111Kwasniewski.
Speaking II\ London at tile Roval Insututc of lnternat1011al ,\!fairs, he said:
'We arc confident that Poland's accessmn to NATO will lead to a pn~Jecuon
of stabiliLy ancl secuntv mto areas strctd1mg- beyond our eastern fronuer. ·
Tl11s can only refer to the goal or pulling Ukraine awav frolll a secuntv link
wnh Russia.
In short, 'NATO's expansion 111to Poland ma1·ks the rct11r11of power pol-
itics to Europe in piace or the prr~Jcct or an 111clus1\·eand collective new
secunty order. The relauonship between liberal Ul11\'l'rsalism and power
 Tl-IE ENLARGEMENT OF N,\TO AND TI-IE EU

politics Lurns out not be dichotomous: it acqt11res the complementary of

mei1i1's--;:111d~cnds:
liberal u111versalism 1s the rhetorical means towards US
power puliucs ends.

4) Thi• 111wU11.uu111
lhri·al

There is an obvious cnuosm that could be levelled agamst tlm analysis of US

power-maximisation interests 111NATO expansion. This is that 11overem-
plrnsises what m1glH be called the traditionai 'realist' way or looking at
mternational poliucs: n exaggerates the 111ili1ary-stra1eg1celements ol"power
over the political-economv clements. Along this line of argument, the key
wa\' 111which the American state assures Its global dominance is today less
thn1ugh 1ts military capacity than through 11s 11npos1uon orits global politi-
cal-economy regime on states. In other words, Amencan asct:ndancy is
assured through reorga111smg the mtt:rnal structures or states to allow Lhe1r
penetrauon bv Amen can capitalist compames and Lhn1ugh reguirmg these
states LO ma111ta111their v1abilitv through competll1on on worlcl markets m
which US capnai predommates.
All this is true in general: for the US in 11.~reiations wnh most slates, mil-
itarv power 1s a reservt: power, not the first means orinllut:nce. But 1t 1s not
possible in the Russian case, because Russia is different: 11 has such \'ast
cneq,')' and raw material resources that even wllh a gangster capitalist elite
on an almost Zaman scale or svbaritic corrupuon, ll has not tht: slightest dil~
liculty in maintammg a healthy trade surplus and in kl·cpmg western capnai
at bav. And IL can clo all tlus wnhout being integratecl lllto the 'v\lTO.
ivloreover, it can offer both energy security and, at least 111 the medium
term, s1g11ilicam credit support to governnwnts lookmg for alternati\'es to
the Ev!F. Its big- capllals can also aiready move in to otht:1· states am! establish
tht:mselves as mlluenlJal poliucocconrnrnc rivals to western ivlNCs, espe-
oally m the crucial encq,ry sec Lor.
During the Cold War. this Russian economic capacnv did not consllttlle
a serious challenge because of the 1deological divide agamst Commumsm.
But with the Communist collapse, Russia's potential structural power 111
the eneq ..,•-ysector and the expans1011is1 capacities orits capnals constitutes
a new kind or threat to US dommance over the internationai poliucai
eC0ll0lll\',
Since 1991 the Amcncan adm1111stration, its MNCs and the HvlF have
IJecn mvoived in a complex clo111Jleoperauon to mlluence developments m
Russia. On the one hand. there was the real possibilitv 1h,1t the Gaidar gm·-
er11me11t would actuallv open Russia\ eco110mic asst:ts to Amencan buvers.
IL\mencan capital had been able to IJUV up Russia's oil and gas resources as
well as the bulk or Russia's oLher mmeral resources we would not have seen
any NATO t:xpansmn into Poland exciuding Russia. Washington would have
 l'Ol.lTICS IN THE C:1.011.-\LIS.-\TIONPERIOD

adopted a 'Russia lirs1· policy. Bui the Ga1clar-l~urbulis dn\'l'. collapsecl,

desplle the \•Vest·s successful promotion or thl' idea of a coup c1·i:•1a1br
"\ehs1n agamst thl' Co11sututio11 111August rn9:i. Thl' US then found 11sclf
b,1rk111g Chernomvrdin-styit· R11Ss1an corporali.: capnalism aga111s1 lht·
Communist challengT. In this deavage, Washmgton had Lo back Ycl1sin-
Cher11omyrdin, but the lauer was at the same lime a potenllal challenge to
thl' US dn\'<.' for a •gfobalised' capitalism m which all stall's \\'oulcl han· to
cornplv wllh market 1nsututio11s designed to fa\'our US i\·INC:s.Thus as soon
as Ycltsm hact managed to bea1 off the Comnrn111sts, the Clinton ad1111111s-
1ra11011moved forward with a NATO cxpans10n which will ha\'c the effect or
containing the expansmn of Russian capnai abroad.

Th,• Nl'!mildi11go( US l.Nuln1-/1i/1T/1m11gh/Jornw

So far we have unplied that the US has been abie to act more or less as 1l has
plt~.ised in European poliucs. Yet 111 reality, desplle us assenion or power
during the Gulf War or 1991, Wasllmgton was m ch111geror poliucal 111ar-
gmalisauon 111 a Europe that was peacerul and full or enthusiasm for
m•crcommg the confron Lauon between the blues Ill 1990 and I 991. The
expansion or NATO today is conceivable onlv agamst the background or
Waslllngton ;s successful rebuilding or its authority over the Wcst Europe,111
states o\'cr tlw last six vcars. The first step 111 this US dfon \\'as. of course.
ensuring that Gennanr was unifiecl wnhin N.-\TO. The US reconstruct1011 or
NATO's ascendancy 111Europe then passed through the Bosnian conf1ict.
With Germany's success in pushing the EC states to recognise Slm·c111a
and Croatia at the end of 199 I, the US, which had been ag,1111slsuch recog-
nll1on. found llsclf threatcnecl wllh bei11g marginalised on thc lll,(1ur
poliucal conflict Ill Europe: that on~r the crisis of the Yugosla\' state. Tht'
Bush admirnstrauon was thus stanng in the face the prospt'cL or Amenc.1· s
European ascendancy dissol\'ing like a lump of sugar in Chancellor Kohl's
cotl<.·e cup. In late January Hl92, thcrcfon:. the Bush aclministrauon
lau11checl its campaign for an 1nclcpenclcnt Busman state. As Susan
W1>odward cxplams this US dn\'e for an mclcpenclcnt B1Jsman stale, the LIS
was conccrnccl that Gcn11any was •·gcumg out ahead of the US"
(according Lo Deputy Secretary of State EaglclH1rger) ancl that it had lost
any k\'erage on tile Yugoslav s!luation after the EC's December dec1s1on ...
· :\s Woodward acids: ·The rc-entr\' of Lhe U111ted Stales 111to the \'ug-osl,ff
clebacie as pan of a balance of power cirna1111calrcach· m phw Ill Europt'
added yet another clement to the particular wav Ill which Yugosla\'la would
unravel. Tlic U1111edStates, though m competiuon with Germany. rcma111ccl
primarily concerned with mamta111ing the Allanticist posture or the Knhi
g-overnmcnt ... In place of the confrontation that could haw resulted [with
 Tl-IE ENL\RCDIENT OF :\/.-\TO :\ND Tl-IE El.I '.305

Ccrman\' uH·r rccog111umi ol"Croaual Lhc U111tedStates appeared LO mm·e

towai'l:k' a 14eopoli11cal di\'ision or labour mstead. conceding a primary
sphere or influence O\'l'r Croatia to Gennan\' and Laking on Bosma as its
rcsponsihilit\'. •Ii
:\s the ,vest European states pomted out at the ume. ,m aucmpl to crealc
an mdepende111., unified Bos111anstate would lead Lo war and the war that
rcsuited became the basts for a reasscnmn of NATO as the pnmarv instru-
menl or force m Europe,111 poli ucs.
011 this basis, Lllc Clinton aclmm1strauon launchecl the plan for NATO's
eastward enlargt·mcnt into Poland Ill urder LO ensw·e that when the
Viscgrad cou1Hnl's were pulled unckr the wmg- or Germany wnhin the
frameW'Jl'k or the EU, Germany would not. 111Eagieburger's phrase, he 'get-
tin14 0lll aheacl or the us· Ill deciding the g-real political issues of East
Central Europe togl'ther with Russia. leanng the US margmalisecl.

II The Emergent Divisions in Europe's Political Economy

Th,• 1-/o/H'S
o{ l lJ89

When Comnrn111sm nillapsed in 1989, the populations nr llw region were lw

110 nwans convmcl'cl 1haL free market capitalism was thl' ansWl'.I"Lo their
problems. But opmmn rapid I\' sl1if1cd 111 I mJO .ts their new elites (except lll
Rrn11ania) argued that by adopu11g- cap11alisl models their countries could
enter Europe' 111or.Iler words both ,10111 the European CtHnimmitY and
become prosperous.
This rema111s the official course or the slates of Central and Easten1
Europe, but the ,1mirnev has pro\'ecl appallinf.{h· costl\' for thl' whole of' the
region and terrible economic crises are contmuing 10 clc\'aslall· the lives or
hu11drecls or millions or people 111 Russia. Likrame and the Balkans. Even
niore s11·iking 1s till' l;1cl th,11 the \Vest European stall'.~ take absolutely 1w
responsibility fur the l'Corn1m1c fate or thcsl: countries: 111<ln·d,they go Lo
t~x1rnorclinarr lengths 10 pm total 1·esponsihility for t'.Vervthmg that occurs m
till' region nn to tile: elites or these weal;. states. \'ct a glance at the reality or
the re141ons111cethe siart or the 1990s demonstrates that I he enure frame-
work for the econom1c transf"ormatmn orthe reg-am has bet•n 1mposl~cl by
1hc wester11 powers. It 1s, or course, true that the social ,llHI poliucal elites or
till' 1-e14im1ha,·e. 011 thl" whole, accepted this framework and han· 1necl Lo
work w11h1n 11. Some have been g-enu1nelv e111hus1asuc .for it most ha\'l'
;icl'eptl'cl ii because thl'\' have f'elt Lllat the,· have had 111.
Secnmlly, the fra11iework which the ll'estern states han: imposed has been
that orsl11111p-111ducecl transformauon towards a parucuiar variant of capi-
talism, that can best be clescriherl as the Baker Plan \'anant adopted hY the US
 !'01.ITIC:S IN THE C:J.OB:\I.IS.-\TION l'ER!Oll

Treasury 11119H:'1;1s the prngramnw for rcorga111si11gthe Laun .\111enc111

polillcal cco11um1cs. h 1s an illuminating fan L11;n rtcsplll' the larµ;c rla11ns
made for the po\\'er and European lcaclersll1p capacities of lllc E11rDpea11
Ulllon w1Lhi11Europe, thc enure sclleme liir lhe transformauon ol' lhl' ( :EEC:S
has been Amencan designed and Amcncan led through the IMF/WB.
Th1rclly, despite public reiauons campaigns LO the contrarv, the European
U111011 ilself has not, as yet, taken even one s1gnilica1n step 10 adapt Its own
intcrnai arrangements to accommodate a unilicalion or the c01u111e11l·s
poliucal economy. Instead lls poliC\' L<>warchLhl' regton m Lht: track fil·ld
could bew.:r be clescribecl as one or collecll\'e mcrca11tilis111.
.-\nd linallv . .1sIL moves now 111to ;1 Ill'\\' phase of 1.hc iong.1011n1ev w11•.1rrls
eastward enlargemet1l, lhe EU is spcakmg wllll two voices: combmmg an
enhancement of its symbolic politics towarcls enlargement wit.h signs Lil.It ILS
main prcocc11pauon 1s lo provide new barriers lo membership for JllOst or
the Len applicant countries.

Tiu· Mi.uNf Dn1,,fo/11111•111

0/1/mrl 1111ily

l11 I ()89, the llnrtecl States was in no posllmn Lo 1"11nch a dcvelop1m:11t s1ral-
C!,,'1'
for the states of CEE because the cupl>oarcl was, so Lo speak, b,m.: 111the
US Treasmy. Grappling with enormous pa\'lllellls ancl budget delic11s and
with a very large bill to pick up as a resull nJ' tl1c collapse oJ' US housing
finance mstrtutwns, the United States ·racked the financ1al resources to use
positive econom1c mcentivcs LO mlluence the rcorga111sat111n or the East
Centrai European states. 'When Bush visited Poland in the summer or 19/-19,
he faced ridicule from Lech 'Nalcsa when he was able to offer 011lv$~00 111il-
lion - the Polish authorities had been hopmg for at kast S~ billion. Ir a
i'vla1·shallPlan-st\'lc development strategy fiir the region hacl been acloptccl,
the US government's weakness would ha\'e been exposed and Gcrmanv and
the \Vest Europeans would have taken tile lead. As in the lictcl of Europe's
high poliucs, so 111 the area oJ' Europe's political economy, the 111m1cdiate
aftermath orthe collapse of 1989 Iert the US in danger or marginalisauon.
In tl11scontext, mfluenual vmces were ra1secl in Western Europe, partic-
ularly 111 Germany anci France, for a clevelopme11t-oncntcd fr;unework for
the rcorga111sauon and economic 11uegr.1t1011of'thc C:EECs. One such dcn:1-
opment stratq,'} for East Central and Eas1ern Europe was advanced hv the
German Deutsche Bank President l-lerrhauscn in the autum11 of' l~IH~J.
Hcrrhausen. who was close to Chancellor Kohl, argued !'or a m,~1or 11wcs1-
mcnt effort 111to the region while allowing ll lo preserve effecun: trade
protection 'for 11.sdomestic industries. The plan wouid ha\'C allowed the
turn 1owarcis capnalism in comnncs like Poland to have proceeded 111con-
ditions of cconom1c l'L'\'ival rather than slump. ancl IL would ha\'c l1t-e11
 TIH: FNI..-\Rta•:~11-:NT OF N.-\TO .-\ND Tl 11•:EL;

earned out 111co-operauon with tile Semel Limon. But I-lerrhausen was
assassmatcd ~u the end or No\'ernhcr I 9H9 and his plan was rlrnppcd.i
A similariv growth-oncnteci pian was proposl'd h,· French Prcs1dcnt
\lillerrand's arh·1ser.Jacques Auali. This ll'Pt1ld haYc 1m·okerl a m,~jor public
rlen·loprne111 bank \\'llh Ihl' resources and mandate fi,r largl'-Sl'ak public:
anrl pnvall' 111frastructun: mn:s1111e1lls across tht'. CEEC:s 1nclucling the
l!SSR. The plan was championed by llll' Fre11ch goHTnllll'lll and the hank-
the EBRD - was anualh· crl'alecl, hut 11srole and mandate \\"as emasculated
il\' the Bush acl1111111stra1iun
w11hthe result 1hal ii became liLLlemore than an
ac!junct Lu the Opl'rat1u11s or the western pnvate sector 111the region: it was
banned from plavmg a iarge role in public mfrastructun· 111,·estment; it was
111strurtcd to operate likl· a pn,·ate sennr bank. 011stnctlv co111me1-c1allines,
while al Lhl' same Lim<.·JI was hanned l"rom 1.tki11gon 111,·cstmeut pn~1ccts
which western private sector operators took 011. It \\"as, tlH:reforc. liule
wonder that Auali as the Bank's prcs1de111 was hard put to !incl nallle and
acceptable pn!Jec:ts to invest Ill dunng the slump or the early 1990s bcl"ore
he was hmmced nut or the hank hr claims 011 the part or British and
American banking c1rcies that he had hl'l'II living too lanshJr and spending
too much mrnH.:\' on till' Bank's London hl'adquarters.
Tl11s was llw hackg-rowHI to till' Wesl s lllrll towards tile Baker Pb11
approach to the rcorga111sallon and i111cg-.-at11J11 orCEE. Tlw US lacked the
public credit resources tn take the lead it.self. (:erma11r, \\'orking wuh the
other \.\'est European states, would ha\'e had ample resources Lo offer a
:\farsllall Plan-style development pn!JeCl. But the West European slates were
Lu· too dindecl amongst themselves to stag-e such a11 opn.itll>n: the Auali
plan was Ill man\' respcrt.~ promoted as a n,·,tl hid to the 1-lerrhauscn scheme
;ind the Arnenc.111 achrnmstra11011 h;1cl little dirticuit~· 1n 111;11111ell\Tlllg"
to
rliv1dc the West Eurnpcans and deglll thl' idea or us111gtill' EBRD as a real
clc\'e!opmcnl lc,·er. :-\nri once Chancellor Kohl realised that most or l11s
partners ,,·uhm thl' EC were set upon trving to slo\\' c:en11,1111111ilication
clown w a stanclstill, the final blow was struck against. an expans1onarv
approach to the CEEC:s: Kohi op1ed ror ,,·hat was 111 ellccl an .-\nsclliuss a11d
thnebv diverted I he credi1 capanues or the Federal Republic (,met or much
or\\'estern Europe rlunng the early I q\JOs) to 11s:11111excciEastl'J"Jl Linder for
ti](' rlurauon or the decide.
Thus did the CEECs encl up 111the hands or 1lw li\ff a11clWorld Bank.
This was the 1rleai soiuuo11 fur the U1111edStates because ll controls the
!MF and the World Bank ancl 1t could Lherdtffc mobilise resources other
than its own but under its colll.roJ. Furthermore 1hc li'dF approach n:guires
slumps rather than growth as the f".l\·011redcontext !"or restn1nuri11g- smce
tlw slump provides powl'rful prl'ssures on kc,· eco1111m1cactors and it
destroy:; the soual power or labour 111<.·co1101111c and poliucd life. ,\nd
linallv. the IivlF prngr:1111mcfor rcoq.~a111s111g-
poliucal eco1101111l'S 1sprcnsely
 1'01.ITIC:S IN Tl-IF. <.a.Oll:\I.IS,\TIO:-S PERIOD

geared to shap111.~the soual. mst1u1uonal and economic orders of Lhl· states

concerned 111ways thaL maxnmse the oppon.u111t1es for Amencan f'nr111sof
financial and manufacluring conglomerates.

o/Labo11r
11.'·ilat1•ffa/ljiir a Nn11 JJit•rn1111
:\ 1111'11m

Thus, by clefauit, the Gi clec1s1on ,ll Lile Pans summll ol' 1989 tu gin· the 11'vlF
the lead for handling the hea\'ilv 111ciebLedPolish ;111dJ-lu11garia11economies
ia1d the has1s for the US approach to completely dominate the mu:grauon
of' the CEECs. Tlus approach was aircady 1Je111gtried out 011Yugoslavia and
ar. the start or I 990, the US launched us agenda throughout till: region by
making the Pulis11 Balcerowicz Plan the flagship for 11s operations through-
out thl: region. The US Sl:cret,irv of State.James Bal.:.tT,was abk- to appl\' 111s
own Baker Plan, launched wllh such snmnmg effect in 198:l upon Laun
Amcnca's mclebted economies, Lo the fonm:r Sonet Bloc. 8
The huge academic mdustry on systemic transformauon Ill the CEECs
treats Baker Plans as if they have theu- ongms marnly m economic thcorv or
in some auwnomous processes 111 giobal economic and technoiog1eai life. In
fact, of course, the Baker Plans emeq~ccl from thl: def'cat uf the containment
liberalism of the 1960s, and of ligtll'es like Robert l'vlcNamara. IJ\' thl' roll-
back poliucs of the Reagamtc Right m the 1980s. Reaganite thmk-lanks like
the Heritage Founclauon prepared the basis for a great global coumer-
01Tens1ve by the United States to re-establish ns dominance al"ter the
catastrophes of thl: late 1960s ancl 1970s. Rollback applied not oniv to the
Soviet Bloc, labour and Third World revoiuuons. but also to tlw Third
\Voricl stales and thetr development strategu:s, along wnh thell' use ol' the
UN, UNCTAD ,incl other such bodies in pressing for a New l11tcrnaum1,ll
Econonuc Order. The opport11111tyto launch the rollback against tl1l: coun-
tries orthe South came wllh the debt crnncb or1982. By 198:i James Baker,
Reagan ·s Treasury Secretary, was ready to umTil his Baker Plan !'or Lill:
Third Work( at tl1e Seoul IMF conlcrence that )Tar.
The g-oal orBaker Plan restructunng has been to tr;1nsf'orm thl: sw1es alld
poliucal ecnnom1es of the South 111 LWOmam n:spec1s:

1) To replace a national mclustrial strateb'Y for development through

impon substitution, and the development of' the mtcrnal markeL with
a stratc1:,'}' based upon western MNC direct mvestment ancl cxpons
from the targl:t country to the world marl,et.
'.l) To replace a state-centred linanc1al ancl mdustrial svstem within the
cmintry wnh pnvale linanc1ai marl,ets, owncrslup of economic assc.:L~m
the hancls of private capllal, cleregulated labour markets ancl ;i strong
role for western FDI and portfolio investment
 Tl 11•:ENL\R(:I•:;',IENT OF N:\TO :\ND Tl-IE El' '.}09

These two goals c.111be encapsulated 111Lhe term 'globalisation'. The result
cloiA'-i'l<ll·,
"l,r course, preclude growth. But IL makes Lhe local polilical econ-
um,· 1111111cdiaLel\' and pers1sLc11Lly
dependent on 'global' market forces - in
other words, 1111dcc1sio11s ancl clcvciopmcnLs wiLhm Lhe core stales. The
changes have involved a rnclical restructurmg or Lhe social and political
s1n1c111n·soJ'non-core states. In some, Lhere have been political breakdowns
(noLablv 1n .-\frICa). in others the state has survived via gangster capllalism
(Coiombta. Boli\'la), while oLhers have been abic to carry through the
socH>poliucai Lrans1Lio11(Chile, Argenuna). BuL these have. ne,·enhelcss,
faced othlT 111enac111gconsequences: the pauperisation of large pans of
the populauon; a cununuing inabilitv Lo rrce themselves from debt, reqmr-
mg c•ms1anl stale inten·cnuon from the liv!F; ancl chron1e vulnerability to
linannal cnses and breakdowns 111domestic banking and linanc1al systems.
As Robert Chotc recent\\' explamed Ill the Fi11a111wl Ti1111•s'The 111Lerna-
tional linannal mstll.ullons arc now turnmg Lllc1r attenLion incrcasmgly to
t.ht'. state of cmerg111g-market banking S\'stems. Ami Wll.h good reason . .-\t
least two-lh1rcls of Lhe !rl'lF's 181 member coumries have suffcred hanking
crises smn· 1980. In developing and t.rans1uon economies, Lhc cosL of resol\'-
111g Lhcse crises has approached S2fl0 billion (,[) (10 billion) 111 to Lal -
absorb111g between ten and Lwenl.yper ce11Lof' a vear's national 111come 111
the cases ofVencweia, Bulgaria, i\-lcx1coancl 1-Iungan·. Banking crises inflict.
co11s1dcrahle damag-e on the economies m wh!Ch lhe,· take place. One
reason 1s that hank crcdi1 has grown rap1dlv 111 many emct').{lllg markets, rcl-
adn: Lo the size or Lhe1r economies. Oflen these banks hnld cons1rlcrable
sLOcksof domesuc linanc1al assets, operate the pavments svsLCm and prondc
liquidit,· LO scnmty markets. So when cnses strike t.her can cripple eco-
11om1CacU\'itv, chokl· off credit and piacc severe strains 011 interest raLc and
huclgetarr polincs. '"
\Vilh the collapse of Slate sonalism in Central and Eastern Europe. the
Baker Plan approach was Lransferred from Lalin America tn the castcn1 pan
or Europe, w11hs11nilar results. One state Ill the 1·cgion was unable to cope
111
w1Lh the 1rans1L1on mnil\'ccl m Baker Plan rc-engmecr111g: Yt1!-{oslavia. It
1hcrcforc collapsed. Other stales ha\'e developed as gangster capitalism - the
paltern in Russia and Ukraine. And manv states ha\'c been struck bv rnta-
s1roph1c linancial S\'Slem hrcal,downs - cu1-rc1Hh· Bulgaria, and earlier
l .11huan1a.
The western powers have required the cou11tncs or Central and Eastern
Europe to pass through the purgatorv or Baker Plan structural transforma-
uo11 as a pn:condit1011 f'or appl\'lng fi1r mcmbcrsiup oftbe EU.,-\ 1111111bcr or
these cou11lncs iian· come Lhrough this travail and hm·c rcllirnecl Lo
growLh - nutablv Polancl and the Czech Republic, along w11h Slovakia and
Roma111a. (l·lung,irv has so far had liule 1-cal gn>wth f'ollowmg lls Glla-
stroph1c slump 111the early I ~l90s.)
:110 l'OI.ITICS IN Tl IE (:t.011.\l.lS.-\TION l'FRIOIJ

BuL ti J"l'lllains to he Sl'l'll whether this growth or 1hc strongest s111Tl\'l>rs

will remain sustainable. The kc\' current holllcncck 1sa chronic and serious
trade cli:licll. As Ute Fi11r111n11I Ti1111·.,
reportl'd al till' end 111I ~l!Hi, ·.-\ ns111g
uck or J"l'Cl 11)), IS splashmg ll\'l'J' the J"on:rg-n IL1de a1.:n111111s or n·11tral
Europe· and there is 'a loommg- balance or pa\·ments crunch aml 1h1s 1s
'alreach· spark.mg warmngs from central bankers and linance mimstt·rs Lhat
19!)7 will requirL' liscai and nwnctary ughtc11mg Lo rl'<h1ce doml'sllc
<lemand. slow the growti1 111tmporL,; ,incl frce resources li,r L'Xpon.' 11lh la1c
1~198Lins 1racie weaknl'ss t1acl 1101been reduced. The sourcl' or tlwse p;1v-
111ents pn,blems 1s not cn:lical, but structural. On the one hancl the new
pnipcrued ciasses are sucking- in rm ports or consumptHi11 g-oods, cspcc1all\'
from Germanv whrch no\\' exports 1110rcLo the ( :EE.Cs than II exports to thl'
USA, acrorrling lo the B11nclesh;lllk. 011 Lhc 1>thci-hand, after the clcs1ruc-
uon or severe weakenmg of Lhc more ac1,·,u1ced mdustnal senors 111 the
rcg10n during Lile Bal,n Plan slumps or t.hc earlv I ~190s, exports from the
Czech Republic anrl Poland are mm· COlll"l'JllraLccl 111 low Yal11e-aclcleclsull-
conlraclllll-{ lc.1r'Nest European companies, based on cheap bhour rosL~:
'\-!any western comparnes arc shifting iabour mtcnsl\·c prod net lines to take
a<lvantage or much iower iabour cosb just o\'er Llw1r eastern border. The
problem 1s Lhat. Lile result.mg exports nf"ten consisl of' mark-up clothes or
cng-inecnng sub-assemblies made from pre\'louslr rmponcd doth or lo111-
po11enls. Tins means th.It lughL·r exports ·,ire clepcndt•111 nn pn·\·11,us
nnpuns, and iabour is the only real net value-added.' 1~
The specilic acuviues or Lhe EU 111the Lradc licld have onl\' exacerliatnl
tile tcndenues towards a g-cnernl duwnwarcl n:slrunurmµ; 111" the C:EECs lo
low value-added, l.tbour-1111ensn'L' operauons through st.ronglv mercantilisL
trade polines. The consequences ol' Lhcse policies ror CEE ag-ricttltuH· ha,·e
been extremely c·lamagmg and Lite m<lttslnal stn1Clt11"esor lhc regum ll,\\"e
been weakened by the cxpon dnves ol"wcswrn companies supported bv the
subsidies ol"state expon credits (perversclv classilied ll\' the s1ates l·onn-r11crt
as ·,ml' 111Lhe importing states). The 011c s1gnilica111 Eli progr;11nmc 0L11d
lo the cmrntrics 11f Lhc rcgmn, PI-1.--\RE,seems to ha,·c been p1·edonrn1autl\'
gcarccl Lowards ass1sung western cconom,c operators Lo acq\llre assets and
marl,ets ,,Hhlll lhe CEEC:s, wtth PHARE funds ~rn11g less to tile 'renp1t·111
slates' th;rn 10 western firm,.

Ffi,, EU: Fmm 0111'/)hwlin~ /.1111•to .-l1wtlwr

The European Union leaders and the polillcal elites or most or the ( :EE<:s
ha\'e bel'n 111s1st1ngover the iasl seven years that the JiVIF-leclrcslrunurmg
has been an essenual preparauon li.,r the people or thcsc courllrn:s LO jrnn
Europe· The peoples ot' Lhc region lla\·e iargdy pu1 up with the st11Tcr111gs
 Tl IF ENL-\IH :t·:\IENT OF N.-\TO .-\NI) Tl-IF. EL' :\ II

ol' the 1990s because the\' han: hclien!d tllal. t hl' 1mpm·ensh mc1 ll, l!calt.h
pmblemS'1llHI collapsing 111frastn1ct11res Lher have expenenccd have been
an essl·11t1al prcco11cli111,11for e1111T11111,lhe E11n,pca11 l1111011.
U1di,nu11atch·. this 1s not Ila· case. All tlw co1mtnl'S ol' the reg1t111.en·11
the richest, are iess absorbable 11011·hr the ELI than they were Ill the 1980s.
To appredall' why tills 1s so requires some co11s1dera1io11of what tht: kt:y
obsta<:les LCJEll 1111:111ht:rsi11p actuallv arc.
In some ol' Uw past enlargemc111s ortill· EL 1 Lite kc,· probiems ha,·e been
allout 1ln: rc;1di11ess of ne11· 1111.:nibcrstales to ac:n:pt the au1I11sm11111111111111tam~
111otltcr words, applica11ts must he reach· to aCCl'])t all tile ex1st111g po line:,; and
law:,;current.I\' m force withm the member states: ther callnot st:ek to 11egot1-
ate ch,111ges 111these fl/'1//11.1: the,· 111usta<lapt to them aml hear the l'ull brunt
of th<.:costs oraciap1:it1rn1. But the ma111 probicrn 111tlil' ctsL· oJ' the l'ast1\"arcl
eniargrncnl or the EU is exanly Lhe opp11s11e,11,1111ely:1slite EU itsi:11" prepared
to extend Lhc arq111srn1111111uw11/t11l'I' Ill fi11lto the eastern applicants~
The ('rank answt:r to d11s queslr(lll 1s: ·;,..,•o!'There rs 110 qttest1011 whate1·(T
ol' lhe Ell l'Xlt'lHli11g LIie u1rn:111 11cqrr1.\,1s a whok ltt thl' Poks or tite
I-lu11gana11s or till' ( :,Tchs, lle\'er m111d others J'urthl'r Easl and South.
lnsLeacl, then: are 011lr two po.\sibili11cs: eaher the tll'l/tll.1 ll'ill lw ch;ing-ecl
before some 111' lhc \'iscgrad cowllnes are integr;1tecl; or the Visegrad cou11-
tnes will Ill' broughl 11110till' EU as second-class penpher\' states. Aud the
mam n•;J.\llll hr Ell' for these hl·JJ1g lhl' onh· 1,, .., cho1t'l'~ li1·s III Lhl' n:la11,·e
poverty of thl: popllbUons of' tht:se slates, a pu\"erty wl11ch has ticen enor-
111011slyexacerbated ll\' the Baker Plan 'En11wm1C Reform· ll"hich t.hey have
suffererl 1n the 1991b.
Table I'.!. I shows the trans111w1 costs 111(;l)p per rnp11;1terms.

Table 12.1 Comparison of GDP Per Capila ($US)

/ 1)89 /1/1)]

<.:FSR 9.0-IX ~.((j(I

)·[t1Il",ll"\ 7,0'2!1 :\.000
" .
- ,,--
Poland :J, ....:l/ i.%0
.-\11~1n;i I i,:,'21' '2:i.-1!11
Spau1 I '2.-I~1:; 1-1.illli

Snurn ..-: 1)~u11d { ;.-u~ ;11111 .-\11cln:1( :011nar1: \ .\'ot,· 1111 ti,,· Trad,·
l't,k11t,,d 11/( .",-11/l"ul rJ \\" <;ut"dn· l ·,un·f'oll\",
11ml l:iol,·u, l·:uwf"·
Fr:111k111111.

The tmprecedc111ed destn1cuo11 of c<.:onulllll' assel.\ 111 the CEE reg1011

and tlH· clownward rcstrucwnng oJ' these L'Co1101111L·sdoes not Ill any
wav make II di1Tic11l1l"or thl'sl' states lo 111LTlthe c.:r11t·na ol' the aor11is
 POLITICS IN TI-IE CI.Oil.-\l.lS:\TION PERIOD

m11111111111111trun'J. Thev will be more than liappy, ror example, to aclhcre to the

Strucwral Fun els, 10 the CAP, to Free Mo\'ement or Labour. Thl·se would all -
g-reatly benelit them. Ancl since their expon 11Hlustries arc increaslllgly
'globalisccl' b)' being inscncd mto the m1ernal cliv1s10nor labour orivlNCs,
while their trade protccuon regimes have already been largely clismantlecl,
thcv find it fa1rlv easv 10 change their laws anci economic 111sL1Lut1ons to meet
UH: brnacl requirements or the Sing-le Markel.
Bui all these pluses for the CEECs m terms or case orl'nlr\' arc also prc-
c1seiy the reasons why the EU member staLcs arc m•envhcim111glv hostile lo
extending the arq111J to the CEECs. To do so would cost the ELI \'ery large
financial transfers. It wouid also enable, \'ia the free movement or labour,
iarge numbers or po\'erly-su·ICken workers from cieprcssccl regions of Poland
travelling imo Germany m search of work. This problem woulcl Ile exacer-
bated by the EU-encouraged efforts or the Polish government lo orgamse a
!)lg shake-out or lat)Our Ill Polish agncullure before accession.
There arc, or course, also m,~Jor problems m rcstrucl11r111g the Eli's dec1-
s1on-making inst1L11L1onsror an EU or. sav 1,1•enty members. l)ut lhese
problems arc already acme with or w!Lhout enlargement: the EU 1s today
scarcely capabic of cla11ning Lohave a cot1es1ve, clemocrallc dec1s1011-111aking
su-ucttll'e with or wnhout the adhesion of the CEECs.
Against this backg-rmmcl, the CEECs' governments and poliucal elites arc
seriously concerned abom the reai oncntauon of the EU member states Ill
rclatmn to eastward cniargemenl. The record so for 1sfar from cncouragmg.

EU C:01111111t111n1is
am/ 'forll/'s So Far

It was only m the 'summer or l 99~ that 1.he EC gave c\'en a h1glli\' qualiliecl
commitment, at the Copenhagen Council, to the eventuai intcgrauon into the
European Umon or the CEECs. The December 1994 Essen Council did not
make the commllment m<ll"L'definite but did mitiate a Str11ct11rcclDialogue
between the EU am! the CEEC states wllll Europe Agreements wuh the EU. IL
also asked t.hc Crnmmssion to produce a \.Vhlle Book 111clica1111g the tasks
whtcb L11eCEECs hacl 1.0 accomplish 111orcler LO bnng their iaws ;uHI institu-
tions into line w1tll the EU Singie l\farket. The PHARE grant aid programme
was also redirected towards ass1sung the CEE.Cs to prepare for accessmn. :\ncl
at the 1995 Dublin Council, the EU clecidecl 10 mstruct the C:omm1ss1on to pre-
pare clocumenL-.;on the issues involved in cleuding on eastward enlargement,
\\'h1ch appeared in the autumn of' l 99i. ,\ linai aspl'cl nf these cle\·elopml'llls
h,L~been the so-called Stability Pact, launched hv t11eBalladtu- Governmem 111
France Lo'ensure that Lile CEECs son out all their cth111cand 11Hcr-s1;1te prob-
lems through lcgallv bmding u-eaues, in order to ensure that such prnl)lems
will not he an obstacle both to European stabilitv and LocnlargemcnL.
 :\II aspects of this Lram of e\·enL~have been shot Ll1rough with ambivalence
and <.;\•nsioi~.Br far the biggest e\·aswn lies m the EicLthat none orthe steps
taken s1>far has acldn·ssed Lhe n·nLral problems of real preparauon f<Jr
t·nlaq.{ement: nameiv alLedng the ex1sung rffq111s-111 other words reforming
the EU in nrder to make n capable of'absorbmg the CEECs. All such mauers
have been postponed until 1999 and inslcad the 1111press10nhas been spread
that the cl11ef'probiems of' enlargement lie within 1he CEECs and in their
1nst1Lut1011alsLructurcs and processes in parucular.
This suggcsts an ob\'lous tacucai opuon 011 Lhc part of Lhc EU: 1hal ot·
dela,· and div1s1on. This option woulcl consisL of' decianng thaL unfonu-
nateh- the CEECs - or at ieasl the hulk of them - arc noL qune ready for EU
111vmlwrsh1p. The ong1n of the tactic wonk! be Lhe EU refusal to make the
nt-cessary commnmcllls Lo mcorporaw Lhc CEECs, 01· tile l)U)k or Lhcm. But
this ongm would be concealed behmd claims Lhal Lhe prol)lems lay wiLh the
failures of' vanous CEECs Lo live up Lo \Vest European standards of democ-
racy and markets. The real basis would he the clause m the Copcnhagcn
Council dens1ons: 'The Union's capac1Ly Lo absorb new members, while
maintaining the momentum of' European mlcgraLion, is also an 11nportanl
co11s1derauon ' Bm thl'. oJiic1ai basis would he Lhat vanous CEECs were
not quite democrauc enough or not qunc free markcL enough. Ir Lh1sis Lhe
case, the conunent 1s 111 for a dispmung and i1Vpocritical exercise w11h
po ten 11allydcsiahilising consequences.
It will he dispmung because 11couid mvolvl' us in makmg- 111nclious and
unpll'asant compansons bcLween Lhc two halves of' the con11nc11t: 1s Lhc far
nght stronger 111 Romania Lhan in .-\us1na or France? Is Lhe Turkish minor-
ll\' more secure in Bulgana than 111 German~•? Do the Slovaks have a lll<ll'e
sl'curc sel or const1tlllional safeguards Lhan Britain w11h 11sunwrillen con-
s11Lut1on?Have ll'.llSH>llSand conflicts mn>inng Transvlva111a·s Hungarian
Protestants been handled wiLh greatl'r or lesser respect for the European
ConvcntHm of Human Rights than conflicts 111 the UK concerning lnsh
( :atholics? Do Lhc states or Lhc region come off hcucr or worse 111the lick)
or public pro bi LYor corruptmn Lhan I talv?
It 1s aiso hypocriucal 111 a double sense: lirst, because such criteria will
ha,·e next Lo 1wthmg LO do with the real cr!lena, go\'crnment EU densions
about EU acccssmn: and secondly, because Lhe degree of democraLic stabil-
iLYand l'Conom1c \'iahiliLYof the CEEC slates depends, m reality, as much on
whaL the ELI docs as on what domcsllc act.ors 111 Lhcsc cotmlncs do.
The n:ai cnlcrion for choosmg the countries which will be 111 Lhe 'fast'
Lrack for membership will be uenher dcmocrauc stabiljtv nor econo1111C
sLrength, hut the criterion or weslern geopolitical mtcrest.~. above all the
need LO consolidate Lile mcorporaLion or Lhe states constiLULing Lhe Eastern
llanks or Germa1w and A11slna.
 1'01.ITIC:S IN THE Cl.01\:\I.IS,\TION PERIOD

'f/11•[)011/JI,• /)i11rno11 o/E11m/Jt'

The divismns accompanvmg the NATO expansion and those aue11di11g the
EU's cliffcrcntiations between applicants will remforcc each other 111 dan-
gerous ways, mutually n:mforcing each other and deepen mg both splits.
The NATO enlargement takes piace before I.hat or the EU. Indeed, con-
trary to the views of politicians 111 Poiancl or 1-lungarv, these coumnes' en LIT
into NATO will 1101speed up l11eir entry in LO the EU. hut may 1111ireproba-
bl)' act.ually enable the EU member s1a1es to ddav 11.. :-\t the same time, Lill'
tenclencr amongst slates excluded from NATO Gill be to increase i11secun-
lles and ri\·alrics, not only m the former So\'let Union hut also 111the
Balkans, thus nsking the diversion orbudgetary resources to militarv spend-
ing and thus 1mpos111g-fnnhcr strains on their cns1s-nclclen cconom1t:s. ,\t
the same ume, the ELI s1gnai that some of the associated states can forget
accession 111 the ncar future will exacerbate mternal poliucal stra111swithin
them, making them a greater 1m•estment nsk and raising their costs or hor-
rmvmg- on imernational linanc1al markets.
Those countries wim:h are offered eventual membership or the Ell will
pnibabiy not .10111the Union for al least another se\'en rears. And even lcir
them, the prospect of ga111111g- the full current aa111Iscan be ruieci out. The
only question will be whether the systems of transfers will he reformed on
the basis or some principle of eguity across hoth new mcmhers and old. or
whether the arrangements li.lr the new eastern members will he ohv1011sh·
those for a scconcl-class status or membership, as a recent Commission
report suggested.

'C:cmd11.1w11: Shorh T/11•m/1y

Tfu, Nt'l'Cl_/i1r

The mlellectuai key Lo linding wavs to rc\'crsc the ch·irl towards a new era of
division and conllict 111 Europe lies in tur11111gcurrent problem clcli11itio11s
011 their heads. The current problem-solvmg aµ;enclas 111Europe all have one
thing in common: all thc problems, tlu-cats, 111stabilit1csand polic\' disasters
arc hclcl to reside in the East. Wort, towards a solution can bcgm when we
recognise that the mam sources of the mam problems in fact lie 111 the
\Vest. Amongst. the latter, two arc fundamental and interlinked: the lirsl 1san
unsustamablc model of capHalisL gniwth; the second 1s an um·1able - or, at
least, destabilising - model of imernationai poliucal management.
The crnTenLly fashmnable model frlr cap11alist growth is that or 'globalisa-
tion' pius 'shareholder value' - 111other words, grabbing market sharc abroad
and puuin'g the mterests of rcntiers in securnies markeL'i lirst. It is unsustam-
able because it 1s economically indlic1e11L on a gigantic scale and IL 1s a
svstematic breeder or srstemic crises. It aiso ulumately threatens wes1cn1
kadersh1p of thl' world economv. The fact lhal it also curn.:lllly g-encrales
cnoi;mm1s fonunes for \'erv small soc1ai groups both i11the WesL and Ill lhc
Easl only makes it more dangerous because mort'. dil1icu1LLo change.
Clobalisauon 111 the C:EEC:s has been, and 1s colllinuing Lo destroy vast
amounts or productive assets, through subordinaung economic life to the
logxs of lina11c1al speculation. In I ~19(), 11 per re111 or ilulg-ana's GDP was
sacriliced 011 the aitar of"lhe prel'erenn:s of i11ternatm11al li11a11cialspec11la-
t1011. These kinds or breakdowns arc normal and svstcmic withm the
µ;lohalisauon model: Lo cxplam them by rerercnce to Lite acU\'1t1es of a
finance mm1ster 111a Balkan cou11u·,· 1s to lun1 rcalit\' 011 Its lwacl.
At prcselll 1h1s svstcm 1s staggering from one local blow-out to another,
av01ding· a svstemic collapse ll1rouµ;h frantic and ceaseless slate mtervention
hv the C7 stales \'Ia lhc li\·IF. This chaotic financial context 1s linked to deep
sources of stag-nauon 111 the West's mdustnal slruct11rcs. The lack of prof~
itable outlets for proclucll\'C investment f'cccls tile globai speculath·e bubble.
It also threatens fierce mduslnal wars between the mam western states as the
sem1-monopulies or each stale tn' 10 grail market shares from their nvais. To
prc,·e1H such conllicls, the wesl<.-r11states see!, through globalisation to grab
extra market shares fiir their main companies 111the East and the South.
The\' also try lo open new regw11s or capllal gro\l'th wllh1n 1.hctr own
econo1111t'.S,·1a pnvat1sauo11s and auempts to wr11 welfare svs1ems into zones
of capital growth for tile pn\'ate ri11a11cialmarket.~.
:\cross all these ac11v11iesthe co111111u11 llu:mc is paupcns111g c,·cr-larger
g-nn1ps of the worid's popuia1io11. The weakest reg-1011sbear the bnmt. or the
miser\'.
In these westcr11-cen1recl processes lie the orig-ms of 1he most serious
problems or the CEEC:s: the groups of g·angs1er cap11alis1s, lht'. corrnpt
bureau(Tats, tile sonai and i111cr-eth111c1c11s1011s. the mal11u1ntion. disease
and mountmg death-rates 111 large parts or the reg11lll.
This econo1111cally a11d sunall\' n:grcssi\'c growth model is mteracting with
a s,·stem of inter11a11011algo\'cr11a11ce m lht· West which is raclicalh· clvsli111c-
11onal. It is also he.~t understood bv situating II wuh111111ter-capi1alis1tensions
1111he West. :\t the encl of the Cold War. the U111ted Stales faced the possi-
bility that. the mam West European states could reorganise 1he poli11cal
ccunom,· or -ivcstcrn Eurasia Ill the interests or tiwir own s1.rateg1es for inter-
nauonal capital accumulauon. This could have been 111a11ag-ed either Ill the
framework ofa pan-European collecl.ln'. secunt\' order. or through a co-opcr-
all\'e arrangement between a 'Nest European \-\'Ell a11d a 1vtoscuw-centred
Eastern secunt\' network, or through some combination <!l' the two. NATO
wo11ld l1ave declined and w11hered. For the Urnted Stales 1h1s would have
marked a clang-cro11sioss of political and econo1111c111Jl11cnce.
The Clinton admmistraLHm therefore embarked upon a campaign lo
ensure !ls continued 'leaclersl11p o\'cr Western Europe·s rclauons with the
'.\I Ii 1'0I.ITICS IN TI-IE t:I.OB.-\l.lS.-\TtON PERIOD

rest orwesh:rn Euras1a. lirst througl1 l11e Bosman war ancl then thn>11~11 1he
enlargement orNATO 11uo tile Visq~racl states. US concern for co11t1n11ed
control over Jls West European ·allies· has been the l)as1c rauonale for
NATO's enlargemenL. The consequcm:es of this cnla1·geme11t 111 the
excluded zone ancl the possibic roles or NATO m tlH: East have hel'n sec-
onciarv details in this cnure process.
The \-VestEuropean states were ready to accept this US campaign because
their own mter-state s,·stcm has been gricllockccl: onlv Gcrmanv coulcl gwe
a lead but the other ma111 states or the EU clevotc their cnergws lll prc-
vcntmg German lcaclcrsll1p. As a 1-es11ltthe onlv forms or collec11,·e act111n
on wluch the \-\'est European states can unnc arc those where the,· h;1n· a
common interest 1n exporting problems abroad bv engag-mg in collccu,·c
mercantilism agamst weaker actors in the mtcrnauonal poliucai ccononw.
Gridlock on mtcrnationai poliucal strategT wJLllm the EU forms the: basis
for the return of American ieadcrslup in Western Europe as a supposc:cl /mu-
vwr 111!11/rt'above the peuy, provmc1ai squabbles over an cssentiall\' tn\'ial
agenda within the so-called Common Foreign and Security PoliC\' of the: ELI
and the WEU. The US concept or NATO cnlaq~ement met Germa11\';s
immediate need ol'sccunng Poland as a buffer on 11s eastern lla11k. while 1he
French and Bnusl1 hacl no posiuvc alternauve to offer.
The resuils orthese macluavt:llian power m,llH>euvres among tht' \-Vcstern
states 1s a policy 1owarcls the excluded European zone that can best be
described as unpnnc1plcd ad hocery: the antithesis or a genumclr norm-
hasecl, pnnc1pled approach to security issues. It is entirciv unclear what
prmcip1c, for example, the Western powers stand for in their clfons to re-
orgamse the former Yugoslavia. They arc ev1cie11tlynot m favour ol' cth111c
se1J:detcrminatto11 for the nucro-nations of the area. On the other hand,
they arc aiso not, it ·seems, 111 favour of respecung the territonal i111cgnty of
the cx1stmg states that have emerged from the \'uguslav collapsl·. NATO
claims the nght to launch aggrcss10n agamst a sovere1g-n state - the new
Yugoslav state - because it is hostile: to the tnternally n:press1vc policic:s of
that state m Kosovo. But tl s11nultaneously rc_1cctssell~detcrmmation for the
Kosovar Albanians because thaL wouid undermine the 'prmctples·· applied LO
Bosma al Dayton and the 'prmcipics' applied to Macedonia. At tile same
time, NATO's Amcncan icaclership 1s dctc:nnmed to ensure that IL has the:
right Lo do as 1t pleases, unconstrainecl llY UN pnnc1ples and resoh1uous.
And there ts a vawnmg- gap between NATO's attempt to legitimate 11s power
piays in Lcrms or human ngl1ts (rather than the nghts of states) ancl 11s
instrument fix suppuscdly enforcing 'human rights' - missile attacks anrl
bombmg raids.
There is hn o\'erarchmg strategic concept orsons in the double enlargc:-
mcnt. It 1s a strate6'Y for Amcncanising the social structures orEurope wnhm
the NATO security penmclcr while Ccntralamericarnsmg the hinterland
hen>11cl1hc pr.:nmeler. FirsL. the CEECs haYe become and will contmuc lO he
a s1g-i'1ific)1Jn11mirlle-class markr.:Lfor western muluna111111alsgrabbing markel
sh,1n· there at will, using LilL'Single 1'vlarket rules embodied in the Europe
Agreements to ieg1t11111se their market dominatmn. Second, the CEECs will
offer a lim11less supply or cheap iahour for western multmationals to use hH"
the labour-11HL'lls1,·epans or t t1e1r product.ion cirn11ts. Thll"cllv, these aurac,
tions will be used by big capital in Western Europe 10 thn:aten to exit
eastwards unless \.Vestern E11ropt' Americanises i1s labour markets, t.urns
thl' \Vr.:ll;irc States mto m1111malsali:tv nets and allows Bnush or Amenc.111-
slvk s11c1al111equalit\', pon·rtv, urban clecar ancl pns1111pop11latums. \·\'cstcrn
Europe will be disungu1shable fr11m the USA lml\· by lhe virulence orits
1111cr11alracist. neo-fasnsL a1HI Xl'nopl10h1c lllO\'ellll'llts.
,\ml. increas111gir, the Europe w11hi11the senirIL,· pen meter will be uniiicd
lff !'car or the ug-Jv arc or powrtv and pcilitical turbuience stretchmg from
the Kalinmgrad tnangle to the Balkan mo1111La111s. TlllS will be the spunta-
11eo11sresult or the current 11lllTllal11mal political econunw rcgmie for the
l'Xdudl'd region or Sm1l11-Eastl'rll and Eastern Europe. and of the current
N.-\TO power pn~1ce1\ capncu1us cocr-ci,·c rlipiomacv. It 1ssrmph· utopian to
1111;1g1ne1hat the current Lrcncls 111 Russia, llkr,1111e and South Eastern
E11ropl' can c011tmue mud1 longer without gran· ancl tragic co11sequc11ces.
B111tl11s spontaneous drif'l will not easih- be changer!: the globalisatio11-
cun1-11co-liberal polin· cvcle 1s still on 11supward curn- in Europe and there
1sstill a nch Yein of resources fo1·capllal growth to be dug out of western wel-
fare states, CEEC debt and the C:EEC pnvatisat1011s of state enterpnses.
espenally the pul>lic utiliues. And the political path towards an ahcrnative is
lirmh· l>iocked hv the lack or iedcral dcmocracv w1Ll1111 the EU, the disarray
1111 the European leh aml the g-rcal power interests or the Unncd States 111
western E11ras1a.
I I will thl·1·cfore take more than pers11as10n LO ch;111gecourse 111 Europe.
Thl'rap1cs will not he applied 1mtil an exogenous shock hrmgs home the
truth that the \Ves1's 111terintk111gstructures or acc11nrnlaLH111and gm·er-
nance arc not acccptabie. The best kind of such shoct;. leading to therapr
woulrl he a sonai movement lw the peoples of Europe Lo demand a New
Deal. The worst would be a blow-out in the globalisccl li11anc1al svstem or a
rull-scak breakdown of order m the big republics of thl' former Sonct
L1111ur1.
Then: 1s a lle\-ertlldcss perrectl\' n;1ble alternative /)()fi<Jstratq,•y for l he
re1n1c~ratic1n or Europe 011a cap11alist basis. Inn 111s1111ethat would regmre
a 1>re;1!;.w11h the America11-lecl _l{lubalisauon-neo-lihl'ral approach 111 eco-
1101111cs and with the Amcnc.1n power poli1ics strateg-)' for the European
region. Thus 1hc obstacles to an alternative lie not Ill polin- ideas but 111
poliucal trends.
Thl' alternau,·e straLCh'" 1s 1111ecentred upon market growth wnhm the
 1'0I.ITICS IN THE CLOB,\I.IS:\TION l'EIU< JI)

Easlern rq.pon; a strategy for rapid rc11Hh1stn;tlisa11on m thl'. East through

,·crv l.irge 111rras1r11cLUrepn(jccts and thru11gh ;1 serious pan-European
campaign for the desperatelv needed re\'lval 01·ecD1101111C devciopnwnl 111
the CIS, pan1c11iarlv Russia and Ukrame. The 111a111ecm111n11cobstacle to
such market grow1.J1 Ill the East lies m Sl'n·rc pa,•Jllc.:-111s constraints facrng
states 111the reg11111:heavy 111dclJLcd11essand curn.·11t account deliclls. Wi1h
the arn\';d or tile e11n1, these problems cot1ld be o\'ercome llll'ough a l)old.
both the Europe;m Cenlral Bank and ;111EU
co-ordinatcrl strategy 111\'ol\'llll-{
'economK gon:rnment'. The currencies in the E;1st could lw underwnucn,
substantial capnal transl"l:rs lill" 111frastrt1cture 1m·estment 111 the East could
be ra1.~eclthrut11-{ha large public bond issue at EU level, g-tl\"crnmcnts 111the
East could l>c encouraged to re-11npose controls cm their capital accounts.
Lile\' cnt1lcl IJ<:g1,·en new lkxibilitv III thell" track- reg11nes and 111dt1stnai
policies ;mcl co11ld be g1\'t:n f"a1·more g<:111:n,t1saccess Lo the Ell market.
\Vith111 sucll a new strategic framework, \Vesler11 E11rope's economy cmtl(l
rc\'l\'e and 111comes could be substanuall\' ra1sl·cl in tile East. \Vith ns111g
111comcs 111 1he East lhe nn,• scnll"ll\' b,trncrs bcmg erected along- N.-\TO\
ancl the EU's i)(lrde1·s could be o\'ercomc and the European Sooal i\locll'l
could be prcser\'ecl. Such a gcmunc rcconstrucuon and developmc11t effort
coulcl 1>1.·combmecl with a new, more gcnt11ne colkcu,·e scct1nt,· rcg-1111c
bemg- built arross the continent, one that would have the broad autlwn1.,·
Lo mediate and hcip maintam peace bv gainmg conlidcnce on the pan or
both sides Ill conllicts. And any such new stratq,'\' would have to end t.iie
clang-erous trend towards tryrng to exclude Russia and Ukraine rrom
European alfall"s.
There 1s enormous de\'elopmcnt potential still 111the Eastern rcgulll or
Europe. Cro\\"th rates or IO per cent per annum 111many or these states arc
not u11th111l,al>leil"'a strong, elkcli\"l' framework for linanc1ai, mone1an·
and trade relations was put 111 place. This stratq,'\' 1111glum,·ol\·e a ch:ia\' 111
tile Ell's Eastward enlargcmcnt, but JI would meet the re.ii goals or pl'oplc
111 tile CEEC:s when the)' seek tu .10111thc El 1: ,I stratq.,'\' fill" rapid susta111t·d
<:co11om1ccln·clopmcnt in the East; ancl a gc1111111e c11111111itmen1 011 the pan
of Westl"rll Europe to make the soc1cues uf the region !{e1H1mL'L"quals \\"1th
\Vcster11 l~urope.
But such a new strategy would reqture three pn:ccmdit1011s that are cur-
rently lackmg-. First, a break with the social pn~1ects or giobalisatwn and
neo-liberalism. The fate of'Oska1· Lafontame shows how far we still arc from
that. Seconcllv, it would requ1n: a serious i11ternauo11al poliucal leadership
at the EU ie,d. or at least at t11e Eurolancl le,·el. This ieadership c.111come
onlv from German\' and France working tog-cllH-r to transform the ELI 1n10
a gcnume rioliuc.il actor capable ol'actmg- su-.1tcgteall\' 111the pan-Eun>pc.111
political cco11011w.It wo11ld require a genuinciv federal 1nst1ttllional rle\'l·l-
opmcnl and the building or a real democratic 1d1.•11111,· \\'llhm Europt· -
 Tl-II·: E.-sL\R( ;E!\IF.;,n- OF N.-\TO .-\Nil THE IT

without thesl', the respomcs or s1g11ilicant pans or the El' to tlus s1rall'gy
11·miid-'he10 1rpposc 11,ts hl'111g. :illL"gedlv. too Ccrm,111-ce11trl'd.
Bul then· 1s a third gn·at prot1l..:1111rith the stratq.{il rl'•c1r1l'11tat10111\'111ch
ll'l' have proposed: llow to 111a11agl't Ill' hostility or the .-\11glo-..'\111cncanstate.:
a11d husmess elites 111\\',1sh111gtrn1 ;111cl amongst "ThJrd \·\'ay' Labour and its
1111s111css <To111e.~? This 1.~ 1101 11ercssarih· an i11st1pl'ral>lt· problem, hut 11 1s
one that the sonal dl'llHiuals of \Vestern Eurc1pl' arc unlikch·. g1,·c11 their
past rernr<I, to he able ll> o\'l•rconw. The line or least res1sta11tc is so much
l'aSll'J".
Thus the most likcil· \'anant may lw hack tu 1lw f11t1u·c:liack LO19'.!0s-stYlc,
gross!\• 1111equai states 111 \·h:stcrn Europl' \\'Hll narnnr sonai has1.:salo11gs1dc
broke11 down regimes 111the East: nsing- xe11ophoh1a and 11co-fasc1st cur-
rL"nls in the \Vest, conti11111ng stag11at1011 a11clmountmg- sonal dq.i-radat1011.
011[\' the forms <>I"rlen1C>cratic ddirn mav he clini:re11r. Wl' h;1d tl1t1ught that
1111env;ir capualist sont·11· \\';1s :1 d1111gor I.ill' past. a cit'l'lal1011 u\'L•rcc,11wbr
postwar soual progress. But ll turns out that 11w postwar souai g;1111s\\'l'rL'
the dc\'la\1011 and the llltl'rWar stall' a11d S(lctelv 1:sa~a111 I lw 11or111.Post\\'ar
son.ii progn·ss w.is. 11 Sl'l'lllS, a 1;1ct1ral. at1erra11( ti 1r111of Eun 1pl'a11 cap11:d-
1s111made lll'tTssan· I"· tin· rh;tllcnge or C:ommlm1s111. \-\'l' l,11m,· nt1\,' thl'
secn11d hair or that Sl'Jl(l'lllT wh<lSL'lirst hair. so s1rong-ir iwlien:cl Ill I ~l89,
statecl: '\Ycstcrn-stvle welfare c1p11alism 1s beucr 1Jia11 Eastern
Commurnsm 'The second half'wenr un11011ced ten yl'ars ;1140. It reads:
but Wt·srt·i·n-stvle welE1re cap11alisrn uni\" l·x1stcd lll'r:tuse of romm11-
111sm Europe seems to lw rh·ifting- towards a dinrlecl. turlmle11t a11cl 11~ly
r11t11rl'.

I . .-\dn;u1 lhidgl·. ·~al1> rhi,·1' 1u11r"i.,1:111·.,tigli1111~ to _)!Jill ;11lia11n··. /,11/t-J1,·11,l,·r11,

1~ .-\pri1
l!l!lli.
:!. Tht.· l)n·c11ilwr )~)qli ·"'_.\n>1111n1.,11·f1;ll lnl'l"llll~ nili.,n11t·d lhl' l~u,,1.111 ~l>\°t"l'l\llh'lll 1ha1
N.-\T() dew:-.110( pL111 tu :-.t~llll 1111111d1·;u· \\T,1pt111:-. 011 Puli:-.htc..·tTllor\'.
'.I. Russ1a11 ()..Ji•nn· ;'.li11"1t·r Igor R11cliu1101· has wan11·cl 1ha1 N.-\Tlf, 1·11l;1rgl'1t1,·1111111ght
li11n· R11ss1a Ill target 11ud1•;1r 1111"ih-s 011 ,·m1111nes _J11111mglh<" .-\lla11l1t· alli,1111·c. Sc,· !Ill·
/111/,tww/1·11/,:\o No,·1·111h,·r l!l!lli. lkbr11s l'r,·sick11t l.11ka,l11·11ko warned th;it 11.-larus might
still \\'alll I" kl'q> th<" 1111d,·;ir w1·apo11s 1111irs t1·n1111n· ii l'olancl 10111<-cl :-.1.-\TO.S,·,· the
/111/r/Jtml,·111, 1-1Non·111J,..r l!l!lli.
-1. l.1·h,·cl. whil,· still \i.•li-11,·, s.·,·unt\' <"hid, warned ol"a d1;111ge 111 R"""'-,
aHlltl!I.- 1111r;mls
arms control tn·aues at Ins 111<·,·1111g ll"llh ~_.\'('() 1,·ach:rs 111 Brussels 111 Clnohl'r. S1·1· th<"
8 Oc1oh,·r l!I\Hi.
l111l,t1,'llll1·11I.
:1.Cli11t1111·s l),,11·1111sp,·•·• I, 111ark, th<' <h·li111tl\'<• .-\111L·1wa11Cllllllllltn1,·111 lo r,1pi<l N.-\TO
l'Xp;111Slllll.
h. S11sa11 I.. \\"owlward. l:f/ll:,111 'lin~,-,lr. (.lwo., 1111,/ /Ji"""'""" 11ft,, (/r,· L,./,1 Iii,,· (1'111,
1\11111ki11gsl11,t1111111111, I !l!I:, I. I 1p. I !lli-\17.
-;_ 11,· was ass;is..,1uatecl_ju:-.t lwltu·,· lit.·wa .., dt1L·1c1 1111n·illu"i ptu1 111:'\c..·h· ,t,rk. Tlil' a~.,.1,,111a-
111u1 w;1s hlaint•fl 011 1h,· RL·d .-\nu,· Fr;lkl11>11 h,n 1t was :111 t·~1rc·1111·h· S1Jphi.~11ra1t·il h1-let·h
320 1'O1.ITICS IN Tl-IE CLOB:\1.IS:\TION PERIOD

bombing that coulcl hal'c been done onh- hr prof"t·ss1011als.,\ semor oflinal 111the l:er111:1n
·.rn.•I Lkcemhl'r l!IH!I.
Foreign Office was al,n assassmatcil at this tune. Sec D,'l'Sjl111fd,11<1.
8. In 1!18:i I.laker had been US Treasury Secrctar\' 111ttlcr Ronald Reagan. The Baker Plan
was announcccl b,· I.laker al the .Seoul lf>IFcimli:n·nn: that \·car.
\I. Roht:n Clrntc. 'Banking on a Catastrophe: (;uiclclincs·May l-ldp l'rnent Fresh l)isasters
m Enwrgmi-: 1\farkctl. Fi1111111wl :! I October I !Hlli.
Ti1111·.r,
IO. Sec \\'ooclwarcl. /Ja/1:1111
'frugnly, for a p1011een11gacconnt of this n1llaps<·.
11. :\mhony Robinson, Fi111111n11/ Tim,·.<,11 lkt·c111h,·r l!l!Jli.
I:!. Ihicl.